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factors that could cause or contribute to these differences include , but are not limited to , those discussed below and elsewhere in this annual report on form 10-k particularly under “ risk factors ” and “ special note regarding forward-looking statements , ” which immediately follows “ risk factors. ” unless otherwise specified , references to notes to our consolidated financial statements are to the notes to our audited consolidated financial statements as of december 31 , 2013 and 2012 and for calendar year ended december 31 , 2013 , fiscal years ended november 30 , 2012 and 2011 and one month ended december 31 , 2012 . introduction and overview discover financial services is a direct banking and payment services company . through our discover bank subsidiary , we offer our customers credit card loans , private student loans , personal loans , home equity loans and deposit products . through our discover home loans , inc. subsidiary , we offer our customers home loans . through our dfs services llc subsidiary and its subsidiaries , we operate the discover network , the pulse network ( “ pulse ” ) and diners club international ( “ diners club ” ) . the discover network is a payment card transaction processing network for discover-branded credit cards and credit , debit and prepaid cards issued by third parties , which we refer to as network partners . pulse operates an electronic funds transfer network , providing financial institutions issuing debit cards on the pulse network with access to atms domestically and internationally , as well as point-of-sale terminals at retail locations throughout the u.s. for debit card transactions . diners club is a global payments network of licensees , which are generally financial institutions , that issue diners club branded credit cards and or provide card acceptance services . our primary revenues consist of interest income earned on loan receivables and fees earned from customers , merchants and issuers . the primary expenses required to operate our business include funding costs ( interest expense ) , loan loss provisions , customer rewards , and expenses incurred to grow , manage and service our loan receivables and networks . our business activities are funded primarily through consumer deposits , securitization of loan receivables and the issuance of unsecured debt . change in fiscal year on december 3 , 2012 , our board of directors approved a change in our fiscal year end from november 30 to december 31 of each year . this fiscal year change was effective january 1 , 2013. as a result of the change , we had a one month transition period in december 2012. the audited results for the one month ended december 31 , 2012 and the unaudited results for the one month ended december 31 , 2011 are included in this report . change in accounting principle related to off-balance sheet securitizations beginning with the first quarter of 2010 , we have included the trusts used in our securitization activities in our consolidated financial results in accordance with the financial accounting standards board ( `` fasb '' ) statement of financial accounting standards no . 166 , accounting for transfers of financial assets - an amendment of fasb statement no . 140 ( `` statement no . 166 '' ) ( codified under the fasb accounting standards codification ( `` asc '' ) topic 860 , transfers and servicing ) and statement of financial accounting standards no . 167 , amendments to fasb interpretations no . 46 ( r ) ( `` statement no . 167 '' ) ( codified under asc topic 810 , consolidation ) , which were effective for us on december 1 , 2009 , the beginning of our 2010 fiscal year . under statement no . 166 , the trusts used in our securitization transactions are no longer exempt from consolidation . statement no . 167 prescribes an ongoing assessment of our involvement in the activities of the trusts and our rights or obligations to receive benefits or absorb losses of the trusts that could be potentially significant in order to determine whether those entities will be required to be consolidated in our financial statements . based on our assessment , we concluded that we are the primary beneficiary of the discover card master trust i ( `` dcmt '' ) and the discover card execution note trust ( `` dcent '' ) ( the `` trusts '' ) and accordingly , we began consolidating the trusts on december 1 , 2009. using the carrying amounts of the trust assets and liabilities as prescribed by statement no . 167 , we recorded a $ 21.1 billion increase in total assets , a $ 22.4 billion increase in total liabilities and a $ 1.3 billion decrease in stockholders ' equity ( comprised of a $ 1.4 billion decrease in retained earnings offset by an increase of - 52 - $ 0.1 billion in accumulated other comprehensive income ) . the significant adjustments to our statement of financial condition upon adoption of statements no . 166 and 167 are outlined below : consolidation of $ 22.3 billion of securitized loan receivables and the related debt issued from the trusts to third-party investors ; reclassification of $ 4.6 billion of certificated retained interests classified as investment securities to loan receivables ; recording of a $ 2.1 billion allowance for loan losses , not previously required under gaap , for the newly consolidated and reclassified credit card loan receivables ; derecognition of the remaining $ 0.1 billion value of the interest-only strip receivable , net of tax , recorded in amounts due from asset securitization and reclassification of the remaining $ 1.6 billion of amounts due from asset securitization to restricted cash , loan receivables and other assets ; and recording of net deferred tax assets of $ 0.8 billion , largely related to establishing an allowance for loan losses on the newly consolidated and reclassified credit card loan receivables . story_separator_special_tag 167 0.02 non-gaap as-adjusted 2.94 % restructured loans ( a ) gaap $ 73 adjustments for statement no . 167 145 non-gaap as-adjusted $ 218 delinquency rate ( restructured loans ) gaap 0.31 % adjustments for statement no . 167 0.15 non-gaap as-adjusted 0.46 % - 56 - average balance sheet reconciliation ( dollars in millions ) for the fiscal year ended november 30 , 2009 total average loan receivables gaap $ 26,553 adjustments for statement no . 167 24,577 non-gaap as-adjusted $ 51,130 total loans interest yield gaap 11.31 % adjustments for statement no . 167 1.09 non-gaap as-adjusted 12.40 % total average credit card loan receivables gaap $ 24,267 adjustments for statement no . 167 24,577 non-gaap as-adjusted $ 48,844 credit card interest yield gaap 11.69 % adjustments for statement no . 167 0.94 non-gaap as-adjusted 12.63 % - 57 - 2013 highlights net income was $ 2.5 billion compared to $ 2.3 billion in the fiscal year ended november 30 , 2012. total loans grew $ 3.2 billion , or 5 % , from the prior year to $ 65.8 billion credit card loans grew $ 2.0 billion , or 4 % , to $ 53.2 billion in 2013. discover card sales volume increased 4 % from the fiscal year ended november 30 , 2012. credit card loan delinquencies over 30 days past due decreased 14 basis points compared to the fiscal year ended november 30 , 2012 to 1.72 % . the credit card net charge-offs rate declined 41 basis points to 2.21 % in comparison to the fiscal year ended november 30 , 2012. our capital market activities included issuances of approximately $ 4.7 billion in public credit card asset-backed securities . discover bank issued $ 1.7 billion in senior bank notes . payment services pretax income was down $ 101 million from the fiscal year ended november 30 , 2012 to $ 80 million . transaction dollar volume for the segment was $ 196.5 billion , a decrease of 1 % from the fiscal year ended november 30 , 2012. we repurchased approximately 27 million shares of common stock for $ 1.3 billion , reducing our number of shares outstanding by 5 % . 2012 and 2011 highlights we began offering residential mortgage loans through discover home loans following our june 2012 acquisition of substantially all of the operating and related assets of home loan center , a subsidiary of tree.com , inc. we repurchased 34 million shares , or approximately 6 % , of our outstanding common stock for $ 1.2 billion during the fiscal year ended november 30 , 2012. during the 2012 fiscal year , our capital market activities included issuances of approximately $ 5.4 billion in public credit card asset-backed securitizations and a $ 560 million preferred stock issuance . we also completed two private debt exchange offers involving an aggregate $ 822 million of outstanding debt . in september 2011 , we acquired approximately $ 2.4 billion of private student loans from citi . our revenues were unfavorably impacted in 2011 by the implementation of certain provisions of the credit card act of 2009 , which included limitations on our ability to reprice accounts , the elimination of overlimit fees and a reduction in the amount of standard late fees . outlook investments in marketing have contributed to our receivables growth and we are focused on continuing this trend with new account acquisitions , through the discover it® card , and through wallet share gains with existing customers . we are also targeting solid growth and strong returns in our private student and personal loan portfolios . the expansion of our direct banking products remains a priority as we continue to diversify the offerings to our customers , as evidenced by the launch of home equity loans and discover cashback checking in 2013. our credit outlook for 2014 remains relatively stable and net interest margin is expected to remain elevated . loan loss reserve releases contributed to our overall profitability in 2013 , but we do not expect to receive a similar benefit in 2014. funding costs are expected to remain at low levels over the next year as we benefit from the interest rate environment and replace higher-priced time deposits with lower-cost borrowings . our diners club business experienced challenges in 2013 due to financial difficulties faced by certain licensees in the european market and the impact on our financial results from providing support to these licensees . although we believe that we have put the most significant challenges behind us , we may provide additional support in the future , including loans , facilitating transfer of ownership , or acquiring assets or licensees , which may cause us to incur losses . pulse volumes were flat year-over-year due in part to the changing debit environment , including competitor actions related to merchant and acquirer pricing and transaction routing strategies . we plan to continue to respond to this intensely competitive environment by expanding our focus to target volume historically run across signature debit - 58 - networks . in the fourth quarter of 2013 , we received notice that certain contracts related to one third-party issuing relationship will be terminated , effective mid-2014 . this loss will have a significant impact on network partners volume and profits , but we do not anticipate it to be material to our overall profitability . while we expect that the payment services environment will remain challenging in 2014 , we continue to lay the groundwork to drive future volume and profits for the segment . regulatory environment and developments the 2010 dodd-frank wall street reform and consumer protection act ( the “ reform act ” ) contains comprehensive provisions governing the practices and oversight of financial institutions and other participants in the financial markets . the reform act regulates large systemically significant financial firms , including us , through a variety of measures , including increased capital and liquidity requirements , limits on leverage , and enhanced supervisory authority .
| results of operations the discussion below provides a summary of our results of operations for the calendar year ended december 31 , 2013 compared to our results of operations for the fiscal years ended november 30 , 2012 and 2011 . the discussion also provides information about our loan receivables as of december 31 , 2013 compared to december 31 , 2012 and november 30 , 2011 . in certain tables , quantitative information about our loan receivables as of november 30 , 2009 are also shown on a non-gaap as-adjusted basis . for a reconciliation of gaap to non-gaap as-adjusted financial data , see `` — reconciliations of gaap to non-gaap as-adjusted data . '' segments we manage our business activities in two segments : direct banking and payment services . in compiling the segment results that follow , our direct banking segment bears all overhead costs that are not specifically associated with a particular segment and all costs associated with discover network marketing , servicing and infrastructure , with the exception of an allocation of direct and incremental costs driven by our payment services segment . direct banking our direct banking segment includes discover-branded credit cards issued to individuals and small businesses and other consumer products and services , including private student loans , personal loans , home loans , home equity loans , prepaid cards and other consumer lending and deposit products . the majority of direct banking revenues relate to interest income earned on the segment 's loan products . additionally , our credit card products generate substantially all of our revenues related to discount and interchange , protection products and loan fee income . payment services our payment services segment includes pulse , an automated teller machine , debit and electronic funds transfer network ; diners club , a global payments network ; and our network partner business , which includes credit , debit and prepaid cards issued on the discover network by third parties .
| 4,400 |
according to the most current msha data , we have one of the lowest employee all injury incident rates among the largest u.s. coal producing companies . we currently operate solely in the prb , the lowest cost region of the major coal producing regions in the u.s. , where we own and operate three surface coal mines : the antelope mine , the cordero rojo mine , and the spring creek mine . our antelope mine and cordero rojo mine are located in wyoming and our spring creek mine is located in montana . our mines produce subbituminous thermal coal with low sulfur content , and we sell our coal primarily to domestic and foreign electric utilities . thermal coal is primarily consumed by electric utilities and industrial consumers as fuel for electricity generation . in 2018 , the coal we produced generated approximately 2 % of the electricity produced in the u.s. as of december 31 , 2018 , we controlled approximately 977.3 million tons of proven and probable reserves . we do not produce any metallurgical coal . see item 1 businessmining operations. in addition , we have two development projects , both located in the northern prb . the youngs creek project is an undeveloped surface mine project located in wyoming , seven miles south of our spring creek mine and contiguous with the wyoming-montana state line . the big metal project is located near the youngs creek project on the crow indian reservation in southeast montana . on june 7 , 2018 , big metal coal co. llc ( big metal ) , our wholly-owned subsidiary , delivered notice to the crow tribe of indians ( crow tribe ) to exercise the upper youngs creek coal lease option and extend the coal lease options for the squirrel creek and tanner creek project areas . these two projects , in addition to the exercise of the aforementioned options , are described in more detail under item 1 . businessdevel opment projects. any future development and coal production from these projects remains subject to significant risks and uncertainty . these development projects have been impaired . for additional information , see note 7 of notes to consolidated financial statements in item 8. our logistics business provides a variety of services designed to facilitate the sale and delivery of coal , primarily to asian utility customers . these services include the purchase of coal from third parties or from our owned and operated mines , coordination of the transportation and delivery of purchased coal , negotiation of take-or-pay rail agreements and take-or-pay port agreements and demurrage settlement with vessel operators . see item 1 business transportation and logistics services for further discussion . recent developments during the fourth quarter of 2018 and through the filing date of this form 10-k , we made a number of announcements regarding cloud peak energy 's engagement of various advisors to assist in reviewing alternatives including the potential sale of the company and to assist in reviewing our capital structure and strategic restructuring alternatives . during that time , we experienced a number of adverse events that have negatively impacted our financial results , liquidity and future prospects . our business and liquidity outlook has been adversely impacted since the third quarter of 2018 by a number of factors , which are highlighted in this recent developments section : · operational issues in the fourth quarter of 2018 at our antelope mine ; · depressed prb thermal coal industry conditions ; 62 · logistics export pricing declined in the fourth quarter of 2018 to an uneconomic level ; · reduced cash flow projections for 2019 and future years ; · termination of our credit agreement due to significantly reduced availability and the impact of the financial covenants ; · significantly reduced liquidity , primarily comprised of our cash and cash equivalents ; · reduced a/r securitization program availability , requiring greater cash collateralization ; · noncompliance with the nyse 's continued listing requirements and potential delisting of our common stock ; · demands for additional reclamation surety bond collateral ; · our election not to make an interest payment under the 2024 notes ( as defined below ) on the march 15 , 2019 due date , utilizing the grace period provided by the indenture ; and · our continued review of our capital structure and restructuring alternatives . as a result of the developments noted above , asset impairments were recorded as of december 31 , 2018 , and there was a determination of substantial doubt in our ability to continue as a going concern , based on current projections . this recent developments section highlights these events and should be read together with the rest of this form 10-k , including without limitation , item 7 management 's discussion and analysis of financial condition and results of operations , item 1a risk factors and item 8 financial statements and supplementary data. fourth quarter operational issues at antelope mine in the fourth quarter of 2018 , we experienced continued production issues at our antelope mine resulting from weather-related spoil failures due to heavy 2018 rains and related events . the rehandle of material by our truck and shovel fleets increased the per ton costs during the fourth quarter of 2018. this activity deferred the planned pre-stripping work into 2019 , thereby increasing the projected costs for 2019 to regain a proper mine sequence . for additional discussion and analysis about the adverse effects from these production issues at our antelope mine in the fourth quarter of 2018 , see current considerations . fourth quarter logistics pricing decline in the fourth quarter of 2018 , export prices for our logistics business declined significantly . from september 30 , 2018 to december 31 , 2018 , the kalimantan index declined by 14 percent from $ 53.25 per tonne to $ 46.00 per tonne . story_separator_special_tag subsequent to december 31 , 2018 , we received letters from certain of our third-party surety bond underwriters demanding increased collateral or replacement of their bonds . any further issuances of letters of credit to satisfy the increased collateral demands or any replacement bonds would immediately reduce the cash and cash equivalents available to support the operations of the business , as the current level of letters of credit exceeds the borrowing credit limit of our a/r securitization program . we are currently in discussions with our 64 surety bond underwriters , however we can not assure you these negotiations will be successful in avoiding increased collateral requirements . these surety bonds are required by the permits governing our mining operations . fourth quarter asset impairments as a result of the aforementioned changes experienced in the fourth quarter of 2018 and the outlook for the business going forward , we recorded asset impairments as of december 31 , 2018 with respect to ( 1 ) our cordero rojo mine and ( 2 ) our youngs creek and big metal development projects . our cordero rojo mine produces 8400 btu coal , and it is experiencing a strip ratio increase at a time of sustained low customer demand . as 2019 and future business plans and financial forecasts were updated and reviewed during the fourth quarter of 2018 and finalized during the first quarter of 2019 , a triggering event was identified which required impairment assessment for which the conclusion was that an impairment was determined to exist as of december 31 , 2018. the carrying net book value amount related primarily to land access and mineral rights , and was impaired by $ 372.4 million . the asset impairment charge does not alter the underlying land access and mineral rights . for additional information , see note 7 of notes to consolidated financial statements in item 8. in addition , we have two development projects , both located in the northern prb , the youngs creek and big metal projects . as 2019 and future business plans and financial forecasts were updated and reviewed during the fourth quarter of 2018 and finalized during the first quarter of 2019 , it became evident that , along with the lack of access to the capital markets , the business would not be able to generate the capital required to develop these projects . it was concluded that a triggering event existed , and the fair value was determined to be less than the carrying value , requiring the recognition of an impairment as of december 31 , 2018. the carrying net book value amount , which related primarily to land access and mineral rights , was reduced by $ 309.2 million . the asset impairment charge does not alter the underlying land access and mineral rights . an improved future outlook could provide the opportunity to reassess the potential development of these projects . for additional information , see note 7 of notes to consolidated financial statements in item 8. election not to make an interest payment under the 2024 notes as of december 31 , 2018 and march 11 , 2019 , cpe resources had $ 290.4 million in outstanding indebtedness under the 12.00 % second lien senior notes due 2021 ( the 2021 notes ) and $ 56.4 million in outstanding indebtedness under the 6.375 % senior notes due 2024 ( the 2024 notes , and collectively with the 2021 notes , the senior notes ) . cpe resources has an interest payment obligation under the 2024 notes of approximately $ 1.8 million , which is due on march 15 , 2019. the indenture governing the 2024 notes provides a 30-day grace period that extends the latest date for making this interest payment to april 14 , 2019 , before an event of default occurs under the indenture . although we have sufficient liquidity to make the interest payment , we elected not to make this interest payment on the due date and plan to utilize the 30-day grace period provided by the indenture , to allow additional time to assess our restructuring alternatives . if we do not make this interest payment by april 14 , 2019 , an event of default would occur under the indenture governing the 2024 notes , which would give the trustee or the holders of at least 25 % of principal amount of the 2024 notes the option to accelerate maturity of the principal , plus any accrued and unpaid interest , on the 2024 notes . an event of default under the 2024 notes for failure to pay interest would not result in a default under the 2021 notes unless the 2024 notes are accelerated . an event of default under the 2024 notes for failure to pay interest , at the end of the grace period , would result in a cross-default under our a/r securitization program and permit the lender to terminate the a/r securitization program . in the event of a default and acceleration , we do not have adequate liquidity to repay the principal balance . we continue to evaluate alternatives associated with this interest payment . cpe resources has an interest payment obligation under the 2021 notes of approximately $ 17.4 million , which is due on may 1 , 2019. the indenture governing the 2021 notes provides a 30-day grace period that extends the latest date for making this interest payment to may 31 , 2019 , before an event of default occurs under the indenture . if we do not make this interest payment by may 31 , 2019 , an event of default would occur under the indenture governing the 2021 notes , which would give the trustee or the holders of at least 25 % of principal amount of the 2021 notes the option to accelerate maturity of the principal , plus any accrued and unpaid interest , on the 2021 notes .
| summary the following table summarizes key results ( in millions ) : replace_table_token_8_th * not meaningful ( 1 ) ebitda and adjusted ebitda are intended to provide additional information only and do not have any standard meaning prescribed by u.s. gaap . a quantitative reconciliation of historical net income ( loss ) to adjusted ebitda is found in item 7 management 's discussion and analysis of financial condition and results of operationsnon-gaap financial measures. ( 2 ) includes a non-cash gain on the termination of our postretirement medical plan of $ 21.5 million for the year ended december 31 , 2018. excluding this noncash gain , adjusted ebitda would have been $ 45.8 million for the year ended december 31 , 2018. see note 19 of notes to consolidated financial statements in item 8 for a discussion regarding the termination of our postretirement medical plan effective january 1 , 2019 . 71 results of operations revenue the following table presents revenue ( in millions , except per ton amounts ) : replace_table_token_9_th * not meaningful owned and operated mines segment the following table shows volume and price related changes to coal revenue at our owned and operated mines ( in millions ) : replace_table_token_10_th coal revenue decreased approximately 14 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily due to fewer tons sold and lower realized prices . volumes decreased by approximately 13 % for the year ended december 31 , 2018 as a result of the operational issues experienced at our antelope mine as well as continued depressed demand for 8400 btu coal . realized prices decreased in 2018 as higher priced contracts from prior years expired and were replaced with lower-priced contracts consistent with the current pricing environment . other revenue decreased for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily due to business interruption insurance proceeds of $ 3.1
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we believe that our pharmacological chaperone and chart platform technologies , our advanced product pipeline , a strong balance sheet and our strategic collaboration with glaxosmithkline plc ( gsk ) uniquely position us at the forefront of developing therapies for rare and orphan diseases . we are developing our lead product candidate , migalastat hcl for fabry disease , in collaboration with gsk as a monotherapy and in combination with ert . current development within our fabry program includes two monotherapy phase 3 global registration studies for patients with genetic mutations identified as amenable to this pharmacological chaperone in a cell-based assay ( study 011 and study 012 ) , a recently completed phase 2 study investigating migalastat hcl co-administered with currently marketed erts ( study 013 ) , and the preclinical development of migalastat hcl co-formulated with a proprietary investigational ert . program status migalastat hcl for fabry disease as a monotherapy : phase 3 global registration program in study 011 , we are comparing migalastat hcl to placebo to potentially support the submission of a new drug application , or nda , to the u.s. food and drug administration ( fda ) for marketing approval in the united states as well as to other regulatory agencies . study 011 randomized 67 patients ( 24 males and 43 females ) diagnosed with fabry disease who had genetic mutations considered amenable to chaperone monotherapy in a cell-based assay . for the 6-month , double-blind period ( stage 1 ) patients were randomized to migalastat hcl 150 mg or placebo on an every-other-day ( qod ) oral dosing schedule . during the 6-12 month period of study 011 ( stage 2 ) patients continued treatment with migalastat hcl or switched from placebo to migalastat hcl . the primary analysis compared the number of responders in the migalastat hcl versus placebo groups in stage 1 , based on a 50 % or greater reduction in interstitial capillary globotriaosylceramide ( gl-3 ) as measured in kidney biopsies . pathologists blinded to biopsy sequence are using the published , quantitative barisoni lipid inclusion scoring system with virtual microscopy ( bliss-vm ) 2 for the histological evaluation of interstitial capillary gl-3 in kidney biopsies from baseline to month 6 stage 1 and from baseline to month 12 stage 2. secondary endpoints for study 011 include safety and tolerability , urine gl-3 and kidney function . in december 2012 , amicus and gsk announced top-line six-month stage 1 results from study 011. while encouraging , these results did not achieve statistical significance ( p=0.3 ) according to the pre-specified primary endpoint analysis . data from stage 2 are anticipated in the third quarter of 2013. a meeting with the fda is anticipated in mid-2013 to discuss a u.s. conditional approval pathway for migalastat hcl under subpart h. study 012 is a randomized , open-label 18-month study investigating the safety and efficacy of migalastat hcl ( 150 mg , every-other-day ) to current standard of care erts ( fabrazyme® and -59- replagal® ) to support global registration . in december 2012 , this study achieved full enrollment of 60 patients , who were randomized 1.5:1 to switch from ert to migalastat hcl or remain on ert . the study recruited males and females with fabry disease and genetic mutations shown to be amenable to migalastat hcl monotherapy in a cell-based assay . all subjects had been receiving ert infusions for a minimum of 12 months ( at least 3 months at the labeled dose ) . data is anticipated in the second half of 2014 on the primary outcome measure , which is renal function assessed by iohexol glomerular filtration rate ( gfr ) at 18 months . migalastat hcl combination programs for fabry disease study 013 is an open-label phase 2 drug-drug interaction study that evaluated the effects of a single oral dose of migalastat hcl ( 150 mg or 450 mg ) co-administered prior to the currently marketed erts for fabry disease ( fabrazyme® or replagal® ) in males with fabry disease . results from this study presented in february 2013 demonstrated an increase in a -gal a enzyme levels , the enzyme deficient in fabry patients , in plasma and in tissue following co-administration of migalastat hcl with ert versus ert alone . in addition to investigating migalastat hcl co-administered with ert , we are currently conducting preclinical formulation and ind-enabling studies of intravenous treatment of migalastat hcl co-formulated with jcr 's proprietary investigational recombinant human a -gal a enzyme ( jr-051 ) . we believe this chaperone-ert co-formulated product has the potential to enter the clinic in late 2013 or early 2014. at2220 chart programs for pompe disease we also continue to advance our pharmacological chaperone at2220 ( duvoglustat hcl ) co-administered with the only approved erts ( myozyme®/lumizyme® ) for pompe disease . we recently completed a phase 2 safety and pk study ( study 010 ) that investigated single ascending oral doses of at2220 ( 50 mg , 100 mg , 250 mg , and 600 mg ) co-administered with myozyme® or lumizyme® in patients with pompe disease . each patient received one infusion of ert alone , and then a single dose of at2220 just prior to the next ert infusion . results from this study showed an increase in gaa enzyme activity in plasma and muscle compared to ert alone . based on these results , we expect to initiate a repeat-dose clinical study of a novel intravenous formulation of at2220 ( at2220-iv ) co-administered with myozyme®/lumizyme® in the third quarter of 2013. in addition , working with our contract manufacturer laureate pharmaceuticals , we have initiated development of a co-formulated product which combines at2220 ( duvoglustat hcl ) with our own proprietary recombinant human ( rh ) gaa enzyme as a next-generation ert for pompe disease . we believe this approach has the potential to improve the properties of the rhgaa enzyme itself while incorporating at2220 as a small molecule stabilizer to increase exposure and tissue uptake , and reduce immunogenicity relative to currently marketed erts . story_separator_special_tag due to a change in the accounting for revenue recognition for the expanded collaboration agreement , all revenue recognition will be suspended until the total arrangement consideration becomes fixed and determinable . starting on july 17 , 2012 , any payments received from gsk are recorded as deferred reimbursements on the balance sheet . in addition , future milestone payments we may pay gsk will be applied against the balance of this deferred reimbursements account . revenue recognition would resume once the total arrangement consideration becomes fixed and determinable which would occur when the balance of the deferred reimbursements account is sufficient to cover all the remaining contingent milestone payments due to gsk . as a result , we no longer recognize any revenue related to collaboration and milestone revenue or research revenue as of the date of the expanded collaboration agreement . there is no cash effect of this change in accounting , and there is no scenario where amicus would have to refund any of the upfront payment , milestone payments , or research reimbursement payments . research and development expenses we expect to continue to incur substantial research and development expenses as we continue to develop our product candidates and explore new uses for our pharmacological chaperone technology . however , we will share future research and development costs related to migalastat hcl with gsk in accordance with the expanded collaboration agreement . research and development expense consists of : internal costs associated with our research and clinical development activities ; payments we make to third party contract research organizations , contract manufacturers , investigative sites , and consultants ; technology license costs ; manufacturing development costs ; personnel related expenses , including salaries , benefits , travel , and related costs for the personnel involved in drug discovery and development ; activities relating to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials ; and facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . -62- we have multiple research and development projects ongoing at any one time . we utilize our internal resources , employees and infrastructure across multiple projects . we record and maintain information regarding external , out-of-pocket research and development expenses on a project specific basis . we expense research and development costs as incurred , including payments made to date under our license agreements . we believe that significant investment in product development is a competitive necessity and plan to continue these investments in order to realize the potential of our product candidates . from our inception in february 2002 through december 31 , 2012 , we have incurred research and development expense in the aggregate of $ 315.9 million . the following table summarizes our principal product development projects through december 31 , 2012 , including the related stages of development for each project , and the out-of-pocket , third party expenses incurred with respect to each project ( in thousands ) : replace_table_token_6_th ( 1 ) other project costs are leveraged across multiple projects . -63- ( 2 ) other costs include facility , supply , overhead , and licensing costs that support multiple projects . * we do not plan to advance our afegostat tartrate monotherapy program into phase 3 development at this time . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates . as a result , we are not able to reasonably estimate the period , if any , in which material net cash inflows may commence from our product candidates , including migalastat hcl or any of our other preclinical product candidates . this uncertainty is due to the numerous risks and uncertainties associated with the conduct , duration and cost of clinical trials , which vary significantly over the life of a project as a result of evolving events during clinical development , including : the number of clinical sites included in the trials ; the length of time required to enroll suitable patients ; the number of patients that ultimately participate in the trials ; the results of our clinical trials ; and any mandate by the fda or other regulatory authority to conduct clinical trials beyond those currently anticipated . our expenditures are subject to additional uncertainties , including the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending and enforcing any patent claims or other intellectual property rights . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay or modify clinical trials of some product candidates or focus on others . in addition , gsk has considerable influence over and decision-making authority related to our migalastat hcl program . a change in the outcome of any of the foregoing variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development , regulatory approval and commercialization of that product candidate . for example , if the fda or other regulatory authorities were to require us to conduct clinical trials beyond those which we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . drug development may take several years and millions of dollars in development costs . general and administrative expense general and administrative expense consists primarily of salaries and other related costs , including stock-based compensation expense , for persons serving in our executive , finance , accounting , legal , information technology and human resource functions .
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 revenue . for the years ended december 31 , 2012 and 2011 , we recognized $ 6.8 million and $ 6.6 million , respectively , as collaboration and milestone revenue which includes a $ 3.5 million payment for a clinical development milestone in 2012. the reimbursements for research and development costs under the original license and collaboration agreement that met the criteria for revenue recognition were recognized as research revenue . for the years ended december 31 , 2012 and 2011 , we recognized $ 11.6 million and $ 14.8 million , respectively , as research revenue . -68- under the original license and collaboration agreement , gsk paid us an initial , non-refundable license fee of $ 30 million and a premium of $ 3.2 million related to gsk 's purchase of an equity investment in amicus which was being recognized as collaboration and milestone revenue on a straight-line basis over the development period until entry into the expanded collaboration agreement . due to a change in the accounting for revenue recognition for the expanded collaboration agreement , all revenue recognition related to the collaboration will be suspended until the total arrangement consideration becomes fixed and determinable . any payments received from gsk will be recorded as deferred reimbursements on the balance sheet . in addition , future milestone payments we may pay gsk will be applied against the balance of this deferred reimbursements account . revenue recognition would resume once the total arrangement consideration becomes fixed and determinable which would occur when the balance of the deferred reimbursements account is sufficient to cover all the remaining contingent milestone payments . as a result , we no longer recognize any revenue related to collaboration and milestone revenue or research revenue as of the date of the expanded collaboration agreement .
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our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those discussed in the section titled “ risk factors ” included under part i , item 1a and elsewhere in this annual report on this form 10-k. see “ special note regarding forward-looking statements. ” this section of this annual report on form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this annual report on form 10-k can be found in “ 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 , 2019. references to the `` company , '' `` prosight , '' `` we , '' `` us , '' and `` our '' are to prosight global , inc. and its consolidated subsidiaries unless the context otherwise requires . references to “ insurance subsidiaries ” are to new york marine and general insurance company ( “ new york marine ” ) , gotham insurance company ( “ gotham ” ) and southwest marine and general insurance company ( “ southwest marine ” ) unless the context otherwise requires . special note regarding forward-looking statements this management 's discussion and analysis of financial condition and results of operations includes certain forward-looking statements that are subject to risks , uncertainties and other factors described in “ risk factors ” in this annual report . our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors . forward-looking statements include statements relating to future developments in our business or expectations for our future financial performance and any statement not involving a historical fact . forward-looking statements use words such as “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” “ should , ” “ seek , ” and other words and terms of similar meaning . forward-looking statements in this annual report include , but are not limited to , statements about : ● our strategies to continue our growth trajectory , expand our distribution network and maintain underwriting profitability ; ● the impact of coronavirus disease 2019 ( “ covid-19 ” ) and related economic conditions and governmental actions , including the company 's assessment of the vulnerability of certain categories of investments to the economic disruptions associated with covid-19 ; ● future growth in existing niches or by entering into new niches ; ● our loss expectations and expectation to decrease our loss ratio ; ● our expectations with respect to the ultimate financial obligations to the buyers of our united kingdom ( “ u.k. ” ) operations ; and ● statements we make relating to the proposed merger . forward-looking statements are subject to known and unknown risks and uncertainties , many of which may be beyond our control . we caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes may differ materially from those made in or suggested by the forward-looking 60 statements contained in this annual report . in addition , even if our results of operations , financial condition and cash flows , and the development of the market in which we operate , are consistent with the forward-looking statements contained in this annual report , those results or developments may not be indicative of results or developments in subsequent periods . new factors emerge from time to time that may cause our business not to develop as we expect , and it is not possible for us to predict all of them . factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include : ● risks relating to our ability to obtain regulatory approvals of the proposed merger , including the timing , terms and conditions of any such approvals , which could affect our ability to complete the proposed merger ; ● the occurrence of any event , change or other circumstances that could give rise to the termination of the merger agreement , including a termination of the merger agreement under circumstances that could require us to pay a termination fee ; ● the risk that the parties to the proposed merger may not be able to satisfy the conditions of the proposed merger in a timely manner or at all ; ● risks related to disruption of management time from ongoing business operations due to the proposed merger ; ● risk that the proposed merger could have an adverse effect on our ability to retain and hire key personnel and maintain relationships with our customers , agents or business counterparties , and on our operating results and businesses generally ; ● the outcome of any potential legal proceedings that may be instituted against us ; ● the performance of and our relationship with third-party agents and vendors we rely upon to distribute certain business on our behalf ; ● the adequacy of our loss reserves , including as a result of changes in the legal , regulatory , and economic environments in which the company operates or the impacts of covid-19 ; ● the direct and indirect impacts of covid-19 and related risks such as governmental responses and economic contraction , including on the company 's investments and business operations , its distribution or other key partners and its customers ; ● the effects of uncertain emerging claim and coverage issues on the company 's business , and court decisions or legislative or regulatory changes that take place after the company issues its policies , including those taken in response to covid-19 ( such as effectively expanding workers ' compensation coverage by instituting presumptions of compensability of claims for certain types of workers or requiring insurers to cover business interruption claims irrespective of story_separator_special_tag on august 15 , 2019 the principal stockholders completed the sale of 1,178,570 shares of the company 's common stock at a price of $ 14.00 per share less the underwriting discount pursuant to the underwriters ' exercise of their over-allotment option granted in connection with the ipo . the company did not receive any of the proceeds from the sale of the shares of common stock of the company sold by the principal stockholders in this offering . following this offering , the gs investors held approximately 39.5 % of the company 's outstanding common stock and the tpg investors held approximately 38.0 % of the company 's outstanding common stock . the offer and sale of all shares sold in the ipo , including those sold in connection with the underwriters ' exercise of their over-allotment option , were registered pursuant to a registration statement filed on form s-1 , which the securities and exchange commission ( “ sec ” ) declared effective on july 24 , 2019. after deducting underwriting discounts and commissions and estimated offering expenses ( including expenses related to the offering pursuant to the underwriters ' exercise of their overallotment option ) , the net proceeds to the company from the ipo were approximately $ 50.8 million . our business we currently write insurance coverage in eight customer segments across a broad range of specialty lines of business . our customer segments currently include : media and entertainment , real estate , professional services , transportation , construction , consumer services , marine and energy and sports . within each customer segment , we have multiple niches which represent similar groups of customers . for a description of niches served in each of these customer segments , see “ business — our customer segments and niches. ” we believe having deep expertise in these niches across our organization is critical and therefore , we have aligned various functional areas at the niche level , including underwriting , operations and claims . we focus on small- and medium-sized customers , a market segment which we believe has been , and will continue to be , less affected by intense competitive dynamics of the broader property and casualty insurance industry . over time , the composition of business within our customer segments evolves as we identify certain niches that present opportunities to develop distinct customer solutions with attractive profit potential and others that were at one time attractive but may become less so . the tables below set forth the gross written premiums ( “ gwp ” ) , gross written commission ratios , and gross loss and allocated loss adjustment expense ( “ alae ” ) ratios by customer segment for the years ended december 31 , 2020 , 2019 , and 2018. we have one reportable segment , specialty insurance . “ other ” includes gwp from : ( i ) primary and excess workers ' compensation coverage for exited self-insured groups ; ( ii ) niches exited prior to 2018 , many with a concentration in commercial auto ; ( iii ) participation in industry pools ; and ( iv ) emerging new business . 63 gwp replace_table_token_8_th gross written commission ratio replace_table_token_9_th gross loss and alae ratio , excluding unallocated loss adjustment expense ( “ ulae ” ) ratio replace_table_token_10_th 64 components of our results of operations gross written and earned premiums gwp are the amounts received or to be received for insurance policies written by us during a specific period of time without reduction for policy acquisition costs , reinsurance costs or other deductions . the volume of our gwp in any given period is generally influenced by : ● expansion or retraction of business within existing niches ; ● entrance into new customer segments or niches ; ● exit from customer segments or niches ; ● average size and premium rate of newly issued and renewed policies ; and ● the amount of policy endorsements , audit premiums , and cancellations . we earn insurance premiums on a pro rata basis over the term of the policy . our insurance policies generally have a term of one year . net earned premiums represent the earned portion of our gwp , less that portion of our gwp that is earned and ceded to third-party reinsurers under our reinsurance agreements . ceded written and earned premiums ceded written premiums are the amount of gwp ceded to reinsurers . we actively use ceded reinsurance across our book of business to reduce our overall risk position and to protect our capital . ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered and the underlying policies . the volume of our ceded written premiums is impacted by the level of our gwp and any decision we make to increase or decrease retention levels . net investment income we earn investment income on our portfolio of cash and invested assets . our cash and invested assets are primarily comprised of debt securities , and may also include cash and cash equivalents , short-term investments , and alternative investments . the principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio . as measured by amortized cost ( which excludes changes in fair value , such as changes in interest rates and credit spreads ) , the size of our investment portfolio is mainly a function of our invested equity capital along with premiums we receive from our insureds less payments on policyholder claims and operating expenses . realized investment gains and losses realized investment gains and losses are a function of the difference between the amount received by us on the sale of a security and the security 's amortized cost , as well as any change in current expected credit loss allowance for available-for-sale fixed maturity securities recognized in earnings .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 replace_table_token_12_th ( 1 ) underwriting ( loss ) income , adjusted operating income and adjusted operating return on equity are non-gaap financial measures . see “ reconciliation of non-gaap financial measures ” for reconciliations of net income in accordance with gaap to underwriting ( loss ) income and adjusted operating income . ( 2 ) loss and lae ratio – excluding catastrophe and adjusted loss and lae ratio – excluding catastrophe is adjusted to exclude the impact of reinsurance reinstatement premiums related to catastrophe losses incurred during the period from net earned premium . ( 3 ) adjusted loss and lae ratio , adjusted expense ratio and adjusted combined ratio are non-gaap financial measures . we define adjusted loss and lae ratio , adjusted expense ratio and adjusted combined ratio as the corresponding ratio excluding the effects of the waqs . for additional detail on the impact of the waqs on our results of operations see “ factors affecting our results of operations—the waqs . net income from continuing operations net income from continuing operations was $ 27.8 million for the year ended december 31 , 2020 compared to $ 45.5 million for the year ended december 31 , 2019 , a decrease of $ 17.7 million , or 39.0 % . the decrease in net income from continuing operations is driven by a reduction in net earned premium due to the contraction of gross written premium and reduced insured exposures resulting from the economic downturn caused by the covid-19 pandemic , combined with a higher net loss ratio due to catastrophe losses in the third quarter . 69 premiums gwp were $ 817.1 million for the year ended december 31 , 2020 compared to $ 968.0 million for the year ended december 31 , 2019 , a decrease of $ 150.9 million , or 15.6 % .
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; ' > incoming orders decreased 8.7 % for the full year and decreased 4.3 % for the fourth quarter of 2020 compared to the same periods in 2019. incoming orders were down across most markets the company serves driven primarily by the covid-19 pandemic and a slowdown in the oil and gas industry . however , incoming orders for the fourth quarter of 2020 increased 16.0 % compared to the third quarter of 2020. on january 28 , 2021 , the board of directors authorized the payment of a quarterly dividend of $ 0.155 per share , representing the 284th consecutive quarterly dividend to be paid by the company . during 2020 , the company again paid increased dividends and thereby attained its 48th consecutive year of increased dividends . these consecutive years of increases continue to position gorman-rupp in the top 50 of all u.s. public companies with respect to number of years of increased dividend payments . the regular dividend yield at december 31 , 2020 was 1.9 % . the company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends . however , any future dividends will be reviewed individually and declared by our board of directors at its discretion , dependent on our assessment of the company 's financial condition and business outlook at the applicable time . outlook despite the unprecedented global challenges of covid-19 , we ended 2020 in strong financial condition and well positioned for the future . while the ongoing impact of the global pandemic on the economy remains uncertain , we are prepared for the eventual recovery . we have continued to focus on our long-term strategic initiatives across our diverse markets , built on our strong inventory position while also maintaining our highly skilled workforce . we begin 2021 with an increase in backlog from the same time last year , however we expect sales during the first half of the year to continue to be challenging due to the worldwide pandemic . during this time we will continue to manage our sg & a expenses , while at the same time remaining focused on initiatives that will contribute to our long term growth . our balance sheet , cash position and ongoing positive cash flow allow us to continue to look for the right opportunities that will supplement our growth for new and existing products and markets . our outlook for the longer term remains very positive . 16 results of operations – 2020 compared to 201 9 : net sales year ended december 31 , 2020 2019 $ change % change net sales $ 348,967 $ 398,179 $ ( 49,212 ) ( 12.4 ) % net sales for 2020 were $ 349.0 million compared to $ 398.2 million for 2019 , a decrease of 12.4 % or $ 49.2 million . domestic sales decreased 10.3 % or $ 28.4 million while international sales decreased 17.0 % or $ 20.8 million compared to 2019. sales have decreased across most of our markets primarily as a result of the covid-19 pandemic , along with a slowdown in the oil and gas industry . sales in our water markets decreased 9.4 % or $ 25.9 million in 2020 compared to 2019. sales in the agriculture market increased $ 1.5 million . this increase was offset by decreases in the construction market of $ 11.3 million driven primarily by softness in oil and gas drilling activity . decreases in the repair market of $ 5.6 million , municipal market of $ 5.3 million , and fire protection market of $ 5.2 million were a result of the covid-19 pandemic . sales in our non-water markets decreased 18.9 % or $ 23.3 million in 2020 compared to 2019 primarily as a result of the covid-19 pandemic , along with reduced demand from midstream and downstream oil and gas customers and softness in oil and gas drilling activity . sales in the oem market decreased $ 8.3 million , sales in the industrial market decreased $ 7.8 million and sales in the petroleum market decreased $ 7.2 million . international sales were $ 102.1 million in 2020 compared to $ 122.9 million in 2019 and represented 29 % and 31 % of total sales for the company , respectively . international sales decreased most notably in the fire protection and all non-water markets . cost of products sold and gross profit replace_table_token_8_th gross profit was $ 89.6 million for 2020 , resulting in gross margin of 25.7 % , compared to gross profit of $ 102.7 million and gross margin of 25.8 % for 2019. gross margin decreased 10 basis points largely due to an unfavorable lifo impact of 60 basis points compared to 2019 and decreased 120 basis points from the loss of leverage on fixed labor and overhead attributable to lower sales volume . largely offsetting these items were lower material costs of 170 basis points compared to 2019 . 17 selling , general and administrative ( sg & a ) expenses replace_table_token_9_th sg & a expenses were $ 53.8 million and 15.4 % of net sales for 2020 compared to $ 58.8 million and 14.8 % of net sales for 2019. sg & a expenses decreased 8.6 % or $ 5.0 million due to reduced payroll related and travel expenses combined with overall expense management . sg & a expenses as a percentage of sales increased 60 basis points primarily as a result of loss of leverage from lower sales volume . operating income replace_table_token_10_th operating income was $ 35.8 million for 2020 , resulting in an operating margin of 10.2 % , compared to operating income of $ 43.8 million and operating margin of 11.0 % for 2019. operating margin decreased 80 basis points primarily as a result of loss of leverage from lower sales volume . story_separator_special_tag earnings per share for 2018 included an unfavorable lifo impact of $ 0.12 per share , non-cash pension settlement charges of $ 0.08 per share and a special cash bonus paid to all employees with an impact of $ 0.04 per share . l iquidity and sources of capital cash and cash equivalents totaled $ 108.2 million and there was no outstanding bank debt at december 31 , 2020. in addition , at december 31 , 2020 , the company had $ 24.5 million of borrowing capacity available in bank lines of credit after deducting $ 6.5 million in outstanding letters of credit primarily related to customer orders . the company was in compliance with its debt covenants , including limits on additional borrowings and maintenance of certain operating and financial ratios , at all times in 2020 and 2019 . 20 capital expenditures for 2021 , which are expected to consist principally of machinery and equipment purchases and building improvements , are estimated to be in the range of $ 15 - $ 20 million and are expected to be financed through internally generated funds . during 2020 , 2019 and 2018 , the company financed its capital improvements and working capital requirements principally through internally generated funds . we expect to continue to generate cash in excess of our operating needs . we believe we have adequate funds on hand and sufficient borrowing capacity to execute our financial and operating strategy . the company expects to contribute up to $ 2.0 million to its defined benefit pension plan in 2021. free cash flow , a non-gaap measure for reporting cash flow , is defined by the company as adjusted earnings before interest , income taxes and depreciation and amortization , less capital expenditures and dividends . the company believes free cash flow provides investors with an important perspective on cash available for investments , acquisitions and working capital requirements . the following table reconciles adjusted earnings before interest , income taxes and depreciation and amortization as reconciled above to free cash flow : replace_table_token_16_th financial cash flow replace_table_token_17_th the change in cash provided by operating activities in 2020 compared to 2019 was primarily due to lower income in 2020 compared to 2019 driven by decreased sales . cash outflows increased due to a reduction in accounts payable primarily from reduced sg & a spend , increased inventory to prepare for customer demand , and increased pension contributions . these cash outflows were offset by cash inflows from reduced accounts receivable driven by decreased sales and a higher deferred tax provision . the change in cash provided by operating activities in 2019 compared to 2018 was primarily due to lower inventories driven by a planned inventory reduction and a decrease in accounts receivable driven by lower sales volume . in addition , prepaid income taxes decreased and the company did not make any pension contributions in 2019. these positive effects on cash flow were offset by a decrease in commissions payable driven by lower sales volume . 21 during 2020 , investing activities of $ 7.7 million primarily consisted of $ 8.0 million of capital expenditures for buildings , machinery and equipment . during 2019 , investing activities of $ 10.8 million primarily consisted of $ 10.9 million of capital expenditures for buildings , machinery and equipment . during 2018 , investing activities of $ 7.5 million primarily consisted of a $ 3.0 million decrease in short-term investments and $ 10.9 million of capital expenditures for machinery and equipment offset by $ 0.5 million of proceeds from the sale of property , plant and equipment . during 2020 , financing activities of $ 16.1 million consisted of dividend payments of $ 15.4 million . during 2019 , financing activities of $ 17.4 million consisted of dividend payments of $ 14.4 million and a privately-arranged market value purchase of company shares in the amount of $ 2.5 million from a rupp family estate . net cash used for financing activities consisted of dividend payments of $ 65.6 million during 2018 , including $ 52.2 million related to a special dividend . the company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends . however , any future dividends will be reviewed individually and declared by our board of directors at its discretion , dependent on our assessment of the company 's financial condition and business outlook at the applicable time . contractual obligations capital commitments in the table below include contractual commitments to purchase machinery and equipment that have been approved by the board of directors . the capital commitments do not represent the entire anticipated purchases in the future , but represent only those substantive items for which the company is contractually obligated as of december 31 , 2020. also , the company has operating leases and two financing leases for certain offices , manufacturing facilities , land , office equipment and automobiles . rental expenses relating to these leases were $ 0.9 million in 2020 and $ 1.0 million in both 2019 and 2018. the following table summarizes the company 's contractual obligations at december 31 , 2020 : replace_table_token_18_th critical accounting policies the accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states . when more than one accounting principle , or the method of its application , is generally accepted , management selects the principle or method that is appropriate in the company 's specific circumstances . application of these accounting principles requires management to make estimates about the future resolution of existing uncertainties ; as a result , actual results could differ from these estimates . in preparing these consolidated financial statements , management has made its best estimates and judgments of the amounts and disclosures included in the consolidated financial statements , giving due regard to materiality .
| executive overview the following discussion of results of operations includes certain non-gaap financial data and measures such as adjusted earnings before interest , taxes , depreciation and amortization and adjusted earnings per share amounts which exclude non-cash pension settlement charges in 2020 and 2018. management utilizes these adjusted financial data and measures to assess comparative operations against those of prior periods without the distortion of non-comparable factors . the gorman-rupp company believes that these non-gaap financial data and measures also will be useful to investors in assessing the strength of the company 's underlying operations from period to period . provided below is a reconciliation of adjusted earnings per share amounts and adjusted earnings before interest , taxes , depreciation and amortization . replace_table_token_7_th the gorman-rupp company ( “ we ” , “ our ” , “ gorman-rupp ” or the “ company ” ) is a leading designer , manufacturer and international marketer of pumps and pump systems for use in diverse water , wastewater , construction , dewatering , industrial , petroleum , original equipment , agriculture , fire protection , heating , ventilating and air conditioning ( hvac ) , military and other liquid-handling applications . the company attributes its success to long-term product quality , applications and performance combined with timely delivery and service , and continually seeks to develop initiatives to improve performance in these key areas . gorman-rupp actively pursues growth opportunities through organic growth , international business expansion and acquisitions . we regularly invest in training for our employees , in new product development and in modern manufacturing equipment , technology and facilities all designed to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers . we believe that the diversity of our markets is a major contributor to the generally stable financial growth we have produced for more than 85 years . the company places a strong emphasis on cash flow generation and maintaining excellent liquidity and financial flexibility .
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mr. odaka received his bachelor of science degree in finance from fresno state college , fresno , california . 42 david wang . mr. wang has been serving as the co-ceo of hacknowledge , llc since 2018. hacknowledge is a cybersecurity company that offers a managed detection and response ( mdr ) solution . mr. wang is responsible for day-to-day operations of the company with a current focus on business development , marketing and sales . mr. wang served as a managing member of reef capital management , llc from late 2013 to 2017. he was responsible for managing a fund that was created to generate long-term cash flow to investors by investing primarily in drilling and development of oil projects . prior to joining reef capital management , from 2010 , mr. wang was a consultant to high tech companies . he assisted a cloud computing company expand its coverage outside of asia and assisted a cell phone manufacture explore a joint venture with a manufacturer in brazil to build low cost smart phones and tablets utilizing various government tax incentives . mr. wang earned a bs in computer science/mathematics from the university of california , los angeles ( ucla ) in 1985. he earned an mba degree with an emphasis in financial and entrepreneurial studies from the anderson school at ucla in 2000. mr. wang is not currently , nor has he in the past five years been , a nominee or director of any other sec registrant . in concluding that mr. wang was an appropriate candidate to serve on the company 's board of directors , the board considered his education background , his experience in entrepreneurial business enterprises and his favorable history of attracting venture capital funds through his established contacts in the investment banking community . stacy hadley . mrs. hadley has over 20 years of accounting and audit experience . she has been employed with now cfo , a provider of outsourced accounting and financial solutions , since september 2015. mrs. hadley is currently a partner at now cfo . she is currently responsible for consulting services in salt lake city area overseeing projects and serving as controller/cfo for various companies . from november 2014 to september 2015 , mrs. hadley was employed by harman international as a compliance and financial consultant where , among other things , she oversaw compliance reporting of four business units and divisional shared services , worked with finance directors to implement and document internal control testing , and documented procedures to ensure adherence with company policies and internal controls . from december 2012 to november 2014 , mrs. hadley served as the controller for dalbo holdings where she was responsible for general ledger accounting , analyzing and reconciling accounts and records for service lines , verifying revenues , expenses and other accounting functions . mrs. hadley received licensure as a certified public accountant in july 2014. mrs. hadley received a bachelor 's of science degree in accounting and a master 's degree in accounting from weber state university , utah in 2010 and 2012 , respectively . during the past five years mrs. hadley has not served , and she does not currently serve , as a director of any other sec registrant or any registered investment company . the board of directors considered mrs. hadley 's years of accounting and auditing experience both with accounting firms , and in-house with a number of different employers , as well as her educational background and her cpa licensure in concluding that she is qualified to serve on the company 's board of directors . günter soraperra . mr. soraperra has served as the chief executive officer of traunkristall design since 2000. traunkristall specializes in the design , production , and sale of high-end hand-made crystal products and has business activities in more than 25 countries . among other things , mr. soraperra is responsible for setting strategy and direction , allocation of capital , and overseeing sales and marketing at traunkristall . mr. soraperra received a master of business administration degree from the university of graz , austria in 1990. over the past fifteen years mr. soraperra has also served as a senior vice president of a private swiss investment group responsible for coordinating international activities , financing and mergers and acquisitions . he has also served on the advisory boards of various international companies . in the past five years mr. soraperra has not served , and he does not currently serve , as a director of any other sec registrant or any registered investment company . story_separator_special_tag the following is a discussion of our consolidated financial condition and results of operations for the years ended december 31 , 2019 and 2018 , and other factors that are expected to affect our prospective financial condition . the following discussion and analysis should be read together with our consolidated financial statements and related notes beginning on page 27 of this annual report on form 10-k. some of the statements set forth in this section are forward-looking statements relating to our future results of operations , financial condition , liquidity and capital resources . our actual results , financial condition , liquidity and capital resources may vary from the results anticipated by these statements . we disclaim any obligation to update or revise any forward-looking statements based on the occurrence of future events , the receipt of new information , or otherwise . actual future results may differ materially from those expressed in the forward-looking statement made by the company or its management as a rest of several risks , uncertainties and assumptions . story_separator_special_tag by comparison , during the 2018 period , we reduced the required allowance of bad debt which resulted in recording a credit to the provision for bad debt of $ 31,707 as a result of a customer paying overdue invoices during the 2018 period that we had considered . consulting fees during the year ended december 31 , 2019 , consulting fees decreased $ 85,295 , from $ 353,622 in 2018 to $ 268,403 in 2019. this 24 % decrease was mainly the result of terminating a consultant who was assisting us with capital funding for acquisitions partially offset by hiring a consultant to assist with our insurance acquisition search . salaries and wages during the twelve months ended december 31 , 2019 , salaries and wages increased by 26 % . this increase was primarily the result of hiring a new director in medex healthcare in the second quarter of 2018 and increases in salaries and wages for existing staff to retain and stay competitive in the labor market . professional fees for the year ended december 31 , 2019 , we incurred professional fees of $ 353,394 compared to $ 347,704 during the same period in 2018. the 2 % increase was primarily the result of an increase in accounting and other fees partially offset by a decrease in medical case management professional and legal fees . insurance during 2019 , we incurred insurance expenses of $ 328,663 , an increase of $ 44,819 when compared to 2018 primarily due to an increase in net group health insurance expense . we expect insurance fees to increase in august 2020 , when our current group health insurance plan is up for renewal . 21 outsource service fees outsource service fees consist of costs incurred by our subsidiaries in outsourcing utilization review , medical bill review , medical case management services , and medicare set-aside and typically tends to increase and decrease in correspondence with increases and decreases in demand for those services . we incurred $ 481,695 and $ 512,760 in outsource service fees during the twelve-month periods ended december 2019 and 2018 , respectively . the decrease of $ 31,065 was primarily the result of increasing the number of internal field case management assignments and fewer referrals sent out for medicare set-aside . we anticipate our outsource service fees will continue to move in correspondence with the level of utilization review , medical bill review , certain medical case management services and medicare set-aside services we provide in the future . data maintenance during the year ended december 31 , 2019 and 2018 , we incurred data maintenance fees of $ 192,059 and $ 176,771 , respectively . the increase of $ 15,288 was primarily the result of an increase in the number of employee notifications associated with hco customers during the twelve-month period ended december 31 , 2019. general and administrative general and administrative expenses increased approximately 11 % to $ 816,761 during the twelve months ended december 31 , 2019 , when compared to 2018. the increase in general and administrative expense was primarily attributable to increases in charitable contributions , auto expense , bank charges , dues and subscriptions , it enhancement , licenses and permits , office supplies , parking , postage and delivery , rent expense for equipment , rent expense , vacation and miscellaneous expenses partially offset by decreases in advertising , education , employment agency fees , equipment/repairs , printing and reproduction , tax penalty , reference material , shareholders ' expenses , travel and entertainment expenses . income from operations the 15 % increase in total expenses during fiscal 2019 more than offset the 8 % increase in total revenues , resulting in an 11 % decrease in income from operations during the fiscal year ended december 31 , 2019 , when compared to 2018. income tax provision during the year ended december 31 , 2019 we realized income from operations of $ 1,680,135 compared to $ 1,889,407 , during the year ended december 31 , 2018. this 11 % decrease in income from operations resulted in a corresponding 9 % decrease in our provision for income taxes , as we reduced our income tax provision from $ 529,630 during the year ended december 31 , 2018 to $ 482,075 during the year ended december 31 , 2019 , of $ 209,272 or 11 % in our income tax provision . net income during the year ended december 31 , 2019 , total revenues of $ 7,330,940 increased by $ 534,027 when compared to the same period 2018. this increase in total revenues was offset by increases in total expenses of $ 743,299 , resulting in income from operations of $ 1,680,135 , compared to income from operations of $ 1,889,407 during 2018. these changes coupled with changes in our income tax provision resulted in net income of $ 1,198,060 in 2019 , compared to net income of $ 1,359,777 during 2018. liquidity and capital resources we realized net loss and an increase in cash during fiscal 2019. as of december 31 , 2019 , we had cash on hand of $ 8,104,164 compared to $ 7,072,507 at december 31 , 2018. the $ 1,031,657 increase in cash on hand was primarily the result of net cash provided by our operating activities partially offset by cash used in investing activities . net cash provided by our operating activities was the result of realizing net income coupled with increases in bad debt provision , accrued expenses , deferred rent expense , unearned revenue and decreases in receivable other , prepaid expense and deferred tax asset partially offset by increases in accounts receivable and prepaid income tax and decreases in accounts payable and credit card payable .
| summary of fiscal 2019 during the year ended december 31 , 2019 , total revenues increased 8 % . revenue from hco , medical bill review and medical case management increased 1 % , 3 % and 23 % , respectively . offsetting those increases , revenue from mpn and other fees decreased 2 % and 23 % , respectively . revenue from utilization review was flat . the increases in revenue during fiscal 2019 came primarily from two significant customers . these increases were partially offset by decreased revenue from several customers . during fiscal 2019 , operating expenses increased by 15 % , primarily as a result of increases in depreciation , bad debt provision , salaries and wages , professional fees , insurance , data maintenance and general and administration expenses . these increases were partially offset primarily by lower consulting fees and outsource service fees . as a result , our income from operations was $ 1,680,135 during fiscal 2019 , compared to $ 1,889,407 in fiscal 2018. our provision for income tax expense decreased 11 % during fiscal 2019 , from $ 529,630 in 2018 to $ 482,075 in 2019 due to a decrease in income from operations . our net income decreased 12 % to $ 1,198,060. basic and fully diluted earnings per share during fiscal 2019 was $ 0.09 and $ 0.09 , respectively compared to $ 0.11 and $ 0.11 , respectively during fiscal 2018. comparison of the fiscal years ended december 31 , 2019 and 2018 results of operations the following represents selected components of our consolidated results of operations , for the years ended december 31 , 2019 and 2018 , respectively , together with changes from year-to-year : replace_table_token_2_th 19 revenue hco during the years ended december 31 , 2019 and 2018 , hco revenue was $ 1,724,276 and $ 1,702,777 , respectively , a 1 % increase .
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as part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . our audit included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or story_separator_special_tag overview of the business our business focuses on development and operation of online dating and mobile gaming products either developed and operated by us , or developed by us but co-operated by third parties ; or developed by third parties but co-operated by us . our self-developed and self-operated online dating products little love ( “ 小恋爱 ” ) and hotchat ( “ 热聊 ” ) , which are no longer in operations since november 2019 , are mobile applications geared towards chinese singles designed to increase a user 's likelihood of finding a romantic connection . our mission is to help individuals forge life-long relationships with others that share their interests and values . through these mobile applications , our users can search for and communicate with other like-minded individuals . our product creates a virtual community where users can meet , chat and message . we operate location-based social networks for meeting new people on mobile platforms , including on iphone , android , ipad and other tablets that facilitate interactions among users and encourage users to connect and chat with each other . our online dating mobile platforms monetize through advertising , in-app purchases , and paid subscriptions . the company offers online marketing capabilities , which enable marketers to display their advertisements in different formats and in different locations . in the near future , we plan to offer sophisticated data science for highly effective hyper-targeting . the company is actively seeking the opportunities to works with its advertisers to maximize the effectiveness of their campaigns by optimizing advertisement formats and placements . we temporarily suspend our paid advertisements for little love to adjust our marketing strategy of little love from april 2018. based on the market responses , the company started to suspend the operation of the little love and hotchat in november 20 19 . after july 2020 , the company completely ceased the operations of the little love and hotchat . as china mobile game market continues to grow at rapid pace , our management team believe it is the right time to leverage our expertise in gaming app development to tap into this hot market . we have been actively developing co-operation relationship with other developers and operators since march 2018. there are two games that we are currently co-operating with their developers : magician hero ( “ 魔纹游戏 ” ) and shu mountain fantasy ( “ 蜀山奇缘 ” ) of which we are responsible for marketing , co-operating and maintenance on the platforms and channels introduced by us . magician hero features non-stop-3d real action and battles based on greek mythology . shu mountain fantasy is a role-playing game of xian xia theme based on the period of the fairy magic war , so that users can witness the fall of the fairy tales . however , based on the market responses , we suspended the operations of the co-operations with other developers or operators in july 2020. on april 20 , 2017 , cx network entered into a series of vie agreements with shenzhen chuangxiang network technology limited , or shenzhen cx , and its stockholders , in which cx network effectively assumed management of the business activities of shenzhen cx and has the right to appoint all executives and senior management and the members of the board of directors of shenzhen cx . shenzhen cx is a chinese limited liability company and was formed under laws of the people 's republic of china on august 14 , 2015. shenzhen cx engages in the business of developing and operating membership-based social network , dating and mobile gaming , and interactive live broadcast platforms . the company is currently devoting its efforts to develop mobile applications and online platforms servicing the asia market . 15 for more information of the vie agreements , please refer to the “ corporate structure ” section above . pursuant to the share exchange agreement signed on march 20 , 2018 , cxkj acquired 100 % of the issued and outstanding securities of cx cayman in exchange for 5,350,000 shares of common stock , par value $ 0.0001 per share of cxkj . as a result of the share exchange , the business of cx cayman becomes our business . as such , the following results of operations are focused on the operations of cx cayman and exclude the operations of the company prior to the share exchange . upon the consummation of the share exchange , we engage in the business of developing and operating membership-based social network , dating and mobile gaming , and interactive live broadcast platforms . we are currently devoting our efforts to develop mobile applications and online platforms servicing the asia market . conversion of debenture and issuance on april 25 , 2018 , pursuant to a securities purchase agreement ( the “ debenture purchase agreement ” ) entered into on april 19 , 2017 , in which the company agrees to issue and sell in a private placement to a non-u.s. person ( the “ purchaser ” ) a series a convertible debenture in an aggregate principal amount of $ 150,000 ( the “ debenture ” ) with an 8 % annual interest convertible into shares of common stock , par value $ .0001 per share ( the “ conversion share ( s ) ” ) at price of $ 0.15 per share to the purchaser , the purchaser converted the debenture with 8 % annual interest into 1,080,000 conversion shares . story_separator_special_tag name change , domicile change and reverse split on july 11 , 2017 , mlgt merged with and into cxkj ( the “ merger ” ) , with cxkj as the surviving corporation that operates under the name “ cx network group , inc. ” ( the “ name change ” ) , pursuant to an agreement and plan of merger ( the “ merger agreement ” ) dated july 3 , 2017. pursuant to the merger agreement , immediately after the effective time of the merger , the company 's corporate existence is governed by the laws of the state of nevada and the articles of incorporation and bylaws of cxkj ( the “ domicile change ” ) , and each outstanding share of mlgt 's common stock , par value $ 0.0001 per share was converted into 0.0667 outstanding share of common stock of cxkj , par value $ 0.0001 per share at a one-for-fifteen reverse split ratio . the name change , merger and reverse split was approved by the financial industry regulatory authority ( “ finra ” ) on july 11 , 2017 and such corporation actions took effect at the open of business on july 12 , 2017. immediately prior to the effectiveness of the reverse split , we had 217,300,000 shares of common stock of mlgt issued and outstanding . immediately upon the effectiveness of the reverse stock split , we have 14,486,670 shares of common stock of cxkj issued and outstanding . on august 11 , 2017 , the company was notified by finra department of market operations ( the “ department ” ) that they did not process the reverse split because they believed that the documentation provided by the company did not support the company 's request to process a reverse split . in the same letter , the department notified the company that they processed the company 's request of the merger , the mechanism the company used to consummate the corporate actions mentioned above . also in that letter , the department mentioned that it announced the reverse split on july 11 , 2017 but subsequently revised the announcement on july 28 , 2017. on august 14 , 2017 , the company received a notice from the department that they did not process the symbol change because “ there is currently no symbol assigned to the company. ” on august 16 , 2017 , the company appealed the decisions made by the department as mentioned herein above in connection with reverse stock split , name change and domicile change ( for more information about the corporate actions , refer to the current report on form 8-k the company filed on july 12 , 2017 ) . on october 3 , 2017 , a subcommittee of finra 's uniform practice code committee decided to remand the case to the department for further review . subsequently , the department granted the company 's application for a symbol change . on november 3 , 2017 , the trading symbol for the company was changed to “ cxkj ” , effective immediately . the new cusip number is 12672t 108 . 17 financial operations overview results of operations for the years ended september 30 , 2020 and 2019 replace_table_token_3_th revenues for the year ended september 30 , 2020 , we had total revenues of $ nil as compared to $ 83,851 for the year ended september 30 , 2019. based on the market responses , the company started to suspend the operation of the little love and hotchat in november 2019. after july 2020 , the company completely ceased the operations of the little love and hotchat . hence , no revenue was recorded during the current year . cost of revenues for the years ended september 30 , 2020 and 2019 , cost of revenues amounted to $ nil and $ 12,877 , respectively . the company started to suspend the operation of the little love and hotchat in november 2019. after july 2020 , the company completely ceased the operations of the little love and hotchat . hence , no cost of revenue was recorded during the current year . gross profit for the years ended september 30 , 2020 and 2019 , gross profit amounted to $ nil and $ 70,974 , respectively . the decrease of gross profit during the year ended september 30 , 2020 compared to the year of 2019 was primarily attributable to the reason mentioned above , story_separator_special_tag serif ; margin : 0pt 0 ; text-align : justify '' > 19 critical accounting policies and estimates going concern in assessing the company 's liquidity , the company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure commitments . the company 's liquidity needs are to meet its working capital requirements , operating expenses and capital expenditure obligations . as of september 30 , 2020 , the company 's current liabilities exceeded the current assets with $ 857,591 , its accumulated deficit was $ 2,567,413 and the company has incurred losses since inception . besides based on the market responses , the company started to suspend the operation of the little love and hotchat in november 2019. after july 2020 , the company completely ceased the operations of the little love and hotchat . none of the company 's stockholders , officers or directors , or third parties , are under any obligation to advance us funds , or to invest in the company . accordingly , the company may not be able to obtain additional financing . if the company is unable to raise additional capital , the company may be required to take additional measures to conserve liquidity , which could include , but not necessarily be limited to , curtailing operations , suspending the pursuit of our business plan , and reducing overhead expenses . in the coming years , the company plans to develop e-commerce business in the app of little love to increase revenues to meet its future cash flow requirements .
| general and administrative expenses for the years ended september 30 , 2020 and 2019 , general and administrative expenses amounted to $ 255,152 and $ 333,373 , respectively . the decrease of general and administrative expenses in the amount of $ 78,221 or 23 % was primarily attributable to the covid-19 pandemic surfaced in china has significantly affected the company 's operation from january 2020 and the company temporarily suspended all of its operation from april 2020. research and development expenses for the years ended september 30 , 2020 and 2019 , research and development expenses amounted to $ 14,631 and $ 16,604 , respectively . the decrease of research and development expenses in the amount of $ 1,973 or 12 % during the year ended september 30 , 2020 was primarily attributable to suspended operations from april 2020. other income for the year ended september 30 , 2020 , total other income was $ 3,805 as compared to other income of $ 72,258 for the year ended september 30 , 2019. the decrease in other income is primarily because there was no more subsidy from government during the current year . 18 net loss for the years ended september 30 , 2020 and 2019 , net loss amounted to $ 265,978 and $ 206,745 , respectively . the increase of net loss in the amounts of $ 59,233 or 29 % for the year ended september 30 , 2020 was a result of the factors described above . foreign currency translation adjustment the functional currency of our shenzhen cx , guangzhou cx and dongguan cx operating in the prc is the chinese yuan or renminbi ( “ rmb ” ) . the financial statements of entities in china are translated to u.s. dollars using period end rates of exchange for assets and liabilities , and average rates of exchange ( for the period ) for revenues , costs , and expenses . net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations .
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earnings per share basic net income per share is based upon the weighted average number of common shares outstanding during the period story_separator_special_tag the following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included in this annual report on form 10-k. background we are a biopharmaceutical company dedicated to the identification , development and commercialization of novel therapies that restore neurological function and improve the lives of people with neurological disorders . we market three fda-approved therapies , including ampyra ( dalfampridine ) extended release tablets , 10 mg , a treatment to improve walking in patients with multiple sclerosis , or ms , as demonstrated by an increase in walking speed . we have one of the leading pipelines in the industry of novel neurological therapies . we are currently developing a number of clinical and preclinical stage therapies . this pipeline addresses a range of disorders , including chronic post-stroke walking deficits ( pswd ) , parkinson 's disease , epilepsy , heart failure , ms , and spinal cord injury . in october 2014 , we acquired civitas therapeutics , inc. , a biopharmaceutical company which is developing cvt-301 , a phase 3 treatment candidate for off episodes of parkinson 's disease . ampyra general ampyra was approved by the fda in january 2010 for the improvement of walking in people with ms. to our knowledge , ampyra is the first and only product approved for this indication . efficacy was shown in people with all four major types of ms ( relapsing remitting , secondary progressive , progressive relapsing and primary progressive ) . ampyra was made commercially available in the united states in march 2010. net revenue for ampyra was $ 366.2 million for the year ended december 31 , 2014 and $ 302.6 million for the year ended december 31 , 2013. since the march 2010 launch of ampyra , more than 100,000 people with ms in the u.s. have tried ampyra . we believe that ampyra is now viewed as the standard of care in ms for people who have walking difficulties . as of december 2014 , approximately 70 % of all people with ms who were prescribed ampyra received a first refill , and approximately 40 % of all people with ms who were prescribed ampyra have been dispensed at least six months of the medicine through refills , consistent with previously reported trends . these refill rates exclude patients who started ampyra through our first step trial program . our first step program provides eligible patients with two months of ampyra at no cost . more than 65 % of new ampyra patients currently enroll in first step . the program is in its fourth year , and data show that first step participants have 84 higher compliance and persistency rates over time compared to non-first step pati ents . approximately 50 % of patients who initiate ampyra therapy with the first step free trial program convert to paid prescriptions . ampyra is marketed in the united states through our own specialty sales force and commercial infrastructure . we currently have approximately 90 sales representatives in the field calling on a priority target list of approximately 7,000 physicians . we also have established teams of medical science liaisons , regional reimbursement directors , managed markets account directors who provide information and assistance to payers and physicians on ampyra , national trade account managers who work with wholesalers and our limited network of specialty pharmacies , and market development managers who work collaboratively with field teams and corporate personnel to assist in the execution of the company 's strategic initiatives . ampyra is distributed in the united states exclusively through a limited network of specialty pharmacy providers that deliver the medication to patients by mail ; kaiser permanente , which distributes ampyra to patients through a closed network of on-site pharmacies ; and asd specialty healthcare , inc. ( an amerisourcebergen affiliate ) , which distributes ampyra to the u.s. bureau of prisons , the u.s. department of defense , the u.s. department of veterans affairs , or va , and other federal agencies . all of these customers are contractually obligated to hold no more than an agreed number of days of inventory , ranging from between 10 to 30 days . we have contracted with a third party organization with extensive experience in coordinating patient benefits to run ampyra patient support services , or apss , a dedicated resource that coordinates the prescription process among healthcare providers , people with ms , and insurance carriers . processing of most incoming requests for prescriptions by apss begins within 24 hours of receipt . patients will experience a range of times to receive their first shipment based on the processing time for insurance requirements . as with any prescription product , patients who are members of benefit plans that have restrictive prior authorizations may experience delays in receiving their prescription . two of the largest national health plans in the u.s. – united healthcare and cigna – have listed ampyra in the lowest competitive reimbursement tier , which means that it is listed in either the lowest branded copay tier or the lowest branded specialty tier ( if more than one specialty tier exists ) of their commercial preferred drug list or formulary . approximately 75 % of insured individuals in the u.s. continue to have no or limited prior authorizations , or pa 's , for ampyra . we define limited pas as those that require only an ms diagnosis , documentation of no contraindications , and or simple documentation that the patient has a walking impairment ; such documentation may include a timed 25-foot walk ( t25w ) test . the access figure is calculated based on the number of pharmacy lives reported by health plans . story_separator_special_tag 8,354,437 with claims relating to , among other things , use of a sustained release aminopyridine 86 composition , such as dalfampridine , to increase walking speed . in march 2012 , synthon b.v. and neuraxpharm arzneimittel gmbh filed oppositions with the epo challenging the ep 1732548 patent . we defended the patent , and in december 2013 , we announced that the epo opposition division upheld amended claims in this patent covering a sustained release formulation of dalfampridine for increasing walking in patients with ms through twice daily dosing at 10 mg. both synthon b.v. and neuraxpharm arzneimittel gmbh have appealed the decision . in december 2013 , synthon b.v. , neuraxpharm arzneimittel gmbh and actavis group ptc ehf filed oppositions with the epo challenging our ep 2377536 patent , which is a divisional of the ep 1732548 patent . both european patents are set to expire in 2025 , absent any additional exclusivity granted based on regulatory review timelines . civitas acquisition ; cvt-301 and arcus technology on october 22 , 2014 , we completed the acquisition of civitas therapeutics , inc. , a delaware corporation . as a result of the acquisition , we acquired global rights to cvt-301 , a phase 3 treatment candidate for off episodes of parkinson 's disease , which is further described below . our acquisition of civitas also included rights to civitas 's proprietary arcus pulmonary delivery technology , which we believe has potential applications in multiple disease areas , and a subleased manufacturing facility in chelsea , massachusetts with commercial-scale capabilities . the approximately 90,000 square foot facility also includes office and laboratory space . approximately 45 civitas employees based at the chelsea facility have joined the acorda workforce in connection with the acquisition . the civitas acquisition was completed under an agreement and plan of merger , dated as of september 24 , 2014 , by and among acorda , five a acquisition corporation , a delaware corporation and our wholly-owned subsidiary , civitas and shareholder representative services llc , a colorado limited liability company , solely in its capacity as the securityholders ' representative . pursuant to the terms of the merger agreement , five a acquisition corporation has merged with and into civitas , which is the surviving corporation in the merger and which is continuing as a wholly-owned subsidiary of acorda under the civitas name . pursuant to the terms of the merger agreement , all outstanding shares of civitas common stock and civitas preferred stock , options to purchase shares of civitas common stock and warrants to purchase shares of civitas preferred stock , other than shares of civitas common stock and civitas preferred stock held by civitas ( which were cancelled as a result of the merger ) were converted into the right to receive $ 525.0 million in cash in the aggregate , without interest , less ( i ) $ 5.3 million due and payable under civitas ' existing secured loan facility , consisting of $ 5.0 million in principal and $ 0.3 million in prepayment fees , ( ii ) $ 30.0 million due and payable to alkermes , inc. in connection with the exercise by civitas of its option to purchase manufacturing facility equipment from alkermes and ( iii ) a portion of civitas ' transaction expenses . also pursuant to the merger agreement , upon consummation of the merger , $ 39.375 million of the aggregate consideration was deposited into escrow to secure the indemnification obligations of civitas and civitas 's securityholders , and an additional $ 0.5 million of the aggregate consideration was deposited with srs for reimbursements payable to srs under the terms of the merger agreement . we financed the transaction with cash on hand . zanaflex zanaflex capsules and zanaflex tablets are fda-approved as short-acting drugs for the management of spasticity , a symptom of many central nervous system disorders , including ms and spinal cord injury . these products contain tizanidine hydrochloride , one of the two leading drugs used to treat spasticity . we launched zanaflex capsules in april 2005 as part of our strategy to build a commercial platform for the potential market launch of ampyra . combined net revenue of zanaflex capsules and zanaflex tablets was $ 1.5 million for the year ended december 31 , 2014 and $ 4.1 million for the year ended december 31 , 2013. in 2012 , apotex commercially launched a generic version of tizanidine hydrochloride capsules , and we also launched our own authorized generic version , which is being marketed by watson pharma ( a subsidiary of actavis ) . in march 2013 , mylan pharmaceuticals commercially launched their own generic version of zanaflex capsules . the commercial launch of generic tizanidine hydrochloride capsules has caused a significant decline in net revenue from the sale of 87 zanaflex capsules , and the launch of these generic versions and the potential launch of other generic versions is expected to cause the company 's net revenue from zanaflex capsules to decline further in 2015 and beyond . qutenza qutenza is a dermal patch containing 8 % prescription strength capsaicin the effects of which can last up to three months and is approved by the fda for the management of neuropathic pain associated with post-herpetic neuralgia , also known as post-shingles pain . we acquired commercialization rights to qutenza in july 2013 from neurogesx , inc. these rights include the united states , canada , latin america and certain other territories . qutenza was approved by the fda in 2010 and launched in april 2010 but neurogesx discontinued active promotion of the product in march 2012. in january 2014 , we re-launched qutenza in the united states using our existing commercial organization , including our specialty neurology sales force as well as our medical and safety reporting infrastructure .
| results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 net revenue ampyra we recognize product sales of ampyra following shipment of product to our network of specialty pharmacy providers , kaiser permanente and asd specialty healthcare , inc. we recognized net revenue from the sale of ampyra to these customers of $ 366.2 million and $ 302.6 million for the years ended december 31 , 2014 and 2013 , respectively . this net revenue reflected a 10.75 % increase in our sale price for ampyra effective january 2 , 2014. the net revenue increase was comprised of net volume increases of $ 31.7 million and price increases and discount and allowance adjustments of $ 31.9 million . net revenue from sales of ampyra increased for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 due to our price increase and greater demand we believe due to , in part , the success of certain marketing programs such as our first step and step together programs . as with a number of specialty pharmaceuticals , first quarter sales for ampyra typically have been lower than the preceding fourth quarter sales due to inventory build in fourth quarter , and the temporary effects of people changing insurance plans and entering the medicare donut hole at the beginning of the year . we expect a similar trend in 2015. effective january 1 , 2015 , we increased our sale price to our customers by 10.95 % . discounts and allowances which are included as an offset in net revenue consist of allowances for customer credits , including estimated chargebacks , rebates , discounts , and returns . discounts and allowances are recorded following shipment of ampyra tablets to our network of specialty pharmacy providers , kaiser permanente and asd specialty healthcare , inc. adjustments are recorded for estimated chargebacks , rebates , and discounts .
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the series a preferred stock was convertible , at the option of celgene , at any time , into common stock at an initial per common share conversion price of $ 11.00 ( 1 share of preferred converts into .45 shares of common ) . the story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report . see also “ risk factors ” in item 1a of this annual report . overview we are a clinical-stage pharmaceutical company employing a drug development strategy that leverages resources in both north america and in china to develop therapeutics for the treatment of cancer and other diseases . we are currently conducting activities in both china and north america in order to accelerate delivery of clinical data and to reduce costs of clinical trials . our lead drug candidate is enmd-2076 , a selective aurora a and angiogenic kinase inhibitor for the treatment of cancer , which we will continue to develop under the fda . in parallel , we will include enmd-2076 in clinical sites in china as an import drug as well as develop enmd-2076 in china locally under the cfda . our market focus includes developed countries , and also in particular , china , which has a pharmaceutical products market that we believe will continue to grow rapidly . through partnerships , collaborations , and strategic acquisitions , we intend to add additional drug candidates to our pipeline for development using our us and china strategy . we intend to employ a market-oriented approach to identify pharmaceutical candidates that we believe have the potential for gaining widespread market acceptance , either globally or in china , and for which development can be accelerated under our us and china drug development strategy . enmd-2076 is an orally-active , aurora a/angiogenic kinase inhibitor with a unique kinase selectivity profile and multiple mechanisms of action . enmd-2076 exerts its effects through multiple mechanisms of action , including anti-proliferative activity and the inhibition of angiogenesis . enmd-2076 has been shown to inhibit a distinct profile of angiogenic tyrosine kinase targets in addition to the aurora a kinase . aurora kinases are key regulators of mitosis ( cell division ) , and are often over-expressed in human cancers . enmd-2076 also targets the vegfr , flt-3 , and fgfr3 kinases which have been shown to play important roles in the pathology of several cancers . enmd-2076 has demonstrated significant , dose-dependent preclinical activity as a single agent , including tumor regression , in multiple xenograft models ( e.g . breast , colon , leukemia ) , as well as activity towards ex vivo-treated human leukemia patient cells . enmd-2076 also has shown promising activity in phase 1 clinical trials in solid tumor cancers including ovarian , breast , liver , renal and sarcoma , as well as in leukemia and multiple myeloma . entremed is completing a phase 2 trial of enmd-2076 in ovarian cancer . in addition , entremed is currently conducting a dual-institutional phase 2 study of enmd-2076 in triple-negative breast cancer , a phase 2 study in advanced/metastatic soft tissue sarcoma , and a phase 2 study in advanced ovarian clear cell carcinoma . clinical phase 1 results were published ( clin cancer res 2011 ; 17:849-860 ) and data from the leukemia and myeloma studies were presented during the american society of hematology meeting in december 2010. anti-cancer activity was demonstrated with enmd-2076 treatment in a variety of solid and hematological cancer patients . also , as previously reported , at the american society of clinical oncology ( asco ) annual meeting in june 2011 , phase 2 data in ovarian cancer patients was presented by the principal investigator conducting the phase 2 enmd-2076 study . the data demonstrated enmd-2076 activity in a population of difficult to treat platinum resistant patients . in october 2011 , we announced that the final data for the primary endpoint of progression free survival rate at 6 months was 22 percent . phase 2 data in ovarian cancer were also published in the european journal of cancer in september 2012 in an article entitled “ enmd-2076 , an oral inhibitor of angiogenic and proliferation kinases , has activity in recurrent , platinum resistant ovarian cancer. ” we believe that the data , together with the phase 1 results , provide support for additional clinical studies in ovarian cancer and other forms of cancer . we continue to monitor patients who are receiving enmd-2076 , and are focused on collecting additional data on overall survival and other endpoints . 22 in july 2012 , we commenced a dual-institutional phase 2 study of enmd-2076 in triple-negative breast cancer . the study is being conducted at the university of colorado cancer center , with a second sited added in december 2012 at indiana university melvin & bren simon cancer center . in november 2012 , results of a preclinical study in triple-negative breast cancer ( tnbc ) of enmd-2076 were published in the article , entitled “ predictive biomarkers of sensitivity to the aurora and angiogenic kinase inhibitor enmd-2076 in preclinical breast cancer models. ” through this study , enmd-2076 shows activity against preclinical models of breast cancer with more robust activity against tnbc . the study also supports further clinical investigation of enmd-2076 in patients with metastatic tnbc with an emphasis on the continued development of p53-based predictive biomarkers . it provides strong support for the rational of our ongoing phase 2 tnbc trial . in december 2012 , to advance our global development strategy , we filed a new drug clinical trial application with the cfda to conduct global clinical trials in triple-negative breast cancer patients using our proprietary drug candidate , enmd-2076 . the cfda has accepted our application package and we are working with the cfda to move the process forward towards approval . story_separator_special_tag on january 20 , 2012 , we entered into a convertible note and warrant purchase agreement ( the “ purchase agreement ” ) with certain accredited investors ( the “ 2012 investors ” ) , pursuant to which we issued and sold to the 2012 investors , in a private placement , subordinated mandatorily convertible promissory notes ( collectively , the “ notes ” ) with an aggregate principal amount of $ 10 million ( the “ 2012 financing ” ) . we also issued warrants ( the “ 2012 warrants ” ) to the investors to purchase an aggregate of 1,739,132 shares of the company 's common stock . the 2012 warrants cover a number of shares of common stock equal to 20 % of the principal amount of the notes purchased by each investor , divided by $ 1.15. the 2012 warrants have an exercise price of $ 1.40 per share and were exercisable beginning on july 29 , 2012 and expire on july 29 , 2017. the 2012 financing was completed on february 2 , 2012. we received net proceeds of approximately $ 9.3 million . we received approval of the 2012 financing from the company 's stockholders at the 2012 annual stockholders meeting held on april 30 , 2012. on may 1 , 2012 , the notes , including accrued interest of $ 144,658 , automatically and immediately converted into 8,821,431 shares of common stock and the 2012 warrants became exercisable on july 29 , 2012. the notes bore an interest rate of 6 % and converted at a conversion price of $ 1.15 per share . the conversion price reflected the 10-day average closing sale price of our common stock ended on january 20 , 2012. additional funds raised by issuing equity securities may result in dilution to existing shareholders . 24 critical accounting policies and the use of estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . actual results could differ materially from those estimates . our critical accounting policies , including the items in our financial statements requiring significant estimates and judgments , are as follows : - revenue recognition - we recognize revenue in accordance with the provisions of authoritative guidance issued , whereby revenue is not recognized until it is realized or realizable and earned . revenue is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price to the buyer is fixed and determinable and collectibility is reasonably assured . royalty revenue royalties from licenses are based on third-party sales and recorded as earned in accordance with contract terms , when third-party results are reliably measured and collectibility is reasonably assured . our 2012 revenues were from royalties on the sale of thalomid ® . in 2004 , certain provisions of a purchase agreement , dated june 14 , 2001 , by and between bioventure investments kft ( “ bioventure ” ) and the company were satisfied and , as a result , beginning in 2005 we became entitled to share in the royalty payments received by royalty pharma finance trust , successor to bioventure , on annual thalomid ® sales above a certain threshold . based on the licensing agreement royalty formula , annual royalty sharing commences when net royalties received by royalty pharma exceeds $ 15,375,000. we did not meet the threshold to earn any revenue from royalties on the sale of thalomid ® in 2013 and do not expect to meet the threshold in any subsequent year . - we are also eligible to receive royalties from oxford biomedica , plc based on a portion of the net sales of products developed for the treatment of ophthalmic ( eye ) diseases based in part on the endostatin gene . we did not receive any payment from oxford biomedica , plc in 2012 or 2013. we do not expect to receive payments from oxford biomedica , plc in 2014 . - royalty payments , if any , are recorded as revenue when received and or when collectibility is reasonably assured . - research and development - research and development expenses consist primarily of compensation and other expenses related to research and development personnel , research collaborations , costs associated with preclinical testing and clinical trials of our product candidates , including the costs of manufacturing drug substance and drug product , regulatory maintenance costs , and facilities expenses . research and development costs are expensed as incurred . - expenses for clinical trials expenses for clinical trials are incurred from planning through patient enrollment to reporting of the data . we estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management . costs that are associated with patient enrollment are recognized as each patient in the clinical trial completes the enrollment process . 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 . costs that are based on clinical data collection and management are recognized in the reporting period in which services are provided . in the event of early termination of a clinical trial , we accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial . 25 - stock-based compensation all share-based payment transactions are recognized in the financial statements at their fair values . compensation expense associated with service , performance , market condition based stock options and other equity-based compensation is recorded in accordance with provisions of authoritative guidance .
| results of operations years ended december 31 , 2013 and 2012. revenues . there was no revenue recorded in 2013. revenues were $ 669,000 in 2012. our revenues for 2012 reflect royalty revenues received from the sales of thalomid ® . the lack of revenue for 2013 was consistent with our expectations and results from decreased royalty revenue earned on sales of thalomid ® in the united states . annual sales of thalomid ® in 2013 decreased to a level below the threshold amount to trigger a royalty payment to the company . as a result we did not earn any royalty revenue in 2013 and do not expect to earn any in any subsequent year . beginning in 2005 , we became entitled to share in the royalty payments received by royalty pharma finance trust on annual thalomid ® sales when royalty pharma finance trust receives more than $ 15,375,000 in royalties . thalomid ® sales in 2012 surpassed the annual revenue targets and we recorded royalty revenues of $ 669,000. research and development expenses . our 2013 research and development expenses totaled $ 2,749,000 as compared to $ 2,375,000 in 2012 , a 16 % increase . in 2013 , our research and development expenses reflect direct project costs for enmd-2076 of $ 1,452,000 and $ 64,000 for 2me2 . the 2012 amount reflects direct project costs for enmd-2076 of $ 1,312,000 and $ 190,000 for 2me2 . the increase in 2013 research and development spending reflects increased costs associated with the clinical development of enmd-2076 in the u.s. and china during 2013 , as well as an increase in non-cash stock-based compensation expense , offset by lower patent costs and the absence of severance related costs in 2013. at december 31 , 2013 , accumulated direct project expenses for 2me2 were $ 58,087,000 and , since acquired , accumulated direct project expenses for enmd-2076 totaled $ 23,440,000.
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in addition , after the end of year five and each succeeding year we can buy the land for a preset price per square meter value and the building for actual cost less depreciation . below are the minimum future lease payments under both capital leases together with the present value of the net minimum lease payments as of december 31 , 2011 : replace_table_token_29_th 8 ) employee benefit plans we have defined contribution 401 ( k ) profit sharing plans covering substantially story_separator_special_tag the following discussion should be read in conjunction with , and is qualified in its entirety by , the consolidated financial statements and the notes thereto and selected financial data included elsewhere in this form 10-k. historical operating results and percentage relationships among any amounts included in the consolidated financial statements are not necessarily indicative of trends in operating results for any future period . risk factors see item 1a . risk factors for a discussion of risk factors that could materially impact our actual results . 17 overview and management focus our strategy and management focus is based upon the following long-term objectives : growth from taking over the in-house ( captive ) production of components from our global customers by providing a competitive and attractive outsourcing alternative organic and acquisitive growth of our precision metal components platform global expansion of our manufacturing base to better address the global requirements of our customers management generally focuses on these trends and relevant market indicators : global industrial growth and economics global automotive production rates costs subject to the global inflationary environment , including , but not limited to : raw material wages and benefits , including health care costs regulatory compliance energy raw material availability trends related to the geographic migration of competitive manufacturing regulatory environment for united states public companies currency and exchange rate movements and trends interest rate levels and expectations management generally focuses on the following key indicators of operating performance : sales growth cost of products sold selling , general and administrative expense net income ( loss ) cash flow from operations and capital spending customer service reliability external and internal quality indicators employee development 18 critical accounting policies our significant accounting policies , including the assumptions and judgment underlying them , are disclosed in note 1 of the notes to consolidated financial statements . these policies have been consistently applied in all material respects and address such matters as revenue recognition , inventory valuation , asset impairment recognition , and business combination accounting . due to the estimation processes involved , management considers the following summarized accounting policies and their application to be critical to understanding our business operations , financial condition and results of operations . we can not assure you that actual results will not significantly differ from the estimates used in these critical accounting policies . revenue recognition . we recognize revenues based on the stated shipping terms with the customer when these terms are satisfied and the risks of ownership are transferred to the customer . we have an inventory management program for certain major metal bearing components segment customers whereby revenue is recognized when products are used by the customer from consigned stock , rather than at the time of shipment . under both circumstances , revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the sellers ' price is determinable and collectability is reasonably assured . accounts receivable . accounts receivable are recorded upon recognition of a sale of goods and ownership and risk of loss is assumed by the customer . substantially all of our accounts receivables are due primarily from the core served markets . in establishing allowances for doubtful accounts , we perform credit evaluations of our customers , considering numerous inputs when available including the customers ' financial position , past payment history , relevant industry trends , cash flows , management capability , historical loss experience and economic conditions and prospects . accounts receivable are written off or reserves established when considered to be uncollectible or at risk of being uncollectible . we believe that adequate allowances for doubtful accounts have been provided in the consolidated financial statements . however , it is possible that we could experience additional unexpected credit losses . inventories . inventories are stated at the lower of cost or market . cost is determined using the first-in , first-out method . inventory valuations are developed using normalized production capacities for each of our manufacturing locations . abnormal variances from excess capacity or under-utilization of fixed production overheads are expensed in the period incurred . our inventories are not generally subject to obsolescence due to spoilage or expiring product life cycles . we assess inventory obsolescence routinely and record a reserve when inventory items are deemed non recoverable in future periods . we operate generally as a make-to-order business ; however , we also stock products for certain customers in order to meet delivery schedules . while management believes that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements , we could experience additional inventory write-downs in the future . goodwill and acquired intangibles . for new acquisitions , we use estimates , assumptions and appraisals to allocate the purchase price to the assets acquired and to determine the amount of goodwill . these estimates are based on market analyses and comparisons to similar assets . annual procedures are required to be performed to assess whether recorded goodwill is impaired . the annual tests require management to make estimates and assumptions with regard to the future operations of its reporting units , and the expected cash flows that they will generate . these estimates and assumptions could impact the recorded value of assets acquired in a business combination , including goodwill , and whether or not there is any subsequent impairment of the recorded goodwill and the amount of such impairment . story_separator_special_tag none of our other customers individually accounted for more than 10 % of our consolidated net sales for 2011. the loss of all or a substantial portion of sales to these customers would cause us to lose a substantial portion of our revenue and have a corresponding negative impact on our operating profit margin due to the operational leverage these customers provide . this could lead to sales volumes not being high enough to cover our current cost structure or to provide adequate operating cash flows or cause us to incur additional restructuring and or impairment costs . due to a limit on the amount of excess bearing component production capacity in the markets we serve , we believe it would be difficult for any of our top ten customers to take a significant portion of our business away in the short term . 21 year ended december 31 , 2011 compared to the year ended december 31 , 2010. overall results replace_table_token_6_th net sales . net sales increased from 2011 to 2010 due primarily to sales growth in the customer end markets we serve . both automotive and industrial end markets have experienced strong year over year sales growth due to the overall macro-economic growth and higher consumer demand . additionally , sales increased due to the appreciation in value of euro denominated sales . the increase in sales due to price was the result of targeted price increases to our customers across all businesses and product lines . the increase in sales from material inflation pass-through was due to increasing sales prices to our customers to recover actual material inflation incurred during 2011. cost of products sold ( exclusive of depreciation ) . a large portion of the increase was due to the same sales volume increases discussed above . cost of products sold was impacted more so by inflation on material , labor and manufacturing supplies in 2011 than in 2010 or 2009 due to increased global demand . additionally , cost of products sold increased from the appreciation in value of euro denominated costs . cost of products sold increased $ 5.0 million due to additional production inefficiencies and incurred costs , over those levels experienced in 2010 , from starting up production on new multi-year sales programs at our precision metal components segment ( discussed below ) . additionally , cost of products sold increased due to specific costs added during 2011 for incentive compensation and compensation related costs ( especially medical and workers compensation costs ) , and from higher levels of spending on scheduled repairs and maintenance and for manufacturing supplies . during 2010 , spending was depressed in these areas due to the global recession . finally , there were various one time benefits during 2010 related to labor concessions and credits from a material supplier in europe that did not repeat in 2011 . 22 during 2011 , our cost of products sold as a percentage of sales was 81.9 % , which is slightly higher than our historical range . the higher cost of products sold was due to operational inefficiencies related to the new sales program start-ups and additional specific costs mentioned above . selling , general and administrative . selling , general and administrative expenses increased in part due to the appreciation in value of euro denominated costs as compared to 2010. the increase in spending in selling , general and administrative expenses was due to the addition of incentive compensation that was not in place during 2010 and from the addition of certain key positions at our precision metal components segment to support growth in this business . finally , during 2010 , we incurred $ 1.2 million in severance costs , which did not repeat in 2011 , related to permanent administrative cost savings . depreciation and amortization . a large portion of the decrease in depreciation and amortization expense was due to the accelerated depreciation of $ 1.0 million during 2010 on certain fixed assets at our tempe plant , which did not repeat during 2011 , and the elimination of the tempe plant depreciation from the 2011 expense due to ceasing operations in august 2010. depreciation expense was further reduced due to certain assets , which are still in use , at our pinerolo plant becoming fully depreciated from the second quarter of 2010 onward . finally , the elimination of the eltmann plant depreciation due to deconsolidation of that unit and no longer incurring amortization expense on a customer contract intangible asset after 2010 further reduced the 2011 expense . partially offsetting these favorable effects was the impact on depreciation of capital expenditures that were placed in service during 2011. interest expense . interest expense was lower primarily due to decreases in the interest rate spread charged on our libor credit facility and our senior notes partially offset by higher overall debt levels during 2011. these savings were achieved under the new credit agreements entered into on december 21 , 2010 and september 30 , 2011. restructuring and impairment charges . during the year ended december 31 , 2010 , we incurred $ 2.0 million in restructuring charges related to ceasing operations at our tempe plant and $ 0.3 million in impairment charges related to the production equipment at our eltmann plant . these charges did not repeat during 2011 . ( see note 2 of the notes to consolidated financial statements ) . other income , net . included in other income , net , during 2011 , was $ 0.9 million related to foreign exchange gains on inter-company loans which was lower than the $ 1.4 million in foreign exchange gains on inter-company loans incurred in 2010. the gains are a function of the change in valuation of the euro versus the u.s. dollar . provision for income taxes .
| results by segment metal bearing components segment replace_table_token_11_th all three geographic regions of this segment experienced robust sales growth from 2009 levels . as discussed previously , these volume increases were related to both increased end market demand and our customers adopting more normalized ordering patterns . the unfavorable mix resulted as automotive end markets with generally lower sales prices rebounded more quickly than the industrial end markets with generally higher sales prices . the segment net income was impacted primarily by the large increase in sales volume and the related production efficiencies and leveraging of fixed production costs . the impact of fixed costs and related leveraging of production capacity was significant in this segment as a large portion of our installed capacity is in western europe , where labor cost is not easily reduced when production volumes decrease . additionally , the segment results were favorably impacted by reductions in production costs from planned cost reduction projects . finally , 2010 depreciation costs were much lower than 2009 depreciation costs within the segment as certain assets depreciated for a full year during 2009 became fully depreciated during the second quarter of 2010. the positive variance in segment net income for 2010 compared to 2009 was favorably impacted by certain items totaling $ 4.9 million . the 2010 segment net income was favorably impacted by $ 1.2 million , after tax , in foreign exchange gains on certain inter-company u.s. dollar denominated transactions ( as discussed above ) .
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since the conversion to a mutual savings bank in 2004 , the bank has faced numerous operational and economic challenges . at the time of the conversion to a mutual savings bank the bank operated 14 branch locations in the puget sound area , along with the mountlake terrace headquarters , and had 132 full-time equivalent employees . the bank 's assets at december 31 , 2004 totaled $ 261.4 million . as of december 31 , 2012 , assets totaled $ 359.0 million , and the bank was conducting operations through six locations , along with the mountlake terrace headquarters , with 130 full-time equivalent employees . the bank 's branch network and high level of employee overhead , which were an outgrowth of the bank 's credit union roots , resulted in inefficiencies and an extremely high operating cost for an institution of the bank 's size . beginning in 2007 , adverse economic conditions , including increased levels of unemployment , depressed real estate values and the loss of major employers in the market area , such as washington mutual , also reduced the rate of growth , affected customers ' ability to repay loans and adversely impacted the bank 's financial condition and earnings . as a result of the foregoing , the bank experienced net losses of $ 4.6 million , $ 3.8 million and $ 4.1 million during the years ended december 31 , 2009 , 2008 and 2007 , respectively . in 2007 , the bank 's loss was primarily the result of a $ 3.1 million increase in noninterest expense associated with management 's strategic decision to terminate the defined benefit plan and reorganize the overhead structure and operations of 1st security bank of washington in order to enhance future profitability . during 2008 and 2009 , like many financial institutions , the bank was faced with large loan loss provisions and charge-offs to address asset quality issues associated with the adverse economic conditions . in 2008 , management also determined that a number of additional cost cutting measures were needed due to the deepening recession in order to return the institution to profitability , including salary reductions or freezes for a number of senior officers , reduced employee benefits , a reduction in staff size and a consolidation of the branch network . the bank initiated a number of these measures in 2009. during the years ended december 31 , 2012 , 2011 and 2010 , the bank recorded net earnings of $ 5.3 million , $ 1.5 million and $ 1.6 million , respectively . the bank attributes the return to profitability in large part , to the following : the bank restructured the board of trustees ( hereafter referred to throughout this document as the board of directors ) , adding individuals with attributes more suited for the banking industry than those members who previously sat on the board of the institution as a credit union . a new executive management team was put in place and a number of other seasoned bankers were hired since the conversion to a mutual savings bank . aggressive cost cutting measures discussed above , including ( i ) salary reductions or freezes for a number of senior staff , ( ii ) reduced employee benefits ; ( iii ) staff reductions , and ( iv ) consolidation of the branch network . active management of delinquent loans and non-performing assets through the aggressive pursuit of the collection of consumer debts and the marketing of saleable properties upon which were foreclosed or repossessed . 54 during the year ended december 31 , 2012 , the company recorded a net $ 2.3 million income tax benefit which was the result of reversing substantially all of the deferred tax asset valuation allowance . from january 2005 to august 2011 , 1st security bank of washington has been operating under some form of regulatory agreement , either with the washington department of financial institutions , the federal deposit insurance corporation , or both . these regulatory agreements placed numerous requirements on the bank and limited operating flexibility , which affected the bank 's ability to grow . as of august 2011 , the bank is no longer subject to any formal or informal regulatory agreements with either the washington department of financial institutions or the federal deposit insurance corporation . 1st security bank of washington is a relationship-driven community bank . the bank delivers banking and financial services to local families , local and regional businesses and industry niches within distinct puget sound area communities . the bank emphasizes long-term relationships with families and businesses within the communities served , working with them to meet their financial needs . the bank is also actively involved in community activities and events within these market areas , which further strengthens relationships within these markets . 1st security bank of washington is a diversified lender with a focus on the origination of home improvement loans , commercial real estate mortgage loans , commercial business loans and second mortgage/home equity loan products . consumer loans , in particular indirect home improvement loans to finance window replacement , gutter replacement , siding replacement , and other improvement renovations , represent the largest portion of the loan portfolio and have traditionally been the mainstay of the bank 's lending strategy . as of december 31 , 2012 , consumer loans represented 38.8 % of the total portfolio , with indirect home improvement loans representing 79.4 % of the total consumer loan portfolio . indirect home improvement lending is reliant on the bank 's relationships with home improvement contractors and dealers . the bank 's indirect home improvement contractor/dealer network is currently comprised of approximately 120 active contractors and dealers with businesses located throughout washington , oregon and california , with approximately four contractors/dealers responsible for a majority or 50.4 % of this loan volume . story_separator_special_tag the amounts that will ultimately be realized from the sale of other real estate owned may differ substantially from the carrying value of the assets because of market factors beyond the company 's control or because of changes in management 's strategies for recovering the investment . income taxes . income taxes are reflected in the company 's consolidated financial statements to show the tax effects of the operations and transactions reported in the consolidated financial statements and consist of taxes currently payable plus deferred taxes . accounting standards codification , asc 740 , “ accounting for income taxes , ” requires the asset and liability approach for financial accounting and reporting for deferred income taxes . deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities . they are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled and are determined using the assets and liability method of accounting . the deferred income provision represents the difference between net deferred tax asset/liability at the beginning and end of the reported period . in formulating the deferred tax asset , the company is required to estimate income and taxes in the jurisdiction in which the company operates . this process involves estimating the actual current tax exposure for the reported period together with assessing temporary differences resulting from differing treatment of items , such as depreciation and the provision for loan losses , for tax and financial reporting purposes . deferred tax assets are deferred tax liabilities attributable to deductible temporary differences and carryforwards . after the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law , it is then necessary to assess the need for a valuation allowance . a valuation allowance is needed when , based on the weight of the available evidence , it is more likely than not that some portion of the deferred tax 56 asset will not be realized . as required by gaap , available evidence is weighted heavily on cumulative losses with less weight placed on future projected profitability . realization of the deferred tax asset is dependent on whether there will be sufficient future taxable income of the appropriate character in the period during which deductible temporary differences reverse or within the carryback and carryforward periods available under tax law . as of december 31 , 2012 , the company had net deferred tax assets of $ 1.9 million and determined that no valuation allowance was required . as of december 31 , 2011 , the company had net deferred tax assets of $ 3.2 million reduced by a full $ 3.2 million valuation allowance based principally on the uncertainty about the company 's ability to generate sufficient future taxable income to realize the net deferred tax asset as of december 31 , 2011. our business and operating strategy and goals the company 's primary objective is to operate 1st security bank of washington as a well-capitalized , profitable , independent , community-oriented financial institution , serving customers in the primary market area . the company 's strategy is to provide innovative products and superior service to small businesses , industry and geographic niches , and individuals in the primary market area . the company 's primary market area is defined generally as the greater puget sound market area . services are currently provided to communities through the main office and six full-service banking centers . these banking centers are supported with 24/7 access to on-line banking and participation in a worldwide atm network . the board of directors has sought to accomplish the company 's objective through the adoption of a strategy designed to improve profitability , a strong capital position and high asset quality . this strategy primarily involves : growing and diversifying the loan portfolio and revenue streams . the company intends to transition lending activities from a predominantly consumer-driven model to a more diversified consumer and business model by emphasizing three key lending initiatives : expansion of commercial business lending programs , including the warehouse lending program , through which the bank funds third party mortgage bankers ; reintroduction of in-house originations of residential mortgage loans , primarily for sale into the secondary market , through a mortgage banking program ; and commercial real estate lending . additionally , the company will seek to diversify the loan portfolio by increasing lending to small businesses in the market area , as well as residential construction lending . maintaining and improving asset quality . the company believes that strong asset quality is a key to long-term financial success . historically , the bank 's asset quality has been very strong , however , like most financial institutions in the market area , the bank 's asset quality began to deteriorate in 2008 and continued to do so during 2009 and 2010. the percentage of non-performing loans to total loans was 0.7 % at december 31 , 2012 , down from 1.0 % at december 31 , 2011 , and 2.7 % at december 31 , 2010. the bank 's percentage of non-performing assets to total assets was 1.1 % at december 31 , 2012 , down from 2.4 % at december 31 , 2011 and 3.5 % at december 31 , 2010. the bank has actively managed the delinquent loans and non-performing assets by aggressively pursuing the collection of consumer debts and marketing saleable properties upon which were foreclosed or repossessed , work-outs of classified assets and loan charge-offs . in the past several years , the bank also began emphasizing consumer loan originations to borrowers with higher credit scores , generally credit scores over 720 ( although the policy allows us to go lower ) , which has led to lower charge-offs in recent periods .
| general . net income for the year ended december 31 , 2012 increased $ 3.8 million to $ 5.3 million , compared to $ 1.5 million for the year ended december 31 , 2011 , due primarily to increases on net interest income before the provision for loan losses , gain on sale of loans and a benefit for income tax . the provision for loan losses increased $ 544,000 , or 23.0 % , during the year ended december 31 , 2012 compared the year ended december 31 , 2011. net interest income . net interest income before the provision for loan losses increased $ 2.9 million to $ 16.4 million for the year ended december 31 , 2012 compared to $ 13.5 million for the year ended december 31 , 2011. the increase in net interest income was attributable to a $ 2.3 million increases in interest income resulting from an increase in average loans receivable over the last year , partially offset by a $ 643,000 decrease in interest expenses , primarily due to a reduction in overall cost of funds . 61 the bank 's net interest margin increased 24 basis points to 5.43 % for the year ended december 31 , 2012 , from 5.19 % for the prior year , primarily due to the increase in the average balances of outstanding interest-earning assets , as set forth below . the cost of average interest-bearing liabilities decreased 37 basis points to 0.94 % for the year ended december 31 , 2012 compared to 1.31 % for the prior year primarily due to a reduction in deposit rates . the decline was primarily related to the repricing of the money market accounts and certificates of deposit to lower current rates during the year ended december 31 , 2012. interest income .
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as a part of this offering , the company reset ( i ) the conversion price of 19,458.90 shares of series d convertible preferred stock that were held by sabby to $ 5.60 per share , and ( ii ) the exercise price of warrants to purchase up to 2,934,484 shares of common stock that were held by sabby to $ 5.60 per share . the q1 2017 offering resulted in gross proceeds of $ 7.0 million , and after deducting fees and expenses , net proceeds were $ 6.3 million . each share of series e convertible preferred stock has a stated value of $ 1,000 and is convertible , at any time at the option of the holder thereof , into a number of shares of our common stock determined by dividing the stated value by the adjusted conversion price of $ 2.63 , subject to a 4.99 % beneficial ownership limitation . private offering of convertible preferred stock and warrants ; repurchase of series c convertible preferred stock in june 2016 , we completed a private equity offering , or the 2016 june offering , with entities affiliated with sabby , a principal stockholder , providing for the issuance of ( i ) 21,300 shares of series d convertible preferred stock at a price of $ 1,000 per share , and ( ii ) warrants to purchase up to 1,475,069 shares of our common stock at an exercise price of $ 13.52 per share . as a part of this offering , the company redeemed 13,800 shares of series c convertible preferred stock issued in a december 2015 offering that were held by sabby . the june 2016 offering resulted in proceeds of $ 7.5 million . after fees and expenses , net proceeds of the june 2016 offering were $ 6.7 million . each share of series d convertible preferred stock has a stated value of $ 1,000 and is convertible , at any time at the option of the holder thereof , into a number of shares of our common stock determined by dividing the stated value by the adjusted conversion price of $ 2.63 , subject to a 4.99 % beneficial story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with our selected financial data , our financial statements , and the accompanying notes to those financial statements included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . for a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements , please refer to the section titled “ risk factors ” , contained in item 1a of this annual report on form 10-k. overview neurometrix is a commercial stage , innovation driven healthcare company combining bioelectrical and digital medicine to address chronic health conditions including chronic pain , sleep disorders , and diabetes . our business is fully integrated with in-house capabilities spanning product development , manufacturing , regulatory affairs and compliance , sales and marketing , and customer support . we derive revenues from the sale of medical devices and after-market consumable products and accessories . our products are sold in the united states and selected overseas markets , and are cleared by the u.s. food and drug administration , or fda , and regulators in foreign jurisdictions where appropriate . we have two principal product lines : wearable neuro-stimulation therapeutic devices point-of-care neuropathy diagnostic tests our core expertise in biomedical engineering has been refined over nearly two decades of designing , building and marketing medical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes . we created the market for point-of-care nerve testing and were first to market with sophisticated , wearable technology for management of chronic pain . we also have an experienced management team and board of directors . chronic pain is a significant public health problem . it is defined by the national institutes of health as any pain lasting more than 12 weeks in contrast to acute pain , which is a normal bodily response to injury or trauma . chronic pain conditions include painful diabetic neuropathy , or pdn , arthritis , fibromyalgia , sciatica , musculoskeletal pain , cancer pain and many others . chronic pain may be triggered by an injury or there may be an ongoing cause such as disease or illness . there may also be no clear cause . pain signals continue to be transmitted in the nervous system over extended periods of time often leading to other health problems . these can include fatigue , sleep disturbance , decreased appetite , and mood changes which cause difficulty in carrying out important activities and contributing to disability and despair . in general , chronic pain can not be cured . treatment of chronic pain is focused on reducing pain and improving function . the goal is effective pain management . chronic pain is widespread . it affects over 100 million adults in the united states and more than 1.5 billion people worldwide . the global market for pain management drugs and devices alone was valued at $ 35 billion in 2012. the estimated incremental impact of chronic pain on health care costs in the united states is over $ 250 billion per year and lost productivity is estimated to exceed $ 300 billion per year . estimated out-of-pocket spending in the united states on chronic pain is $ 20 billion per year . the most common approach to chronic pain is pain medication . this includes over-the-counter drugs ( such as advil and motrin ) , and prescription drugs including anti-convulsants ( such as lyrica and neurontin ) and anti-depressants ( such as cymbalta and elavil ) . topical creams may also be used ( such as zostrix and bengay ) . story_separator_special_tag in the first quarter of 2017 , we completed a private equity offering providing for the issuance of i ) 7,000 shares of series e convertible preferred stock ( the “ series e preferred stock ” ) at a price of $ 1,000 per share , and ( ii ) warrants to purchase up to 1,250,000 shares of common stock at an exercise price of $ 5.60 per share . the offerings resulted in approximately $ 6.3 million in net proceeds after deducting fees and expenses . the company is party to a loan and security agreement , or the credit facility , with a bank . as of december 31 , 2017 the credit facility permitted the company to borrow up to $ 2.5 million on a revolving basis . the credit facility was subsequently amended , most recently on january 17 , 2018 , and extended until january 15 , 2019 . amounts borrowed under the credit facility will bear interest equal to the prime rate plus 0.5 % . any borrowings under the credit facility will be collateralized by the company 's cash , accounts receivable , inventory , and equipment . the credit facility also includes traditional lending and reporting covenants . these include certain financial covenants applicable to liquidity that are to be maintained by the company . as of december 31 , 2017 , the company was in compliance with these covenants and had not borrowed any funds under the credit facility . however , $ 0.2 million of the amount under the credit facility is restricted to support letters of credit issued in favor of our facilities landlords . consequently , the amount available for borrowing under the credit facility as of december 31 , 2017 was approximately $ 2.3 million . in managing working capital , we focus on two important financial measurements as presented below : replace_table_token_4_th customer payment terms generally vary from payment-on-order for quell e-commerce sales to 120 days from invoice date . both days sales outstanding and inventory turnover improved during 2017. the following sets forth information relating to sources and uses of our cash : replace_table_token_5_th our operating activities used approximately $ 12.7 million for the year ended december 31 , 2017 primarily attributable to our net loss of $ 12.9 million . this loss included non-cash credits of approximately $ 0.2 million for revaluing outstanding warrants at fair value . in addition , operating activities included increases in accrued expenses of $ 0.6 million and accrued compensation of $ 0.5 million , partially offset by increases in prepaid and other current assets of $ 0.9 million . during the year ended december 31 , 2017 , our investing activities reflected $ 0.2 million spent for the acquisition of fixed assets , primarily related to production system upgrades . we held cash and cash equivalents of $ 4.0 million as of december 31 , 2017. under the terms of the gsk collaboration entered in january 2018 , we received payment of $ 5.0 million , the agreement by gsk to make contingent payments of up to $ 21.5 million upon the achievement of certain development and commercialization milestones , plus the amounts for co-funded next generation quell development during an initial period of 2018 through 2020. we believe that these resources and the cash to be generated from expected product sales will be sufficient to meet our projected operating requirements into the fourth quarter of 2018 . we continue to face significant challenges and uncertainties and , as a result , our available capital resources 34 may be consumed more rapidly than currently expected due to ( a ) decreases in sales of our products ; ( b ) changes we may make to the business that affect ongoing operating expenses ; ( c ) changes we may make in our business strategy ; ( d ) regulatory developments affecting our existing products ; ( e ) changes we may make in our research and development spending plans ; and ( f ) other items affecting our forecasted level of expenditures and use of cash resources . accordingly , we may need to raise additional funds to support our operating and capital needs in the fourth quarter of 2018 . these factors raise substantial doubt about our ability to continue as a going concern for the one year period from the date of issuance of these financial statements . the financial statements do not include any adjustments that might result from the outcome of this uncertainty . we may attempt to obtain additional funding through public or private financing , collaborative arrangements with strategic partners , or through additional credit lines or other debt financing sources . however , we may not be able to secure such financing in a timely manner or on favorable terms , if at all . we filed a shelf registration statement on form s-3 with the sec covering shares of our common stock and other securities for sale , giving us the opportunity to raise funding when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any such offerings . however , pursuant to the instructions to form s-3 , we only have the ability to sell shares under the shelf registration statement , during any 12-month period , in an amount less than or equal to one-third of the aggregate market value of our common stock held by non-affiliates . if we raise additional funds by issuing equity or debt securities , either through the sale of securities pursuant to a registration statement or by other means , our existing stockholders may experience dilution , and the new equity or debt securities may have rights , preferences and privileges senior to those of our existing stockholders .
| results of operations comparison of years ended december 31 , 2017 and december 31 , 2016 revenues the following table summarizes our revenues : years ended december 31 , 2017 2016 change % change ( in thousands ) revenues $ 17,092.3 $ 12,027.5 $ 5,064.8 42.1 % during 2017 total revenues increased by approximately $ 5.1 million , or 42.1 % , from 2016. quell revenues were approximately $ 12.4 million and $ 7.4 million in 2017 and 2016 , respectively . this increase of approximately $ 5.0 million was the largest contributor to overall revenue growth . during 2017 , 80,930 quell devices and 121,402 electrode reorder packages were shipped to quell customers . in the comparative period of 2016 , we shipped 45,726 quell devices and 52,658 electrode reorder packages . 31 in 2017 , dpncheck revenue of approximately $ 3.1 million reflected sales of 647 dpncheck devices plus 189,050 biosensors . this compared with approximately $ 2.5 million in revenue in 2016 reflecting sales of 630 dpncheck devices and 188,925 biosensors . advance neurodiagnostic products contributed approximately $ 1.5 million in revenue for 2017 , as compared to approximately $ 2.0 million in 2016. sensus , our prescription wearable device for chronic pain had revenues of approximately $ 0.1 million in 2017 and 2016. cost of revenues and gross profit the following table summarizes our cost of revenues and gross profit : replace_table_token_2_th our cost of revenues increased to approximately $ 10.2 million in 2017 , compared to approximately $ 7.1 million in 2016 , primarily due to the increase in orders and shipment volumes during the comparable periods . gross margin decreased to 40.1 % in 2017 compared to 40.9 % in 2016. the contraction in gross margin conforms to the early stages of our plan for building a business with a high level of recurring revenue from an installed product base of medical devices .
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for certain of the company 's financial instruments , including certain story_separator_special_tag you should read the following discussion in conjunction with the section titled `` selected consolidated financial data '' and our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. you should carefully review and consider the information regarding our financial condition and results of operations set forth under part i-item 7 ( management 's discussion and analysis of financial condition and results of operations ) in our annual report on form 10-k for the fiscal year ended december 31 , 2018 , filed with the sec on february 27 , 2019 , for an understanding of our results of operations and liquidity discussions and analysis comparing fiscal year 2018 to fiscal year 2017. in addition to historical information , this discussion contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from our expectations , as discussed in `` forward-looking statements '' in part i of this annual report on form 10-k. factors that could cause such differences include , but are not limited to , those described in the section titled `` risk factors '' and elsewhere in this annual report on form 10-k. overview we are a pioneer and leading provider of a cloud-based platform delivering it , security and compliance solutions that enable organizations to identify security risks to their information technology ( it ) infrastructures , help protect their it systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations . our cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external it infrastructures and web environments , the rapid adoption of cloud computing , containers and serverless it models , and the proliferation of geographically dispersed it assets . our integrated suite of security and compliance solutions delivered on our qualys cloud platform enables our customers to identify and manage their it assets , collect and analyze large amounts of it security data , discover and prioritize vulnerabilities , recommend remediation actions and verify the implementation of such actions . organizations use our integrated suite of solutions delivered on our qualys cloud platform to cost-effectively obtain a unified view of their it asset inventory as well as security and compliance posture across globally-distributed it infrastructures as our solution offers a single platform for information technology , information security , application security , endpoint , developer security and cloud teams . we were founded and incorporated in december 1999 with a vision of transforming the way organizations secure and protect their it infrastructure and applications and initially launched our first cloud solution , vulnerability management ( vm ) , in 2000. as vm gained acceptance , we introduced additional solutions to help customers manage increasing it , security and compliance requirements . today , the suite of solutions that we offer on our cloud platform and refer to as the qualys cloud apps helps our customers protect a range of assets across on-premises , endpoints , cloud , containers , and mobile environments . these cloud apps address and include : it security : vulnerability management ( vm ) , threat protection ( tp ) , continuous monitoring ( cm ) , patch management ( pm ) , indication of compromise ( ioc ) ; compliance monitoring : policy compliance ( pc ) , pci compliance ( pci ) , file integrity monitoring ( fim ) , security configuration assessment ( sca ) , security assessment questionnaire ( saq ) , out of-band configuration assessment ( oca ) ; web application security : web application scanning ( was ) , web application firewall ( waf ) ; global it asset management : global it asset inventory ( ai ) , cmdb sync ( syn ) , certificate inventory ( cri ) ; and , cloud/container security : cloud inventory ( ci ) , cloud security assessment ( csa ) , container security ( cs ) . our vm solutions ( including vm , cm , tp , cloud agent for vm , allocated scanner revenue and qualys private cloud platform ) have provided a majority of our revenues to date , representing 73 % of total revenue in 2019 and 74 % of total revenues in each of 2018 and 2017 , respectively . 41 we provide our solutions through a software-as-a-service model , primarily with renewable annual subscriptions . these subscriptions require customers to pay a fee in order to access each of our cloud solutions . we generally invoice our customers for the entire subscription amount at the start of the subscription term , and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription . we continue to experience significant revenue growth from our existing customers as they renew and purchase additional subscriptions . we market and sell our solutions to enterprises , government entities and small and medium-sized businesses across a broad range of industries , including education , financial services , government , healthcare , insurance , manufacturing , media , retail , technology and utilities . as of december 31 , 2019 , we had over 15,700 active customers in more than 133 countries , including a majority of each of the forbes global 100 and fortune 100. in 2019 , 2018 and 2017 , approximately 64 % , 67 % and 70 % , respectively , of our revenues were derived from customers in the united states based on our customers billing address . we sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force . we generate a significant portion of sales through our channel partners , including managed service providers , value-added resellers and consulting firms in the united states and internationally . we have had continued revenue growth over the past three years . story_separator_special_tag other income ( expense ) , net our other income ( expense ) , net consists primarily of interest and investment income from our short-term and long-term marketable securities ; foreign exchange gains and losses , the majority of which result from fluctuations between the u.s. dollar and the euro , british pound ( gbp ) and indian rupee ; and losses on disposal of property and equipment . provision for income taxes we are subject to federal , state and foreign income taxes for jurisdictions in which we operate , and we use estimates in determining our provision for these income taxes and deferred tax assets . earnings from our non-u.s. activities are subject to income taxes in the local countries at rates which were generally similar to the u.s. statutory tax rate . our effective rate differs from the u.s. statutory rate primarily due to excess tax benefits related to stock-based compensation , u.s. federal research and development tax credits , u.s. foreign tax credits , and non-deductible compensation to certain employees . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the tax impact of timing differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards . deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the statutory rate change is enacted into law . we assess the likelihood that deferred tax assets will be realized , and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be recognized . this assessment requires judgment as to the likelihood and amounts of future taxable income . 43 our income tax expense in 2019 increased due to an increase in our income before income taxes , as well as a reduction in excess stock-based compensation deductions . story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; background-color : # cceeff ; '' > $ 112,380 adjusted ebitda we monitor adjusted ebitda , a non-gaap financial measure , to analyze our financial results and believe that it is useful to investors , as a supplement to u.s. gaap measures , in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance . we believe that adjusted ebitda helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude in adjusted ebitda . furthermore , we use this measure to establish budgets and operational goals for managing our business and evaluating our performance . we also believe that adjusted ebitda provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry . adjusted ebitda should not be considered in isolation from , or as a substitute for , financial information prepared in accordance with u.s. gaap . we calculate adjusted ebitda as net income before ( 1 ) other ( income ) expense , net , which includes interest income , interest expense and other income and expense , ( 2 ) provision for ( benefit from ) income taxes , ( 3 ) depreciation of property and equipment , ( 4 ) amortization of intangible assets , ( 5 ) stock-based compensation , ( 6 ) non-recurring expenses and ( 7 ) cash acquisition-related expense that do not reflect ongoing costs of operating the business . 46 the following unaudited table presents the reconciliation of net income to adjusted ebitda for each of the periods presented . replace_table_token_10_th ( 1 ) relates to compensation expense from the acquisition of adya , netwatcher and layered insight . limitations of adjusted ebitda adjusted ebitda , a non-gaap financial measure , has limitations as an analytical tool , and should not be considered in isolation from or as a substitute for the measures presented in accordance with u.s. gaap . some of these limitations are : adjusted ebitda does not reflect certain cash and non-cash charges that are recurring ; adjusted ebitda does not reflect income tax payments that reduce cash available to us ; adjusted ebitda excludes depreciation of property and equipment and amortization of intangible assets , although these are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future ; and other companies , including companies in our industry , may calculate adjusted ebitda differently or not at all , which reduces its usefulness as a comparative measure . because of these limitations , adjusted ebitda should be considered alongside other financial performance measures , including revenues , net income , cash flows from operating activities and our financial results presented in accordance with u.s. gaap . liquidity and capital resources at december 31 , 2019 , our principal source of liquidity was cash , cash equivalents and short-term and long-term investments of $ 418.4 million , including $ 24.6 million of cash held outside of the united states by our foreign subsidiaries . we do not anticipate that we will need funds generated from foreign operations to fund our domestic operations . however , if we repatriate these funds , we could be subject to foreign withholding taxes . we have experienced positive cash flows from operations during the years ended december 31 , 2019 and 2018 . we believe our existing cash , cash equivalents , short-term and long-term marketable securities , and cash from operations will be sufficient to fund our operations for at least the next twelve months .
| results of operations the following table sets forth selected consolidated statements of operations data for each of the periods presented as a percentage of revenues : replace_table_token_3_th comparison of years ended december 31 , 2019 and 2018 revenues year ended december 31 , change 2019 2018 $ % ( in thousands , except percentages ) revenues $ 321,607 $ 278,889 $ 42,718 15 % revenues increased $ 42.7 million in 2019 compared to 2018 due to an increase in the subscriptions from existing customers and new customer subscriptions entered into in 2019. revenues from customers existing at or prior to december 31 , 2018 grew by $ 31.2 million to $ 310.1 million during 2019. subscriptions from new customers added in 2019 contributed $ 11.5 million to the increase in revenues . revenues from customers in the united states increased by $ 20.7 million , or 12 % , from $ 185.9 million in 2018 to $ 206.6 million in 2019 and revenues from customers in foreign countries increased by $ 22.0 million , or 24 % , from $ 93.0 million in 2018 to $ 115.1 million in 2019. we expect revenue growth from existing and new customers to continue . the growth in revenues reflects the continued demand for our solutions . cost of revenues replace_table_token_4_th c ost of revenues increased $ 3.3 million in 2019 compared to 2018 , primarily due to an increase of $ 2.4 million in amortization expense related to acquired technologies resulting from our business acquisitions ; increased costs related to our data centers of $ 1.9 million ; and increased third-party software license costs of $ 1.2 million resulting from our continued 44 business growth .
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termination of employment/relationship awards granted under the plan that have not vested will generally terminate immediately upon the grantee 's termination of employment or business relationship with us or any of our subsidiaries for any reason other than retirement with our consent , disability or death . the board or a committee of the board may determine at the time of the grant that an award agreement should contain provisions permitting the grantee to exercise the stock options for any stated story_separator_special_tag the following discussion and analysis of our results of operations and financial condition should be read in conjunction with our financial statements and related notes appearing elsewhere in this report . this discussion and analysis contains forward looking statements that involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in these forwarding looking statements as a result of certain factors , including but not limited to , those which are not within our control . overview we are a growth-oriented oilfield services company that operates throughout the southwest united states . through our wholly-owned operating subsidiaries , we offer an expanding suite of products and services across the market segments of drilling , completions and production . mg cleaners llc , serves the drilling market segment with proprietary branded products including detergents , surfactants and degreasers ( such as miracle blue ® ) as well as equipment and service crews that perform on-site repairs , maintenance and drilling rig wash services . our smg rental division includes an inventory of approximately 800 bottom hole assembly ( bha ) oil tools such as stabilizers , drill collars , crossovers and bit subs rented to oil companies and directional drillers . our frac water management division , known as momentum water transfer services , focuses on the completion or fracing market segment providing high volume above ground equipment and temporary infrastructure to route water used on location for fracing . we are headquartered in houston , texas with facilities in carthage , odessa and alice , texas . our web sites are www.smgindustries.com , www.mgcleanersllc.com and www.momentumwts.com . on september 19 , 2017 , we entered into an exchange agreement with all of the members of mg cleaners , llc ( “ mg ” ) pursuant to which we acquired one hundred percent of the issued and outstanding membership interests of mg ( “ mg membership interests ” ) pursuant to which mg became our wholly-owned subsidiary . in connection with the acquisition , we issued 4,578,276 shares and agreed to pay $ 300,000 in cash ( $ 250,000 in cash at closing ) to the mg members . the acquisition of mg cleaners llc by smg industries inc. ( formerly smg indium resources ltd. ) on september 19 , 2017 , was accounted for as a reverse acquisition with mg cleaners as the acquirer of smg industries for accounting purposes . the financial statements presented in this annual report on form 10-k are presented as a continuation of the operations of mg cleaners llc with one adjustment to retroactively adjust the membership interests of mg cleaners llc to reflect the legal capital of smg industries prior to the september 19 , 2017 acquisition , and one adjustment to eliminate the accumulated deficit of smgi in accordance with the recapitalization of mg. on september 27 , 2018 , we acquired approximately 800 downhole oil tools which include stabilizers , crossovers , drilling jars , roller reamers and bit subs , including both non-mag and steel units in exchange for the issuance of an aggregate of one million ( 1,000,000 ) shares of our common stock to the sellers . on december 7 , 2018 , we acquired one hundred percent of the issued and outstanding membership interests ( “ mwts membership interests ” ) of momentum water transfer services llc , a texas limited liability company ( “ mwts ” ) pursuant to which mwts became our wholly-owned subsidiary ( the “ mwts acquisition ” ) . in connection with the mwts acquisition , we issued 550,000 shares of our common stock , paid $ 361,710 in cash to the mwts members and issued a note payable to the mwts member in the aggregate amount of $ 800,000. as a result of our acquisition of mg , mwts and the downhole oil tools , our growth-oriented oilfield service company can expand the service lines and market segments of which it focuses in the onshore domestic united states market . through our operating subsidiaries we offer the following products and services : for the drilling segment ( i ) product sales including degreasers , surfactants and detergents , that remove oil based mud from drilling rigs and related industrial cleaning ; ( ii ) equipment sales for the oilfield industry including , industrial pressure washers ; ( iii ) parts sales for our installed base on equipment , including water guns , hoses and fittings , ( iv ) service crews for the oilfield industry related to rig wash cleaning and repairing drilling rigs on location ; and ( v ) rentals of equipment on day rates or other terms for drilling rig contractors to clean rigs . additionally , we rent down hole bottom hole assembly tools such as stabilizers , drill collars and cross over subs to directional driller and operators . for the completions segment , we offer frac water transfer services that provide for sending high volumes of water from a source such as a pond , river , lake or frac pit to a frac location using miles of lay flat frac hose , pumps and equipment . 18 recent accounting pronouncements the financial accounting standards board , or fasb , has issued accounting standards update no . 2014-09 , revenue from contracts with customers ( topic 606 ) , or asu 606. asu 606 provides guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers in an amount that supersedes most current revenue recognition guidance . story_separator_special_tag under asu no . 2018-07 , the existing employee guidance will apply to nonemployee share-based transactions ( as long as the transaction is not effectively a form of financing ) , with the exception of specific guidance related to the attribution of compensation cost . the cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services . in addition , the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards . the company elected to early adopt this standard in the second quarter of 2018. the adoption had no impact on the company 's historic financial statements . 19 effective january 1 , 2018 , the company adopted the provisions of asu 2017-01 – “ business combinations ( topic 805 ) : clarifying the definition of a business ” ( “ asu 2017-01 ” ) . asu 2017-01 provides revised guidance to determine when an acquisition meets the definition of a business or alternatively should be accounted for as an asset acquisition . asu 2017-01 requires that , when substantially all of the fair value of an acquisition is concentrated in a single identifiable asset or a group of similar identifiable assets , the asset or group of similar identifiable assets does not meet the definition of a business and therefore is required to be accounted for as an asset acquisition . transaction costs will continue to be capitalized for asset acquisitions and expensed as incurred for business combinations . asu 2017-01 will result in most , if not all , of the company 's post january 1 , 2018 acquisitions being accounted for as asset acquisitions because substantially all of the fair value of the gross assets the company acquires are concentrated in a single asset or group of similar identifiable assets . for asset acquisitions that are “ owner occupied ” ( meaning that the seller either is the tenant or controls the tenant ) the purchase price , including capitalized acquisition costs , will be allocated to land and building based on their relative fair values with no value allocated to intangible assets or liabilities . for asset acquisitions where there is a lease in place but not “ owner occupied ” the company will allocate the purchase price to tangible assets and any intangible assets acquired or liabilities assumed based on their relative fair values . story_separator_special_tag activities of $ 416,656 for the year ended december 31 , 2017. during the year ended december 31 , 2018 , we used $ 402,564 of cash in investing activities of which $ 300,000 was used for the acquisition of momentum water transfer and cash used for the purchase of property and equipment of $ 116,564 , offset partially by cash received from the sale of assets of $ 14,000. by comparison , we used $ 17,083 of cash in investing activities of which $ 38,248 was used for the purchase of property and equipment , offset partially by cash received in the reverse acquisition of $ 21,164 in the year ended december 31 , 2017. we had net cash provided in financing activities of $ 702,979 in the year ended december 31 , 2018 as compared to $ 496,848 of net cash provided by financing activities for year ended december 31 , 2017. our net cash provided by financing activities for the year ended december 31 , 2018 , resulted primarily from proceeds from notes payable of $ 546,243 , proceeds from sale of common stock of $ 276,043 , proceeds from convertible note payable of $ 250,000 and proceeds from the secured line of credit of $ 239,913. this net cash provided by financing activities was partially offset by payments on notes payable of $ 494,411 and payments on notes payable related party of $ 101,571 and payments on capital lease liability of $ 37,438. our net cash and cash equivalents decreased for the year ended december 31 , 2018 by $ ( 83,962 ) as compared to a net increase of $ 63,109 in the year ended december 31 , 2017. our cash flows from operations and our available capital including our line of credit of $ 1.5 million obtained in may 2017 , as amended , are presently sufficient to sustain our current level of operations for the next 12 months provided industry activity does not slow down or enter a down-cycle . however , we may require up to an additional $ 1 million to expand as our service lines grow and expand into additional market segments such as completions and production . . of this amount , currently we believe we will require $ 300,000 in capital expenditures for additional frac water equipment , oilfield trailer units and equipment used by our service crews and for rental purposes , $ 50,000 to increase inventory in our facility in west texas and $ 25,000 in sales and marketing expenses associated with our growth plans . we may pursue capital from a combination of capital sources , including debt and equity financings . failure to secure these additional funds will result in a less aggressive growth plan . we plan to improve our cash flows provided in operating activities by focusing on increasing sales , offering higher value services that receive higher gross margins such as our frac water business recently acquired , reduce expenses , increase job and crew utilizing by bundling our expanded service lines and reducing product transportation costs by locally manufacturing in west texas , complementing our current east texas manufacturing base . historically , we have funded our capital expenditures internally through cash flow , leasing and financing arrangements . we intend to continue to fund future capital expenditures through cash flow , as well as through capital available to us pursuant to our line of credit , capital from the sale of our equity securities and through commercial leasing and financing programs .
| results of operations year ended december 31 , 2018 compared to the year ended december 31 , 2017 sales for the year ended december 31 , 2018 increased to $ 4,422,436 , or approximately 79 % , from $ 2,465,897 for the year ended december 31 , 2017. the increase in revenue during the year ended 2018 is primarily attributable to the domestic drilling rig count increasing in the markets that we operate resulting in increased customer activity compared to the year 2017. in mid 2017 , we established a permian basin presence and this facility and operation has gained market share during 2018. additionally , we realized increased revenue during december 2018 resulting from the momentum water transfer acquisition . during the year ended december 31 , 2018 , cost of sales increased to $ 2,769,375 , or approximately 62.6 % of sales , compared to $ 1,445,910 , or 58.6 % of sales , for the comparable 2017 period . the increase in cost of sales as a percentage of sales in 2018 was primarily attributable to the following one time events , or investment in building out capabilities , which total 4.7 % of sales , such as freight and inventory control associated with transferring approximately 800 bottom hole assembly oil tools to the permian basin , which were acquired from crown oil tools , and project startup costs and direct labor incurred related to , and during the acquisition of , mwts . the balance of cost increases were attributed to increased direct payroll costs related to investment to expand of services and product offering in the permian basin , increases in truck lease and rental expenses and associated increase in auto insurance , offset by decreases in labor housing and contract labor costs .
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although many of our construction contracts are subject to cancellation at the election of our customers , in accordance with industry practice , we do not limit the amount of unrecognized revenue included within remaining performance obligations due to the inherent substantial economic penalty that would be incurred by our customers upon cancellation . we believe our reported remaining performance obligations for our construction contracts are firm and contract cancellations have not had a material adverse effect on us . remaining performance obligations also include unrecognized revenues expected to be realized over the remaining term of service contracts . however , to the extent a service contract includes a cancellation clause which allows for the story_separator_special_tag we are one of the largest electrical and mechanical construction and facilities services firms in the united states . 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 segment 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 , including those for refineries and petrochemical plants , including 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 ; refinery turnaround planning and engineering services ; specialty welding services ; overhaul and maintenance of critical process units in refineries and petrochemical plants ; and specialty technical services for refineries and petrochemical plants . 2018 versus 2017 overview the following table presents selected financial data for the fiscal years ended december 31 , 2018 and 2017 ( in thousands , except percentages and per share data ) : replace_table_token_7_th 21 the results of our operations for 2018 set new company records in terms of revenues , operating income , operating margin ( operating income as a percentage of revenues ) , net income attributable to emcor group , inc. and diluted earnings per common share from continuing operations . the strong operating results were due to revenue growth within all of our reportable segments and an increase in operating income within the majority of our reportable segments . operating income and operating margin increased within all of our domestic reportable segments , except for our united states electrical construction and facilities services segment . the improved operating results were primarily attributable to : ( a ) our united states industrial services segment , as this segment 's results were negatively impacted by hurricane harvey during the second half of 2017 , and ( b ) improved operating performance within all divisions of our united states building services segment . the decrease in operating income and operating margin within our united states electrical construction and facilities services segment was attributable to $ 10.0 million of losses incurred on a transportation construction project in the western region of the united states , which negatively impacted our consolidated operating margin by 0.1 % . operating income for 2017 included $ 57.8 million of non-cash impairment charges , which resulted in a 0.8 % negative impact on the company 's operating margin . the results for 2017 also included the recovery of certain contract costs previously disputed on a project that was completed in 2016 within our united states mechanical construction and facilities services segment , which resulted in $ 18.1 million of gross profit and favorably impacted consolidated operating margin by 0.2 % . story_separator_special_tag the increase in revenues from our field services operations was due to an increase in turnaround project activity during the second half of 2018 as this division began to recover from the negative impact of hurricane harvey , which resulted in the cancellation of previously scheduled turnarounds during 2017 and early 2018. the increase in revenues from our shop services operations was due to increases in demand for new build heat exchangers , as well as our cleaning , repair and maintenance services . our united kingdom building services segment revenues were $ 414.9 million in 2018 compared to $ 340.7 million in 2017. the increase in revenues was the result of increased project activity with existing customers and new contract awards within the commercial , institutional and water and wastewater market sectors . this segment 's revenues were positively impacted by $ 15.2 million related to the effect of favorable exchange rates for the british pound versus the united states dollar . 23 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 , 2018 and 2017 ( in thousands , except for percentages ) : replace_table_token_9_th our gross profit for the year ended december 31 , 2018 was $ 1,205.5 million , a $ 58.4 million increase compared to gross profit of $ 1,147.0 million for the year ended december 31 , 2017. our gross profit margin was 14.8 % and 14.9 % for 2018 and 2017 , respectively . the increase in gross profit was attributable to improved operating performance within all of our reportable segments , except for the united states electrical construction and facilities services segment . gross profit and gross profit margin for the year ended december 31 , 2017 were favorably impacted by the recovery of certain contract costs previously disputed on a project that was completed in 2016 within our united states mechanical construction and facilities services segment , resulting in $ 18.1 million of gross profit and a 0.2 % favorable impact on the company 's 2017 gross profit margin . 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 , 2018 and 2017 ( in thousands , except for percentages ) : replace_table_token_10_th our selling , general and administrative expenses for the year ended december 31 , 2018 were $ 799.2 million , a $ 40.4 million increase compared to selling , general and administrative expenses of $ 758.7 million for the year ended december 31 , 2017. selling , general and administrative expenses as a percentage of revenues were 9.8 % and 9.9 % for 2018 and 2017 , respectively . the increase in selling , general and administrative expenses for the year ended december 31 , 2018 included $ 12.5 million of incremental expenses directly related to companies acquired in 2018 and 2017 , including amortization expense attributable to identifiable intangible assets of $ 1.3 million . in addition to the impact of acquisitions , selling , general and administrative expenses increased due to : ( a ) an increase in salaries , partially as a result of an increase in headcount due to higher revenues than in the prior year , ( b ) an increase in incentive compensation expense , due to higher annual operating results than in the prior year , and ( c ) increases in other selling , general and administrative expenses , such as information technology , consulting and other professional fees . the decrease in sg & a margin for the year ended december 31 , 2018 was partially due to a reduction in the provision for doubtful accounts , primarily within our united states electrical construction and facilities services segment and our united states building services segment , as well as an increase in revenues without commensurate increases in our overhead cost structure . restructuring expenses restructuring expenses , primarily relating to severance obligations , were $ 2.3 million and $ 1.6 million for the years ended december 31 , 2018 and 2017 , respectively . as of december 31 , 2018 and 2017 , the balance of restructuring related obligations yet to be paid was $ 1.6 million and $ 0.5 million , respectively . the majority of obligations outstanding as of december 31 , 2017 were paid during 2018. the majority of obligations outstanding as of december 31 , 2018 will be paid throughout 2019 and 2020. no material expenses in connection with restructuring from continuing operations are expected to be incurred during 2019. impairment loss on goodwill and identifiable intangible assets during the second quarter of 2018 and prior to our 2018 annual impairment test on october 1 , 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 additional impairment of our identifiable intangible assets was recognized for the year ended december 31 , 2018. additionally , no impairment of our goodwill was recognized for the year ended december 31 , 2018. in conjunction with our 2017 annual impairment test , we recognized $ 57.8 million of non-cash impairment charges . of this amount , $ 57.5 million related to goodwill within our united states industrial services segment and $ 0.3 million related to a subsidiary trade name within our united states building services segment .
| 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 , 2017 and 2016 ( in thousands , except for percentages ) : replace_table_token_14_th as described in more detail below , revenues for 2017 were $ 7.7 billion compared to $ 7.6 billion for 2016. increases in revenues within both of our domestic construction segments and our united kingdom building services segment were partially offset by decreases within our united states industrial services segment and our united states building services segment . the increase in revenues for 2017 was primarily attributable to incremental revenues of $ 192.4 million generated by companies acquired in 2017 and 2016 , 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 . revenues of our united states electrical construction and facilities services segment were $ 1,829.6 million for the year ended december 31 , 2017 compared to revenues of $ 1,704.4 million for the year ended december 31 , 2016. the increase in revenues was primarily attributable to an increase in revenues from commercial , institutional and healthcare construction projects . the increase in revenues within the commercial market sector was primarily a result of work performed on numerous telecommunication construction projects . the results for the year ended december 31 , 2017 included $ 50.4 million of incremental revenues generated by the acquisition of ardent .
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we operate in the following three segments : the eft processing segment , which processes transactions for a network of 37,133 atms and approximately 248,000 pos terminals across europe , the middle east and asia pacific . we provide comprehensive electronic payment solutions consisting of atm cash withdrawal and deposit services , atm network participation , outsourced atm and pos management solutions , credit and debit card outsourcing , dynamic currency conversion ( `` dcc '' ) , and other value added services . through this segment , we also offer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems . the epay segment , which provides distribution , processing and collection services for prepaid mobile airtime and other electronic content . we operate a network of approximately 707,000 pos terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic content in europe , the middle east , asia pacific , the united states and south america . we also provide vouchers and physical gift fulfillment services in europe . the money transfer segment , which provides global consumer-to-consumer money transfer services , primarily under the brand names ria , ime and xe and global account-to-account money transfer services under the brand name hifx . we offer services under the brand names ria and ime through a network of sending agents , company-owned stores ( primarily in north america , europe and malaysia ) and our websites ( riamoneytransfer.com and imeremit.com ) , disbursing money transfers through a worldwide correspondent network that includes approximately 343,000 locations . xe is a provider of foreign currency exchange information and offers money transfer services on its currency data websites ( xe.com and x-rates.com ) . we offer services under the brand name hifx through our hifx websites ( www.hifx.com , www.hifx.co.uk and www.hifx.com.au ) and hifx customer service representatives . in addition to money transfers , we also offer customers bill payment services ( primarily in the u.s. ) , payment alternatives such as money orders and prepaid debit cards , comprehensive check cashing services for a wide variety of issued checks , along with competitive foreign currency exchange services and prepaid mobile top-up . through our hifm brand , we offer cash management solutions and foreign currency risk management services to small-to-medium sized businesses . we have six processing centers in europe , five in asia pacific and two in north america . we have 35 principal offices in europe , 11 in asia pacific , nine in north america , three in the middle east , two in south america and one in africa . our executive offices are located in leawood , kansas , usa . with approximately 75 % of our revenues denominated in currencies other than the u.s. dollar , any significant changes in foreign currency exchange rates will likely have a significant impact on our results of operations ( for a further discussion , see item 1a - risk factors and item 7a - quantitative and qualitative disclosures about market risk ) . sources of revenues and cash flow euronet primarily earns revenues and income from atm management fees , transaction fees , commissions and foreign currency exchange margin . each operating segment 's sources of revenues are described below . eft processing segment — revenues in the eft processing segment , which represented approximately 28 % of total consolidated revenues for the year ended december 31 , 2017 , are derived from fees charged for transactions made by cardholders on our proprietary network of atms , fixed management fees and transaction fees we charge to customers for operating atms and processing debit and credit cards under outsourcing and cross-border acquiring agreements , foreign currency exchange margin on dcc transactions , and other value added services such as advertising , prepaid telecommunication recharges , bill payment , and money transfers provided over atms . revenues in this segment are also derived from license fees , professional services and maintenance fees for proprietary application software and sales of related hardware . 40 epay segment — revenues in the epay segment , which represented approximately 33 % of total consolidated revenues for the year ended december 31 , 2017 , are primarily derived from commissions or processing fees received from mobile phone operators for the processing and distribution of prepaid mobile airtime and commissions earned from the distribution of other electronic content , vouchers , and physical gifts . the proportion of epay segment revenues earned from the distribution of prepaid mobile phone time as compared with other electronic products has decreased over time , and non-mobile content now produces approximately 70 % of epay segment revenues . other electronic content offered by this segment includes digital content such as music , games and software , as well as , other products including prepaid long distance calling card plans , prepaid internet plans , prepaid debit cards , gift cards , vouchers , transport payments , lottery payments , bill payment , and money transfer . agreements with mobile operators and prepaid content providers are important to the success of our business , and these agreements permit us to distribute prepaid mobile airtime and other electronic payment products to retailers . money transfer segment — revenues in the money transfer segment , which represented approximately 39 % of total consolidated revenues for the year ended december 31 , 2017 , are primarily derived from transaction fees , as well as the margin earned from purchasing foreign currency at wholesale exchange rates and selling the foreign currency to customers at retail exchange rates . we have a sending agent network in place comprised of agents , customer service representatives , company-owned stores , primarily in north america , europe and malaysia , and ria , xe and hifx branded websites , along with a worldwide network of correspondent agents , consisting primarily of financial institutions in the transfer destination countries . story_separator_special_tag in certain markets in which we operate , many of the factors that may contribute to rapid growth ( growth in electronic content , expansion of our network of retailers and access to products of mobile operators and other content providers ) remain present . 42 money transfer segment — the continued expansion and development of our money transfer segment business will depend on various factors , including , but not necessarily limited to , the following : the continued growth in worker migration and employment opportunities ; the mitigation of economic and political factors that have had an adverse impact on money transfer volumes , such as changes in the economic sectors in which immigrants work and the developments in immigration policies in the countries in which we operate ; the continuation of the trend of increased use of electronic money transfer and bill payment services among high-income individuals , immigrant workers and the unbanked population in our markets ; our ability to maintain our agent and correspondent networks ; our ability to offer our products and services or develop new products and services at competitive prices to drive increases in transactions ; the development of new technologies that may compete with our money transfer network ; the expansion of our services in markets where we operate and in new markets ; our ability to strengthen our brands ; our ability to fund working capital requirements ; our ability to recover from agents funds collected from customers and our ability to recover advances made to correspondents ; our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate ; our ability to take advantage of cross-selling opportunities with our epay segment , including providing prepaid services through our stores and agents worldwide ; our ability to leverage our banking and merchant/retailer relationships to expand money transfer corridors to europe , asia and africa , including high growth corridors to central and eastern european countries ; the availability of financing for further expansion ; the ability to maintain banking relationships necessary for us to service our customers ; our ability to successfully expand our agent network in europe using our payment institution licenses under the payment services directive and in the united states ; and our ability to provide additional value-added products under the xe brand . the accounting policies of each segment are the same as those referenced in the summary of significant accounting policies ( see note 3 , summary of significant accounting policies and practices , to the consolidated financial statements ) . for all segments , our continued expansion may involve additional acquisitions that could divert our resources and management time and require integration of new assets with our existing networks and services . our ability to effectively manage our growth has required us to expand our operating systems and employee base , particularly at the management level , which has added incremental operating costs . an inability to continue to effectively manage expansion could have a material adverse effect on our business , growth , financial condition or results of operations . inadequate technology and resources would impair our ability to maintain current processing technology and efficiencies , as well as deliver new and innovative services to compete in the marketplace . 43 segment revenues and operating income for the years ended december 31 , 2017 , 2016 and 2015 replace_table_token_7_th story_separator_special_tag benefits was primarily attributable to additional headcount to support an increase in the number of atms and pos devices under management and our acquisition of yourcash . as a percentage of revenues , these costs decreased to 9.7 % for 2017 from 11.2 % for 2016 , primarily due to growth in revenues earned from dcc and other value added service transactions on our atms under management , which require minimal incremental support costs . selling , general and administrative selling , general and administrative expenses for 2017 were $ 33.2 million , an increase of $ 2.8 million or 9 % as compared to 2016 . the increase was primarily due to the impact of our acquisition of yourcash and additional support costs as a result of the increase in the number of atms under management . as a percentage of revenues , these expenses decreased to 5.2 % for 2017 from 6.5 % for 2016 . the decreases were primarily due to the growth in revenues from dcc and other value added service transactions on our atms under management , which require minimal support costs . acquired intangible assets impairment the company recorded a non-cash impairment charge of $ 2.3 million for 2017 related to certain customer relationships as a result of the closure of the pure commerce office in south korea . no impairment charges were recorded in 2016. depreciation and amortization depreciation and amortization expense increased $ 15.6 million for 2017 compared to 2016 . the increase was primarily attributable to the deployment of additional atms , including more expensive cash recycling atms , software assets , and the amortization of atms and intangible assets related to the acquisition of yourcash . as a percentage of revenues , depreciation and amortization expense was essentially flat at 8.8 % for 2017 and 8.6 % for 2016 . operating income eft processing segment operating income for 2017 was $ 162.9 million , an increase of $ 45.7 million or 39 % as compared to 2016 . operating income for 2017 increased primarily due to higher revenues from the additional number of atms under management , growth in revenues earned from dcc and other value added service transactions and the u.s. dollar weakening against key foreign currencies . operating income as a percentage of revenues ( “ operating margin ” ) was 25.7 % for 2017 compared to 25.2 % for 2016 . operating income per transaction increased to $ 0.07 for 2017 from $ 0.06 for 2016 .
| summary our annual consolidated revenues increased by 15 % for 2017 compared to 2016 and by 11 % for 2016 compared to 2015 . the increases in revenues for 2017 and 2016 were primarily due to an increase in the number of atms under management , along with an increase in demand for dynamic currency conversion ( `` dcc '' ) and other value added services in our eft processing segment , growth in the number of money transfers processed by the core ria business and the continued growth of the walmart-2-walmart money transfer service in our money transfer segment , and an increase in the number of non-mobile transactions processed by our epay subsidiaries . these increases were partly offset by decreases in the number of prepaid mobile transactions processed by our epay subsidiaries . the october 2016 acquisition of yourcash europe limited and its subsidiaries ( `` yourcash '' ) contributed to the increase in number of atms and transactions processed in our eft processing segment in 2017 and 2016. the increase in revenues for 2016 also was due to the inclusion of a full year of contribution from ime since its acquisition in june 2015. the increases in operating income for 2017 and 2016 were primarily due to the increase in atms under management , along with the increase in demand for dcc and other value added services , the increase in the number of money transfer transactions processed , including walmart-2-walmart transactions and those of our businesses acquired in 2015 , and the increase in the number of non-mobile transactions processed for epay . these increases were partly offset by a decrease in the number of prepaid mobile transactions processed .
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for entities that elect the fair value option , the difference between the carrying amount and the fair value of the financial asset story_separator_special_tag the following schedules show average balances of interest-earning and noninterest-earning assets and liabilities , and shareholders ' equity for the years indicated . also shown are the related amounts of interest earned or paid and the related average yields or interest rates paid for the years indicated . the averages are based on daily balances . ( fully taxable equivalent basis in thousands of dollars ) 2019 2018 2017 average balance outstanding interest earned or paid yield or rate average balance outstanding interest earned or paid yield or rate average balance outstanding interest earned or paid yield or rate interest-earning assets : interest-earning deposits and other earning assets $ 14,122 $ 299 2.12 % $ 8,564 $ 162 1.89 % $ 8,668 $ 98 1.13 % investment securities ( note 1 , 2 , 3 ) : taxable 78,745 1,905 2.42 % 93,372 2,270 2.43 % 101,768 2,229 2.19 % nontaxable 61,079 2,028 3.32 % 55,566 1,851 3.33 % 66,886 2,853 4.26 % total investment securities 139,824 3,933 2.81 % 148,938 4,121 2.77 % 168,654 5,082 3.01 % loans ( note 1 , 2 , 3 , 4 ) 492,970 25,789 5.23 % 473,527 23,830 5.03 % 415,251 19,257 4.64 % total interest-earning assets 646,916 $ 30,021 4.64 % 631,029 $ 28,113 4.46 % 592,573 $ 24,437 4.12 % noninterest-earning assets : cash and due from banks 7,569 7,277 7,804 premises and equipment 10,366 9,089 9,193 other assets 32,400 25,111 27,345 total assets $ 697,251 $ 672,506 $ 636,915 interest-bearing liabilities : deposits : interest-bearing demand deposits $ 197,196 $ 1,879 0.95 % $ 197,856 $ 1,378 0.70 % $ 168,536 $ 751 0.45 % savings 110,473 102 0.09 % 112,508 97 0.09 % 114,261 90 0.08 % time 141,080 2,862 2.03 % 120,986 2,052 1.70 % 128,251 1,730 1.35 % total interest-bearing deposits 448,749 4,843 1.08 % 431,350 3,527 0.82 % 411,048 2,571 0.63 % borrowings : securities sold under agreement to repurchase 1,493 5 0.33 % 1,679 6 0.33 % 2,018 7 0.33 % subordinated debt 5,155 203 3.89 % 5,155 189 3.61 % 5,155 138 2.64 % federal home loan bank advances - short term 4,786 129 2.70 % 18,899 374 1.98 % 16,917 175 1.03 % federal home loan bank advances - long term 18,000 374 2.08 % 15,288 287 1.88 % 14,842 299 2.01 % total borrowings 29,434 711 2.42 % 41,021 856 2.09 % 38,932 619 1.59 % total interest-bearing liabilities 478,183 $ 5,554 1.16 % 472,371 $ 4,383 0.93 % 449,980 $ 3,190 0.71 % noninterest-bearing liabilities : demand deposits 135,388 128,571 116,605 other liabilities 13,093 10,044 10,332 shareholders ' equity 70,587 61,520 59,998 total liabilities and shareholders ' equity $ 697,251 $ 672,506 $ 636,915 net interest income $ 24,467 $ 23,730 $ 21,247 net interest rate spread ( note 5 ) 3.48 % 3.53 % 3.41 % net interest margin ( note 6 ) 3.79 % 3.76 % 3.59 % note 1 – includes both taxable and tax-exempt securities and loans . note 2 – the amounts are presented on a fully taxable equivalent basis using the statutory rate of 21 % in 2019 and 2018 and 34 % in 2017 , and have been adjusted to reflect the effect of disallowed interest expenses related to carrying tax-exempt assets . the tax equivalent income adjustment for loans and investment securities was $ 6,000 and $ 372,000 , respectively , for december 31 , 2019 ; $ 7,000 and $ 357,000 , respectively , for december 31 , 2018 ; and $ 14,000 and $ 931,000 , respectively , for december 31 , 2017. note 3 – average balance outstanding includes the average amount outstanding of all non-accrual investment securities and loans . investment securities consist of average total principal adjusted for amortization of premium and accretion of discount and include both taxable and tax-exempt securities . loans consist of average total loans , including loans held for sale , less average unearned income . note 4 – interest earned on loans includes net loan fees of $ 812,000 in 2019 , $ 725,000 in 2018 and $ 443,000 in 2017. note 5 – net interest rate spread represents the difference between the yield on earning assets and the rate paid on interest-bearing liabilities . note 6 – net interest margin is calculated by dividing the net interest income by total interest-earning assets . 25 financial review the following is management 's discussion and analysis of the financial condition and results of operations of the company . the discussion should be read in conjunction with the consolidated financial statements and related notes and summary financial information included elsewhere in this annual report . note regarding forward-looking statements the private securities litigation reform act of 1995 provides a “ safe harbor ” for forward-looking statements . in addition to historical information , certain information included in this discussion and other materials filed or to be filed by the company with the sec ( as well as information included in oral statements or other written statements made or to be made by the company ) may contain forward-looking statements that involve risks and uncertainties . the words “ believes , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ projects , ” “ contemplates , ” “ anticipates , ” “ forecasts , ” “ intends , ” or similar terminology identify forward-looking statements . these statements reflect management 's beliefs and assumptions , and are based on information currently available to management . economic circumstances , the company 's operations and actual results could differ significantly from those discussed in any forward-looking statements . story_separator_special_tag the appropriate classification is based partially on our ability to hold the securities to maturity and largely on management 's intentions , if any , with respect to either holding or selling the securities . the classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities . unrealized gains and losses on trading securities , if any , flow directly through earnings during the periods in which they arise , whereas available-for-sale securities are recorded as a separate component of shareholders ' equity ( accumulated other comprehensive income or loss ) and do not affect earnings until realized . the fair values of our investment securities are generally determined by reference to quoted market prices and reliable independent sources . at each reporting date , the company assesses whether there is an “ other-than-temporary ” impairment to the company 's investment securities . such impairment must be recognized in current earnings rather than in other comprehensive income ( loss ) . the company reviews investment debt securities on an ongoing basis for the presence of other-than-temporary impairment ( otti ) with formal reviews performed quarterly . otti losses on individual investment securities are recognized in accordance with fasb asc topic 320 , investments – debt and equity securities . the purpose of this asc is to provide greater clarity to investors about the credit and noncredit component of an otti event and to communicate more effectively when an otti event has occurred . this asc amends the otti guidance in gaap for debt securities , improves the presentation and disclosure of otti on investment securities and changes the calculation of the otti recognized in earnings in the financial statements . this asc does not amend existing recognition and measurement guidance related to otti of equity securities . for debt securities , asc topic 320 requires an entity to assess whether it has the intent to sell the debt security or it is more-likely-than-not that it will be required to sell the debt security before its anticipated recovery . if either of these conditions is met , an otti on the security must be recognized . in instances in which a determination is made that a credit loss ( defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis ) exists but the entity does not intend to sell the debt security and it is not more-likely-than-not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis ( i.e. , the amortized cost basis less any current-period credit loss ) , asc topic 320 changes the presentation and amount of the otti recognized in the income statement . 27 in these instances , the impairment is separated into the amount of the total impairment related to the credit loss and the amount of the total impairment related to all other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings . the amount of the total impa irment related to all other factors is recognized in other comprehensive income ( loss ) . the total otti is presented in the income statement with an offset for the amount of the total otti that is recognized in other comprehensive income ( loss ) . in determin ing the amount of impairment related to credit loss , the company uses a third party discounted cash flow model , several inputs for which require estimation and judgment . among these inputs are projected deferral and default rates and estimated recovery rat es . realization of events different than that projected could result in a large variance in the values of the securities . additional information regarding investment securities can be found in item 8 , notes 2 and 11 to the consolidated financial statements and elsewhere in this management 's discussion and analysis . income taxes the provision for income taxes is based on income reported for financial statement purposes and differs from the amount of taxes currently payable , since certain income and expense items are reported for financial statement purposes in different periods than those for tax reporting purposes . accrued taxes represent the net estimated amount due or to be received from taxing authorities . in estimating accrued taxes , the company assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory , judicial and regulatory guidance in the context of the company 's tax position . the company accounts for income taxes using the asset and liability approach , the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and tax basis of our assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled . the company conducts periodic assessments of deferred tax assets , including net operating loss carryforwards , to determine if it is more-likely-than-not that they will be realized . in making these assessments , the company considers taxable income in prior periods , projected future taxable income , potential tax planning strategies and projected future reversals of deferred tax items . these assessments involve a certain degree of subjectivity which may change significantly depending on the related circumstances . corporate profile the company , with total assets of approximately $ 737 million at december 31 , 2019 , is a bank holding company headquartered in cortland , ohio whose principle activity is to manage , supervise and otherwise serve as a source of strength to the bank . cortland bank is a state-chartered bank engaged in commercial and retail banking services . the bank offers a full range of financial services to its local communities with an ongoing strategic focus on commercial banking relationships .
| highlights of 2019 financial results : net income of $ 7.23 million , or $ 1.68 per share for 2019. this compares to net profits of $ 7.32 million , or $ 1.68 per share , in the previous year as stated on a normalized basis , after adjusting for non-recurring items , including $ 51,000 and $ 1.55 million gains on life insurance proceeds received on life insurance policies upon the death of former directors or officers that exceeded the cash value of the policies . the company 's net interest margin for the year ended december 31 , 2019 improved to 3.79 % versus 3.76 % for the same period last year despite three rate cuts enacted by the federal open market committee in 2019. the return on average asset ratio for the company was 1.04 % for the year compared to 1.31 % for the same period in 2018. likewise , the return on average equity ratio for the company was 10.32 % for the year compared to 14.36 % for the same period in 2018. ratios in 2018 are unadjusted for the $ 1.55 million life insurance gain . 28 the efficiency rati o for the company was 67.01 % for the year versus 64.82 % for 2018. non-interest expenses of $ 19.8 million for the full year represent a 9.2 % increase over the $ 18.1 million reported for 2018. the increase in expenses is a result of onboarding costs relating to the nasdaq listing , increased equity awards and new branch initiatives . a quarterly cash dividend of $ 0.14 per share was payable on march 2 , 2020 to shareholders of record on february 10 , 2020 , a 17 % increase over the previous $ 0.12 per share . in addition , a special cash dividend of $ 0.05 per share was payable concurrently , reflecting the consistent earnings performance . the effective tax rate was 15.7 % compared to 13.8 % for 2019 and 2018 , respectively .
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during the period in which brac was consolidated , the net earnings attributable to the ipo shareholders are subtracted from the net gain ( loss ) for any period to arrive at the net loss attributable to the company and the non-controlling interest on the balance sheet is adjusted to include the net earnings attributable to the ipo shareholders . deconsolidation of brac additionally , us gaap ( asc 810-10-40 ) provides guidance on “ derecognition ” of a previously consolidated entity or entities . under this guidance , the company shall account for the deconsolidation of a subsidiary or derecognition of a group of assets specified in asc 810-10-40-3a by recognizing a gain or loss in net income attributable to the parent , measured as the difference between the combination of : a ) the fair value of : · any consideration received . in this case , the company received no consideration . · any retained non-controlling investment in the former subsidiary or group of assets at the date the subsidiary is deconsolidated , or the group of assets is derecognized . in this case the fair value of the brac common stock at the close of the business combination was $ 11,950,475 , and ; b ) the carrying amount of the former subsidiaries assets and liabilities or the carrying amount of the group of assets . with the above guidance the company determined that the effect of the deconsolidation of brac produced a non-cash adjustment , resulting in a gain of $ 20,448,687 . intercompany transactions and eliminations brog was paid a management fee by aese of $ 10,000 per month as part of an administrative services agreement , which commenced october 5 , 2017 and ended on the date of the merger , for general and administrative services including the cost of office space and personnel dedicated to aese . brog was also reimbursed for any out-of-pocket expenses , particularly travel , incurred in connection with activities on aese 's behalf , including but not limited to identifying potential target businesses and performing due diligence on suitable business combinations . aese paid a total of $ 72,903 to brog for such services in 2019 , prior to the merger and while aese remained a vie and was consolidated and included in our loss on discontinued operations . the management services income of brog and the management services expense of aese as well as any balances due between the companies for such services or reimbursements were eliminated in consolidation . management fees earned by brog of $ 466,595 subject to the management services agreement between aese and brog in effect subsequent to the merger were not eliminated . f- 14 sow good , inc. ( formerly black ridge oil & gas , inc. ) notes to the financial statements note 6 – related party common stock awarded pursuant to business combination on october 1 , 2020 , the company issued 1,120,000 shares of common stock to s-fdf , llc , a texas limited liability company co-owned by claudia and ira goldfarb , pursuant to an asset purchase agreement , between the company and the seller . the issuance represented 41.18 % of the company 's issued and outstanding common stock at the time . the fair value of the common stock was $ 6,720,000 based on the closing price of the company 's common stock on the date of grant . the number of seller shares to be issued was subject to adjustment , as specified in the amended asset purchase agreement , based on the extent to which the amount of cash proceeds held by the company , as derived from the sale of the company 's holdings of allied esports entertainment inc. ( `` aese `` ) shares , were less than $ 5 million or greater than $ 6 million on the date specified in the asset purchase agreement . this resulted in an additional 500,973 seller shares that were issued on january 4 , 2021. the combined issuances represented approximately 46 % of the company 's issued and outstanding common stock , on a fully diluted basis . the fair value of the 500,673 shares was $ 1,853,600 , based on the closing price of the company 's common stock on the date of grant , was presented as common stock payable as of december 31 , 2020. common stock issued to officers for services , common stock payable on january 4 , 2021 , the board amended claudia and ira goldfarb 's employment agreements to issue shares of common stock in equal monthly increments of 5,541 and 6,044 shares , respectively , following each month of employment from october 2020 through december 31 , 2021. the company awarded an aggregate 16,623 and 18,133 shares of common stock to claudia and ira , respectively , for their services from october through december 31 , 2020 as a common stock payable . the aggregate fair value of the shares was $ 61,505 and $ 67,092 for claudia and ira , respectively , based on the closing price of the company 's common stock on the date of grant , was presented as common stock payable as of december 31 , 2020 . the shares were subsequently issued on january 4 , 2021. common stock issued to directors for services on october 1 , 2020 , the company issued an aggregate 20,835 shares of common stock amongst its five directors for annual services to be rendered . the aggregate fair value of the common stock was $ 125,010 , based on the closing price of the company 's common stock on the date of grant . the shares were expensed upon issuance . story_separator_special_tag following the ipo and over-allotment , brog owned 22 % of the outstanding common stock of brac and managed brac 's operations via a management services agreement through december 31 , 2019. on december 19 , 2018 , brac entered into a business combination agreement , which subsequently closed on august 9 , 2019. brac was renamed allied esports entertainment , inc. following the merger , or “ aese ” , and referred to herein , as such . 11 going concern uncertainty as of december 31 , 2020 , the company had a cash balance of $ 1,912,729 and total working capital of $ 1,768,153. based on projections of cash expenditures in the company 's current business plan , the cash on hand would be insufficient to sustain operations over the next year . on february 5 , 2021 , we raised $ 2.525 million from the sale of an aggregate 631,250 shares of the company 's common stock at $ 4.00 per share , resulting in approximately $ 2.7 million of cash on hand and $ 650,000 of liquid securities for a combined liquidity of $ 3.35 million as of march 19 , 2021. we continue to pursue sources of additional capital through various financing transactions or arrangements , including equity financing or other means . we may not be successful in identifying suitable funding transactions in a sufficient time period or at all , and we may not obtain the capital we require by other means . if we do not succeed in raising additional capital , our resources may not be sufficient to fund our business . our ability to scale production and distribution capabilities and further increase the value of our brands , is largely dependent on our success in raising additional capital . the report of the company 's independent registered public accounting firm that accompanies its audited financial statements in this annual report on form 10-k contains an explanatory paragraph regarding the substantial doubt about the company 's ability to continue as a going concern . the financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty . story_separator_special_tag margin : 0pt 0 '' > results of operations for the years ended december 31 , 2020 and 2019. the following table summarizes selected items from the statement of operations for the years ended december 31 , 2020 and 2019. replace_table_token_1_th management fee revenue the company earned $ 466,595 in management fees for the year ended december 31 , 2019 , from its management agreement with brac subsequent to the mergers . the company did not earn any management fees during the year ended december 31 , 2020 . 14 general and administrative expenses salaries and benefits salaries and benefits for the year ended december 31 , 2020 were $ 1,477,124 , compared to $ 1,172,745 for the year ended december 31 , 2019 , an increase of $ 304,379 , or 26 % . the increase in salaries and benefits was primarily due to severance pay accrued pursuant to the separation agreements for the former management team , as we transitioned to our new line of business . stock-based compensation stock-based compensation expense for the year ended december 31 , 2020 was $ 726,656 , compared to $ 100,526 for the year ended december 31 , 2019 , an increase of $ 626,130 , or 623 % . stock-based compensation consisted of stock options expense in both periods , in addition to $ 268,608 of expense related to the issuance of common stock to officers and directors incurred during the year ended december 31 , 2020. amortization of stock options increased as new options were granted toward the end of february 2020 , with a five-year vesting period , and the vesting period was accelerated pursuant to separation agreements entered into on september 30 , 2020. deferred compensation deferred compensation expense for the year ended december 31 , 2019 was $ 1,396,460 , consisting of expense related to the 2018 management incentive plan ( the “ 2018 plan ” ) . there was no deferred compensation expense in the current period . professional services general and administrative expenses related to professional services were $ 451,125 for the 2020 period , compared to $ 132,505 for the 2019 period , an increase of $ 318,620 , or 240 % . the increase was primarily due to legal costs related to our asset purchase agreement with s-fdf , llc . other general and administrative expenses other general and administrative expenses for the year ended december 31 , 2020 were $ 350,875 , compared to $ 259,968 for the year ended december 31 , 2019 , an increase of $ 90,907 , or 35 % . the increase is attributable to increased administrative activity in the fourth quarter pursuant to the development of our freeze-dried foods business . depreciation depreciation expense for the year ended december 31 , 2020 was $ 3,642 , compared to $ 872 for year ended december 31 , 2019. the increase is attributable to the significant increase in capital expenditures incurred as we developed our freeze-dried foods production facility . other income ( expense ) in the year ended december 31 , 2020 , other expense was $ 2,311,517 , consisting of $ 386,164 of interest expense derived from operating loans , including $ 377,440 of warrants issued as consideration to officers and directors in exchange for their personal guarantees , a loss on the disposal of equipment of $ 5,369 , and a net loss on investments in allied esports entertainment , inc. securities of $ 1,925,029 , as offset by a $ 5,000 grant from the small business administration under theireidl program and $ 45 of interest income .
| overview of 2020 results our 2020 results were largely dominated by managing , searching for potential business combination candidates and ultimately closing the business combination with s-fdf , llc to enter into the freeze-dried foods business . we did not earn any revenues in 2020 , compared to earning $ 466,595 in management fees for the year ended december 31 , 2019 , from our management agreement with brac subsequent to the aese transaction . we anticipate generating revenues from our freeze-dried foods business in 2021. our general and administrative expenses remained relatively consistent throughout 2020 , driven primarily by salaries and benefits amounting to $ 1,477,124. our stock-based compensation of $ 1,104,096 consisted of $ 268,608 of stock issued to officers and directors , $ 458,048 of expense related to the amortization of stock options and $ 377,440 of expense related to warrants issued to officers and directors as a debt discount for their personal guarantee on a line of credit . application of critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . 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 disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to impairment of property , plant and equipment , intangible assets , deferred tax assets and fair value computation using the black scholes option pricing model .
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we performed several processes to ascertain the story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes beginning on page f-1 . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in the forward looking statements as a result of various factors described in this report . story_separator_special_tag style= '' text-align : justify ; margin-top:12pt ; margin-bottom:0pt ; text-indent:0 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > included in losses and loss adjustment expense for the year ended december 31 , 2017 was $ 107.6 million related to ariel re . net catastrophe losses for the year ended december 31 , 2017 totaled $ 127.2 million resulting from hurricanes harvey , irma and maria , the california wildfires , other storm losses primarily in the united states and the mexican earthquakes . partially offsetting these catastrophe losses was $ 8.2 million of net favorable development on prior accident year loss reserves , which is presented in the table below . we also experienced higher than anticipated non-catastrophe current accident year property losses in 2017. included in losses and loss adjustment expenses for 2016 were $ 63.9 million in catastrophe losses resulting from storm activity in the united states , including hurricane matthew and the louisiana floods , the alberta wildfires and the taiwan and new zealand earthquakes . partially offsetting these current accident year losses was $ 33.3 million of net favorable development on prior accident year loss reserves , primarily attributable to favorable development in our commercial automobile , property reinsurance , surety and commercial multiple peril lines , partially offset by unfavorable development in our general liability line . included in losses and loss adjustment expenses for 2015 were $ 24.9 million in catastrophe losses resulting from united states and other storm activity , and the tianjin explosion . partially offsetting these current accident year losses was $ 32.4 million of net favorable development on prior accident year loss reserves , primarily attributable to favorable development in our general liability line , our syndicate 1200 liability lines and our commercial automobile lines , partially offset by unfavorable development in our workers compensation and commercial multi-peril lines . the following table summarizes the above referenced loss reserve development as respects prior year loss reserves by line of business for the year ended december 31 , 2017 : replace_table_token_7_th 45 in determining appropriate reserve levels for the year ended december 31 , 2017 , we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates . no significant changes in methodologies were made to estimate the reserves since the last reporting date ; however , at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate . consistent with prior reserve valuations , as claims data becomes more mature for prior accident years , actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data . while prior accident years ' net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years , this does not imply that more recent accident years ' reserves also will develop favorably ; pricing , reinsurance costs , legal environment , general economic conditions including changes in inflation and many other factors impact our ultimate loss estimates . consolidated gross reserves for loss and loss adjustment expenses were $ 4,201.0 million ( including $ 226.8 million of reserves attributable to syndicate 1200 's trade capital providers ) , $ 3,350.8 million ( including $ 156.1 million of reserves attributable to syndicate 1200 's trade capital providers ) and $ 3,123.6 million ( including $ 102.3 million of reserves attributable to syndicate 1200 's trade capital providers ) as of december 31 , 2017 , 2016 and 2015 , respectively . management has recorded its best estimate of loss reserves at each date based on current known facts and circumstances . due to the significant uncertainties inherent in the estimation of loss reserves , there can be no assurance that future loss development , favorable or unfavorable , will not occur . consolidated underwriting , acquisition and insurance expenses were $ 635.4 million , $ 547.0 million and $ 536.7 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . ariel re contributed $ 31.6 million in underwriting expenses for the year ended december 31 , 2017. the expense ratio for the year ended december 31 , 2017 as compared to the same period in 2016 was negatively impacted by the aforementioned reduction to earned premiums for catastrophe-related reinsurance premium adjustments and additional group reinsurance contracts purchased in connection with risk management activities following the acquisition of ariel re . these adjustments increased the expense ratio by 1.0 percentage point . the remaining increase in the expense ratio was primarily attributable to increased information technology costs and higher personnel expenses in our strategic growth units . additionally , included in our non-acquisition expenses for the year ended december 31 , 2017 was $ 2.5 million in transaction costs related to the ariel re acquisition . the decline in the expense ratio for 2016 as compared to 2015 was primarily attributable to increased ceding commissions received , reduced contingent commissions payable and lower equity stock compensation expenses , partially offset by increased premium taxes and assessment expenses . consolidated interest expense was $ 27.7 million , $ 19.6 million and $ 19.0 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . included in consolidated interest expense for the year ended december 31 , 2017 was $ 4.2 million from the operations of ariel re . story_separator_special_tag realized investment gains and losses are reported as a component of the corporate and other segment , as decisions regarding the acquisition and disposal of securities reside with the corporate investment function and are not under the control of the individual business segments . although this measure of profit ( loss ) does not replace net income ( loss ) computed in accordance with gaap as a measure of profitability , management uses this measure of profit ( loss ) to focus our reporting segments on generating operating income . since we generally manage and monitor the investment portfolio on an aggregate basis , the overall performance of the investment portfolio , and related net investment income , is discussed above on a combined basis under consolidated net investment income rather than within or by segment . 47 u.s. operations the following table summarizes the results of operations for the u.s. operations segment : replace_table_token_8_th gross written and earned premiums gross written and earned premiums by our four primary insurance lines were as follows : replace_table_token_9_th property the increase in gross written premiums for the year ended december 31 , 2017 as compared to the same period in 2016 was due to launching new programs in 2017 , partially offset by reductions from the termination of a fronted program in 2017 , as well as planned underwriting actions taken to optimize our underwriting results . earned premiums were reduced by $ 9.2 million during the year ended december 31 , 2017 due to reinsurance premium adjustments associated with the third quarter 2017 catastrophe events and additional group reinsurance contracts purchased in connection with risk management activities following the acquisition of ariel re . underwriting actions taken in certain programs to optimize results also account for the reduction in earned premiums during the year ended december 31 , 2017 as compared to the same period in 2016. the increase in gross written premiums for the year ended december 31 , 2016 as compared to the same period in 2015 was primarily due to growth in one of our fronting programs , which did not impact earned premiums , but resulted in a ceding commission received . the decrease in earned premiums for the year ended december 31 , 2016 as compared to the same period in 2015 was primarily due to planned decisions to exit certain classes of business and underwriting actions in risk bearing programs . liability the increase in gross written and earned premiums for the year ended december 31 , 2017 as compared to the same period in 2016 was primarily due to new programs launched in 2017 and late 2016 that capitalized on targeted growth initiatives in the specialty and general casualty lines . our workers compensation business grew during the comparative periods , benefiting from the improving u.s. economy and the upturn in the coal market . 48 the growth in gross written and earned premiums for the year ended december 31 , 2016 as compared to the same period in 2015 was due to strategic growth in our specialty and general casualty lines , partially offset by reductions from planned exits in certain programs . professional the increase in gross written and earned premiums for the year ended december 31 , 2017 as compared to the same period in 2016 was driven by the introduction of new coverage products in all u.s. professional lines and higher production associated with increasing our underwriting staff . more than half of the increase in gross written premiums for the year ended december 31 , 2016 as compared to the same period in 2015 was driven by our management liability products . our cyber liability and lawyers ' professional liability lines also contributed significantly to the increase . the growth in earned premiums was due to changes in reinsurance structure , which resulted in more earned premiums being retained in 2016. specialty the increase in gross written and earned premiums for the year ended december 31 , 2017 as compared to the same periods in 2016 and 2015 was driven by growth from new business in our surety lines and new specialty risk programs that were introduced throughout the comparative periods . loss and loss adjustment expenses the increase in the loss ratio for the year ended december 31 , 2017 as compared to the same period in 2016 was primarily due to increased non-catastrophe current accident year property losses in 2017. the decrease in the loss ratio for the year ended december 31 , 2016 compared to the same period in 2015 was primarily attributable to higher net favorable loss reserve development on prior accident years and improvement in non-catastrophe current accident year results , partially offset by increased catastrophe losses . included in losses and loss adjustment expense for the year ended december 31 , 2017 was $ 16.8 million in catastrophe losses from hurricanes harvey and irma , other smaller storms and the california wildfires . offsetting the catastrophe losses was $ 38.7 million of net favorable loss reserve development on prior accident years which was primarily concentrated in our general liability , workers compensation , surety and commercial automobile lines . we also experienced increased non-catastrophe current accident year property losses in 2017. included in losses and loss adjustment expense for the year ended december 31 , 2016 was $ 14.2 million in catastrophe losses from hurricane matthew , the louisiana floods and various storm activity in the united states . offsetting the catastrophe losses was $ 35.9 million of net favorable loss reserve development on prior accident years primarily attributable to favorable development in our commercial automobile , workers compensation , surety and commercial multiple peril lines , partially offset by unfavorable development in our general liability lines . included in losses and loss adjustment expense for the year ended december 31 , 2015 was $ 10.7 million in catastrophe losses from storm activity in the united states .
| consolidated results of operations for the year ended december 31 , 2017 , we reported net income of $ 50.3 million , or $ 1.64 per fully diluted share . effective february 6 , 2017 , we completed the acquisition of maybrooke holdings , s.a. , and its subsidiaries , including ariel reinsurance , ltd. ( collectively “ ariel re ” ) . included in our consolidated results of operations for the year ended december 31 , 2017 is activity specifically attributable to ariel re from the date of acquisition . for the year ended december 31 , 2016 , we reported net income of $ 146.7 million , or $ 4.75 per fully diluted share . for the year ended december 31 , 2015 we reported net income of $ 163.2 million , or $ 5.20 per fully diluted share . 43 the following is a comparison of select data from our results of operations : replace_table_token_5_th consolidated gross written and earned premiums by our four primary insurance lines were as follows : replace_table_token_6_th the increase in consolidated gross written premiums for the year ended december 31 , 2017 as compared to the same period in 2016 was attributable to growth across all product lines as we continue to focus on introducing new products and increasing renewal retention . additionally , ariel re contributed gross written premiums of $ 298.1 million for the year ended december 31 , 2017. during 2017 , all product lines experienced increased competition and pressure on rates due to market conditions . consolidated earned premiums increased for the year ended december 31 , 2017 as compared to the same period in 2016 due to the growth in gross written premiums . the increase in consolidated earned premiums for the year ended december 31 , 2017 includes ariel re earned premiums of $ 123.3 million .
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changes in the fair value of derivatives that are designated as cash flow hedges are deferred to the extent that the hedges are effective . these fair value changes are recorded as a component of accumulated oci until the hedged transactions occur and are recognized in earnings . the ineffective portion of changes in the fair value of cash flow hedges is recognized immediately in earnings . in addition , any change in the fair value of a derivative that does not qualify for hedge accounting is recorded in earnings in the period in which the change occurs . 62 interest rate risk from time to time , we story_separator_special_tag results of operations the following management 's discussion and analysis should be read in conjunction with our historical consolidated financial statements located in item 8. financial statements and supplementary data of this annual report . any reference to notes in the following management 's discussion and analysis refers to the notes to consolidated financial statements located in item 8. financial statements and supplementary data of this annual report . the results of operations reported and summarized below are not necessarily indicative of future operating results . this discussion also contains forward-looking statements that reflect our current views with respect to future events and financial performance . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , such as those set forth under item 1a . risk factors and located earlier in this annual report . executive summary our strategy we are an international offshore energy services company that provides specialty services to the offshore energy industry , with a focus on well intervention and robotics operations . we believe that focusing on these services will deliver favorable long-term financial returns . from time to time , we make strategic investments that expand our service capabilities or add capacity to existing services in our key operating regions . our well intervention capacity expanded when we took delivery of the q5000 in april 2015. our well intervention fleet is expected to further expand following the construction of the q7000 , a newbuild semi-submersible vessel , and its delivery in late 2017 or in 2018 , and the delivery in 2016 of the siem helix i and siem helix ii vessels , which we will charter in connection with the well intervention agreements that we entered into with petrobras . with respect to our robotics business , we took delivery of the grand canyon ii in april 2015 and we expect to take delivery of the grand canyon iii in may 2016. in order to accommodate the addition of these two chartered vessels to our robotics fleet , and as a response to the decline in industry market conditions , we returned the olympic canyon , a chartered vessel , to its owner early in november 2015 , and intend to return a second chartered vessel , the rem installer , to its owner when the charter ends in july 2016. in january 2015 , helix , onesubsea llc , onesubsea b.v. , schlumberger technology corporation , schlumberger b.v. and schlumberger oilfield holdings ltd. entered into a strategic alliance agreement and related agreements for the parties ' strategic alliance to design , develop , manufacture , promote , market and sell on a global basis integrated equipment and services for subsea well intervention . the alliance is expected to leverage the parties ' capabilities to provide a unique , fully integrated offering to clients , combining marine support with well access and control technologies . in april 2015 , we and onesubsea jointly ordered a 15,000 working p.s.i . irs , which is expected to be completed by july 2017 for a total cost of approximately $ 27.5 million ( approximately $ 13.8 million for our 50 % interest ) . economic outlook and industry influences demand for our services is primarily influenced by the condition of the oil and gas industry , and in particular , the willingness of oil and gas companies to make capital expenditures for offshore exploration , drilling and production operations . the performance of our business is also largely dependent on the prevailing market prices for oil and natural gas , which are impacted by domestic and global economic conditions , hydrocarbon production and capacity , geopolitical issues , weather , and several other factors , including : worldwide economic activity , including available access to global capital and capital markets ; supply and demand for oil and natural gas , especially in the united states , europe , china and india ; regional conflicts and economic and political conditions in the middle east and other oil-producing regions ; actions taken by opec ; the availability and discovery rate of new oil and natural gas reserves in offshore areas ; the exploration and production of onshore shale oil and natural gas ; 31 the cost of offshore exploration for and production and transportation of oil and natural gas ; the level of excess production capacity ; the ability of oil and gas companies to generate funds or otherwise obtain external capital for exploration , development and production operations ; the sale and expiration dates of offshore leases in the united states and overseas ; technological advances affecting energy exploration , production , transportation and consumption ; potential acceleration of the development of alternative fuels ; shifts in end-customer preferences toward fuel efficiency and the use of natural gas ; weather conditions and natural disasters ; environmental and other governmental regulations ; and domestic and international tax laws , regulations and policies . oil prices have fallen almost 75 % since mid-year 2014. the decline in oil prices reflects expectations of a sustained increase in production by competing oil exporters such as opec amid continued global supply of oil in excess of demand . lower oil prices have had a significant adverse impact on investments in oil and gas exploration and production . story_separator_special_tag 35 the gross profit associated with our robotics segment decreased by 52 % in 2015 as compared to 2014 primarily reflecting decreased utilization for our robotics assets , less spot work in 2015 and reduced profit margins on any newly awarded work . excluding the $ 133.4 million impairment charge for the hp i , the gross profit related to our production facilities segment decreased by 35 % in 2015 as compared to 2014 . the decrease primarily reflects the decrease in revenues associated with our variable throughput fee , which was adversely affected by the decrease in oil prices and lower production volumes from the phoenix field . goodwill impairment . the $ 16.4 million impairment charge in 2015 reflects the write-off of the entire goodwill balance associated with our u.k. well intervention reporting unit ( notes 2 and 6 ) . gain on disposition of assets , net . the $ 10.2 million net gain on disposition of assets in 2014 primarily reflects a $ 10.5 million gain associated with the sale of our ingleside spoolbase in january 2014 ( note 4 ) . selling , general and administrative expenses . our selling , general and administrative expenses decreased by $ 35.2 million in 2015 as compared to 2014 . the decrease was primarily attributable to a reduction in payroll-related costs including costs associated with our variable performance-based incentive compensation programs ( note 12 ) and overhead cost saving measures including headcount reductions . our selling , general and administrative expenses as a percentage of net revenues remained consistent in the comparable year-over-year periods . equity in earnings ( losses ) of investments . equity in earnings ( losses ) of investments was $ ( 124.3 ) million in 2015 and $ 0.9 million in 2014 . the losses in 2015 primarily reflect our share of impairment charges that deepwater gateway and independence hub recorded in december 2015 ( note 5 ) . net interest expense . our net interest expense totaled $ 26.9 million in 2015 as compared to $ 17.9 million in 2014 primarily reflecting an increase in interest expense and a decrease in interest income , partially offset by an increase in capitalized interest . the increase in interest expense was associated with the nordea q5000 loan , which was funded in april 2015 ( note 7 ) . interest income totaled $ 2.1 million for 2015 as compared to $ 4.8 million for 2014 . the amount of interest income for 2014 includes $ 2.1 million from a u.s. internal revenue service income tax refund ( note 8 ) . interest on debt used to finance capital projects is capitalized and thus reduces overall interest expense . capitalized interest totaled $ 11.0 million for 2015 as compared to $ 10.4 million for 2014 . other income ( expense ) , net . we reported other expense , net , of $ 24.3 million for 2015 as compared to other income , net , of $ 0.8 million in 2014 . net other expense for 2015 primarily reflects losses associated with our foreign currency exchange contracts , including $ 18.0 million upon de-designation of our grand canyon ii and grand canyon iii hedges and $ 5.1 million related to our hedge ineffectiveness ( note 18 ) . net other income for 2014 included losses of $ 1.7 million related to our hedge ineffectiveness . also included in other income ( expense ) , net , were foreign currency transaction gains ( losses ) of $ ( 1.2 ) million and $ 2.5 million , respectively , in the comparable year-over-year periods . these amounts primarily reflect foreign exchange fluctuations in our non-u.s. dollar functional currencies . other income – oil and gas . our other income - oil and gas decreased by $ 12.2 million in 2015 as compared to 2014 . the decrease was primarily attributable to a $ 7.2 million insurance reimbursement in the first quarter of 2014 related to asset retirement work previously performed as well as the decrease in our overriding royalty interests . the reduction in our overriding royalty income reflects the decline in oil prices and lower production volumes as previously discussed . income tax provision ( benefit ) . income taxes reflected a benefit of $ 101.2 million in 2015 as compared to a provision of $ 67.0 million in 2014 . the variance primarily reflects decreased profitability in the current year period . the effective tax rate was 21.2 % for 2015 as compared to 25.5 % for 2014 . the variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions . 36 comparison of years ended december 31 , 2014 and 2013 the following table details various financial and operational highlights for the periods presented ( dollars in thousands ) : replace_table_token_10_th ( 1 ) represents number of vessels or robotics assets as of the end of the period excluding acquired vessels prior to their in-service dates , vessels taken out of service prior to their disposition and vessels jointly owned with a third party . ( 2 ) represents average utilization rate , which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of calendar days in the applicable period . 37 intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties . intercompany segment revenues are as follows ( in thousands ) : replace_table_token_11_th net revenues . our total net revenues increased by 26 % in 2014 as compared to 2013. net revenues for our business segments increased year over year , reflecting the addition of vessels in our well intervention business ( see below ) , the increased asset utilization within our robotics segment , and the slightly higher revenues for the hp i reflecting the variable production component of the fee arrangement in the phoenix field .
| results of operations we have three reportable business segments : well intervention , robotics and production facilities . our subsea construction results diminished following the sale in 2013 and early 2014 of essentially all of our assets related to this previously reported business segment . previously , we had another reported business segment , oil and gas . in february 2013 , we completed the sale of ert ( note 1 ) . accordingly , the results of ert are presented as discontinued operations for all periods presented in this annual report . all material intercompany transactions between the segments have been eliminated in our consolidated financial statements , including our consolidated results of operations . we seek to provide services and methodologies that we believe are critical to developing offshore reservoirs and maximizing production economics . our services cover the lifecycle of an offshore oil or gas field . we operate primarily in deepwater in the u.s. gulf of mexico , north sea , asia pacific and west africa regions , and are expanding our operations offshore brazil . in addition to servicing the oil and gas market , our robotics operations are contracted for the development of renewable energy projects ( wind farms ) . as of december 31 , 2015 , our consolidated backlog that is supported by written agreements or contracts totaled $ 1.8 billion , of which $ 388.4 million is expected to be performed in 2016. the substantial majority of our backlog is associated with our well intervention business segment . as of december 31 , 2015 , our well intervention backlog was $ 1.6 billion , including $ 278.8 million expected to be performed in 2016. our five-year contract with bp to provide well intervention services with our q5000 semi-submersible vessel and our four-year agreements with petrobras to provide well intervention services offshore brazil with the siem helix i and siem helix ii chartered vessels , represent approximately 82 % of our total backlog .
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in addition , please see information regarding non-gaap measures and other beginning on page 32 for a reconciliation of the non-gaap measures for adjusted total revenues , organic commission , fee and supplemental revenues and adjusted ebitdac to the comparable gaap measures , as well as other important information regarding these measures . we are engaged in providing insurance brokerage and consulting services , and third-party property/casualty claims settlement and administration services to entities in the u.s. and abroad . we believe that one of our major strengths is our ability to deliver comprehensively structured insurance and risk management services to our clients . our brokers , agents and administrators act as intermediaries between underwriting enterprises and our clients and we do not assume net underwriting risks . we are headquartered in rolling meadows , illinois , have operations in 35 other countries and offer client-service capabilities in more than 150 countries globally through a network of correspondent brokers and consultants . in 2018 , we expanded , and expect to continue to expand , our international operations through both acquisitions and organic growth . we generate approximately 70 % of our revenues for the combined brokerage and risk management segments domestically , with the remaining 30 % derived internationally , primarily in australia , bermuda , canada , the caribbean , new zealand and the u.k. ( based on 2018 revenues ) . we expect that our international revenue as a percentage of our total revenues in 2019 will be comparable to 2018. we have three reportable segments : brokerage , risk management and corporate , which contributed approximately 61 % , 14 % and 25 % , respectively , to 2018 revenues . our major sources of operating revenues are commissions , fees and supplemental and contingent revenues from brokerage operations and fees from risk management operations . investment income is generated from invested cash and fiduciary funds , clean energy investments , and interest income from premium financing . this management 's discussion and analysis of financial condition and results of operations contains certain statements relating to future results which are forward-looking statements as that term is defined in the private securities litigation reform act of 1995. please see information concerning forward-looking statements at the beginning of this annual report , for certain cautionary information regarding forward-looking statements and a list of factors that could cause our actual results to differ materially from those predicted in the forward-looking statements . accounting changes - impact of new revenue recognition accounting standard as a result of adopting a new revenue recognition accounting statement , we restated our consolidated financial statements and related information from amounts previously reported herein for 2017 and 2016. notes 2 and 3 to our 2018 consolidated financial statements included in this report contains information regarding the impact the new revenue recognition accounting standard had on our financial presentation . we adopted the new standard as of january 1 , 2018 , using the full retrospective method to restate each prior reporting period presented . the cumulative effect of the adoption was an increase to retained earnings of $ 125.3 million as of january 1 , 2016. while the adoption of the new standard did not have a material impact on the presentation of our consolidated results of operations on an annual basis , there was a material impact on the presentation of our results in certain quarters due to timing changes in the recognition of certain revenue and expenses . as a result , we did experience a different seasonality in our quarterly results after adoption of the new standard , with a shift in the timing of revenue recognized from the second , third and fourth quarters to the first quarter . 26 summary of financial results - year ended december 31 , see the reconciliations of non-gaap measures on pages 28 and 29. replace_table_token_4_th in our corporate segment , net after tax earnings from our clean energy investments was $ 118.6 million and $ 132.7 million in 2018 and 2017 , respectively . our current estimate of the 2019 annual net after tax earnings , including irc section 45 tax credits , which will be produced from all of our clean energy investments in 2019 , is $ 105.0 million to $ 115.0 million . we expect to use the additional cash flow generated by these earnings to continue our mergers and acquisition strategy in our core brokerage and risk management operations . 27 the following provides information that management believes is helpful when comparing revenues , net earnings , ebitdac and diluted net earnings per share for 2018 and 2017. in addition , these tables provide reconciliations to the most comparable gaap measures for adjusted revenues , adjusted ebitdac and adjusted diluted net earnings per share . reconciliations of ebitdac for the brokerage and risk management segments are provided on pages 35 and 41 of this filing . replace_table_token_5_th * for 2018 , the pretax impact of the brokerage segment adjustments totals $ 53.5 million , with a corresponding adjustment to the provision for income taxes of $ 13.4 million relating to these items . the pretax impact of the risk management segment adjustments totals $ ( 1.3 ) million , with a corresponding adjustment to the provision for income taxes of $ ( 0.5 ) million relating to these items . there was no pretax impact of the corporate segment adjustments , with an adjustment to the benefit for income taxes of $ 30.9 million . for 2017 , the pretax impact of the brokerage segment adjustments totals $ 69.2 million , with a corresponding adjustment to the provision for income taxes of $ 20.7 million relating to these items . the pretax impact of the risk management segment adjustments totals $ 1.7 million , with a corresponding adjustment to the provision for income taxes of $ 0.6 million relating to these items . the pretax impact of the corporate segment adjustments totals $ 26.8 million , with a corresponding adjustment to the provision for income taxes of $ 11.6 story_separator_special_tag % controlling interest in chem-mod , which has been marketing the chem-mod solution proprietary technologies principally to refined fuel plants that sell refined fuel to coal-fired power plants owned by utility companies , including those plants in which we hold interests . based on current production estimates provided by licensees , chem-mod could generate for us approximately $ 5.0 million to $ 6.0 million of net after tax earnings per quarter . our current estimate of the 2019 annual net after tax earnings , including irc section 45 tax credits , which will be produced from all of our clean energy investments in 2019 , is $ 105.0 million to $ 115.0 million . all estimates set forth above regarding the future results of our clean energy investments are subject to significant risks , including those set forth in the risk factors regarding our irc section 45 investments under item 1a , risk factors. critical accounting policies our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( which we refer to as gaap ) , which require management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . we believe the following significant accounting policies may involve a higher degree of judgment and complexity . see note 1 to our 2018 consolidated financial statements for other significant accounting policies . 30 revenue recognition - see revenue recognition in notes 1 , 2 and 3 to our 2018 consolidated financial statements for information with respect to the impacts a new accounting standard , relating to revenue recognition , had on our financial position and operating results . income taxes - see income taxes in notes 1 and 18 to our 2018 consolidated financial statements . uncertain tax positions are measured based upon the facts and circumstances that exist at each reporting period and involve significant management judgment . subsequent changes in judgment based upon new information may lead to changes in recognition , derecognition and measurement . adjustments may result , for example , upon resolution of an issue with the taxing authorities , or expiration of a statute of limitations barring an assessment for an issue . we recognize interest and penalties , if any , related to unrecognized tax benefits in our provision for income taxes . see note 18 to our 2018 consolidated financial statements for a discussion regarding the possibility that our gross unrecognized tax benefits balance may change within the next twelve months . tax law requires certain items to be included in our tax returns at different times than such items are reflected in the financial statements . as a result , the annual tax expense reflected in our consolidated statements of earnings is different than that reported in our tax returns . some of these differences are permanent , such as expenses that are not deductible in our tax returns , and some differences are temporary and reverse over time , such as depreciation expense and amortization expense deductible for income tax purposes . temporary differences create deferred tax assets and liabilities . deferred tax liabilities generally represent tax expense recognized in the financial statements for which a tax payment has been deferred , or expense which has been deducted in the tax return but has not yet been recognized in the financial statements . deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which a benefit has already been recorded in the financial statements . in fourth quarter 2017 , new tax legislation was enacted in the u.s. , which lowered the u.s. corporate tax rate from 35.0 % to 21.0 % effective january 1 , 2018. accordingly , we adjusted our deferred tax asset and liability balances in 2017 to reflect this rate change . we establish or adjust valuation allowances for deferred tax assets when we estimate that it is more likely than not that future taxable income will be insufficient to fully use a deduction or credit in a specific jurisdiction . in assessing the need for the recognition of a valuation allowance for deferred tax assets , we consider whether it is more likely than not that some portion , or all , of the deferred tax assets will not be realized and adjust the valuation allowance accordingly . we evaluate all significant available positive and negative evidence as part of our analysis . negative evidence includes the existence of losses in recent years . positive evidence includes the forecast of future taxable income by jurisdiction , tax-planning strategies that would result in the realization of deferred tax assets and the presence of taxable income in prior carryback years . the underlying assumptions we use in forecasting future taxable income require significant judgment and take into account our recent performance . such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein . the ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences are deductible or creditable . see note 18 to our 2018 consolidated financial statements related to changes in our valuation allowances . intangible assets/earnout obligations - see intangible assets in note 1 to our 2018 consolidated financial statements . current accounting guidance related to business combinations requires us to estimate and recognize the fair value of liabilities related to potential earnout obligations as of the acquisition dates for all of our acquisitions subject to earnout provisions . the maximum potential earnout payables disclosed in the notes to our consolidated financial statements represent the maximum amount of additional consideration that could be paid pursuant to the terms of the purchase agreement for the applicable acquisition .
| results of operations information regarding non-gaap measures and other in the discussion and analysis of our results of operations that follows , in addition to reporting financial results in accordance with gaap , we provide information regarding ebitdac , ebitdac margin , adjusted ebitdac , adjusted ebitdac margin , diluted net earnings per share , as adjusted ( adjusted eps ) for the brokerage and risk management segments , adjusted revenues , adjusted compensation and operating expenses , adjusted compensation expense ratio , adjusted operating expense ratio and organic revenue measures for each operating segment . these measures are not in accordance with , or an alternative to , the gaap information provided in this report . we believe that these presentations provide useful information to management , analysts and investors regarding financial and business trends relating to our results of operations and financial condition . our industry peers may provide similar supplemental non-gaap information with respect to one or more of these measures , although they may not use the same or comparable terminology and may not make identical adjustments . the non-gaap information we provide should be used in addition to , but not as a substitute for , the gaap information provided . as disclosed in our most recent proxy statement , we make determinations regarding certain elements of executive officer incentive compensation , performance share awards and annual cash incentive awards , partly on the basis of measures related to adjusted ebitdac . adjusted non-gaap presentation - we believe that the adjusted non-gaap presentation of our 2018 , 2017 and 2016 information , presented on the following pages , provides stockholders and other interested persons with useful information regarding certain financial metrics that may assist such persons in analyzing our operating results as they develop a future earnings outlook for us . the after-tax amounts related to the adjustments were computed using the normalized effective tax rate for each respective period .
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indicators such as unexpected adverse economic factors , unanticipated technological change , distribution losses , competitive activities and acts by governments and courts may indicate that an asset has become impaired . 7 story_separator_special_tag block '' > cash used in investing activities for the year ended december 31 , 2012 was approximately $ 771,000 compared to $ 435,000 in 2011. in 2012 we continued to upgrade and replace older less efficient equipment in our kinpak manufacturing facility and made capital improvements to our principal executive offices . 8 cash used in financing activities for the year ended december 31 , 2012 was approximately $ 1,081,000 compared to $ 215,000 for the year ended december 31 , 2011. the increase in cash used in financing activities in 2012 is due to net repayments on our line of credit of $ 850,000 in 2012 compared to net borrowings of $ 850,000 in 2011. in addition , in 2011 we paid the entire balance of approximately $ 472,000 on a related party note held by our chairman , president and chief executive officer , as described in note 8 to the consolidated financial statements included in this report . these increases were partially offset by the lower net reduction of approximately $ 400,000 in long-term debt in 2012 compared to the net reduction of approximately $ 658,000 in 2011. we also received approximately $ 169,000 from the exercise of stock options in 2012 compared to approximately $ 65,000 in 2011. net trade accounts receivable aggregated approximately $ 2,931,000 at december 31 , 2012 and $ 2,563,000 at december 31 , 2011 , an increase of 14.4 % . this increase in accounts receivable is due to increased sales in december 2012. inventories were approximately $ 9,257,000 and $ 9,628,000 at december 31 , 2012 and 2011 , respectively , representing a decrease of approximately $ 371,000 or 3.9 % in 2012. the higher levels of 2011 inventories compared to 2012 levels reflect management 's 2011 decision to increase inventory levels of petroleum-based products in anticipation of rising oil prices . on july 6 , 2011 , we , together with our subsidiary , kinpak inc. ( “ kinpak ” ) , entered into a credit agreement with regions bank ( and , pursuant to an equipment finance addendum to the credit agreement , regions equipment finance corporation ( “ refco ” ) ) under which ( a ) our revolving line of credit with regions bank was renewed , and ( b ) refco provided a new term loan in the amount of $ 2,430,000 , the proceeds of which were used to pay the kinpak 's remaining lease obligations in connection with the previously outstanding 2002 series of industrial development revenue bonds issued by the city of montgomery , alabama ( the “ 2002 bonds ” ) . the 2002 bonds were used to fund the expansion of kinpak 's facilities and acquisition of related equipment . under the term loan , we pay principal , together with interest at the fixed rate of 3.54 % per annum , in 72 consecutive monthly payments of $ 37,511 over the six year period beginning on august 6 , 2011 , with the final payment due on july 6 , 2017. in the event our debt service coverage ratio falls below 2.0 to 1 , interest on the term loan will increase by 1.01 % per annum . for the year ended december 31 , 2012 , our debt service coverage ratio exceeded 6.0 to 1. the credit agreement defines “ debt service coverage ratio “ as meaning net profit plus taxes , interest , depreciation , amortization and rent expense divided by debt service plus interest and lease/rent expense . the credit agreement contains various covenants , including financial covenants requiring a minimum debt coverage ratio of 1.75 to 1.00 , tested on a rolling four-quarter basis , and a maximum debt to capitalization ratio ( funded debt divided by the sum of total net worth and funded debt ) of 0.75 to 1 , tested quarterly . at december 31 , 2012 , we were in compliance with these covenants . under the renewed revolving line of credit , we may borrow up to the lesser of ( i ) $ 6 million and ( ii ) a borrowing base equal to 80 % of eligible accounts receivable plus 50 % of eligible inventory . interest on the revolving line of credit is payable at the 30 day libor rate plus 1.74 % per annum ( unless our debt service coverage ratio falls below 2.0 to 1 , in which case the additional percentage will be 2.75 % per annum ) . in no event will the interest rate be less than 2.0 % per annum . outstanding amounts under the revolving line of credit are payable on demand . if no demand is made , we may repay and reborrow funds from time to time . interest payments are made in monthly installments on outstanding average balances with all outstanding principal and interest payable on july 6 , 2014. at december 31 , 2012 there were no borrowings under our revolving line of credit . our obligations under the credit agreement are secured by our accounts receivable and inventory , as well as real property and equipment at the kinpak 's montgomery , alabama facility . in addition to the revolving line of credit and term loan , we have obtained financing through capital leases for both manufacturing and office equipment , totaling approximately $ 37,600 and $ 62,400 at december 31 , 2012 and december 31 , 2011 , respectively . our sales in the canadian market are subject to currency fluctuations relating to the canadian dollar . we do not engage in currency hedging and address currency risk as a pricing issue . in the year ended december 31 , 2012 , we recorded approximately $ 6,000 in foreign story_separator_special_tag indicators such as unexpected adverse economic factors , unanticipated technological change , distribution losses , competitive activities and acts by governments and courts may indicate that an asset has become impaired . 7 story_separator_special_tag block '' > cash used in investing activities for the year ended december 31 , 2012 was approximately $ 771,000 compared to $ 435,000 in 2011. in 2012 we continued to upgrade and replace older less efficient equipment in our kinpak manufacturing facility and made capital improvements to our principal executive offices . 8 cash used in financing activities for the year ended december 31 , 2012 was approximately $ 1,081,000 compared to $ 215,000 for the year ended december 31 , 2011. the increase in cash used in financing activities in 2012 is due to net repayments on our line of credit of $ 850,000 in 2012 compared to net borrowings of $ 850,000 in 2011. in addition , in 2011 we paid the entire balance of approximately $ 472,000 on a related party note held by our chairman , president and chief executive officer , as described in note 8 to the consolidated financial statements included in this report . these increases were partially offset by the lower net reduction of approximately $ 400,000 in long-term debt in 2012 compared to the net reduction of approximately $ 658,000 in 2011. we also received approximately $ 169,000 from the exercise of stock options in 2012 compared to approximately $ 65,000 in 2011. net trade accounts receivable aggregated approximately $ 2,931,000 at december 31 , 2012 and $ 2,563,000 at december 31 , 2011 , an increase of 14.4 % . this increase in accounts receivable is due to increased sales in december 2012. inventories were approximately $ 9,257,000 and $ 9,628,000 at december 31 , 2012 and 2011 , respectively , representing a decrease of approximately $ 371,000 or 3.9 % in 2012. the higher levels of 2011 inventories compared to 2012 levels reflect management 's 2011 decision to increase inventory levels of petroleum-based products in anticipation of rising oil prices . on july 6 , 2011 , we , together with our subsidiary , kinpak inc. ( “ kinpak ” ) , entered into a credit agreement with regions bank ( and , pursuant to an equipment finance addendum to the credit agreement , regions equipment finance corporation ( “ refco ” ) ) under which ( a ) our revolving line of credit with regions bank was renewed , and ( b ) refco provided a new term loan in the amount of $ 2,430,000 , the proceeds of which were used to pay the kinpak 's remaining lease obligations in connection with the previously outstanding 2002 series of industrial development revenue bonds issued by the city of montgomery , alabama ( the “ 2002 bonds ” ) . the 2002 bonds were used to fund the expansion of kinpak 's facilities and acquisition of related equipment . under the term loan , we pay principal , together with interest at the fixed rate of 3.54 % per annum , in 72 consecutive monthly payments of $ 37,511 over the six year period beginning on august 6 , 2011 , with the final payment due on july 6 , 2017. in the event our debt service coverage ratio falls below 2.0 to 1 , interest on the term loan will increase by 1.01 % per annum . for the year ended december 31 , 2012 , our debt service coverage ratio exceeded 6.0 to 1. the credit agreement defines “ debt service coverage ratio “ as meaning net profit plus taxes , interest , depreciation , amortization and rent expense divided by debt service plus interest and lease/rent expense . the credit agreement contains various covenants , including financial covenants requiring a minimum debt coverage ratio of 1.75 to 1.00 , tested on a rolling four-quarter basis , and a maximum debt to capitalization ratio ( funded debt divided by the sum of total net worth and funded debt ) of 0.75 to 1 , tested quarterly . at december 31 , 2012 , we were in compliance with these covenants . under the renewed revolving line of credit , we may borrow up to the lesser of ( i ) $ 6 million and ( ii ) a borrowing base equal to 80 % of eligible accounts receivable plus 50 % of eligible inventory . interest on the revolving line of credit is payable at the 30 day libor rate plus 1.74 % per annum ( unless our debt service coverage ratio falls below 2.0 to 1 , in which case the additional percentage will be 2.75 % per annum ) . in no event will the interest rate be less than 2.0 % per annum . outstanding amounts under the revolving line of credit are payable on demand . if no demand is made , we may repay and reborrow funds from time to time . interest payments are made in monthly installments on outstanding average balances with all outstanding principal and interest payable on july 6 , 2014. at december 31 , 2012 there were no borrowings under our revolving line of credit . our obligations under the credit agreement are secured by our accounts receivable and inventory , as well as real property and equipment at the kinpak 's montgomery , alabama facility . in addition to the revolving line of credit and term loan , we have obtained financing through capital leases for both manufacturing and office equipment , totaling approximately $ 37,600 and $ 62,400 at december 31 , 2012 and december 31 , 2011 , respectively . our sales in the canadian market are subject to currency fluctuations relating to the canadian dollar . we do not engage in currency hedging and address currency risk as a pricing issue . in the year ended december 31 , 2012 , we recorded approximately $ 6,000 in foreign
| results of operations : net sales were approximately $ 31,039,000 in 2012 compared to $ 31,681,000 in 2011 , a decrease of $ 642,000 or 2.0 % . the sales decrease reflects a decline in sales to one of our largest customers , which engaged in an inventory reduction program in 2012. the customers ' inventory reduction program is not expected to continue in 2013. this sales decrease was partially offset by sales to new customers and increased sales to other established customers . net sales also reflected continued growth of our enzyme fuel treatment product , star tron ® , into the retail markets to which our products are directed . cost of goods sold and gross profit – cost of goods sold during 2012 decreased approximately $ 585,000 or 2.8 % , to approximately $ 20,412,000 from approximately $ 20,997,000 in 2011. the decrease was principally due to the decrease in sales . our gross profit percentage ( gross profit as a percentage of net sales ) increased approximately 0.5 % , from 33.7 % in 2011 to 34.2 % in 2012. this increase primarily was a result of improved product sales mix and a reduction of cost of goods sold . the $ 57,000 decrease in gross profit reflects lower net sales , somewhat mitigated by the increase in gross profit percentage . advertising and promotion expense was approximately $ 2,418,000 in 2012 , an increase of approximately $ 438,000 or 22.1 % from approximately $ 1,980,000 in 2011. as a percentage of net sales , advertising and promotion expense increased from 6.2 % in 2011 to 7.8 % in 2012. the increase in advertising expenditures was designed to support the expansion of star tron ® products into new markets , including automotive , power sports , motorcycle , small engine and outdoor power equipment markets .
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accordingly , the company performed a goodwill impairment analysis . the company utilized the market capitalization , plus a reasonable control premium to estimate the fair value . our story_separator_special_tag forward-looking statements please note that in this annual report on form 10-k we may use words such as “ appears , ” “ anticipates , ” “ believes , ” “ plans , ” “ expects , ” “ intends , ” “ future , ” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are made based on our expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties . we caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements . potential risks and uncertainties that could cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements in this annual report on form 10-k include , but are not limited to , the overall level of consumer spending on our products ; general economic conditions and other factors affecting consumer confidence ; disruption and volatility in the global capital and credit markets ; the financial strength of the company 's customers ; the company 's ability to implement its reformation and growth strategy , including its ability to organically grow each of its historical product lines ; the ability of the company to identify potential acquisition or investment opportunities as part of its redeployment and diversification strategy ; the company 's ability to successfully redeploy its capital into diversifying assets or that any such redeployment will result in the company 's future profitability ; the company 's exposure to product liability of product warranty claims and other loss contingencies ; stability of the company 's manufacturing facilities and foreign suppliers ; the company 's ability to protect trademarks , patents and other intellectual property rights ; fluctuations in the price , availability and quality of raw materials and contracted products as well as foreign currency fluctuations ; our ability to utilize our net operating loss carryforwards ; and legal , regulatory , political and economic risks in international markets . more information on potential factors that could affect the company 's financial results can be found under item 1a.—risk factors of this annual report on form 10-k. all forward-looking statements included in this annual report on form 10-k are based upon information available to the company as of the date of this annual report on form 10-k , and speak only as the date hereof . we assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this annual report on form 10-k. story_separator_special_tag margin-bottom : 0 '' width= '' 100 % '' > · we use derivative instruments to hedge currency rate movements on foreign currency denominated sales . we enter into forward contracts , option contracts , and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of our forecasted sales denominated in foreign currencies . these derivatives are carried at fair value on our consolidated balance sheets in other assets and accrued liabilities . changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income . for derivative contracts designated as hedge instruments , the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive loss and reclassified to earnings in the period the underlying hedged item is recognized in earnings . we use operating budgets and cash flow forecasts to estimate future sales and to determine the level and timing of derivative transactions intended to mitigate such risks in accordance with our risk management policies . if the forecasted sales levels are not reached , our derivative instruments may be deemed to be not effective which may result in foreign currency gains and losses being recorded in our statement of comprehensive ( loss ) income , which could materially affect our financial position and results of operations . · we sell our products pursuant to customer orders entered into with our customers . revenue is recognized when persuasive evidence of an arrangement exists , title and risk of loss pass to the customer , the price is fixed and determinable , and when collectability is reasonably assured . charges for shipping and handling fees are included in net sales and the corresponding shipping and handling expenses are included in cost of sales in the accompanying consolidated statements of operations . 30 at the time of revenue recognition , we also provide for estimated sales returns , warranty , repairs and replacements , and miscellaneous claims from customers as reductions to revenues . the estimates are based on historical rates of product returns and claims . however , actual returns and claims in any future period are inherently uncertain and thus may differ from these estimates . if actual or expected returns and claims are significantly greater or lower than the allowances that we have established , we will record a reduction or increase to sales in the period in which we make such a determination . · we make ongoing estimates of the collectability of our customer accounts receivable . we evaluate our significant customer accounts considering our historical collections experience to identify potential doubtful accounts . for accounts that we determine to be doubtful , we make provisions as necessary to properly reflect the accounts receivable . · we account for income taxes using the asset and liability method . the asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating loss and tax credit carryforwards . story_separator_special_tag a decrease in the quantity of new and existing ski products sold during the period . the decrease was partially offset by an increase in the quantity of new and existing climb and mountain products sold during the period . consolidated domestic sales increased $ 1,688 , or 2.3 % , to $ 76,079 during the year ended december 31 , 2016 compared to consolidated domestic sales of $ 74,391 during the year ended december 31 , 2015. the increase in domestic sales was primarily attributable to an increase in the quantity of new and existing climb and mountain products sold during the period . consolidated international sales decreased $ 8,765 , or 10.8 % , to $ 72,110 during the year ended december 31 , 2016 compared to consolidated international sales of $ 80,875 during the year ended december 31 , 2015. the decrease in international sales was primarily attributable to a decrease in sales of $ 7,302 due to the weakening of foreign currencies against the u.s. dollar during the year ended december 31 , 2016 and a decrease in the quantity of new and existing ski products sold during the period . 33 cost of goods sold consolidated cost of goods sold increased $ 3,485 , or 3.4 % , to $ 104,505 during the year ended december 31 , 2016 compared to consolidated cost of goods sold of $ 101,020 during the year ended december 31 , 2015. the increase in cost of goods sold was primarily attributable to an increase in the cost of the products sold as a result of the continued ramping-up of the company 's manufacturing activities that were transferred from china to the united states . gross profit consolidated gross profit decreased $ 10,562 or 19.5 % , to $ 43,684 during the year ended december 31 , 2016 compared to consolidated gross profit of $ 54,246 during the year ended december 31 , 2015. consolidated gross margin was 29.5 % during the year ended december 31 , 2016 compared to a consolidated gross margin of 34.9 % during the year ended december 31 , 2015. consolidated gross margin during the year ended december 31 , 2016 , decreased compared to the prior year primarily due to the weakening of foreign currencies against the u.s. dollar during the year ended december 31 , 2016 compared to the prior period , additional costs associated with the continued ramping-up of the company 's manufacturing activities that were transferred from china to the united states , and the write-off of inventory shipped to certain north american accounts during the first quarter of 2016 that filed for bankruptcy reorganization in april 2016. selling , general and administrative consolidated selling , general , and administrative expenses decreased $ 8,563 , or 14.6 % , to $ 49,936 during the year ended december 31 , 2016 compared to consolidated selling , general , and administrative expenses of $ 58,499 during the year ended december 31 , 2015. the decrease in selling , general and administrative expenses was primarily attributable to the company 's realization of savings from its restructuring plan implemented during 2015 to further realign resources within the organization . restructuring charges consolidated restructuring expense decreased $ 1,980 , or 58.7 % , to $ 1,395 during the year ended december 31 , 2016 compared to consolidated restructuring expense of $ 3,375 during the year ended december 31 , 2015. restructuring expenses incurred during the year ended december 31 , 2016 , primarily related to benefits provided to employees who were or will be terminated due to the company 's reduction-in-force as part of its continued realignment of resources within the organization , costs associated with the move of the company 's black diamond equipment european office from basel , switzerland to innsbruck , austria , and costs associated with the formal closure and liquidation of the company 's black diamond equipment manufacturing operations in zhuhai , china . transaction costs consolidated transaction expense decreased $ 656 , or 69.3 % , to $ 290 during the year ended december 31 , 2016 , compared to consolidated transaction costs of $ 946 during the year ended december 31 , 2015 , which consisted of expenses related to the company 's redeployment and diversification strategy . arbitration award during the year ended december 31 , 2016 , the company received an arbitral award on agreed terms of $ 1,967 , related to certain claims against the former owner of pieps associated with the voluntary recall of all of the pieps vector avalanche transceivers during the year ended december 31 , 2013. impairment of goodwill consolidated impairment of goodwill decreased to $ 0 during the year ended december 31 , 2016 compared to consolidated impairment of goodwill of $ 29,507 during the year ended december 31 , 2015. based on the results of the company 's impairment analysis completed during the fourth quarter of 2015 , the company determined that goodwill was impaired and recognized a charge of $ 29,507. interest expense , net consolidated interest expense increased $ 109 , or 3.9 % , to $ 2,876 during the year ended december 31 , 2016 compared to consolidated interest expense of $ 2,767 during the year ended december 31 , 2015. the increase in interest expense , net , was primarily attributable to the increase in accretion expense associated with the company 's 5 % senior subordinated notes due 2017 , which accretion is being amortized utilizing the effective interest rate method .
| overview black diamond , inc. ( which may be referred to as the “ company , ” “ we , ” “ our ” or “ us ” ) , through its ownership of black diamond equipment , ltd. , is a global leader in designing , manufacturing , and marketing innovative outdoor engineered equipment and apparel for climbing , mountaineering , backpacking , skiing , and a wide range of other year-round outdoor recreation activities . black diamond equipment and pieps , are synonymous with performance , innovation , durability and safety in the outdoor consumer community . we are targeted not only to the demanding requirements of core climbers , skiers and alpinists , but also to the more general outdoor performance enthusiasts and consumers interested in outdoor-inspired gear for their backcountry and urban activities . our black diamond® and pieps brands are iconic in the active outdoor and ski industries , and linked intrinsically with the modern history of these sports . headquartered in salt lake city at the base of the wasatch mountains , our products are designed and exhaustively tested by an engaged team of discerning entrepreneurs and engineers . we offer a broad range of products including : high performance apparel ( such as jackets , shells , pants and bibs ) ; rock-climbing equipment ( such as carabiners , protection devices , harnesses , belay devices , helmets , and ice-climbing gear ) ; technical backpacks and high-end day packs ; tents ; trekking poles ; headlamps and lanterns ; and gloves and mittens . we also offer advanced skis , ski poles , ski skins , and snow safety products , including avalanche airbag systems , avalanche transceivers , shovels , and probes .
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our management , including our chief executive officer and chief financial officer , does not expect that our procedures or our internal controls will prevent or detect all errors and all fraud . an internal control system , no matter how well conceived and operated , can provide only reasonable , not absolute , assurance that the objectives of the control system are met . because of the inherent limitations in all control systems , no evaluation of our controls can provide absolute assurance that all control issues and instances of fraud , if any , have been detected . changes in internal control over financial reporting there was no change in internal control over financial reporting ( as such term is defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) during our fourth fiscal quarter that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . management 's report on internal control over financial reporting internal control over financial reporting refers to the process designed by , or under the supervision of , our chief executive officer and chief financial officer , and effected by our board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles , and includes those policies and procedures that : ( 1 ) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets ; ( 2 ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that our receipts and expenditures are being made only in accordance with authorization of our management and directors ; and ( 3 ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of our assets that could have a material effect on the financial statements . internal control over financial reporting can not provide absolute assurance of achieving financial reporting objectives because of its inherent limitations . internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures . internal control over financial reporting also can be circumvented by collusion or improper management override . because of such limitations , there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting . however , these inherent limitations are known features of the financial reporting process . therefore , it is possible to design into the process safeguards to reduce , though not eliminate , this risk . management is responsible for establishing and maintaining adequate internal control over financial reporting for the company . management has used the framework set forth in the report entitled internal control-integrated framework ( 2013 framework ) published by the committee of sponsoring organizations of the treadway commission ( 2013 framework ) , known as coso , to evaluate the effectiveness of our internal control over financial reporting . based on this assessment , management has concluded that our internal control over financial reporting was effective as of december 31 , 2015 . 62 bdo usa , llp , an independent registered public accounting firm , has audited our consolidated financial statements included in this annual report on form 10-k and has issued an attestation report , included herein , on the effectiveness of our internal control over financial r eporting as of december 31 , 2015 . 63 report of independent registered public accounting firm board of directors and stockholders medicinova , inc. la jolla , california we have audited medicinova , inc. 's internal control over financial reporting as of december 31 , 2015 , based on criteria established in internal control – integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission ( the coso criteria ) . medicinova , inc. 's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting , included in the accompanying item 9a , management 's report on internal control over financial reporting . our responsibility is to express story_separator_special_tag financial condition and results of operations you should read the following discussion and analysis together with “ item 6. selected financial data ” and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption “ item 1a . risk factors. ” overview background we are a biopharmaceutical company focused on acquiring and developing novel , small molecule therapeutics for the treatment of serious diseases with unmet medical needs and a commercial focus on the u.s. market . we were incorporated in delaware in september 2000. we have incurred significant net losses since our inception . for the year ended december 31 , 2015 , we had a net loss of $ 8.8 million . at december 31 , 2015 , from inception , our accumulated deficit was $ 319.4 million . story_separator_special_tag the following table summarizes our research , development and patent expenses for the periods indicated for each of our product development programs . to the extent that costs , including personnel costs , are not tracked to a specific product development program , such costs are included in the “ other r & d expense ” category ( in thousands ) : replace_table_token_3_th our goal is to build a sustainable biopharmaceutical business through the successful development of differentiated products for the treatment of serious diseases with unmet medical needs in high-value therapeutic areas . our focus is on the u.s. market . key elements of our strategy are as follows : · pursue the development of mn-166 ( ibudilast ) for multiple potential indications primarily through non-dilutive financings . we intend to advance our diverse mn-166 ( ibudilast ) program through a combination of investigator-sponsored trials and trials funded through government grants or other grants . in addition to providing drug supply and regulatory support , we are funding portions of the consortium-sponsored trials . for example , we have contributed financially to the secondary and primary progressive ibudilast neuronext trial in multiple sclerosis ( sprint-ms ) phase 2 clinical trial of mn-166 ( ibudilast ) for the treatment of progressive ms , which is primarily funded by the national institutes of health ( nih ) , and are contributing financially to the carolinas neuromuscular als-mda center clinical trial of mn-166 ( ibudilast ) for the treatment of als . we intend to enter into additional strategic alliances to support further clinical development of mn-166 ( ibudilast ) . · pursue the development of mn-001 ( tipelukast ) for fibrotic diseases including nash and ipf . we intend to advance development of mn-001 ( tipelukast ) through a combination of investigator-sponsored trials with or without grant funding as well as trials we may fund . · strategically partner with one or more leading pharmaceutical companies to complete late-stage product development and successfully commercialize our products . we develop and maintain relationships with pharmaceutical companies that are therapeutic category leaders . upon completion of proof-of-concept phase 2 clinical trials , we intend to enter into strategic alliances with leading pharmaceutical companies who seek late-stage product candidates , such as mn-166 , mn-221 , mn-001 and mn-029 , to support further clinical development and product commercialization . 39 general and administrative our general and administrative costs primarily consist of salaries , benefits and consulting and professional fees related to our administrative , finance , human resources , business development , legal , information systems support functions , facilities and insurance costs . general and administrative costs are expensed as incurred . our general and administrative expenses may increase in future periods if we are required to expand our infrastructure based on the success of our product development programs and in raising capital to support our product development programs or otherwise in connection with increased business development activities related to partnering , out-licensing or product disposition . other income and expense other income primarily consists of interest earned on our cash and cash equivalents . in 2015 and 2014 , other expense primarily consists of losses from the joint venture and net foreign exchange losses related to vendor invoices denominated in foreign currencies . we had no outstanding debt and had no interest expense in 2015 or 2014. 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 have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosure of contingent liabilities . we review our estimates on an ongoing basis , including those related to our significant accruals . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ from these estimates our significant accounting policies are more fully described in note 1 to our consolidated financial statements included elsewhere in this annual report on form 10-k. our most critical accounting estimates include research , development and patent expenses which impacts operating expenses and accrued liabilities , share-based compensation which impacts operating expenses and goodwill and purchased intangibles . we review our estimates and assumptions periodically and reflect the effects of revisions in the period in which they are deemed to be necessary . we believe that the following accounting policies are critical to the judgments and estimates used in preparation of our consolidated financial statements . research , development and patent expenses research , development and patent costs are expensed as incurred based on certain contractual factors such as estimates of work performed , milestones achieved , patient enrollment and experience with similar contracts . as actual costs become known , accruals are adjusted . to date , our accrued research , development and patent expenses have not differed significantly from the actual expenses incurred . share-based compensation we grant options to purchase our common stock to our employees and directors under our 2013 stock incentive plan . additionally , we have outstanding stock options that were granted under our amended and restated 2004 stock incentive plan . under our 2007 employee stock purchase plan , full-time employees are permitted to purchase common stock through payroll deduction at the lower of 85 % of fair market value at the beginning of the offering period or the end of each six-month offering period .
| results of operations comparison of the years ended december 31 , 2015 and 2014 revenues we did not recognize any revenue for the years ended december 31 , 2015 and 2014. research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2015 were $ 3.0 million , a decrease of $ 0.3 million compared to $ 3.3 million for the year ended december 31 , 2014. this decrease in research , development and patent expenses primarily relates to a decrease in patent expenses and external development costs associated with mn-166 and mn-001 of $ 0.5 million in 2015 as compared to 2014 , partially offset by an increase in personnel costs of $ 0.2 million driven by increased share-based compensation expense in 2015. general and administrative general and administrative expenses for the year ended december 31 , 2015 were $ 5.8 million , a decrease of $ 0.2 million compared to $ 6.0 million for the year ended december 31 , 2014. the decrease in general and administrative expenses relates to a decrease in professional fees of $ 0.1 million for 2015 as compared to 2014 along with a $ 100,000 payment received from a vendor to offset the cost of manufactured drug product that was inadvertently destroyed by the vendor , which was offset against general and administrative expenses . other expense other expense for the year ended december 31 , 2015 was approximately $ 54,000 , as compared to approximately $ 13,000 for the year ended december 31 , 2014. in 2015 and 2014 , other expense consisted of losses from the joint venture accounted for under the equity method according to our percentage ownership , and net transaction losses related to vendor invoices denominated in foreign currencies .
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as the only significant market participant focused predominantly on these products , we have one of the leading market positions in the power equipment market in north america and an expanding presence internationally . we believe we have one of the widest range of products in the marketplace , including residential , commercial and industrial standby generators , as well as portable and mobile generators used in a variety of applications . other engine powered products that we design and manufacture include light towers which provide temporary lighting for various end markets and a broad product line of power washers for residential and commercial use . business drivers and operational factors in operating our business and monitoring its performance , we pay attention to a number of business drivers and trends as well as operational factors . the statements in this section are based on our current expectations . business drivers and trends our performance is affected by the demand for reliable power solutions by our customer base . this demand is influenced by several important drivers and trends affecting our industry , including the following : increasing penetration opportunity . many potential customers are not aware of the costs and benefits of automatic backup power solutions . we estimate that penetration rates for home standby generators are only approximately 3.0 % of u.s. single-family detached , owner-occupied households with a home value of over $ 100,000 , as defined by the u.s. census bureau 's 2011 american housing survey for the united states . the decision to purchase backup power for many light-commercial buildings such as convenience stores , restaurants and gas stations are more return-on-investment ( roi ) driven and as a result these applications have relatively lower penetration rates as compared to buildings used in more code-driven or mission critical applications such as hospitals , wastewater treatment facilities , 911 call centers , data centers and certain industrial locations . in addition , the emergence of lower cost , cleaner burning natural gas fueled generators has helped to accelerate the penetration of standby generators in the light-commercial market . also , the importance of backup power for telecommunications infrastructure is increasing due to the growing importance for uninterrupted voice and data services . we believe by expanding our distribution network , continuing to develop our product line , and targeting our marketing efforts , we can continue to build awareness and increase penetration for our standby generators . effect of large scale power disruptions . power disruptions are an important driver of customer awareness and have historically influenced demand for generators . increased frequency and duration of major power outage events caused by the aging u.s. power grid increases product awareness and may drive consumers to accelerate their purchase of a standby or portable generator during the immediate and subsequent period , which we believe may last for six to twelve months for standby generators . for example , the multiple major outage events that occurred during the second half of both 2011 and 2012 drove strong demand for portable and home standby generators , and the increased awareness of these products contributed to substantial organic revenue growth in 2012 with strong growth continuing during 2013. while there are localized power outages that occur practically every day across the u.s. , major outage activity is unpredictable by nature and , as a result , our sales levels and profitability may fluctuate from period to period . impact of residential investment cycle . the market for residential generators is also affected by the residential investment cycle and overall consumer confidence and sentiment . when homeowners are confident of their household income , the value of their home and overall net worth , they are more likely to invest in their home . these trends can have an impact on demand for residential generators . trends in the new housing market highlighted by residential housing starts can also impact demand for our residential products . impact of business capital investment cycle . the market for our commercial and industrial products is affected by the overall capital investment cycle , including non-residential building construction , durable goods and infrastructure spending as well as investments in the exploration and production of oil & gas , as businesses or organizations either add new locations or make investments to upgrade existing locations or equipment . these trends can have a material impact on demand for these products . the capital investment cycle may differ for the various commercial and industrial end markets that we serve including light commercial , retail , telecommunications , industrial , data centers , healthcare , construction , oil & gas and municipal infrastructure , among others . the market for these products is also affected by general economic conditions and credit availability in the geographic regions that we serve . in addition , we believe demand for our mobile power products will continue to benefit from a secular shift towards renting versus buying this type of equipment . factors affecting results of operations we are subject to various factors that can affect our results of operations , which we attempt to mitigate through factors we can control , including continued product development , expanded distribution , pricing and cost control . certain operational and other factors that affect our business include the following : effect of commodity , currency and component price fluctuations . industry-wide price fluctuations of key commodities , such as steel , copper and aluminum and other components we use in our products , together with foreign currency fluctuations , can have a material impact on our results of operations . we have historically attempted to mitigate the impact of rising commodity , currency and component prices through improved product design and sourcing , manufacturing efficiencies , price increases and select hedging transactions . our results are also influenced by changes in fuel prices in the form of freight rates , which in some cases are borne by our customers and in other cases are paid by us . 23 seasonality . story_separator_special_tag all shares sold in this offering were primary shares . immediately following the ipo and underwriters ' option exercise , we had 67,529,290 total shares of common stock outstanding . components of net sales and expenses net sales substantially all of our net sales are generated through the sale of our generators and other engine powered products for the residential , light commercial , industrial and construction markets . we also sell engines to certain customers and service parts to our dealer network . net sales , which include shipping and handling charges billed to customers , are recognized upon shipment of products to our customers . related freight costs are included in cost of sales . our generators and other products are fueled by natural gas , liquid propane , gasoline , diesel or bi-fuel systems with power output from 800w to several megawatts ( mw ) using our multi-generator systems . our products are primarily manufactured and assembled at our wisconsin ( usa ) , mexico , italy and brazil facilities and distributed through thousands of outlets primarily across the u.s. and canada , with an expanding presence internationally including latin america , europe , the middle east , africa and asia/pacific regions . our smaller kw generators for the residential and commercial markets , as well as light towers and power washers , are primarily built to stock , while our larger kw products for the industrial markets are generally customized and built to order . during 2013 , our net sales were affected primarily by the u.s. economy as sales outside of the united states represented approximately 12 % of total net sales . we are not dependent on any one channel or customer for our net sales , with no single customer representing more than 6 % of our sales for the year ended december 31 , 2013 and our top ten customers representing less than 24 % of our sales for the same period . 24 costs of goods sold the principal elements of costs of goods sold in our manufacturing operations are component parts , raw materials , factory overhead and labor . component parts and raw materials comprised over 85 % of costs of goods sold for the year ended december 31 , 2013. the principal component parts are engines and alternators . we design and manufacture air-cooled engines for certain of our products up to 20kw . we source engines for certain of our smaller products and all of our products larger than 20kw . for natural gas engines , we 're recognized as the oem of those engines . we design all the alternators for our units and manufacture alternators for certain of our units . we also manufacture other generator components where we believe we have a design and cost advantage . we source component parts from an extensive global network of reliable , high quality suppliers . in some cases , these relationships are proprietary . the principal raw materials used in our manufacturing and warehousing processes and in the manufacturing of the components we source are steel , copper and aluminum . we are susceptible to fluctuations in the cost of these commodities , impacting our costs of goods sold . we seek to mitigate the impact of commodity prices on our business through a continued focus on global sourcing , product design improvements , manufacturing efficiencies , price increases and select hedging transactions . however , there is typically a lag between raw material price fluctuations and their effect on our costs of goods sold . other sources of costs include our manufacturing and warehousing facilities , factory overhead , labor and shipping costs . factory overhead includes utilities , support personnel , depreciation , general supplies , support and maintenance . although we attempt to maintain a flexible manufacturing cost structure , our margins can be impacted when we can not timely adjust labor and manufacturing costs to match fluctuations in net sales . operating expenses our operating expenses consist of costs incurred to support our sales , marketing , distribution , service parts , engineering , information systems , human resources , finance , risk management , legal and tax functions . all of these categories include personnel costs such as salaries , bonuses , employee benefit costs and taxes . we typically classify our operating expenses into four categories : selling and service , research and development , general and administrative , and amortization of intangibles . selling and service . our selling and service expenses consist primarily of personnel expense , marketing expense , warranty expense and other sales expenses . our personnel expense recorded in selling and services expenses includes the expense of our sales force responsible for our national accounts and other personnel involved in the marketing , sales and service of our products . warranty expense , which is recorded at the time of sale , is estimated based on historical trends . our marketing expenses include direct mail costs , printed material costs , product display costs , market research expenses , trade show expenses , media advertising and co-op advertising costs . marketing expenses are generally related to the launch of new product offerings and opportunities within selected markets or associated with specific events such as awareness marketing in areas impacted by major power outages , participation in trade shows and other events . research and development . our research and development expenses support numerous projects covering all of our product lines . we currently operate engineering facilities at eight locations globally and employ over 250 personnel with focus on new product development , existing product improvement and cost containment . our commitment to research and development has resulted in a significant portfolio of over 100 u.s. and international patents and patent applications . our research and development costs are expensed as incurred . general and administrative .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 the following table sets forth our consolidated statement of operations data for the periods indicated : replace_table_token_7_th net sales . net sales increased $ 309.5 million , or 26.3 % , to $ 1,485.8 million for the year ended december 31 , 2013 from $ 1,176.3 million for the year ended december 31 , 2012. residential product sales increased 19.6 % to $ 843.7 million from $ 705.4 million for the comparable period in 2012. the increase in residential product sales was primarily driven by increases in shipments for home standby generators due to a combination of factors including the additional awareness and adoption of our products created by major power outages in recent years , the company 's expanded distribution , increased sales and marketing initiatives , overall strong operational execution and an improving environment for residential investment . the strength in home standby generators was partially offset by a decline in shipments of portable generators due to less severe power outage events relative to the prior year . in addition , increased revenue from power washer products contributed to the year-over-year sales growth in residential products . commercial & industrial product sales increased 38.9 % to $ 569.9 million from $ 410.3 million for the comparable period in 2012. the increase was driven by the acquisitions of ottomotores , tower light and baldor generators along with strong organic growth for stationary and mobile generators . the increase in organic revenues was primarily driven by strong shipments to national account customers and increased sales of natural gas generators used in light commercial applications . gross profit .
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these agreements exist for wind generation partnerships to designate different allocations of value among investors , where the allocations change in form or percentage over the life of the partnership . for these businesses , the company uses the hlbv method when it is a reasonable approximation of the profit sharing arrangement . hlbv uses a balance sheet approach , which measures the company 's equity in income or loss by calculating the change in the amount of net worth the partners are legally able to claim based on a hypothetical liquidation of the entity at the beginning of a reporting period compared to the end of that period . guarantor accounting —at the inception of a guarantee , the company records the fair value of a guarantee as a liability , with the offset dependent on the circumstances under which the guarantee was issued . the company does not recognize guarantees given to third parties for its subsidiaries ' future performance . foreign currency translation —a business ' functional currency is the currency of the primary economic environment in which the business story_separator_special_tag overview of our business we are a diversified power generation and utility company organized into six market-oriented strategic business units ( “ sbus ” ) : us ( united states ) , andes ( chile , colombia , and argentina ) , brazil , mcac ( mexico , central america and the caribbean ) , emea ( europe , middle east and africa ) , and asia . for additional information regarding our business , see item 1 . — business of this form 10-k. 75 our organization — the segment reporting structure uses the company 's management reporting structure as its foundation to reflect how the company manages the business internally and is organized by geographic regions which provide better socio-political-economic understanding of our business . the management reporting structure is organized along six strategic business units ( “ sbus ” ) — led by our chief executive officer ( “ ceo ” ) . in 2012 , the company substantially completed its operational management and reporting restructuring . during the fourth quarter of 2013 , the company finalized its internal operational reporting and applied the accounting guidance for segment reporting . as a result , the company has determined that its reportable segments are aligned with the six sbu 's . management 's discussion and analysis of operating margin , adjusted operating margin and adjusted pre-tax contribution is organized according to the sbu structure as follows : us sbu andes sbu brazil sbu mcac sbu emea sbu asia sbu corporate and other — the company 's corporate operations are reported within “ corporate and other ” because they do not require separate disclosure under segment reporting accounting guidance . key topics in the management discussion and analysis our discussion covers the following : overview of 2013 results and strategic performance review of consolidated results of operations sbu analysis and non-gaap measures key trends and uncertainties capital resources and liquidity overview of 2013 results and strategic performance in 2013 , our performance was driven by very dry hydrological conditions across key markets in latin america , our cost reductions , capital allocation decisions , including debt repayment and share repurchases , and a lower effective tax rate . earnings per share results in 2013 replace_table_token_19_th _ ( 1 ) see reconciliation and definition under non-gaap measure . diluted earnings per share from continuing operations increased $ 1.65 , to $ 0.38 , principally due to lower goodwill impairment expense , lower income tax expense , lower foreign currency losses , and lower interest expense , partially offset by lower operating margin , an increase in losses on early extinguishment of debt , lower gain on sale of investments , higher losses from disposal and impairment of discontinued businesses , and higher other than temporary impairments of our equity method investments . adjusted earnings per share , a non-gaap measure , increased by 7 % to $ 1.29 primarily due to a lower effective tax rate , lower interest expense , and lower general and administrative expenses , partially offset by lower operating margin . management 's priorities management is focused on the following priorities : management of our portfolio of generation and utility businesses to create value for our stakeholders , including customers and shareholders , through safe , reliable , and sustainable operations and effective cost management ; 76 driving our business to manage capital more effectively and to increase the amount of discretionary cash available for deployment into debt repayment , growth investments , shareholder dividends and share buybacks ; realignment of our geographic focus . to this end , we will continue to exit markets where we do not have a competitive advantage or where we are unable to earn a fair risk-adjusted return relative to monetization alternatives . in addition , we will focus our growth investments on platform expansions or opportunities to expand our existing operations ; and reduce the cash flow and earnings volatility of our businesses by proactively managing our currency , commodity and political risk exposures , mostly through contractual and regulatory mechanisms , as well as commercial hedging activities . we also will continue to limit our risk by utilizing non-recourse project financing for the majority of our businesses . 2013 strategic performance we continued to execute on our strategic objectives of safe , reliable and sustainable operations , improvement of available capital and deployment of discretionary cash and realignment of our geographic focus . key highlights of our progress during the year ended december 31 , 2013 include : safe , reliable and sustainable operations — our 2013 operating performance for the year was driven by the strategic management of our assets and cost reductions across our portfolio , but we also faced dry hydrological conditions across many markets in latin america and challenges at two of our utilities in brazil and the us . we continue to focus on safety as our top priority . story_separator_special_tag we have 2,762 mw of new capacity under construction , including the 531 mw alto maipo hydroelectric project in chile , which broke ground late in 2013. in addition , we have environmental upgrades of approximately 2,400 mw under construction at indianapolis power & light ( ipl ) . these projects are scheduled to come on-line through 2018 . 78 story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:36px ; '' > andes — overall favorable impact of $ 31 million driven by chile due to the impact of new operations at angamos in chile which commenced operations in april 2011 as well as higher contract volume , partially offset by lower spot sales from termoandes in argentina to chile and chivor due to higher prices . favorable drivers above partially offset by unfavorable fx of $ 66 million and argentina due to lower prices and the impact of outages , despite higher volume . brazil — overall unfavorable impact of $ 852 million driven by unfavorable fx of $ 1.1 billion as well as eletropaulo due to lower tariffs as a result of the july 2012 tariff reset , which was delayed from july 2011 , partially offset by higher pass-through costs at sul and higher contract and spot prices at tietê . mcac — overall favorable impact of $ 246 million driven by new operations at changuinola , which commenced operations in october 2011 , and the re-start of operations at the esti plant in panama , as well as the dominican republic due to higher prices and volume from gas sales and higher ancillary services , slightly offset by unfavorable foreign currency translation impact of $ 17 million in mexico . emea — overall unfavorable impact of $ 125 million driven by unfavorable fx of $ 39 million , a decrease at cartagena due to the sale of 80 % of our ownership in february 2012 , somewhat offset by a non-recurring favorable arbitration settlement , and ballylumford in the united kingdom due to higher outages and lower demand . the lower results were partially offset by new operations at maritza , which commenced operations in june 2011. asia — overall favorable impact of $ 108 million driven by masinloc in the philippines due to higher demand net of lower prices , the reversal of a contingency and unrealized derivative gains in 2012 , and favorable foreign currency translation of $ 14 million . operating margin decreased $ 457 million , or 11 % , to $ 3.6 billion in 2012 compared with $ 4.0 billion in 2011 . the key operating drivers of the change at each of the sbus are as follows : us — overall favorable impact of $ 316 million driven by the first full year of operations at dpl , lower repair and maintenance costs at ipl , the short-term restart of two units at southland , and fewer outages at hawaii . andes — overall unfavorable impact of $ 163 million driven by chile due to higher replacement energy costs and lower spot sales at termoandes , argentina due to lower prices and higher fixed costs , partially offset by an increase at chivor due to non-recurring equity tax in 2011 and a net favorable impact of higher spot prices and lower volumes . 81 brazil — overall unfavorable impact of $ 833 million driven by unfavorable fx impact of $ 146 million , lower tariffs at eletropaulo as discussed above and higher fixed costs , partially offset by higher contract prices from the annual ppa price adjustment at tietê , and higher tariffs at sul . mcac — overall favorable impact of $ 48 million driven by panama due to the first full year of operations at changuinola as well as the re-start of operations at the esti plant , somewhat offset by lower prices as well as mexico due to fewer outages and higher volume and the dominican republic due to favorable prices , primarily higher spot and lng prices , somewhat offset by lower availability . emea — overall favorable impact of $ 109 million driven by maritza due to the first full year of operations , kilroot with increased dispatch , and cartagena due to a non-recurring favorable arbitration settlement , somewhat offset by the sale of 80 % as discussed above . the favorable drivers above were partially offset by ballylumford due to lower capacity prices , higher outages and related maintenance costs , and lower volume . asia — overall favorable impact of $ 69 million driven by masinloc due to higher market demand net of lower rates , the reversal of a contingency and higher unrealized derivative gains . general and administrative expenses general and administrative expenses includes expenses related to corporate staff functions and or initiatives , executive management , finance , legal , human resources and information systems , as well as global development costs . general and administrative expenses decrease d $ 54 million , or 20 % , to $ 220 million in 2013 from 2012 primarily due to company restructuring efforts , resulting in a decrease in employee related costs , professional fees and business development costs . general and administrative expenses decrease d $ 72 million , or 21 % , to $ 274 million in 2012 from 2011 primarily due to reductions in business development and systems administration costs . interest expense interest expense decrease d $ 62 million , or 4 % , to $ 1.5 billion in 2013 from 2012 . the decrease was primarily due to reduced debt principal as well as the prior year prepayment of an interest rate cash flow hedge that resulted in a reclassification of deferred losses from other comprehensive income to earnings at the parent company , favorable foreign currency translation and lower interest rates in brazil , as well as income resulting from ineffectiveness on interest rate swaps in puerto rico that continue to qualify for hedge accounting .
| review of consolidated results of operations replace_table_token_21_th _ nm — not meaningful 79 components of revenue , cost of sales and operating margin— revenue includes revenue earned from the sale of energy from our utilities and the production of energy from our generation plants , which are classified as regulated and non-regulated on the consolidated statements of operations , respectively . revenue also includes the gains or losses on derivatives ( including embedded derivatives other than foreign currency embedded derivatives ) associated with the sale of electricity . cost of sales includes costs incurred directly by the businesses in the ordinary course of business . examples include electricity and fuel purchases , operations and maintenance costs , depreciation and amortization expense , bad debt expense and recoveries , general administrative and support costs ( including employee-related costs directly associated with the operations of the business ) . cost of sales also includes the gains or losses on derivatives ( including embedded derivatives other than foreign currency embedded derivatives ) associated with the purchase of electricity or fuel . operating margin is defined as revenue less cost of sales . year ended december 31 , 2013 : revenue decrease d $ 1.3 billion , or 7 % , to $ 15.9 billion in 2013 compared with $ 17.2 billion in 2012 . the key operating drivers of the change at each of the sbus are as follows : us — overall unfavorable impact of $ 106 million driven by the early termination of the ppa at beaver valley in early 2013 , customer switching as well as lower capacity rates at dpl , and the short-term restart in 2012 of two huntington beach generating units at southland in california , partially offset by higher wholesale volume and prices at ipl in indiana .
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9.25 % senior secured notes due 2023 on june 10 , 2016 , cvr partners and cvr nitrogen finance corporation ( “ cvr nitrogen finance ” ) , an indirect wholly-owned subsidiary of cvr story_separator_special_tag the following discussion and analysis of our financial condition , results of operations and cash flow should be read in conjunction with our consolidated financial statements and related notes and with the statistical information and financial data included elsewhere in this report . references to cvr partners , the partnership , “ we ” , “ us ” , and “ our ” may refer to consolidated subsidiaries of cvr partners or one or both of the facilities , as the context may require . this discussion and analysis covers the years ended december 31 , 2020 and 2019 and discusses year-to-year comparisons between such periods . the discussions of the year ended december 31 , 2018 and year-to-year comparisons between the years ended december 31 , 2019 and 2018 that are not included in this annual report on form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the partnership 's annual report on form 10-k for the fiscal year ended december 31 , 2019 filed on february 20 , 2020 , and such discussions are incorporated by reference into this report . reflected in this discussion and analysis is how management views the partnership 's current financial condition and results of operations along with key external variables and management actions that may impact the partnership . understanding significant external variables , such as market conditions , weather , and seasonal trends , among others , and management actions taken to manage the partnership , address external variables , among others , which will increase users ' understanding of the partnership , its financial condition and results of operations . this discussion may contain forward looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward looking statements . factors that could cause or contribute to such differences include , but are not limited to those discussed below and elsewhere in this report . strategy and goals mission and core values our mission is to be a top tier north american nitrogen-based fertilizer company as measured by safe and reliable operations , superior performance and profitable growth . the foundation of how we operate is built on five core values : safety - we always put safety first . the protection of our employees , contractors and communities is paramount . we have an unwavering commitment to safety above all else . if it 's not safe , then we do n't do it . environment - we care for our environment . complying with all regulations and minimizing any environmental impact from our operations is essential . we understand our obligation to the environment and that it 's our duty to protect it . integrity - we require high business ethics . we comply with the law and practice sound corporate governance . we only conduct business one way—the right way with integrity . corporate citizenship - we are proud members of the communities where we operate . we are good neighbors and know that it 's a privilege we ca n't take for granted . we seek to make a positive economic and social impact through our financial donations and the contributions of time , knowledge and talent of our employees to the places where we live and work . continuous improvement - we believe in both individual and team success . we foster accountability under a performance-driven culture that supports creative thinking , teamwork , diversity and personal development so that employees can realize their maximum potential . we use defined work practices for consistency , efficiency and to create value across the organization . our core values are driven by our people , inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives . december 31 , 2020 | 29 table of contents strategic objectives we have outlined the following strategic objectives to drive the accomplishment of our mission : safety - we aim to achieve continuous improvement in all environmental , health , and safety areas through ensuring our people 's commitment to environmental , health and safety comes first , the refinement of existing policies , continuous training , and enhanced monitoring procedures . reliability - our goal is to achieve industry-leading utilization rates at both of our facilities through safe and reliable operations . we are focusing on improvements in day-to-day plant operations , identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints , and optimizing our commercial and marketing functions to maintain plant operations at their highest level . market capture - we continuously evaluate opportunities to improve the facilities ' realized pricing at the gate and reduce variable costs incurred in production to maximize our capture of market opportunities . financial discipline - we strive to be efficient as possible by maintaining low operating costs and disciplined deployment of capital . achievements we successfully executed a number of achievements in support of our strategic objectives shown below through the date of this filing despite the challenges experienced by the industry during 2020 as a result of the covid-19 pandemic : safety reliability market capture financial discipline operated all facilities and corporate offices safely and reliably and maintained financial discipline amid covid-19 pandemic . story_separator_special_tag significant assumptions inherent in the valuation methodologies for goodwill include , but are not limited to , prospective financial information , growth rates , discount rates , inflationary factors , and cost of capital . to evaluate the sensitivity of the fair value calculations for the reporting unit , the partnership applied a hypothetical 1 % favorable change in the weighted average cost of capital , and separately , increased the revenue projections by 10 % , holding gross margins steady . the results of these sensitivity analyses confirmed the need to record a non-cash impairment charge of $ 41.0 million during 2020. there is no goodwill remaining as of december 31 , 2020. with the adverse economic impacts discussed above and the uncertainty surrounding the covid-19 pandemic , there is a heightened risk that amounts recognized , including other long-lived assets , may not be recoverable . while our assessment in 2020 did not identify the existence of an impairment indicator for our long-lived asset groups , we continue to monitor the december 31 , 2020 | 31 table of contents current environment , including the duration and breadth of the impacts that the pandemic will have on demand for our fertilizer products , to assess whether qualitative factors indicate a quantitative assessment is required . if a quantitative test is performed , the extent to which the recoverability of our long-lived assets could be impaired is unknown . such impairment could have a significant adverse impact on our results of operations ; however , an impairment would have no impact on our financial condition or liquidity . market conditions while there is risk of shorter-term volatility given the inherent nature of the commodity cycle and the impacts of the global covid-19 pandemic , the partnership believes the long-term fundamentals for the u.s. nitrogen fertilizer industry remain intact . the partnership views the anticipated combination of ( i ) increasing global population , ( ii ) decreasing arable land per capita , ( iii ) continued evolution to more protein-based diets in developing countries , ( iv ) sustained use of corn as feedstock for the domestic production of ethanol , and ( v ) positioning at the lower end of the global cost curve should provide a solid foundation for nitrogen fertilizer producers in the u.s. over the longer term . while weather conditions in 2020 exhibited normal patterns , weather significantly impacted the timing of the planting season for corn and soybeans in 2019. due to excessive wet conditions , crops were planted later than normal in the spring which led to a late harvest of these crops in the fall of 2019. as a result , the ammonia application season in the fall of 2019 was shortened . this created a surplus of ammonia inventory in the market during the winter of 2019 leading into 2020. uan continues to be impacted by the imposition of import duties on uan product by the european union ( the “ eu ” ) . this has resulted in shifts in uan trade flows for product that had previously been shipped to the eu . in 2020 , natural gas prices across the world declined significantly as compared to 2019 ; however , since the summer of 2020 , forward market prices indicate significantly higher prices for 2021 versus historically low prices in 2020. natural gas is the primary feedstock for production of nitrogen fertilizers . as a result of these factors , in the fourth quarter of 2020 , the partnership has started to see an uptrend in pricing related to these products , with the expectation that product prices will continue to see an uptrend into the first quarter of 2021. corn and soybean are two major crops planted by farmers in north america . corn crops result in the depletion of the amount of nitrogen and ammonia within the soil in which it is grown , which in turn , results in the need for these nutrients to be replenished after each growing cycle . unlike corn , soybeans are able to obtain their own nitrogen through a process known as “ n fixation. ” as such , upon harvesting of soybeans , the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle . due to these factors , nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as evident through the chart presented below for 2020 , 2019 and 2018. the relationship between the total acres planted for both corn and soybean has a direct impact on the overall demand for nitrogen products . as the number of corn acres increases , the market and demand for nitrogen also increases . correspondingly , as the number of soybean acres increases , the market and demand for nitrogen decreases . additionally , an estimated 8 billion pounds of soybean oil is expected to go towards producing cleaner biodiesel in 2020 and 2021. multiple refiners have announced biodiesel expansion projects for 2021 and beyond , which will only increase the demand and capacity for soybeans . due to the uncertainty of how these factors will truly affect the soybean market , it is not yet known how the nitrogen business will be impacted . ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value . ethanol production has historically consumed approximately 35 % of the u.s. corn crop , so demand for corn generally rises and falls with ethanol demand . there has been a decline in ethanol demand in 2020 due to decreased demand for transportation fuels as a result of the covid-19 pandemic . however , the lower ethanol demand did not alter the spring 2020 planting decisions by farmers as evidenced in the charts below . december 31 , 2020 | 32 table of contents ( 1 ) information used within this chart was obtained from the u.s. energy information administration ( “ eia ” ) .
| financial highlights overview - for the year ended december 31 , 2020 , the partnership 's operating loss and net loss were $ 34.9 million and $ 98.2 million , respectively , a $ 62.3 million decrease in operating income and a $ 63.2 million increase in net loss , respectively , compared to the year ended december 31 , 2019 driven primarily by lower net sales and the recognition of a non-cash impairment charge of $ 41.0 million driven primarily by the lower pricing environment observed in 2020. these impacts were offset by higher sales volumes and reductions to operating expense . december 31 , 2020 | 35 table of contents ( 1 ) see “ non-gaap reconciliations ” section below for reconciliations of the non-gaap measures shown above . net sales - net sales decreased by $ 54.2 million to $ 350.0 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. this decrease was primarily due to unfavorable pricing conditions which contributed $ 99.0 million in lower revenues offset with increased sales volumes contributing $ 45.8 million as compared to the year ended december 31 , 2019. for the years ended december 31 , 2020 and 2019 , net sales included $ 33.3 million and $ 33.4 million in freight revenue , respectively , and $ 10.1 million and $ 7.6 million in other revenue , respectively . the following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales , excluding urea products , freight , and other revenue , for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 .
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the agreements with these mri facilities are for one-year terms which renew automatically on an annual basis , unless terminated . the fees for these sites , which are located in florida , are flat monthly fees . for services for which medicare is billed directly , the sites are paid under the medicare physician fee schedule , which is updated on an annual basis . under the medicare statutory formula , payments under the physician fee schedule would have decreased for the past several years if congress failed to intervene . many private payors use the medicare physician fee schedule to determine their own reimbursement rates . while congress has repeatedly intervened to mitigate the negative reimbursement impact associated with the formula , there is no guarantee that congress will continue to do so in the future . moreover , the existing methodology may result in significant yearly fluctuations in the medicare physician fee schedule amounts , which may be unrelated to changes in the actual costs of providing physician services . the 2013 medicare physician fee schedule expands a reduction in reimbursement for multiple images . payment will be made at 75 % for the professional component and 50 % for the technical component of the second and subsequent scans furnished by the same physician , to the same patient , in the same session , on the same day . in addition , effective january 1 , 2014 , medicare made significant reductions in the mri fee schedule , by nearly 40 % for some mri studies . critical accounting policies our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements that were prepared in accordance with u.s. generally accepted accounting principles , or gaap . management makes estimates and assumptions when preparing financial statements . these estimates and assumptions affect various matters , including : our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements our disclosure of contingent assets and liabilities at the dates of the financial statements ; and our reported amounts of net revenue and expenses in our consolidated statements of operations during the reporting periods these estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management 's control . as a result , actual amounts could differ materially from these estimates . page 34 fonar corporation and subsidiaries the securities and exchange commission defines critical accounting estimates as those that are both most important to the portrayal of a company 's financial condition and results of operations and require management 's most difficult , subjective or complex judgment , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . in the notes to our consolidated financial statements , we discuss our significant accounting policies . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . we recognize revenue and related costs of revenue from sales contracts for our mri scanners and major upgrades , under the percentage-of-completion method . under this method , we recognize revenue and related costs of revenue , as each sub-assembly is completed . amounts received in advance of our commencement of production are recorded as customer advances . we continuously , qualitatively and quantitatively evaluate the realizability ( including both positive and negative evidence ) of the net deferred tax assets and assess the valuation allowance periodically . our evaluation considers the financial condition of the company and both the business conditions and regulatory environment of the industry . if future taxable income or other factors are not consistent with our expectations , an adjustment to our allowance for net deferred tax assets may be required . for net deferred tax assets we consider estimates of future taxable income , including tax planning strategies , in determining whether our net deferred tax assets are more likely than not to be realized . our ability to project future taxable income may be significantly affected by our ability to determine the impact of regulatory changes which could adversely affect our future profits . as a result , the benefits of our net operating loss carry forwards could expire before they are utilized . at june 30 , 2018 , the net deferred tax asset was valued at $ 22,450,000. at june 30 , 2019 , the net deferred tax asset was valued at $ 20,694,480. we depreciate our long-lived assets over their estimated economic useful lives with the exception of leasehold improvements where we use the shorter of the assets useful lives or the lease term of the facility for which these assets are associated . the company provides for medical receivables that could become uncollectible by establishing an allowance for doubtful accounts in order to adjust medical receivables to estimated net realizable value . in evaluating the collectability of medical receivables , the company considers a number of factors , including the age of the account , historical collection experiences , payor type , current economic conditions and other relevant factors . there are various factors that impact collection trends , such as payor mix , changes in the economy , increase burden on copayments to be made by patients with insurance and business practices related to collection efforts . these factors continuously change and can have an impact on collection trends and the estimation process . we amortize our intangible assets , including patents , and capitalized software development costs , over the shorter of the contractual/legal life or the estimated economic life . story_separator_special_tag cost of revenues as a percentage of the related revenues for our physician and diagnostic services management segment increased from $ 37.9 million or 52.9 % of related revenues for the year ended june 30 , 2018 to $ 40.2 million , or 52.0 % of related revenues for the year ended june 30 , 2019. the revenues increased more than the costs relating to these revenues . operating results of this segment increased from operating income of $ 22.7 million in fiscal 2018 to operating income of $ 25.6 million in fiscal 2019. we believe that our efforts to expand and improve the operation of our physician and diagnostic services management segment are directly responsible for the profitability of this segment and our company as a whole . story_separator_special_tag $ 160,074 was recognized in fiscal 2018 , as compared to interest expense recovery $ 23,299 in fiscal 2017. while revenue increased by 4.5 % , selling , general and administrative expenses decreased by 6.6 % to $ 18.1 million in fiscal 2018 from $ 19.4 million in fiscal 2017. the compensatory element of stock issuances decreased from approximately $ 2,397,276 in fiscal 2017 to $ 1,954,744 in fiscal 2018 , reflecting a decrease in fonar 's use of its stock bonus plans to pay employees and others . page 39 fonar corporation and subsidiaries . a recovery of bad debts of $ 614,680 in fiscal 2018 as compared to a provision of bad debts of $ 477,577 in fiscal 2017 , reflected a increase in reserves for certain indebtedness in fiscal 2018 by our physician and diagnostic services management segment . in addition in fiscal 2018 , the company recorded a provision for bad debts for patient fee revenue of $ 17.9 million for the four mri facilities in florida which bill patients and third party payors directly . the three florida sites managed by hmca jointly and severally guaranteed the payment of their management fees to hmca , further securing hmca 's management fee receivables . for the fiscal year 2018 the company recorded an income tax benefit of $ 5.7 million compared with $ 4.3 million for 2017. the company recorded a net deferred tax asset of $ 22.5 million as of june 30 , 2018. revenue from service and repair fees decreased from $ 9.6 million in fiscal 2017 to $ 9.2 million in fiscal 2018. in fiscal 2018 we continued our investment in the development of our new mri scanners , together with software and upgrades , with an investment of $ 1,755,747 in research and development , none of which was capitalized , as compared to $ 1,480,670 , none of which was capitalized , in fiscal 2017. the research and development expenditures were approximately 17.8 % of revenues attributable to our medical equipment segment and 2.1 % of total revenues in 2018 , and 13.2 % of medical equipment segment revenues and 1.9 % of total revenues in fiscal 2017. this represented a 18.6 % increase in research and development expenditures in fiscal 2018 as compared to fiscal 2017. we have been taking steps to improve hmca revenues by our marketing efforts , which focus on the unique capability of our upright® mri scanners to scan patients in different positions . we have also been increasing the number of health insurance plans in which our clients participate . our management fees are dependent on collection by our clients of fees from reimbursements from medicare , medicaid , private insurance , no fault and workers ' compensation carriers , self–pay and other third-party payors . the health care industry is experiencing the effects of the federal and state governments ' trend toward cost containment , as governments and other third-party payors seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers . the cost-containment measures , consolidated with the increasing influence of managed-care payors and competition for patients , have resulted in reduced rates of reimbursement for services provided by our clients from time to time . our future revenues and results of operations may be adversely impacted by future reductions in reimbursement rates . certain third-party payors have proposed and implemented changes in the methods and rates of reimbursement that have had the effect of substantially decreasing reimbursement for diagnostic imaging services that hmca 's clients provide . to the extent reimbursement from third-party payors is reduced , it will likely have an adverse impact on the rates they pay us , as they would need to reduce the management fees they pay hmca to offset such decreased reimbursement rates . furthermore , many commercial health care insurance arrangements are changing , so that individuals bear greater financial responsibility through high deductible plans , co-insurance and higher co-payments , which may result in patients delaying or foregoing medical procedures . more frequently , however , patients are scanned and we experience difficulty in collecting deductibles and co-payments . we expect that any further changes to the rates or methods of reimbursement for services , which reduce the reimbursement per scan of our clients may partially offset the increases in scan volume we are working to achieve for our clients , and indirectly will result in a decline in our revenues . page 40 fonar corporation and subsidiaries on march 23 , 2010 , president obama signed into law healthcare reform legislation in the form of the patient protection and affordable care act , or ppaca . healthcare cost containment , reductions of medicare and other payments , and increased regulation will present additional challenges for healthcare providers . we are unable to predict the full impact of ppaca , or the possible amendment or repeal and replacement of ppaca .
| discussion of certain consolidated results of operations fiscal 2019 compared to fiscal 2018 interest and investment income increased in 2019 compared to 2018. we recognized interest income of $ 482,573 in 2019 as compared to $ 262,569 in fiscal 2018 , representing an increase of 83.8 % . interest expense of $ 98,636 was recognized in fiscal 2019 , as compared to interest expense of $ 160,074 in fiscal 2018. this was due to additional principal payments being made to retire our debt . while revenue increased by 7.0 % , selling , general and administrative expenses increased by 6.2 % to $ 19.3 million in fiscal 2019 from $ 18.1 million in fiscal 2018. the compensatory element of stock issuances increased from $ 1,954,744 in fiscal 2018 to $ 1,990,380 in fiscal 2019. page 37 fonar corporation and subsidiaries revenue from service and repair fees decreased from $ 9.2 million in fiscal 2018 to $ 8.3 million in fiscal 2019. continuing our tradition as the originator of mri , we remain committed to maintaining our position as the leading innovator of the industry through investing in research and development . in fiscal 2019 we continued our investment in the development of our new mri scanners , together with software and upgrades , with an investment of $ 1,812,347 in research and development , none of which was capitalized , as compared to $ 1,755,747 , none of which was capitalized , in fiscal 2018. the research and development expenditures were approximately 18.1 % of revenues attributable to our medical equipment segment and 2.1 % of total revenues in 2019 , and 17.8 % of medical equipment segment revenues and 2.1 % of total revenues in fiscal 2018. this represented a 3.2 % increase in research and development expenditures in fiscal 2019 as compared to fiscal 2018. for the physician and diagnostic services management segment , hmca , revenues increased , from
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net sales of our story_separator_special_tag executive overview customers and services we are a diversified services and supply chain management company that assists our clients in sustaining , extending the service life , and improving the performance of their transportation equipment , and other assets and systems . we provide logistics and distribution services for legacy systems and equipment and professional and technical services to the united states government ( the `` government '' ) , including the united states department of defense ( `` dod '' ) , the united states postal service ( `` usps '' ) and federal civilian agencies , and to commercial and other customers . our largest customers are the dod and the usps . our operations include supply chain management solutions , parts supply and distribution , and maintenance , repair , and overhaul ( “ mro ” ) services for vehicle fleet , aviation , and other clients ; vehicle and equipment maintenance and refurbishment ; logistics ; engineering ; energy and environmental services ; it and health care it solutions ; and consulting services . see item 1 “ business - revenues and contracts ” above for revenues by customer . organization and segments our operations are conducted within three reportable segments aligned with our management groups : 1 ) supply chain management ; 2 ) aviation ; and 3 ) federal services . beginning in 2017 , we have combined our former it , energy and management consulting group with our federal services group . supply chain management group - our supply chain management group provides sourcing , acquisition , scheduling , transportation , shipping , logistics , data management , and other services to assist our clients with supply chain management efforts . operations of this group are conducted by our wholly owned subsidiary wheeler bros. , inc. , which supports the usps , commercial truck fleets , and dod with fleet management and sustainment solutions , and managed inventory services . the primary revenue source for this group is the usps managed inventory program ( `` mip '' ) that supplies vehicle parts and mission critical supply chain support for the usps vehicle fleet . aviation group - o ur aviation group provides parts supply and distribution , supply chain solutions , and mro services for general aviation jet aircraft engines and engine accessories . this group offers a range of complimentary services and supplies to a diversified client base of corporate and private aircraft owners , regional airlines , aviation manufacturers , aviation mro providers , cargo transporters , and agricultural clients . federal services group - our federal services group provides foreign military sales services , refurbishment services to extend and enhance the life of existing vehicles and equipment , fleet-wide ship and aircraft support , aircraft sustainment and maintenance , and other technical , management , engineering , logistics , maintenance , configuration management , prototyping , technology , and field support services to the u.s. navy and marine corps , u.s. army and army reserve , u.s. air force , and other customers . significant work efforts for this group include assistance to the u.s. navy in executing its foreign military sales ( “ fms ” ) program for surface ships sold , leased or granted to foreign countries , our red river army depot equipment related services program ( “ rrad ers ” ) providing on-site logistics support for red river army depot at texarkana , texas , our fort benning logistics support services program supporting base operations and logistics at fort benning , georgia , and our u.s. army reserve vehicle refurbishment program and various vehicle and equipment refurbishment , maintenance and sustainment programs for u.s. army commands . our federal services group also provides energy and environmental consulting services and it solutions and services with a focus on medical and health related fields for various dod and federal civilian agencies , including the united states departments of energy ; the social security administration ; the national institutes of health ; customers in the military health system ; and other government agencies and commercial clients . - 17 - concentration of revenues replace_table_token_6_th management outlook we saw revenue growth in 2017 of 10 % over 2016 revenues , which was up 30 % over 2015 revenues . the improvement in our revenues were again led by our federal services group for which revenues increased by 16 % . increased revenues from our supply chain management group also contributed to our revenue growth in 2017. we are pursuing initiatives in each of our groups to sustain our growth . our 2017 federal services group revenues increase resulted primarily from a full year of performance on our rrad ers program as compared to a partial year of performance in its 2016 start-up year . various smaller programs also contributed to revenue increases in this group . our fms program remains the largest contributor to our federal services group revenues and fms program revenues increased 9 % over 2016. our federal services group revenues were supported by contract funding awards exceeding $ 400 million and funded contract backlog exceeding $ 300 million for the second consecutive year . however , funding activity has been clouded by federal government budget uncertainties in the fourth quarter of 2017 and early 2018. we are well positioned in our pursuit of opportunities to expand our services supporting our traditional government clients , and to capture new work for which our federal services group can team with our aviation group to provide enhanced competencies to a wider range of government and international clients . additionally , we have developed strong international business relationships through our decades of work with foreign client countries . we are extending these relationships to market our services to several international clients . story_separator_special_tag our aviation group revenues are recognized upon the shipment or delivery of products to customers based on when title or risk of loss transfers to the customer . sales returns and allowances are not significant . substantially all of our federal services group work is performed for our customers on a contract basis . the three primary types of contracts used are cost-type , fixed-price and time and materials . revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work related costs allowed under our contracts . - 19 - revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned . our fms program contract is a cost plus award fee contract . this contract has terms that specify award fee payments that are determined by performance and level of contract activity . award fees are made during the year through a contract modification authorizing the award fee that is issued subsequent to the period in which the work is performed . award fee evaluations occur three times per year and in 2017 and prior years we recognized award fee revenue and income in the period we received contractual notification of the award when the fees became fixed or determinable . we recognized award fee revenue and income in 2017 from three award fee notifications . revenue recognition methods on fixed-price contracts will vary depending on the nature of the work and the contract terms . revenues on fixed-price service contracts are recorded as work is performed , typically ratably over the service period . revenues on fixed-price contracts that require delivery of specific items are recorded based on a price per unit as units are delivered . revenues for time and materials contracts are recorded on the basis of contract allowable labor hours worked multiplied by the contract defined billing rates , plus the direct costs and indirect cost burdens associated with materials and subcontract work used in performance on the contract . generally , profits on time and materials contracts result from the difference between the cost of services performed and the contract defined billing rates for these services . a summary of revenues for our operating groups , including a summary by contract type for our federal services group , for the years ended december 31 is presented below ( in thousands ) . replace_table_token_8_th we will occasionally perform work at risk , which is work performed prior to formalizing contract funding for such work . revenue related to work performed at risk is not recognized until it can be reliably estimated and its realization is probable . we recognize this “ risk funding ” as revenue when the associated costs are incurred or the work is performed . we are at risk of loss for any risk funding not received . revenues recognized as of december 31 , 2017 include approximately $ 4.0 million for which we have not received formalized funding . we believe that we are entitled to reimbursement and expect to receive all of this funding . goodwill and intangible assets goodwill is subject to a review for impairment at least annually . we perform an annual review of goodwill for impairment during the fourth quarter and whenever events or other changes in circumstances indicate that the carrying value may not be fully recoverable . we estimate the fair value of our reporting units using a weighting of fair values derived from the income approach and market approach . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . cash flow projections are based on our estimates of revenue growth rates and operating margins , taking into consideration industry and market conditions . the discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows . in the fourth quarter of 2017 , we performed our annual goodwill impairment analysis for each of our reporting units utilizing the statutory tax rate in effect at the time of the test . the results of the impairment analysis indicated that our reporting units had fair values substantially in excess of their carrying values with the exception of our vse aviation and akimeka reporting units . the fair value of our vse aviation reporting unit , within our aviation group , approximated its carrying value as of our annual goodwill impairment analysis . while there has not been a significant contract or customer loss , vse aviation 's revenues and operating income for 2017 did not meet our cash flow projections , primarily due to a decreased demand for new parts and - 20 - slower than anticipated development of new business opportunities . we believe that these conditions are temporary and that the overall outlook for our aviation business remains consistent with our long-term projections . under the income approach , we used a 12.5 % discount rate ( a 50 basis point increase from the discount rate used in the analysis performed in the prior year ) , a compounded annual revenue growth rate of 8 % over a seven-year period , and a long-term revenue growth rate of 3 % in the terminal year . our compounded annual growth rate over the seven-year period is primarily based on projected organic growth , which is corroborated by market studies related to our aviation business , and significant initiatives , including international opportunities for parts distribution and gas turbine mro services provided to our u.s. government customer . we believe the discount rate properly reflects the risks in our future cash flows assumptions including the risk that the new business opportunities take longer to develop or do not meet our expectations .
| results of operations replace_table_token_9_th our revenues increased by approximately $ 68 million or 10 % for the year ended december 31 , 2017 as compared to the prior year . the change in revenues for this period resulted from an increase in our federal services group of approximately $ 58 million , an increase in our supply chain management group of approximately $ 9 million , and an increase in our aviation group of approximately $ 1 million . our revenues increased by approximately $ 158 million or 30 % for the year ended december 31 , 2016 as compared to the prior year . the change in revenues for this period resulted from an increase in our federal services group of approximately $ 135 million , an increase in our aviation group of approximately $ 14 million , and an increase in our supply chain management group of approximately $ 9 million . replace_table_token_10_th costs and operating expenses consist primarily of cost of inventory and delivery of our products sold ; direct costs , including labor , material , and supplies used in the performance of our contract work ; indirect costs associated with our direct contract costs ; sales , general , and administrative expenses associated with our operating groups and corporate management ; and certain costs and charges arising from nonrecurring events outside the ordinary course of business . these costs will generally increase or decrease in conjunction with our level of products sold or contract work performed . costs and operating expenses also include expense for amortization of intangible assets acquired through our acquisitions . expense for amortization of acquisition related intangible assets is included in the segment results in which the acquisition is included . segment results also include expense for an allocation of corporate management costs .
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earnings ( loss ) per share ( basic and diluted ) basic earnings ( loss ) per share ( eps ) is computed by dividing net income ( loss ) by the weighted average number of common shares outstanding during the period . diluted eps is computed using the same method as basic eps , however , the computation reflects the potential dilution that would occur if outstanding in-the-money stock story_separator_special_tag for the purpose of this discussion and analysis , the words we , us , our , and the company are used to refer to new york community bancorp , inc. and our consolidated subsidiaries , including new york community bank ( the community bank ) and new york commercial bank ( the commercial bank ) ( collectively , the banks ) . executive summary new york community bancorp , inc. is the holding company for new york community bank , with 225 branches in metro new york , new jersey , ohio , florida , and arizona , and new york commercial bank , with 30 branches in metro new york . at december 31 , 2016 , we had total assets of $ 48.9 billion , including total loans of $ 39.5 billion , and total deposits of $ 28.9 billion . chartered in the state of new york , the community bank and the commercial bank are subject to regulation by the federal deposit insurance corporation ( the fdic ) , the consumer financial protection bureau , and the new york state department of financial services ( the nysdfs ) . in addition , the holding company is subject to regulation by the board of governors of the federal reserve system ( the frb ) , the u.s. securities and exchange commission ( the sec ) , and to the requirements of the new york stock exchange , where shares of our common stock are traded under the symbol nycb. as a publicly traded company , our mission is to provide our shareholders with a solid return on their investment by producing a strong financial performance , maintaining a solid capital position , and engaging in corporate strategies that enhance the value of their shares . in 2016 , we generated earnings of $ 495.4 million , or $ 1.01 per diluted share , and maintained our status as a well-capitalized institution with regulatory capital ratios that rose year-over-year . we also engaged in strategies that were consistent with our business model , as further described below : we continued to manage our assets below the sifi threshold in 2016 , we continued to manage our assets below the threshold for a systemically important financial institution ( sifi ) , a strategy we launched in the fourth quarter of 2014. in the current year , we achieved this goal by selling $ 1.7 billion of multi-family , commercial real estate ( cre ) , and acquisition , development , and construction ( adc ) loans , largely through participations . in addition , our securities portfolio declined $ 2.4 billion from the year-earlier balance as the low level of market interest rates triggered a high volume of calls . as a result , our consolidated assets totaled $ 48.9 billion at december 31 , 2016 and averaged $ 49.0 billion for the four quarters ended at that date . we maintained a strong presence in our multi-family lending niche in 2016 , we produced $ 9.2 billion of non-covered loans held for investment , including $ 5.7 billion of multi-family loans . while loan growth was tempered by a combination of sales and prepayments , the portfolio of non-covered held-for-investment loans rose $ 1.6 billion year-over-year to $ 37.4 billion , including a $ 973.4 million increase in multi-family loans to $ 26.9 billion . multi-family loans accounted for $ 1.3 billion of the loans we sold in 2016 , with cre and adc loans accounting for $ 338.7 million and $ 3.4 million , respectively . in addition to enabling us to manage our assets below the current sifi threshold , the loan sales generated net gains of $ 15.8 million , which were recorded as non-interest income , in 2016. we maintained our record of exceptional asset quality non-performing non-covered assets represented $ 68.1 million , or 0.14 % , of total non-covered assets at the end of this december , and non-performing non-covered loans represented $ 56.5 million , or 0.15 % , of total non-covered loans . while our level of non-performing assets was modestly higher than the year-earlier level , the increase stemmed from the transition to non-accrual status of a single adc credit and certain new york city taxi medallion loans . the performance of our multi-family and cre loans , which are our principal assets , continued to be exceptional over the course of the year . 36 also reflecting the quality of our assets was the nominal level of net charge-offs we recorded in the twelve months ended december 31 , 2016. net charge-offs represented $ 708,000 , or 0.0 % , of average loans in 2016 and consisted entirely of new york city taxi medallion loans . notwithstanding the overall quality of our assets , we recorded an $ 11.9 million provision for non-covered loan losses , bringing our allowance for non-covered loan losses to $ 158.3 million at december 31 , 2016. the benefit of our strategic debt repositioning was validated by the growth of our net interest income in the fourth quarter of 2015 , we prepaid $ 10.4 billion of wholesale borrowings with an average cost of 3.16 % and replaced them with a like amount of wholesale borrowings with an average cost of 1.58 % . in addition , the majority of the wholesale borrowings we prepaid had callable features ; the borrowings with which they were replaced featured fixed maturities . story_separator_special_tag according to this index , home prices rose 5.8 % across the u.s. in the twelve months ended december 31 , 2016 as compared to 5.4 % in the twelve months ended december 31 , 2015. the residential rental vacancy rate in new york , as reported by the u.s. department of commerce , and the office vacancy rate in manhattan , as reported by a leading commercial real estate broker ( jones lang lasalle ) , are important in view of the fact that 65.3 % of our multi-family loans and 72.1 % of our cre loans are secured by properties in new york city , with manhattan accounting for 27.8 % and 53.1 % of our multi-family and cre loans , respectively . as reflected in the following table , the residential rental vacancy rate in new york and the office vacancy rate in manhattan were both higher in the three months ended december 31 , 2016 than they were in the three months ended december 31 , 2015 : replace_table_token_8_th recent events dividend declaration on january 24 , 2017 , the board of directors declared a quarterly cash dividend of $ 0.17 per share , payable on february 22 , 2017 to shareholders of record at the close of business on february 7 , 2017. critical accounting policies we consider certain accounting policies to be critically important to the portrayal of our financial condition and results of operations , since they require management to make complex or subjective judgments , some of which may relate to matters that are inherently uncertain . the inherent sensitivity of our consolidated financial statements to these critical accounting policies , and the judgments , estimates , and assumptions used therein , could have a material impact on our financial condition or results of operations . we have identified the following to be critical accounting policies : the determination of the allowances for loan losses ; the valuation of msrs ; the determination of whether an impairment of securities is other than temporary ; the determination of the amount , if any , of goodwill impairment ; and the determination of the valuation allowance , if any , for deferred tax assets . the judgments used by management in applying these critical accounting policies may be influenced by adverse changes in the economic environment , which may result in changes to future financial results . allowance for losses on non-covered loans the allowance for losses on non-covered loans represents our estimate of probable and estimable losses inherent in the non-covered loan portfolio as of the date of the balance sheet . losses on non-covered loans are charged against , and recoveries of losses on non-covered loans are credited back to , the allowance for losses on non-covered loans . although non-covered loans are held by either the community bank or the commercial bank , and a separate loan loss allowance is established for each , the total of the two allowances is available to cover all losses incurred . in addition , except as otherwise noted in the following discussion , the process for establishing the allowance for losses on non-covered loans is largely the same for each of the community bank and the commercial bank . the methodology used for the allocation of the allowance for non-covered loan losses at december 31 , 2016 and december 31 , 2015 was generally comparable , whereby the community bank and the commercial bank 39 segregated their loss factors ( used for both criticized and non-criticized loans ) into a component that was primarily based on historical loss rates and a component that was primarily based on other qualitative factors that are probable to affect loan collectability . in determining the respective allowances for non-covered loan losses , management considers the community bank 's and the commercial bank 's current business strategies and credit processes , including compliance with applicable regulatory guidelines and with guidelines approved by the respective boards of directors with regard to credit limitations , loan approvals , underwriting criteria , and loan workout procedures . the allowance for losses on non-covered loans is established based on management 's evaluation of incurred losses in the portfolio in accordance with u.s. generally accepted accounting principles ( gaap ) , and is comprised of both specific valuation allowances and general valuation allowances . specific valuation allowances are established based on management 's analyses of individual loans that are considered impaired . if a non-covered loan is deemed to be impaired , management measures the extent of the impairment and establishes a specific valuation allowance for that amount . a non-covered loan is classified as impaired when , based on current information and or events , it is probable that we will be unable to collect all amounts due under the contractual terms of the loan agreement . we apply this classification as necessary to non-covered loans individually evaluated for impairment in our portfolios . smaller-balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective , rather than individual , basis . loans to certain borrowers who have experienced financial difficulty and for which the terms have been modified , resulting in a concession , are considered troubled debt restructurings ( tdrs ) and are classified as impaired . we generally measure impairment on an individual loan and determine the extent to which a specific valuation allowance is necessary by comparing the loan 's outstanding balance to either the fair value of the collateral , less the estimated cost to sell , or the present value of expected cash flows , discounted at the loan 's effective interest rate . generally , when the fair value of the collateral , net of the estimated costs to sell , or the present value of the expected cash flows is less than the recorded investment in the loan , any shortfall is promptly charged off . we also follow a process to assign general valuation allowances to non-covered loan categories .
| earnings summary in the fourth quarter of 2015 , we recorded a non-routine pre-tax debt repositioning charge of $ 915.0 million in connection with the prepayment of $ 10.4 billion of wholesale borrowings . in accordance with asc 470-50 , $ 773.8 million of the debt repositioning charge was recorded as interest expense , and the remaining $ 141.2 million was recorded as non-interest expense . in addition , our fourth quarter non-interest expense included pre-tax expenses of $ 3.7 million in connection with the proposed merger with astoria financial . on an after-tax basis , the entire debt repositioning charge was equivalent to $ 546.8 million and the merger-related expenses were equivalent to $ 3.2 million . reflecting these after-tax items , we recorded a loss of $ 47.2 million , or $ 0.11 per diluted share , in the twelve months ended december 31 , 2015. the impact of the after-tax debt repositioning charge and the after-tax merger-related expenses on our 2015 results of operations was largely offset by the earnings we produced in the first nine months of the year : $ 357.7 million , or $ 0.80 per diluted share . net interest income while the benefit of the strategic debt repositioning was reflected in our 2016 earnings , the inclusion of the $ 773.8 million charge in the interest expense on borrowed funds resulted in our recording total interest expense of $ 1.3 billion and net interest income of $ 408.1 million in 2015. by comparison , in 2014 , we recorded total interest expense of $ 542.7 million and net interest income of $ 1.1 billion . the impact of the debt repositioning charge was further reflected in our net interest margin , which was 0.94 % and 2.67 % in the respective years .
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the carrying value of the notes receivable and notes payable approximate their fair value based on a comparison with the prevailing market interest rates . due to the short-term maturities of the company 's investments in certificates of deposit , the carrying amounts approximate fair story_separator_special_tag the following discussion and analysis should be read in conjunction with our financial statements and related notes thereto included elsewhere in this form 10‑k . portions of this document that are not statements of historical or current fact are forward‑looking statements that involve risk and uncertainties , such as statements of our plans , business strategy , objectives , expectations and intentions . this discussion contains forward‑looking statements that involve risks and uncertainties . please see “ business , ” “ disclosure regarding forward‑looking statements ” and “ risk factors ” elsewhere in this form 10‑k . on february 11 , 2015 , legacy tgc completed the merger with legacy dawson pursuant to which a wholly‑owned subsidiary of legacy tgc merged with and into legacy dawson , with legacy dawson continuing after the merger as the surviving entity and a wholly‑owned subsidiary of legacy tgc . the common stock of the merged company is listed on nasdaq under the symbol “ dwsn. ” under the merger agreement , at the effective time of the merger , each issued and outstanding share of legacy dawson 's common stock , par value $ 0.33 1/3 per share , including shares underlying legacy dawson 's outstanding equity awards , were converted into the right to receive 1.760 shares of common stock of legacy tgc , par value $ 0.01 per share ( the “ legacy tgc common stock ” ) , after giving effect to a 1‑for‑3 reverse stock split of legacy tgc common stock which occurred immediately prior to the merger . the merger is accounted for as a reverse acquisition under which legacy dawson is considered the accounting acquirer of legacy tgc . as such , the financial statements of legacy dawson are treated as the historical financial statements of the merged company . except as otherwise specifically provided , this discussion and analysis relates to the business and operations of legacy dawson and its consolidated subsidiaries for the periods prior to the closing of the merger and on a consolidated basis with legacy tgc and its subsidiaries after the closing of the merger . you should read this discussion in conjunction with the financial statements and notes thereto included elsewhere in this form 10‑k . unless the context requires otherwise , all references in this item 7 to the “ company , ” “ we , ” “ us ” or “ our ” refer to ( i ) legacy dawson and its consolidated subsidiaries , for periods through february 10 , 2015 and ( ii ) the merged company for periods on or after february 11 , 2015. overview we are a leading provider of north american onshore seismic data acquisition services with operations throughout the continental u.s. and canada . substantially all of our revenues are derived from the seismic data acquisition services we provide to our clients , mainly oil and natural gas companies of all sizes . our clients consist of major oil and gas companies , independent oil and gas operators , and providers of multi-client data libraries . demand for our services depends upon the level of spending by these companies for exploration , production , development and field management activities , which depends , in a large part , on oil and natural gas prices . significant fluctuations in domestic oil and natural gas exploration activities and commodity prices , as we have recently experienced , have affected , and will continue to affect , demand for our services and our results of operations , and such fluctuations continue to be the single most important factor affecting our business and results of operations . during the fourth quarter of 2017 , as anticipated , we experienced a temporary decline in crew utilization primarily due to project readiness issues . we began the fourth quarter operating seven crews in the u.s. and two in canada , and ended the quarter operating six crews in the u.s. and three in canada . the fourth quarter in the u.s. historically has been challenging due to shorter work days and the holiday season . we are currently operating seven crews in the u.s. and anticipate operating up to seven crews into the third quarter of 2018. we anticipate completing two microseismic projects in the u.s. during the first half of 2018 , and operating four crews in canada through the end of the winter season which concludes at the end of the first quarter of 2018. while we continue to experience lower than historical demand , we encountered a moderate increase in demand for our services for the year 2017 when compared to 2016. this resulted in improved productivity and crew utilization , primarily during the second half of the year . the recent rise in oil prices , combined with forecasted oil price increases through 2018 , has resulted in increased demand for our services and has brought about a return to positive ebitda . at the same time , the oil and gas industry 's renewed focus on profitability as well as production growth has further driven an increase in requests for proposals , as more exploration and production operators seek to lower drilling and completion 20 costs as well as maximize production through the integrated use of seismic data into their development plans . while still well off the demand levels experienced in 2015 , the recent increase in bid activity is encouraging . the majority of our crews are currently working in oil producing basins , however , w e anticipate increased seismic data acquisition activity in basins outside of the permian and delaware basins as commodity prices improve and those basins become more economic . story_separator_special_tag our effective tax rates differ from the statutory federal rate of 35 % for certain items such as state and local taxes , valuation allowances , non‑deductible expenses and discrete items . use of ebitda ( non‑gaap measure ) we define ebitda as net income ( loss ) plus interest expense , interest income , income taxes , and depreciation and amortization expense . our management uses ebitda as a supplemental financial measure to assess : · the financial performance of our assets without regard to financing methods , capital structures , taxes or historical cost basis ; · our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate ebitda in a similar manner ; and · the ability of our assets to generate cash sufficient for us to pay potential interest costs . we also understand that such data are used by investors to assess our performance . however , the term ebitda is not defined under generally accepted accounting principles ( “ gaap ” ) , and ebitda is not a measure of operating income , operating performance or liquidity presented in accordance with gaap . when assessing our operating performance or liquidity , investors and others should not consider this data in isolation or as a substitute for net income ( loss ) , cash flow from operating activities or other cash flow data calculated in accordance with gaap . in addition , our ebitda may not be comparable to ebitda or similarly titled measures utilized by other companies since such other companies may not calculate ebitda in the same manner as us . further , the results presented by ebitda can not be achieved without incurring the costs that the measure excludes : interest , taxes , and depreciation and amortization . the reconciliation of our ebitda to our net loss and net cash ( used in ) provided by operating activities , which are the most directly comparable gaap financial measures , are provided in the following tables ( in thousands ) : replace_table_token_3_th 23 replace_table_token_4_th liquidity and capital resources introduction . our principal sources of cash are amounts earned from the seismic data acquisition services we provide to our clients . our principal uses of cash are the amounts used to provide these services , including expenses related to our operations and acquiring new equipment . accordingly , our cash position depends ( as do our revenues ) on the level of demand for our services . historically , cash generated from our operations along with cash reserves and borrowings from commercial banks have been sufficient to fund our working capital requirements and , to some extent , our capital expenditures . cash flows . the following table shows our sources and uses of cash ( in thousands ) for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_5_th year ended december 31 , 2017 versus year ended december 31 , 2016 net cash used in operating activities was $ 6,703,000 for the year ended december 31 , 2017 compared to cash provided by operating activities of $ 8,742,000 for the same period in 2016. cash reductions were primarily due to an increase in our operating level of accounts receivable as of december 31 , 2017. net cash provided by investing activities was $ 16,788,000 for the year ended december 31 , 2017 and includes $ 23,667,000 of cash reserves that were not reinvested offset by cash capital expenditures of $ 8,675,000. the increase in cash provided by investing activities were aided by $ 1,325,000 of proceeds from disposal of assets and $ 375,000 of proceeds on flood insurance claims . net cash used in investing activities was $ 22,729,000 for the year ended december 31 , 2016 and included $ 19,250,000 of cash reserves that were invested and cash capital expenditures of $ 8,251,000. these increases in cash used in investing activities were offset by $ 1,922,000 of proceeds from disposal of assets and $ 2,850,000 of proceeds on flood insurance claims . net cash used in financing activities was $ 3,420,000 for the year ended december 31 , 2017 and includes principal payments of $ 2,186,000 on our notes , payments of $ 1,076,000 under our capital leases , and outflows of $ 158,000 associated with taxes related to stock vesting . net cash used in financing activities was $ 8,483,000 for the year ended december 31 , 2016 and included principal payments of $ 7,554,000 on our notes , payments of $ 780,000 under our capital leases , and outflows of $ 149,000 associated with taxes related to stock vesting . year ended december 31 , 2016 versus year ended december 31 , 2015 net cash provided by operating activities was $ 8,742,000 and $ 20,612,000 for the years ended december 31 , 2016 and 2015 , respectively . this decrease primarily reflects our decline in revenues during the year ended december 31 , 2016. cash received from reductions in our overall operating level of accounts receivable to $ 16,031,000 as of december 31 , 2016 from $ 35,700,000 as of december 31 , 2015 provided $ 19,669,000 of operating cash flows for the year ended december 31 , 2016 . 24 net cash used in investing activities was $ 22,729,000 for the year ended december 31 , 2016 and included $ 19,250,000 of cash reserves that were invested and cash capital expenditures of $ 8,251,000. these increases in cash used in investing activities were offset by $ 1,922,000 of proceeds from disposal of assets and $ 2,850,000 of proceeds on flood insurance claims . net cash provided by investing activities was $ 15,787,000 for the year ended december 31 , 2015 and included cash of $ 12,382,000 acquired in the merger , $ 7,750,000 of short term investment maturities that were not reinvested , $ 1,501,000 of proceeds from disposal of assets and $ 1,000,000 of proceeds on flood insurance claims .
| results of operations year ended december 31 , 2017 versus year ended december 31 , 2016 operating revenues . operating revenues for the year ended december 31 , 2017 were $ 157,148,000 as compared to $ 133,330,000 for the same period of 2016. the increase was primarily due to an increase in utilization rates in 2017 as demand for our services showed moderate improvement over 2016. we also had an increase in reimbursable revenue due to the increased number of acquisition projects . we experienced revenue increases in both the u.s. and canadian markets in 2017. although we saw increases in our revenue , we did experience a number of project readiness issues and client-directed delays throughout 2017. severe weather conditions in several areas of operations during the first and second quarters of 2017 led to short term project delays with our crew count dropping to as low as two in april of 2017. operating expenses . operating expenses for the year ended december 31 , 2017 increased to $ 139,164,000 as compared to $ 121,661,000 for the same period of 2016. the increase in operating expenses and reimbursed third–party charges was primarily a result of an increase in utilization rates as discussed in operating revenues above and higher reimbursable expenses corresponding to the increased number of acquisition projects . general and administrative expenses . general and administrative expenses were 10.3 % of revenues in the year ended december 31 , 2017 compared to 12.6 % of revenues in the same period of 2016. general and administrative expenses decreased to $ 16,189,000 during the year ended december 31 , 2017 from $ 16,822,000 during the same period of 2016. the primary factor for the decrease in general and administrative expenses was on-going cost reduction efforts to reduce administrative costs to support our operations . depreciation expense .
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amounts are transferred from aocl and recognized in income in the same period and on the same line that the hedged item is recognized in income . gains and losses on contracts designated as fair value hedges , excluding premiums and discounts , are recorded in other ( income ) expense in the current period . gains and losses on contracts with no hedging designation are also story_separator_special_tag overview the goodyear tire & rubber company is one of the world 's leading manufacturers of tires , with one of the most recognizable brand names in the world and operations in most regions of the world . we have a broad global footprint with 46 manufacturing facilities in 21 countries , including the united states . we operate our business through three operating segments representing our regional tire businesses : americas ; europe , middle east and africa ; and asia pacific . this management 's discussion and analysis provides comparisons of material changes in the consolidated financial statements for the years ended december 31 , 2020 and 2019. for a comparison of the years ended december 31 , 2019 and 2018 , refer to management 's discussion and analysis of financial condition and results of operations included in our annual report on form 10-k for the year ended december 31 , 2019. story_separator_special_tag style= '' font-weight : normal ; font-style : normal ; text-decoration : none ; background-color : # auto ; color : # 000000 ; font-size:10pt ; font-family : 'times new roman ' ; text-transform : none ; font-variant : normal ; letter-spacing:0pt ; '' > we are leveraging governmental relief efforts when available to defer payroll and other tax payments , which benefited full-year cash flows by approximately $ 60 million in the u.s. alone . in addition , we benefited from a provision in the coronavirus aid , relief , and economic security act that provided for a 50 percent refundable payroll tax credit on wages , including continuing health benefits , paid to u.s. employees retained but not working due to the covid-19 pandemic . as a result , during 2020 , we recorded a benefit of $ 12 million as an offset to payroll tax expense . we have taken , and will continue to take , as necessary , other actions to reduce costs and preserve cash in order to successfully navigate the current economic environment , including limiting capital expenditures to $ 647 million for 2020 and reducing discretionary spending , including other selling , administrative and general expenses ( “ sag ” ) , which , in total , decreased by $ 131 million in 2020. additionally , on april 17 , 2020 , we reached a tentative bargaining agreement , which was ratified on may 1 , 2020 , and subsequently permanently closed our gadsden , alabama manufacturing facility ( “ gadsden ” ) as part of our continuing strategy to strengthen the competitiveness of our manufacturing footprint by curtailing production of tires for declining , less profitable segments of the tire market . we estimate the total pre-tax charges associated with this plan to be $ 280 million to $ 295 million , of which $ 170 million to $ 180 million are expected to be cash charges . we recorded $ 189 million of these charges and made cash payments of $ 46 million during 2020. the remaining charges will be recorded and the remaining cash payments will be made primarily in 2021 and 2022. we expect the combined impact of this plan and the previously announced rationalization actions related to gadsden will result in approximately $ 130 million in annual savings in 2021 when compared to 2019. our results for 2020 reflect an 18.9 % decrease in tire unit shipments compared to 2019 , as industry demand was significantly affected , particularly in the second quarter of 2020 , by the actions governments , businesses and consumers took to slow the spread of covid-19 . more recently , the macroeconomic impacts of the pandemic have moderated and are expected to continue to improve . our tire unit shipments were down 17.6 % , 45.5 % , 9.1 % and 4.9 % in the first , second , third and fourth quarters of 2020 , respectively , compared to 2019. our results for 2020 include a $ 394 million unfavorable impact due to higher conversion costs , primarily as a result of lower factory utilization and other period costs directly related to the suspension of production and subsequent ramp up at our manufacturing facilities , partially offset by cost savings of $ 370 million , including raw material cost saving measures of $ 61 million . cost savings for 2020 include approximately $ 140 million of costs eliminated in response to the covid-19 pandemic , including through furloughs and government support programs , most of which are expected to return in 2021. net sales were $ 12,321 million in 2020 , compared to $ 14,745 million in 2019. net sales decreased in 2020 primarily due to lower global tire volume , lower sales in other tire-related businesses , primarily due to lower aviation sales globally and a decrease in third-party sales of chemical products in americas , and unfavorable foreign currency translation , primarily in americas and emea . these decreases were partially offset by improvements in price and product mix , primarily in emea and americas . goodyear net loss in 2020 was $ 1,254 million , or $ 5.35 per diluted share , compared to goodyear net loss of $ 311 million , or $ 1.33 per diluted share , in 2019. the increase in goodyear net loss in 2020 was primarily driven by lower segment operating income and non-cash goodwill and other asset impairment charges , partially offset by lower income tax expense . story_separator_special_tag net sales net sales in 2020 of $ 12,321 million decreased $ 2,424 million , or 16.4 % , compared to $ 14,745 million in 2019 , primarily due to lower global tire volume of $ 2,387 million , lower sales in other tire-related businesses of $ 244 million , primarily due to lower aviation sales globally and a decrease in third-party sales of chemical products in americas , and unfavorable foreign currency translation of $ 233 million , primarily in americas and emea . these decreases were partially offset by improvements in price and product mix of $ 402 million , primarily in emea and americas . goodyear worldwide tire unit net sales were $ 10,339 million and $ 12,524 million in 2020 and 2019 , respectively . consumer and commercial net sales were $ 7,190 million and $ 2,636 million in 2020 , respectively . consumer and commercial net sales were $ 8,835 million and $ 2,953 million in 2019 , respectively . the following table presents our tire unit sales for the periods indicated : replace_table_token_8_th the decrease in worldwide tire unit sales of 29.3 million units , or 18.9 % , compared to 2019 , included a decrease of 20.0 million replacement tire units , or 17.4 % , comprised primarily of a decrease in americas and emea . oe tire units decreased by 9.3 million units , or 23.0 % , primarily due to lower vehicle production globally . consumer and commercial unit sales in 2020 were 113.8 million and 10.6 million , respectively . consumer and commercial unit sales in 2019 were 141.9 million and 11.7 million , respectively . cost of goods sold cost of goods sold ( “ cgs ” ) was $ 10,337 million in 2020 , decreasing $ 1,265 million , or 10.9 % , from $ 11,602 million in 2019. cgs was 83.9 % of sales in 2020 compared to 78.7 % of sales in 2019. cgs in 2020 decreased primarily due to lower global tire volume of $ 1,816 million , foreign currency translation of $ 208 million , primarily in americas and emea , lower costs in other tire-related businesses of $ 86 million , driven by lower aviation sales globally and lower third-party chemical sales in americas , and lower raw material costs of $ 63 million , primarily in emea and asia pacific . these decreases were partially offset by higher conversion costs of $ 394 million , primarily due to lower factory utilization and other period costs , and the write-off of work-in-process inventory of approximately $ 26 million , both as a direct result of the suspension of production and subsequent ramp up at our manufacturing facilities , primarily in americas and emea , and higher costs related to product mix of $ 364 million , primarily in americas and emea . cgs in 2020 included pension expense of $ 16 million compared to $ 14 million in 2019. cgs in 2020 and 2019 also included incremental savings from rationalization plans of $ 107 million and $ 20 million , respectively . cgs in 2020 included accelerated depreciation and asset write-offs of $ 105 million ( $ 81 million after-tax and minority ) , primarily related to the permanent closure of gadsden . cgs in 2019 included accelerated depreciation and asset write-offs of $ 15 million ( $ 12 million after-tax and minority ) and favorable indirect tax settlements in brazil of $ 11 million ( $ 7 million after-tax and minority ) and in the u.s. of $ 6 million ( $ 5 million after-tax and minority ) . 27 selling , administrative and general expense sag was $ 2,192 million in 2020 , decreasing $ 131 million , or 5.6 % , from $ 2,323 million in 2019. sag was 17.8 % of sales in 2020 compared to 15.8 % of sales in 2019. sag decreased primarily due to lower wages and benefits of $ 42 million , lower advertising expense of $ 31 million and lower travel-related expenses of $ 30 million , reflecting global actions taken as a result of the covid-19 pandemic . sag also decreased due to foreign currency translation of $ 23 million , primarily in americas . sag in 2020 included pension expense of $ 18 million compared to $ 15 million in 2019. sag in 2020 and 2019 also included incremental savings from rationalization plans of $ 6 million and $ 17 million , respectively . goodwill and other asset impairments during 2020 , we recorded non-cash impairment charges of $ 182 million ( $ 178 million after-tax and minority ) related to goodwill of our emea reporting unit and $ 148 million ( $ 113 million after-tax and minority ) related to our investment in tirehub . for further information , refer to notes to the consolidated financial statements no . 11 , goodwill and intangible assets , and no . 12 , other assets and investments , in this form 10-k. rationalizations we recorded net rationalization charges of $ 159 million ( $ 127 million after-tax and minority ) in 2020. net rationalization charges include $ 94 million in americas , primarily related to the permanent closure of gadsden , and $ 59 million in emea , primarily related to additional termination benefits for associates at the closed amiens , france manufacturing facility . we recorded net rationalization charges of $ 205 million ( $ 165 million after-tax and minority ) in 2019. net rationalization charges include $ 115 million in emea , primarily related to a plan to modernize two of our manufacturing facilities in germany , and $ 90 million in americas , primarily related to the offer of voluntary buy-outs and other actions in 2019 related to gadsden . upon completion of the 2020 plans , we estimate that annual segment operating income will improve by approximately $ 91 million ( $ 73 million cgs and $ 18 million sag ) .
| results of operations our results for 2020 were highly influenced by the severe economic disruption caused by the ongoing covid-19 pandemic . however , based on recent favorable recovery trends , particularly in the u.s. , europe and china , the negative impacts of the pandemic on tire industry demand , auto production , miles driven and our tire volume have moderated and are expected to continue to improve . the tire industry has been negatively impacted by this evolving situation , particularly earlier in the year , which was characterized by a sudden and sharp decline in replacement tire demand and original equipment ( “ oe ” ) manufacturers suspending or severely limiting automobile production globally . this environment , which persisted throughout much of 2020 , aggravated already challenging industry conditions in many of our key markets , including foreign currency headwinds due to a strong u.s. dollar , lower oe industry volume , softening demand in europe , weak market conditions in china and economic volatility in latin america , that were present throughout 2019. we continue to take actions in response to covid-19 to protect the health and wellbeing of our associates , customers and communities , which remain our top priority , to mitigate the near- and long-term financial impacts on our operating results , and to ensure adequate liquidity and capital resources are available to maintain our operations until the auto industry and replacement tire demand fully recovers . actions taken throughout 2020 included : in march 2020 , we announced the suspension of production in europe and the americas . these temporary measures were implemented in a way that allowed us to safely and promptly resume production as public health and market conditions improved . we completed a phased restart of most of our manufacturing facilities during the second quarter of 2020 , without any significant subsequent covid-19 related disruptions .
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40 the following table sets forth the fees the partnership paid ( on a cash basis ) to ccc or the leasing company ( ccl ) for the year ended december 31 , 2006. cash fees and name description distributions 1 ) ccl base management fees equal to 7 % story_separator_special_tag the following discussion of the partnership 's historical financial condition and results of operations should be read in conjunction with the historical consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this report . the information in this annual report on form 10-k ( the report ) contains certain forward-looking statements within the meaning of the securities law . these forward-looking statements reflect the current view of the partnership and ccc , with respect to future events and financial performance and are subject to a number of risks and uncertainties , many of which are beyond the control of the partnership and ccc . all statements other than statements of historical facts included in this report , including statements under management 's discussion and analysis of financial condition and results of operations , regarding the partnership 's strategy , future operations , financial position , estimated revenues , projected costs , prospects , plans and objectives of the partnership are forward-looking statements . all forward-looking statements speak only as of the date of this report . the partnership does not undertake any obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . although the partnership and ccc believe that their plans , intentions and expectations reflected in or suggested by the forward-looking statements made in this report are reasonable , the partnership and ccc can give no assurance that these plans , intentions or expectations will be achieved . future economic , political and industry trends that could potentially impact revenues and profitability are difficult to predict , as well as the risks and uncertainties including , but not limited to , changes in demand for leased containers , changes in global business conditions and their effect on world trade , changes within the global shipping industry , the financial strength of the shipping lines and other sub-lessees of the partnership 's containers , fluctuations in new container prices , changes in the costs of maintaining and repairing used containers , changes in competition , changes in the ability of the leasing company to maintain insurance on behalf of the partnership 's container fleet , as well as other risks detailed herein and from time to time in the partnership 's filings with the securities and exchange commission . 16 liquidity and capital resources during the partnership 's first 10 years of operations , the partnership 's primary objective was to generate cash flow from operations for distribution to its limited partners . aside from the initial working capital reserve retained from the gross subscription proceeds ( equal to approximately 1 % of such proceeds ) , the partnership relied primarily on container rental receipts to meet this objective as well as to finance current operating needs . no credit lines are maintained to finance working capital . commencing in 2002 , the partnership 's 11th year of operations , the partnership began focusing its attention on the disposition of its fleet in accordance with another of its original investment objectives , realizing the residual value of its containers after the expiration of their economic useful lives , estimated to be between 12 to 15 years after placement in leased service . the partnership has completed its 14th year of operations . accordingly , it will continue its liquidation phase . at december 31 , 2006 , approximately 27 % of the original equipment remained in the partnership 's fleet . ccc will take several factors into consideration when examining options for the timing of the disposal of the containers . these factors include the impact of a diminishing fleet size and current market conditions on the level of gross lease revenue , and fixed operating costs relative to this revenue . parallel to these considerations will be a projected increase in expenses for devoting significant resources to the additional reporting and compliance requirements of section 404 of the sarbanes oxley act of 2002 , which addresses a range of corporate governance , disclosure , and accounting issues . these costs may include increased accounting and administrative expenses for additional staffing and outside professional services by accountants and consultants . these additional costs , depending on their materiality , may reduce the partnership 's results from operations and therefore negatively affect future distributions to the limited partners . upon the liquidation of ccc 's interest in the partnership , ccc shall contribute to the partnership , if necessary , an amount equal to the lesser of the deficit balance in its capital account at the time of such liquidation , or 1.01 % of the excess of the limited partners ' capital contribution to the partnership over the capital contributions previously made to the partnership by ccc , after giving effect to the allocation of income or loss arising from the liquidation of the partnership 's assets . distributions are paid monthly , based primarily on each quarter 's cash flow from operations . monthly distributions are also affected by periodic increases or decreases to working capital reserves , as deemed appropriate by ccc . cash distributions from operations are allocated 5 % to the ccc and 95 % to the limited partners . distributions of sales proceeds are allocated 1 % to ccc and 99 % to the limited partners . this sharing arrangement will remain in place until the limited partners have received aggregate distributions in an amount equal to their capital contributions , plus a 10 % cumulative , compounded ( daily ) annual return on their adjusted capital contributions . story_separator_special_tag 20 year ended december 31 , 2006 compared to the year ended december 31 , 2005 net lease revenue was $ 1,196,998 for the year ended december 31 , 2006 compared to $ 1,811,852 for the prior year . the decline was primarily due to a $ 898,019 decrease in gross rental revenue ( a component of net lease revenue ) . gross rental revenue was primarily impacted by the partnership 's smaller fleet size , and a 11 % decline in the average dry cargo per-diem rental rate . this decline in gross lease revenue was partially offset by a reduction in rental equipment operating expenses ( a component of net lease revenue ) of $ 166,276. the decline was attributable to the partnership 's declining fleet size and a reduction in both activity related and inventory related expenses associated with levels of utilization . depreciation expense of $ 1,129,899 in 2006 declined by $ 410,924 when compared to 2005 , a direct result of the partnership 's aging and declining fleet size . other general and administrative expenses amounted to $ 171,033 in 2006 , an increase of $ 32,748 compared to 2005 , due primarily to higher professional fees for audit service and expenses related to third-party investor administration services . net gain on disposal of equipment was a result of the partnership 's disposal of 1,941 containers in 2006 , as compared to 1,816 containers during 2005. these disposals resulted in a net gain of $ 372,546 during 2006 , compared to a net gain of $ 147,187 during 2005. the partnership disposed of additional containers during 2006 in response to its original investment objective , to realize the residual value of its containers after the expiration of their useful lives . the net gain on container disposals in 2006 was a result of various factors , including the proceeds realized from the container disposal , age , condition , suitability for continued leasing , as well as the geographical location of the containers when disposed . these factors will continue to influence the amount of sales proceeds received and the related gain or loss on container disposals . the level of the partnership 's container disposals in subsequent periods , as well as the price of steel , new container prices and the current leasing market 's impact on sales prices for existing older containers such as those owned by the partnership , will also contribute to fluctuations in the net gain or loss on disposals . there were no reductions to the carrying value of container rental equipment due to impairment during 2006 and 2005. year ended december 31 , 2005 compared to the year ended december 31 , 2004 net lease revenue was $ 1,811,852 for the year ended december 31 , 2005 compared to $ 2,192,040 for the prior year . the decrease was due to a $ 846,403 decrease in gross rental revenue partially offset a $ 354,669 decline in rental equipment operating expenses from the year ended december 31 , 2005. gross rental revenue was impacted by the partnership 's smaller fleet size . the decrease in direct operating expense was attributable to the partnership 's higher combined utilization rate in 2005 , and its impact on inventory-related expenses such as storage and repositioning costs , and activity-related expenses such as handling , repair and maintenance . the partnership also recognized a decrease in the provision for doubtful accounts . other components of net lease revenue , including management fees , and reimbursed administrative expenses , were lower by a combined $ 111,546 when compared to 2004 , which partially offset the decline in gross lease revenue . depreciation expense of $ 1,540,823 in 2005 declined by $ 628,716 when compared to 2004 , a direct result of the partnership 's aging and declining fleet size . other general and administrative expenses amounted to $ 138,284 in 2005 , an increase of 6 % compared to 2004 , due to an increase in third-party investor administration and communication expenses . net gain on disposal of equipment was a result of the partnership 's disposal of 1,816 containers in 2005 , as compared to 1,607 containers during 2004. these disposals resulted in a net gain of $ 147,187 during 2005 , compared to a net loss of $ 768,375 for 2004. included within the 2004 loss was a loss of $ 304,329 recognized by the partnership upon the amendment of a term lease agreement with one lessee to include a bargain purchase option , in exchange for the lessee 's continued lease of these older containers and their eventual sale . as a result of the amendment , the partnership reclassified the term lease agreement as a sales-type lease , recorded a sales-type lease receivable and recognized the sale of the 532 on-hire containers that were subject to the amended term lease agreement . the difference between the present value of the future payments under this lease and $ 405,595 , the net book value of the containers at the time of the amendment , resulted in a net loss of $ 304,329. the sales-type lease expired march 31 , 2006. the partnership believes that the net gain on container disposals in 2005 was a result of the volume of container disposals , in addition to other various factors , including the age , condition , suitability for continued leasing , as well as the geographical location of the containers 21 when disposed . there were no reductions to the carrying value of container rental equipment due to impairment during 2005 and 2004. critical accounting policies container equipment depreciable lives : the partnership 's container rental equipment is depreciated using the straight-line basis over a useful life of 15 years to a residual value of 10 % . the partnership and ccc evaluate the period of amortization and residual values to determine whether subsequent events and circumstances warrant revised estimates of useful lives and residual values .
| results of operations market overview pursuant to the limited partnership agreement of the partnership , all authority to administer the business of the partnership is vested in ccc . a leasing agent agreement ( agreement ) exists between the partnership and the leasing company , whereby the leasing company has the responsibility to manage the leasing operations of all equipment owned by the partnership . pursuant to the agreement , the leasing company is responsible for leasing , managing and re-leasing the partnership 's containers to ocean carriers , and has full discretion over which ocean carriers and suppliers of goods and services it may deal with . the leasing agent agreement permits the leasing company to use the containers owned by the partnership , together with other containers owned or managed by the leasing company and its affiliates , as part of a single fleet operated without regard to ownership . the primary component of the partnership 's results of operations is net lease revenue . net lease revenue is determined by deducting direct operating expenses , management fees and reimbursed administrative expenses from gross lease revenues billed by the leasing company from the leasing of the partnership 's containers . net lease revenue is directly related to the size , utilization and per-diem rental rates of the partnership 's fleet . direct operating expenses are direct costs associated with the partnership 's containers . direct operating expenses may be categorized as follows : activity-related expenses including agent and depot costs such as repairs , maintenance and handling . inventory-related expenses for off-hire containers , comprising of storage and repositioning costs . these costs are sensitive to the quantity of off-hire containers as well as the frequency at which containers are re-delivered . legal and other expenses , including legal costs related to the recovery of containers and doubtful accounts , insurance and provisions for doubtful accounts .
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, constitute “ forward-looking statements ” within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended , and are subject to the safe harbors created thereby . these statements should be considered as subject to the many risks and uncertainties that exist in the company 's operations and business environment . such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors , including but not limited to those under the heading item 1a . risk factors . 13 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > gross profit of $ 51.9 million decreased 11.9 % from $ 58.9 million . gross margin rose to 22.5 % from 19.5 % . general and administrative expenses increased 2.9 % to $ 31.7 million from $ 30.8 million . the increase was mainly due to increased legal fees associated with collection activities in the u.a.e. , foreign exchange loss , increased deferred compensation expense and increased stock compensation expense . selling expenses decreased 10.5 % to $ 13.0 million from $ 14.6 million . this decrease was primarily driven by the industrial process cooling equipment business and the filtration product business , which had decreased commission expense from lower sales and a decline in compensation and related expenses due to staff reductions . the company 's worldwide effective income tax rates for 2009 and 2008 were 12.0 % and 17.0 % , respectively . net income was $ 4.7 million in 2009 , down from net income of $ 6.7 million in 2008 primarily due to decreased sales , the reasons summarized above and those discussed in more detail below . the fourth quarter produced a net loss of $ 5.8 million compared to a net loss of $ 0.8 million in the prior-year 's quarter . the net loss in the fourth quarter of 2009 was higher than the same period in 2008 due to lower sales in all segments and compressed margins due to competitive factors . piping systems piping systems ' domestic sales and earnings are seasonal , typically lower during the fourth and first quarters due to unfavorable weather for construction over much of north america , and are correspondingly higher during the second and third quarters . replace_table_token_5_th 2010 compared to 2009 despite significant sales drops in the middle east and india , net sales of $ 104.6 million decreased only 6.4 % from $ 111.7 million , in the prior-year , attributed primarily to a rise in sales in both domestic heating and cooling , and oil and gas products . the insulation of pipe for a crude oil pipeline project in india began full production in the third quarter 2008 and contributed to the increase in sales of $ 11.3 million in 2009 when the company had successfully completed the production on the india pipeline project . significantly smaller india pipeline sales followed in 2010. gross margin decreased to 26.1 % of net sales from 34.0 % of net sales in the prior-year attributed primarily to the reduced volume in the u.a.e . and the significantly lower sales associated with the india pipeline project in the current year . general and administrative expense decreased to $ 10.3 million or 9.9 % of net sales in 2010 from $ 12.8 million or 11.4 % of net sales in 2009. this decrease was primarily due to less profit-based management incentive expense , lower legal fees , and staff reductions in the u.a.e . selling expense increased to $ 3.1 million or 3.0 % of net sales in 2010 from $ 2.8 million or 2.5 % of net sales in 16 2009. the increase was mainly due to advertising and trade show activities , partially offset by a decrease in commission expense . 2009 compared to 2008 net sales of $ 111.7 million decreased 26.4 % from $ 151.8 million , attributed primarily to a drop in sales in both international and domestic heating and cooling , as well as oil and gas products due to the economic slowdown both in the u.s. and in the u.a.e . the insulation of pipe for a crude oil pipeline project in india began full production in the third quarter 2008 and contributed to sales in 2009. as of october 31 , 2009 , the company had completed the india pipeline project , and has received additional orders for at least 150 kilometers ( 93 miles ) , which began in may of 2010. the adverse effect of the credit crisis experienced by the emirate of dubai has significantly decelerated construction activity both in the u.a.e . and across other gcc countries , negatively impacting sales volume at the u.a.e . facility . gross margin as a percent of net sales increased to 34.0 % in 2009 from 24.9 % in 2008 , primarily due to production efficiencies in the international operations and the favorable adjustment of cost estimates associated with the completion of the india pipeline project . gross profit in the u.a.e . also improved due to decreased raw material costs . general and administrative expense increased to $ 12.8 million or 11.4 % of net sales in 2009 from $ 11.0 million or 7.2 % of net sales in 2008. the increase in general and administrative expenses was primarily due to increased legal fees associated with collection activities in the u.a.e. , increased profit-based management incentive expense and foreign exchange loss . selling expense remained level at $ 2.8 million in 2009. as a percentage of sale , selling expenses decreased to 2.5 % of net sales in 2009 from 1.9 % of net sales in 2008. filtration products the timing of large orders can have a material effect on net sales and gross profit from period to period . pricing on large orders was extremely competitive and therefore resulted in relatively low gross margins in all periods . story_separator_special_tag general and administrative expenses decreased 5.9 % to $ 9.6 million from $ 10.2 million in 2009. the decrease was due mainly to lower profit-based management incentive compensation expense , lower sox404 compliance expense and decreased stock compensation expense partially offset by increased deferred compensation expense . general and administrative expenses as a percentage of consolidated net sales remained the same in 2009 and 2010. interest expense decreased to $ 1.9 million from $ 2.1 million in 2009 primarily due to lower borrowings and interest rates . interest income increased to $ 0.7 million from $ 0.2 million due to interest earned overseas in the piping systems business . 2009 compared to 2008 net sales increased to $ 16.1 million in 2009 from $ 14.1 million in 2008 related to the hvac systems business . general and administrative expense decreased 0.4 % to $ 10.2 million in 2009 from $ 10.3 million in 2008 , but increased as a percentage of consolidated net sales to 4.4 % in 2009 from 3.4 % in 2008. the dollar decrease was 19 due mainly to lower profit-based management incentive expense and lower expenses incurred to comply with sox404 , partially offset by increased deferred compensation expense , increased stock compensation expense , and hiring . interest expense decreased 32.5 % to $ 1.9 million in 2009 from $ 2.8 million , net of capitalized interest , in 2008 primarily due to decreased borrowings and lower interest rates . income taxes the company 's worldwide effective income tax rates were ( 72.2 ) % , 12.0 % , and 17.0 % in 2010 , 2009 , and 2008 , respectively . the effective tax rate in the periods presented was the result of the mix of income earned in multiple tax jurisdictions with various income tax rates . income earned in the u.a.e . is not subject to any local country income tax . the effective tax rates in 2010 and 2009 were less than the statutory u.s. federal income tax rate , mainly due to the large portion of income earned in the u.a.e . several valuation allowances impacted the effective tax rates . in 2010 , the company closed its operations in south africa and released intercompany liabilities . related income was offset by existing nols for which a prior valuation allowance had been previously provided . this release of liabilities increased the federal nol . during 2009 , the company established a partial valuation allowance of $ 0.8 million for the $ 1.3 million research and development credits , as the company no longer believed that it was more likely than not that a portion of the research and development credits would be utilized within the next five years . during 2010 , the company reevaluated the need for a valuation allowance against deferred tax assets and determined that no additional reserve was needed . as of january 31 , 2010 and january 31 , 2011 , no valuation allowance was deemed necessary on the federal nol . for additional information , see note 7 - income taxes in the notes to the financial statements . as of january 31 , 2011 , the company had undistributed earnings of foreign subsidiaries for which deferred taxes have not been provided . the company intends and has the ability to reinvest these earnings for the foreseeable future outside the u.s. if these amounts were distributed to the u.s. , in the form of dividends or otherwise , the company would be subject to additional u.s. income taxes . determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability , if any , is dependent on circumstances existing if and when remittance occurs . a reconciliation of the effective income tax rate to the u.s. statutory tax rate is as follows : replace_table_token_8_th for further information , see note 7 - income taxes in the notes to consolidated financial statements . liquidity and capital resources cash and cash equivalents as of january 31 , 2011 were $ 16.7 million as compared to $ 8.1 million at january 31 , 2010 . the company 's working capital was $ 58.8 million at january 31 , 2011 compared to $ 53.3 million at 20 january 31 , 2010 . cash provided by operations in 2010 was $ 8.7 million compared to $ 34.6 million at january 31 , 2010 . compared to january 31 , 2010 trade accounts payable increased $ 4.8 million , primarily due to the purchase of inventory for production in the filtration business . net cash used in investing activities in 2010 included $ 3.9 million for capital expenditures , primarily for machinery and equipment in the piping systems business . the company estimates that capital expenditures for 2011 will be approximately $ 13.9 million , of which the company may finance capital expenditures through real estate mortgages , equipment financing loans , internally generated funds and its revolving line of credit . the majority of such expenditures relates to foreign growth within the piping systems business . debt totaled $ 39.3 million at january 31 , 2011 , an increase of $ 2.1 million since january 31 , 2010 . net cash provided by financing activities was $ 3.4 million . other long-term liabilities of $ 3.3 million were composed primarily of deferred compensation and accrued pension cost . the following table summarizes the company 's estimated contractual obligations at january 31 , 2011 . replace_table_token_9_th notes to contractual obligations table ( 1 ) interest obligations exclude floating rate interest on debt payable under the domestic revolving line of credit . based on the amount of such debt at january 31 , 2011 , and the weighted average interest rates of 3.16 % on that debt at that date , such interest was being incurred at an annual rate of approximately $ 0.6 million . ( 2 ) scheduled maturities , including interest .
| consolidated results of operations replace_table_token_4_th mfri , inc. is engaged in the manufacture and sale of products in three reportable business segments : piping systems , filtration products , and industrial process cooling equipment . piping systems ' domestic sales and earnings are seasonal , typically lower during the fourth and first quarters due to unfavorable weather for construction over much of north america , and are correspondingly higher during the second and third quarters . the company website address is www.mfri.com . the analysis presented below and discussed in more detail throughout the md & a was organized to provide instructive information for understanding the business going forward . however , this discussion should be read in conjunction with the consolidated financial statements in item 8 of this report , including the notes thereto . an overview of the segment results is provided in note 1 - business and segment information to the consolidated financial statements in item 8 of this report . critical accounting policies and estimates md & a discusses the audited consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . management believes that judgments and estimates related to the following critical accounting policies could materially affect the consolidated financial statements : revenue recognition percentage of completion revenue recognition inventory income taxes equity-based compensation fair value of financial instruments in the fourth quarter of 2010 , there were no changes in the above critical accounting policies . 14 all of the company 's businesses directly or indirectly serve markets that were adversely impacted by recent global economic conditions .
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these discussions include non-gaap financial measures , including `` earnings from ongoing operations '' and `` adjusted gross margins '' and provide explanations of the non-gaap financial measures and a reconciliation of the non-gaap financial measures to the most comparable gaap measure . the `` 2019 outlook '' discussion identifies key factors expected to impact 2019 earnings . for ppl electric , lke , lg & e and ku , a summary of earnings and adjusted gross margins is also provided . `` financial condition - liquidity and capital resources '' provides an analysis of the registrants ' liquidity positions and credit profiles . this section also includes a discussion of forecasted sources and uses of cash and rating agency actions . `` financial condition - risk management '' provides an explanation of the registrants ' risk management programs relating to market and credit risk . `` application of critical accounting policies '' provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the registrants and that require their management to make significant estimates , assumptions and other judgments of inherently uncertain matters . overview for a description of the registrants and their businesses , see `` item 1 . business . '' business strategy ( all registrants ) ppl operates seven fully regulated high-performing utilities . these utilities are located in the u.k. , pennsylvania and kentucky , constructive regulatory jurisdictions with distinct regulatory structures and customer classes . ppl believes this business portfolio positions the company well for continued success and provides earnings and dividend growth potential . ppl 's strategy , and that of the other registrants , is to deliver best-in-sector operational performance , invest in a sustainable energy future , maintain a strong financial foundation , and engage and develop its people . ppl 's business plan is designed to achieve growth by providing efficient , reliable and safe operations and strong customer service , maintaining constructive regulatory relationships and achieving timely recovery of costs . these businesses are expected to achieve strong , long-term growth in rate base in the u.s. and rav in the u.k. rate base growth is being driven by planned significant capital expenditures to maintain existing assets and improve system reliability and , for lke , lg & e and ku , to comply with federal and state environmental regulations related to coal-fired electricity generation facilities . 37 for the u.s. businesses , central to ppl 's strategy is recovering capital project costs efficiently through various rate-making mechanisms , including periodic base rate case proceedings using forward test years , annual ferc formula rate mechanisms and other regulatory agency-approved recovery mechanisms designed to limit regulatory lag . in kentucky , the kpsc has adopted a series of regulatory mechanisms ( ecr , dsm , glt , fuel adjustment clause , gas supply clause and recovery on construction work-in-progress ) that reduce regulatory lag and provide timely recovery of and return on , as appropriate , prudently incurred costs . in addition , the kpsc requires a utility to obtain a cpcn prior to constructing a facility , unless the construction is an ordinary extension of existing facilities in the usual course of business or does not involve sufficient capital expenditures to materially affect the utility 's financial condition . although such kpsc proceedings do not directly address cost recovery issues , the kpsc , in awarding a cpcn , concludes that the public convenience and necessity require the construction of the facility on the basis that the facility is the lowest reasonable cost alternative to address the need . in pennsylvania , the ferc transmission formula rate , dsic mechanism , smart meter rider and other recovery mechanisms are in place to reduce regulatory lag and provide for timely recovery of and a return on , as appropriate , prudently incurred costs . to manage financing costs and access to credit markets , and to fund capital expenditures , a key objective of the registrants is to maintain their investment grade credit ratings and adequate liquidity positions . in addition , the registrants have financial and operational risk management programs that , among other things , are designed to monitor and manage exposure to earnings and cash flow volatility , as applicable , related to changes in interest rates , foreign currency exchange rates and counterparty credit quality . to manage these risks , ppl generally uses contracts such as forwards , options and swaps . see `` financial condition - risk management '' below for further information . earnings generated by ppl 's u.k. subsidiaries are subject to foreign currency translation risk . because wpd 's earnings represent such a significant portion of ppl 's consolidated earnings , ppl enters into foreign currency contracts to economically hedge the value of the gbp versus the u.s. dollar . these hedges do not receive hedge accounting treatment under gaap . see `` financial and operational developments - u.k. membership in european union '' for additional discussion of the u.k. earnings hedging activity . the u.k. subsidiaries also have currency exposure to the u.s. dollar to the extent of their u.s. dollar denominated debt . to manage these risks , ppl generally uses contracts such as forwards , options and cross-currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts . as discussed above , a key component of this strategy is to maintain constructive relationships with regulators in all jurisdictions in which the registrants operate ( u.k. , u.s. federal and state ) . this is supported by a strong culture of integrity and delivering on commitments to customers , regulators and shareowners , and a commitment to continue to improve customer service , reliability and operational efficiency . financial and operational developments equity forward contracts ( ppl ) in may 2018 , ppl completed a registered underwritten public offering of 55 million shares of its common stock . story_separator_special_tag in the second quarter of 2018 , lg & e and ku recorded the impact of the reduced tax rate , related to the remeasurement of deferred income taxes , as an increase in regulatory liabilities of $ 16 million and $ 19 million . in a separate regulatory proceeding , lg & e and ku have requested to begin returning state excess deferred income taxes to customers in conjunction with the 2018 kentucky base rate case , which was filed on september 28 , 2018. see note 7 to the financial statements for additional information related to the rate case proceedings . ppl is evaluating the impact , if any , of unitary or elective consolidated income tax reporting on all its registrants . 39 u.k. membership in european union ( ppl ) the u.k. formally began the process of leaving the european union ( eu ) on march 29 , 2017 by triggering article 50 of the lisbon treaty . the u.k. has two years from that date to negotiate a withdrawal agreement governing its exit from the eu ( brexit ) . the u.k. and eu also agreed to a transition period lasting until the end of 2020 , during which both parties will negotiate a future trade relationship . the final withdrawal agreement and future trade relationship are subject to ratification by both the u.k. and eu parliaments . in november 2018 , u.k. prime minister theresa may and the eu decided on a withdrawal agreement covering a broad range of issues . on january 15 , 2019 , the u.k. parliament voted overwhelmingly to reject this withdrawal agreement . on january 29 , 2019 , the u.k. parliament voted on a series of non-binding amendments to influence future brexit negotiations , directing may to conduct further negotiations with the eu . the eu has said that it is not prepared to renegotiate the existing deal . significant uncertainty surrounds the status of negotiations and next steps in the brexit process . if an agreement is not reached , the default position is that the u.k. will have a disorderly exit from the eu on march 29 , 2019. the u.k. may also request an extension of the article 50 process , subject to approval from the eu 's 27 remaining members . the u.k. could also choose to revoke article 50 and remain in the eu . ppl believes that its greatest risk related to brexit is the potential decline in the value of the gbp compared to the u.s. dollar . a decline in the value of the gbp compared to the u.s. dollar will reduce the value of wpd 's earnings to ppl . ppl has executed hedges to mitigate the foreign exchange risk to its u.k. earnings . as of february 6 , 2019 , ppl 's foreign exchange exposure related to budgeted earnings is 100 % hedged for the remainder of 2019 at an average rate of $ 1.39 per gbp and 49 % hedged for 2020 at an average rate of $ 1.49 per gbp . ppl can not predict the impact , in either the short-term or long-term , on foreign exchange rates or ppl 's financial condition that may be experienced as a result of the actions taken by the u.k. government to withdraw from the eu , although such impacts could be material . ppl does not expect the financial condition and results of operations of wpd itself to change significantly as a result of brexit , with or without an approved plan of withdrawal . the regulatory environment and operation of wpd 's businesses are not expected to change . wpd is less than halfway through riio-ed1 , the current price control period , with allowed revenues agreed with ofgem through march 2023. the impact of a slower economy or recession on wpd would be mitigated in part because u.k. regulation provides that any reduction in the volume of electricity delivered will be recovered in allowed revenues in future periods through the k-factor adjustment . see `` item 1. business - segment information - u.k. regulated segment '' for additional information on the current price control and k-factor adjustment . in addition , an increase in inflation would have a positive effect on revenues and rav as annual inflation adjustments are applied to both revenues and rav ( and real returns are earned on inflated rav ) . this impact , however , would be partially offset by higher o & m and interest expense on index-linked debt . with respect to access to financing , wpd has substantial borrowing capacity under existing credit facilities and expects to continue to have access to all major financial markets . with respect to access to and cost of equipment and other materials , wpd management continues to review u.k. government issued advice on preparations for brexit without an approved plan of withdrawal and has taken actions to mitigate potential increasing costs and disruption to its critical sources of supply . additionally , less than 1 % of wpd 's employees are non-u.k. eu nationals and no change in their domicile is expected . regulatory requirements ( all registrants ) the registrants can not predict the impact that future regulatory requirements may have on their financial condition or results of operations . 40 tcja impact on lg & e and ku rates ( ppl , lke , lg & e and ku ) on december 21 , 2017 , kentucky industrial utility customers , inc. submitted a complaint with the kpsc against lg & e and ku , as well as other utility companies in kentucky , alleging that their respective rates would no longer be fair , just and reasonable following the enactment of the tcja , which reduced the federal corporate tax rate from 35 % to 21 % .
| results of operations ( ppl ) the `` statement of income analysis '' discussion below describes significant changes in principal line items on ppl 's statements of income , comparing year-to-year changes . the `` segment earnings '' and `` adjusted gross margins '' discussions for ppl provide a review of results by reportable segment . these discussions include non-gaap financial measures , including `` earnings from ongoing operations '' and `` adjusted gross margins , '' and provide explanations of the non-gaap financial measures and a reconciliation of those measures to the most comparable gaap measure . the `` 2019 outlook '' discussion identifies key factors expected to impact 2019 earnings . tables analyzing changes in amounts between periods within `` statement of income analysis , '' `` segment earnings '' and `` adjusted gross margins '' are presented on a constant gbp to u.s. dollar exchange rate basis , where applicable , in order to isolate the impact of the change in the exchange rate on the item being explained . results computed on a constant gbp to u.s. dollar exchange rate basis are calculated by translating current year results at the prior year weighted-average gbp to u.s. dollar exchange rate . ( ppl electric , lke , lg & e and ku ) a `` statement of income analysis , earnings and adjusted gross margins '' is presented separately for ppl electric , lke , lg & e and ku . the `` statement of income analysis '' discussion below describes significant changes in principal line items on the statements of income , comparing year-to-year changes . the `` earnings '' discussion provides a summary of earnings . the `` adjusted gross margins '' discussion includes a reconciliation of non-gaap financial measures to `` operating income . '' ppl : statement of income analysis , segment earnings and adjusted gross margins statement of income analysis net income for the years ended december 31 includes the following results .
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the company 's net losses for 2014 , 2013 and 2012 were approximately $ 7.8 million , $ 8.0 million and $ 10.0 million , respectively . at december 31 , 2014 , the company has an accumulated deficit of $ 154.4 million . the company held cash and cash equivalents of $ 9.2 million as of december 31 , 2014. the company believes that these resources and the cash to be generated from expected product sales story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with our selected financial data , our financial statements , and the accompanying notes to those financial statements included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . for a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements , please refer to the section titled risk factors , contained in item 1a of this annual report on form 10-k. overview neurometrix is an innovative health-care company that develops wearable medical technology and point-of-care tests that help patients and physicians better manage chronic pain , nerve diseases , and sleep disorders . our business is fully integrated with in-house capabilities spanning product development , manufacturing , regulatory affairs and compliance , sales and marketing , and customer support . we derive revenues from the sale of medical devices and after-market consumable products and accessories . our products are sold in the united states and selected overseas markets , and are approved by the u.s. food and drug administration , or fda , and regulators in foreign jurisdictions where appropriate . we have two principal product lines : wearable neuro-stimulation therapeutic devices point-of-care neuropathy diagnostic tests our core expertise in biomedical engineering has been refined over nearly two decades of designing , building and marketing medical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes . we created the market for point-of-care nerve testing and were first to market with sophisticated , wearable technology for management of chronic pain . we have an experienced management team and board of directors . our scientific advisory board includes internationally recognized experts in diabetes and pain . chronic pain is a significant public health problem . it is defined by the national institute of health as any pain lasting more than 12 weeks in contrast to acute pain which is a normal bodily response to injury or trauma . chronic pain conditions include painful diabetic neuropathy , fibromyalgia , sciatica , musculoskeletal pain , cancer pain and many others . chronic pain may be triggered by an injury or there may be an ongoing cause such as disease or illness . there may also be no clear cause . pain signals continue to be transmitted in the nervous system over extended periods of time often leading to other health problems . these can include fatigue , sleep disturbance , decreased appetite , and mood changes which cause difficulty in carrying out important activities and contributing to disability and despair . in general , chronic pain can not be cured . treatment of chronic pain is focused on reducing pain and improving function . the goal is effective pain management . there are large and important unmet medical needs in chronic pain treatment . prescription pain medications and over-the-counter therapies are often inadequate and can lead to other health issues . we believe that controlled , personalized , neuro-stimulation to suppress pain provides an important complement to pain medications . as a medical device company with unique experience in designing devices to manage and alter peripheral nerve function , we believe we are well positioned to make neuro-stimulation widely available to chronic pain sufferers . we have direct experience with neuro-stimulation through our prescription sensus wearable pain management device which has been on the market for the past two years . a major initiative during 2014 was the design , development and branding of a new over-the-counter analgesic category featuring quell , our wearable device for pain relief which builds upon the core sensus neuro-stimulation technology . quell was unveiled at the january 2015 consumer electronics show ( ces ) where the response was positive . we hope to make quell commercially available in the united states during the second quarter of 2015. our commercial launch plan involves two distribution channels : a professional channel using a direct sales force to target podiatrists , pain physicians , primary care physicians , and chiropractors who would resell the product , and a direct-to-consumer channel using online marketing and lead generation . 34 sensus , our prescription neuro-stimulation therapeutic device for relief of chronic pain , was launched in 2013 and provides the technological foundation for quell . sensus revenues in 2014 and 2013 were about $ 0.9 million and $ 0.2 million , respectively . it is distributed through durable medical equipment ( dme ) suppliers who call on pain medicine physicians , neurologists , endocrinologists , podiatrists , and primary care physicians to create awareness among physicians that are challenged with trying to manage chronic pain in their patients . these physicians prescribe sensus to their patients who , in turn , have their prescriptions fulfilled by a dme . the dme is also responsible for billing and collection from third party payers such as medicare and other insurers . this is a high cost distribution channel with tight margins . the dme channel is under pressure from medicare 's competitive bidding initiative . we believe that the us growth opportunity for this prescription neuro-stimulation device is limited and that the more attractive opportunities are in the otc market . dpncheck is our diagnostic test for peripheral neuropathies which commenced commercial shipments in the fourth quarter of 2011. dpncheck revenues for 2014 and 2013 were about $ 1.8 million and $ 1.3 million , respectively . story_separator_special_tag in addition , in 2013 we further reduced our sales staff which had primarily supported dpncheck , resulting in severance cost of $ 0.4 million . as a result , total sales and marketing personnel costs in 2013 were $ 1.9 million lower than in the prior year . personnel related travel costs decreased by $ 0.5 million , trade show costs decreased by $ 0.1 million , advertising and promotion costs decreased by $ 0.1 million , recruiting and retention costs decreased by $ 20,000 , dues decreased by $ 50,000 , and depreciation decreased by $ 44,000. sales and marketing expenses for 2012 included $ 58,000 for the write-off of loaner and demo systems . general and administrative general and administrative expenses decreased to $ 4.2 million in 2013 compared to $ 4.7 million in 2012. this decrease included $ 0.3 million for consultants and temporary staff , $ 0.2 million for personnel costs , $ 0.1 million for taxes and fees , $ 80,000 for travel costs , $ 0.1 million for insurance and outside administration , and $ 40,000 for stock-based compensation . these spending reductions were partially offset by an unfavorable year over year increase of $ 0.3 million in bad debt expense . during 2013 we recorded $ 0.1 million in bad debt expenses compared to the recognition of a net credit to bad debt expense of $ 0.1 million in 2012. interest income , warrant offering costs , and change in fair value of warrant liability interest income was approximately $ 5,700 and $ 14,500 in 2013 and 2012 , respectively . interest income was earned from investments in cash equivalents . in connection with an equity offering during 2013 , we recognized costs related to the issuance of common stock warrants of $ 0.4 million . outstanding warrants from that offering were valued at fair value at quarterly reporting periods and on warrant transaction dates . the total fair value adjustments to outstanding warrants during 2013 were $ 0.3 million . liquidity and capital resources our principal source of liquidity is our cash and cash equivalents . as of december 31 , 2014 , cash and cash equivalents totaled $ 9.2 million . in june 2014 we entered into a securities purchase agreement providing for the issuance of ( i ) 664,600 shares of common stock at a price of $ 2.04 per share , ( ii ) 2,621.859 shares of series a-3 preferred stock at a price of $ 1,000 per share , ( iii ) 4,022.357 shares of series a-4 preferred stock at a price of $ 1,000 per share , and ( iv ) five year warrants to purchase up to 3,921,569 shares of common stock with an exercise price of $ 2.04 per share . we received net proceeds of approximately $ 7.9 million from this offering , which we refer to as the 2014 offering . see note 12 , stockholders ' equity , of our notes to financial statements contained elsewhere in this annual report on form 10-k for further information regarding this transaction . our ability to generate revenue to fund our operations will largely depend on the 38 success of our wearable therapeutic products for chronic pain and our diagnostic products for neuropathy . a low level of market interest in quell , sensus or dpncheck , an accelerated decline in our neurodiagnostics consumables sales , or unanticipated increases in our operating costs would have an adverse effect on our liquidity and cash generated from operations . the following table sets forth information relating to our cash and cash equivalents : december 31 , 2014 december 31 , 2013 change % change ( in thousands ) cash and cash equivalents $ 9,222.0 $ 9,195.8 $ 26.2 0.3 % in order to supplement our access to capital , we are party to an amended loan and security agreement with a bank which provides us with a credit facility in the amount of $ 2.5 million on a revolving basis . the amended credit facility expires on january 15 , 2016. amounts borrowed under the credit facility will bear interest equal to the prime rate plus 0.5 % . any borrowings under the credit facility will be collateralized by our cash , accounts receivable , inventory , and equipment . the credit facility includes traditional lending and reporting covenants . these include certain financial covenants applicable to liquidity that are to be maintained by us . as of december 31 , 2014 , we were in compliance with these covenants and had not borrowed any funds under the credit facility . however , approximately $ 0.5 million of the amount under the credit facility is restricted to support letters of credit issued in favor of our landlords in connection with lease arrangements . consequently , the amount available for borrowing under the credit facility as of december 31 , 2014 was approximately $ 2.0 million . during 2014 our cash and cash equivalents increased slightly reflecting net cash provided by the 2014 offering of $ 7.9 million offset by $ 7.7 million of net cash used in operations and $ 0.2 million used in investing activities . in managing working capital , two important financial measurements are days sales outstanding ( dso ) and inventory turnover as presented below : replace_table_token_8_th payment terms extended to our customers generally require payment within 30 days from invoice date . the inventory turnover rate has remained constant since december 31 , 2013. the following sets forth information relating to sources and uses of our cash : replace_table_token_9_th our operating activities used $ 7.7 million for the year ended december 31 , 2014 primarily attributable to our net loss of $ 7.8 million . this loss included non-cash charges of $ 289,900 for stock-based compensation , $ 145,100 for depreciation and amortization , and non-cash credits of approximately $ 1.0 million for revaluing outstanding warrants at fair value .
| results of operations comparison of years ended december 31 , 2014 and december 31 , 2013 revenues the following table summarizes our revenues : years ended december 31 , 2014 2013 change % change ( in thousands ) revenues $ 5,512.8 $ 5,278.8 $ 234.0 4.4 % revenues include sales from sensus , our wearable therapeutic device for relief of chronic , intractable pain launched in january 2013 ; dpncheck , our diagnostic test for diabetic peripheral neuropathy , or dpn , launched in q4 2011 ; and our legacy advance neurodiagnostics business . overall revenues increased by 4.4 % from 2013. revenue from our newer products , sensus and dpncheck , grew by over 80 % in 2014. the advance business , managed for cash flow and not growth , contracted by 25 % . advance has few direct operating costs . revenue from sensus devices and consumable electrodes totaled $ 0.9 million in 2014 versus $ 0.2 million in 2013. reflecting expanded distribution through national durable medical equipment suppliers in 2014 , we shipped approximately 5,800 sensus devices and posted a 350 % increase when compared to 1,300 devices shipped in 2013. sensus electrode shipments totaled approximately 17,600 in 2014 versus approximately 3,500 in 2013 . 35 revenue from dpncheck increased over 40 % to $ 1.8 million in 2014 from $ 1.3 million in 2013. our asia distribution partner , omron healthcare , received regulatory approval and launched dpncheck in japan during the third quarter of 2014 , contributing positively to 2014 revenue .
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our actual results could differ materially from those discussed in this form 10-k. in evaluating these statements , you should review part i , item 1a : risk factors and our consolidated financial statements and notes thereto included in part ii , item 8 : financial statements and supplementary data of this form 10-k. overview plug power inc. , or the company , is a leading provider of alternative energy technology focused on the design , development , commercialization and manufacture of hydrogen fuel cell systems used primarily for the industrial off-road ( forklift or material handling ) market and the stationary power market . we are focused on proton exchange membrane , or pem , fuel cell and fuel processing technologies , fuel cell/battery hybrid technologies , and associated hydrogen storage and dispensing infrastructure from which multiple products are available . a fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat without combustion . hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas , or lpg , natural gas , propane , methanol , ethanol , gasoline or biofuels . hydrogen can also be obtained from the electrolysis of water , or produced on-site at consumer locations through a process known as reformation . plug power develops complete hydrogen delivery , storage and refueling solutions for customer locations . we concentrate our efforts on developing , manufacturing and selling our hydrogen-fueled pem gendrive® products on commercial terms for industrial off-road ( forklift or material handling ) applications , with a focus on multi-shift high volume manufacturing and high throughput distribution sites . recent developments appointment of chief financial officer on november 10 , 2014 , the company announced that paul b. middleton had been appointed as the chief financial officer of the company , effective december 1 , 2014. story_separator_special_tag and development contracts . cost of research and development contract revenue for the year ended december 31 , 2014 increased $ 0.7 million , or 27.8 % to $ 3.2 million from $ 2.5 million for the year ended december 31 , 2013. the increase is primarily related to increased activity on a ground support equipment contract . cost of research and development contract revenue for the year ended december 31 , 2013 decreased $ 0.3 million , or 10.7 % to $ 2.5 million from $ 2.8 million for the year ended december 31 , 2012. the decrease is primarily related to a reduced effort on three funded projects that are complete or near completion , partially offset by the start of a new project . research and development expense . research and development expense includes : materials to build development and prototype units , cash and non-cash compensation and benefits for the engineering and related staff , expenses for contract engineers , fees paid to outside suppliers for subcontracted components and services , fees paid to consultants for services provided , materials and supplies consumed , facility related costs such as computer and network services , and other general overhead costs associated with our research and development activities . research and development expense for the year ended december 31 , 2014 increased $ 3.4 million , or 107.3 % , to $ 6.5 million from $ 3.1 million for the year ended december 31 , 2013. this increase was primarily related to an increase in personnel related expenses , coupled with $ 1.1 million in research and development expenses due to the acquisition of relion . incremental research and development costs , outside of relion , were specifically associated with the new turn-key commercial solution as well as numerous product cost-down programs and product design performance enhancements . 27 research and development expense for the year ended december 31 , 2013 decreased $ 2.3 million , or 42.6 % , to $ 3.1 million from $ 5.4 million for the year ended december 31 , 2012. this decrease was primarily related to a decline in personnel related expenses , coupled with a decline in professional fees . selling , general and administrative expenses . selling , general and administrative expenses includes cash and non-cash compensation , benefits and related costs in support of our general corporate functions , including general management , finance and accounting , human resources , selling and marketing , information technology and legal services . selling , general and administrative expenses for the year ended december 31 , 2014 increased $ 9.5 million , or 76.9 % , to $ 21.8 million from $ 12.3 million for the year ended december 31 , 2013. this increase was primarily related to an increase in personnel related expenses to support the substantial growth in the business including incremental salesforce , additional finance staff , and additional executive staff . the overall increase also stemmed from an increase in professional fees and $ 2.2 million in expenses now included due to the acquisition of relion . selling , general and administrative expenses for the year ended december 31 , 2013 decreased $ 2.3 million , or 15.4 % , to $ 12.3 million from $ 14.6 million for the year ended december 31 , 2012. this decrease was primarily related to a decline in personnel related expenses . legal reserve . legal reserve represents the estimated reserve required for current litigation . during the year ended december 31 , 2014 , the company accrued a $ 2.4 million liability relating to litigation dating back to 2008 with soroof trading development company ltd. amortization of intangible assets . amortization of intangible assets represents the amortization associated with the company 's acquired identifiable intangible assets , including acquired technology and customer relationships , which are being amortized over five to ten years . amortization of intangible assets remained stable at $ 2.4 million , $ 2.3 million and $ 2.3 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . interest and other income . story_separator_special_tag our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors , including the timing and quantity of product orders and shipments ; the timing and amount of 29 our operating expenses ; the timing and costs of working capital needs ; the timing and costs of building a sales base ; the timing and costs of developing marketing and distribution channels ; the timing and costs of product service requirements ; the timing and costs of hiring and training product staff ; the extent to which our products gain market acceptance ; the timing and costs of product development and introductions ; the extent of our ongoing and any new research and development programs ; and changes in our strategy or our planned activities . if we are unable to fund our operations without additional external financing and therefore can not sustain future operations , we may be required to delay , reduce and or cease our operations and or seek bankruptcy protection . we have experienced and continue to experience negative cash flows from operations and net losses . the company incurred net losses attributable to common shareholders of $ 88.6 million , $ 62.8 million and $ 31.9 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively , and has an accumulated deficit of $ 938.1 million at december 31 , 2014. net cash used in operating activities for the year ended december 31 , 2014 was $ 40.8 million . additionally , on december 31 , 2014 , we had cash and cash equivalents of $ 146.2 million and net working capital of $ 167.0 million . this compares to $ 5.0 million and $ 11.1 million , respectively , at december 31 , 2013. during 2014 , we received gross proceeds of $ 176.7 million from three underwritten public offerings . net proceeds after underwriting discounts and commissions and other estimated fees and expenses were $ 165.7 million . see note 5 ( stockholders ' equity ) of the consolidated financial statements for more detail . in addition , during 2014 we received $ 18.3 million from the exercise of previously issued common stock warrants . to date , we have funded our operations primarily through public and private offerings of common and preferred stock , a sale-leaseback of our building , and our previous line of credit and maturities . the company believes that its current cash , cash equivalents , cash generated from future sales and cash generated from the exercise of outstanding warrants will provide sufficient liquidity to fund operations for at least the next twelve months . this projection is based on our current expectations regarding product sales , cost structure , cash burn rate and operating assumptions . during the year ended december 31 , 2014 , cash used for operating activities was $ 40.8 million , consisting primarily of a net loss attributable to the company of $ 88.5 million , coupled with changes in operating assets and liabilities of $ 12.1 million , offset by net non-cash expenses in the amount of $ 59.8 million , including $ 4.3 million for amortization and depreciation , $ 4.2 million for stock based compensation , $ 1.0 million for the gain on bargain purchase and $ 52.3 million for the change in fair value of common stock warrant liability . cash used by investing activities for the year ended december 31 , 2014 was $ 1.0 million , consisting of $ 1.4 million used to acquire property , plant and equipment , offset by $ 0.4 million received from the acquisition of relion . cash provided by financing activities for the year ended december 31 , 2014 was $ 182.9 million consisting primarily of $ 165.7 million in net proceeds from public offerings , $ 18.3 million provided from the exercise of warrants , and $ 0.3 million from the exercise of stock options , offset by $ 0.6 million for the purchase of treasury stock and $ 0.8 million for principal payments on long-term debt . several key indicators of liquidity are summarized in the following table : replace_table_token_4_th 30 income taxes under internal revenue code ( irc ) section 382 , the use of loss carryforwards may be limited if a change in ownership of a company occurs . if it is determined that due to transactions involving the company 's shares owned by its 5 percent shareholders a change of ownership has occurred under the provisions of irc section 382 , the company 's federal and state net operating loss carryforwards could be subject to significant irc section 382 limitations . based upon irc section 382 studies , section 382 ownership changes occurred in 2013 , 2012 and 2011 that resulted in $ 728 million of the company 's $ 764 million of federal and state net operating loss carryforwards being subject to irc section 382 limitations . as a result of irc section 382 limitations , $ 715 million of the $ 728 net operating loss carryforwards that are limited will expire prior to utilization and consequently , these net operating loss carryforwards that will expire unutilized are not reflected in the company 's gross deferred tax asset as of december 31 , 2014. the ownership changes also resulted in net unrealized built in losses per irs notice 2003-65 which should result in recognized built in losses during the five year recognition period of approximately $ 40.7 million . this will translate into unfavorable book to tax add backs in the company 's 2014 to 2018 u.s. corporate income tax returns that resulted in a gross deferred tax liability of $ 8.0 million at december 31 , 2014 with a corresponding reduction to the valuation allowance . this gross deferred tax liability will offset certain existing gross deferred tax assets ( i.e . capitalized research expense ) . this has no impact on the company 's current financial position , results of operations , or cash flows because of the full valuation allowance .
| results of operations product revenue . product revenue includes revenue from the sale of our gendrive units , as well as revenue from relion 's stationary backup power units . product revenue for the year ended december 31 , 2014 increased $ 22.0 million or 119.6 % , to $ 40.5 million from $ 18.5 million for the year ended december 31 , 2013. the most significant factor driving the large growth in product revenue was the company 's introduction of the full turn-key solution . in providing the full solution of units , hydrogen storage and distribution , uptime service , and hydrogen delivery , the company made it significantly easier for customers to adopt the technology and more immediately realize the productivity benefits . in the product revenue category , there were 2,406 gendrive systems shipped for the year ended december 31 , 2014 as compared to 918 gendrive systems shipped for the year ended december 31 , 2013. of the gendrive units shipped in 2014 , they were predominantly associated with the full turn-key solution and reflect a higher concentration of our smaller class 3 units . the overall increase in product revenue is also due in part to stationary backup product revenue of $ 1.9 million stemming from the acquisition of relion early in 2014 . 25 product revenue for the year ended december 31 , 2013 decreased $ 2.3 million or 11.3 % , to $ 18.5 million from $ 20.8 million for the year ended december 31 , 2012. this decrease is primarily related to fewer shipments during 2013. in the product revenue category , there were 918 fuel cell systems shipped for the year ended december 31 , 2013 as compared to 1,136 fuel cell systems shipped for the year ended december 31 , 2012. service revenue : service revenue includes revenue from hydrogen installations , our service and maintenance contracts , hydrogen delivery contracts , spare parts , and leased units .
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these uncertainties include , but are not limited to , variations in weather , changes in the regulatory environment , customer preferences , general economic conditions , increased competition , the outcome of outstanding litigation , and future developments affecting environmental matters . all of these are difficult to predict , and many are beyond the ability of the company to control . certain statements in this annual report on form 10-k that are not historical facts , but rather reflect the company 's current expectations concerning future results and events , constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995. the words “ believes ” , “ expects ” , “ intends ” , “ plans ” , “ anticipates ” , “ hopes ” , “ likely ” , “ will ” , and similar expressions identify such forward-looking statements . such forward-looking statements involve known and unknown risks , uncertainties and other important factors that could cause the actual results , performance or achievements of the company , or industry results , to differ materially from future results , performance or achievements expressed or implied by such forward-looking statements . readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's view only as of the date of this form 10-k. the company undertakes no obligation to update the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events , conditions or circumstances . overview the company is a leading manufacturer of flexible metal hose , and is currently engaged in a number of different markets , including construction , manufacturing , transportation , petrochemical , pharmaceutical and other industries . - 21 - the company 's business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose and accessories . the company 's products are concentrated in residential and commercial construction , and general industrial markets , with a comprehensive portfolio of intellectual property and patents issued in various countries around the world . the company 's primary product , flexible gas piping , is used for gas piping within residential and commercial buildings . through its flexibility and ease of use , the company 's tracpipe ® and tracpipe ® counterstrike ® flexible gas piping , along with its fittings distributed under the trademarks autosnap ® and autoflare ® , allows users to substantially cut the time required to install gas piping , as compared to traditional methods . the company 's newest product line meditrac ® corrugated medical tubing is used for piping medical gases ( oxygen , nitrogen , nitrous oxide , carbon dioxide , and medical vacuum ) in health care facilities . building on the recognized strengths and strategies employed in the flexible gas piping market , meditrac ® can be used in place of rigid copper pipe , and due to its long continuous lengths and flexibility , it can be installed approximately five times faster than rigid copper pipe , saving on installation labor and construction schedules . the company 's products are manufactured at its exton , pennsylvania and houston , texas facilities in the u.s. , and in banbury , oxfordshire in the uk . a majority of the company 's sales across all industries are generated through independent outside sales organizations such as sales representatives , wholesalers and distributors , or a combination of both . the company has a broad distribution network in north america and to a lesser extent in other global markets . changes in financial condition the company 's cash balance of $ 23,633,000 at december 31 , 2020 increased $ 7,535,000 ( 46.8 % ) from a $ 16,098,000 balance at december 31 , 2019. the primary reason for the increase in cash related to income generated from operations during 2020. this was partially offset by dividend payments during 2020 totaling $ 11,306,000 , as detailed in note 6 , shareholders ' equity , to the consolidated financial statements included in this report . further , the company used funds for the purchase of inventory in anticipation of stronger customer demand . see the company 's consolidated cash flow statement for further details regarding the change in cash . accounts receivable were $ 20,077,000 and $ 17,047,000 as of december 31 , 2020 and december 31 , 2019 , respectively , increasing $ 3,030,000 or 17.8 % . the increase was largely related to the increase in sales over the last several months of 2020 in comparison to 2019 , thus increasing the amounts to be collected within terms . retained earnings were $ 35,769,000 and $ 27,165,000 at december 31 , 2020 and december 31 , 2019 , respectively , increasing $ 8,604,000 or 31.7 % . the increase was primarily due to an increase in net income during the year , as provided on the company 's consolidated statement of operations , partially offset by dividend payments made during 2020 , as discussed in detail in note 6 , shareholders ' equity , to the consolidated financial statements included in this report . story_separator_special_tag /sequence -- > - other income ( expense ) . other income ( expense ) primarily consists of foreign currency exchange gains ( losses ) on transactions within our foreign subsidiaries , and therefore tends to fluctuate with the strengthening and or weakening of the british pound . the company recognized other expense of $ 53,000 during 2020 and other income of $ 56,000 during 2019. income tax expense . income tax expense was $ 6,594,000 for 2020 , compared to $ 5,429,000 for 2019. the $ 1,165,000 or 21.5 % increase in tax expense was largely the result of the increase in income before taxes . the effective tax rate for both periods was similar at approximately 24 % to 25 % of income before taxes . story_separator_special_tag critical accounting policies and use of estimates note 2 , significant accounting policies , to the consolidated financial statements included in this report , includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements . the preparation of financial statements in conformity with generally accepted accounting principles ( gaap ) 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods . the most significant estimates and assumptions relate to revenue recognition and related sales incentives , accounts receivable allowances , investment valuations , inventory valuations , goodwill valuation , product liability reserve , phantom stock and accounting for income taxes . actual amounts could differ significantly from these estimates . - 25 - our critical accounting policies and significant estimates and assumptions are described in more detail as follows : revenue recognition with regard to revenue recognition , the company applies the requirements of accounting standards update 2014-09 , revenue from contracts with customers ( topic 606 ) . the standard requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services . the principle of topic 606 was achieved through applying the following five-step approach : ● identification of the contract , or contracts , with a customer — a contract with a customer exists when the company enters into an enforceable contract with a customer , typically a purchase order initiated by the customer , that defines each party 's rights regarding the goods to be transferred and identifies the payment terms related to these goods . ● identification of the performance obligations in the contract — performance obligations promised in a contract are identified based on the goods that will be transferred to the customer that are distinct , whereby the customer can benefit from the goods on their own or together with other resources that are readily available from third parties or from us . persuasive evidence of an arrangement for the sale of product must exist . the company ships product in accordance with the purchase order and standard terms as reflected within the company 's order acknowledgments and sales invoices . ● determination of the transaction price —the transaction price is determined based on the consideration to which the company will be entitled in exchange for transferring goods to the customer . this would be the agreed upon quantity and price per product type in accordance with the customer purchase order , which is aligned with the company 's internally approved pricing guidelines . ● allocation of the transaction price to the performance obligations in the contract — if the contract contains a single performance obligation , the entire transaction price is allocated to the single performance obligation . this applies to the company as there is only one performance obligation to ship the goods . ● recognition of revenue when , or as , the company satisfies a performance obligation — the company satisfies performance obligations at a point in time when control of the goods transfers to the customer . determining the point in time when control transfers requires judgment . indicators considered in determining whether the customer has obtained control of a good include : ■ the company has a present right to payment ■ the customer has legal title to the goods ■ the company has transferred physical possession of the goods ■ the customer has the significant risks and rewards of ownership of the goods ■ the customer has accepted the goods it is important to note that the indicators are not a set of conditions that must be met before the company can conclude that control of the goods has transferred to the customer . the indicators are a list of factors that are often present if a customer has control of the goods . the company has typical , unmodified fob shipping point terms . as the seller , the company can determine that the shipped goods meet the agreed-upon specifications in the contract or customer purchase order ( e.g . items , quantities , and prices ) with the buyer , so customer acceptance would be deemed a formality , as noted in asc 606-10-55-86. as a result , the company has a legal right to payment upon shipment of the goods . based upon the above , the company has concluded that transfer of control substantively transfers to the customer upon shipment . - 26 - other considerations of topic 606 include the following : ● contract costs - costs to obtain a contract ( e.g . customer purchase order ) include sales commissions . under topic 606 , these costs may be expensed as incurred for contracts with a duration of one year or less . the majority of the company 's customer purchase orders are fulfilled ( e.g . goods are shipped ) within two days of receipt . ● warranties - the company does not offer customers to purchase a warranty separately . therefore there is not a separate performance obligation . the company does account for warranties as a cost accrual and the warranties do not include any additional distinct services other than the assurance that the goods comply with agreed-upon specifications . there is no impact of warranties under topic 606 upon the financial reporting of the company . ● returned goods - from time to time , the company provides authorization to customers to return goods . if deemed to be material , the company would record a “ right of return ” asset for the cost of the returned goods which would reduce cost of sales .
| results of operations twelve-months ended december 31 , 2020 vs. twelve months ended december 31 , 2019 the company reported comparative results from operations for the twelve-month periods ended december 31 , 2020 and 2019 as follows : replace_table_token_4_th - 22 - net sales . the company 's sales for the full year of 2020 were $ 105,796,000 , reflecting a decrease of $ 5,564,000 , or 5.0 % , compared to $ 111,360,000 in 2019. the decrease in sales resulted mostly from a decrease in unit volume , which was in some measure impacted by the covid-19 pandemic , partially offset by a mild increase to selling prices that was necessary to help offset a rise in material commodity costs . gross profit . the company 's gross profit margins were 62.9 % and 63.3 % for the twelve-months ended december 31 , 2020 and 2019 , respectively . the company was able to maintain margins similar to prior year levels despite covid-19 disruptions , such as increased costs to sanitize the factory and equipment , inefficiencies from staggered work shifts and overtime costs due to employees being quarantined , as well as unabsorbed overhead . selling expenses . selling expenses consist primarily of employee salaries and associated overhead costs , commissions , and the cost of marketing programs such as advertising , trade shows and related communication costs , and freight . selling expense was $ 16,580,000 and $ 19,032,000 for 2020 and 2019 , respectively , representing a decrease of $ 2,452,000 , or 12.9 % . the most significant reduction relates to atypical consulting costs identified during 2019 , attributable to the company 's new product , meditrac ® flexible medical gas piping . the company also experienced decreases in travel and advertising during 2020 , mostly related to restrictions stemming from the pandemic . commissions were also down due to the decrease in sales . conversely , the company expanded its sales related staffing resources .
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we caution investors that any forward-looking statements in this report , or which management may make orally or in writing from time to time , are based on management 's beliefs and on assumptions made by , and information currently available to , management . when used , the words “ anticipate , ” “ believe , ” “ expect , ” “ intend , ” “ may , ” “ might , ” “ plan , ” “ estimate , ” “ project , ” “ should , ” “ will , ” “ result ” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements . these statements are subject to risks , uncertainties and assumptions and are not guarantees of future performance , which may be affected by known and unknown risks , trends , uncertainties and factors that are beyond our control . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated , estimated or projected . we caution you that , while forward-looking statements reflect our good faith beliefs when we make them , they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements . we expressly disclaim any responsibility to update our forward-looking statements , whether as a result of new information , future events or otherwise . accordingly , investors should use caution in relying on past forward-looking statements , which are based on results and trends at the time they are made , to anticipate future results or trends . some of the risks and uncertainties that may cause our actual results , performance or achievements to differ materially from those expressed or implied by forward-looking statements include , among others , the following : · general risks affecting the real estate industry ( including , without limitation , the inability to enter into or renew leases , dependence on tenants ' financial condition , and competition from other developers , owners and operators of real estate ) ; · risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments ; · failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully ; · risks and uncertainties affecting property development and construction ( including , without limitation , construction delays , cost overruns , inability to obtain necessary permits and public opposition to such activities ) ; · risks associated with downturns in the national and local economies , increases in interest rates and volatility in the securities markets ; · costs of compliance with the americans with disabilities act and other similar laws and regulations ; · potential liability for uninsured losses and environmental contamination ; · risks associated with our dependence on key personnel whose continued service is not guaranteed ; and · the other risk factors identified in this form 10-k , including those described under the part i , item 1a . “ risk factors ” . the risks included here are not exhaustive . other sections of this report , including part i , item 1a . “ risk factors ” include additional factors that could adversely affect our business and financial performance . moreover , we operate in a very competitive and rapidly changing environment . new risk factors emerge from time to time and it is not possible for management to predict all such risk factors , nor can we assess the impact of all such risk factors on our business 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 place undue reliance on forward-looking statements as a prediction of actual results . investors should also refer to our quarterly reports on form 10-q for future periods and current reports on form 8-k as we file them with the sec , and to other materials we may furnish to the public from time to time through forms 8-k or otherwise . overview our primary business is in real estate holdings and investment in mortgage receivables . land held for development or sale is our sole operating segment . at december 31 , 2015 , our land consisted of 131.1 acres of land held subject to sales contract . all of our land holdings are located in farmers branch , texas . the principal source of revenue for the company is interest income on over $ 24.8 million of note receivables due from related parties . since april 30 , 2011 , pillar is the company 's external advisor and cash manager under a contractual arrangement that is reviewed annually by our board of directors . pillar 's duties include , but are not limited to , locating , evaluating and recommending real estate and real estate-related investment opportunities . pillar also arranges , for iot 's benefit , debt and equity financing with third party lenders and investors . pillar also serves as an advisor and cash manager to arl and tci . as the contractual advisor , pillar is compensated by iot under an advisory agreement that is more fully described in part iii , item 10 . “ directors , executive officers and corporate governance – the advisor ” . iot has no employees . employees of pillar render services to iot in accordance with the terms of the advisory agreement . 10 effective since january 1 , 2011 , regis manages our commercial properties and provides brokerage services . regis is entitled to receive a fee for its property management and brokerage services . see part iii , item 10 . story_separator_special_tag transfers to or from tci or other related parties reflect a sales price equal to the cost basis in the asset at the time of the sale . depreciation and impairment real estate is stated at depreciated cost . the cost of buildings and improvements includes the purchase price of property , legal fees and other acquisition costs . costs directly related to the development of properties are capitalized . capitalized development costs include interest , property taxes , insurance , and other project costs incurred during the period of development . management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value . an impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value . if such impairment is present , an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value . the evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results in future periods . if we determine that impairment has occurred , the affected assets must be reduced to their face value . asc topic 360 “ property , plant and equipment ” requires that qualifying assets and liabilities and the results of operations that have been sold , or otherwise qualify as “ held for sale , ” be presented as discontinued operations in all periods presented if the property operations are expected to be eliminated and the company will not have significant continuing involvement following the sale . the components of the property 's net income that is reflected as discontinued operations include the net gain ( or loss ) upon the disposition of the property held for sale , operating results , depreciation and interest expense ( if the property is subject to a secured loan ) . we generally consider assets to be “ held for sale ” when the transaction has been approved by our board of directors , or a committee thereof , and there are no known significant contingencies relating to the sale , such that the property sale within one year is considered probable . following the classification of a property as “ held for sale , ” no further depreciation is recorded on the assets . a variety of costs are incurred in the acquisition , development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . our capitalization policy on development properties is guided by asc topic 835-20 “ interest - capitalization of interest ” and asc topic 970 “ real estate—general ” . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . recognition of revenue our revenues are composed largely of interest income on notes receivable . revenue recognition on the sale of real estate sales and the associated gains or losses of real estate assets are recognized in accordance with the provisions of asc topic 360-20 , “ property , plant and equipment – real estate sale ” . the specific timing of a sale is measured against various criteria in asc 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties . if the sales criteria for the full accrual method are not met , we defer some or all of the revenue or gain recognition and account for the continued operations of the property by applying the finance , leasing , deposit , installment or cost recovery methods , as appropriate , until the full revenue recognition sales criteria are met . non-performing notes receivable the company considers a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement . interest recognition on notes receivable we record interest income as earned in accordance with the terms of the related loan agreements . 12 allowance for estimated losses we assess the collectability of notes receivable on a periodic basis , of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note . we recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan . the amount of the impairment to be recognized generally is based on the fair value of the partnership 's real estate that represents the primary source of loan repayment . see note 3 “ notes and interest receivable from related parties ” for details on our notes receivable . fair value measurement the company applies the guidance in asc topic 820 , “ fair value measurements and disclosures , ” to the valuation of real estate assets .
| results of operations the following discussion is based on our consolidated financial statements “ consolidated statement of operations ” for the years ended december 31 , 2015 , 2014 , and 2013 from part ii , item 8 . “ financial statements and supplementary data ” and is not meant to be an all-inclusive discussion of the changes in our net income applicable to common shares . instead , we have focused on significant fluctuations within our operations that we feel are relevant to obtain an overall understanding of the change in income applicable to common shareholders . our current operations consist of land held subject to sales contract . our operating expenses relate primarily to the administration and maintenance costs associated with the land held for development or sale . the other segment consists of revenue and expenses related to the notes receivable and corporate entities . we also have other income and expense items . we receive interest income from the funds deposited with our advisor at a rate of prime plus 1.0 % . we have receivables from related parties which also provide interest income . our other significant expense item is from the mortgage expense which includes interest payments on the debt secured by our land portfolio . comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 we had a net income applicable to common shares of $ 1.5 million or $ 0.36 per diluted earnings per share for the year ended december 31 , 2015 , as compared to a net income applicable to common shares of $ 1.6 million or $ 0.37 per diluted earnings per share for the same period ended 2014. revenue land held subject to sales contract is our sole operating segment .
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see additional discussion under the heading `` risk factors '' above . overview we are a land and water resource development company with over 45,000 acres of land in three areas of eastern san bernardino county , california . virtually all of this land is underlain by high-quality , naturally recharging groundwater resources , and is situated in proximity to the colorado river and the colorado river aqueduct ( `` cra '' ) , california 's primary mode of water transportation for imports from the colorado river into the state . our properties are suitable for various uses , including large-scale agricultural development , groundwater storage and water supply projects . our main objective is to realize the highest and best use of these land and water resources in an environmentally responsible way . we believe that the long-term highest and best use of our land and water assets will be realized through the development of a combination of water supply and storage projects at our properties . therefore , we have primarily focused on the development of the cadiz valley water conservation , recovery and storage project ( `` water project '' or `` project '' ) , which will capture and conserve millions of acre-feet 1 of native groundwater currently being lost to evaporation from the aquifer system beneath our 34,500-acre property in the cadiz and fenner valleys of eastern san bernardino county ( the `` cadiz/fenner property '' ) , and deliver it to water providers throughout southern california ( see `` water resource development '' ) . a second phase of the water project would offer storage of up to one million acre-feet of imported water in the aquifer system . we believe that the ultimate implementation of this water project will provide a significant source of future cash flow . the primary factor driving the value of such projects is ongoing pressure on california 's traditional water supplies and the resulting demand for new , reliable supply solutions that can meet both immediate and long-term water needs . available water supply in southern california is constrained by regulatory restrictions on each of the state 's three main water sources : the cra , the state water project , which provides water supplies from northern california to the central and southern parts of the state , and the los angeles aqueduct , which delivers water from the eastern sierra nevada mountains to los angeles . southern california 's water providers rely on imports from these systems for a majority of their water supplies , but deliveries from the eastern sierra nevada mountains to los angeles . southern california 's water providers rely on imports from these systems for a majority of their water supplies , but deliveries from all three into the region are consistently below capacity , even in wet years . 1 one acre-foot is equal to approximately 326,000 gallons or the volume of water that will cover an area of one acre to a depth of one-foot . an acre-foot is generally considered to be enough water to meet the annual water needs of one average california household . 21 further , the availability of supplies in california differs greatly from year to year due to natural hydrological variability . for nearly a decade , california struggled through an historic drought featuring record-low winter precipitation . then , following a series of strong storms that delivered record amounts of rain and snow during the 2016-2017 winter , state officials declared an end to the drought . the 2017-2018 winter was abnormally dry for a majority of the state , yet the 2018-2019 winter is on track to be another wet year , with snowpack and rainfall well above average through february 2019. the rapid swings between wet and dry years challenge california 's traditional supply system and support the need for reliable storage and local supply . given the variety of challenges and limitations faced by the state 's existing infrastructure , southern california water providers are presently pursuing investments in storage , supply and infrastructure to meet long-term demand . the cadiz water project is a local supply option in southern california that would help address the region 's water supply challenges by providing new reliable supply and local groundwater storage opportunities ( see `` water resource development '' , below ) in both dry and wet years . following a multi-year california environmental quality act ( `` ceqa '' ) review and permitting process , the water project received permits that allow the capture and conservation of 2.5 million acre-feet of groundwater over 50 years in accordance with the terms of a groundwater management plan approved by san bernardino county , the public agency responsible for groundwater use at the project area . in addition to our water project proposal , we are engaged in agricultural joint ventures at the cadiz/fenner property that put some of the groundwater currently being lost to evaporation from the underlying aquifer system to immediate beneficial use . we have farmed portions of the cadiz/fenner property since the late 1980s relying on groundwater from the aquifer system for irrigation and the site is well-suited for various permanent and seasonal crops . presently , the property has 2,100 acres leased for cultivation of citrus . our current working capital requirements relate largely to the final development activities associated with the water project and those activities consistent with the water project related to further development of our land and agricultural assets . while we continue to believe that the ultimate implementation of the water project will provide the primary source of our future cash flow , we also believe there is significant additional value in our underlying agricultural assets . we also continue to explore additional uses of our land and water resource assets , including renewable energy development , the marketing of our approved desert tortoise land conservation bank ( which is located on our properties outside the water project area ) and other long-term legacy uses of our properties , such as habitat conservation and cultural development . story_separator_special_tag these lois also include the option to reserve carry-over storage capacity for $ 1,500 per acre-foot prior to construction . presently , total reservations of supplies from the water project via these agreements are in excess of water project capacity . prior to construction of the water project , we expect to convert existing option agreements and lois to purchase agreements . we are working collaboratively with the participating water agencies to account for any oversubscription in the final definitive purchase and sale agreements and allow for inclusive participation across southern california . 24 ( 2 ) conveyance arrangements prior to construction of the water project , and in coordination with final participation contracts described in ( 1 ) above , an agreement and terms for moving water supplies in the cra must be negotiated with metropolitan water district of southern california ( `` metropolitan '' ) , which owns and controls the cra . water supplies conserved by the project would enter the cra at the termination of the project 's conveyance pipeline near rice , ca . the ceqa process considered a variety of options to enter the cra and assumed final entry into the cra would be determined by mwd in consultation with the project 's participating agencies . once arrangements are reached , the metropolitan board would take action as a responsible agency under ceqa regarding the terms and conditions of the water project 's use of the cra to transport water to its participating agencies . there is no application yet before metropolitan related to entry and transportation of project supplies , but we expect such a formal application will be filed by smwd , the project 's lead agency , when the project 's contractual arrangements with participants are finalized . any agreement as to the terms and conditions of the water project 's use of the cra will be negotiated between and entered into by metropolitan and the project participating agencies , not the company . discussions with metropolitan regarding conveyance of project water in the cra have been led by smwd , the water project 's ceqa lead agency , and are ongoing . water project supplies entering the cra will comply with metropolitan 's published engineering , design and water quality standards and will be subject to all applicable fees and charges routinely established by metropolitan for the conveyance of water within its service territory . total dissolved solids or salts in the cadiz water supply are substantially lower than the water in the cra . other constituents that are already lower than state and federal standards but potentially higher than the water in the cra will be lowered via treatment to ambient levels or removed entirely . extensive pilot testing of treatment options at the project area in 2018 confirmed the capability of cost-effective treatment technologies to successfully remove such constituents . we believe there are multiple benefits that can be secured by mwd upon making space reasonably available for the water project supplies and providing the region the flexibility of relying on the water project in both wet and dry years . northern pipeline we currently own a 96-mile long , 30-inch wide existing idle natural gas pipeline that extends northwest from the cadiz/fenner property terminating in barstow , california , and have entered into a purchase agreement to a further 124-mile segment connecting this line from barstow to wheeler ridge , california . the pipeline crosses san bernardino , los angeles and kern counties , including the barstow and bakersfield areas , which serve as a hubs for water delivered from northern and central california to communities in southern california . initial feasibility studies indicated that , upon conversion , the 30-inch pipeline could transport between 18,000 and 30,000 acre-feet of water per year between the water project area and the central and northern california water transportation network . as a result , this pipeline could diversify delivery opportunities for the water project and the company 's broader water resource development efforts . 25 if this pipeline were to become operational , then the water project would link the colorado river aqueduct and state water project systems – two of southern california 's main water delivery systems – providing flexible opportunities for both supply and storage . the northern pipeline could deliver phase i supplies , either directly or via exchange , to existing and potential customers of phase i of the project . any use of the pipeline would be conducted in conformity with the water project 's groundwater management plan and is subject to further ceqa evaluation and potentially federal environmental permitting . in december 2018 , the company entered into an amendment ( the `` amendment '' ) to its option agreement ( `` option agreement '' ) with epng to purchase the 124-mile segment of the pipeline . the option agreement , as amended , allows the company to purchase the 124-mile pipeline segment with an initial payment of $ 2 million and a subsequent payment of $ 18 million ( `` deferred payment '' ) . following entry into the amendment , the company exercised the option and entered into a purchase agreement for the 124-mile pipeline , providing to epng the initial consideration of $ 2 million . under our purchase agreement with epng , the deferred payment is due to epng within 30 days of satisfaction of certain conditions precedent by epng . if we do not complete the purchase of the additional 124-mile pipeline then our northern pipeline opportunities will be limited to the 96-mile segment that we own . ( 3 ) final design and permitting as a component of completing contract terms with participating agencies and related wheeling arrangements with metropolitan , we must also finalize design of project facilities and acquire relevant construction permits with state and local agencies .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 we have not received significant revenues from our water resource and real estate development activities to date . our revenues have been limited to rental income from the fvf lease ( see `` agricultural development '' , above ) . as a result , we have historically incurred a net loss from operations . we had revenues of $ 440 thousand for the year ended december 31 , 2018 , and $ 437 thousand for the year ended december 31 , 2017. the net loss totaled $ 26.3 million for the year ended december 31 , 2018 , compared with a net loss of $ 33.9 million for the year ended december 31 , 2017. the higher loss in 2017 was primarily related to a $ 3.5 million loss on extinguishment of debt and $ 2.6 million in unrealized losses recorded for warrant liabilities combined with $ 1.5 million in unrealized gains recorded for warrant liabilities in 2018. the higher 2017 loss was also related to higher stock compensation resulting from the vesting of milestone shares earned by employees . our primary expenses are our ongoing overhead costs associated with the development of the water project ( i.e. , general and administrative expense ) and our interest expense . we will continue to incur non-cash expense in connection with our management and director equity incentive compensation plans . revenues . revenue totaled $ 440 thousand during the year ended december 31 , 2018 , compared to $ 437 thousand during the year ended december 31 , 2017. the revenue is primarily related to rental income from the fvf lease ( see `` agricultural development '' , above ) . general and administrative expenses .
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stock-based compensation stock-based compensation for employee and director options we account for stock-based compensation story_separator_special_tag forward-looking statements this management discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report . we make statements in this section that are forward-looking statements within the meaning of the federal securities laws . for a complete discussion of such forward-looking statements and the potential risks and uncertainties that may impact upon their accuracy , see forward-looking statements included in part i , risk factors included in part i of this form 10-k and the overview and liquidity and capital resources sections of this management 's discussion and analysis of financial condition and results of operations . overview we are a pharmaceutical company engaged in the discovery , development and commercialization of drugs for the treatment of severe metabolic and psychiatric disorders . our focus is on disorders associated with the steroid hormone cortisol . elevated levels and abnormal release patterns of cortisol have been implicated in a broad range of human disorders . since our inception in may 1998 , we have been developing mifepristone , a potent glucocorticoid receptor ii ( gr-ii ) antagonist . on february 17 , 2012 , the fda approved korlym ( mifepristone ) 300 mg tablets in the united states as a once-daily oral medication for treatment of hyperglycemia secondary to hypercortisolism in adult patients with endogenous cushing 's syndrome who have type 2 diabetes mellitus or glucose intolerance and have failed surgery or are not candidates for surgery . we made korlym available to patients in april 2012 and have begun marketing the drug in the united states . we continue to develop the sales , marketing , medical affairs and logistical infrastructure needed to commercialize the drug . we also have an on-going phase 3 study of mifepristone , the active ingredient in korlym , for treatment of the psychotic features of psychotic depression . we have discovered three series of novel selective gr-ii antagonists . unless otherwise stated , all references in this document to we , us , our , corcept , the company , our company and similar designations refer to corcept therapeutics incorporated . cushing 's syndrome . cushing 's syndrome is a disorder caused by prolonged exposure of the body 's tissues to high levels of the hormone cortisol . sometimes called hypercortisolism , it is uncommon and most often affects adults aged 20 to 50. an estimated 10 to 15 of every one million people are newly diagnosed with this syndrome each year , resulting in approximately 3,000 new patients and an estimated prevalence of 20,000 patients with cushing 's syndrome in the united states . the fda approved our nda for korlym on february 17 , 2012. this approval allows us to market korlym in the united states for its approved indication . we are carrying out our commercialization plans , including hiring a small number of medical science liaisons ( msls ) and sales representatives . we have also developed internet marketing capabilities and patient assistance programs to support physicians and patients . we began shipping korlym to our specialty pharmacy in early april 2012 , and the medicine first became available to patients on april 10 , 2012. we finished hiring our team of msls in the third quarter of 2012. our sales representatives received their initial training and were deployed to the field in the fourth quarter of 2012. we have orphan drug designations for korlym from the fda for the approved indication and from the european commission for the treatment of endogenous cushing 's syndrome . orphan drug designation in the united states is a special status granted by the fda to encourage the development of treatments for diseases or conditions that affect fewer than 200,000 patients in the united states . drugs that receive orphan drug designation obtain seven years of marketing exclusivity for the approved indication from the date of drug 49 approval , as well as tax credits for clinical trial costs , marketing application filing fee waivers and assistance from the fda in the drug development process . benefits of orphan drug designation in the eu are similar to those in the united states , but include ten years of marketing exclusivity for the approved indication in all 27 member states , free scientific advice during drug development , access to a centralized review process and a reduction or complete waiver of fees levied by the european medicines agency . psychotic depression . we are also developing mifepristone , the active ingredient in korlym , for the treatment of the psychotic features of psychotic depression under an exclusive patent license from stanford university . the fda has granted fast track status to evaluate the safety and efficacy of mifepristone for the treatment of the psychotic features of psychotic depression . in march 2008 , we began enrollment in study 14 , our ongoing phase 3 trial in psychotic depression . the protocol for this trial incorporates what we have learned from our three previously completed phase 3 trials . it attempts to address the established relationship between increased drug plasma levels and clinical response and attempts to decrease the random variability observed in the results of the psychometric instruments used to measure efficacy . in one of the previously completed phase 3 trials , study 06 , we prospectively tested and confirmed that patients whose plasma levels rose above a predetermined threshold statistically separated from both those patients whose plasma levels were below the threshold and those patients who received placebo ; this threshold was established from data produced in earlier studies . as expected , the group of patients who took 1200 milligrams ( mg ) of mifepristone in study 06 developed higher drug plasma levels than did the groups of patients who received lower doses . story_separator_special_tag this study demonstrated that cort 108297 suppresses body weight gain and improves insulin sensitivity in healthy mice fed a 60 percent fat diet and high sucrose liquid . the results of these preclinical data were published in april 2011 in the journal nutrition and metabolism . in addition , we are continuing research and pre-clinical efforts to identify additional selective gr-ii antagonists for clinical study . general our activities to date have included : product development , including drug formulation and manufacturing , as well as designing , funding and overseeing clinical trials and conducting non-human clinical investigatory activities , such as toxicological testing ; commercialization of korlym , including hiring and training medical science liaisons and sales representatives , retention and management of third-party distribution partners , establishment of third-party coverage and reimbursement and patient assistance programs and marketing activities . 51 discovery research ; intellectual property prosecution and expansion ; and regulatory affairs . historically , we have financed our operations and internal growth primarily through private placements of our preferred and common stock , the public sale of common stock and our capped royalty financing transaction , rather than through collaborative or partnership agreements . as of december 31 , 2012 , we had an accumulated deficit of $ 246.6 million . our historical operating losses have resulted principally from our research and development activities , including clinical trial activities for mifepristone , discovery research , non-clinical activities such as toxicology and carcinogenicity studies , manufacturing process development and regulatory activities , as well as selling , general and administrative expenses , including preparations for the commercial launch of korlym . we may continue to incur net losses over at least the next few years as we continue our mifepristone and selective gr-ii antagonist discovery and clinical development programs , apply for regulatory approvals , acquire and / or develop treatments in other therapeutic areas , establish sales and marketing capabilities and expand our operations . our business is subject to significant risks , including the risks inherent in our research and development efforts , the results of our mifepristone and other clinical trials , uncertainties associated with securing financing , uncertainties associated with obtaining and enforcing patents , our investment in manufacturing set-up , the management of our supply chain , the lengthy and expensive regulatory approval process and competition from other products . our ability to successfully generate revenues in the foreseeable future is dependent upon our ability , alone or with others , to finance our operations and develop , obtain regulatory approval for , manufacture and market our products . story_separator_special_tag related to the development of a medical safety program , d ) $ 187,000 related to manufacturing and quality control activities to prepare for commercialization and e ) $ 192,000 in non-cash stock-based compensation costs related to a performance-based award to a consultant that vested in june 2011 upon the filing of our nda for korlym by the fda , which were partially offset by the decrease in consulting fees in other clinical activities of $ 78,000. for the year ended december 31 , 2011 , as compared to the corresponding period in 2010 , there was also an increase of $ 300,000 related to attendance of seminars in support of our cushing 's syndrome program . korlym manufacturing costs increased $ 4.2 million during the year ended december 31 , 2011 , as compared to the corresponding period in 2010 , due primarily to the acquisition of active pharmaceutical ingredient for korlym and the initiation of manufacturing development work at a potential back-up site for the manufacture of korlym that were only partially offset by a decrease in manufacturing activities related to our proprietary , selective new gr-ii antagonists . there were decreases in clinical trial costs of $ 4.3 million during the year ended december 31 , 2011 , as compared to the corresponding period of 2010. clinical trial cost decreases included ( a ) $ 2.8 million related to drug-drug interaction and other nda-supportive studies with korlym that were substantially completed during 2010 , ( b ) $ 727,000 related to the clinical trials with korlym for the treatment of cushing 's syndrome due to patients having completed the initial study and moving into the long-term extension study , ( c ) $ 331,000 related to the clinical trial with mifepristone for the treatment of psychotic depression and ( d ) $ 468,000 related to clinical studies activities with cort 108297. during the year ended december 31 , 2011 , as compared to the corresponding period in 2010 , there was also a decrease of $ 244,000 related to the ind-enabling work on cort 108297 , which was partially offset by increases of $ 168,000 related to research efforts on our other selective gr-ii antagonists . below is a summary of our research and development expenses by major project : replace_table_token_4_th we expect that research and development expenditures in 2013 will likely be higher than they were in 2012 , due to the cost of expanding enrollment in our phase 3 study of mifepristone in the treatment of psychotic depression and increased spending on the development of our next-generation selective gr-ii antagonists . research and development expenses in 2014 and beyond will depend on our strategic priorities . see also , liquidity and capital resources . many factors can affect the cost and timing of our trials including inconclusive results requiring more clinical trials , slow patient enrollment , adverse side effects in study patients , insufficient supplies for our clinical trials and real or perceived lack of effectiveness or safety of the drug in our trials . the cost and timing of 54 development of our selective gr-ii antagonists will depend on the success of our efforts and any difficulties that we may encounter . in addition , the development of all of our product candidates will be subject to extensive governmental regulation .
| results of operations net product sales net product sales includes product revenue resulting from sales to our customers , reduced by 1 ) trade allowances , such as discounts for prompt payment and distributor fees , 2 ) estimated government rebates and chargebacks , 3 ) reserves for expected product returns and 4 ) estimated costs of our patient assistance program . in april 2012 , we made korlym commercially available in the united states through a specialty pharmacy that sells to individual patients and a specialty distributor that sells to hospital pharmacies . for the year ended december 31 , 2012 , we recognized $ 3.3 million in net product sales . to calculate net product sales , we deducted from gross sales estimates of prompt-pay discounts , distribution service fees , rebates and chargebacks owed to government payors and patient assistance program costs , which amounts are not material for the year ended december 31 , 2012. based on our limited experience marketing korlym , it is difficult for us to forecast its sales for any future periods . cost of sales cost of sales includes the cost to manufacture korlym ( which includes material , third-party manufacturing costs and indirect personnel and other overhead costs ) based on units sold in the current period , as well as the cost of stability testing and distribution . we began capitalizing korlym production costs as inventory following approval by the fda to market korlym on february 17 , 2012. prior to korlym 's approval , we expensed all costs related to the manufacturing of product ( including stability costs and manufacturing overhead ) as incurred , classifying these costs as research and development expense . a portion of the product manufactured prior to fda approval is available for us to use commercially . cost of sales was $ 91,000 for the year ended december 31 , 2012 , which equals 2.8 percent of net product sales for the same period .
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the following discussion should be read in conjunction with the historical financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. the following discussion contains , in addition to historical information , forward-looking statements that include risks and uncertainties . our actual results may differ materially from those expressed or contemplated in those forward-looking statements as a result of certain factors , including those set forth under the headings “ forward-looking statements ” and “ risk factors ” elsewhere in this annual report on form 10-k. business walker & dunlop , inc. is a holding company , and we conduct the majority of our operations through walker & dunlop , llc , our operating company . we are one of the leading commercial real estate services and finance companies in the united states , with a primary focus on multifamily lending , debt brokerage , and property sales . we originate , sell , and service a range of multifamily and other commercial real estate financing products to owners and developers of commercial real estate across the country , provide multifamily property sales brokerage and appraisal services in various regions throughout the united states , and engage in commercial real estate investment management activities . we originate and sell multifamily loans through the programs of fannie mae , freddie mac , ginnie mae , and hud , with which we have licenses and long-established relationships . we retain servicing rights and asset management responsibilities on nearly all loans that we originate for the agencies ' programs . we are approved as a fannie mae dus lender nationally , a freddie mac lender nationally for conventional , seniors housing , targeted affordable housing and small balance loans , a hud map lender nationally , a hud lean lender nationally , and a ginnie mae issuer . we broker and service loans for several life insurance companies , commercial banks , and other institutional investors , in which cases we do not fund the loan but rather act as a loan broker . we fund loans for the agencies ' programs , generally through warehouse facility financings , and sell them to investors in accordance with the related loan sale commitment , which we obtain at rate lock . proceeds from the sale of the loan are used to pay off the warehouse facility . the sale of the loan is typically completed within 60 days after the loan is closed , and we retain the right to service substantially all of these loans . in cases where we do not fund the loan , we act as a loan broker and service some of the loans . our mortgage bankers who focus on loan brokerage are engaged by borrowers to work with a variety of institutional lenders to find the most appropriate loan . these loans are then funded directly by the institutional lender , and for those brokered loans we service , we collect ongoing servicing fees while those loans 21 remain in our servicing portfolio . the servicing fees we typically earn on brokered loan transactions are substantially lower than the servicing fees we earn for servicing agency loans . we recognize revenue when we make simultaneous commitments to originate a loan to a borrower and sell that loan to an investor . the revenues earned reflect the fair value attributable to loan origination fees , premiums on the sale of loans , net of any co-broker fees , and the fair value of the expected net cash flows associated with servicing the loans , net of any guaranty obligations retained . we also recognize revenue when we receive the origination fee from a brokered loan transaction . other sources of revenue include ( i ) net warehouse interest income we earn while the loan is held for sale , ( ii ) net warehouse interest income from loans held for investment while they are outstanding , ( iii ) sales commissions for brokering the sale of multifamily properties , and ( iv ) asset management fees from our investment management activities . we retain servicing rights on substantially all the loans we originate and sell , and generate revenues from the fees we receive for servicing the loans , from the interest income on escrow deposits held on behalf of borrowers , and from other ancillary fees . servicing fees set at the time an investor agrees to purchase the loan are generally paid monthly for the duration of the loan and are based on the unpaid principal balance of the loan . our fannie mae and freddie mac servicing arrangements generally provide for prepayment to us in the event of a voluntary prepayment . for loans serviced outside of fannie mae and freddie mac , we typically do not have similar prepayment protections . we are currently not exposed to unhedged interest rate risk during the loan commitment , closing , and delivery process . the sale or placement of each loan to an investor is negotiated concurrently with establishing the coupon rate for the loan . we also seek to mitigate the risk of a loan not closing . we have agreements in place with the agencies that specify the cost of a failed loan delivery , in the event we fail to deliver the loan to the investor . to protect us against such fees , we require a deposit from the borrower at rate lock that is typically more than the potential fee . the deposit is returned to the borrower only once the loan is closed . any potential loss from a catastrophic change in the property condition while the loan is held for sale using warehouse facility financing is mitigated through property insurance equal to replacement cost . we are also protected contractually from an investor 's failure to purchase the loan . we have experienced a de minimis number of failed deliveries in our history and have incurred immaterial losses on such failed deliveries . story_separator_special_tag unfunded commitments are highest during the fund raising and investment phases . aum disclosed in this annual report on form 10-k may differ from regulatory assets under management disclosed on wdip 's form adv . wdip typically receives management fees based on limited partner capital commitments , unfunded investment commitments , and funded investments . additionally , with respect to fund iii , fund iv and fund v , wdip receives a percentage of the profits above the fund expenses and preferred return specified in the fund offering agreements . as of december 31 , 2020 , our servicing portfolio was $ 107.2 billion , up 15 % from december 31 , 2019 , making it the 8 th largest commercial/multifamily primary and master servicing portfolio in the nation according to the mortgage bankers ' association 's ( “ mba ” ) 2020 year-end survey ( the “ survey ” ) . our servicing portfolio includes $ 48.8 billion of loans serviced for fannie mae and $ 37.1 billion for freddie mac , making us the 1 st and 4 th largest primary cashier servicer of fannie mae and freddie mac loans in the nation , respectively , according to the survey . also included in our servicing portfolio is $ 9.6 billion of hud loans , the 3 rd largest hud primary and master servicing portfolio in the nation according to the survey . the average number of our mortgage bankers increased from 150 during 2019 to 161 during 2020 due to organic growth , recruiting and acquisition , contributing to an increase of 32 % in our loan origination volume , from a total of $ 26.6 billion during 2019 to a total of $ 35.0 billion during 2020. fannie mae recently announced that we ranked as its largest dus lender in 2020 , by loan deliveries , and freddie mac recently announced that we ranked as its 4 th largest freddie mac lender in 2020 , by loan deliveries . additionally , we were the 5 th largest multifamily lender for hud in 2020 based on map initial endorsements . basis of presentation the accompanying consolidated financial statements include all of the accounts of the company and its wholly owned subsidiaries , and all intercompany transactions have been eliminated . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with gaap , which requires management to make estimates based on certain judgments and assumptions that are inherently uncertain and affect reported amounts . the estimates and assumptions are based on historical experience and other factors management believes to be reasonable . actual results may differ from those estimates and assumptions and the use of different judgments and assumptions may have a material impact on our results . we believe the following critical accounting estimates represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements . additional information about our critical accounting estimates and other significant accounting policies are discussed in note 2 of the consolidated financial statements . mortgage servicing rights ( “ msrs ” ) . msrs are recorded at fair value at loan sale or upon purchase . the fair value of msrs acquired through a stand-alone servicing portfolio purchase ( “ pmsr ” ) is equal to the purchase price paid . the fair value at loan sale ( “ omsr ” ) is based on estimates of expected net cash flows associated with the servicing rights and takes into consideration an estimate of loan prepayment . initially , the fair value amount is included as a component of the derivative asset fair value at the loan commitment date . the estimated net 23 cash flows from servicing , which includes assumptions for escrow earnings , prepayment , and servicing costs , are discounted at a rate that reflects the credit and liquidity risk of the omsr over the estimated life of the underlying loan . the discount rates used throughout the periods presented for all omsrs were between 10-15 % and varied based on the loan type . the life of the underlying loan is estimated giving consideration to the prepayment provisions in the loan and assumptions about loan behaviors around those provisions . our model for omsrs assumes no prepayment while the prepayment provisions have not expired and full prepayment of the loan at or near the point where the prepayment provisions have expired . we record an individual omsr asset ( or liability ) for each loan at loan sale . for pmsrs , we record and amortize a portfolio-level msr asset based on the estimated remaining life of the portfolio using the prepayment characteristics of the portfolio . the assumptions used to estimate the fair value of capitalized omsrs are developed internally and are periodically compared to assumptions used by other market participants . due to the relatively few transactions in the multifamily msr market , we have experienced little volatility in the assumptions we used during the periods presented , including the most-significant assumption – the discount rate . we do not expect to see significant volatility in the assumptions for the foreseeable future . we actively monitor the assumptions used and make adjustments to those assumptions when market conditions change or other factors indicate such adjustments are warranted . for example , during the year ended december 31 , 2020 , we adjusted the escrow earnings rate assumption twice based on changes we saw from other market participants . we engage a third party to assist in determining an estimated fair value of our existing and outstanding msrs on at least a semi-annual basis . changes in our discount rate assumptions may materially impact the fair value of the msrs ( note 3 of the consolidated financial statements details the portfolio-level impact of a change in the discount rate ) . for pmsrs , a constant rate of prepayments and defaults is included in the determination of the portfolio 's estimated life ( and thus included as a component of the portfolio 's amortization ) .
| results of operations following is a discussion of the comparison of our results of operations for the years ended december 31 , 2020 and 2019. the financial results are not necessarily indicative of future results . our annual results have fluctuated in the past and are expected to fluctuate in the future , reflecting the interest-rate environment , the volume of transactions , business acquisitions , regulatory actions , and general economic conditions . discussions of our results of operations and comparisons between 2019 and 2018 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 . supplemental operating data replace_table_token_1_th replace_table_token_2_th 30 supplemental operating data ( continued ) the following tables present wdip 's aum as of december 31 , 2020 and 2019 : replace_table_token_3_th ( 1 ) brokered transactions for life insurance companies , commercial banks , and other capital sources . ( 2 ) for the year ended december 31 , 2020 , includes $ 86.2 million from the interim program jv , $ 189.8 million from the interim loan program , and $ 104.4 million from wdip separate accounts . for the year ended december 31 , 2019 , includes $ 436.1 million from the interim program jv , $ 321.1 million from the interim loan program , and $ 178.7 million from wdip separate accounts . ( 3 ) this is a non-gaap financial measure . for more information on adjusted ebitda , refer to the section below titled “ non-gaap financial measures. ” ( 4 ) excludes the income and debt financing volume from principal lending and investing . ( 5 ) the fair value of the expected net cash flows associated with the servicing of the loan , net of any guaranty obligations retained . excludes the income and debt financing volume from principal lending and investing .
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variable lease expense and short-term lease expense were not story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. also see “ forward-looking statements ” discussion . story_separator_special_tag style= '' font-family : 'times new roman ' ; font-size:10pt ; text-indent:36pt ; margin:0pt 0pt 12pt 0pt ; '' > in addition to project work , approximately 14.9 % of our revenue represents maintenance and repair service on already installed hvac , electrical , and controls systems . this kind of work usually takes from a few hours to a few days to perform . prices to the customer are based on the equipment and materials used in the service as well as technician labor time . we usually bill the customer for service work when it is complete , typically with payment terms of up to thirty days . we also provide maintenance and repair service under ongoing contracts . under these contracts , we are paid regular monthly or quarterly amounts and provide specified service based on customer requirements . these agreements typically are for one or more years and frequently contain thirty- to sixty-day cancellation notice periods . a relatively small portion of our revenue comes from national and regional account customers . these customers typically have multiple sites and contract with us to perform maintenance and repair service . these contracts may also provide for us to perform new or replacement systems installation . we operate a national call center to dispatch technicians to sites requiring service . we perform the majority of this work with our own employees , with the balance being subcontracted to third parties that meet our performance qualifications . profile and management of our operations we manage our 35 operating units based on a variety of factors . financial measures we emphasize include profitability and use of capital as indicated by cash flow and by other measures of working capital principally involving project cost , billings and receivables . we also monitor selling , general , administrative and indirect project support expense , backlog , workforce size and mix , growth in revenue and profits , variation of actual project cost from original estimate , and overall financial performance in comparison to budget and updated forecasts . operational factors we emphasize include project selection , estimating , pricing , management and execution practices , labor utilization , safety , training , and the make-up of both existing backlog as well as new business being pursued , in terms of project size , technical application , facility type , end-use customers and industries and location of the work . most of our operations compete on a local or regional basis . attracting and retaining effective operating unit managers is an important factor in our business , particularly in view of the relative uniqueness of each market and operation , the importance of relationships with customers and other market participants , such as architects and consulting engineers , and the high degree of competition and low barriers to entry in most of our markets . accordingly , we devote considerable attention to operating unit management quality , stability , and contingency planning , including related considerations of compensation and non-competition protection where applicable . economic and industry factors as a mechanical and electrical services provider , we operate in the broader nonresidential construction services industry and are affected by trends in this sector . while we do not have operations in all major cities of the united states , we believe our national presence is sufficiently large that we experience trends in demand for and pricing of our services that are consistent with trends in the national nonresidential construction sector . as a result , we monitor the views of major construction sector forecasters along with macroeconomic factors they believe drive the sector , including trends in gross domestic product , interest rates , business investment , employment , demographics and the fiscal condition of federal , state and local governments . spending decisions for building construction , renovation and system replacement are generally made on a project basis , usually with some degree of discretion as to when and if projects proceed . with larger amounts of capital , time , and discretion involved , spending decisions are affected to a significant degree by uncertainty , particularly 28 concerns about economic and financial conditions and trends . we have experienced periods of time when economic weakness caused a significant slowdown in decisions to proceed with installation and replacement project work . operating environment and management emphasis nonresidential building construction and renovation activity , as reported by the federal government , declined steeply over the four-year period from 2009 to 2012 , and 2013 and 2014 activity levels were relatively stable at the low levels of the preceding years . during the five-year period from 2015 to 2019 , there was an increase in overall activity levels , and we currently expect that activity will continue at strong levels in 2020. we have a credit facility in place with terms we believe are favorable that does not expire until january 2025. we have strong surety relationships to support our bonding needs , and we believe our relationships with the surety markets are strong and benefit from our operating history and financial position . we have generated positive free cash flow in each of the last twenty-one calendar years and will continue our emphasis in this area . we believe that the relative size and strength of our balance sheet and surety relationships as compared to most companies in our industry represent competitive advantages for us . as discussed at greater length in “ results of operations ” below , we expect price competition to continue as our customers and local and regional competitors respond cautiously to improved market conditions . story_separator_special_tag we generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project . on rare occasions , when significant pre-contract costs are incurred , they are capitalized and amortized on a percentage of completion basis over the life of the contract . we do not currently have any capitalized obtainment or fulfillment costs on our balance sheet and did not incur any impairment loss on such costs in the current year . project contracts typically provide for a schedule of billings or invoices to the customer based on our job-to-date percentage of completion of specific tasks inherent in the fulfillment of our performance obligation ( s ) . the schedules for such billings usually do not precisely match the schedule on which costs are incurred . as a result , contract revenue recognized in our statement of operations can and usually does differ from amounts that can be billed or invoiced to the customer at any point during the contract . amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our balance sheet under the caption “ costs and estimated earnings in excess of billings. ” amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract are reflected as a current liability in our balance sheet under the caption “ billings in excess of costs and estimated earnings. ” the percentage of completion method of accounting is also affected by changes in job performance , job conditions , and final contract settlements . these factors may result in revisions to estimated costs and , therefore , revenue . such revisions are frequently based on further estimates and subjective assessments . the effects of these revisions are recognized in the period in which revisions are determined . when such revisions lead to a conclusion that a loss will be recognized on a contract , the full amount of the estimated ultimate loss is recognized in the period such conclusion is reached , regardless of the percentage of completion of the contract . revisions to project costs and conditions can give rise to change orders under which there is an agreement between the customer and us that the customer pays an additional or reduced contract price . revisions can also result in claims we might make against the customer to recover project variances that have not been satisfactorily addressed through change orders with the customer . except in certain circumstances , we do not recognize revenue or margin based on change orders or claims until they have been agreed upon with the customer . the amount of revenue associated with unapproved change orders and claims was immaterial for the year ended december 31 , 2019. variations from estimated project costs could have a significant impact on our operating results , depending on project size , and the recoverability of the variation via additional customer payments . accounting for allowance for doubtful accounts we are required to estimate the collectability of accounts receivable and provide an allowance for doubtful accounts for receivable amounts we believe we will not ultimately collect . this requires us to make certain judgments and estimates involving , among others , the creditworthiness of our customers , prior collection history with our 30 customers , ongoing relationships with our customers , the aging of past due balances , our lien rights , if any , in the property where we performed the work , and the availability , if any , of payment bonds applicable to the contract . these estimates are evaluated and adjusted as needed when additional information is received . accounting for leases effective january 1 , 2019 , we adopted the requirements of accounting standards update ( asu ) 2016-02 , lease ( topic 842 ) . for additional information on the new standard and the impact on our results of operations , refer to our summary of significant accounting policies in note 2 to the consolidated financial statements . we lease certain facilities , vehicles and equipment under noncancelable operating leases . the most significant portion of these noncancelable operating leases are for the facilities occupied by our corporate office and our operating locations . leases with an initial term of 12 months or less are not recorded on the balance sheet . we account for lease components separately from the non-lease components . we have certain leases with variable payments based on an index as well as some short-term leases on equipment and facilities . lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term . as most of our leases do not provide an implicit rate , we generally use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments . the lease terms generally range from three to ten years . some leases include one or more options to renew , with renewal terms that can extend the lease term . we include the exercise of lease renewal options in the lease term when it is reasonably certain that we will exercise the option and such exercise is at our sole discretion . a majority of the company 's real property leases are with individuals or entities with whom we have no other business relationship . however , in certain instances the company enters into real property leases with current or former employees . if we decide to cancel or terminate a lease before the end of its term , we would typically owe the lessor the remaining lease payments under the term of the lease . our lease agreements do not contain any material residual value guarantees or material restrictive covenants .
| introduction and overview we are a national provider of comprehensive mechanical and electrical installation , renovation , maintenance , repair and replacement services within the mechanical and electrical services industries . we operate primarily in the commercial , industrial and institutional markets and perform most of our services within office buildings , retail centers , apartment complexes , manufacturing plants , and healthcare , education and government facilities . we operate our business in two business segments : mechanical and electrical . nature and economics of our business in our mechanical business segment , customers hire us to ensure hvac systems deliver specified or generally expected heating , cooling , conditioning and circulation of air in a facility . this entails installing core system equipment such as packaged heating and air conditioning units , or in the case of larger facilities , separate core components such as chillers , boilers , air handlers , and cooling towers . we also typically install connecting and distribution elements such as piping and ducting . in our electrical business segment , our principal business activity is electrical construction and engineering in the commercial and industrial field . we also perform electrical logistics services , electrical service work , and electrical construction and engineering services . in both our mechanical and electrical business segments , our responsibilities usually require conforming the systems to pre-established engineering drawings and equipment and performance specifications , which we frequently 26 participate in establishing . our project management responsibilities include staging equipment and materials to project sites , deploying labor to perform the work , and coordinating with other service providers on the project , including any subcontractors we might use to deliver our portion of the work . approximately 85.1 % of our revenue is earned on a project basis for installation services in newly constructed facilities or for replacement of systems in existing facilities .
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we provide value to our customers by supplying proprietary data that , combined with our analytic methods , creates embedded decision support solutions . we are the largest aggregator and provider of data pertaining to u.s. property and casualty , or p & c , insurance risks . we offer solutions for detecting fraud in the u.s. p & c insurance , financial services and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to supply chain to health insurance . our customers use our solutions to make better risk decisions with greater efficiency and discipline . we refer to these products and services as “ solutions ” due to the integration among our products and the flexibility that enables our customers to purchase components or the comprehensive package of products . these solutions take various forms , including data , statistical models or tailored analytics , all designed to allow our clients to make more logical decisions . we believe our solutions for analyzing risk positively impact our customers ' revenues and help them better manage their costs . on may 23 , 2008 , in contemplation of our ipo , insurance service office , inc. , or iso , formed verisk analytics , inc. , or verisk , a delaware corporation , to be the holding company for our business . verisk was initially formed as a wholly-owned subsidiary of iso . on october 6 , 2009 in connection with our ipo , we effected a reorganization whereby iso became a wholly-owned subsidiary of verisk . on october 1 , 2010 , we completed a follow-on public offering . we did not receive any proceeds from the sale of common stock in the offering . the primary purpose of the offering was to manage and organize the sale by class b insurance company shareholders while providing incremental public float . concurrently with the closing of the offering , we repurchased shares of common stock , for an aggregate purchase price of $ 192.5 million , directly from selling shareholders owning class b common stock . we converted all class b shares to class a shares in 2011 and currently have no outstanding class b shares . we organize our business in two segments : risk assessment and decision analytics . our risk assessment segment provides statistical , actuarial and underwriting data for the u.s. p & c insurance industry . our risk assessment segment revenues represented approximately 37.2 % and 38.7 % of our revenues for the years ended december 31 , 2014 and 2013 , respectively . effective december 31 , 2012 , we combined the statistical agency and data services and actuarial services into industry-standard insurance programs within our risk assessment segment . our decision analytics segment provides solutions our customers use to analyze the processes of the verisk risk analysis framework : prediction of loss , detection and prevention of fraud , and 29 quantification of loss . our decision analytics segment revenues represented approximately 62.8 % and 61.3 % of our revenues for the years ended december 31 , 2014 and 2013 , respectively . in january 2014 , we entered into an agreement to acquire 100 % of the stock of eagleview technology corporation , or evt , the parent company of pictometry international corp. , and eagle view technologies , inc. for a net cash purchase price of $ 650 million , which would have been funded by the company 's operating cash and borrowings from our credit facility . evt is a provider of geo-referenced aerial image capture and visual-centric data analytics and solutions to insurers , contractors , government , and commercial customers in the united states . on december 16 , 2014 , we ended our efforts to acquire evt following the vote by the federal trade commission , or ftc , to challenge the transaction . on march 11 , 2014 , we sold our mortgage services business , interthinx , inc. , or interthinx . from 2009 to 2011 , the mortgage services business was in both risk assessment segment within the insurance services revenue category and decision analytics segment in the financial services revenue category . in 2012 , we reclassified the appraisal mortgage tools from risk assessment to our decision analytics segment in the financial services revenue category . therefore , in 2012 and 2013 , the mortgage services business is within decision analytics segment . results of operations for the mortgage services business are reported as a discontinued operation for the year ended december 31 , 2014 and for all prior periods presented . see note 10 of our consolidated financial statements included in this annual report on form 10-k. as necessary , the amounts have been retroactively adjusted in all periods presented to give recognition to the discontinued operations . executive summary key performance metrics we believe our business 's ability to generate recurring revenue and positive cash flow is the key indicator of the successful execution of our business strategy . we use year over year revenue growth and ebitda margin as metrics to measure our performance . ebitda and ebitda margin are non-gaap financial measures ( see note 3. within item 6. selected financial data section of management 's discussion and analysis of financial condition and results of operations ) . revenue growth . we use year over year revenue growth as a key performance metric . we assess revenue growth based on our ability to generate increased revenue through increased sales to existing customers , sales to new customers , sales of new or expanded solutions to existing and new customers and strategic acquisitions of new businesses . ebitda margin . we use ebitda margin as a metric to assess segment performance and scalability of our business . we assess ebitda margin based on our ability to increase revenues while controlling expense growth . revenues we earn revenues through subscriptions , long-term agreements and on a transactional basis . story_separator_special_tag the apparent increase in the frequency and severity of weather events that cause losses for insurers could lead to increased demand for our catastrophe modeling , catastrophe loss information , and repair cost solutions . a significant decrease in the number or severity of catastrophes could negatively affect our revenues . we also have a portion of our revenue related to the number of claims processed due to losses which can be impacted by seasonal storm activity . the need by our customers to fight insurance fraud — both in claims and at policy inception — could lead to increased demand for our underwriting and claims solutions . trends in the u.s. healthcare market can affect a portion of our revenues in the decision analytics segment . that market is undergoing significant change as the result of healthcare reform legislation . the specific trends we see affecting our current healthcare business include payment reform , expansion of insurance coverage , and efforts at cost containment . payment reform will likely drive the market to value-based reimbursement and require healthcare providers to bear increased financial risk and responsibility for quality outcomes . the expansion of insurance eligibility will increase medicaid rolls and promote participation in statewide health exchanges . and as the government seeks to control fraud , waste , and abuse , efforts to contain costs will likely become more prevalent . although such changes have the potential to disrupt the healthcare marketplace , we believe the requirements for reform could increase demand for our analytic solutions in the areas of population management , quality measurement provider/payer risk sharing and value-based payment management , medicare advantage revenue management and compliance , risk adjustment , and detection of prepayment fraud and abuse . we experience seasonality in our medicare advantage business tied to third and fourth quarters of our fiscal year , related to cms deadlines . 31 u.s. and global market trends can influence the revenue composition and growth trajectory of our financial services vertical . recent focus of global regulators on basel-iii compliance and us regulators on compliance to recently adopted 2009 dodd-frank laws on anti-money laundering , stress testing and capital adequacy have led to a significant shift of our data-hosting solution toward the meeting of those specific needs of our bank clients . we expect that a rising interest rate environment is likely to put a significant margin pressure on our bank clients , and can resultantly impact their marketing budgets for growth . however , a strengthening american economy is likely to spur increased lending and could likely offset some of that budgetary risk . trends associated with the strengthening u.s. dollar relative to several other international currencies ( u.k. , canadian , australian and new zealand ) is putting a downward pressure on our revenues from bank clients from overseas markets . lastly , a longer term shift of advertising spend from tv and radio toward digital media has resulted in a greater opportunity for our partnerships and media effectiveness line of businesses . description of acquisitions we acquired seven businesses since january 1 , 2012. as a result of these acquisitions , our consolidated results of operations may not be comparable between periods . on december 8 , 2014 , we acquired 100 % of the stock of maplecroft.net limited , or maplecroft . using a proprietary data aggregation and analytical approach , maplecroft enables its customers to assess , monitor , and forecast a growing range of worldwide risks , including geopolitical and societal risks . within our decision analytics segment , this acquisition positions us as a provider of value chain optimization tools , providing comprehensive quantitative risk analytics and platforms by which customers can visualize , quantify , mitigate , and manage their risk . maplecroft is headquartered in bath , england . see note 9. to our consolidated financial statements included in this annual report on form 10-k for the preliminary purchases price allocations . on october 31 , 2014 , we acquired the net assets of dart consulting limited , or dart . dart is a provider of benchmarking and advisory solutions to financial services institutions in australia , new zealand , and other key asia-pacific markets . as part of our decision analytics segment , dart provides benchmarking solutions and professional services critical to financial services institutions in the management of lending and payment portfolios . on january 29 , 2014 , we acquired the net assets of inovatus , llc , or inovatus . the assets primarily consisted of software and are embedded in our existing models focusing on reducing fraud and premium leakage for personal auto insurance carriers . the technology is included in our decision analytics segment as part of its solutions to leverage data and analytics to help insurance companies improve results . on december 20 , 2012 , we acquired the net assets of insurance risk management solutions , or irms . irms provided integrated property risk assessment technology underlying one of our gis ( geographic information system ) underwriting solutions . at the end of 2012 , this long-term contract ( since 1992 ) with irms was expiring and precipitated a change in our business relationship . instead of continuing forward with a new services agreement , we acquired the technology and service assets of irms as this will enable us to better manage , enhance and continue to use the solutions as part of our risk assessment segment . this acquisition had minimal revenue and operating expense impact for the year ending december 31 , 2012 , given the timing of the acquisition . see note 9. to our consolidated financial statements included in this annual report on form 10-k. on august 31 , 2012 , we acquired argus information & advisory services , llc , or argus , a provider of information , competitive benchmarking , scoring solutions , analytics , and customized services to financial institutions and regulators in north america , latin america , and europe .
| quarterly results of operations the following table sets forth our quarterly unaudited consolidated statement of operations data for each of the eight quarters in the period ended december 31 , 2014 . in management 's opinion , the quarterly data has been prepared on the same basis as the audited consolidated financial statements included in this annual report on form 10-k , and reflects all necessary adjustments for a fair presentation of this data . the results of historical periods are not necessarily indicative of the results of operations for a full year or any future period . replace_table_token_11_th 39 liquidity and capital resources as of december 31 , 2014 and 2013 , we had cash and cash equivalents and available-for-sale securities of $ 43.2 million and $ 169.7 million , respectively . subscriptions for our solutions are billed and generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period , which is usually for one year . subscriptions are automatically renewed at the beginning of each calendar year . we have historically generated significant cash flows from operations . as a result of this factor , as well as the availability of funds under our syndicated revolving credit facility , we believe we will have sufficient cash to meet our working capital and capital expenditure needs , and to fuel our future growth plans . we have historically managed the business with a working capital deficit due to the fact that , as described above , we offer our solutions and services primarily through annual subscriptions or long-term contracts , which are generally prepaid quarterly or annually in advance of the services being rendered . when cash is received for prepayment of invoices , we record an asset ( cash and cash equivalents ) on our balance sheet with the offset recorded as a current liability ( fees received in advance ) .
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our applications and pega 7 can be deployed in the cloud or on-premises . pega 7 and our related applications are used by our clients in the financial services , healthcare , insurance , communications and media , public sector , manufacturing , life sciences , and other markets . we sell our software directly , and also through a network of business and technology alliances . our partners include major systems integrators , management consulting firms , technology providers , and application developers . our clients include global 3000 companies and government agencies that seek to manage complex enterprise systems and customer service issues more nimbly and cost-effectively . our strategy is to sell a client a series of licenses , each focused on a specific purpose or area of operations . in 2015 , 2014 , and 2013 , sales to clients based outside of the united states of america ( u.s. ) represented approximately 45 % of our total revenue . see note 18 , geographic information and major clients , included in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k for further detail on our geographic revenues . our license revenue is primarily derived from sales of our applications in the areas of marketing , sales and onboarding , customer service , and operations , as well our pega 7 platform . our consulting services revenue is primarily related to new license implementations . our consulting services revenue may be lower in future periods as our clients become enabled and our partners lead more projects . we offer training for our staff , clients , and partners at our regional training facilities and at third-party facilities , including client sites . our online training through pegaacademy provides an alternative way to learn our software in a virtual environment . we believe that this online training will continue to expand the number of trained experts at a faster pace . we continue to invest heavily in research and development to improve our software . our research and development operations are primarily located in the u.s. , india , and poland . we also regularly evaluate acquisitions or investment opportunities in complementary businesses , services and technologies , and intellectual property rights in an effort to expand and enhance our product offerings . replace_table_token_6_th 24 in addition to the above key financial metrics , management also focuses on aggregate license and cloud backlog . we compute license and cloud backlog by adding billed deferred license and cloud revenue as recorded on the balance sheet and license and cloud commitments , which are not billed and not recorded on our balance sheet . license and cloud backlog may vary in any given period depending on the amount and timing of when arrangements are executed , as well as the mix between perpetual , term and cloud license arrangements . replace_table_token_7_th to grow our business , we intend to : lead the platform market for strategic business applications with a focus on mobile , analytics , and cloud ; continue to grow market share with our leading , differentiated front-office applications : marketing , sales and onboarding , and customer service ; execute new-market growth initiatives , further expanding coverage within the global 3000 ; and build out our digital platform and continue to invest in awareness marketing to support the way today 's clients want to buy . whether or not we are successful depends , in part , on our ability to : successfully execute our marketing and sales strategies ; appropriately manage our expenses as we grow our organization ; develop new products or product enhancements ; and successfully incorporate acquired technologies into our applications and unified pega 7 platform . story_separator_special_tag style= '' margin-top:0pt ; margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > 27 gross profit replace_table_token_12_th 2015 compared to 2014 the increase in total gross profit was primarily due to increases in software license and maintenance revenue . the increase in services gross profit percent was primarily due to increased global professional services utilization rates in 2015 compared to 2014 , partially offset by increased software license costs . 2014 compared to 2013 the increase in total gross profit was primarily due to increases in software license and maintenance revenue . the decrease in services gross profit percent was primarily due to increased subcontractor and employee-related costs associated with higher headcount , primarily related to antenna . it was also due to two large implementation projects for which more revenue without any associated expenses was recognized in 2013 than in 2014. the associated expenses were incurred in prior periods . in addition , european professional services utilization rates declined 8 % in 2014 compared to 2013 , primarily due to the weakening overall economic conditions in europe and the completion of a large project . operating expenses amortization of intangibles : replace_table_token_13_th 2015 compared to 2014 the decreases were due to the full amortization in 2014 of acquired technology and other intangibles from our 2010 acquisition of chordiant and our 2013 acquisition of antenna . 28 2014 compared to 2013 the increases were due to the amortization associated with $ 10.4 million of intangibles acquired from antenna in october 2013. selling and marketing replace_table_token_14_th selling and marketing expenses include compensation , benefits , and other headcount-related expenses associated with our selling and marketing personnel as well as advertising , promotions , trade shows , seminars , and other programs . selling and marketing expenses also include the amortization of customer related intangibles . the increases in headcount reflect our efforts to increase our sales capacity to target new accounts in existing industries as well as to expand coverage in new industries and geographies , and to increase the number of our sales opportunities . story_separator_special_tag see note 15 stock-based compensation in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k for further information on our stock-based awards . non-operating income and ( expenses ) , net replace_table_token_18_th we have historically used forward contracts to manage our exposure to changes in foreign currency exchange rates associated with cash , accounts receivable , and intercompany receivables and payables held by pegasystems inc. , our u.s. operating company , in currencies other than the u.s. dollar . 31 effective april 1 , 2015 , our clients based outside the americas began transacting with pegasystems limited , a u.k. subsidiary , which has the british pound as its functional currency . this reorganization resulted in increased cash , accounts receivable , and intercompany receivables and payables held by pegasystems limited in currencies other than the british pound . we did not enter into any forward contracts between march 2014 and june 2015. in the third quarter of 2015 , as a result of this operational reorganization , we implemented our revised hedging program , under which we hedge our non-functional currency exposures for pegasystems inc. and pegasystems limited , utilizing forward contracts with terms not greater than six months . these forward contracts are not designated as hedging instruments . as a result , we record the fair value of the outstanding contracts at the end of the reporting period in our consolidated balance sheet , with any fluctuations in the value of these contracts recognized in other expense , net . the total change in the fair value of our foreign currency forward contracts recorded in other expense , net , during 2015 , 2014 , and 2013 was a loss of $ 1 million , $ 0.5 million , and $ 0.7 million , respectively . see note 4 derivative instruments in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k for discussion on our use of forward contracts . provision for income taxes 2015 compared to 2014 the provision for income taxes represents current and future amounts owed for federal , state , and foreign taxes . during 2015 and 2014 , we recorded a $ 24.2 million and a $ 14.7 million provision , respectively , which resulted in an effective tax rate of 40.0 % and 30.7 % , respectively . our effective income tax rate for 2015 increased above the statutory u.s. federal income tax rate primarily due to $ 2.6 million of permanent differences related to nondeductible meals and entertainment expenses and foreign stock compensation and a $ 0.5 million unfavorable impact related to losses generated in foreign jurisdictions that are subject to tax at a rate lower than the u.s. statutory tax rate . our effective income tax rate for 2014 was below the statutory u.s. federal income tax rate primarily due to a $ 2.4 million benefit related to the current period domestic production activities deduction , a $ 1.8 million benefit related to income generated in foreign jurisdictions that is subject to tax at a rate lower than the u.s. statutory tax rate , and a $ 0.8 million benefit related to the 2014 federal research and experimentation ( r & e ) credit . these benefits were partially offset by $ 1.8 million of permanent differences related to nondeductible meals and entertainment expenses and foreign stock compensation . as of december 31 , 2015 , we had approximately $ 24 million of total unrecognized tax benefits , which will decrease our effective tax rate if recognized . we expect that the changes in the unrecognized benefits within the next twelve months will be approximately $ 0.5 million , all of which relate to the expiration of applicable statute of limitations and will reduce our effective tax rate if recognized . 2014 compared to 2013 during 2014 and 2013 , we recorded a $ 14.7 million and an $ 18.4 million provision , respectively , which resulted in an effective tax rate of 30.7 % and 32.5 % , respectively . our effective income tax rate for 2013 was below the statutory federal income tax rate due to a $ 2.1 million benefit related to the current period domestic production activities deduction , a $ 1.2 million benefit related to 32 income generated in foreign jurisdictions that is subject to tax at a rate lower than the u.s. statutory tax rate , and a $ 1.6 million benefit related to the 2012 and 2013 r & e credit . these benefits were partially offset by $ 1.4 million of permanent differences related to nondeductible meals and entertainment expenses , foreign stock compensation , and transaction costs . as of december 31 , 2014 , we had approximately $ 43.4 million of total unrecognized tax benefits , of which $ 23.4 million would decrease our effective tax rate if recognized . the remaining $ 20 million of unrecognized tax benefits related to acquired net operating losses ( nols ) and r & e credits that are subject to limitations on their use . liquidity and capital resources replace_table_token_19_th replace_table_token_20_th the decrease in cash and cash equivalents during the year ended december 31 , 2015 was driven by the increase in trade accounts receivable , largely due to the timing of large license and annual maintenance billings , and the increase in cash used in investing and financing activities , primarily for purchases of marketable debt securities and share repurchases , respectively . the increases in cash and cash equivalents during the years ended december 31 , 2014 and 2013 were driven by the increases in cash provided by operating activities during each year . cash provided by operating activities is our primary source of liquidity . we use this source to fund our capital expenditures and acquisitions , investments , dividend payments , and share repurchase program .
| results of operations replace_table_token_8_th revenue software license revenue replace_table_token_9_th 25 the mix between perpetual and term license arrangements executed in a particular period varies based on client needs . a change in the mix between perpetual and term license arrangements executed may cause our revenues to vary materially from period to period . a higher proportion of term license arrangements executed would result in more license revenue being recognized over longer periods as payments become due or earlier if prepaid . additionally , some of our perpetual license arrangements include extended payment terms or additional rights of use , which also result in the recognition of revenue over longer periods . the aggregate value of new license agreements executed also fluctuates quarter to quarter . subscription revenue primarily consists of the ratable recognition of license , maintenance , and bundled services revenue on license arrangements that include a right to successor products or unspecified future products . subscription revenue does not include revenue from our pega cloud arrangements , which is included in services revenue . the timing of client scheduled payments under subscription arrangements may limit the amount of revenue recognized in a reporting period . consequently , our subscription revenue may vary materially quarter to quarter . 2015 compared to 2014 the aggregate value of new license arrangements executed during 2015 significantly increased compared to 2014 , primarily due to a higher number and higher average value of arrangements executed in 2015. the higher average value was primarily due to three arrangements , each greater than $ 10 million , executed in 2015 compared to only one executed in 2014. during 2015 and 2014 , approximately 74 % and 82 % , respectively , of the value of new license arrangements were executed with existing clients .
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except where otherwise indicated , all financial information reflected herein is determined on the basis of accounting principles generally accepted in the united states ( gaap ) . in accordance with industry practice , in this report , the term ton or the symbol st refers to a short ton , an imperial unit of measurement equal to 0.9072 metric tons . the term metric ton or the symbol admt refers to an air dry metric ton . in this report , unless otherwise indicated , all dollar amounts are expressed in u.s. dollars , and the term dollars and the symbol $ refer to u.s. dollars . in the following discussion , unless otherwise noted , references to increases or decreases in income and expense items , prices , contribution to net earnings ( loss ) , and shipment volume are based on the twelve month periods ended december 31 , 2012 , 2011 and 2010. the twelve month periods are also referred to as 2012 , 2011 and 2010. story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001381531/000119312513081895/ # toc '' > we continue to evaluate potential adjustments to our production capacity , which may include additional closures of machines or entire mills , and we could recognize significant cash and or non-cash charges relating to any such closures in future periods . information relating to all our closure and restructuring activities are contained under the caption closure and restructuring of the segment analyses , of this md & a , where applicable . sale of hydro assets in ottawa , ontario and gatineau , quebec on november 20 , 2012 , we sold our hydro assets in ottawa , ontario and gatineau , quebec . the transaction was for an aggregate value of approximately $ 46 million ( cdn $ 46 million ) and included three power stations ( 21 megawatts of installed capacity ) , water rights in the area , as well as domtar inc. 's equity stake in the chaudière water power inc. , a ring dam consortium . we had approximately 12 workers operating the hydro assets in ottawa/ gatineau which became employees of the buyer upon the closing of the transaction . as a result of this transaction , we incurred a loss relating to the curtailment of the pension plan of $ 2 million and legal fees of $ 1 million , both of which are recorded in other operating loss ( income ) on the consolidated statements of earnings and comprehensive income . senior notes offering on august 20 , 2012 , we issued $ 250 million aggregate principal amount of senior 6.25 % notes due 2042 for net proceeds of $ 247 million . the net proceeds from the offering of the notes were placed in short-term investment vehicles pending being used for general corporate purposes . on march 7 , 2012 , we issued $ 300 million aggregate principal amount of senior 4.4 % notes , due 2022 for net proceeds of $ 297 million . the net proceeds from the offering were used in part to fund the purchase price of the 5.375 % notes due 2013 , 7.125 % notes due 2015 , 9.5 % notes due 2016 , and 10.75 % notes due 2017 tendered and accepted for purchase pursuant to the tender offer described below , including the payment of accrued interest and applicable early tender premiums not funded with cash on hand , as well as for general corporate purposes . tender offer for certain outstanding notes on february 22 , 2012 , we announced the commencement of a cash tender offer for our outstanding 5.375 % notes due 2013 , 7.125 % notes due 2015 , 9.5 % notes due 2016 , and 10.75 % notes due 2017 , such that the maximum aggregate consideration for notes purchased in the tender offer , excluding accrued and unpaid interest , would not exceed $ 250 million . the tender offer expired on march 21 , 2012 and we repurchased $ 186 million of notes for an aggregate consideration of $ 233 million , excluding accrued and unpaid interest . we incurred $ 47 million of tender premiums and $ 3 million of additional charges as a result of this extinguishment . dividend and stock repurchase program in 2012 , we repurchased 2,000,925 shares of our common stock at an average price of $ 78.32 for a total cost of $ 157 million and paid quarterly cash dividends in an aggregate amount of $ 58 million . recent developments on february 25 , 2013 , we announced that we will redeem approximately $ 71 million in aggregate principal amount of our 5.375 % notes due 2013 , representing the majority of the notes outstanding . the notes will be redeemed at a redemption price of 100 percent of the principal amount , plus accrued and unpaid interest , as well as a make-whole premium . 37 our business we operate the following business activities : pulp and paper , distribution and personal care . a description of our business is included in part i , item 1 , under the section business of this annual report on form 10-k. consolidated results of operations and segments review the following table includes the consolidated financial results of domtar corporation for the years ended december 31 , 2012 , 2011 and 2010 : replace_table_token_7_th 1 refer to part ii , item 8 , financial statements and supplementary data of this annual report on form 10-k , under note 6 earnings per share. 2 our wood segment was sold in the second quarter of 2010. a description of the sale transaction is included under the wood segment analysis . story_separator_special_tag in 2012 , we recorded $ 7 million of impairment on property , plant and equipment due to the permanent shut down of the pulp machine at our kamloops mill , $ 5 million of impairment charges related to customer relationships in our distribution segment and $ 2 million write-down of property , plant and equipment at our mira loma plant , compared to the $ 73 million accelerated depreciation charge related to the closure of a paper machine at our ashdown mill ( in the third quarter of 2011 ) and the $ 12 million impairment charge on assets at our lebel-sur-quévillion , quebec pulp mill and sawmill ( lebel-sur-quévillion mill ) in 2011. in addition , we had lower closure and restructuring charges of $ 22 million when compare to 2011 , primarily due to the closure of a paper machine at our ashdown mill in 2011 as well as the withdrawal from two of our u.s. multiemployer plans where we incurred a withdrawal of $ 15 million in 2012 compared to $ 32 million in 2011. additional information about impairment and write-down charges is included under the section impairment of property , plant & equipment , under the caption critical accounting policies of this md & a . interest expense we incurred $ 131 million of net interest expense in 2012 , an increase of $ 44 million compared to net interest expense of $ 87 million in 2011. this increase in interest expense is primarily due to the partial repurchase of our 10.75 % notes , 9.5 % notes , 7.125 % notes and 5.375 % notes , on which we incurred $ 47 million of tender premiums and $ 3 million of additional charges as a result of this extinguishment . in addition , there was an increase in interest expense of $ 16 million on the issuance of $ 300 million aggregate principal amount of senior 4.4 % notes due 2022 and $ 250 million aggregate principal amount of senior 6.25 % notes due 2042. these increases were offset by the decrease in interest expense of $ 15 million on the remaining 10.75 % notes , 9.5 % notes , 7.125 % notes and 5.375 % notes . we expect to have approximately $ 90 million of interest expense in 2013. income taxes for 2012 , our income tax expense amounted to $ 58 million compared to a tax expense of $ 133 million in 2011 , which approximated an effective tax rate of 25 % and 26 % for 2012 and 2011 , respectively . a number of items impacted the 2012 effective tax rate . we recognized a tax benefit of $ 10 million for the u.s. manufacturing deduction and recorded an $ 8 million tax benefit related to federal , state , and provincial credits and special deductions . the effective tax rate for 2012 was also impacted by an increase in our unrecognized tax benefits of $ 6 million , mainly accrued interest , and a $ 3 million benefit related to enacted tax law changes , mainly a tax rate reduction in sweden , which is partially offset by u.s. tax law changes in several states . a number of items impacted the 2011 effective tax rate . in 2011 , we had a significantly larger manufacturing deduction in the u.s. than in prior years since we utilized the remaining federal net operating loss 40 carryforward in 2010. this deduction resulted in a tax benefit of $ 12 million and we also recorded a $ 16 million tax benefit related to federal , state , and provincial credits and special deductions . additionally , we recognized a state tax benefit of $ 3 million due to the u.s. restructuring that impacted the 2011 effective tax rate by reducing state income tax expense . cellulosic biofuel credit in july 2010 , the u.s. internal revenue service ( irs ) office of chief counsel released an advice memorandum concluding that qualifying cellulosic biofuel sold or used before january 1 , 2010 , is eligible for the cellulosic biofuel producer credit ( cbpc ) and would not be required to be registered by the environmental protection agency . each gallon of qualifying cellulose biofuel produced by any taxpayer operating a pulp and paper mill and used as a fuel in the taxpayer 's trade or business during calendar year 2009 would qualify for the $ 1.01 non-refundable cbpc . a taxpayer could be able to claim the credit on its federal income tax return for the 2009 tax year upon the receipt of a letter of registration from the irs and any unused cbpc could be carried forward until 2016 to offset a portion of federal taxes otherwise payable . we had approximately 207 million gallons of cellulose biofuel that qualified for this cbpc for which we had not previously claimed under the alternative fuel tax credit ( aftc ) that represented approximately $ 209 million of cbpc or approximately $ 127 million of after tax benefit to the company . in july 2010 , we submitted an application with the irs to be registered for the cbpc and on september 28 , 2010 , we received our notification from the irs that we were successfully registered . on october 15 , 2010 , the irs office of chief counsel issued an advice memorandum concluding that the aftc and cbpc could be claimed in the same year for different volumes of biofuel . in november 2010 , we filed an amended 2009 tax return with the irs claiming a cellulosic biofuel producer credit of $ 209 million and recorded a net tax benefit of $ 127 million in income tax expense ( benefit ) on the consolidated statement of earnings and comprehensive income for the year ended december 31 , 2010. as of december 31 , 2012 , we have utilized all of the remaining credit . valuation allowances in 2012 , we recorded a valuation allowance of $ 10 million related to certain foreign loss carryforwards .
| executive summary in 2012 , we reported operating income of $ 367 million , a decrease of $ 225 million compared to $ 592 million in 2011. this decrease in operating income is mainly due to a decrease in our pulp and paper segment , which experienced lower selling prices for pulp ( $ 184 million reflecting a selling price decrease of approximately 16 % when compared to 2011 ) , lower paper shipments ( $ 39 million reflecting a decrease in demand for our paper by approximately 6 % when compared to 2011 ) as well as the negative impact of lower production volume ( $ 60 million ) . our strategy of maintaining our production levels in line with our customer demand has resulted in taking lack-of-order downtime and slowdowns of 85,000 tons of paper in 2012 , compared to 47,000 tons in 2011. we also had lower deliveries in our distribution segment and higher costs for chemicals and fiber in 2012 when compared to 2011. these cost increases were partially offset by lower impairment and write-down of property , plant and equipment and intangible assets costs of $ 71 million , lower closure and restructuring costs of $ 22 million , lower energy costs of $ 18 million and higher pulp shipments of $ 13 million in 2012. in addition , we had an increase in operating income in our personal care segment of $ 38 million when compared to 2011. this increase in operating income in our personal care segment is mostly related to the inclusion of a full year of results for attends healthcare inc. ( attends us ) as well as the acquisition of attends healthcare limited ( attends europe ) in the first quarter of 2012 and the acquisition of eam corporation ( eam ) in the second quarter of 2012. these and other factors that affected the year-over-year comparison of financial results are discussed in the year-over-year and segment analysis .
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story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) primarily reviews the financial condition and results of operations of the company for the past two years , although in some circumstances a period longer than two years is covered in order to comply with sec disclosure requirements or to more fully explain long-term trends . the following discussion and analysis should be read in conjunction with the selected consolidated financial information on page 21 and the company 's consolidated financial statements and related notes that appear on pages 51 through 92. all references in the discussion to the financial condition and results of operations are to the consolidated position and results of the company and its subsidiaries taken as a whole . unless otherwise noted , all earnings per share ( “ eps ” ) figures disclosed in the md & a refer to diluted eps ; interest income , net interest income and net interest margin are presented on a fully tax-equivalent ( “ fte ” ) basis . the term “ this year ” and equivalent terms refer to results in calendar year 2013 , “ last year ” and equivalent terms refer to calendar year 2012 , and all references to income statement results correspond to full-year activity unless otherwise noted . this md & a contains certain forward-looking statements with respect to the financial condition , results of operations and business of the company . these forward-looking statements involve certain risks and uncertainties . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements are set herein under the caption “ forward-looking statements ” on page 48. critical accounting policies as a result of the complex and dynamic nature of the company 's business , management must exercise judgment in selecting and applying the most appropriate accounting policies for its various areas of operations . the policy decision process not only ensures compliance with the latest generally accepted accounting principles ( “ gaap ” ) , but also reflects management 's discretion with regard to choosing the most suitable methodology for reporting the company 's financial performance . it is management 's opinion that the accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance , or the level of subjectivity in the selection process . these estimates affect the reported amounts of assets and liabilities and disclosures of revenues and expenses during the reporting period . actual results could differ from these estimates . management believes that the critical accounting estimates include : · acquired loans – acquired loans are initially recorded at their acquisition date fair values based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk , prepayment risk , liquidity risk , default rates , loss severity , payment speeds , collateral values and discount rate . acquired loans deemed impaired at acquisition are recorded in accordance with asc 310-30 , the excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount . the difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount , which represents estimated future credit losses and other contractually required payments that the company does not expect to collect . subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for loan losses . subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the non-accretable discount , which the company then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loans using the interest method . for acquired loans that are not deemed impaired at acquisition , the difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan and includes both credit and interest rate considerations . subsequent to the purchase date , the methods used to estimate the allowance for loan losses for the acquired non-impaired loans is consistent with the policy described below . however , the company compares the net realizable value of the loans to the carrying value , for loans collectively evaluated for impairment . the carrying value represents the net of the loan 's unpaid principal balance and the remaining purchase discount ( or premium ) that has yet to be accreted into interest income . when the carrying value exceeds the net realizable value , an allowance for loan losses is recognized . for loans individually evaluated for impairment , a provision is recorded when the required allowance exceeds any remaining discount on the loan . · allowance for loan losses – the allowance for loan losses reflects management 's best estimate of probable loan losses in the company 's loan portfolio . determination of the allowance for loan losses is inherently subjective . it requires significant estimates including the amounts and timing of expected future cash flows on impaired loans , appraisal values of underlying collateral for collateral dependent loans , and the amount of estimated losses on pools of homogeneous loans which is based on historical loss experience and consideration of current economic trends , all of which may be susceptible to significant change . 22 · investment securities – investment securities are classified as held-to-maturity , available-for-sale , or trading . the appropriate classification is based partially on the company 's ability to hold the securities to maturity and largely on management 's intentions with respect to either holding or selling the securities . the classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities . story_separator_special_tag earnings per share for 2013 were $ 1.94 , up $ 0.01 from 2012 's earnings per share of $ 1.93. the 2013 results included $ 6.6 million or $ 0.12 per share net loss on the sale of certain investment securities and debt extinguishments resulting from the sale of the company 's portfolio of cdo securities in response to the uncertainties created by the december 2013 announcement of the final rules implementing the volker rule as well as $ 2.2 million or $ 0.04 per share of acquisition expenses related to the b of a branch acquisition in december 2013. the 2012 results included $ 5.7 million , or $ 0.10 per share , of acquisition expenses related principally to the hsbc and first niagara branch acquisitions , which were completed in the third quarter of 2012 , as well as a $ 2.5 million or $ 0.05 per share litigation settlement charge . net income for 2012 was $ 77.1 million , up $ 3.9 million or 5.4 % from 2011 's earnings of $ 73.1 million . earnings per share for 2012 were $ 1.93 , down 4.0 % from 2011 's earnings per share of $ 2.01. the 2012 results included $ 5.7 million , or $ 0.10 per share of acquisition expenses principally related to the company 's acquisition of the hsbc and first niagara branch acquisitions , as well as a $ 2.5 million or $ 0.05 per share litigation settlement charge . the 2011 results included $ 4.8 million or $ 0.09 per share of acquisition expenses , associated with the wilber acquisition completed in april 2011. fully diluted shares outstanding increased 9.5 % in 2012 over 2011 , due principally to the full-year impact of the shares issued in the wilber acquisition in early 2011 and the additional shares issued in early 2012 in support of the hsbc and first niagara branch acquisitions . table 1 : condensed income statements replace_table_token_3_th the company operates in three business segments : banking , employee benefit services and wealth management services . employee benefit services , which includes bpas , harbridge and hb & t provides employee benefit trust , collective investment fund , retirement plan administration , actuarial , veba/hra and health and welfare consulting services . employee benefit services provides services to 3,600 plan sponsors and 350,000 participants , holds $ 16 billion in assets under custody or administration , employs 235 professionals and operates out of nine offices located throughout the u.s. and puerto rico . wealth management services activities include trust services provided by the personal trust unit within cbna , investment and insurance products and services provided by cisi and cbna insurance and asset advisory services provided by nottingham . the banking segment provides a wide array of lending and depository-related products and services to individuals , businesses , and municipal enterprises . in addition to general liquidity and intermediation services , the banking segment provides treasury management solutions , capital financing products , and payment processing services . for additional financial information on the company 's segments , refer to note t : segment information in the notes to consolidated financial statements . 25 the primary factors explaining 2013 earnings performance are discussed in the remaining sections of this document and are summarized as follows : banking · as shown in table 1 above , net interest income increased $ 7.7 million , or 3.3 % , due to a $ 94.9 million increase in average earning assets and a three-basis point increase in the net interest margin . average loans grew $ 326.5 million due to strong organic growth in the consumer mortgage , consumer indirect , direct and business lending portfolios , as well as loans acquired in the hsbc and first niagara branch transactions . partially offsetting the strong loan growth was a decrease in the average book value of investments , including cash equivalents of $ 231.6 million or 8.4 % due to the balance sheet restructuring in the first half of 2013 and the sale of the cdo portfolio in december in response to the final rules implementing the volcker rule . average interest-bearing deposits increased $ 322.9 million or 7.6 % due to the hsbc , first niagara , and b of a branch acquisitions and organic core deposit growth . average borrowings decreased $ 380.4 million or 40 % as compared to the prior year , primarily due to the balance sheet restructuring in the first half of 2013 . · the loan loss provision of $ 8.0 million decreased $ 1.1 million or 12 % , from the prior year level . net charge-offs of $ 6.6 million decreased by $ 1.9 million or 22 % from 2012 , lowering the net charge-off ratio ( net charge-offs / total average loans ) six basis points to 0.17 % for the year . nonperforming loans as a percentage of total loans and nonperforming assets as a percentage of loans and other real estate owned , decreased 21 and 22 basis points , respectively , as of december 31 , 2013 as compared to december 31 , 2012 and remain well below averages for the company 's peers . additional information on trends and policy related to asset quality is provided in the asset quality section on pages 39 through 43 . · excluding gain on sale of investment securities and loss on debt extinguishments , banking noninterest income for 2013 of $ 54.6 million increased by $ 4.5 million , or 8.9 % , from 2012 's level due to both organic and acquired growth . fees from banking services were $ 3.2 million or 7.3 % , higher primarily due to higher debit card related revenue and the banking acquisitions completed over the last two years . additionally , mortgage banking revenue increased $ 0.8 million in 2013 and included the recovery of $ 0.4 million of previously recorded valuation allowances related to mortgage servicing rights .
| executive summary the company 's business philosophy is to operate as a community bank with local decision-making , principally in non-metropolitan markets , providing a broad array of banking and financial services to retail , commercial and municipal customers . the company 's core operating objectives are : ( i ) grow the branch network , primarily through a disciplined acquisition strategy , and certain selective de novo expansions , ( ii ) build profitable loan and deposit volume using both organic and acquisition strategies , ( iii ) increase the non-interest income component of total revenue through development of banking-related fee income , growth in existing financial services business units , and the acquisition of additional financial services and banking businesses , and ( iv ) utilize technology to deliver customer-responsive products and services and to improve efficiencies . 23 significant factors management reviews to evaluate achievement of the company 's operating objectives and its operating results and financial condition include , but are not limited to : net income and earnings per share , return on assets and equity , net interest margins , noninterest income , operating expenses , asset quality , loan and deposit growth , capital management , performance of individual banking and financial services units , performance of specific product lines , liquidity and interest rate sensitivity , enhancements to customer products and services , technology advancements , market share changes , peer comparisons , and the performance of acquisition and integration activities . on april 8 , 2011 , the company acquired the wilber corporation , the parent company of wilber national bank ( “ wilber ” ) , for $ 103 million in stock and cash , comprised of $ 20.4 million in cash and the issuance of 3.35 million additional shares of the company 's common stock . based in oneonta , new york , wilber operated 22 branches in the central , greater capital district and catskills regions of upstate new york .
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the following discussion should be read in conjunction with the consolidated financial statements and notes thereto which appear elsewhere in this annual report . the company engages in a broad range of activities in the securities industry , including retail securities brokerage , institutional sales and trading , investment banking ( both corporate and public finance ) , research , market-making , trust services and investment advisory and asset management services . its principal subsidiaries are oppenheimer & co. inc. ( `` oppenheimer '' ) and oppenheimer asset management inc. ( `` oam '' ) . as of december 31 , 2017 , the company provided its services from 92 offices in 24 states located throughout the united states , offices in tel aviv , israel , hong kong , china , london , england , st. helier , isle of jersey and geneva , switzerland . client assets administered by the company as of december 31 , 2017 total $ 86.9 billion . the company provides investment advisory services through oam and oppenheimer investment management llc ( `` oim '' ) and oppenheimer 's fahnestock asset management , alpha and omega group divisions . at december 31 , 2017 , client assets under management totaled $ 28.3 billion . the company provides trust services and products through oppenheimer trust company of delaware . the company provides discount brokerage services through freedom investments , inc. ( `` freedom '' ) . through opy credit corp. , the company offers syndication as well as trading of issued syndicated corporate loans . at december 31 , 2017 , the company employed 2,992 employees ( 2,932 full-time and 60 part-time ) , of whom 1,107 were financial advisers . critical accounting policies the company 's accounting policies are essential to understanding and interpreting the financial results reported on the consolidated financial statements . the significant accounting policies used in the preparation of the company 's consolidated financial statements are summarized in note 2 to those statements . certain of those policies are considered to be particularly important to the presentation of the company 's financial results because they require management to make difficult , complex or subjective judgments , often as a result of matters that are inherently uncertain . the following is a discussion of these policies : fair value measurements the accounting guidance for the fair value measurement of financial assets , which defines fair value , establishes a framework for measuring fair value , establishes a fair value measurement hierarchy , and expands fair value measurement disclosures . fair value , as defined by the accounting guidance , is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the fair value hierarchy established by this accounting guidance prioritizes the inputs used in valuation techniques into the following three categories ( highest to lowest priority ) : level 1 : observable inputs that reflect quoted prices ( unadjusted ) for identical assets or liabilities in active markets ; level 2 : inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly ; and level 3 : unobservable inputs that are significant to the overall fair value measurement . the company 's financial instruments that are recorded at fair value generally are classified within level 1 or level 2 within the fair value hierarchy using quoted market prices or quotes from market makers or broker-dealers . financial instruments classified within level 1 are valued based on quoted market prices in active markets and consist of u.s. treasury and agency securities , corporate equities , and certain money market instruments . level 2 financial instruments primarily consist of investment grade and high-yield corporate debt , convertible bonds , mortgage and asset-backed securities , and municipal obligations . financial instruments classified as level 2 are valued based on quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets that are not active . some financial instruments are classified within level 3 within the fair value hierarchy as observable pricing inputs are not available due to limited market activity for the asset or liability . such financial instruments include investments in hedge funds and private equity funds where the company , through its subsidiaries , is general partner , certain distressed municipal securities , and auction rate securities . 44 legal and regulatory reserves the company records reserves related to legal and regulatory proceedings in accounts payable and other liabilities . the determination of the amounts of these reserves requires significant judgment on the part of management . in accordance with applicable accounting guidance , the company establishes reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the company can reasonably estimate the amount of that loss . when loss contingencies are not probable and can not be reasonably estimated , the company does not establish reserves . when determining whether to record a reserve , management considers many factors including , but not limited to , the amount of the claim ; the stage and forum of the proceeding , the sophistication of the claimant , the amount of the loss , if any , in the client 's account and the possibility of wrongdoing , if any , on the part of an employee of the company ; the basis and validity of the claim ; previous results in similar cases ; and applicable legal precedents and case law . each legal and regulatory proceeding is reviewed with counsel in each accounting period and the reserve is adjusted as deemed appropriate by management . any change in the reserve amount is recorded in the results of that period . story_separator_special_tag the company permanently reinvests eligible earnings of its foreign subsidiaries and , accordingly , does not accrue any u.s. income taxes that would arise if such earnings were repatriated . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the `` tcja '' ) . the tcja makes broad and complex changes to the u.s. tax code . on the same date , the sec staff issued staff accounting bulletin ( `` sab '' ) 118 which provides guidance on accounting for the tax effects of the tcja . sab 118 provides a measurement period that should not extend beyond one year from the tcja enactment date for companies to complete the accounting under asc 740. in accordance with sab 118 , a company must reflect the income tax effects of those aspects of the tcja for which the accounting under asc 740 is complete . to the extent that a company 's accounting for certain income tax effects of the tcja is incomplete but the company is able to determine a reasonable estimate , it must record a provisional estimate in the financial statements . if a company can not determine a provisional estimate to be included in the financial statements , it should continue to apply asc 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the tcja . the company has not completed its accounting for the income tax effects of certain elements of the tcja . however , the company was able to make reasonable estimates of the effects of certain elements and recorded a provisional estimate in the consolidated financial statements . the estimated enactment net discrete after-tax benefit incorporates assumptions made based upon the company 's current interpretations of the tcja , and may change as it receives additional clarification and implementation guidance and as the interpretation of the tcja evolves over time . see note 13 , income taxes . new accounting pronouncements recently issued accounting pronouncements are described in note 2 to the consolidated financial statements appearing in item 8 . 46 business environment the securities industry is directly affected by general economic and market conditions , including fluctuations in volume and price levels of securities and changes in interest rates , inflation , political events , investor confidence , investor participation levels , legal and regulatory , accounting , tax and compliance requirements and competition , all of which have an impact on commissions , firm trading , fees from accounts under investment management as well as fees for investment banking services , and investment and interest income as well as on liquidity . substantial fluctuations can occur in revenue and net income due to these and other factors . the company is focused on growing its private client and asset management businesses through strategic additions of experienced financial advisers in its existing branch system and employment of experienced money management personnel in its asset management business . in addition , the company is committed to the improvement of its technology capability to support client service and the expansion of its capital markets capabilities while addressing the issue of managing its expenses . corporate tax reform on december 22 , 2017 , the tcja was enacted . the tcja will significantly impact the manner in which we determine our federal income tax and may have unforeseen consequences . the tcja is the first major overhaul of u.s. corporate taxation in almost 20 years with both positive and negative impacts on our business . the positive impacts include reducing the federal corporate income tax rate from 35 % to 21 % and accelerating the recovery period of the company 's fixed assets . these positive impacts are offset by new tax provisions intended to expand the federal tax base by disallowing certain expenses that were previously deductible ( i.e . 50 % of entertainment expenses , deductions for certain senior management compensation , etc. ) . it is difficult to determine the overall impact on our business , but it appears that the company will have a net savings in its federal income tax liability . changes in taxation on non-u.s earned income may impact our operation of those businesses and our employment practices may need to change in view of the new law . regulatory and legal environment the brokerage business is subject to regulation by , among others , the sec , cftc , nfa , msrb and finra in the united states , the fca in the united kingdom , the jfsc in the isle of jersey , the sfc in hong kong , and various state securities regulators in the united states . in addition , oppenheimer israel ( opco ) ltd. operates under the supervision of the israeli securities authority . past events surrounding corporate accounting and other activities leading to investor losses resulted in the enactment of the sarbanes-oxley act of 2002 and caused increased regulation of public companies . the financial crisis of 2008-9 accelerated this trend . new regulations and new interpretations and enforcement of existing regulations have created increased costs of compliance and increased investment in systems and procedures to comply with these more complex and onerous requirements . the sec and finra have increased their enforcement activities with the intent to bring more actions against firms and individuals with increased fines and sanctions for violations of existing rules as well as for conduct that stems from violations of new interpretations of existing rules . various states are imposing their own regulations that make compliance more difficult and more expensive to monitor .
| results of operations the company reported net income attributable to oppenheimer holdings inc. of $ 22.8 million or $ 1.72 basic net income per share for the year ended december 31 , 2017 compared with a net loss of $ 1.2 million or $ 0.09 basic net loss per share for the year ended december 31 , 2016 . income before income taxes from continuing operations for the year ended december 31 , 2017 was $ 19.7 million compared with a loss before income taxes from continuing operations of $ 21.9 million for the year ended december 31 , 2016 . net income from discontinued operations was $ 1.1 million for the year ended december 31 , 2017 compared with net income from discontinued operations of $ 10.1 million for the year ended december 31 , 2016 . revenue from continuing operations for the year ended december 31 , 2017 was $ 920.3 million , an increase of 7.3 % compared with revenue from continuing operations of $ 857.8 million for the year ended december 31 , 2016 . revenue from discontinued operations for the year ended december 31 , 2017 was $ 2.2 million compared with revenue from discontinued operations of $ 25.3 million for the year ended december 31 , 2016 . the following table sets forth the amount and percentage of the company 's revenue from each principal source for each of the following years ended december 31 : replace_table_token_5_th the company derives most of its revenue from the operations of its principal subsidiaries , oppenheimer and oam . although maintained as separate entities , the operations of the company 's brokerage subsidiaries both in the u.s. and other countries are closely related because oppenheimer acts as clearing broker in transactions initiated by these subsidiaries .
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we work closely with our clients to help them anticipate , understand , manage and overcome complex business matters arising from such factors as the economy , financial and credit markets , governmental regulation and legislation and litigation . we assist clients in addressing a broad range of business challenges , such as restructuring ( including bankruptcy ) , financing and credit issues and indebtedness , interim business management , forensic accounting and litigation matters , international arbitrations , m & a , antitrust and competition matters , e-discovery , management and retrieval of electronically stored information , reputation management and strategic communications . we also provide services to help our clients take advantage of economic , regulatory , financial and other business opportunities . our experienced teams of professionals include many individuals who are widely recognized as experts in their respective fields . we believe clients retain us because of our recognized expertise and capabilities in highly specialized areas as well as our reputation for satisfying client needs . we report financial results for the following five reportable segments : our corporate finance/restructuring segment focuses on strategic , operational , financial and capital needs of businesses around the world and provides consulting and advisory services on a wide range of areas , such as restructuring ( including bankruptcy ) , interim management , financings , m & a , post-acquisition integration , valuations , tax issues and performance improvement . our forensic and litigation consulting segment provides law firms , companies , government clients and other interested parties with dispute advisory , investigations , forensic accounting , business intelligence assessments , data analytics and risk mitigation services , as well as interim management and performance improvement services for our health solutions practice clients . our economic consulting segment provides law firms , companies , government entities and other interested parties with analysis of complex economic issues for use in legal , regulatory and international arbitration proceedings , strategic decision making and public policy debates in the u.s. and around the world . our technology segment provides e-discovery and information management consulting , software and services to its clients . it provides products , services and consulting to companies , law firms , courts and government agencies worldwide . its comprehensive suite of software and services help clients locate , review and produce esi , including e-mail , computer files , voicemail , instant messaging and financial and transactional data . our strategic communications segment provides advice and consulting services relating to financial and corporate communications and investor relations , reputation management and brand communications , public affairs , business consulting and digital design and marketing . we derive substantially all of our revenues from providing professional services to both u.s. and global clients . over the past several years the growth in our revenues and profitability has resulted from our ability to attract new and recurring engagements and the acquisitions we have completed . 41 most of our services are rendered under time-and-expense arrangements that obligate the client to pay us a fee for the hours that we incur at agreed upon rates . under this arrangement , we typically bill our clients for reimbursable expenses , which may include the cost of producing our work product and other direct expenses that we incur on behalf of the client , such as travel costs . we also render services for which certain clients may be required to pay us a fixed fee or recurring retainer . these arrangements are generally cancellable at any time . some of our engagements contain performance-based arrangements in which we earn a success fee when and if certain predefined outcomes occur . this type of success fee may supplement a time-and-expense or fixed-fee arrangement . success fee revenues may cause variations in our revenues and operating results due to the timing of achieving the performance-based criteria . in our technology segment , certain clients are also billed based on the amount of data stored on our electronic systems , the volume of information processed and the number of users licensing our ringtail ® software products for use or installation within their own environments . we license these products directly to end users as well as indirectly through our channel partner relationships . unit-based revenue is defined as revenue billed on a per-item , per-page , or some other unit-based method and includes revenue from data processing and hosting , software usage and software licensing . unit-based revenue includes revenue associated with our proprietary software that is made available to customers , either via a web browser ( on-demand ) or installed at our customer or partner locations ( on-premise ) . on-demand revenue is charged on a unit or monthly basis and includes , but is not limited to , processing and review related functions . on-premise revenue is comprised of up-front license fees , with recurring support and maintenance . seasonal factors , such as the timing of our employees ' and clients ' vacations and holidays , impact the timing of our revenues . our financial results are primarily driven by : the number , size and type of engagements we secure ; the rate per hour or fixed charges we charge our clients for services ; the utilization rates of the revenue-generating professionals we employ ; the number of revenue-generating professionals ; fees from clients on a retained basis or other ; licensing of our software products and other technology services ; the types of assignments we are working on at different times ; the length of the billing and collection cycles , and the geographic locations of our clients or locations in which services are rendered . non-gaap measures in the accompanying analysis of financial information , we sometimes use information derived from consolidated and segment financial information that is not presented in our financial statements and prepared in accordance with u.s. generally accepted accounting principles ( gaap ) . certain of these measures are considered non-gaap financial measures under the sec rules . story_separator_special_tag in fixed-fee billing arrangements , we agree to a pre-established fee in exchange for a pre-determined set of professional services . generally , the client agrees to pay a fixed fee every month over the specified contract term . these contracts are for varying periods and generally permit the client to cancel the contract before the end of the term . we recognize revenues for our professional services rendered under these fixed-fee billing arrangements monthly over the specified contract term or , in certain cases , revenue is recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours , which we consider to be the best available indicator of the pattern and timing in which such contract obligations are fulfilled . in performance-based or contingent billing arrangements , fees are tied to the attainment of contractually defined objectives . often this type of arrangement supplements a time-and-expense or fixed-fee engagement , where payment of a performance-based fee is deferred until the conclusion of the matter or upon the achievement of performance-based criteria . we do not recognize revenues under performance-based billing arrangements until all related performance criteria are met and collection of the fee is reasonably assured . in our technology segment , unit-based revenues are based on either the amount of data stored or processed , the number of concurrent users accessing the information , or the number of pages or images processed for a client . we recognize revenues for our professional services rendered under unit-based engagements as the 46 services are provided based on agreed-upon rates . we also generate certain revenue from software licenses and maintenance . we have vendor-specific objective evidence of fair value for support and maintenance separate from software for the majority of our products . accordingly , when licenses of certain offerings are included in an arrangement with support and maintenance , we recognize the license revenue upon delivery of the license and recognize the support and maintenance revenue over the term of the maintenance service period . substantially all of our software license agreements do not include any acceptance provisions . if an arrangement allows for customer acceptance of the software , we defer revenue until the earlier of customer acceptance or when the acceptance provisions lapse . revenues from hosting fees are recognized ratably over the term of the hosting agreement . we have certain arrangements with clients in which we provide multiple elements of services under one engagement contract . revenues under these types of arrangements are accounted for in accordance asc 605-25 , multiple-element arrangements , and recognized pursuant to the criteria described above . some clients pay us retainers before we begin work for them . we hold retainers on deposit until we have completed the work . we generally apply these retainers to final billings and refund any excess over the final amount billed to clients , as appropriate . reimbursable expenses , including those relating to travel , out-of pocket expenses , outside consultants and other similar costs , are generally included in revenues , and an equivalent amount of reimbursable expenses is included in costs of services in the period in which the expense is incurred . revenues recognized , but not yet billed to clients , have been recorded as unbilled receivables in the consolidated balance sheets . allowance for doubtful accounts and unbilled services . we maintain an allowance for doubtful accounts and unbilled services for estimated losses resulting from disputes that affect our ability to fully collect our billed accounts receivable , potential fee reductions negotiated by clients or imposed by bankruptcy courts as well as the inability of clients to pay our fees . even if a bankruptcy court approves our services , the court has the discretion to require us to refund all or a portion of our fees due to the outcome of the case or a variety of other factors . we estimate the allowance for all receivable risks by reviewing the status of each matter and recording reserves based on our experience and knowledge of the particular client and historical collection patterns . however , our actual experience may vary significantly from our estimates . if the financial condition of our clients were to deteriorate , resulting in their inability or unwillingness to pay our fees , or bankruptcy courts require us to refund certain fees , we may need to record additional allowances or write-offs in future periods . this risk related to a client 's inability to pay is mitigated to the extent that we may receive retainers from some of our clients prior to performing services . we record adjustments to the allowance for doubtful accounts and unbilled services as a reduction in revenue when there are changes in estimates of fee reductions that may be imposed by bankruptcy courts and other regulatory institutions , for both billed and unbilled receivables . the allowance for doubtful accounts and unbilled services is also adjusted after the related work has been billed to the client and we later discover that collectability is not reasonably assured . these adjustments are recorded to selling , general and administrative expense on the consolidated statements of comprehensive income ( loss ) , and totaled $ 18.3 million , $ 13.3 million , and $ 14.2 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . goodwill and other intangible assets . goodwill represents the purchase price of acquired businesses in excess of the fair market value of net assets acquired . other intangible assets include trade names , customer relationships , non-competition agreements and software . we test our goodwill and other indefinite-lived intangible assets for impairment annually as of the first day of the fourth quarter or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable .
| full year 2014 executive highlights financial highlights replace_table_token_6_th ( 1 ) excluded from non-gaap measures . revenues revenues for the year ended december 31 , 2014 increased by 6.3 % , or $ 103.8 million , to $ 1,756.2 million compared to $ 1,652.4 million in the prior year period . acquisitions contributed $ 20.5 million , and represented 1.2 % of the year-over-year growth . revenues grew organically due to the strength in the forensic and litigation consulting segment with higher demand in our global disputes , construction solutions and data analytics practices , which were partially offset by a decline in the health solutions practice . the technology segment experienced increased demand for complex global investigations with increases in the financial services industry investigations and m & a second requests . additionally , the corporate finance/restructuring segment increased due to growth in non-distressed engagements in north america , partially offset by declines in global bankruptcy and restructuring engagements . special charges special charges for the years ended december 31 , 2014 and 2013 were $ 16.3 million and $ 38.4 million , respectively . see special charges in item 6 for an expanded discussion . adjusted ebitda adjusted ebitda for the year ended december 31 , 2014 decreased by 14.3 % , or $ 35.0 million , to $ 210.6 million , or 12.0 % of revenues , compared to $ 245.5 million , or 14.9 % of revenues , in the prior year period . the decrease in adjusted ebitda was impacted by higher costs related to the employment contract extensions of key client-service professionals in the economic consulting segment , the decline in higher margin global bankruptcy and restructuring activity in our corporate finance/restructuring segment , additional investments in the technology segment and unallocated corporate expenses to support future growth initiatives . these items were partially offset by the increased demand for services in the forensics and litigation consulting segment .
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the 2016 credit agreement contains various covenants providing for , among other things , maintenance of certain financial ratios and certain limitations on payment of dividends , common stock repurchases , investments , acquisitions , indebtedness and capital expenditures story_separator_special_tag we are one of the largest electrical and mechanical construction and facilities services firms in the united states . 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 75 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 segment 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 process , food process 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 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 , including those for refineries and petrochemical plants , including 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 ; refinery turnaround planning and engineering services ; specialty welding services ; overhaul and maintenance of critical process units in refineries and petrochemical plants ; and specialty technical services for refineries and petrochemical plants . 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 . 21 2017 versus 2016 overview the following table presents selected financial data for the fiscal years ended december 31 , 2017 and 2016 ( in thousands , except percentages and per share data ) : replace_table_token_6_th the results of our operations for 2017 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 , despite the challenges faced by our united states industrial services segment during 2017. the increase in revenues for 2017 was primarily attributable to incremental revenues of $ 192.4 million generated by companies acquired in 2017 and 2016 , 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 . excluding the effect of these acquisitions , revenues for 2017 decreased due to lower revenues from : ( a ) our united states industrial services segment , due to : ( i ) a decrease in large project activity from our specialty services offerings within our field services operations , ( ii ) the negative impact of hurricane harvey , which resulted in the deferral of , and may lead to the potential cancellation of , previously scheduled turnaround projects , and ( iii ) our industrial shop services operations and ( b ) our united states building services segment , primarily attributable to : ( i ) the loss of certain contracts not renewed pursuant to rebid within our commercial and government site-based services operations and ( ii ) a reduction in large project activity within their energy services operations . these decreases in revenues were partially offset by by an increase in revenues from both of our domestic construction segments and our united kingdom building services segment . story_separator_special_tag these decreases were partially offset by an increase in revenues from our mobile mechanical services operations as a result of greater project , service and controls activities . the results for the year ended december 31 , 2017 included $ 65.8 million of incremental revenues generated by companies acquired in 2017 and 2016 . 23 revenues of our united states industrial services segment for the year ended december 31 , 2017 decreased by $ 268.1 million compared to the year ended december 31 , 2016. the decrease in revenues was attributable to decreased large project activity from our specialty services offerings within our field services operations , as well as a continued decrease in demand for new build heat exchangers from our shop services operations . in addition , this segment 's revenues were negatively impacted by hurricane harvey , which resulted in the deferral of , and may lead to the potential cancellation of , previously scheduled turnaround projects . such decrease in turnaround projects also led to reduced repair work within our shop services operations . our united kingdom building services segment revenues were $ 340.7 million in 2017 compared to $ 326.3 million in 2016. the increase in revenues was the result of new contract awards within the commercial and institutional market sectors , partially offset by a decrease in project activity with existing customers . this segment 's revenues were negatively impacted by $ 15.9 million related to the effect of unfavorable exchange rates for the british pound versus the united states dollar . the unfavorable exchange rates for the year ended december 31 , 2017 resulted , in part , from the 2016 decision by the united kingdom to exit the european union . backlog the following table presents our operating segment backlog from unrelated entities and their respective percentages of total backlog ( in thousands , except for percentages ) : replace_table_token_8_th our backlog at december 31 , 2017 was $ 3.79 billion compared to $ 3.90 billion at december 31 , 2016. this decrease in backlog was attributable to a decrease in backlog from our united states mechanical construction and facilities services segment and our united states electrical construction and facilities services segment . backlog increases with awards of new contracts and decreases as we perform work on existing contracts . backlog is not a term recognized under united states generally accepted accounting principles ; however , it is a common measurement used in our industry . we include a project within our backlog at such time as a contract is awarded and agreement on contract terms has been reached . backlog includes unrecognized revenues to be realized from uncompleted construction contracts plus unrecognized revenues expected to be realized over the remaining term of services contracts . however , we do not include in backlog contracts for which we are paid on a time and material basis and a fixed amount can not be determined , and if the remaining term of a services contract exceeds 12 months , the unrecognized revenues attributable to such contract included in backlog are limited to only the next 12 months of revenues provided for in the contract award . our backlog also includes amounts related to services contracts for which a fixed price contract value is not assigned when a reasonable estimate of total revenues can be made from budgeted amounts agreed to with our customers . our backlog is comprised of : ( a ) original contract amounts , ( b ) change orders for which we have received written confirmations from our customers , ( c ) pending change orders for which we expect to receive confirmations in the ordinary course of business and ( d ) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which we consider recovery to be probable . such claim amounts were immaterial for all periods presented . our backlog does not include anticipated revenues from unconsolidated joint ventures or variable interest entities nor anticipated revenues from pass-through costs on contracts for which we are acting in the capacity of an agent and which are reported on the net basis . we believe our backlog is firm , although many contracts are subject to cancellation at the election of our customers . historically , cancellations have not had a material adverse effect on us . as discussed in note 2 - summary of significant accounting policies of the notes to consolidated financial statements included in item 8. financial statements and supplementary data , in may 2014 , an accounting pronouncement was issued by the financial accounting standards board ( “ fasb ” ) to clarify existing guidance on revenue recognition . this guidance is effective for fiscal years and interim periods beginning after december 15 , 2017 , and we will adopt the standard on january 1 , 2018. as part of such guidance , a company is required to disclose the amount of revenues to be recognized from remaining unsatisfied performance obligations in existing contracts . such measure will replace our current non-gaap backlog disclosure . although not expected to result in a material difference as it relates to our long-term construction contracts , we believe the new guidance will result in a 24 significant decrease in backlog as it pertains to our fixed price services contracts . under our current backlog measurement as discussed above , if the remaining term of a services contract exceeds 12 months , the unrecognized revenues attributable to such contract included in backlog are limited to only the next 12 months of revenues provided for in the contract award . however , under the gaap measurement , revenues included in backlog for services contracts may be limited by the termination clause within such contracts , many of which are subject to cancellation or suspension on short notice at the discretion of our customers .
| 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 , 2016 and 2015 ( in thousands , except for percentages ) : replace_table_token_13_th as described in more detail below , revenues for 2016 were $ 7.6 billion compared to $ 6.7 billion for 2015. revenues of our united states electrical construction and facilities services segment were $ 1,704.4 million for the year ended december 31 , 2016 compared to revenues of $ 1,367.1 million for the year ended december 31 , 2015. excluding the acquisition of ardent , the increase in revenues was primarily attributable to an increase in revenues from commercial , transportation and hospitality construction projects , partially offset by a decrease in revenues from manufacturing and healthcare construction projects . the results for the year ended december 31 , 2016 included $ 158.5 million of revenues generated by ardent . our united states mechanical construction and facilities services segment revenues for the year ended december 31 , 2016 were $ 2,643.3 million , a $ 350.3 million increase compared to revenues of $ 2,293.0 million for the year ended december 31 , 2015. the increase in revenues was attributable to an increase in activity within the majority of the market sectors in which we operate . the results for the year ended december 31 , 2016 included $ 45.9 million of incremental revenues generated by companies acquired in 2015. revenues of our united states building services segment were $ 1,810.2 million and $ 1,759.0 million in 2016 and 2015 , respectively .
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outside of collaboration and license fee payments and sales of products and services , which vary over time , we have not generated significant revenues , including revenues or royalties from product sales by us or our collaborators . certain of our consolidated subsidiaries require regulatory approval and or commercial scale-up before they may commence significant product sales and operating profits . in april 2019 , we initiated efforts to better deploy resources , realize inherent synergies , and position us for growth with a core focus on healthcare and initiated plans to achieve this through various corporate activities , including partnering , potential asset sales , and operating cost reductions . in conjunction with these efforts , our codm began assessing the operating performance of , and allocated resources for , our operating segments using segment adjusted ebitda as defined below . in january 2020 , we furthered our plans to enhance our focus on the healthcare industry when we sold a number of our bioengineering assets in the ts biotechnology sale to ts biotechnology . the assets divested in the ts biotechnology sale included our domain name dna.com and all of our equity interests in ( 1 ) blue marble agbio , a delaware limited liability company , that we formed to hold our agricultural biotechnology assets , ( 2 ) ilh holdings , a delaware corporation , which housed our yeast fermentation technology platform for the biologic production of active pharmaceutical ingredients and other fine chemicals , ( 3 ) iphi , a delaware corporation , which owns okanagan specialty fruits , the agricultural company developing non-browning apples without the use of any artificial additives , ( 4 ) intrexon uk holdings , a delaware corporation , which owns oxitec , the developer of an insect-based biological control system , ( 5 ) oragenics , a florida corporation , which is developing antibiotics against infectious disease and , in collaboration with actobio , treatments for oral mucositis , and ( 6 ) sh parent , a delaware corporation , which held our ownership interests in surterra , a cannabinoid-based wellness company . in addition , in january 2020 , in a separate transaction , we sold our interest in enviroflight to darling , referred to collectively with the ts biotechnology sale as the transactions . beginning in the fourth quarter of 2019 , we determined that assets , liabilities and operations sold in the transactions collectively met the criteria for discontinued operations . as such , the assets , liabilities , and operations related to the transactions are reclassified and presented as discontinued operations for all periods . see `` notes to the consolidated financial statements - note 3 `` appearing elsewhere in this annual report for a discussion of the transactions and the discontinued operations . additionally , as we continue our efforts to focus our business and generate additional capital , we may be willing to enter into transactions involving one or more of our operating segments and reporting units for which we have goodwill and intangible assets . these efforts could result in our identifying impairment indicators or recording impairment charges in future periods . in addition , market changes and changes in judgments , assumptions and estimates that we have made in assessing the fair value of goodwill could cause us to consider some portion or all of certain assets to become impaired . sources of revenue historically , we have derived our collaboration and licensing revenues through agreements with counterparties for the development and commercialization of products enabled by our technologies . generally , the terms of these collaborations provide that we receive some or all of the following : ( i ) technology access fees upon signing ; ( ii ) reimbursements of costs incurred by us for our research and development and or manufacturing efforts related to specific applications provided for in the collaboration ; ( iii ) milestone payments upon the achievement of specified development , regulatory and commercial activities ; and ( iv ) royalties on sales of products arising from the collaboration . 64 our technology access fees and milestone payments may be in the form of cash or securities of the collaborator . our collaborations contain multiple arrangements , and we typically defer revenues from the technology access fees and milestone payments received and recognize such revenues in the future over the anticipated performance period . we are also entitled to sublicensing revenues in those situations where our collaborators choose to license our technologies to other parties . as we continue to shift our focus on our healthcare business , we expect to cancel collaboration agreements or we may repurchase rights to the exclusive fields from collaborators , relieving us of any further performance obligations under the agreement . upon such circumstances or when we determine no further performance obligations are required of us under an agreement , we may recognize any remaining deferred revenue as either collaboration revenue or as a reduction of in-process research and development expense , depending on the circumstances . we generate product and service revenues primarily through sales of products or services that are created from technologies developed or owned by us . our primary current offerings arise from trans ova and include sales of advanced reproductive technologies , including our bovine embryo transfer and ivf processes and from genetic preservation and sexed semen processes and applications of such processes to other livestock , as well as sales of livestock and embryos produced using these processes and used in production . we recognize revenue when control of the promised product is transferred to the customer or when the promised service is completed . in future periods , in connection with our focus on healthcare , our revenues will primarily depend on our ability to advance and create our own programs and the extent to which we bring products enabled by our technologies to market . story_separator_special_tag we expect minimal gains ( losses ) on our securities portfolio in future periods as we expect to finish liquidating our portfolio in early 2020. interest expense is expected to increase in future periods due to the noncash amortization of the long-term debt discount and debt issuance costs related to the convertible notes issued in july 2018. interest income consists of interest earned on our cash and cash equivalents and short-term and long-term investments . dividend income historically consisted of the monthly preferred stock dividends received from our investments in preferred stock , virtually all of which has been liquidated as of december 31 , 2019. equity in net income ( loss ) of affiliates equity in net income or loss of affiliates is our pro-rata share of our equity method investments ' operating results , adjusted for accretion of basis difference . we account for investments in our jvs and start-up entities backed by harvest intrexon enterprise fund i , lp , or harvest , using the equity method of accounting since we have the ability to exercise significant influence , but not control , over the operating activities of these entities . segment performance we use segment adjusted ebitda as our primary measure of segment performance . we define segment adjusted ebitda as net loss before ( i ) interest expense , ( ii ) income tax expense or benefit , ( iii ) depreciation and amortization , ( iv ) stock-based compensation expense , ( v ) loss on impairment of goodwill and other long-lived assets , ( vi ) equity in net loss of affiliates , and 66 ( vii ) recognition of previously deferred revenue associated with upfront and milestone payments as well as cash outflows from capital expenditures and investments in affiliates . corporate expenses are not allocated to the segments and are managed at a consolidated level . story_separator_special_tag 2017 are accounted for under asc 605. we adopted asc 606 on january 1 , 2018 using the modified retrospective method , which applies the changes in accounting prospectively and does not restate prior periods . ( 2 ) including $ 55,573 and $ 122,485 from related parties for the years ended december 31 , 2018 and 2017 , respectively . ( 3 ) the results of operations in the table above include the operations related to the transactions in loss from discontinued operations , net of income tax benefit . the increase in the loss from discontinued operations in 2018 is due to additional impairment losses recorded at oxitec . see `` notes to the consolidated financial statements - note 3 `` appearing elsewhere in this annual report . 71 collaboration and licensing revenues the following table shows the collaboration and licensing revenue recognized for the years ended december 31 , 2018 and 2017 , together with the changes in those items . replace_table_token_11_th ( 1 ) for the years ended december 31 , 2018 and 2017 , revenue recognized from collaborations with harvest start-up entities include genten therapeutics , inc. ; crs bio , inc. ; exotech bio , inc. ; ad skincare , inc. ; and thrive agrobiotics , inc. for the year ended december 31 , 2017 , revenues recognized from collaborations with harvest start-up entities also include relieve genetics , inc. collaboration and licensing revenues decreased $ 65.1 million , or 48 percent , from the year ended december 31 , 2017 due to ( i ) the mutual termination in 2017 of our second ecc with ziopharm for the treatment of graft-versus-host disease , ( ii ) a decrease in research and development services for certain of our eccs as we redeployed certain resources towards supporting prospective new platforms and partnering opportunities and began to focus more on the further development of relationships and structures that provide us with more control and ownership over the development process and commercialization path , including programs where we reacquired the previously licensed technology rights in 2018 , and ( iii ) a decrease in research and development services we perform for collaborators upon the transition of program execution to our collaborators . product revenues and gross margin product revenue decreased $ 5.1 million , or 15 percent , from the year ended december 31 , 2017. the decrease in product revenues was primarily due to lower milk prices which in turn resulted in lower customer demand for live calves , cows previously used in production , and cloned products . gross margin on products declined in the current period as a result of the lower product sales and increased operating costs associated with new product offerings and cloned products . service revenues and gross margin service revenue increased $ 1.8 million , or 4 percent , over the year ended december 31 , 2017. the increase in service revenues and gross margin thereon relates to pricing changes and an increase in the number of embryos produced per bovine in vitro fertilization cycle performed due to improved production results . research and development expenses research and development expenses increased $ 257.1 million , or 236 percent , over the year ended december 31 , 2017. current period research and development expenses include $ 236.7 million of expenses related to in-process research and development reacquired from former collaborators . 72 selling , general and administrative expenses sg & a expenses decreased $ 4.9 million , or 4 percent , from the year ended december 31 , 2017. legal and professional fees decreased $ 6.2 million primarily due to ( i ) decreased legal fees associated with ongoing litigation and ( ii ) decreased fees incurred for regulatory and other consultants . impairment loss impairment loss for the year ended december 31 , 2017 of $ 13.8 million resulted from our annual test for goodwill and indefinite-lived intangible asset impairment in the fourth quarter .
| results of operations comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 , together with the changes in those items in dollars and as a percentage : replace_table_token_6_th ( 1 ) including $ 11,832 and $ 55,573 from related parties for the years ended december 31 , 2019 and 2018 , respectively . ( 2 ) the results of operations in the table above include the operations related to the transactions , as well as adjustments to those businesses as a result of the transactions , in loss from discontinued operations , net of income tax benefit . the increase in the loss from discontinued operations in 2019 is due to additional impairment losses recorded related to the transactions . see `` notes to the consolidated financial statements - note 3 `` appearing elsewhere in this annual report . 67 collaboration and licensing revenues the following table shows the collaboration and licensing revenue recognized for the years ended december 31 , 2019 and 2018 , together with the changes in those items . replace_table_token_7_th ( 1 ) for the years ended december 31 , 2019 and 2018 , revenue recognized from collaborations with harvest start-up entities include exotech bio , inc. ; ad skincare , inc. ; and thrive agrobiotics , inc. for the year ended december 31 , 2018 , revenues recognized from collaborations with harvest start-up entities also include genten therapeutics , inc. and crs bio , inc. collaboration and licensing revenues decreased $ 55.5 million , or 80 percent , from the year ended december 31 , 2018 primarily due to the reacquisition of rights previously licensed to certain collaborators , including ziopharm , ares trading , and certain of the harvest start-up entities , the result of which eliminated or substantially reduced revenues generated from those collaborations .
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unless otherwise indicated , the terms “ company ” , “ chefs ' warehouse ” , “ we ” , “ us ” , and “ our ” refer to the chefs ' warehouse , inc. and its subsidiaries . all dollar amounts are in thousands except per share amounts . overview and recent developments overview we are a premier distributor of specialty foods in eight of the leading culinary markets in the united states . we offer more than 43,000 skus , ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins . we serve more than 28,000 customer locations , primarily located in our 15 geographic markets across the united states and canada , and the majority of our customers are independent restaurants and fine dining establishments . as a result of our acquisition of allen brothers , we also sell certain of our center-of-the-plate products directly to consumers . we believe several key differentiating factors of our business model have enabled us to execute our strategy consistently and profitably across our expanding customer base . these factors consist of a portfolio of distinctive and hard-to-find specialty food products , an extensive selection of center-of-the-plate proteins , a highly trained and motivated sales force , strong sourcing capabilities , a fully integrated warehouse management system , a highly sophisticated distribution and logistics platform and a focused , seasoned management team . in recent years , our sales to existing and new customers have increased through the continued growth in demand for specialty food products and center-of-the-plate products in general ; increased market share driven by our large percentage of sophisticated and experienced sales professionals , our high-quality customer service and our extensive breadth and depth of product offerings , including , as a result of our acquisitions of michael 's in august 2012 , allen brothers in december 2013 and del monte in april 2015 , meat , seafood and other center-of-the-plate products , and , as a result of our acquisition of qzina in may 2013 , gourmet chocolate , pastries and dessert ; the acquisition of other specialty food and center-of-the-plate distributors ; the expansion of our existing distribution centers ; our entry into new distribution centers , including the construction of a new distribution center in chicago ; and the import and sale of our proprietary brands . through these efforts , we believe that we have been able to expand our customer base , enhance and diversify our product selections , broaden our geographic penetration and increase our market share . we believe that as a result of these efforts , we have increased sales from $ 400,632 in fiscal 2011 to $ 1,192,866 in fiscal 2016 . recent acquisitions on june 26 , 2016 , we acquired substantially all of the assets of m.t . food service , inc. ( `` mt food '' ) , based in chicago , illinois . founded in the mid-1990 's , mt food is a wholesale distributor of dairy , produce , specialty and grocery items in the metro chicago area . the purchase price for the transaction was $ 21,500 , of which , $ 21,000 was paid in cash at closing with an additional $ 500 payable 18 months after the closing date . the aggregate purchase price was paid through cash-on-hand and the proceeds from a draw down on our delayed draw term loan facility . the final purchase price is subject to a customary working capital true-up . we will also pay additional contingent consideration , if earned , in the form of an earn-out amount which totals $ 500 to mt food ; the payment of the earn-out liability is subject to certain conditions , including the successful achievement of gross profit targets for the mt food entity during the period between the acquisition date and the date the mt food operations are transferred to our existing chicago facility , not to exceed one year . on april 6 , 2015 , we acquired substantially all the equity interests of del monte capitol meat co. and substantially all the assets of certain of its affiliated companies ( collectively , “ del monte ” ) for an aggregate purchase price of approximately $ 184,074. founded in 1926 , del monte supplies high quality , usda inspected beef , pork , lamb , veal , poultry and seafood products to northern california . the funding of the acquisition consisted of the following : $ 123,893 in cash , which was funded with cash-on-hand , borrowings under the revolving credit facility portion of our senior secured credit facilities and the issuance of $ 25,000 of additional senior secured notes that bear interest at 5.80 % per annum due on october 17 , 2020 ; approximately 1.1 million shares of our common stock ( valued at $ 22.17 per share ) ; $ 36,750 in convertible subordinated notes issued to certain entities affiliated with del monte with a six-year maturity bearing interest at 2.50 % with a conversion price of $ 29.70 per share ; and $ 1,258 offset received as an adjustment to the purchase price . 36 in addition , we have agreed to pay additional contingent consideration of up to $ 24,500 upon the successful achievement of adjusted ebitda targets for the del monte entities and improvements in certain operating metrics for our existing protein business and the business of any protein companies subsequently acquired by the company over the six years following the closing . on october 24 , 2014 , we acquired substantially all the assets of euro gourmet inc. ( “ euro gourmet ” ) , a wholesale specialty distributor based in beltsville , maryland . founded in 1999 , euro gourmet was a supplier of imported and domestic products . euro gourmet supplied more than 3,000 products to some of the finest restaurants , bakeries , patisseries , chocolatiers , hotels and cruise lines along the mid-atlantic united states . story_separator_special_tag given our wide selection of product categories , as well as the continuous introduction of new products , we can experience shifts in product sales mix that have an impact on net sales and gross profit margins . this mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered , impact of product mix from acquisitions , as well as the continued growth in item penetration on higher velocity items such as dairy products . key financial definitions net sales . net sales consist primarily of sales of specialty products , center-of-the-plate proteins and other food products to independently-owned restaurants and other high-end foodservice customers , which we report net of certain group discounts and customer sales incentives . net sales also include sales by our allen brothers subsidiary that are direct-to-consumers . cost of sales . cost of sales include the net purchase price paid for products sold , plus the cost of transportation necessary to bring the product to our distribution facilities . our cost of sales may not be comparable to other similar companies within our industry that include all costs related to their distribution network and protein processing costs in their costs of sales rather than as operating expenses . operating expenses . our operating expenses include warehousing , processing and distribution expenses ( which include salaries and wages , employee benefits , facility and distribution fleet rental costs and other expenses related to warehousing , processing and delivery ) and selling , general and administrative expenses ( which include selling , insurance , administrative , wage and benefit expenses and share-based compensation expense ) . interest expense . interest expense consists primarily of interest on our outstanding indebtedness and , as applicable , the amortization or write-off of deferred financing fees . critical accounting policies the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the sec has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and require our most difficult , complex or subjective judgments or estimates . based on this definition , we believe our critical accounting policies include the following : ( i ) determining our allowance for doubtful accounts , ( ii ) inventory valuation , with regard to determining our reserve for excess and obsolete inventory , ( iii ) valuing goodwill and intangible assets , ( iv ) vendor rebates and other promotional incentives , ( v ) self-insurance reserves , and ( vi ) accounting for income taxes and ( vii ) contingent earn-out liabilities . for all financial statement periods presented , there have been no material modifications to the application of these critical accounting policies . 38 allowance for doubtful accounts we analyze customer creditworthiness , accounts receivable balances , payment history , payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts . in instances where a reserve has been recorded for a particular customer , future sales to the customer are either conducted using cash-on-delivery terms or the account is closely monitored so that agreed-upon payments are received prior to orders being released . a failure to pay results in held or cancelled orders . we also estimate receivables that will ultimately be uncollectible based upon historical write-off experience . our estimate could require change based on changing circumstances , including changes in the economy or in the particular circumstances of individual customers . accordingly , we may be required to increase or decrease our allowance . our accounts receivable balance was $ 128,030 and $ 124,139 , net of the allowance for doubtful accounts of $ 6,848 and $ 5,803 , as of december 30 , 2016 and december 25 , 2015 , respectively . inventory valuation we maintain reserves for slow-moving and obsolete inventories . these reserves are primarily based upon inventory age plus specifically identified inventory items and overall economic conditions . a sudden and unexpected change in consumer preferences or change in overall economic conditions could result in a significant change in the reserve balance and could require a corresponding charge to earnings . we actively manage our inventory levels as we seek to minimize the risk of loss and have consistently achieved a relatively high level of inventory turnover . valuation of goodwill and intangible assets we are required to test goodwill for impairment at least annually and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . we have elected to perform our annual tests for indications of goodwill impairment during the fourth quarter of each fiscal year . we test for goodwill impairment at the reporting unit level , as we aggregate our component units into two reporting units , protein and specialty , based on a discounted cash flow approach . the goodwill impairment analysis is a two-step test . the first step , used to identify potential impairment , involves comparing our estimated fair value to our carrying value , including goodwill . if our estimated fair value exceeds our carrying value , goodwill is considered not to be impaired . if the carrying value exceeds estimated fair value , there is an indication of potential impairment and the second step is performed to measure the amount of impairment . if required , the second step involves calculating an implied fair value of our goodwill . the implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination , by measuring the excess of the estimated fair value , as determined in the first step , over the aggregate estimated fair values of the individual assets , liabilities and identifiable intangibles as if we were being acquired in a business combination .
| results of operations the following table presents , for the periods indicated , certain income and expense items expressed as a percentage of net sales : replace_table_token_8_th fiscal year ended december 30 , 2016 compared to fiscal year ended december 25 , 2015 the fiscal year ended december 30 , 2016 consisted of 53 weeks as compared to the fiscal year ended december 25 , 2015 , which consisted of 52 weeks . net sales net sales for the fifty-three weeks ended december 30 , 2016 increased approximately 13.9 % to $ 1,192,866 from $ 1,046,878 for the fifty-two weeks ended december 25 , 2015 . the increase in net sales was primarily the result of the del monte acquisition on april 6 , 2015 , the mt food acquisition on june 27 , 2016 , the 53rd week in fiscal 2016 and organic sales growth . del monte contributed approximately $ 48,587 , or 4.6 % , mt food contributed $ 31,630 , or 3.0 % , and the extra week in fiscal 2016 contributed approximately $ 24,051 , or 2.3 % , to net sales growth for fifty-three weeks ended december 30 , 2016 . organic growth contributed the remaining approximately $ 41,720 , or 4.0 % , of total net sales growth . internally calculated deflation was approximately 1.2 % for the fiscal year ended december 30 , 2016 , driven largely by our protein division . internally calculated inflation for fiscal 2015 was approximately 3.0 % . gross profit gross profit increased approximately 12.1 % to $ 301,217 for the fifty-three weeks ended december 30 , 2016 from $ 268,711 for the fifty-two weeks ended december 25 , 2015 primarily due to the increased sales volumes discussed above . gross profit margin decreased approximately 42 basis points to 25.3 % in fiscal 2016 from 25.7 % in fiscal 2015 .
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in each instance , the company performed a test of recoverability and determined that the carrying value of the hotel exceeded its estimated undiscounted future story_separator_special_tag the following discussion and analysis should be read in conjunction with item 8 , the consolidated financial statements and notes thereto , the introduction of part i regarding “ forward-looking statements , ” and item 1a , “ risk factors ” appearing elsewhere in this annual report on form 10-k. overview the company is a virginia corporation that has elected to be treated as a reit for federal income tax purposes . the company is self-advised and invests in income-producing real estate , primarily in the lodging sector , in the united states . as of december 31 , 2017 , the company owned 239 hotels with an aggregate of 30,322 rooms located in urban , high-end suburban and developing markets throughout 34 states . all of the company 's hotels operate under marriott or hilton brands . the hotels are operated and managed under separate management agreements with 23 hotel management companies , none of which are affiliated with the company . the company 's common shares are listed on the nyse under the ticker symbol “ aple. ” 2017 hotel portfolio activities the company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value in the long term . consistent with this strategy and the company 's focus on investing in select-service hotels , the company acquired six hotels for an aggregate purchase price of approximately $ 161.8 million during 2017 : a new 124-room courtyard in fort worth , texas , a new 104-room hilton garden inn and 106-room home2 suites on the same site in birmingham , alabama , a 179-room residence inn in portland , maine , a 136-room residence inn in salt lake city , utah and a 135-room home2 suites in anchorage , alaska . in february 2018 , the company completed the purchase of two additional hotels ( a 119-room hampton inn & suites in atlanta , georgia and a 144-room hampton inn & suites in memphis , tennessee ) for an aggregate purchase price of $ 63.0 million . the company also has outstanding contracts for the potential purchase of two additional hotels that are under construction for a total purchase price of approximately $ 64.8 million , which are planned to be completed and opened for business during 2018 , at which time closing on these hotels is expected to occur . the company utilized its revolving credit facility to fund the 2017 and 2018 acquisitions and plans to utilize the revolving credit facility for any additional acquisitions that are completed in 2018. additionally , the company monitors each of its properties ' profitability , market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that the proceeds from the sale of the property can be reinvested into opportunities that have more growth potential . as a result , on april 20 , 2017 , the company completed the sale of its 224-room hilton hotel in dallas , texas , for a gross sales price of approximately $ 56.1 million . also , on october 5 , 2017 , the company completed the sale of its 316-room marriott hotel in fairfax , virginia , for a gross sales price of approximately $ 41.5 million . the company used the net proceeds from the sales to pay down borrowings on its revolving credit facility . see note 3 titled “ investment in real estate ” and note 4 titled “ dispositions ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning these transactions . merger with apple ten effective september 1 , 2016 , the company completed its merger with apple ten , and , as a result of the merger , acquired the business of apple ten , a reit which , immediately prior to the merger , owned 56 marriott and hilton branded primarily select-service and extended-stay hotels located in 17 states with an aggregate of 7,209 rooms , and assumed all of apple ten 's assets and liabilities at closing . for purpose of accounting for the transaction , the aggregate value of the merger consideration paid to apple ten shareholders was estimated to be approximately $ 1.0 billion , and was comprised of approximately $ 956.1 million for the issuance of approximately 48.7 million common shares of the company valued at $ 19.62 per share , which was the closing price of the company 's common shares on august 31 , 2016 ( the date that the merger was approved ) , and $ 93.6 million in cash , which was funded through borrowings on the company 's revolving credit facility . upon completion of the merger , the advisory and related party arrangements with respect to the company , apple ten and apple ten 's advisors were terminated . see note 2 titled “ merger with apple reit ten , inc. ” in part ii , item 8 , of the consolidated financial statements and 35 index notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning the merger with apple ten . hotel operations although hotel performance can be influenced by many factors including local competition , local and general economic conditions in the united states and the performance of individual managers assigned to each hotel , performance of the company 's hotels as compared to other hotels within their respective local markets , in general , has met the company 's expectations for the period owned . over the past several quarters , the lodging industry and the company have experienced low single digit revenue growth . moderate improvements in the general u.s. economy have been partially offset by increased supply in many markets . story_separator_special_tag transaction and litigation costs ( reimbursements ) for 2016 consisted primarily of ( i ) costs related to the apple ten merger discussed herein totaling approximately $ 29.2 million ( including costs related to the apple ten merger litigation consisting of $ 32.0 million funded by the company in january 2017 to settle the litigation , plus approximately $ 3.1 million in legal costs incurred to defend the litigation , less $ 10.0 million of proceeds received from the company 's directors and officers insurance carriers in january 2017 ) , ( ii ) $ 5.5 million of costs incurred to settle the previously disclosed litigation related to apple seven 's and apple eight 's terminated dividend reinvestment plans , as discussed herein , and ( iii ) other acquisition related costs totaling approximately $ 0.4 million . on january 1 , 2017 , the company adopted the newly issued accounting standard on business combinations that modifies the definition of a business . under the new guidance , acquisition of hotel properties will generally be accounted for as an acquisition of a group of assets with transaction costs associated with the acquisition capitalized as part of the cost of the asset acquired instead of expensed in the period they are incurred . in accordance with this standard , the company capitalized approximately $ 0.4 million in transaction costs related to the acquisition of six hotels during 2017. loss on impairment of depreciable real estate assets loss on impairment of depreciable real estate assets was approximately $ 45.9 million and $ 5.5 million for the years ended december 31 , 2017 and 2016 , respectively , and consisted of the following impairment charges : ( a ) $ 38.0 million for the new york , new york renaissance hotel recorded in the fourth quarter of 2017 , as a result of declines in the hotel 's current and projected cash flows , ( b ) $ 7.9 million for the columbus , georgia springhill suites and towneplace suites hotels , recorded during the first quarter of 2017 , that the company identified for potential sale , which resulted in a change in the anticipated hold period in these assets , and ( c ) $ 5.5 million for the chesapeake , virginia marriott hotel recorded during the third quarter of 2016 , resulting from a change in the anticipated hold period for this asset , which was later sold in december 2016. see note 3 titled “ investment in real estate ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning these impairment losses . depreciation expense depreciation expense for the years ended december 31 , 2017 and 2016 was $ 176.5 million and $ 148.2 million , respectively . depreciation expense primarily represents expense of the company 's hotel buildings and related improvements , and associated personal property ( furniture , fixtures , and equipment ) for their respective periods owned . the increase was primarily due to the increase in the number of properties owned as a result of the 39 index acquisition of six hotels in 2017 , the apple ten merger effective september 1 , 2016 , the acquisition of one hotel on july 1 , 2016 and renovations completed throughout 2017 and 2016. interest and other expense , net interest and other expense , net for the years ended december 31 , 2017 and 2016 was $ 47.3 million and $ 40.0 million , respectively , and is net of approximately $ 1.3 million and $ 1.6 million of interest capitalized associated with renovation projects , respectively . the increase in interest expense was primarily due to an increase in the company 's average outstanding borrowings during 2017 as compared to 2016 which is primarily attributable to ( a ) mortgage debt assumed in the apple ten merger effective september 1 , 2016 and ( b ) borrowings to fund ( i ) the cash payment portion of the apple ten merger , ( ii ) the repayment of apple ten 's outstanding balance on its extinguished credit facility assumed in the merger and ( iii ) the acquisition of seven hotels ( six in 2017 and one on july 1 , 2016 ) , which increases were partially offset by proceeds from the sale of three hotels ( one in december 2016 , one in april 2017 and one in october 2017 ) and issuance of common shares in the fourth quarter of 2017 under the company 's atm program . although during 2017 variable interest rates increased in the united states with one-month libor ( the london inter-bank offered rate for a one-month term ) increasing from 0.77 % at december 31 , 2016 to 1.56 % at december 31 , 2017 , the company was able to offset the increases by hedging a portion of its variable rate debt and entering into fixed rate mortgages , achieving comparable effective borrowing rates for 2016 and 2017. while approximately 83 % of the company 's outstanding debt was effectively fixed rate at december 31 , 2017 , the company does expect interest costs to increase in 2018 due to increased rates for its remaining variable rate debt . results of operations for years 2016 and 2015 as of december 31 , 2016 , the company owned 235 hotels with 30,073 rooms as compared to 179 hotels with a total of 22,961 rooms as of december 31 , 2015. results of operations are included only for the period of ownership for hotels acquired or disposed of during 2016 and 2015 .
| same store operating results the following table reflects certain operating statistics for the 170 hotels owned by the company as of january 1 , 2015 and during the entirety of the reporting periods being compared ( “ same store hotels ” ) . this information has not been audited . replace_table_token_16_th as discussed above , hotel performance is impacted by many factors , including the economic conditions in the united states as well as each individual locality . economic indicators in the united states have generally been favorable , which has been partially offset by increased supply in many of the company 's markets . as a result , the company 's revenue and operating results for its comparable hotels and same store hotels experienced modest growth in 2017 as compared to 2016 and 2015. the company expects continued modest improvement in revenue and operating results for its comparable hotels in 2018 as compared to 2017. the company 's hotels in general have shown results consistent with industry and brand averages for the period of ownership . results of operations for years 2017 and 2016 as of december 31 , 2017 , the company owned 239 hotels with a total of 30,322 rooms as compared to 235 hotels with a total of 30,073 rooms as of december 31 , 2016. results of operations are included only for the period of ownership for hotels acquired or disposed of during 2017 and 2016 . during 2017 , the company acquired three newly constructed hotels ( one on february 2 , 2017 and two on september 12 , 2017 ) and three existing hotels ( one on october 13 , 2017 , one on october 20 , 2017 and one on december 1 , 2017 ) , and sold two hotels ( one on april 20 , 2017 and one on october 5 , 2017 ) .
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our solution , which is comprised of our vcc cloud platform and applications , allows simultaneous management and optimization of customer interactions across voice , chat , email , web , social media and mobile channels , either directly or through our apis . our vcc cloud platform routes each customer interaction to an appropriate agent resource , and delivers relevant customer data to the agent in real time to optimize the customer experience . unlike legacy on-premise contact center systems , our solution requires minimal up-front investment and can be rapidly deployed and adjusted depending on our client 's requirements . since founding our business in 2001 , we have focused exclusively on delivering cloud contact center software . we initially targeted smaller contact center opportunities with our telesales team and , over time , invested in expanding the breadth and depth of the functionality of our cloud platform to meet the evolving requirements of our clients . in 2009 , we made a strategic decision to expand our market opportunity to include larger contact centers . this decision drove further investments in research and development and the establishment of our field sales team to meet the requirements of these larger contact centers . we believe this shift has helped us diversify our client base , while significantly enhancing our opportunity for future revenue growth . to complement these efforts , we have also focused on building client awareness and driving adoption of our solution through marketing activities , which include internet advertising , digital marketing campaigns , social media , trade shows , industry events and telemarketing . we provide our solution through a saas business model with recurring subscriptions . we offer a comprehensive suite of applications delivered on our vcc cloud platform that are designed to enable our clients to manage and optimize interactions across inbound and outbound contact centers . we primarily generate revenue by selling subscriptions and related usage of our vcc cloud platform . we charge our clients monthly subscription fees for access to our solution , primarily based on the number of agent seats , as well as the specific functionalities and applications our clients deploy . we define agent seats as th e maximum number of named agents allowed to concurrently access our solution . our clients typically have more named agents than agent seats , and multiple named agents may use an agent seat , though not simultaneously . substantially all of our clients purchase both subscriptions and related telephony usage from us . a small percentage of our clients subscribe to our platform but purchase telephony usage directly from wholesale telecommunications service providers . we do not sell telephony usage on a stand-alone basis to any client . the related usage fees are based on the volume of minutes for inbound and outbound interactions . we also offer bundled plans , generally for smaller deployments , where the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and , in some cases , canada . we offer monthly , annual and multiple-year contracts to our clients , generally with 30 days ' 49 notice required for changes in the number of agent seats . our clients can use this notice period to rapidly adjust the number of agent seats used to meet their changing contact center volume needs , including to reduce the number of agent seats to zero . as a general matter , this means that a client can effectively terminate its agreement with us upon 30 days ' notice . our larger clients typically choose annual contracts , which generally include an implementation and ramp period of several months . fixed subscription fees , including bundled plans , are generally billed monthly in advance , while related usage fees are billed in arrears . for the years ended december 31 , 2018 , 2017 and 2016 , subscription and related usage fees accounted for 93 % , 94 % and 95 % of our revenue , respectively . the remainder was comprised of professional services revenue from the implementation and optimization of our solution . key gaap operating results our revenue increased to $ 257.7 million for the year ended december 31 , 2018 , from $ 200.2 million and $ 162.1 million for the years ended december 31 , 2017 and 2016 , respectively . revenue growth has primarily been driven by our larger clients increasing their number of agent seats . for each of the years ended december 31 , 2018 , 2017 and 2016 , no single client accounted for more than 10 % of our total revenue . as of december 31 , 2018 , we had over 2,000 clients across multiple industries . our clients ' subscriptions generally range in size from fewer than 10 agent seats to approximately 3,000 agent seats . we had a net loss of $ 0.2 million , $ 9.0 million and $ 11.9 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . we have continued to make significant expenditures and investments , including in sales and marketing , research and development and infrastructure . we primarily evaluate the success of our business based on revenue growth and the efficiency and effectiveness of our investments . the growth of our business and our future success depend on many factors , including our ability to continue to expand our client base to include larger opportunities , grow revenue from our existing client base , innovate and expand internationally . while these areas represent significant opportunities for us , they also pose risks and challenges that we must successfully address in order to sustain the growth of our business and improve our operating results . in order to pursue these opportunities , we anticipate that we will continue to expand our operations and headcount in the near term . story_separator_special_tag as a general matter , this means that a client can effectively terminate its agreement with us upon 30 days ' notice . fixed subscription fees , including plans with bundled usage , are generally billed monthly in advance , while variable usage fees are billed in arrears . fixed subscription fees are recognized on a straight-line basis over the applicable term , predominantly the monthly contractual billing period . support activities include technical assistance for our solution and upgrades and enhancements on a when and if available basis , which are not billed separately . variable subscription related usage fees for non-bundled plans are billed in arrears based on client-specific per minute rate plans and are recognized as actual usage occurs . we generally require advance deposits from clients based on estimated usage . all fees , except usage deposits , are non-refundable . in addition , we generate professional services revenue from assisting clients in implementing our solution and optimizing use . these services include application configuration , system integration and education and training services . professional services are primarily billed on a fixed-fee basis and are typically performed by us directly . in limited cases , our clients choose to perform these services themselves or engage their own third-party service providers to perform such services . professional services are recognized as the services are performed using the proportional performance method , with performance measured based on labor hours , provided all other criteria for revenue recognition are met . the adoption of asc 606 , the new revenue recognition guidance , in january 2018 , did not have a material impact on the recognition or timing of revenue . see note 2 to the consolidated financial statements for additional information . cost of revenue our cost of revenue consists primarily of personnel costs , including stock-based compensation , fees that we pay to telecommunications providers for usage , usf contributions and other regulatory costs , depreciation and related expenses of the servers and equipment , costs to build out and maintain co-location data centers , and allocated office and facility costs and amortization of acquired technology . cost of revenue can fluctuate based on a number of factors , including the fees we pay to telecommunications providers , which vary depending on our clients ' usage of our vcc cloud platform , the timing of capital expenditures and related depreciation charges and changes in headcount . we expect to continue investing in our network infrastructure and operations and client support function to maintain high quality and availability of service , resulting in absolute dollar increases in cost of revenue . as our business grows , we expect to realize economies of scale in network infrastructure , personnel and client support . operating expenses we classify our operating expenses as research and development , sales and marketing and general and administrative expenses . research and development . our research and development expenses consist primarily of salary and related expenses , including stock-based compensation , for personnel related to the development of improvements and expanded features for our services , as well as quality assurance , testing , product management and allocated overhead . we expense research and development expenses as they are incurred except for internal use software development costs that qualify for capitalization . we believe that continued investment in our solution is important for our future growth , and we expect our research and development expenses to increase at a faster rate in 2019 than in the past , and to increase as a percentage of revenue . 52 sales and marketing . sales and marketing expenses consist primarily of salaries and related expenses , including stock-based compensation , for personnel in sales and marketing , sales commissions , as well as advertising , marketing , corporate communications , travel costs and allocated overhead . prior to the adoption of asc 606 , we expensed sales commissions associated with the acquisition of client contracts as incurred in the period the contract was acquired . upon the adoption of asc 606 in january 2018 , a significant amount of our sales commission expenses have been deferred , as required by asc 340-40 , other assets and deferred costs - contracts with customers ( “ asc 340-40 ” ) , over an expected benefit period , which we have determined to be five years . see note 2 to the consolidated financial statements for additional information . we believe it is important to continue investing in sales and marketing to continue to generate revenue growth . accordingly , we expect sales and marketing spend to increase in absolute dollars and fluctuate as a percentage of revenue as we continue to support our growth initiatives . general and administrative . general and administrative expenses consist primarily of salary and related expenses ( including stock-based compensation ) for management , finance and accounting , legal , information systems and human resources personnel , professional fees , compliance costs , other corporate expenses and allocated overhead . we expect that general and administrative expenses will fluctuate in absolute dollars from period to period but decline as a percentage of revenue over time . story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > ( in thousands , except percentages ) revenue $ 200,225 $ 162,090 $ 38,135 24 % the increase in revenue for 2017 compared to 2016 was primarily attributable to our larger clients , driven by an increase in our sales and marketing activities and our improved brand awareness . 55 cost of revenue replace_table_token_15_th the increase in cost of revenue for 2017 compared to 2016 was primarily due to a $ 7.0 million increase in personnel costs including stock-based compensation costs , driven by increased headcount and higher fair value of employee equity awards due mainly to our increased stock price , and a $ 3.1 million reversal of accrued usf charges recorded in 2016 resulted from a favorable ruling from the fcc 's wireless competition bureau .
| results of operations for the years ended december 31 , 2018 , 2017 and 2016 based on the consolidated statements of operations and comprehensive loss set forth in this annual report , the following table sets forth our operating results as a percentage of revenue for the periods indicated : replace_table_token_8_th comparison of the years ended december 31 , 2018 and 2017 revenue year ended december 31 , 2018 2017 $ change % change ( in thousands , except percentages ) revenue $ 257,664 $ 200,225 $ 57,439 29 % the increase in revenue for 2018 compared to 2017 was primarily attributable to our larger clients increasing their number of agent seats , driven by an increase in our sales and marketing activities and our improved brand 53 awareness . the adoption of asc 606 in january 2018 did not have a material impact on the recognition or timing of revenue . cost of revenue replace_table_token_9_th the increase in cost of revenue for 2018 compared to 2017 was primarily due to a $ 6.9 million increase in third party hosted software costs driven by increased client activities , a $ 6.5 million increase in personnel costs , including stock-based compensation costs , driven by increased headcount and a higher fair value of employee equity awards due primarily to our increased stock price , and a $ 2.7 million increase in depreciation and data center costs , driven by increased capital expenditures to support our growing capacity needs and continuing expansion of our existing data center facilities , and a $ 2.4 million increase in usf contributions and other federal telecommunication service fees due primarily to increased client usage .
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our products are distributed globally through various distribution channels including wholesale in countries where we have a physical presence , direct to the consumer through our retail stores and commercial websites and through third-party distributors in countries where we do not maintain a physical presence . our products are offered at varying price points to meet the needs of our customers , whether they are value-conscious or luxury oriented . based on our extensive range of accessory products , brands , distribution channels and price points , we are able to target style-conscious consumers across a wide age spectrum on a global basis . domestically , we sell our products through a diversified distribution network that includes department stores , specialty retail locations , specialty watch and jewelry stores , company-owned retail and outlet stores , mass market stores and through our fossil website . our wholesale customer base includes , among others , amazon.com , dillard 's , jcpenney , kohl 's , macy 's , neiman marcus , nordstrom , saks fifth avenue , target and wal-mart . in the united states , our network of company-owned stores included 99 retail stores located in premier retail sites and 139 outlet stores located in major outlet malls as of january 2 , 2016 . in addition , we offer an extensive collection of our fossil brand products on our website , www.fossil.com , as well as proprietary and licensed watch and jewelry brands through other managed and affiliated websites . internationally , our products are sold to department stores , specialty retail stores and specialty watch and jewelry stores in approximately 150 countries worldwide through 23 company-owned foreign sales subsidiaries and through a network of approximately 80 independent distributors . internationally , our network of company-owned stores included 250 retail stores and 131 outlet stores as of january 2 , 2016 . our products are also sold through licensed and franchised fossil retail stores , retail concessions operated by us and kiosks in certain international markets . in addition , we offer an extensive collection of our fossil brand products on our websites in certain countries . our consolidated gross profit margin is impacted by our diversified business model that includes but is not limited to : ( i ) a significant number of product categories we distribute , ( ii ) the multiple brands we offer within several product categories , ( iii ) the geographical presence of our businesses and ( iv ) the different distribution channels we sell to or through . the components of this diversified business model produce varying ranges of gross profit margin . generally , on a historical basis , our fashion branded watch and jewelry offerings produce higher gross profit margins than our leather goods offerings . in addition , in most product categories that we offer , brands with higher retail price points generally produce higher gross profit margins compared to those of lower retail priced brands . gross profit margins related to sales in our europe and asia businesses are historically higher than our americas business primarily due to the following factors : ( i ) premiums charged in comparison to retail prices on products sold in the u.s. ; ( ii ) the product sales mix in our international businesses , in comparison to our americas business , is comprised more predominantly of watches and jewelry that generally produce higher gross profit margins than leather goods ; and ( iii ) the watch sales mix in our europe and asia businesses , in comparison to our americas business , are comprised more predominantly of higher priced licensed brands . our business is subject to the risks inherent in global sourcing supply . certain key components in our products come from limited sources of supply , which exposes us to potential supply shortages that could disrupt the manufacture and sale of our products . any interruption or delay in the supply of key components could significantly harm our ability to meet scheduled product deliveries to our customers and cause us to lose sales . interruptions or delays in supply may be caused by a number of factors that are outside of our and our contractor manufacturers ' control . this discussion should be read in conjunction with our consolidated financial statements and the related notes included therewith . 36 critical accounting policies and estimates the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . on an ongoing basis , we evaluate our estimates and judgments , including those related to product returns , bad debt , inventories , long-lived asset impairment , impairment of goodwill and trade names , income taxes , warranty costs , hedge accounting , litigation liabilities and stock-based compensation . we base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances . our 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 require the most significant estimates and judgments . product returns . we accept limited returns and may request that a customer return a product if we feel the customer has an excess of any style that we have identified as being a poor performer for that customer or geographic location . we monitor returns and maintain a provision for estimated returns based upon historical experience and any specific issues identified . while returns have historically been within our expectations and the provisions established , future return rates may differ from those experienced in the past . story_separator_special_tag if the actual future sales results do not meet the assumed growth rates , future impairments of goodwill and trade names may be incurred . income taxes . we record valuation allowances against our deferred tax assets , when necessary , in accordance with asc 740 , income taxes ( `` asc 740 '' ) . realization of deferred tax assets is dependent on future taxable earnings and is therefore uncertain . at least quarterly , we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income . to the extent we believe that recovery is not likely , we establish a valuation allowance against our deferred tax asset , increasing our income tax expense in the period such determination is made . in addition , we have not recorded u.s. income tax expense for foreign earnings that we have determined to be indefinitely reinvested outside the u.s. our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense . we accrue an amount for our estimate of additional income tax liability which we believe we are more likely than not to incur as a result of the ultimate resolution of tax audits ( `` uncertain tax positions '' ) . we review and update the estimates used in the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities , upon completion of tax audits , upon expiration of statutes of limitation , or upon occurrence of other events . the results of operations and financial position for future periods could be impacted by changes in assumptions or resolutions of tax audits . warranty costs . our watch products are covered by limited warranties against defects in materials or workmanship . our fossil watch products sold in the u.s. are covered for a period of 11 years , our relic watch products sold in the u.s. are covered for a period of 12 years , and our skagen branded watches are covered by a lifetime warranty . generally , all other products sold in the u.s. and internationally are covered by a comparable one to two year warranty . we determine our warranty liability using historical warranty repair experience . as changes occur in sales volumes and warranty experience , the warranty accrual is adjusted as necessary . the year-end warranty liability for fiscal years 2015 , 2014 and 2013 was $ 13.7 million , $ 13.5 million and $ 15.7 million , respectively . hedge accounting . the company is exposed to certain market risks relating to foreign exchange rates and interest rates . the company actively monitors and attempts to manage these exposures using derivative instruments including foreign exchange forward contracts ( `` forward contracts '' ) and interest rate swaps . the company 's main objective is to hedge the variability in forecasted cash flows due to the foreign currency risks primarily associated with certain anticipated inventory purchases . changes in the fair value of forward contracts designated as cash flow hedges are recorded in the cumulative translation adjustment component of accumulated other comprehensive income ( loss ) within stockholders ' equity , and are recognized in other income ( expense ) - net in the period which the intercompany cash payment for inventory is made . additionally , to the extent that any of these contracts are not considered to be perfectly effective in offsetting the change in the value of the cash flows being hedged , any changes in fair value relating to the ineffective portion of these contracts would be recognized in other income ( expense ) - net on the company 's consolidated statements of income and comprehensive income . also , the company has entered into interest rate swap agreements to effectively convert portions of its variable rate debt obligations to fixed rates . changes in the fair value of the interest rate swaps are recorded as a component of accumulated other comprehensive income ( loss ) within stockholders ' equity , and are recognized in interest expense in the period in which the payment is settled . to reduce exposure to changes in currency exchange rates adversely affecting the company 's investment in foreign currency-denominated subsidiaries , the company periodically enters into forward contracts designated as net investment hedges . both realized and unrealized gains and losses from net investment hedges are recognized in the cumulative translation adjustment component of other comprehensive income ( loss ) , and will be reclassified into earnings in the event the company 's underlying investments are liquidated or disposed . the company does not hold or issue derivative financial instruments for trading or speculative purposes . the company has elected to apply the hedge accounting rules as required by asc 815 , derivatives and hedging , for these hedges . 38 stock-based compensation . we utilize the black-scholes model to determine the fair value of stock options and stock appreciation rights on the date of grant . the model requires us to make assumptions concerning ( i ) the length of time employees will retain their vested stock options and stock appreciation rights before exercising them ( `` expected term '' ) , ( ii ) the volatility of our common stock price over the expected term and ( iii ) the number of stock options and stock appreciation rights that will be forfeited . changes in these assumptions can materially affect the estimate of fair value of stock-based compensation and , consequently , the related expense amounts recognized on our consolidated statements of income and comprehensive income . if the fair value of our stock-based compensation were to change by 10 % , the result would have been a $ 1.4 million change to net income , net of taxes . results of operations story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2014 .
| executive summary during fiscal year 2015 , net sales decreased 8 % ( 1 % in constant currency and comparable calendar ) as compared to the prior fiscal year which included an extra week of operations as fiscal year 2014 was a 53-week year as compared to a 52-week year for fiscal year 2015 . in the following discussion , certain amounts are presented on a comparable calendar basis by removing an estimated week of activity from the prior year . on a constant currency and comparable calendar basis , modest sales decreases in the americas and asia regions were partially offset by sales growth in europe . during fiscal year 2015 , the watch business was sluggish as tech-enabled devices offered consumers additional choices and the economic environments in many of our key markets were unfavorable . however , we invested in brand building and demand creation activities for our owned brands and grew both fossil and skagen across each of our geographic regions on a constant currency and comparable calendar basis and acquired misfit , inc. at the end of the year to enable us to expand our addressable market in the future . we advanced our customer relationship management initiative to better understand our customer , their shopping patterns and preferences and establish a deeper connection with them to provide for continued dialog with the intent to facilitate repeat customer visits and drive additional sales . we also made great strides in increasing brand awareness through product innovation both in traditional categories as well as the connected accessories space . fossil branded products decreased 5 % ( increased 4 % in constant currency and comparable calendar ) , including modest growth in watches and leathers partially offset by a small decrease in the jewelry business on a constant currency and comparable calendar basis .
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director independence our common stock is not listed on any stock exchange or inter-dealer quotation system and we do not have an independent director on our board . for the purposes of determining director independence , we have applied the definitions set out in nasdaq rule 4200 ( a ) ( 15 ) ( the rule ) . under the rule , a director is not considered to be independent if he or she is also an executive officer or employee of the company . the members of our board of directors also act as executive officers so we currently do not have any independent directors . 19 item 14. principal accountant fees and services our principal accountant k. r. margetson ltd. , chartered accountant , rendered invoices to us during the fiscal periods indicated for the following fees and services : audit fees the aggregate fees billed for the most recently completed fiscal year ended march 31 , 2010 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included our registration statement on form s-1 and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows : replace_table_token_14_th policy on pre-approval by the board of services performed by independent auditors we do not use k.r . margetson ltd. for financial information system design and implementation . these services , which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements , are provided internally or by other service providers . we do not engage k.r . margetson ltd. to provide compliance outsourcing services . effective may 6 , 2003 , the securities and exchange commission adopted rules that require that before k.r . margetson ltd. is engaged by us to render any auditing or permitted non-audit related service , the engagement be : approved by our board of directors ; or , entered into pursuant to pre-approval policies and procedures established by the board of directors , provided the policies and procedures are detailed as to the particular service , the board of directors is informed of each service , and such policies and procedures do not include delegation of the board of directors ' responsibilities to management . the board of directors pre-approves all services provided by our independent auditors . all of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered . the board of directors has considered the nature and amount of fees billed by k.r . margetson ltd. and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independence . 20 part iv item 15. exhibits , financial statement schedules . no . description 3.1 articles of incorporation [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 3.2 bylaws [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 10.1 share exchange agreement between swav enterprises ltd. and pui shan lam dated april 1 , 2007 [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 10.2 form of subscription agreement used in the private placements that closed on may 4 , 2007 between our company and 45 investors [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 10.3 form of subscription agreement used in the private placements that closed on may 4 , 2007 between our company and 45 investors [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 10.4 form of subscription agreement used in the private placements that closed on june 30 , 2008 between our company and four investors [ incorporated by reference to the company 's form 8-k filed june 21 , 2008 ] 10.5 stock purchase agreement , dated september 21 , 2009 , between the selling stockholders and sandy j. masselli [ incorporated by reference to the company 's form 8-k filed september 21 , 2009 ] 10.6 share transaction purchase agreement , dated september 21 , 2009 , between swav enterprises ltd. and carlyle gaming limited [ incorporated by reference to the company 's form 8-k filed september 21 , 2009 ] 10.7 subsidiary stock purchase agreement , dated september 21 , 2009 , between swav enterprises ltd. and pui shan lam [ incorporated by reference to the company 's form 8-k filed september 21 , 2009 ] 10.8 asset purchase agreement , dated april 26 , 2010 , between swav enterprises ltd. and lotus holdings limited [ incorporated by reference to the company 's form 8-k filed april 26 , 2010 ] 10.9 non-affiliate stock purchase agreement , dated april 26 , 2010 , between the selling stockholders and joerg ott [ incorporated by reference to the company 's form 8-k filed april 26 , 2010 ] 10.10 affiliate stock purchase agreement , dated april 26 , 2010 , between the selling stockholders and joerg ott [ incorporated by reference to the company 's form 8-k filed april 26 , 2010 ] 10.11 subsidiary stock purchase agreement , dated april 26 , 2010 , between swav enterprises ltd. and pui shan lam [ incorporated by reference to the company 's form 8-k filed april 26 , 2010 ] 31.1 rule 13 ( a ) -14 ( a ) /15 ( d ) -14 ( a ) certifications ( ceo ) 32.1 section 1350 certifications ( ceo ) 21 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 . story_separator_special_tag director independence our common stock is not listed on any stock exchange or inter-dealer quotation system and we do not have an independent director on our board . for the purposes of determining director independence , we have applied the definitions set out in nasdaq rule 4200 ( a ) ( 15 ) ( the rule ) . under the rule , a director is not considered to be independent if he or she is also an executive officer or employee of the company . the members of our board of directors also act as executive officers so we currently do not have any independent directors . 19 item 14. principal accountant fees and services our principal accountant k. r. margetson ltd. , chartered accountant , rendered invoices to us during the fiscal periods indicated for the following fees and services : audit fees the aggregate fees billed for the most recently completed fiscal year ended march 31 , 2010 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included our registration statement on form s-1 and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows : replace_table_token_14_th policy on pre-approval by the board of services performed by independent auditors we do not use k.r . margetson ltd. for financial information system design and implementation . these services , which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements , are provided internally or by other service providers . we do not engage k.r . margetson ltd. to provide compliance outsourcing services . effective may 6 , 2003 , the securities and exchange commission adopted rules that require that before k.r . margetson ltd. is engaged by us to render any auditing or permitted non-audit related service , the engagement be : approved by our board of directors ; or , entered into pursuant to pre-approval policies and procedures established by the board of directors , provided the policies and procedures are detailed as to the particular service , the board of directors is informed of each service , and such policies and procedures do not include delegation of the board of directors ' responsibilities to management . the board of directors pre-approves all services provided by our independent auditors . all of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered . the board of directors has considered the nature and amount of fees billed by k.r . margetson ltd. and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independence . 20 part iv item 15. exhibits , financial statement schedules . no . description 3.1 articles of incorporation [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 3.2 bylaws [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 10.1 share exchange agreement between swav enterprises ltd. and pui shan lam dated april 1 , 2007 [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 10.2 form of subscription agreement used in the private placements that closed on may 4 , 2007 between our company and 45 investors [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 10.3 form of subscription agreement used in the private placements that closed on may 4 , 2007 between our company and 45 investors [ incorporated by reference to the company 's form sb-2 filed january 14 , 2008 ] 10.4 form of subscription agreement used in the private placements that closed on june 30 , 2008 between our company and four investors [ incorporated by reference to the company 's form 8-k filed june 21 , 2008 ] 10.5 stock purchase agreement , dated september 21 , 2009 , between the selling stockholders and sandy j. masselli [ incorporated by reference to the company 's form 8-k filed september 21 , 2009 ] 10.6 share transaction purchase agreement , dated september 21 , 2009 , between swav enterprises ltd. and carlyle gaming limited [ incorporated by reference to the company 's form 8-k filed september 21 , 2009 ] 10.7 subsidiary stock purchase agreement , dated september 21 , 2009 , between swav enterprises ltd. and pui shan lam [ incorporated by reference to the company 's form 8-k filed september 21 , 2009 ] 10.8 asset purchase agreement , dated april 26 , 2010 , between swav enterprises ltd. and lotus holdings limited [ incorporated by reference to the company 's form 8-k filed april 26 , 2010 ] 10.9 non-affiliate stock purchase agreement , dated april 26 , 2010 , between the selling stockholders and joerg ott [ incorporated by reference to the company 's form 8-k filed april 26 , 2010 ] 10.10 affiliate stock purchase agreement , dated april 26 , 2010 , between the selling stockholders and joerg ott [ incorporated by reference to the company 's form 8-k filed april 26 , 2010 ] 10.11 subsidiary stock purchase agreement , dated april 26 , 2010 , between swav enterprises ltd. and pui shan lam [ incorporated by reference to the company 's form 8-k filed april 26 , 2010 ] 31.1 rule 13 ( a ) -14 ( a ) /15 ( d ) -14 ( a ) certifications ( ceo ) 32.1 section 1350 certifications ( ceo ) 21 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 .
| results of operations during year ended march 31 , 2010 , we generated $ 6,289 in sales revenue , compared to $ 16,459 generated in the year ended march 31 , 2009. this revenue was generated from sales of products through direct client sales and an auction house in calgary , canada . the cost of sales for the year ended march 31 , 2010 was $ 4,231 compared to $ 6,770 in the year ended march 31 , 2009. the cost of sales included the total cost of purchased goods , transportation , import duty , custom tax , etc . for the goods purchased during the period . during the year ended march 31 , 2010 , we generated $ 7,587 in consulting revenue compared to $ 22,003 in the year ended march 31 , 2009. during year ended march 31 , 2010 , our selling expenses totaled $ 185 , compared to $ 2,874 for the same period in the previous year . our operating expenses in the year ended march 31 , 2010 totaled $ 27,440 , compared to $ 48,079 for the same period in the previous year . the operating expenses in the year ended march 31 , 2010 included admin fees of $ 2,750 , filing fees of $ 2,958 , office and general expenses of $ 5,921 , professional fees of $ 4,909 , rent of $ 206 , travel and promotion expenses of $ 7,946 and wages of $ 2,750. the operating expenses in the year ended march 31 , 2009 included administration fees of $ 2,662 , filing fees of $ 3,514 , office and general expenses of $ 5,873 , professional fees of $ 19,953 , rent of $ 3,154 , travel and promotion expenses of $ 1,996 and wages of $ 10,927 .
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when used in this document , the words “ believe , ” “ anticipate , ” “ estimate , ” “ expect , ” “ intend , ” “ may , ” “ will , ” “ project , ” “ forecast , ” “ plan , ” and similar expressions are intended to identify forward-looking statements . although management believes that the expectations reflected in these forward-looking statements are reasonable , it can give no assurance that these expectations will prove to have been correct . these statements are subject to numerous risks , uncertainties and assumptions . see cautionary statement concerning forward-looking statements in this report . certain of these risks are summarized in this report under item 1a . risk factors , which you should read carefully in connection with our forward-looking statements . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated . we undertake no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events . overview we are a growth-oriented independent oil and gas company engaged in the economic acquisition and development of oil and gas reserves through activities that include the acquisition , drilling and development of undeveloped leases , asset and corporate 46 acquisitions and mergers . our operations are all in the upstream segment of the oil and natural gas industry and all our properties are onshore in the united states . at present , our assets are located in the midland basin of west texas and the eagle ford trend of south texas . earthstone is the sole managing member of earthstone energy holdings , llc , a delaware limited liability company ( together with its wholly-owned consolidated subsidiaries , “ eeh ” ) , with a controlling interest in eeh . earthstone , together with its wholly-owned subsidiary , lynden corp , and lynden corp 's wholly-owned consolidated subsidiary , lynden us and also a member of eeh , consolidates the financial results of eeh and records a noncontrolling interest in the consolidated financial statements representing the economic interests of eeh 's members other than earthstone and lynden us ( collectively , the “ company ” “ our , ” “ we , ” “ us , ” or similar terms ) . midland basin acquisition on january 7 , 2021 , earthstone energy , inc. ( “ earthstone ” or the “ company ” ) , earthstone energy holdings , llc , a subsidiary of the company ( “ eeh ” and collectively with earthstone , the “ buyer ” ) , independence resources holdings , llc ( “ independence ” ) , and independence resources manager , llc ( “ independence manager ” and collectively with independence , the “ seller ” ) consummated the transactions contemplated in the purchase and sale agreement dated december 17 , 2020 ( the “ purchase agreement ” ) that was previously reported on form 8-k filed with the sec on december 22 , 2020. the seller was unaffiliated with the company . at the closing of the purchase agreement , among other things , eeh acquired ( the “ acquisition ” ) all of the issued and outstanding limited liability company interests in certain wholly owned subsidiaries of independence and independence manager ( collectively , the “ acquired entities ” ) for aggregate consideration consisting of the following : ( i ) an aggregate amount of cash from eeh equal to approximately $ 131.2 million ( the “ cash consideration ” ) and ( ii ) 12,719,594 shares of the company 's class a common stock issued to independence ( such shares , the “ acquisition shares , ” and such issuance , the “ stock issuance ” ) . as a result of the stock issuance , earthstone is no longer considered a controlled company within the meaning of the nyse rules . amendment to credit agreement - in preparation for the irm acquisition , on december 17 , 2020 , earthstone , eeh , as borrower , wells fargo bank , national association ( “ wells fargo ” ) , as administrative agent , the guarantors party thereto , and the lenders party thereto ( the “ lenders ” ) entered into an amendment ( the “ amendment ” ) to the credit agreement dated november 21 , 2019 , by and among eeh , as borrower , earthstone , as parent , wells fargo , as administrative agent and issuing bank , bokf , na dba bank of texas , as issuing bank with respect to existing letters of credit , royal bank of canada , as syndication agent , truist bank , as successor by merger to suntrust bank , as documentation agent , and the lenders party thereto ( together with all amendments or other modifications , the “ credit agreement ” ) . the amendment was effective upon the closing of the irm acquisition . among other things , the amendment ( i ) joined certain financial institutions as additional lenders , increased the borrowing base from $ 240.0 million to $ 360.0 million , ( ii ) increased the interest rate on outstanding borrowings ; and ( iii ) adjusted some of the financial covenants . liquidity update as of march 1 , 2021 , we had $ 10.1 million in cash and $ 227.5 million of long-term debt outstanding under our credit agreement , as amended , with a borrowing base of $ 360 million . with the $ 132.5 million of undrawn borrowing base capacity and $ 10.1 million in cash , we had total liquidity of approximately $ 142.6 million . areas of operation at present , our primary efforts are concentrated in the midland basin of west texas , a high oil and liquids rich resource basin that provides us with multiple horizontal targets , extensive production histories , long-lived reserves and historically high drilling success rates . story_separator_special_tag million related to the texas margin tax . lynden corp incurred no material income or loss , or related income tax expense or benefit , for the year ended december 31 , 2019. liquidity and capital resources we have significant undeveloped acreage and future drilling locations . drilling horizontal wells , generally consisting of 7,500 to 12,000-foot lateral lengths , in the midland basin is capital intensive . as of december 31 , 2020 , we had $ 1.5 million in cash and $ 115 million of long-term debt outstanding under our credit agreement with a borrowing base of $ 240 million . with the $ 125 million of undrawn borrowing base capacity and $ 1.5 million in cash , we had total liquidity of approximately $ 126.5 million . subsequent to year-end , earthstone closed on its previously announced acquisition of irm and amended the credit agreement . as of march 1 , 2021 , we had $ 10.1 million in cash and $ 227.5 million of long-term debt outstanding under our credit agreement , as amended , with a borrowing base of $ 360 million . with the $ 132.5 million of undrawn borrowing base capacity and $ 10.1 million in cash , we had total liquidity of approximately $ 142.6 million . 51 as oil prices have recovered recently from their 2020 lows , we are preparing to resume drilling operations with the deployment of a rig late in the first quarter of 2021 and we expect to spend $ 90- $ 100 million based on our current 2021 drilling plan . we believe we will have sufficient liquidity with cash flows from operations and borrowings under the credit agreement to meet our cash requirements for the next 12 months . working capital working capital ( presented below ) was a deficit of $ 20.8 million as of december 31 , 2020 compared to a deficit of $ 39.9 million as of december 31 , 2019 , representing an improvement of $ 19.2 million . the improvement was primarily due to the reduction of liabilities resulting from reduced drilling activity . the components of working capital are presented below : replace_table_token_15_th we expect that changes in receivables and payables related to our pace of development , production volumes , changes in our hedging activities , realized commodity prices and differentials to nymex prices for our oil and natural gas production will continue to be the largest variables affecting our working capital . we expect to finance future development activities with cash flows from operating activities , borrowings under the credit agreement and , various means of corporate and project financing . additionally , we may continue to partially finance our drilling activities through the sale of participating rights to financial institutions or industry participants , and we could structure such arrangements on a promoted basis , whereby we may earn working interests in reserves and production greater than our proportionate share of capital costs . in july 2019 , we entered into a wellbore development agreement ( “ wda ” ) with a non-affiliated industry partner . this wda reduced our working interest in certain wells in reagan county . the industry partner paid a promoted ( proportionately higher ) share of the capital expenditures on eight wells , to earn 35 % of the working interest in these wells . capital expenditures 52 our accrual basis capital expenditures for the years ended december 31 , 2020 and 2019 were as follows : replace_table_token_16_th hedging activities the following table sets forth our outstanding derivative contracts at december 31 , 2020. when aggregating multiple contracts , the weighted average contract price is disclosed . replace_table_token_17_th ( 1 ) the basis differential price is between wti midland argus crude and the wti nymex . ( 2 ) the basis differential price is between w. texas ( waha ) and the henry hub nymex . on january 7 , 2021 , upon closing of the irm acquisition , irm had hedges in place for approximately 1,008,950 bbls of oil at $ 41.07/bbl . hedging update the following table sets forth our outstanding derivative contracts at march 4 , 2021. when aggregating multiple contracts , the weighted average contract price is disclosed . replace_table_token_18_th ( 1 ) the basis differential price is between wti midland argus crude and the wti nymex . ( 2 ) the swap is between wti roll and the wti nymex . ( 3 ) the basis differential price is between w. texas ( waha ) and the henry hub nymex . 53 obligations and commitments we had the following contractual obligations and commitments as of december 31 , 2020 : replace_table_token_19_th ( 1 ) 2021 amount represents interest payable under the credit agreement as of december 31 , 2020 . ( 2 ) we have a non-cancelable fixed cost agreement of $ 0.7 million per year through may 2021 to reserve pipeline capacity of 10,000 mmbtu per day for gathering and processing related to certain eagle ford assets in south texas . as the operator of the properties dedicated to this contract , the gross amount of obligation is provided ; however , our net share is approximately 31 % . on january 7 , 2021 , upon closing of the irm acquisition , eeh became party to an office lease with an effective termination date of may 31 , 2021 , for which the remaining obligation is approximately $ 0.26 million . environmental regulations our operations are subject to risks normally associated with the exploration for and the production of oil and natural gas , including blowouts , fires , and environmental risks such as oil spills or natural gas leaks that could expose us to liabilities associated with these risks . in our acquisition of existing or previously drilled well bores , we may not be aware of prior environmental safeguards , if any , that were taken at the time such wells were drilled or during such time the wells were operated .
| results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 replace_table_token_14_th ( 1 ) barrels of oil equivalent have been calculated on the basis of six thousand cubic feet ( mcf ) of natural gas equals one barrel of oil equivalent ( boe ) . 49 nm – not meaningful oil revenues for the year ended december 31 , 2020 , oil revenues decreased by approximately $ 51.6 million or 30 % compared to 2019. of the decrease , $ 55.1 million was attributable to lower realized prices , partially offset by $ 3.5 million due to increased sales volumes . our average realized price per bbl decreased from $ 55.71 for the year ended december 31 , 2019 to $ 37.85 or 32 % for the year ended december 31 , 2020. we had a net increase in the volume of oil sold of 93 mbbls or 3 % , primarily due to new wells brought online offset by production shut-ins we initiated in may 2020 due to the domestic collapse of oil prices . natural gas revenues for the year ended december 31 , 2020 , natural gas revenues increased by $ 4.7 million or 119 % compared to 2019. of the increase , $ 3.0 million was attributable to increased sales volumes and $ 1.7 million was due to higher realized prices .
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our marketplaces provide professional buyers access to a global , organized supply of surplus and salvage assets presented with customer focused information including digital images and other relevant product information along with services to efficiently complete the transaction . additionally , we enable our corporate and government sellers to enhance their financial return on excess assets by providing liquid marketplaces and value-added services that integrate sales and marketing , logistics and transaction settlement into a single offering . we organize our products into categories across major industry verticals such as consumer electronics , general merchandise , apparel , scientific equipment , aerospace parts and equipment , technology hardware , energy equipment , industrial capital assets , fleet and transportation equipment and specialty equipment . our online auction marketplaces are www.liquidation.com , www.govliquidation.com , www.govdeals.com , www.networkintl.com , www.truckcenter.com , www.secondipity.com , and www.go-dove.com . we believe our ability to create liquid marketplaces for surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers . this valuable and reliable flow of goods in turn attracts an increasing number of professional buyers to our marketplaces . during fiscal year 2015 , the number of registered buyers grew from approximately 2,615,000 to approximately 2,845,000 , or 8.8 % . during the past three fiscal years , we have conducted over 1,644,000 online transactions generating approximately $ 2.7 billion in gross merchandise volume or gmv . we believe the continuous flow of goods in our marketplaces attracts a growing buyer base which creates a virtual cycle for our buyers and sellers . our history . we were incorporated in delaware in november 1999 as liquidation.com , inc. and commenced operations in early 2000. during 2000 , we developed our online auction marketplace platform and began auctioning merchandise primarily for small commercial sellers and government agencies . in 2001 , we changed our name to liquidity services , inc. in june 2001 , we were awarded our first major dod contract , the surplus contract . under this agreement , we became the exclusive contractor with the dla disposition services , for the sale of usable dod surplus assets in the united states . in june 2005 , we were awarded an additional exclusive contract with the dla disposition services to manage and sell substantially all dod scrap property . during 2005 , we opened our first distribution center in dallas , texas and began serving the reverse logistics needs of top 100 retailers . our revenue . we offer our sellers three primary transaction models : a profit-sharing model , a consignment model and a purchase model . profit-sharing model . under our profit-sharing model , we purchase inventory from our suppliers and share with them a portion of the profits received from a completed sale in the form of a distribution . distributions are calculated based on the value received from the sale after deducting allowable costs , such as sales and marketing , technology and operations and other general and administrative costs . because we are the primary obligor , and take general and physical inventory risks and credit risk under this transaction model , we recognize as revenue the sale price paid by the buyer upon completion of a transaction . revenue from our profit-sharing 37 model accounted for approximately 13.5 % , 14.4 % , and 15.3 % of our total revenue for the fiscal years ended september 30 , 2013 , 2014 and 2015 , respectively . the merchandise sold under our profit-sharing model accounted for approximately 7.0 % , 7.7 % , and 7.6 % of our gmv for the fiscal years ended september 30 , 2013 , 2014 and 2015 , respectively . consignment modelfee revenue . under our consignment model , we recognize commission revenue from sales of merchandise in our marketplaces that is owned by others . these commissions , which we refer to as seller commissions , represent a percentage of the sale price the buyer pays upon completion of a transaction . we vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to facilitate the transaction . for example , we generally increase the percentage amount of the commission if we take possession , handle , ship and / or provide enhanced product information for the merchandise . we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to their distribution to the seller after completion of the transaction . revenue from our consignment model , as well as other fee revenue , accounted for approximately 20.1 % , 21.6 % , and 20.6 % of our total revenue for the fiscal years ended september 30 , 2013 , 2014 and 2015 , respectively , and is recorded as fee revenue in the consolidated statement of operations . the merchandise sold under our consignment model accounted for approximately 59.1 % , 57.7 % , and 59.7 % of our gmv for the fiscal years ended september 30 , 2013 , 2014 and 2015 , respectively . purchase model . under our purchase model , we offer our sellers a fixed amount or the option to share a portion of the proceeds received from our completed sales in the form of a distribution . distributions are calculated based on the value we receive from the sale after deducting a required return to us that we have negotiated with the seller . because we are the primary obligor , and take general and physical inventory risks and credit risk under this transaction model , we recognize as revenue the sale price paid by the buyer upon completion of a transaction . revenue from our purchase model accounted for approximately 66.5 % , 64.0 % , and 64.1 % of our total revenue for the fiscal years ended september 30 , 2013 , 2014 and 2015 , respectively . story_separator_special_tag in june 2005 , we were awarded a competitive-bid exclusive contract under which we acquire , manage and sell substantially all scrap property of the dod turned into the dla disposition services . scrap property generally consists of items determined by the dod to have no use beyond their base material content , such as metals , alloys , and building materials . revenue from our scrap contract ( including buyer premiums ) accounted for approximately 13.5 % , 14.4 % , and 15.3 % of our total revenue for the fiscal years ended september 30 , 2013 , 39 2014 and 2015 , respectively . the property sold under our scrap contract accounted for approximately 7.0 % , 7.7 % , and 7.6 % of our gmv for the fiscal years ended september 30 , 2013 , 2014 and 2015 , respectively . we were required to pay $ 5.7 million to the dod in fiscal 2005 for the right to manage the operations and remarket scrap material in connection with the scrap contract . the scrap contract base term expired in august 2012 , subject to dod 's right to extend it for three additional one-year terms . the dod has exercised all three of the renewal options . effective june 9 , 2015 , modifications were made to the principal terms of the scrap contract including that : ( i ) contract pricing will be adjusted to reflect a 65 % profit sharing distribution to the dla disposition services ; ( ii ) dla disposition services may elect to terminate portions of the scrap contract by location with a 90-day notification required ; and ( iii ) dla disposition services may elect to terminate portions of the scrap contract by certain commodity categories with a 60-day notification required ; provided that no such termination shall be effective sooner than october 8 , 2015. under the scrap contract , as modified , we acquire scrap property at a per pound price and we are entitled to 35 % of the profits of sale ( defined as gross proceeds of sale less allowable operating expenses ) and distribute the remaining profits to dod . we refer to these disbursement payments to dod as profit-sharing distributions . as a result of this arrangement , we recognize as revenue the gross proceeds from these sales . dod also reimburses us for actual costs incurred for packing , loading and shipping property under the scrap contract that we are obligated to pick up from non-dod locations . under the current surplus contract , executed on december 18 , 2008 , we are not required to distribute any portion of the profits realized under the contract , as the current contract contains a higher fixed percentage price of 1.8 % of the dla disposition services ' acquisition value to be paid for the property . the dod has broad discretion to determine what property will be made available for sale to us under the surplus contract and may retrieve or restrict property previously sold to us for national security reasons or if the property is otherwise needed to support the mission of the dod . under the scrap contract , we also had a small business performance incentive based on the number of scrap buyers that are small businesses that would allow us to receive up to an additional 2 % of the profit sharing distribution . the june 2015 modifications to the scrap contract included the elimination of the small business performance incentive . the profit-sharing distribution for the scrap contract , as modified , is 35 % and includes inventory assurance processes and procedures with respect to the mutilation of demilitarized scrap property sold . our commercial agreements . we have various contracts with wal-mart stores , inc. , under which we purchase certain consumer products from wal-mart that have been removed from the sales stream of its retail operations . for the year ended september 30 , 2015 , approximately 6 % of our gmv was generated from wal-mart under multiple contracts / programs.all of these agreements have customary commercial terms , which generally expire within a year and allow both parties to terminate for convenience with reasonable notice . as a result of the jacobs trading acquisition , we also had a long-term contract with wal-mart that did not provide for termination for convenience ( the `` wal-mart agreement '' ) . the term of this agreement was scheduled to expire on may 16 , 2016. on december 1 , 2014 , wal-mart provided us written notice ( the `` termination notice '' ) terminating the wal-mart agreement effective december 8 , 2014. the termination notice alleged that we failed to comply with certain provisions under the wal-mart agreement with respect to service level requirements and restrictions on the disposition of merchandise . we disputed these allegations and contested the termination of the wal-mart agreement with wal-mart . as a result of negotiations with wal-mart , on january 22 , 2015 , we finalized a settlement whereby , in exchange for both parties waiving all respective claims against the other , wal-mart agreed to pay $ 7.5 million in damages . the amount of the settlement was recorded within accounts receivable and a reduction of inventory on the consolidated balance sheet as of december 31 , 40 2014 , as the settlement compensated us for the overpayment of inventory from wal-mart . we received the payment in february 2015. on september 30 , 2015 , we sold certain assets related to the jacobs trading business to a buyer , tanager acquisitions , llc . in connection with the disposition , the buyer assumed certain liabilities related to the jacobs trading business . the buyer issued to us a promissory note in the amount of $ 12.3 million .
| results of operations the following table sets forth , for the periods indicated , selected statement of operations data expressed as a percentage of revenue . replace_table_token_6_th year ended september 30 , 2015 compared to year ended september 30 , 2014 revenue . revenue decreased $ 98.5 million , or 19.9 % , to $ 397.1 million for the year ended september 30 , 2015 from $ 495.7 million for the year ended september 30 , 2014. this decrease was primarily due to ( 1 ) a 27.9 % decrease , or $ 62.5 million , in our retail commercial marketplaces , primarily as a result of the loss of the wal-mart agreement ; and ( 2 ) a 22.2 % decrease , or $ 45.3 million , in our dod contracts as the result of decreased property flows of lower value product . these decreases were offset in part by ( 1 ) a 13.4 % increase , or $ 6.6 million , in our capital assets marketplaces due to an increase in principal deals in our manufacturing vertical ; and ( 2 ) a 14.8 % increase , or $ 2.6 million , in our state and local government ( govdeals ) marketplace due to an increase in the number of sellers . the amount of gross merchandise volume decreased $ 132.6 million , or 14.2 % , to $ 799.0 million for the year ended september 30 , 2015 from $ 931.6 million for the year ended september 30 , 2014 , primarily due to ( 1 ) a 31.8 % decrease , or $ 102.7 million , in our commercial retail marketplaces , primarily as a result of the loss of the wal-mart agreement ; ( 2 ) the decreases in our dod contracts discussed above ; and ( 3 ) a 17.7 % decrease , or $ 11.9 million , in our capital assets marketplaces due to the continued weakness in the energy and transportation verticals .
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“ non-pre-funded ” warrants “ non-pre-funded ” warrants to purchase a total of 70,000 shares of common stock were outstanding as of december 31 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes included in this form 10-k. abeona is a clinical-stage biopharmaceutical company developing gene and cell therapies for life-threatening rare genetic diseases . our lead clinical programs consist of : ( i ) eb-101 , an autologous , gene-corrected cell therapy for recessive dystrophic epidermolysis bullosa ( “ rdeb ” ) , ( ii ) abo-102 , an adeno-associated virus ( “ aav ” ) -based gene therapy for sanfilippo syndrome type a ( “ mps iiia ” ) , and ( iii ) abo-101 , an aav-based gene therapy for sanfilippo syndrome type b ( “ mps iiib ” ) . we continue to develop additional aav-based gene therapies designed to treat ophthalmic and other diseases and next-generation aav-based gene therapies using the novel aim capsid platform that we have exclusively licensed from the university of north carolina at chapel hill , and internal aav vector research programs . impact of covid-19 pandemic on our business we continue to assess the evolving impact of the covid-19 pandemic on our business and take appropriate actions to manage our spending activities and preserve our cash resources . we continue to actively monitor the situation and may take further actions to adjust our business operations that we determine are in the best interests of our patients , employees , suppliers and stockholders . while we are unable to determine or predict the extent , duration or scope of the overall impact the covid-19 pandemic will have on our business , operations , financial condition or liquidity , we believe it is important to keep our stakeholders informed about how our response to covid-19 is progressing and how our operations and financial condition may change . clinical program activities we remain committed to advancing our clinical programs and have implemented measures to minimize disruption . we also are regularly reassessing plans along with associated processes and policies to ensure our patients and employees are safe , and that continuity in our operations remains . all current clinical trial sites are active . we are also providing virtual and remote follow-up to ensure compliance with safety oversight . in june 2020 , we resumed patient enrollment in our phase 3 viital study of eb-101 after the study was paused in march 2020 to ensure the safety of study participants and site staff during the pandemic . the ongoing phase 1/2 clinical trials of our investigational aav-based gene therapies for mps iiia and iiib ( abo-102 and abo-101 , respectively ) have continued to treat patients . manufacturing activities operations at our cleveland manufacturing facility were significantly scaled back from march 2020 until early june 2020 to ensure the safety of employees and those around them , and to accommodate reduced manufacturing and clinical development activities . we had paused our manufacturing activities for eb-101 clinical material , pending patient enrollment , as well as our aav manufacturing and process development activities . during this pause period , we took the opportunity to complete maintenance and monitoring projects . in june 2020 , we resumed our eb-101 manufacturing activities , including process development for the internal production of retrovirus as well as our aav process development and manufacturing activities . 67 business operations many of the additional protective measures we instituted during the first quarter of 2020 in response to the covid-19 pandemic remain in place , and we continue to regularly assess and improve our safety practices and policies . the extent of the impact of the covid-19 pandemic on our business , operations , and clinical trials continues to evolve and will depend on certain developments , including : ( i ) the duration of the declared health emergencies ; ( ii ) future actions taken by governmental authorities and regulators with respect to the pandemic , including reinstituting state and local lockdowns ; ( iii ) the impact on our partners , collaborators , and suppliers ; and ( iv ) actions being taken by us in response to this crisis . we remain dedicated to communicating regularly and openly with our stakeholders as more information becomes available , including updates on material changes to prior guidance as we continue to follow applicable government , regulatory and institutional guidelines . story_separator_special_tag annual fees totaling up to $ 100 million , payable in $ 20 million annual installments beginning on the second anniversary of the effective date ( the first of which was to remain payable if the agreement were terminated before the second anniversary in november 2020 ) , ( iii ) sales milestone payments totaling $ 60 million , and ( iv ) royalties payable in the low double digits to low teens on net sales of products covered under the agreement . the license was being amortized over the life of the patent of eight years . on november 1 , 2019 , we entered into an amendment of the original license agreement . the amended agreement replaced the $ 10 million payment due on november 4 , 2019 with a $ 3 million payment due on november 4 , 2019 and an additional $ 8 million payment ( which included $ 1 million of interest ) that would have been due no later than april 1 , 2020. that $ 8 million payment had been scheduled to be paid by april 1 , 2020 and the $ 20 million that had been due to be paid on november 4 , 2020 , and both were recorded as payable to licensor on the consolidated balance sheet . the company has disputed that it is responsible for the $ 8 million and $ 20 million payments , and those payments are the subject of a current arbitration between the company and regenxbio . story_separator_special_tag we do not invest in derivative financial instruments . 71 contractual obligations the following table summarizes our significant contractual obligations as of the payment due date by period as of december 31 , 2020 : replace_table_token_1_th we enter into agreements in the normal course of business with clinical research organizations for clinical trials and clinical manufacturing organizations for supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes . these contractual obligations are cancelable at any time by us , generally upon prior written notice to the vendor , and are thus not included in the contractual obligations table . operating lease amounts represent future minimum lease payments under our non-cancelable operating lease agreements . the minimum lease payments above do not include any related common area maintenance charges or real estate taxes . on november 4 , 2018 , we entered into a license agreement with regenxbio to obtain rights to an exclusive worldwide license ( subject to certain non-exclusive rights previously granted for mps iiia ) , with rights to sublicense , to regenxbio 's nav aav9 vector for gene therapies for treating mps iiia , mps iiib , cln1 disease and cln3 disease . consideration for the rights granted under the original agreement included fees totaling $ 180 million and a running royalty on net sales , including : ( i ) an initial fee of $ 20 million , $ 10 million of which was due to regenxbio shortly after the effective date of the agreement , and $ 10 million of which was to be due on the first anniversary of the effective date of the agreement in november 2019 , ( ii ) annual fees totaling up to $ 100 million , payable in $ 20 million annual installments beginning on the second anniversary of the effective date ( the first of which was to remain payable if the agreement were terminated before the second anniversary in november 2020 ) , ( iii ) sales milestone payments totaling $ 60 million , and ( iv ) royalties payable in the low double digits to low teens on net sales of products covered under the agreement . on november 1 , 2019 , we entered into an amendment of the original license agreement . the amended agreement replaced the $ 10 million payment due on november 4 , 2019 with a $ 3 million payment due on november 4 , 2019 and an additional $ 8 million payment ( which included $ 1 million of interest ) that would have been due no later than april 1 , 2020. that $ 8 million payment had been scheduled to be paid by april 1 , 2020 and the $ 20 million that had been due to be paid on november 4 , 2020 , and both were recorded as payable to licensor on the consolidated balance sheet . the company has disputed that it is responsible for the $ 8 million and $ 20 million payments , and those payments are the subject of a current arbitration between the company and regenxbio . prior to the april 1 , 2020 deadline , we engaged regenxbio in discussions in an attempt to renegotiate the financial terms of the agreement , but we were unable to reach a mutual understanding that we believed would have been favorable for the company or our programs , and we did not make the $ 8 million payment due by april 1 , 2020. on april 17 , 2020 , regenxbio sent us a written demand for the $ 8 million fee , payable within a 15-day cure period after receipt of the demand letter . the license terminated on may 2 , 2020 , when the 15-day period expired . there were no penalties for early termination of the license . on may 25 , 2020 , we filed an arbitration claim with the american arbitration association ( “ aaa ” ) alleging that regenxbio materially breached the license agreement prior to termination and seeking , among other things , a declaration that as a result of regenxbio 's material breach , we are not responsible for payments totaling $ 28 million ( which would otherwise have been due in 2020 ) plus accrued interest ( of $ 3.5 million as of december 31 , 2020 ) . regenxbio disputes our arbitration claim and has filed a counterclaim seeking payment of the $ 28 million plus interest , which regenxbio argues remains due . an arbitration hearing before a tribunal of three aaa arbitrators was held on march 8 and march 9 , 2021. the tribunal has not yet issued its opinion , and based on the post-hearing schedule an opinion is expected in late second quarter 2021 or early third quarter 2021. for additional information , refer to part i , item 3. legal proceedings of this form 10-k. 72 in addition , we are also party to other license agreements , which include contingent payments . however , contingent payments related to these license agreements are not disclosed as the satisfaction of these contingent payments is uncertain as of december 31 , 2020 and , if satisfied , the timing of payment for these amounts was not reasonably estimable as of december 31 , 2020. commitments related to the license agreements include contingent payments that will become payable if and when certain development , regulatory and commercial milestones are achieved . during the next 12 months , we do not expect to make milestone payments related to such license agreements . critical accounting estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the u.s. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period . in applying our accounting principles , we must often make individual estimates and assumptions regarding expected outcomes or uncertainties .
| results of operations comparison of years ended december 31 , 2020 and december 31 , 2019 license and other revenues for the year ended december 31 , 2020 were $ 10.0 million , as compared to nil for the same period of 2019. the increase in revenue was due to sublicense and inventory purchase agreements we entered into with taysha gene therapies ( “ taysha ” ) in august 2020 for abo-202 , an aav gene therapy for cln1 disease ( also known as infantile batten disease ) and a sublicense agreement we entered into with taysha in october 2020 for a gene therapy for rett syndrome and mecp2 gene constructs and regulation of their expression . the agreements grant to taysha worldwide exclusive rights to intellectual property developed by scientists at the university of north carolina at chapel hill , the university of edinburgh and us , and our know-how relating to the research , development and manufacture of the gene therapies for cln1 and rett syndrome . total research and development spending for the year ended december 31 , 2020 was $ 30.1 million , as compared to $ 48.6 million for the same period of 2019 , a decrease of $ 18.5 million . the decrease in expenses was primarily due to : ● decreased clinical and development work for our gene and cell therapy product candidates ( $ 16.3 million ) , due to scaled back manufacturing , clinical and non-clinical development activities resulting from the effects of the covid-19 pandemic , as well as cost savings from the decision to internally manufacture retrovirus for the eb-101 program ; ● decreased salary and related costs ( $ 1.7 million ) ; ● decreased employee travel and related expenses ( $ 0.3 million ) ; and ● decreases in net other research and development spending ( $ 0.2 million ) .
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for isos , the exercise price per share may not be less than 110 % of the fair 71 resources connection , inc. notes to consolidated financial statements ( continued ) market value of a share of common stock on the grant date for any individual possessing more than 10 % of the total outstanding stock of the company . stock options granted under story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes . this discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including , but not limited to , those discussed in part i item 1a . risk factors. and elsewhere in this annual report on form 10-k. overview rgp is a multinational consulting firm that provides agile consulting services to its global client base who are faced with disruption and business transformation issues . we bring functional competencies in the areas of accounting ; finance ; governance , risk and compliance management ; corporate advisory , strategic communications and restructuring ; information management ; human capital ; supply chain management ; and legal and regulatory . we assist our clients with projects requiring specialized expertise in : finance and accounting process transformation and optimization ; financial reporting and analysis ; technical and operational accounting ; merger and acquisition due diligence and integration ; audit response ; implementation of new accounting standards such as the revenue recognition pronouncement and lease accounting standard ; and remediation support information management services including program and project management ; business and technology integration ; data strategy , including governance , security and privacy ; and business performance management ( such as core planning and consolidation systems ) corporate advisory , strategic communications and restructuring services governance , risk and compliance management services including contract and regulatory compliance efforts under , for example , the dodd-frank wall street reform and consumer protection act and the sarbanes oxley act of 2002 ( sarbanes ) ; enterprise risk management ; internal controls management ; and operation and it audits supply chain management services including strategy development ; procurement and supplier management ; logistics and materials management ; supply chain planning and forecasting ; and unique device identification compliance human capital services including change management ; organization development and effectiveness ; compensation and incentive plan strategies and design ; and optimization of human resources technology and operations legal and regulatory services supporting commercial transactions ; global compliance initiatives ; and law department operations , business strategy and analytics we were founded in june 1996 by a team at deloitte , led by our chairman , donald b. murray , who was then a senior partner with deloitte . our founders created resources connection to capitalize on the increasing demand for high quality outsourced professional services . we operated as a part of deloitte until april 1999. in april 1999 , we completed a management-led buyout in partnership with several investors . in december 2000 , we completed our initial public offering of common stock and began trading on the nasdaq stock market . we currently trade on the nasdaq global select market . we operate under the acronym rgp , branding for our operating entity name of resources global professionals . we operated solely in the united states until fiscal year 2000 , when we opened our first three international offices and began to expand geographically to meet the demand for project consulting services across the world . as of may 27 , 2017 , we served clients from offices in 21 countries , including 24 international offices and 43 offices in the united states . our global footprint allows the company to support the global initiatives of our multinational client base . we expect to continue opportunistic domestic and multinational expansion while also investing in complementary professional services lines that we believe will augment our service offerings . 36 we primarily charge our clients on an hourly basis for the professional services of our consultants . we recognize revenue once services have been rendered and invoice the majority of our clients in the united states on a weekly basis . some of our clients served by our international offices are billed on a monthly basis . our clients are contractually obligated to pay us for all hours billed . to a much lesser extent , we also earn revenue if a client hires one of our consultants . this type of contractually non-refundable revenue is recognized at the time our client completes the hiring process and represented 0.5 % of our revenue for each of the years ended may 27 , 2017 , may 28 , 2016 and may 30 , 2015. we periodically review our outstanding accounts receivable balance and determine an estimate of the amount of those receivables we believe may prove uncollectible . our provision for bad debts , if any , is included in our selling , general and administrative expenses . the costs to pay our professional consultants and all related benefit and incentive costs , including provisions for paid time off and other employee benefits , are included in direct cost of services . we pay most of our consultants on an hourly basis for all hours worked on client engagements and , therefore , direct cost of services tends to vary directly with the volume of revenue we earn . we expense the benefits we pay to our consultants as they are earned . these benefits include paid time off and holidays ; a discretionary bonus plan ; subsidized group health , dental and life insurance programs ; a matching 401 ( k ) retirement plan ; the ability to participate in the company 's employee stock purchase plan ( espp ) ; and professional development and career training . story_separator_special_tag income taxes in order to prepare our consolidated financial statements , we are required to make estimates of income taxes , if applicable , in each jurisdiction in which we operate . the process incorporates an assessment of any current tax exposure together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheets . the recovery of deferred tax assets from future taxable income must be assessed and , to the extent recovery is not likely , we will establish a valuation allowance . an increase in the valuation allowance results in recording additional tax expense and any such adjustment may materially affect the company 's future financial result . if the ultimate tax liability differs from the amount of tax expense we have reflected in the consolidated statements of operations , an adjustment of tax expense may need to be recorded and this adjustment may materially affect the company 's future financial results and financial condition . revenue recognition we primarily charge our clients on an hourly basis for the professional services of our consultants . we recognize revenue once services have been rendered and invoice the majority of our clients in the united states on a weekly basis . some of our clients served by our international offices are billed on a monthly basis . our clients are contractually obligated to pay us for all hours billed . to a much lesser extent , we also earn revenue if a client hires one of our consultants . this type of contractually non-refundable revenue is recognized at the time our client completes the hiring process . stock-based compensation under our 2014 performance incentive plan , officers , employees , and outside directors have received or may receive grants of restricted stock , stock units , options to purchase common stock or other stock or stock-based awards . under our espp , eligible officers and employees may purchase our common stock in accordance with the terms of the plan . the company estimates a value for employee stock options on the date of grant using an option-pricing model . we have elected to use the black-scholes option-pricing model which takes into account assumptions regarding a number of highly complex and subjective variables . these variables include the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors . additional variables to be considered are the expected term , expected 38 dividends and the risk-free interest rate over the expected term of our employee stock options . in addition , because stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest , it is reduced for estimated forfeitures . forfeitures must be estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . forfeitures are estimated based on historical experience . if facts and circumstances change and we employ different assumptions in future periods , the compensation expense recorded may differ materially from the amount recorded in the current period . the company uses its historical volatility over the expected life of the stock option award to estimate the expected volatility of the price of its common stock . the risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options . the impact of expected dividends ( $ 0.11 per share for each quarter during fiscal 2017 and $ 0.10 per share for each quarter of fiscal 2016 ) is also incorporated in determining the estimated value per share of employee stock option grants . such dividends are subject to quarterly board of director approval . the company 's expected life of stock option grants is 5.6 years for non-officers and 8.1 years for officers . the company uses its historical volatility over the expected life of the stock option award to estimate the expected volatility of the price of its common stock . the company reviews the underlying assumptions related to stock-based compensation at least annually . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . results of operations the following tables set forth , for the periods indicated , our consolidated statements of operations data . these historical results are not necessarily indicative of future results . replace_table_token_7_th 39 our operating results for the periods indicated are expressed as a percentage of revenue below . replace_table_token_8_th we also assess the results of our operations using ebitda , adjusted ebitda and adjusted ebitda margin . ebitda is defined as our earnings before interest , taxes , depreciation and amortization . we define adjusted ebitda as ebitda plus stock-based compensation expense . adjusted ebitda margin is calculated by dividing adjusted ebitda by revenue . these measures assist management in assessing our core operating performance . the following table presents ebitda , adjusted ebitda and adjusted ebitda margin for the periods indicated and includes a reconciliation of such measures to net income , the most directly comparable gaap financial measure : replace_table_token_9_th the financial measures and key performance indicators we use to assess our financial and operating performance above are not defined by , or calculated in accordance with , gaap .
| quarterly results the following table sets forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters in the two-year period ended may 27 , 2017. in the opinion of management , this data has been prepared on a basis substantially consistent with our audited consolidated financial statements appearing elsewhere in this document , and includes all adjustments , consisting of normal recurring adjustments , necessary for a fair presentation of the data . the quarterly data should be read together with our consolidated financial statements and related notes appearing elsewhere in this document . the operating results are not necessarily indicative of the results to be expected in any future period . replace_table_token_12_th ( 1 ) net income per common share calculations for each of the quarters were based upon the weighted average number of shares outstanding for each period , and the sum of the quarters may not necessarily be equal to the full year net income per common share amount . our quarterly results have fluctuated in the past and we believe they will continue to do so in the future . certain factors that could affect our quarterly operating results are described in part i item 1a . risk factors. due to these and other factors , we believe that quarter-to-quarter comparisons of our results of operations are not meaningful indicators of future performance . liquidity and capital resources our primary source of liquidity is cash provided by our operations and ability to access our facility and , historically , to a lesser extent , stock option exercises and espp purchases . on an annual basis , we have generated positive cash flows from operations since inception , and we continued to do so for the year ended may 27 , 2017. our ability to generate positive cash flow from operations in the future will be , at least in part , dependent on continued improvement in global economic conditions .
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the financial condition and results of operations presented are not indicative of future performance . story_separator_special_tag times new roman , times , serif ; margin : 0 '' > nii is the difference between interest income earned on assets and interest expense incurred on liabilities . accordingly , two factors affect nii : · the rates charged on interest earning assets and paid on interest bearing liabilities · the average balance of interest earning assets and interest bearing liabilities 32 enb financial corp management 's discussion and analysis the federal funds rate , the prime rate , the shape of the u.s. treasury curve , and other wholesale funding curves , all affect nii . the federal reserve controls the federal funds rate , which is one of a number of tools available to the federal reserve to conduct monetary policy . the federal funds rate , and guidance on when the rate might be changed , is often the focal point of discussion regarding the direction of interest rates . until december 16 , 2015 , the federal funds rate had not changed since december 16 , 2008. on december 16 , 2015 , the federal funds rate was increased 25 basis points to 0.50 % , from 0.25 % . then again , on december 14 , 2016 , the federal funds rate was increased another 25 basis points to 0.75 % . prior to december of 2015 , the period of seven years with extremely low and unchanged overnight rates was the lowest and longest in u.s. history . the impact has been a lower net interest margin to the corporation and generally across the financial industry . the increase in december of 2015 and 2016 resulted in higher short-term u.s. treasury rates , but the long-term rates initially decreased after the federal reserve 's decision to increase rates in december of 2015 , resulting in a flattening of the yield curve . it was only during the fourth quarter of 2016 that long-term rates saw an increase . however , long-term rates like the ten-year u.s. treasury were 130 basis points under the 3.75 % prime rate as of december 31 , 2016. it appears this interest rate environment will continue into 2017 until at least the next federal reserve rate action . that action could occur as early as march 2017 but more likely may or june of 2017. management anticipates at least two 0.25 % federal reserve rate increases in 2017. a third 0.25 % federal reserve rate increase could be possible but experience has shown federal reserve actions to be well delayed from initial projections . it remains to be seen whether mid and long-term u.s. treasury rates will also increase to the same degree that the federal reserve will likely move the overnight federal funds rate . if they do not , the yield curve would flatten making it harder for the corporation to increase asset yield . the prime rate is generally used by commercial banks to extend variable rate loans to business and commercial customers . for many years , the prime rate has been set at 300 basis points , or 3.00 % higher , than the federal funds rate and typically moves when the federal funds rate changes . as such , the prime rate increased from 3.25 % to 3.50 % on december 16 , 2015 , and from 3.50 % to 3.75 % on december 14 , 2016. depending on the loan instrument , the corporation 's prime-based loans would reprice either a day after the federal reserve rate movement or after a 45-day notification period . commercial rates generally reprice the next business day while some consumer loans require the 45-day notification period . the fact that the federal funds rate and the prime rate had remained at these very low levels for seven years and only increased by 25 basis points in december of 2015 and 25 more basis points in december of 2016 has made it difficult to make improvements in the corporation 's net interest margin . initially , in the early part of this seven-year period , management was able to grow interest-earning assets sufficiently to offset the loss of margin , to increase nii . however , in 2012 and 2013 , the corporation 's nii and margin experienced declines . in 2014 and 2015 , nii on a tax equivalent basis increased , but the corporation 's margin still showed a decline . in 2016 , nii on a tax equivalent basis increased substantially by $ 2,481,000 , or 9.9 % , and the corporation 's margin showed an increase from 3.07 % in 2015 , to 3.12 % in 2016. it was important to show nim improvement after years of decline . the fed rate increases in december of 2015 and 2016 certainly helped to drive nim improvement as well as continued cost of funds savings . factoring out the non-recurring sub-agency amortization of $ 1,681,000 that was recorded during 2016 , the corporation 's nim would have been 3.31 % ( non-gaap ) , an increase of 24 basis points over the 3.07 % nim achieved in 2015. the extended extremely low federal funds rate has enabled management to reduce the cost of funds on overnight borrowings and allowed lower interest rates paid on deposits , reducing the corporation 's interest expense . even with two 25-basis point fed rate increases , the corporation did not raise deposit rates . while the low prime rate reduced the yield on the corporation 's loans for many years , the rate increases in december of 2015 and december of 2016 did act to boost interest income and help improve the corporation 's margin . story_separator_special_tag however , it is also possible that even after federal reserve rate increases the yield curve could flatten , making it more difficult for management to lend out or reinvest at higher interest rates out further on the yield curve . additionally , federal reserve rate increases would begin to affect the repricing of the corporation 's liabilities . management would also expect to have to increase deposit rates to remain competitive in the market and maturing borrowings would likely begin to reprice to higher rates . the following table provides an analysis of year-to-year changes in net interest income by distinguishing what changes were a result of average balance increases or decreases and what changes were a result of interest rate increases or decreases . 34 enb financial corp management 's discussion and analysis rate/volume analysis of changes in net interest income ( taxable equivalent basis , dollars in thousands ) replace_table_token_9_th in 2016 , the corporation 's nii on an fte basis increased by $ 2,481,000 , a 9.9 % increase over 2015. total interest income on an fte basis for 2016 increased $ 1,791,000 , or 6.2 % , from 2015 , while interest expense decreased $ 690,000 , or 18.4 % , from 2015 to 2016. the fte interest income from the securities portfolio decreased by $ 536,000 , or 6.8 % , while loan interest income increased $ 2,310,000 , or 11.3 % . during 2016 , loan demand increased and additional loan volume added $ 2,634,000 to net interest income , but the lower yields caused a $ 324,000 reduction , resulting in a net increase of $ 2,310,000. higher balances in the securities portfolio caused an increase of $ 589,000 in net interest income , while lower yields on securities caused a $ 1,125,000 reduction , resulting in a net decrease of $ 536,000. the corporation recorded non-recurring accelerated amortization on u.s. sub-agency securities during 2016 in the amount of $ 1,681,000 , which was responsible for the lower yields on securities and the decrease in interest income . the average balance of interest bearing liabilities increased by 5.0 % during 2016 , driven by the growth in deposit balances . the shift between time deposit balances and demand and savings accounts resulted in a more favorable net interest income . lower balances of higher cost deposits contributed to savings of $ 194,000 on deposit costs while lower interest rates on all deposit groups caused $ 223,000 of savings , resulting in total savings of $ 417,000. out of all the corporation 's deposit types , interest-bearing demand deposits reprice the most rapidly , as nearly all accounts are immediately affected by rate changes . the corporation reduced demand deposit interest expense by $ 41,000 due to lower rates . time deposit balances decreased resulting in a $ 251,000 reduction to expense , and time deposits repricing to lower interest rates reduced interest expense by an additional $ 180,000 , causing a net reduction of $ 431,000 in time deposit interest expense . even with the low rate environment , the corporation was successful in increasing balances of other deposit types . as 2016 progressed and interest rates remained low , the corporation was able to continue to reprice time deposits maturing at lower interest rates thereby reducing the cost of these funds significantly . 35 enb financial corp management 's discussion and analysis the average balance of outstanding borrowings increased by $ 1.1 million , or 1.4 % , from december 31 , 2015 , to december 31 , 2016. the increase in total borrowings increased interest expense by $ 14,000. the decline in interest rates decreased interest expense by $ 287,000 , as long-term borrowings at higher rates matured and were replaced with new advances at significantly lower rates . the aggregate of these amounts was a decrease in interest expense of $ 273,000 related to total borrowings . the following table shows a more detailed analysis of net interest income on an fte basis shown with all the major elements of the corporation 's balance sheet , which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities . additionally , the analysis provides the net interest spread and the net yield on interest earning assets . the net interest spread is the difference between the yield on interest earning assets and the interest rate paid on interest bearing liabilities . the net interest spread has the deficiency of not giving credit for the non-interest bearing funds and capital used to fund a portion of the total interest earning assets . for this reason , management emphasizes the net yield on interest earning assets , also referred to as the net interest margin ( nim ) . the nim is calculated by dividing net interest income on an fte basis into total average interest earning assets . the nim is generally the benchmark used by analysts to measure how efficiently a bank generates nii . 36 enb financial corp management 's discussion and analysis comparative average balance sheets and net interest income ( taxable equivalent basis , dollars in thousands ) replace_table_token_10_th ( a ) includes balances of non-accrual loans and the recognition of any related interest income . average balances also include net deferred loan costs of $ 836,000 in 2016 , $ 534,000 in 2015 , and $ 402,000 in 2014. such fees recognized through income and included in the interest amounts totaled ( $ 382,000 ) in 2016 , ( $ 230,000 ) in 2015 , and ( $ 141,000 ) in 2014 . ( b ) net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities . ( c ) net yield , also referred to as net interest margin , is computed by dividing net interest income ( fte ) by total interest earning assets . ( d ) securities recorded at amortized cost . unrealized holding gains and losses are included in non-interest earning assets .
| results of operations overview the corporation recorded net income of $ 7,553,000 for the year ended december 31 , 2016 , a 9.3 % increase from the $ 6,910,000 earned during the same period in 2015. the 2015 net income was 2.6 % lower than the 2014 net income of $ 7,092,000. earnings per share , basic and diluted , were $ 2.65 in 2016 , compared to $ 2.42 in 2015 , and $ 2.48 in 2014. higher 2016 earnings were driven primarily by a $ 2.2 million , or 9.5 % increase , in net interest income , a $ 1.1 million , or 10.8 % increase in other income , partially offset by a $ 2.5 million , or 10.0 % increase in operating expenses . additionally , the provision for loan losses was $ 325,000 in 2016 compared to $ 150,000 in 2015 , an increase of $ 175,000. net interest income accounts for nearly 70 % of the gross income stream of the corporation . the 9.5 % increase in 2016 was higher than the 2.8 % increase in net interest income that occurred in 2015. during 2016 , there was non-recurring amortization recorded in the amount of $ 1,681,000 as a result of accelerated amortization on bonds issued by two u.s. sub-agencies . cobank and agribank , sub-agencies of the federal farm credit bureau , a primary u.s. government sponsored enterprise , exercised an unusual regulatory call feature to call bonds at par two years and three years respectively , prior to their maturity dates . the corporation owned both cobank and agribank agency high coupon instruments at high premium prices , which exposed the bonds to accelerated amortization given a shorter call date .
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( 1 ) pursuant to rule 406t of regulation s-t , these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 or section 18 of the securities exchange act of 1934 and otherwise are not subject to liability under these sections . 104 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , kilroy realty corporation has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized on february 13 , 2020 . kilroy realty corporation by merryl e. werber merryl e. werber senior vice president , chief accounting officer and controller power of attorney know all persons by these presents , that we , the undersigned directors and officers of kilroy realty corporation , do hereby severally constitute and appoint story_separator_special_tag the following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report . the results of operations discussion is combined for the company and the operating partnership because there are no material differences in the results of operations between the two reporting entities . forward-looking statements statements contained in this “ item 7. management 's discussion and analysis of financial condition and results of operations ” that are not historical facts may be forward-looking statements . forward-looking statements include , among other things , statements or information concerning our plans , objectives , capital resources , portfolio performance , results of operations , projected future occupancy and rental rates , lease expirations , debt maturities , potential investments , strategies such as capital recycling , development and redevelopment activity , projected construction costs , projected construction commencement and completion dates , projected square footage of space that could be constructed on undeveloped land that we own , projected rentable square footage of or number of units in properties under construction or in the development pipeline , anticipated proceeds from capital recycling activity or other dispositions and anticipated dates of those activities or dispositions , projected increases in the value of properties , dispositions , future executive incentive compensation , pending , potential or proposed acquisitions , plans to grow our net operating income and ffo , our ability to re-lease properties at or above current market rates , anticipated market conditions and demographics and other forward-looking financial data , as well as the discussion in “ —factors that may influence future results of operations , ” “ —liquidity and capital resource of the company , ” and “ —liquidity and capital resources of the operating partnership. ” forward-looking statements can be identified by the use of words such as “ believes , ” “ expects , ” “ projects , ” “ may , ” “ will , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ pro forma , ” “ estimates ” or “ anticipates ” and the negative of these words and phrases and similar expressions that do not relate to historical matters . forward-looking statements are based on our current expectations , beliefs and assumptions , and are not guarantees of future performance . forward-looking statements are inherently subject to uncertainties , risks , changes in circumstances , trends and factors that are difficult to predict , many of which are outside of our control . accordingly , actual performance , results and events may vary materially from those indicated or implied in the forward-looking statements , and you should not rely on the forward-looking statements as predictions of future performance , results or events . numerous factors could cause actual future performance , results and events to differ materially from those indicated in the forward-looking statements , including , among others : global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants ; adverse economic or real estate conditions generally , and specifically , in the states of california and washington ; risks associated with our investment in real estate assets , which are illiquid , and with trends in the real estate industry ; defaults on or non-renewal of leases by tenants ; any significant downturn in tenants ' businesses ; our ability to re-lease property at or above current market rates ; costs to comply with government regulations , including environmental remediations ; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations ; increases in interest rates and our ability to manage interest rate exposure ; 54 the availability of financing on attractive terms or at all , which may adversely impact our future interest expense and our ability to pursue development , redevelopment and acquisition opportunities and refinance existing debt ; a decline in real estate asset valuations , which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing , and which may result in write-offs or impairment charges ; significant competition , which may decrease the occupancy and rental rates of properties ; potential losses that may not be covered by insurance ; the ability to successfully complete acquisitions and dispositions on announced terms ; the ability to successfully operate acquired , developed and redeveloped properties ; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts ; delays or refusals in obtaining all necessary zoning , land use and other required entitlements , governmental permits and authorizations for our development and redevelopment properties ; increases in anticipated capital expenditures , tenant improvement and or leasing costs ; defaults on leases for land on which some of our properties are located ; adverse changes to , or enactment or implementations of , tax laws or other applicable laws , regulations or legislation , as well as business and consumer reactions to such changes ; story_separator_special_tag certain accounting policies are considered to be critical accounting policies . critical accounting policies are those policies that require our management team to make significant estimates and or assumptions about matters that are 56 uncertain at the time the estimates and or assumptions are made or where we are required to make significant judgments and assumptions with respect to the practical application of accounting principles in our business operations . critical accounting policies are by definition those policies that are material to our financial statements and for which the impact of changes in estimates , assumptions , and judgments could have a material impact to our financial statements . the following critical accounting policies discussion reflects what we believe are the most significant estimates , assumptions , and judgments used in the preparation of our consolidated financial statements . this discussion of our critical accounting policies is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates , assumptions , and judgments . for further discussion of our significant accounting policies , see note 2 “ basis of presentation and significant accounting policies ” to our consolidated financial statements included in this report . revenue recognition rental revenue for office and retail operating properties is our principal source of revenue . we recognize revenue from base rent , additional rent ( which consists of amounts due from tenants for common area maintenance , real estate taxes and other recoverable costs ) , parking and other lease-related revenue once all of the following criteria are met : ( i ) the agreement has been fully executed and delivered , ( ii ) services have been rendered , ( iii ) the amount is fixed or determinable and ( iv ) payment has been received or the collectability of the amount due is probable . lease termination fees are amortized over the remaining lease term , if applicable . if there is no remaining lease term , they are recognized when received and realized . minimum annual rental revenues are recognized in rental revenues on a straight-line basis over the non-cancellable term of the related lease . base rent the timing of when we commence rental revenue recognition for office and retail properties depends largely on our conclusion as to whether we are or the tenant is the owner for accounting purposes of tenant improvements at the leased property . when we conclude that we are the owner of tenant improvements for accounting purposes , we record the cost to construct the tenant improvements as an asset and commence rental revenue recognition when the tenant takes possession of or controls the finished space , which is generally when tenant improvements being recorded as our assets are substantially complete . in certain instances , when we conclude that the tenant is the owner of certain tenant improvements for accounting purposes , rental revenue recognition begins when the tenant takes possession or controls the physical use of the leased space , which may occur in phases or for an entire building or project . the determination of who owns the tenant improvements is made on a lease-by-lease basis and has a significant effect on the timing of commencement of revenue recognition . the determination of whether we are or the tenant is the owner of tenant improvements for accounting purposes is subject to significant judgment . in making that determination , we consider numerous factors and perform a detailed evaluation of each individual lease . no one factor is determinative in reaching a conclusion . the factors we evaluate include but are not limited to the following : whether the lease agreement requires landlord approval of how the tenant improvement allowance is spent prior to installation of the tenant improvements ; whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the tenant improvement allowance was spent on prior to payment by the landlord for such tenant improvements ; whether the tenant improvements are unique to the tenant or reusable by other tenants ; whether the tenant is permitted to alter or remove the tenant improvements without the consent of the landlord or without compensating the landlord for any lost utility or diminution in fair value ; and 57 whether the ownership of the tenant improvements remains with the landlord or remains with the tenant at the end of the lease term . when we conclude that we are the owner of tenant improvements for accounting purposes using the factors discussed above , we record the cost to construct the tenant improvements , including costs paid for or reimbursed by the tenants , as a capital asset . during the years ended december 31 , 2019 , 2018 , and 2017 , we capitalized $ 12.0 million , $ 22.5 million and $ 22.0 million , respectively , of tenant-funded tenant improvements . the amount of tenant-funded tenant improvements recorded in any given year varies based upon the mix of specific leases executed and or commenced during the reporting period . for these tenant-funded tenant improvements , we record the amount funded by or reimbursed by tenants as deferred revenue , which is amortized and recognized as rental income on a straight-line basis over the term of the related lease beginning upon substantial completion of the leased premises . the determination of who owns the tenant improvements has a significant impact on the amount of non-cash rental revenue that we record related to the amortization of deferred revenue for tenant-funded tenant improvements . for the years ended december 31 , 2019 , 2018 , and 2017 , we recognized $ 19.2 million , $ 18.4 million and $ 16.8 million , respectively , of non-cash rental revenue related to the amortization of deferred revenue recorded in connection with tenant-funded tenant improvements .
| consolidated historical cash flow summary the following summary discussion of our consolidated historical cash flow is based on the consolidated statements of cash flows in item 15 . “ exhibits and financial statement schedules ” and is not meant to be an all-inclusive discussion of the changes in our cash flow for the periods presented below . changes in our cash flow include changes in cash and cash equivalents and restricted cash . our historical cash flow activity for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 is as follows : replace_table_token_40_th operating activities our cash flows from operating activities depends on numerous factors including the occupancy level of our portfolio , the rental rates achieved on our leases , the collectability of rent and recoveries from our tenants , the level of operating expenses , the impact of property acquisitions , completed development projects and related financing activities , and other general and administrative costs . our net cash provided by operating activities decreased by $ 23.5 million , or 5.7 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to free rent and beneficial occupancy periods for several tenants during the year ended december 31 , 2019 and a decrease in cash from net changes in other assets and liabilities related to the timing of expenditures . investing activities our cash flows from investing activities is generally used to fund development and operating property acquisitions , expenditures for development projects , and recurring and nonrecurring capital expenditures for our operating properties , net of proceeds received from dispositions of real estate assets .
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going 71 forward , we are allowed a maximum leverage ratio of 5.5 to 1.0 for the quarter ending march 31 , 2019 , 4.5 to 1.0 for the quarter ending june 30 , 2019 , and 3.5 to 1.0 for each quarter ending on or after september 30 , 2019. fixed charge coverage ratio and leverage ratio are calculated in accordance with the agreement governing the notes . for the year ended december 31 , 2018 , the interest rates on the notes were 3.73 % for story_separator_special_tag and results of operations this management discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes contained elsewhere in this annual report on form 10-k. this management discussion and analysis contains forward‑looking statements that involve risks , uncertainties , and assumptions as described under the heading `` cautionary note regarding forward‑looking statements , '' in part i of this annual report on form 10-k. our actual results could differ materially from those anticipated by these forward‑looking statements as a result of many factors , including those discussed under `` item 1a . risk factors '' and elsewhere in this annual report on form 10-k. overview we are a diversified mineral company that delivers potassium , magnesium , sulfur , salt , and water products essential for customer success in agriculture , animal feed and the oil and gas industry . we are the only u.s. producer of muriate of potash ( sometimes referred to as potassium chloride or potash ) , which is applied as an essential nutrient for healthy crop development , utilized in several industrial applications , and used as an ingredient in animal feed . in addition , we produce a specialty fertilizer , trio ® , which delivers three key nutrients , potassium , magnesium , and sulfate , in a single particle . we also provide water , magnesium chloride , brine and various oilfield products and services . our extraction and production operations are conducted entirely in the continental united states . we produce potash from three solution mining facilities : our hb solution mine in carlsbad , new mexico , our solution mine in moab , utah and our brine recovery mine in wendover , utah . we also operate our north compaction facility in carlsbad , new mexico , which compacts and granulates product from the hb mine . we produce trio ® from our conventional underground east mine in carlsbad , new mexico . until mid-2016 , we also produced potash from our east and west mines in carlsbad , new mexico . in april 2016 , we converted our east facility from a mixed-ore facility that produced both potash and trio ® to a trio ® ‑only facility . in addition , in early july 2016 , we idled mining operations at our west facility and transitioned the facility into care and maintenance . these changes were designed to increase our production of trio ® , a product that had traditionally shown more resilience to pricing pressure than potash , and to lower costs in a time of declining potash prices . we have water rights in new mexico under which we sell water primarily to support oil and gas development in the permian basin near our carlsbad facilities . we continue to work to expand our sales of water . on february 5 , 2019 , we and sherbrooke partners ( together , the `` buyers '' ) entered into a purchase and sale agreement with dinwiddie cattle company under which the buyers will purchase certain dinwiddie jal ranch assets located in lea county , new mexico , consisting primarily of land , water rights and other related assets . the aggregate consideration for the purchase will be $ 65 million , subject to customary purchase price adjustments . further , as additional consideration for the sale , buyers will grant certain royalties on saltwater disposal revenue relating to the purchased assets or properties located near the assets . we and sherbrooke will pay 51 % and 49 % of the purchase price , or approximately $ 33.2 million and $ 31.8 million , respectively , for a 51 % and 49 % undivided interest in the assets , respectively . we expect to close the purchase in the first quarter of 2019 , subject to the satisfaction of customary closing conditions . the buyers expect to enter into a joint development agreement with respect to the assets , pursuant to which the buyers will agree , among other things , that intrepid will operate the assets . we have three segments : potash , trio ® , and oilfield solutions . prior to the fourth quarter of 2018 , we had two reporting segments : potash and trio ® . as a result of the growth of our water business and other oilfield products and services , we reevaluated our segments and determined that , beginning in the fourth quarter of 2018 , we have an additional segment for oilfield solutions . we account for the sale of byproducts as revenue in the potash or trio ® segment based on which segment generated the byproduct . prior to the adoption of asc 606 , we accounted for the sale of byproducts as a credit to cost of goods sold . for each of the years ended december 31 , 2018 , 2017 , and 2016 , a majority of our byproduct sales were accounted for in the potash segment . we have recast all financial information for our segments for prior periods to conform to the current period presentation . significant business trends and activities our financial results have been , or are expected to be , impacted by several significant trends and activities , which are described below . we expect these trends to continue to impact our results of operations , cash flows , and financial position . potash pricing and demand . story_separator_special_tag however , we believe that our legal position with respect to the validity of our water rights is solid and that we will be able to meet our water commitments . demand for water has been increasing due to increasing oil and gas exploration activities in the permian basin near our facilities in new mexico . byproduct sales . we sell byproducts such as salt , magnesium chloride , brines , and water that are derived from our potash and trio ® mining processes . our salt is used in a variety of markets . magnesium chloride is typically used as a road-treatment agent . our brines and water are used primarily by the oil and gas industry to support well development and completion activities . demand for our byproducts used by the oil and gas industry was strong in 2018 due to 38 increased oil and gas drilling activities in the permian basin near our facilities in carlsbad , new mexico . we expect continued strong demand for our byproducts in 2019. weather impact . our solar facilities continued to experience average evaporation rates during the 2017 evaporation season , while the 2016 evaporation season was slightly above average . as a result , our potash production from our solar solution facilities for 2018 decreased slightly compared to 2017. diversification of products and services . as we continue to diversify our portfolio , we may enter into new or complementary business that expand our product and service offerings beyond our existing assets or products through acquisition of companies or assets or otherwise . we recently announced that we have agreed to purchase water and real property assets in southeastern new mexico in an effort to expand our water sales and other revenue from the oil and gas industry . we are continuing to explore ways to potentially monetize the known but small lithium resource in our wendover ponds . we now offer kcl real-time mixing services on location for hydraulic fracturing operations and trucking services . additionally , we may expand into oil and natural gas exploration and production or into new products or services in our current industry or other industries . 39 consolidated results replace_table_token_9_th 1 sales include sales of byproducts which were $ 19.3 million , $ 12.7 million and $ 9.9 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . 2 average net realized sales price per ton is a non-gaap measure . more information about this non-gaap measure is below under the heading `` non-gaap financial measure . '' consolidated results for the years ended december 31 , 2018 , and 2017 our total sales in 2018 increased as compared to 2017 primarily due to an increase in potash tons sold , increases in both potash and trio ® pricing , and an increase in water sales , primarily due to oil and gas drilling activity near our facilities in new mexico . byproduct revenue increased $ 6.6 million as we continue to execute on our strategy to grow sales of our byproducts . cost of goods sold increased 3 % in 2018 , as compared to 2017 , primarily due to increased sales discussed above . our gross margin percentage increased to 18 % in 2018 compared to 7 % in 2017. the increase was driven the increase in average net realized sales prices for our products , coupled with an increase in sales of higher-margin products , such as fresh water and byproducts . we also recorded fewer lower of cost or nrv inventory adjustments in 2018 , as the average net realized sales price per ton for potash and trio ® improved . net income increased in 2018 compared to 2017 , primarily driven by higher gross margins , as discussed above , and the decrease in interest expense in 2018 compared to 2017 , as discussed below . selling and administrative expense in 2018 , selling and administrative expenses increased $ 1.5 million or 8 % from 2017. the increase was primarily due to an increase in our share-based compensation expense in 2018 compared to 2017. the increase in share-based compensation was due to granting awards earlier in 2018 compared to 2017 , coupled with the 2018 grant vesting over a shorter time period as compared to the 2017 grant . other operating expense in 2018 , we recognized other operating expense of $ 0.1 million compared to $ 3.5 million in 2017. in 2017 , we recorded a loss on a sale of an asset of $ 1.7 million , recorded an additional $ 1.1 million increase in our stores inventory allowance , and recorded a one-time $ 0.6 million accrual related to land impact issues on or adjacent to our property in new mexico . interest expense interest expense decreased $ 7.8 million in 2018 compared to 2017. approximately $ 4.2 million of the decrease was due to our weighted-average interest rate on our senior notes declining to 4.32 % in 2018 from 7.65 % in 2017. additionally , write-offs of deferred financing fees and make-whole payments related to principal prepayments on our senior notes decreased approximately $ 3.3 million in 2018 compared to 2017. consolidated results for the years ended december 31 , 2017 , and 2016 40 total sales in 2017 decreased compared to 2016 due to significantly lower sales volume for potash as we had fewer tons to sell after the transition of our east facility to trio ® -only in april 2016 , and the idling of our west facility in july 2016. in addition , total sales were negatively impacted by a lower average net realized sales price per ton for trio ® due to pricing pressure from competitors and higher freight costs for international sales . these decreases were partially offset by an increase in average net realized sales price per ton for potash and increased trio ® sales volume due to selling more tons internationally .
| segment results replace_table_token_12_th 1 trio ® segment sales include byproduct sales which were $ 2.7 million , $ 0.3 million and $ 0 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . 2 depreciation and depletion incurred excludes depreciation and depletion amounts absorbed in or ( relieved from ) inventory . 3 average net realized sales price per ton is a non-gaap measure . more information about this non-gaap measure is below under the heading `` non-gaap financial measure . '' trio ® segment results for the years ended december 31 , 2018 , and 2017 trio ® segment sales include sales of trio ® and sales of byproducts that are generated or used in the trio ® production process . trio ® sales increased $ 0.8 million , or 1 % , in 2018 compared to 2017. the average net realized sales price per ton increased 5 % but was almost entirely offset by a similar decrease in trio ® tons sold . our percentage of domestic tons of trio ® sold to total tons of trio ® sold was higher in 2018 compared to 2017 , which had a positive impact on our average net realized sales price per ton . internationally during 2018 , we focused on a price over volume strategy . international sales of trio ® continue to be negatively affected by competition from lower-cost alternatives and higher freight costs to ship to international locations . trio ® segment gross deficit improved in 2018 compared to 2017 , primarily due to a reduction in lower of cost or nrv inventory adjustments and increased sales of byproducts generated from the trio ® production process . 43 sales of byproducts increased $ 2.4 million in 2018 compared to 2017. the increase was driven by an increase in sales of water that was used in the trio ® production process .
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information in this item is intended to assist the reader in obtaining an understanding of our consolidated financial statements , the changes in certain key items in those financial statements from year-to-year , the primary factors that accounted for those changes , any known trends or uncertainties that we are aware of that may have a material effect on our future performance , as well as how certain accounting principles affect our consolidated financial statements . in addition , this item provides information about our business segments and how the results of those segments impact our financial condition and results of operations as a whole . executive summary the world economy continued to experience rates of growth below pre-recession levels . the year began with the international monetary fund ( imf ) forecasting a global growth rate of 3.4 percent . this estimate was revised downward twice during the year with additional downside risk noted after the united kingdom 's referendum to exit the european union ( `` brexit '' ) ending at the most recent estimate of 3.1 percent . the graphite electrode industry saw further price declines in 2016 , however , some indicators signal a potential bottoming out . the steel industry has experienced increases in the costs of key raw materials to run blasts furnaces coupled with declines in the price of scrap steel needed in eaf plants . these factors are beginning to re-balance the economics that make eaf mills more competitive . this resulted in an increase in our sales volume over the prior year , however , the decline in prices more than offset volume increases . declines in the price of oil and our rationalization initiatives over the past 3 years have significantly improved our cost structure and have positioned us to benefit from any potential recovery . in the first half of 2016 , we completed our evaluation of strategic alternatives for our engineered solutions segment and determined that we would sell its businesses . this will allow us to focus on our core competency , which is to be a leading low-cost , high quality provider of graphite electrodes . as of june 30 , 2016 the engineered solutions business qualified for held for sale status . as a result , the operations of the engineered solutions have been excluded from continuing operations and are shown in discontinued operations for all current and prior periods . we have two major product categories within our continuing operations : graphite electrodes and needle coke products , which comprise our only reportable segment , industrial materials . reference is made to the information under “ part i ” for background information on our businesses , industry and related matters . global economic conditions and outlook 2017 outlook . we are impacted in varying degrees , both positively and negatively , as global , regional or country conditions fluctuate . our discussions about market data and global economic conditions below are based on or derived from published industry accounts and statistics . in its january , 2017 report , the international monetary fund ( imf ) estimated global growth at 3.4 percent in 2017. the imf noted however that there is significant uncertainty in the forecast for advanced economies due to potential changes in the policy stance of the united states under the new administration . in its short range outlook released on october 11 , 2016 , the world steel association ( wsa ) forecasts that global steel demand will increase by 0.2 % percent to 1,501 million tons in 2016 and will increase 0.5 % in 2017. this estimate is higher than the 1,488 million tons that wsa forecasted in april for 2016. wsa noted that the increase was primarily attributable to a better than expected forecast for china and continued growth in emerging economies . in developed economies , the wsa expects steel demand to grow by 0.2 % in 2016 and 1.1 % in 2017. this represents a downward of the estimate by 1.5 % for 2016 due to slower growth in the united states and the effects of brexit . 36 financing transactions senior notes on november 20 , 2012 , the company issued $ 300 million principal amount of senior notes . 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 . 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 . story_separator_special_tag these senior subordinated notes were non-interest bearing and scheduled to mature in 2015. because the notes were non-interest bearing , we were required to record them at their present value ( determined using an interest rate of 7 % ) . the difference between the face amount of the notes and their present value was recorded as debt discount . the debt discount was amortized using the imputed interest method , over the life of the notes . on august 11 , 2015 , we prepaid the entire $ 200,000,000 aggregate principal amount of the notes after the company 's receipt of the proceeds of the issuance of preferred stock to brookfield 's affiliate . see note 2 to the financial statements for further discussion of the preferred stock issuance . customer base we are a global company and sell our products in every major geographic market . sales of these products to buyers outside the u.s. accounted for about 76 % in 2014 , 80 % in 2015 and 83 % in 2016 . in 2016 , three of our ten largest customers were based in europe , and one each in the u.s. , korea , japan , brazil , russia , egypt and india , however , all are multi-national operations . in 2016 , 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 2016 . results of operations and segment review 2016. the world economy continued to experience rates of growth below pre-recession levels . the year began with the international monetary fund ( imf ) forecasting a global growth rate of 3.4 percent . this estimate was revised downward twice during the year with additional downside risk noted after the united kingdom 's referendum to exit the european union ( `` brexit '' ) ending at the most recent estimate of 3.1 percent . the graphite electrode industry saw further price declines in 2016 , however , some indicators signal a potential bottoming out . the steel industry has experienced increases in the costs of key raw materials to run blasts furnaces coupled with declines in the price of scrap steel needed in eaf plants . these factors are beginning to re-balance the economics that make eaf mills more competitive . this resulted in an increase in our sales volume over the prior year , however , the decline in prices more than offset volume increases . declines in the price of oil and our rationalization initiatives over the past 3 years have significantly improved our cost structure and have positioned us to benefit from any potential recovery . in the first half of 2016 , we completed our evaluation of strategic alternatives for our engineered solutions segment and determined that we would sell its businesses . this will allow us to focus on our core competency , which is to be a leading low-cost , high quality provider of graphite electrodes . as of june 30 , 2016 the engineered solutions 38 business qualified for held for sale status . as a result the operations of the engineered solutions have been excluded from continuing operations and are shown in discontinued operations for all current and prior periods . 2015. our business faced significant headwinds in the major industries that we serve throughout 2015. the u.s. and european steel markets , which represent our largest markets , have been flooded with large quantities of low cost imports , primarily from china . these imports and over-capacity in the steel industry have driven down prices as demand has not kept pace . additionally , there has been a significant decline in the price of iron ore which is a key raw material for blast furnaces . scrap steel , which is the key raw material for eaf production , has experienced price reductions as well , however not at the same rate as iron ore. as a result , steel producers are utilizing blast furnaces at rates higher than we have historically seen . these pressures have reduced eaf steel production and driven down the prices and volumes on graphite electrodes . while the decline in the price of oil has benefited our industrial materials cost structure overall , it contributed to lower pricing for petroleum needle coke and , indirectly , graphite electrodes . our engineered solutions segment suffered from declining prices and volumes as demand for our thermal solutions serving the advanced consumer electronics markets has declined . this decline in demand was driven by both decreased demand for the end product as well as competition from low cost producers . our advanced graphite materials product line experienced new sales of high temperature furnace systems in 2014 that were not repeated in 2015 due to the bankruptcy of the primary customer we served . 2014. the slow rates of global economic growth continued throughout 2014. the year began with the imf estimating 2014 growth at a rate of 3.7 % , which was revised downward throughout the year to 3.3 % . the world steel association noted that steel production , excluding china , increased 1.3 % in 2014. this slow economic growth and stagnation in steel production year over year exerted continued downward pressure on prices for our industrial materials products during the year , which negatively impacted our profitability in 2014. our engineered solutions segment experienced 2014 sales growth in one of our agm product group lines prior to the unexpected bankruptcy of our primary customer in that field . our advanced consumer electronics products experienced pricing pressure and decreased demand throughout 2014 which decreased margins and sales . in the second quarter of 2014 , we announced that we were ceasing production of our isomolded product group within agm and undertaking rationalization initiatives to reduce costs and increase our global competitiveness .
| results of operations for 2015 as compared to 2014 business combination accounting as a result of business combination accounting resulting from our acquisition by brookfield ( see note 2 `` preferred share issuance and merger '' to the financial statements ) , the company 's financial statements are separated into two distinct periods , the period before the consummation of the brookfield transaction ( labeled predecessor ) and the period after that date ( labeled successor ) , to indicate the application of the different basis of accounting between the periods presented . there were no operational activities that changed as a result of the acquisition of the predecessor . replace_table_token_7_th net sales . net sales for our industrial materials segment decreased from $ 825.1 million in 2014 to $ 339.9 million in the period january 1 through august 14 , 2015 , and $ 193.1 million in the period august 15 through december 31 , 2015. this decrease was driven by a 23 % decrease in volumes in our graphite electrode business caused by softening demand in the steel markets , particularly in eaf environments . this drove a decrease in the weighted average sales prices of 8 percent during 2015. our graphite electrode product line was also negatively impacted by $ 37.8 million due to foreign currency rate declines primarily in the euro region . cost of sales .
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note 2 – earnings per story_separator_special_tag the discussion and analysis that follows focuses on certain factors affecting our consolidated financial condition at december 31 , 2017 and 2016 , and our consolidated results of operations for the three years ended december 31 , 2017 . our consolidated financial statements , the related notes and the discussion of our critical accounting policies appearing elsewhere in this annual report should be read in conjunction with this discussion and analysis . overview the company 's banking subsidiary completed its first full year as a national bank and federal reserve system member bank in 2017. the results for 2017 results reflect the successful execution of key business plan objectives , including accelerating our growth in commercial loans , maintaining strong asset quality and improving our overall efficiency . the company recorded net income of $ 9.0 million for the year ended december 31 , 2017 , a 20 % increase compared to the previous year 's results . earnings per share for the year ended december 31 , 2017 were $ 0.49 on a basic and diluted basis . in 2017 , commercial and industrial loans increased by $ 53.5 million ( 54.0 % ) , multi-family residential real estate loans increased by $ 45.5 million ( 8.4 % ) and middle-market commercial leases increased by $ 18.1 million ( 21.4 % ) , offset by declines in the balances of residential mortgage loans , commercial real estate mortgage loans and investment-grade commercial leases due primarily to prepayment activity . total commercial-related loan balances reached a new record level of $ 1.222 billion , and now comprise 92.5 % of total loans , compared to 89.6 % at the end of 2016. the company 's asset quality remained favorable . the ratio of nonperforming loans to total loans was 0.18 % and the ratio of non-performing assets to total assets was 0.29 % at december 31 , 2017. non-performing commercial-related loans represented 0.03 % of total commercial-related loans . total retail and commercial deposits were stable in 2017. the company introduced several new deposit account types to attract new customers and expand relationships with existing customers . the company 's liquid assets exceeded 13 % of total assets at december 31 , 2017. the company intends to continue to develop new products , service delivery channels and marketing capabilities to further position it for future loan growth and the expansion of non-interest income . the company 's capital position remained strong with a tier 1 leverage ratio of 11.49 % and a tier 1 risk-based capital ratio of 16.33 % . during 2017 , the company increased its quarterly dividend rate by 33 % to $ 0.08 per share from $ 0.06 per share and repurchased 719,573 common shares ( or 3.7 % of the common shares that were outstanding at the beginning of 2017 ) . the actions and results in 2017 positioned the company well for 2018. we look forward to further expansion of our commercial banking operations in the chicago metropolitan market and in our other selected markets . we believe that the combination of the company 's current business strategies , the careful execution of the business plan and the favorable impact of changes in federal tax policy can be expected to produce further improvements to net income in 2018 compared to 2017. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 26 provision for loan losses we establish provisions for loan losses , which are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable incurred credit losses in the loan portfolio . in determining the level of the allowance for loan losses , we consider past and current loss experience , evaluations of real estate collateral , current economic conditions , volume and type of lending , adverse situations that may affect a borrower 's ability to repay a loan and the levels of nonperforming and other classified loans . the amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or events change . we assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance . we recorded recoveries of loan losses of $ 87,000 , $ 239,000 and $ 3.2 million , respectively , for the years ended december 31 , 2017 , 2016 and 2015 . the provision or recovery for loan losses is a function of the allowance for loan loss methodology we use to determine the appropriate level of the allowance for inherent loan losses after net charge-offs have been deducted . the portion of the allowance for loan losses attributable to loans collectively evaluated for impairment increased $ 265,000 , or 3.3 % , to $ 8.4 million at december 31 , 2017 , from $ 8.1 million at december 31 , 2016 . this increase occurred primarily because the growth in our loan portfolio focused on loan types with higher risk factors , primarily commercial-related loans . net recoveries were $ 326,000 and $ 907,000 for the years ended december 31 , 2017 and december 31 , 2015 , respectively , and there were $ 1.3 million of net charge-offs for the year ended december 31 , 2016 . charge-off activity for the year ended december 31 , 2016 included a $ 1.6 million charge-off resulting from the sale of three performing loans to a single borrower with a carrying value of $ 16.2 million . for further analysis and information on how we determine the appropriate level for the allowance for loan losses and analysis of credit quality , see “ critical accounting policies , ” “ risk classification of loans ” and “ allowance for loan losses. ” noninterest income replace_table_token_6_th comparison of year 2017 to 2016 . story_separator_special_tag % , to $ 399,000 for the year ended december 31 , 2016 , compared to $ 681,000 in 2015. the decrease was primarily due to a decline in nonperforming assets and a corresponding decline in expenses relating to resolutions and accelerated dispositions of nonperforming assets . the most significant decrease in nonperforming asset 28 management expense related to real estate taxes , which totaled $ 198,000 for the year ended december 31 , 2016 , compared to $ 247,000 for 2015. oreo expenses for the year ended december 31 , 2016 totaled $ 846,000 , and included a $ 314,000 valuation adjustment to oreo properties , compared to a $ 548,000 valuation adjustment in 2015. noninterest expense for the year ended december 31 , 2016 included a provision of $ 174,000 for mortgage representation and warranty reserve for mortgage loans sold , compared to a $ 80,000 provision for 2015. income taxes comparison of year 2017 to 2016 . for the year ended december 31 , 2017 we recorded income tax expense of $ 7.2 million , compared to $ 4.7 million recorded in 2016 . the income tax expense for 2017 included a $ 2.5 million expense related to the tax cuts and job act of 2017 and $ 879,000 benefit due to an increase in the deferred tax asset related to our illinois net operating loss carryforward . the effective tax rate for the year ended december 31 , 2017 was 44.77 % . comparison of year 2016 to 2015 . for the year ended december 31 , 2016 we recorded income tax expense of $ 4.7 million , compared to $ 5.4 million recorded in 2015. the effective tax rate for the year ended december 31 , 2016 was 38.51 % . comparison of financial condition at december 31 , 2017 and december 31 , 2016 total assets increased $ 5.5 million , or 0.3 % , to $ 1.626 billion at december 31 , 2017 , from $ 1.620 billion at december 31 , 2016 . the increase in total assets was primarily due to increases in cash and cash equivalents and loans receivable , which were partially offset by a decrease in securities . net loans increased $ 1.7 million , or 0.1 % , to $ 1.315 billion at december 31 , 2017 , from $ 1.313 billion at december 31 , 2016 . net securities decreased by $ 13.8 million , or 12.9 % , to $ 93.4 million at december 31 , 2017 , from $ 107.2 million at december 31 , 2016 . our loan portfolio consists primarily of multi-family real estate , nonresidential real estate , construction and land loans , commercial loans and commercial leases , which together totaled 92.5 % of gross loans at december 31 , 2017 . net loans receivable increased $ 1.7 million , or 0.1 % , to $ 1.315 billion at december 31 , 2017 . commercial loans increased $ 53.5 million , or 54.0 % ; multi-family mortgage loans increased by $ 45.5 million , or 8.4 % ; and construction and land loans increased by $ 56,000 , or 4.3 % . commercial leases decreased by $ 46.4 million , or 13.0 % ; nonresidential real estate loans decreased $ 12.2 million , or 6.7 % ; and one-to-four family residential mortgage loans decreased by $ 37.4 million , or 27.7 % . our allowance for loan losses increased by $ 239,000 , or 2.9 % , to $ 8.4 million at december 31 , 2017 , from $ 8.1 million at december 31 , 2016 . the increase reflected the combined impact of an $ 87,000 recovery of provision for loan losses and $ 326,000 of net recoveries of loans previously charged-off . securities decreased $ 13.8 million , or 12.9 % , to $ 93.4 million at december 31 , 2017 , from $ 107.2 million at december 31 , 2016 , due primarily to proceeds from maturities of $ 75.5 million and repayments of $ 3.4 million on residential mortgage-backed securities and collateralized mortgage obligations . these repayments were partially offset by investments in fdic-insured certificates of deposit issued by other insured depository institutions of $ 65.1 million . total liabilities increased $ 12.7 million , or 0.9 % , to $ 1.428 billion at december 31 , 2017 , from $ 1.415 billion at december 31 , 2016 , primarily due to increases in fhlb advances . total deposits increased $ 661,000 , to $ 1.340 billion at december 31 , 2017 , from $ 1.339 billion at december 31 , 2016 . certificates of deposit increased $ 4.3 million , or 1.2 % , to $ 356.0 million at december 31 , 2017 , from $ 351.6 million at december 31 , 2016 due to an increase in retail products . interest-bearing now accounts increased $ 22.6 million , or 8.5 % , to $ 289.7 million at december 31 , 2017 , from $ 267.1 million at december 31 , 2016 . savings accounts increased $ 499,000 , or 0.3 % , to $ 160.5 million at december 31 , 2017 , from $ 160.0 million at december 31 , 2016 . noninterest-bearing demand deposits decreased $ 15.2 million , or 6.1 % , to $ 234.4 million at december 31 , 2017 , from $ 249.5 million at december 31 , 2016 . money market accounts decreased $ 11.6 million , or 3.7 % to $ 299.6 million at december 31 , 2017 , from $ 311.2 million at december 31 , 2016 . core deposits ( which consist of savings , money market , noninterest-bearing demand and now accounts ) were 73.4 % and 73.7 % of total deposits at december 31 , 2017 and 2016 , respectively . total stockholders ' equity was $ 197.6 million at december 31 , 2017 , compared to $ 204.8 million at december 31 , 2016 .
| results of operation net income comparison of year 2017 to 2016 . we recorded net income of $ 9.0 million for the year ended december 31 , 2017 , compared to net income of $ 7.5 million for 2016 . the increase in net income was due to a combination of an increase in net interest income and a reduced noninterest expense . our basic earnings per share of common stock was $ 0.49 for the year ended december 31 , 2017 , compared to $ 0.40 per share of common stock for the year ended december 31 , 2016 . comparison of year 2016 to 2015 . we recorded net income of $ 7.5 million for the year ended december 31 , 2016 , compared to net income of $ 8.7 million for 2015. the decrease in net income was primarily due to the fact that we had net charge-offs of $ 1.3 million for the year ended december 31 , 2016 and there were $ 907,000 of recoveries for the year ended december 31 , 2015. the net charge-offs for 2016 included a $ 1.6 million charge-off resulting from the sale of three performing loans to a single borrower with a carrying value of $ 16.2 million . our basic earnings per share of common stock was $ 0.40 for the year ended december 31 , 2016 , compared to $ 0.44 per share of common stock for the year ended december 31 , 2015. net interest income net interest income is our primary source of revenue . net interest income equals the excess of interest income ( including discount accretion on purchased impaired loans ) plus fees earned on interest earning assets over interest expense incurred on interest-bearing liabilities . the level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net 23 interest income .
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the first step ( “ step 1 ” ) of impairment testing requires a comparison of each reporting unit 's fair value to carrying value to identify potential impairment . if the carrying amount of a reporting unit exceeds the reporting unit 's fair value , the second step of the impairment test ( “ step 2 ” ) is completed to measure the amount of the reporting unit 's goodwill impairment loss , if any . the fair value of the reporting unit is determined using generally accepted approaches to valuation commonly referred to as the income approach , story_separator_special_tag management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements , the notes thereto , and other statistical information included in this annual report . story_separator_special_tag discussion and analysis of financial condition and results of operations - financial condition. ” wealth management and trust the following table presents a summary of selected financial data for the wealth management and trust segment for 2015 , 2014 , and 2013 . 28 replace_table_token_9_th nm - not meaningful the company 's wealth management and trust segment reported a net loss attributable to the company of $ 0.8 million in the year ended december 31 , 2015 , compared to net income attributable to the company of $ 3.0 million in 2014 and $ 3.4 million in 2013 . the year ended december 31 , 2015 was the first full year of the integration of the bank 's wealth management business and banyan . the $ 3.8 million decrease in net income in 2015 was primarily related to lower revenue as a result of employee turnover and the related loss of clients who followed the departed employees . in addition , there were increased operating expenses for legal fees , employee retention , restructuring expenses , and amortization of intangible assets . also in 2015 , the $ 2.0 million liability for contingent consideration recorded upon acquisition of banyan was reversed and recorded as other income . the 2014 year-to-year changes over 2013 are not comparable due to the acquisition of banyan in 2014. aum decreased $ 1.3 billion , or 14 % , to $ 8.0 billion at december 31 , 2015 from $ 9.3 billion at december 31 , 2014 . in 2015 , the decrease in aum was primarily the result of net outflows of $ 1.1 billion and negative market action of $ 0.1 billion . additionally , aum decreased $ 0.1 billion due to the disposition of certain accounts in the fourth quarter of 2015. in 2014 , the increase in aum was primarily the result of the acquisition of banyan in the fourth quarter , which added $ 4.3 billion of aum . in addition to the acquisition , the increase was the result of market appreciation of $ 0.3 billion and net flows of $ 0.1 billion . investment management the following table presents a summary of selected financial data for the investment management segment for 2015 , 2014 , and 2013 . replace_table_token_10_th 29 the company 's investment management segment reported net income attributable to the company of $ 5.8 million in the year ended december 31 , 2015 , compared to net income attributable to the company of $ 5.7 million in 2014 and $ 5.0 million in 2013 . the $ 0.1 million , or 2 % , increase in 2015 was primarily due to a decrease in salaries and employee benefits expense and professional services expense as well as lower income allocated to noncontrolling interests , partially offset by a decrease in investment management fees . the decrease in investment management fees was due to the decrease in aum . aum decreased $ 0.8 billion , or 8 % , to $ 10.0 billion at december 31 , 2015 from $ 10.8 billion at december 31 , 2014 . in 2015 , the decrease in aum was primarily the result of net outflows of $ 0.7 billion and negative market action of $ 0.1 billion . in 2014 , the increase in aum was primarily the result of market appreciation of $ 1.1 billion , partially offset by net outflows of $ 0.7 billion . wealth advisory the following table presents a summary of selected financial data for the wealth advisory segment for 2015 , 2014 , and 2013 . replace_table_token_11_th the company 's wealth advisory segment reported net income attributable to the company of $ 7.2 million in the year ended december 31 , 2015 and 2014 , compared to net income attributable to the company of $ 6.2 million in 2013 . increased wealth advisory fee revenue in 2015 was partially offset by increased occupancy and equipment , marketing and business development , and insurance expense . aum decreased $ 0.2 billion , or 2 % , to $ 9.7 billion at december 31 , 2015 from $ 9.9 billion at december 31 , 2014 . in 2015 , the decrease in aum was the result of negative market action of $ 0.1 billion and net outflows of $ 0.1 billion . in 2014 , the increase in aum was primarily the result of market appreciation of $ 0.3 billion and net inflows of $ 0.3 billion . the wealth advisory segment revenue is more resistant to fluctuations in market conditions than investment management segment revenue since financial planning fees are typically less correlated to the equity markets . critical accounting policies critical accounting policies are reflective of significant judgments and uncertainties , and could potentially result in materially different results under different assumptions and conditions . the company believes that its most critical accounting policies upon which its financial condition depends , and which involve the most complex or subjective decisions or assessments , are as follows : allowance for loan and lease losses the allowance for loan losses ( “ allowance ” ) is an estimate of the inherent risk of loss in the loan portfolio as of the consolidated balance sheet dates . story_separator_special_tag charge-offs for loans not considered to be collateral dependent are made when it is determined a loss has been incurred . impaired loans are removed from the general loan pools . there may be instances where the loan is considered impaired although based on the fair value of underlying collateral or the discounted expected future cash flows there is no impairment to be recognized . in addition , all loans which are classified as troubled debt restructurings ( “ tdrs ” ) are considered impaired . in addition to the three primary components of the allowance for loan losses discussed above ( general reserve , allocated reserves on non-impaired special mention and substandard loans , and the allocated reserves on impaired loans ) , the bank may also maintain an insignificant amount of additional allowance for loan losses ( the unallocated allowance for loan losses ) . the unallocated reserve reflects the fact that the allowance for loan losses is an estimate and contains a certain amount of imprecision risk . it represents risks identified by management that are not already captured in the qualitative factors discussed above . the unallocated allowance for loan losses is not considered significant by the company and will remain at zero unless additional risk is identified . while this evaluation process utilizes historical and other objective information , the classification of loans and the establishment of the allowance for loan losses rely to a great extent on the judgment and experience of management . while management evaluates currently available information in establishing the allowance for loan losses , future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations . in addition , various regulatory agencies , as an integral part of their examination process , periodically review a financial institution 's allowance for loan losses as well as loan grades/classifications . such agencies may require the financial institution to recognize additions to the allowance for loan losses or increases to adversely graded loans based on their judgments about information available to them at the time of their examination . valuation of goodwill/intangible assets and analysis for impairment the company allocates the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . other intangible assets identified in acquisitions generally consist of advisory contracts , trade names , and non-compete agreements . the value attributed to advisory contracts is based on the time period over which they are expected to generate economic benefits . the advisory contracts are generally amortized over 8-15 years , depending on the contract . trade names are not amortized . non-compete agreements are valued based on the expected receipt of future economic benefits protected by clauses in the non-compete agreements that restrict competitive behavior . non-compete agreements are amortized over the expected life of the agreement , which is generally seven years . the company 's non-compete agreements became fully amortized during 2013. long-lived intangible assets are subject to the impairment provisions of asc 360-10 , property , plant , and equipment ( “ asc 360 ” ) . long-lived intangible assets are tested for recoverability by comparing the net carrying value of the asset or asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset ( asset group ) when events or changes in circumstances indicate that its carrying amount may not be recoverable . if the carrying amount of the asset exceeds its net undiscounted cash flows , then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value , determined based upon the discounted value of the expected cash flows generated by the asset . the intangible impairment test is performed at the reporting unit level , and each affiliate with goodwill and or intangible assets is considered a reporting unit for goodwill and intangible impairment testing purposes . the excess of the purchase price for acquisitions over the fair value of the net assets acquired , including other intangible assets , is recorded as goodwill . goodwill is not amortized but is tested for impairment at the reporting unit level , defined as the affiliate level , at least annually in the fourth quarter or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred , based on the guidance in asc 350 , intangibles-goodwill and other ( “ asc 350 ” ) . goodwill impairment exists when a reporting unit 's carrying value of goodwill exceeds its implied fair value . in accordance with asc 350 , intangible assets with an indefinite useful economic life are not amortized , but are subject to impairment testing at the reporting unit on an annual basis , or when events or changes in circumstances indicate that the carrying amounts are impaired . an entity may assess qualitative factors to determine whether it is more likely than not ( that is , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount , including goodwill ( “ step 0 ” ) . in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , an entity assesses relevant events and circumstances , such as the following : macroeconomic conditions such as a deterioration in general economic conditions , limitations on accessing capital , or other developments in equity and credit markets . 32 industry and market considerations such as a deterioration in the environment in which an entity operates , an increased competitive environment , a decline in market-dependent multiples or metrics ( consider in both absolute terms and relative to peers ) , a change in the market for an entity 's products or services , or a regulatory or political development .
| executive summary the company offers a wide range of wealth management and private banking services to high net worth individuals , families , businesses and select institutions through its four reportable segments : private banking , wealth management and trust , investment management , and wealth advisory . this executive summary provides an overview of the most significant aspects of our operating segments and the company 's operations in 2015 . details of the matters addressed in this summary are provided elsewhere in this document and , in particular , in the sections immediately following . net income attributable to the company was $ 64.9 million for the year ended december 31 , 2015 , compared to net income attributable to the company of $ 68.8 million in 2014 and $ 70.5 million in 2013 . the company recognized diluted earnings per share of $ 0.74 for the year ended december 31 , 2015 , compared to diluted earnings per share of $ 0.79 in 2014 and $ 0.68 in 2013 . key items that affected the company 's 2015 results include : ▪ assets under management and advisory ( “ aum ” ) decreased 8 % during 2015 due to negative net flows of $ 1.9 billion and negative market action of $ 0.4 billion . negative net flows in the wealth management and trust segment of $ 1.1 billion were primarily due to losses related to the integration of boston private bank 's existing wealth management business and the operations of banyan into the newly-created boston private wealth . during integration , boston private wealth experienced the departure of certain client-facing employees over the course of the year and the related loss of clients who followed the departed employees . negative net flows were also seen in the investment management and wealth advisory segments .
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our revenues are derived from the sale and distribution of our ethanol throughout the continental u.s. and in the sale and distribution of our distillers ' grains ( dgs ) locally , and throughout the continental u.s. based on the criteria set forth in asc 280 , the company has two reportable operating segments for financial reporting purposes : ( 1 ) production of ethanol and related distillers ' grains , corn oil and syrup collectively referred to as ethanol production ; and ( 2 ) natural gas pipeline distribution and services from the company 's majority owned subsidiary , agrinatural . before intercompany eliminations , revenues from our natural gas pipeline segment represented 3.0 % , 3.2 % , and 2.7 % of our total consolidated revenues in the years ended october 31 , 2019 , 2018 , and 2017 , respectively . after accounting for intercompany eliminations for fees paid by the company for natural gas transportation services pursuant to our natural gas transportation agreement with agrinatural , agrinatural 's revenues represented 1.3 % , 1.5 % , and 1.1 % of our consolidated revenues for the fiscal years ended october 31 , 2019 , 2018 , and 2017 respectively , and have little to no impact on the overall performance of the company . plan of operations for the next twelve months over the next twelve months we will continue our focus on operational improvements at our plant . these operational improvements include exploring methods to improve ethanol yield per bushel and increasing production output at our plant , continued emphasis on safety and environmental regulation , reducing our operating costs , and optimizing our margin opportunities through prudent risk-management policies . the company , and the ethanol industry as a whole , experienced significant adverse conditions throughout most of 2018 and into 2019 as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels . these factors resulted in prolonged negative operating margins , significantly lower cash flow from operations and substantial net losses . we expect to have sufficient cash generated by continuing operations and availability on our credit facility to fund our operations . however , should we experience unfavorable operating conditions in the ethanol industry that prevent us from profitably operating our plant , we may need to seek additional funding . in addition , we expect to continue to conduct routine maintenance and repair activities at the ethanol plant to maintain current plant infrastructure , as well as small capital projects to improve operating efficiency . we anticipate using cash we generate from our operations and our revolving term loan to finance these plant upgrade projects . trends and uncertainties impacting our operations the principal factors affecting our results of operations and financial conditions are the market prices for corn , ethanol , distillers ' grains and natural gas , as well as governmental programs designed to create incentives for the use of corn-based ethanol . other factors that may affect our future results of operation include those risks and factors discussed in this report at “ part i - item 1. business ” and “ part i - item 1a . risk factors ” . 39 our operations are highly dependent on commodity prices , especially prices for corn , ethanol , distillers ' grains and natural gas . as a result , our operating results can fluctuate substantially due to volatility in these commodity markets . the price and availability of corn is subject to significant fluctuations depending upon a number of factors that affect commodity prices in general , including crop conditions , yields , domestic and global stocks , weather , federal policy and foreign trade . natural gas prices are influenced by severe weather in the summer and winter and hurricanes in the spring , summer and fall . other factors include north american exploration and production , and the amount of natural gas in underground storage during injection and withdrawal seasons . ethanol prices are sensitive to world crude oil supply and demand , domestic gasoline supply and demand , the price of crude oil , gasoline and corn , the price of substitute fuels and octane enhancers , refining capacity and utilization , government regulation and incentives and consumer demand for alternative fuels . distillers ' grains prices are impacted by livestock numbers on feed , prices for feed alternatives and supply , which is associated with ethanol plant production . we expect our ethanol plant to produce approximately 2.8 gallons of denatured ethanol for each bushel of grain processed in the production cycle . because the market price of ethanol is not always directly related to corn , at times ethanol prices may lag price movements in corn prices and corn-ethanol price spread ( the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8 ) may be tightly compressed or negative . if the corn-ethanol spread is compressed or negative for sustained period , it is possible that our operating margins will decline or become negative and our ethanol plant may not generate adequate cash flow for operations . in such cases , we may reduce or cease production at our ethanol plant in order to minimize our variable costs and optimize cash flow . for the fiscal year ended october 31 , 2019 compared to fiscal year ended october 31 , 2018 , our average price per gallon of ethanol sold increased approximately 2.4 % . however , the average price per gallon of ethanol sold for the fiscal year ended october 31 , 2019 was approximately 8.7 % lower than the average price per gallon of ethanol sold for the fiscal year ended october 31 , 2017. there has been decreased production of ethanol and gasoline demand has been flat . additionally , the increase in approved economic hardship exemptions from the rvos has recently effectively lowered the rvos by a significant number of gallons of domestic demand . story_separator_special_tag 41 the following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our audited consolidated statements of operations for the fiscal year ended october 31 , 2019 : replace_table_token_6_th the following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our consolidated statements of operations for the fiscal year ended october 31 , 2018 : replace_table_token_7_th our total consolidated revenues decreased by approximately 1.5 % for the fiscal year ended october 31 , 2019 , as compared to the fiscal year 2018 primarily due to decreases in production of ethanol , distillers ' grains , and corn oil , which were partially mitigated by increases in average prices realized for our ethanol , distillers ' grains , and corn oil . the following table reflects quantities of our three primary products sold and the average net prices received for the fiscal years ended october 31 , 2019 and 2018 : replace_table_token_8_th ethanol total revenues from sales of ethanol increased by approximately 0.5 % for fiscal year 2019 compared to the fiscal year 2018 due primarily to an approximately 2.4 % increase in the average price per gallon we received for our ethanol , offset by an approximate 2.1 % decrease in the volumes sold from period to period . we sold fewer ethanol gallons during fiscal year 2019 as compared to fiscal year 2018 primarily due to a decrease in ethanol production . ethanol production was lower at our plant compared to the prior year as a result of slight production slowdowns due to lower corn supply availability . we are currently operating above our nameplate capacity . management anticipates relatively stable ethanol production and story_separator_special_tag natural gas costs for our 2019 fiscal year , we experienced an increase of approximately 2.4 % in our overall natural gas costs compared to our 2018 fiscal year . during the past two fiscal years , there has been an increase in cost of natural gas , primarily as a result of an increase in the average price per mmbtu of natural gas due to increased domestic and export demand . management also anticipates higher natural gas prices as we move through the winter months due to the typical seasonal natural gas cost increases experienced during the winter months . from time to time we enter into forward purchase contracts for our natural gas purchases . our natural gas derivative positions resulted in no gain or loss for the fiscal year ended october 31 , 2019 , which had no effect on cost of goods sold , and a loss of approximately $ 1,600 for the fiscal year ended october 31 , 2018 , which increased cost of goods sold . we recognize the gains or losses that result from the changes in the value of our derivative instruments from natural gas in cost of goods sold as the changes occur . operating expense operating expenses include wages , salaries and benefits of administrative employees at the plant , insurance , professional fees , property taxes and similar costs . operating expenses as a percentage of revenues rose slightly to 3.2 % of revenues for our fiscal year ended october 31 , 2019 , compared to 2.9 % of revenues for our fiscal year ended october 31 , 2018. this increase is due primarily to lower revenues and increased industry association costs . our efforts to optimize efficiencies and maximize production may result in a decrease in our operating expenses on a per gallon basis . however , because these expenses generally do not vary with the level of production at the plant , we expect our operating expenses to remain steady into and throughout our 2020 fiscal year . operating income ( loss ) for our fiscal year ended october 31 , 2019 , we reported operating loss of approximately $ 5.4 million , compared to operating income of approximately $ 894,000 for our fiscal year ended october 31 , 2018. this decrease resulted largely from increased prices for corn and the narrowing of margins of our ethanol production segment . other income , net we had net other income of approximately $ 205,000 during fiscal year 2019 , compared to net other income of approximately $ 273,000 for fiscal year 2018. we had less other income during fiscal year 2019 compared to fiscal year 2018 primarily due to less patronage amounts received during the 2019 period . results of operations for the fiscal years ended october 31 , 2018 and 2017 the following table shows the results of our operations and the percentage of revenues , cost of goods sold , operating expenses and other items to total revenues in our audited consolidated statements of operations for the fiscal years ended october 31 , 2018 and 2017 ( amounts in thousands ) : replace_table_token_11_th 45 revenues our consolidated revenue is derived principally from revenues from our ethanol production segment , which consists of sales of our three primary products : ethanol , distillers ' grains and corn oil . our remaining consolidated revenues are attributable to incidental sales of corn syrup and agrinatural revenues , net of eliminations for distribution fees paid by the company to agrinatural for natural gas transportation services . the following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our audited consolidated statements of operations for the fiscal year ended october 31 , 2018 : replace_table_token_12_th the following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our consolidated statements of operations for the fiscal year ended october 31 , 2017 : replace_table_token_13_th our total consolidated revenues decreased by approximately 1.3 % for the fiscal year ended october 31 , 2018 , as compared to the fiscal year 2017 primarily due to decreases in the average price realized for our ethanol and corn oil which were partially mitigated by
| sales during our 2020 fiscal year . the increase in the price of ethanol was due to decreased ethanol stocks compared to the fiscal year ended october 31 , 2018. in addition , because ethanol prices are typically directionally consistent with changes in corn prices , higher corn prices pushed the price of ethanol slightly higher . we occasionally engage in hedging activities with respect to our ethanol sales . we recognize the gains or losses that result from the changes in the value of these derivative instruments in revenues as the changes occur . at october 31 , 2019 , we had fixed and basis contracts for forward ethanol sales for various delivery periods through december 2019 42 valued at approximately $ 13.5 million . separately , ethanol derivative instruments resulted in a gain of approximately $ 25,000 for the fiscal year ended october 31 , 2019 and a gain of approximately $ 54,000 for the fiscal year ended october 31 , 2018. distillers ' grains total revenues from sales of distillers ' grains for our 2019 fiscal year decreased approximately 9.1 % compared to fiscal year 2018. the decrease in distillers ' grains revenues is primarily attributable to an approximately 10.6 % decrease in the tons of distillers ' grains sold from period to period , which was partially offset by an approximately 1.6 % increase in the average price per ton we received for our distillers ' grains sold during fiscal year 2019 compared to fiscal year 2018. the increase in the market price of distillers ' grains is primarily due to decreased supply as a result of decreased production . management anticipates that distillers ' grains prices will remain steady during our 2020 fiscal year unless export markets continue to shrink or production increases . we sold fewer tons of distillers ' grains during fiscal year 2019 as compared to 2018 due primarily to decreased production at the plant .
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the aggregate future minimum lease commitments for operating leases at december 31 , 2015 are as follows : replace_table_token_23_th note 4 – goodwill and other intangible assets the changes in the net carrying amount of goodwill for the years ended december 31 , are as follows : replace_table_token_24_th assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition story_separator_special_tag the following discussion should be read in conjunction with selected financial data ( item 6 ) , and our consolidated financial statements and related notes contained elsewhere in this report . overview of conmed corporation conmed corporation ( “ conmed ” , the “ company ” , “ we ” or “ us ” ) is a medical technology company that provides surgical devices and equipment for minimally invasive procedures . the company 's products are used by surgeons and physicians in a variety of specialties including orthopedics , general surgery , gynecology , neurosurgery and gastroenterology . our product lines consist of orthopedic surgery , general surgery and surgical visualization . orthopedic surgery consists of sports medicine instrumentation and small bone , large bone and specialty powered surgical instruments and service fees related to the promotion and marketing of sports medicine allograft tissue . general surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures , a line of cardiac monitoring products as well as electrosurgical generators and related instruments . surgical visualization consists of imaging systems for use in minimally invasive orthopedic and general surgery procedures including 2dhd and 3dhd vision technologies . these product lines as a percentage of consolidated net sales are as follows : replace_table_token_7_th a significant amount of our products are used in surgical procedures with approximately 79 % of our revenues derived from the sale of disposable products . our capital equipment offerings also facilitate the ongoing sale of related disposable products and accessories , thus providing us with a recurring revenue stream . we manufacture substantially all of our products in facilities located in the united states and mexico . we market our products both domestically and internationally directly to customers and through distributors . international sales approximated 50 % , 51 % and 51 % in 2015 , 2014 and 2013 , respectively . business environment 2015 was a year of continued change and transformation for conmed corporation . during the year , we filled the remaining executive positions in a now entirely revamped leadership team . we also aligned our marketing product strategy road map with our research and development resource allocation to re-invigorate our organic product pipeline , while leveraging our restored business development function to actively pursue additional acquisitions . during the year , we had three business acquisitions as more fully disclosed in note 4 to the consolidated financial statements . on january 4 , 2016 , we acquired surgiquest , inc. ( `` surgiquest '' ) for $ 265 million in cash ( on a cash-free , debt-free basis ) . surgiquest develops , manufactures , and markets the airseal ® system , the first integrated access management technology for use in laparoscopic and robotic procedures . this proprietary and differentiated access system is complementary to our current advanced surgical offering . we expect this access system to generate approximately $ 55 to $ 60 million in revenue in 2016. we plan to continue to restructure both operations and administrative functions as necessary throughout the organization . we have successfully completed our restructuring plans over the past few years , however , we can not be certain further activities , will be completed in the estimated time period or that planned cost savings will be achieved . finally , our facilities are subject to periodic inspection by the united states food and drug administration ( “ fda ” ) and foreign regulatory agencies or notified bodies for , among other things , conformance to quality system regulation and current good manufacturing practice ( “ cgmp ” ) requirements and foreign or international standards . during the third quarter of 2013 , the fda inspected our centennial , colorado manufacturing facility and issued a form 483 with observations on september 20 , 2013. we subsequently submitted responses to the observations , and the fda issued a warning letter on january 30 , 2014 relating to the inspection and the responses to the form 483 observations . accordingly , we undertook corrective actions . during the fourth quarter of 2014 , the fda again inspected our centennial , colorado manufacturing facility and , on november 18 , 2014 , issued a form 483 with eight observations , three of which the fda characterized as repeat observations . on december 10 , 2014 , 19 we responded to the form 483 observations . we have received some additional questions from the fda and responded to these questions on april 25 , 2015. the remediation costs to date have not been material , although there can be no assurance that responding to the form 483 observations or a future inspection by the fda will not result in an additional form 483 or warning letter , or other regulatory actions , which may include consent decrees or fines . critical accounting policies preparation of our financial statements requires us to make estimates and assumptions which affect the reported amounts of assets , liabilities , revenues and expenses . note 1 to the consolidated financial statements describes the significant accounting policies used in preparation of the consolidated financial statements . the most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of conmed corporation . revenue recognition revenue is recognized when title has been transferred to the customer which is at the time of shipment . the following policies apply to our major categories of revenue transactions : sales to customers are evidenced by firm purchase orders . story_separator_special_tag intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . the carrying amount of an intangible asset subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset . an impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value . customer relationship assets arose principally as a result of the 1997 acquisition of linvatec corporation . these assets represent the acquisition date fair value of existing customer relationships based on the after-tax income expected to be derived during their estimated remaining useful life . the useful lives of these customer relationships were not , and are not , limited by contract or any economic , regulatory or other known factors . the estimated useful life of the linvatec customer relationship assets was determined as of the date of acquisition as a result of a study of the observed pattern of historical revenue attrition during the 5 years immediately preceding the acquisition of linvatec corporation . this observed attrition pattern was then applied to the existing customer relationships to derive the future expected useful life of the customer relationships . this analysis indicated an annual attrition rate of 2.6 % . assuming an exponential attrition pattern , this equated to an average remaining useful life of approximately 38 years for the linvatec customer relationship assets . customer relationship intangible assets arising as a result of other business acquisitions are being amortized over a weighted average life of 18 years . the weighted average life for customer relationship assets in aggregate is 33 years . we evaluate the remaining useful life of our customer relationship intangible assets each reporting period in order to determine whether events and circumstances warrant a revision to the remaining period of amortization . in order to further evaluate the remaining useful life of our customer relationship intangible assets , we perform an analysis and assessment of actual customer attrition and activity as events and circumstances warrant . this assessment includes a comparison of customer activity since the acquisition date and review of customer attrition rates . in the event that our analysis of actual customer attrition rates indicates a level of attrition that is in excess of that which was originally contemplated , we would change the estimated useful life of the related customer relationship asset with the remaining carrying amount amortized prospectively over the revised remaining useful life . we test our customer relationship assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . factors specific to our customer relationship assets which might lead to an impairment charge include a significant increase in the annual customer attrition rate or otherwise significant loss of customers , significant 21 decreases in sales or current-period operating or cash flow losses or a projection or forecast of losses . we do not believe that there have been events or changes in circumstances which would indicate the carrying amount of our customer relationship assets might not be recoverable . trademarks and tradenames were recognized principally in connection with the 1997 acquisition of linvatec corporation . we continue to market products , release new product and product extensions and maintain and promote these trademarks and tradenames in the marketplace through legal registration and such methods as advertising , medical education and trade shows . it is our belief that these trademarks and tradenames will generate cash flow for an indefinite period of time . therefore , our trademarks and tradenames intangible assets are not amortized . during 2015 , we completed our impairment testing of trademarks and tradenames with data as of october 1 , 2015. we performed a step 1 impairment test in accordance with asc 350-30-35 utilizing the relief from royalty income approach to determine whether the fair value of the linvatec trademark and tradenames are less than their carrying amounts . fair value is determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates , weighted average cost of capital , and assumed royalty rates . based upon our assessment , we believe the fair value continues to exceed carrying value . for all other indefinite lived intangible assets , we perform a qualitative impairment test in accordance with asc 350-30-35. based upon this assessment , we have determined that it is unlikely that our indefinite lived intangible assets are impaired . see note 4 to the consolidated financial statements for further discussion of goodwill and other intangible assets . pension plan we sponsor a defined benefit pension plan ( the “ pension plan ” ) that was frozen in 2009. it covered substantially all our united states based employees at the time it was frozen . major assumptions used in accounting for the plan include the discount rate , expected return on plan assets , rate of increase in employee compensation levels and expected mortality . assumptions are determined based on company data and appropriate market indicators , and are evaluated annually as of the plan 's measurement date . a change in any of these assumptions would have an effect on net periodic pension costs reported in the consolidated financial statements . the weighted-average discount rate used to measure pension liabilities at december 31 , 2015 and estimated 2016 pension expense is set by reference to the mercer above mean yield curve . we changed to this curve as we believe it provides a better representation of yields on bonds if we were to settle the liabilities than the prior use of the citigroup pension liability index . prior year pension liabilities and 2015 and 2014 pension expense are set by reference to the citigroup pension liability index .
| consolidated results of operations the following table presents , as a percentage of net sales , certain categories included in our consolidated statements of comprehensive income for the periods indicated : replace_table_token_8_th net sales net sales decreased 2.8 % to $ 719.2 million in 2015 after a decrease in sales of 3.0 % in 2014 to $ 740.1 million from $ 762.7 million in 2013 . the decrease in 2015 occurred across all product lines . in local currency , excluding the effects of the hedging program , sales increased 0.3 % in 2015 . sales of capital equipment increased 3.8 % to $ 151.9 million in 2015 , while sales of single-use products decreased 4.5 % to $ 567.3 million in 2015 . in local currency , excluding the effects of the hedging program , sales of capital equipment increased 7.1 % in 2015 , while single-use products decreased 1.3 % in 2015 . the decrease in 2014 sales also occurred across product lines . in local currency , excluding the effects of the hedging program , sales decreased 2.4 % in 2014 . sales of capital equipment decreased 4.8 % to $ 146.3 million in 2014 from $ 153.7 million in 2013 ; sales of single-use products decreased 2.5 % to $ 593.8 million in 2014 from $ 609.0 million in 2013 . in local currency , excluding the effects of the hedging program , sales of capital equipment decreased 4.3 % in 2014 while single-use products decreased 1.9 % in 2014 . orthopedic surgery sales decreased 3.4 % in 2015 to $ 389.0 million after a decrease of 1.8 % in 2014 to $ 402.8 million from $ 410.2 million in 2013 . in 2015 , the decrease was mainly due to lower sales in our procedure specific and resection product offerings as well as our powered instrument burs and blades offset by increases in our powered instrument handpieces .
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the purpose of the swap agreement is to adjust the interest rate profile of the company 's debt obligations and to achieve a targeted mix of floating and fixed rate debt . during the year ended december 31 , 2015 , the fair market value of the interest rate swap decreased by $ 163,000 which was recorded as interest expense . the corresponding liability of $ 163,000 for the interest rate swap is including in accounts payable and accrued liabilities on the consolidated balance sheet as of december 31 , 2015. note 5 – story_separator_special_tag the following discussion provides information regarding the results of operations for the years ended december 31 , 2015 and 2014 , and our financial condition , liquidity and capital resources as of december 31 , 2015 and 2014. the financial statements and the notes thereto contain detailed information that should be referred to in conjunction with this discussion . the following discussion and analysis should be read in conjunction with and our historical consolidated financial statements and the accompanying notes included elsewhere in this annual report on form 10-k , as well as the risk factors and the cautionary note regarding forward-looking statements included above . overview the company , through its subsidiaries , provides well enhancement and fluid management services to the domestic onshore oil and natural gas industry . these services include frac water heating , hot oiling and acidizing ( well enhancement services ) , and water transfer , water treatment , water hauling , fluid disposal , frac tank rental ( fluid management services ) and other general oilfield services . the company owns and operates through its subsidiaries a fleet of more than 340 specialized trucks , trailers , frac tanks and other well-site related equipment and serves customers in several major domestic oil and gas fields including the dj basin/niobrara field in colorado , the bakken field in north dakota , the marcellus and utica shale fields in pennsylvania and ohio , the jonah field , green river and powder river basins in wyoming , the eagle ford shale in texas and the mississippi lime and hugoton fields in kansas and oklahoma . the company expects to continue to pursue its growth strategies of exploring additional acquisitions , potentially expanding the geographic areas in which it operates , and diversifying the products and services it provides to customers , as well as making further investments in its assets and equipment provided it can do so on reasonable terms and conditions . the company will most likely require additional debt or equity financing to fund the costs necessary to expand the services it offers . there can be no assurance that the company will be able to raise outside capital or have access to outside funding on reasonable terms , if at all . 33 story_separator_special_tag line-height : 1.25 ; text-indent : 36pt '' > the continuing decline in crude oil prices since july 2014 and continuing into 2016 has resulted in our customers scaling back drilling and completion programs , shifting capital resources to higher margin basins , requesting pricing concessions from vendors , and reducing or delaying certain maintenance related work to save costs . further , the overall reduction in drilling , completion and service work has resulted in more service vendors chasing fewer jobs putting even further downward pressure on the pricing of services . some competitors have responded by pricing work at negative margins . although the company has been able to partially mitigate the impact of these decisions by deploying resources to more active customers and basins , our revenue growth and operating margins have been impacted by reduced demand overall for our services , pricing concessions and the delay of hot oiling and acidizing maintenance work . price concessions granted to customers were approximately 6.7 % and 4.3 % of total revenues for the quarter and fiscal year ended december 31 , 2015 , respectively . many customers have announced reduced capital spending programs for 2016 and some customers have suspended drilling and completion programs altogether until oil and natural gas prices recover and stabilize at an economical price for continuing such operations . in addition , some customers are delaying their routine hot oiling and acidizing maintenance work . although we ultimately anticipate a rebound in routine hot oiling and acidizing maintenance similar to the last down cycle as the deferred maintenance eventually needs to be done to maintain production and protect the efficiency of a well , we do not anticipate that maintenance work will increase significantly until prices recover . 35 revenue details although the company does not have segmented business operations , which would require segment reporting within the notes of its financial statements per accounting standards , we believe that revenue by service offering may be useful to readers of our financial statements . the following tables set forth revenue from operations for the company 's service offerings during the quarter and fiscal years ended december 31 , 2015 and 2014 : replace_table_token_3_th the company has also determined that an understanding of the diversity of its operations by geography is important to an understanding of its business operations . the company only does business in the united states , in what it believes are three geographically diverse regions . the following table sets forth revenue from operations for the company 's three geographic regions during the quarter and fiscal years ended december 31 , 2015 and 2014 : replace_table_token_4_th notes to tables : ( 1 ) includes frac water heating , acidizing , hot oil services , and pressure testing . ( 2 ) includes water hauling , fluid disposal , frac tank rental and construction and roustabout services . ( 3 ) includes the d-j basin/niobrara field ( northern colorado and southeastern wyoming ) , the powder river and green river basins ( central wyoming ) , the bakken field ( western north dakota and eastern montana ) . heat waves is the only company subsidiary operating in this region . story_separator_special_tag geographic areas : revenues in the rocky mountain region decreased $ 10.7 million , or 32 % , for the year ended december 31 , 2015 due to several factors including ( i ) decreased frac water heating activity in the niobrara shale/dj basin and bakken field as discussed above ; ( ii ) decreased hot oiling , acidizing , and water hauling revenues due to the completion of projects and delayed maintenance programs by customers and ( iii ) decrease in propane revenues due to lower propane prices in the first quarter of 2015 as compared to the first quarter of last year . revenues in the eastern usa region decreased $ 4.9 million , or 48 % , to $ 5.2 million for the year ended december 31 , 2015 primarily due to lower frac water service activity in the marcellus and utica shale basins during the first and fourth quarters of 2015. several factors contributed to this decline including a $ 1.8 million decrease in propane revenues during our first quarter due to falling propane prices combined with a significant drop in demand for frac water heating services during our fourth quarter due to unseasonably warm weather that essentially eliminated most of our frac water heating revenue in this quarter . price concessions and reduced drilling and completion activities due to falling prices also contributed to the overall decline in revenues . revenues in the central usa region decreased $ 2.3 million , or 18 % , to $ 10.4 million for the year ended december 31 , 2015. incremental revenues from our geographic expansion into the eagle ford shale of $ 2.0 million was offset by a decline in well enhancement and fluid management service activity within the hugoton basin . heavy rains during our second quarter and an overall decline in service activity during 2015 due to falling oil and natural gas prices contributed to the decline in well enhancement services . scaled back service work , price concessions and elimination of certain low margin water hauling business were the primary reasons for decline in fluid management business in the hugoton basin . 38 historical seasonality of revenues : because of the seasonality of our frac water heating and hot oiling business , revenues generated during the first and fourth quarters of our fiscal year , covering the months during what we call our “ heating season , ” are significantly higher than revenues earned during the second and third quarters of the year . in addition , the revenue mix of our service offerings also changes among quarters as our well enhancement services ( which includes frac water heating and hot oiling ) decrease as a percentage of total revenues and fluid management services ( water hauling ) and other services increase . thus , the revenues recognized in our quarterly financials in any given period are not indicative of the annual or quarterly revenues through the remainder of that fiscal year . as an indication of this quarter-to-quarter seasonality , the company generated revenues of $ 27.8 million , or 72 % , of its 2015 revenues during the first and fourth quarters of 2015 compared to $ 11.0 million , or 28 % , during the second and third quarters of 2015. in 2014 , the company earned revenues of $ 43.5 million , or 77 % , of its 2014 revenues during the first and fourth quarters of 2014 , compared to $ 13.1 million , or 23 % , during the second and third quarters of 2014. while the company is pursuing various strategies to lessen these quarterly fluctuations by increasing non-seasonal business opportunities , there can be no assurance that we will be successful in doing so . cost of revenues : cost of revenues for 2015 decreased $ 12.4 million , or 30 % , from last year primarily due to a $ 7.6 million decline in propane costs and management 's efforts to reduce operating costs such as direct labor , equipment repairs and maintenance , and supply costs in order to minimize the negative impact of reduced revenues . managements ' efforts include reducing overtime and non-billable time , reducing indirect labor to correspond with lower activity , negotiating supplier discounts and implementing cost management tools . in addition , lower fuel costs also contributed to the decline in cost of revenues . the decline in cost of revenue was partially offset by increased costs from our expanded operations in texas and north dakota . gross profit : gross profit for 2015 decreased $ 5.3 million , or 35 % , to $ 10.0 million dollars as compared to $ 15.3 million in 2014. the decline in gross profits was primarily due to the decline in our higher margin well enhancement service revenues . managements ' efforts to reduce operating costs and lower diesel costs helped to mitigate some of the impact on gross profits . price concessions , which totaled $ 1.7 million , or 4.3 % , of revenue , and lower propane gross profits also contributed to the decline in gross profits during 2015. gross profit as a percentage of revenues decreased slightly to 26 % of revenues for the year ended december 31 , 2015 as compared to 27 % for 2014. the reduction in percentage of revenues was primarily attributable to price concessions and was partially offset by a higher percentage of gross margins on propane sales . see discussion below . propane impact discussion : in connection with our frac water heating services and hot oil services , the company provides propane to certain customers on a cost plus basis . since the company passes along the cost of propane to its customers on a cost plus mark-up basis , fluctuations in the price of propane will impact our revenues , cost of revenues and gross profit percentages .
| results of operations the following table shows selected financial data for the periods noted . please see information following the table for management 's discussion of significant changes . replace_table_token_2_th ( * ) management believes that , for the reasons set forth below , adjusted ebitda and adjusted ebitda margin ( even though a non-gaap measure ) are valuable measurements of the company 's liquidity and performance and are consistent with the measurements offered by other companies in our industry . see further discussion of our use of ebitda , the risks of non-gaap measures , and the reconciliation to net income , in item 7. executive summary fourth quarter the fourth quarter of 2015 was one of our most challenging quarters to date . unseasonably warm weather in all of our heating markets and a continued decline in drilling , completion and service activities throughout the industry related to falling oil and natural gas prices resulted in a significant drop in demand for our services during our fourth quarter . with the intent to maintain existing service volumes and offset the drop in demand , as much as reasonably possible , we have offered pricing concessions/discounts to a number of customers . the combination of these factors resulted in a decline in fourth quarter revenues of $ 9.7 million , or 53 % , as compared to same quarter last year . incremental revenues from our geographic expansion into the eagle ford shale and from our tioga acquisition in november 2014 helped to offset some of the decline in revenues .
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if the carrying value of story_separator_special_tag management 's discussion and analysis includes financial information prepared in accordance with generally accepted accounting principles ( gaap ) in the u.s. , as well as certain non-gaap financial measures such as adjusted earnings , adjusted earnings per share and adjusted segment income , discussed below . generally , a non-gaap financial measure is a numerical measure of financial performance , financial position or cash flows that excludes ( or includes ) amounts that are included in ( or excluded from ) the most directly comparable measure calculated and presented in accordance with gaap . the non-gaap financial measures should be viewed as a supplement to , and not a substitute for , financial measures presented in accordance with gaap . non-gaap measures as presented herein may not be comparable to similarly titled measures used by other companies . the following combined management 's discussion and analysis of financial condition and results of operations is separately filed by duke energy , duke energy carolinas , progress energy , duke energy progress , duke energy florida , duke energy ohio and duke energy indiana . however , none of the registrants makes any representation as to information related solely to duke energy or the subsidiary registrants of duke energy other than itself . duke energy duke energy corporation ( collectively with its subsidiaries , duke energy ) is an energy company headquartered in charlotte , north carolina . duke energy operates in the u.s. primarily through its wholly owned subsidiaries , duke energy carolinas , duke energy progress , duke energy florida , duke energy ohio , and duke energy indiana , as well as in latin america . when discussing duke energy 's consolidated financial information , it necessarily includes the results of the subsidiary registrants , which , along with duke energy , are collectively referred to as the duke energy registrants . management 's discussion and analysis should be read in conjunction with the consolidated financial statements and notes for the years ended december 31 , 2013 , 2012 , and 2011. executive overview merger with progress energy on july 2 , 2012 , duke energy merged with progress energy , with duke energy continuing as the surviving corporation , and progress energy becoming a wholly owned subsidiary of duke energy . duke energy progress and duke energy florida , progress energy 's regulated utility subsidiaries , are now indirect wholly owned subsidiaries of duke energy . duke energy 's consolidated financial statements include progress energy , duke energy progress and duke energy florida activity beginning july 2 , 2012. immediately preceding the merger , duke energy completed a one-for-three reverse stock split with respect to the issued and outstanding shares of duke energy common stock . all share and per share amounts presented herein reflect the impact of the one-for-three reverse stock split . for additional information on the details of this transaction including regulatory conditions and accounting implications , see note 2 to the consolidated financial statements , “ acquisitions and dispositions of businesses and sales of other assets. ” 2013 financial results the following table summarizes adjusted earnings and net income attributable to duke energy for the years ended december 31 , 2013 , 2012 and 2011. replace_table_token_6_th adjusted earnings increased from 2012 to 2013 primarily due to the inclusion of a full year of progress energy results in 2013 , the impact of the revised rates , net of higher depreciation and amortization expense and lower allowance for funds used during construction ( afudc ) . adjusted earnings increased from 2011 to 2012 primarily due to the inclusion of progress energy 's results beginning july 2012 , and the impact of the 2011 duke energy carolina 's rate cases . see “ results of operations ” below for a detailed discussion of the consolidated results of operations , as well as a detailed discussion of financial results for each of duke energy 's reportable business segments , as well as other . 2013 areas of focus and accomplishments in 2013 , duke energy was focused on completing the fleet modernization program , achieving constructive outcomes in its rate cases , resolving key issues – including the future crystal river unit 3 nuclear station , improving nuclear fleet performance , and realizing merger integration plans . completing the fleet modernization program 35 part ii during 2013 , duke energy completed its $ 9 billion fleet modernization program . this program added approximately 6,600 mws of new combined-cycle natural gas and state-of-the-art coal capacity in north carolina , south carolina and indiana . this new generation will replace up to 6,700 mw of older coal and oil plants , already retired or scheduled for retirement by 2015. the edwardsport igcc and sutton combined-cycle natural gas plant in wilmington , north carolina , were placed in commercial service in june and november , respectively . at edwardsport , duke energy has been testing , tuning and optimizing the unit . all major technology systems have been validated . performance testing was delayed in january by extreme weather , which also caused some equipment issues that are being resolved . the edwardsport igcc project is expected to achieve its full operational capabilities later this year and to be completed within the revised cost estimate of $ 3.5 billion . achieving constructive outcomes in rate cases duke energy reached constructive regulatory outcomes in all five of its general rate cases to recover investments made to modernize its fleet . when fully implemented , the base rate cases will add approximately $ 600 million in annualized revenues , while keeping customers ' retail priced below national averages . resolving key issues duke energy also made the decision to retire crystal river unit 3 , resolved insurance claims with its insurance provider , nuclear electric insurance limited ( neil ) , and obtained approval from the fpsc of a comprehensive settlement . story_separator_special_tag management believes the presentation of adjusted segment income provides useful information to investors , as it provides them with an additional relevant comparison of a segment 's performance across periods . the most directly comparable gaap measure for adjusted segment income is segment income , which represents segment income from continuing operations , including any special items and mark-to-market impacts of economic hedges in the commercial power segment . see note 3 to the consolidated financial statements , “ business segments , ” for a discussion of duke energy 's segment structure . overview the following table reconciles non-gaap measures to the most directly comparable gaap measure . replace_table_token_7_th the variance in adjusted earnings for the year ended december 31 , 2013 , compared to 2012 , was primarily due to : · the inclusion of progress energy results for the first six months of 2013 ; · increased retail pricing and riders resulting primarily from the implementation of revised rates in all jurisdictions ; and 37 part ii · lower operating and maintenance expense resulting primarily from the adoption of nuclear outage cost levelization in the carolinas , lower benefit costs and merger synergies . partially offsetting these increases was : · higher depreciation and amortization expense ; · lower afudc ; · lower nonregulated midwest gas generation results ; and · incremental shares issued to complete the progress energy merger ( impacts per diluted share amounts only ) . the variance in adjusted earnings for the year ended december 31 , 2012 , compared to 2011 , was primarily due to : · the inclusion of progress energy results beginning in july 2012 ; and · increased retail pricing and riders primarily resulting from the implementation of revised rates in north carolina and south carolina for duke energy carolinas . partially offsetting these increases was : · unfavorable weather in 2012 compared to 2011 ; · higher depreciation and amortization expense ; · lower nonregulated midwest coal generation results ; and · incremental shares issued to complete the progress energy merger ( impacts per diluted share amounts only ) . segment results the remaining information presented in this discussion of results of operations is on a gaap basis . regulated utilities replace_table_token_8_th year ended december 31 , 2013 as compared to 2012 regulated utilities ' results were positively impacted by 2012 impairment and other charges related to the edwardsport igcc plant , higher retail pricing and rate riders , the inclusion of progress energy results for the first six months of 2013 , a net increase in wholesale power revenues , and higher weather normal sales volumes . these impacts were partially offset by higher income tax expense , crystal river unit 3 38 part ii charges , lower afudc equity and higher depreciation and amortization expense . the following is a detailed discussion of the variance drivers by line item . operating revenues . the variance was driven primarily by : · a $ 4,339 million increase due to the inclusion of progress energy for the first six months of 2013 , · a $ 434 million net increase in retail pricing primarily due to revised rates approved in all jurisdictions ; · a $ 76 million net increase in wholesale power revenues , net of sharing , primarily due to additional volumes and charges for capacity for customers served under long-term contracts ; and · a $ 72 million increase in weather-normal sales volumes to retail customers ( net of fuel revenue ) reflecting increased demand . partially offset by : · a $ 132 million decrease in fuel revenues ( including emission allowances ) driven primarily by ( i ) the impact of lower florida residential fuel rates , including amortization associated with the settlement agreement approved by the fpsc in 2012 ( 2012 settlement ) , ( ii ) lower fuel rates for electric retail customers in the carolinas , florida and ohio , and ( iii ) lower revenues for purchased power , partially offset by ( iv ) increased demand from electric retail customers . fuel revenues represent sales to retail and wholesale customers . operating expenses . the variance was driven primarily by : · a $ 3,393 million increase due to the inclusion of progress energy for the first six months of 2013 , · a $ 346 million increase in impairment and other charges in 2013 primarily related to crystal river unit 3 and levy . see note 4 to the consolidated financial statements , “ regulatory matters , ” for additional information , and · a $ 102 million increase in depreciation and amortization expense primarily due to a decrease in the reduction of the cost of removal component of amortization expense as allowed under the 2012 settlement . partially offset by : · a $ 600 million decrease due to 2012 impairment and other charges related to the edwardsport igcc plant . see note 4 to the consolidated financial statements , `` regulatory matters , '' for additional information , and · a $ 120 million decrease in fuel expense ( including purchased power and natural gas purchases for resale ) primarily related to ( i ) the application of the neil settlement proceeds in florida , including amortization associated with the 2012 settlement ; ( ii ) lower purchased power costs in ( a ) the carolinas , primarily due to additional generating capacity placed in service in late 2012 and market conditions , ( b ) ohio , primarily due to reduced sales volumes , and ( c ) indiana , reflective of market conditions ; partially offset by ( iii ) higher volumes of natural gas used in electric generation due primarily to additional generating capacity placed in service ; ( iv ) higher prices for natural gas and coal used in electric generation ; and ( v ) higher volumes of coal used in electric generation primarily due to generation mix . other income and expenses , net .
| results of operations replace_table_token_15_th year ended december 31 , 2013 as compared to 2012 operating revenues . the variance was primarily due to : · a $ 387 million decrease in retail fuel revenues primarily due to the impact of lower residential fuel rates and a decrease in gwh retail sales due to weather and lower usage . partially offset by : · a $ 167 million increase in base revenues as allowed by the 2012 settlement , and · a $ 57 million increase in nuclear cost-recovery clause revenue due to an increase in recovery rates primarily related to the crystal river unit 3 uprate project , a prior period true-up and levy as allowed by the 2012 settlement . operating expenses . the variance was primarily due to : · a $ 482 million decrease in retail fuel expense primarily due to the application of the neil settlement proceeds including amortization associated with the 2012 settlement , lower system requirements , and the prior year establishment of a regulatory liability for replacement power in accordance with the 2012 settlement , and · a $ 71 million decrease in operations and maintenance expenses primarily due to the deferral of crystal river unit 3-related expenses in accordance with the 2012 settlement , lower costs associated with the merger with duke energy , and the prior year write-off of previously deferred costs related to the vendor not selected for the crystal river unit 3 containment repair . these were partially offset by the prior year reversal of accruals in conjunction with the placement of crystal river unit 3 into extended cold shutdown in accordance with the 2012 settlement and higher charges associated with related settlement matters . partially offset by : · a $ 212 million increase in impairment and other charges . in 2013 , duke energy florida recorded impairment and other charges primarily related to crystal river unit 3 and levy .
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performance shares on may 22 , 2013 , pursuant to the story_separator_special_tag we believe the following discussion and analysis provides information that is relevant to an assessment and understanding of our consolidated results of operations and financial condition . the discussion and analysis should be read in conjunction with the consolidated financial statements and related notes thereto appearing elsewhere in this form 10-k. this management 's discussion and analysis will help you understand : the impact of forward looking statements ; our financial structure , including our historical financial presentation ; our results of operations for the previous two years as well as certain projections for the future ; certain of our relationships with our subsidiaries ; our liquidity and capital resources ; the impact of seasonality , inflation and recently issued accounting standards on our financial statements ; and our critical accounting policies and estimates . forward-looking information we have made forward-looking statements in this report on form 10-k. these statements are subject to risks and uncertainties , and there can be no guarantee that these statements will prove to be correct . forward-looking statements include assumptions as to how we may perform in the future . when we use words like “ seek , ” “ strive , ” “ believe , ” “ expect , ” “ anticipate , ” “ predict , ” “ potential , ” “ continue , ” “ will , ” “ may , ” “ could , ” “ intend , ” “ plan , ” “ target ” and “ estimate ” or similar expressions , we are making forwa rd-looking statements . you should understand that the following important factors , in addition to the risk factors set forth above or elsewhere in this report on form 10-k , could cause our results to differ materially from those expressed in our forward-looking statements . these factors include : our ability to retain and expand relationships with existing clients and attract and implement new clients ; our reliance on the fees generated by the transaction volume or product sales of our clients ; our reliance on our clients ' projections , transaction volume or product sales ; our dependence upon our agreements with international business machines corporation ( “ ibm ” ) and ricoh : our dependence upon our agreements with our major clients ; our client mix , their business volumes and the seasonality of their business ; our ability to finalize pending client and customer contracts ; the impact of strategic alliances and acquisitions ; trends in ecommerce , outsourcing , government regulation , both foreign and domestic , and the market for our services ; whether we can continue and manage growth ; increased competition ; our ability to generate more revenue and achieve sustainable profitability ; effects of changes in profit margins ; the customer and supplier concentration of our business ; the reliance on third-party subcontracted services ; the unknown effects of possible system failures and rapid changes in technology ; foreign currency risks and other risks of operating in foreign countries ; potential litigation ; our dependence upon key personnel ; the impact of new accounting standards and changes in existing accounting rules or the interpretations of those rules ; our ability to raise additional capital or obtain additional financing ; 23 our ability , and the ability of our subsidiaries , to borrow under current financing arrangements and maintain compliance with debt covenants ; our relationship with , and our guarantees of , certain of the liabilities and indebtedness of our subsidiaries ; and taxation on the sale of our products and provision of our services . we have based these statements on our current expectations about future events . although we believe the expectations reflected in our forward-looking statements are reasonable , we can not guarantee these expectations will actually be achieved . in addition , some forward-looking statements are based upon assumptions as to future events that may not prove to be accurate . therefore , actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements . we undertake no obligation to update publicly any forward-looking statement for any reason , even if new information becomes available or other events occur in the future . there may be additional risks we do not currently view as material or that are not presently known . in evaluating these statements , you should consider various factors , including the risks set forth in the section entitled “ risk factors. ” overview we are an international business process outsourcing provider of end-to-end ecommerce solutions . we provide these solutions to major brand name companies and others seeking to optimize their supply chain and to enhance their traditional and online business channels and initiatives . w e derive our revenues from providing a broad range of services as we process individual business transactions on our clients ' behalf using three different seller services financial models : 1 ) the service fee model , 2 ) the agent ( or flash ) model and 3 ) the retail model . we refer to the standard pfsweb seller services financial model as the service fee model . in this model , our clients own the inventory and are the merchants of record and engage us to provide various business process outsourcing services in support of their business operations . we derive our service fee revenues by providing a broad range of service offerings that include digital marketing , ecommerce technologies , order management , customer care , logistics and fulfillment , financial management and professional consulting . we offer our services as an integrated solution , which enables our clients to outsource their complete infrastructure needs to a single source and to focus on their core competencies . story_separator_special_tag these reimbursable expenses include pass-through customer marketing programs , direct costs incurred in passing on any price decreases offered by vendors to cover price protection and certain special bids , the cost of products provided to replace defective product returned by customers and certain other expenses as defined under the distributor agreements . cost of service fee revenue – consists primarily of compensation and related expenses for our web-enabled customer contact center services , international fulfillment and distribution services and professional consulting services , and other fixed and variable expenses directly related to providing services under the terms of fee based contracts , including certain occupancy and information technology costs and depreciation and amortization expenses . cost of pass-through revenue – the related reimbursable costs for pass-through expenditures are reflected as cost of pass-through revenue . selling , general and administrative expenses – consist of expenses such as compensation and related expenses for sales and marketing staff , distribution costs ( excluding freight ) applicable to the supplies distributors business and the retail model , executive , management and administrative personnel and other overhead costs , including certain occupancy and information technology costs and depreciation and amortization expenses . monitoring and controlling our available cash balances and our expenses continues to be a primary focus . our cash and liquidity positions are important components of our financing of both current operations and our targeted growth . to improve our cash and liquidity position , in may 2013 , we sold an aggregate of 3.2 million shares of our common stock at $ 4.57 per share , resulting in net proceeds of $ 14.1 million . 25 story_separator_special_tag style= '' border-collapse : collapse ; width:95.46 % ; margin-left:4.54 % ; margin-right:0 % '' > - $ 2.5 million decrease in prepaid expenses , and other receivables and other assets in part due to timing of receipts and reduced product revenue related activity . - $ 7.0 million of cash income from operations before working capital changes . these sources of cash were partially offset by a : - $ 9.3 million increase in accounts receivable applicable to : o increased activity for certain new and expanded client relationships in which we own the resulting customer trade receivable ( through our agent or retail models ) , o the timing of client receipts applicable to service fee activity , o both of the above partially offset by the impact of reduced ricoh related business . - $ 3.6 million decrease in accounts payable , deferred revenue , accrued expenses and other liabilities in part due to reduced inventory purchases as a result of a reduction in product revenue . at december 31 , 2013 and 2012 , our accounts payable and accrued expenses were higher than normal operating levels due to the timing of various vendor and client reimbursement payments . during the year ended december 31 , 2012 , we generated $ 28.6 million of cash from operating activities , which resulted primarily due to a : - $ 7.3 million decrease in accounts receivable primarily related to reduced ricoh related product revenue activity , and - $ 5.7 million reduction in inventories primarily related to reduced ricoh related product revenue activity ; - $ 5.3 million increase in deferred rent related to tenant improvement allowances at certain new facilities ; - $ 4.4 million decrease in prepaid expenses , and other receivables and other assets primarily related to timing of receipts and a reduction of value-added tax receivable at our european subsidiary and reduced ricoh related product revenue activity . - $ 9.3 million of cash income from continuing operations before working capital changes . - these sources of cash were partially offset by a $ 3.3 million decrease in accounts payable , deferred revenue , accrued expenses and other liabilities primarily related to reduced product revenue activity and the timing of payments we make for products and services , payment processing and related transactions costs . in 2013 , we incurred capital expenditures of $ 8.0 million , exclusive of $ 1.8 million of property and equipment acquired under debt and capital lease financing , which consisted primarily of payments for capitalized software costs and equipment purchases . we also received net proceeds of $ 15.9 million from the issuance of common stock , consisting of $ 1.8 million related to employee stock option exercises and $ 14.1 million from a private placement completed in may . in 2012 , we incurred $ 14.7 million of capital expenditures , exclusive of $ 7.3 million of property and equipment acquired under debt and capital lease financing , primarily related to software costs and costs applicable to our new corporate headquarters and call center facility , which were primarily financed by the facility landlords through tenant allowances . cash used for payments on debt and capital leases , net of any proceeds from debt and a decrease in restricted cash , was $ 12.3 million and $ 12.1 million , during 2013 and 2012 , respectively . capital expenditures have historically consisted primarily of additions to upgrade our management information systems , development of customized technology solutions to support and integrate with our service fee clients and general expansion and upgrades to our facilities , both domestic and foreign . we expect to incur capital expenditures to support new contracts an d anticipated future growth opportunities . based on our current client business activity and our targeted growth plans , we anticipate our total investment in upgrades and additions to facilities and information technology solutions and services for the upcoming twelve months , including costs to implement new clients , will be approximately $ 9 million to $ 12 million , although additional capital expenditures may be necessary to support the infrastructure requirements of new clients . to maintain our current operating cash position , a portion 28 of these expenditures may be financed through client reimbursements , debt , operating or capital leases or additional equity .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 the following table discloses certain financial information for the periods presented , expressed in terms of dollars , dollar change , percentage change and as a percentage of total revenue ( in millions ) . replace_table_token_1_th ( 1 ) represents the percent of product revenue , net . ( 2 ) represents the percent of service fee revenue . ( 3 ) represents the percent of pass-through revenue . product revenue , net . product revenue decreased $ 28.7 million , or 24.0 % , in 2013 as compared to the prior year . this reduction in revenue is primarily due to the operational restructuring by ricoh of its business , which has resulted , and will continue to result , in changes in the sale and distribution of ricoh products and lower product revenue . we currently expect product revenue to continue to decline by approximately 20 % to approximately $ 70 million to $ 75 million in 2014. service fee revenue . the decrease in service fee revenue for the year ended december 31 , 2013 as compared to the prior year was primarily due to decreased service fees related to the conclusion or reduction of operations of several client programs during 2013 ( including certain clients that accounted for more than 10 % of our service fee revenue in 2012 ) , partially offset by the impact of expanded and new client relationships that began in 2013. the change in service fee revenue , excluding pass-through revenue , is shown below ( $ millions ) : replace_table_token_2_th when considering client relationships , we define an existing client to be a client from whom we earned revenue in both the current and prior years , we define a new client to be a client from whom we only earned revenue in the current year , and we define a terminated client as a client form
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we provide these products and services from our operations in north and west texas , northern california , new jersey , new york , washington , d.c. and oklahoma . precast concrete products . our precast concrete products segment engages principally in the production , distribution and sale of precast concrete products from our seven precast plants located in california , arizona and pennsylvania . from these facilities , we produce precast concrete structures such as utility vaults , manholes and other wastewater management products , specialty engineered structures , pre-stressed bridge girders , concrete piles , curb-inlets , catch basins , retaining and other wall systems , custom designed architectural products and other precast concrete products . we derive all our revenues from the sale of ready-mixed concrete , precast concrete and concrete-related products to the construction industry in the united states . we typically sell our products under purchase orders that require us to formulate , prepare and deliver the product to our customers ' job sites . the principal states in which we operate are texas , california and new jersey/new york . revenue from continuing operations was 33 % in 2011 and 36 % in 2010 in texas , 37 % in 2011 and 33 % in 2010 in california , and 19 % in both 2011 and 2010 in new jersey/new york . we serve substantially all segments of the construction industry in our markets . our customers include contractors for commercial and industrial , residential , street and highway and other public works construction . the approximate percentages of our concrete product revenue by construction type activity were as follows in 2011 and 2010 : replace_table_token_6_th the markets for our products are generally local , and our operating results are subject to fluctuations in the level and mix of construction activity that occur in our markets . the level of activity affects the demand for our products , while the product mix of activity among the various segments of the construction industry affects both our relative competitive strengths and our operating margins . commercial and industrial projects generally provide more opportunities to sell value-added products that are designed to meet the high-performance requirements of these types of projects . our customers are generally involved in the construction industry , which is a cyclical business and is subject to general and more localized economic conditions , including the recessionary conditions impacting all our markets . in addition , our business is impacted by seasonal variations in weather conditions , which vary by regional market . accordingly , demand for our products and services during the winter months are typically lower than in other months of the year because of inclement weather . also , sustained periods of inclement weather and other adverse weather conditions could cause the delay of construction projects during other times of the year . market trends since the middle of 2006 , the united states building materials construction market has been challenging . the construction industry , particularly the ready-mixed concrete industry , has been characterized by significant overcapacity and fierce competitive activity . for the three months and year ended december 31 , 2011 , our ready-mix concrete sales volume increased 11.9 % and 6.3 % , respectively , compared to the same periods of 2010. as a result of this higher sales volume and higher ready-mix sales prices , we experienced increases in our revenue period-over-period . we saw higher average ready-mix sales prices in most of our major markets during the fourth quarter of 2011 and have experienced increases in these prices on a consolidated basis over the last three consecutive fiscal quarters . however , we have also experienced higher raw materials and fuel costs which have offset these improved volumes and average sales prices . while , our average sales prices were higher during the fourth quarter of 2011 , the recessionary conditions affecting our industry continue to put a strain on sales prices and our operating results . as a result of these conditions , we continue to closely monitor our operating costs and capital expenditures . 24 basis of presentation we applied the financial accounting standards board 's ( “ fasb ” ) accounting standards codification ( “ asc ” ) 852 “ reorganizations ” to our financial statements while the company operated under the provisions of chapter 11 of the united states bankruptcy code from april 29 , 2010 until august 31 , 2010. as of august 31 , 2010 ( the “ effective date ” ) , we applied fresh-start accounting under the provisions of asc 852. the adoption of fresh-start accounting resulted in the company becoming a new entity for financial reporting purposes . accordingly , our financial statements for periods prior to august 31 , 2010 are not comparable with our financial statements for periods on or after august 31 , 2010. references to “ successor ” refer to the company on or after august 31 , 2010 , after giving effect to the provisions of our plan of reorganization ( the “ plan ” ) and the application of fresh-start accounting . references to “ predecessor ” refer to the company prior to august 31 , 2010. in august 2010 , we entered into a redemption agreement to have our 60 % interest in our michigan subsidiary , superior materials holdings , llc ( “ superior ” ) , redeemed by superior . this redemption was finalized and closed on september 30 , 2010. the results of operations of superior , net of the minority owner 's 40 % interest , have been included in discontinued operations in our condensed consolidated statements of operations for all periods presented . liquidity and capital resources our primary liquidity needs over the next 12 months consist of financing seasonal working capital requirements , servicing indebtedness under our senior secured credit facility due 2014 ( the “ credit agreement ” ) and our 9.5 % convertible secured notes due 2015 ( the “ convertible notes ” ) and purchasing property and equipment . story_separator_special_tag the credit agreement matures in august 2014. as of december 31 , 2011 , we had outstanding borrowings of $ 15.1 million and $ 18.7 million of undrawn standby letters of credit under the revolving facility . see above for a discussion of the consolidated secured debt ratio included in the indenture governing our convertible notes that could restrict borrowing under the credit agreement beginning april 2012. under the first amendment to the credit agreement , there is an availability block of $ 10.0 million . additionally , beginning on april 1 , 2012 , at any time that availability ( as defined in the credit agreement ) is less than $ 15.0 million , we must maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for the trailing twelve month period until availability is greater than or equal to $ 15.0 million for a period of 30 consecutive days . for the trailing twelve month period ending december 31 , 2011 , our fixed charge coverage ratio was 0.44 to 1. availability under the revolving facility was approximately $ 31.2 million , after reduction of the $ 10.0 million block at december 31 , 2011 . 26 up to $ 30.0 million of the revolving facility is available for the issuance of letters of credit , and any such issuance of letters of credit will reduce the amount available for loans under the revolving facility . advances under the revolving facility are limited by a borrowing base of ( a ) 85 % of the face amount of eligible accounts receivable plus ( b ) the lesser of ( i ) 85 % of the net orderly liquidation value ( as determined by the most recent appraisal ) of eligible inventory and ( ii ) the sum of ( a ) 50 % of the eligible inventory ( other than eligible aggregates inventory ) and ( b ) 65 % of the eligible aggregates inventory plus ( c ) the lesser of ( i ) $ 15.0 million and ( ii ) the sum of ( a ) 85 % of the net orderly liquidation value ( as determined by the most recent appraisal ) of eligible trucks plus ( b ) 80 % of the cost of newly acquired eligible trucks since the date of the latest appraisal of eligible trucks minus ( c ) the depreciation amount applicable to eligible trucks since the date of the latest appraisal of eligible trucks minus ( d ) such reserves as the administrative agent may establish from time to time in its permitted discretion . the administrative agent may , in its permitted discretion , reduce the advance rates set forth above , adjust reserves or reduce one or more of the other elements used in computing the borrowing base . under the credit agreement , our capital expenditures may not exceed 7.0 % of our consolidated annual revenue for the trailing twelve-month period ending on the last day of each fiscal quarter thereafter . our capital expenditures were $ 6.4 million for the trailing twelve-month period ended december 31 , 2011 , which was below the $ 34.7 million representing 7 % of our consolidated annual revenue for the same period . the revolving facility requires us to comply with certain other customary affirmative and negative covenants , and contains customary events of default . at our option , loans may be maintained from time to time at an interest rate equal to the eurodollar-based rate ( “ libor ” ) or the applicable domestic rate ( “ cb floating rate ” ) . the cb floating rate is the greater of ( x ) the interest rate per annum publicly announced from time to time by jpmorgan chase bank , n.a . as its prime rate and ( y ) the interest rate per annum equal to the sum of 1.0 % per annum plus the adjusted libor rate for a one-month interest period , in each case plus the applicable margin . the applicable margin on loans is 2.75 % in the case of loans bearing interest at the cb floating rate and 3.75 % in the case of loans bearing interest at the libor rate . issued and outstanding letters of credit are subject to a fee equal to the applicable margin then in effect for libor loans , a fronting fee equal to 0.20 % per annum on the stated amount of such letter of credit , and customary charges associated with the issuance and administration of letters of credit . we will also pay a commitment fee on undrawn amounts under the revolving facility in an amount equal to 0.75 % per annum . upon any event of default , at the direction of the required lenders under the revolving facility , all outstanding loans and the amount of all other obligations owing under the revolving facility will bear interest at a rate per annum equal to 2.0 % plus the rate otherwise applicable to such loans or other obligations . outstanding borrowings under the revolving facility are prepayable , and the commitments under the revolving facility may be permanently reduced , without penalty . there are mandatory prepayments of principal in connection with ( i ) the incurrence of certain indebtedness , ( ii ) certain equity issuances and ( iii ) certain asset sales or other dispositions ( including as a result of casualty or condemnation ) . mandatory prepayments are applied to repay outstanding loans without a corresponding permanent reduction in commitments under the revolving facility and are subject to the terms of an intercreditor agreement . in connection with the credit agreement , we and certain of our subsidiaries entered into a pledge and security agreement ( the “ security agreement ” ) with the administrative agent .
| results of operations the following table sets forth selected historical statement of operations information and that information as a percentage of sales for each of the periods indicated . the eight-month period ended august 31 , 2010 and the four-month period ended december 31 , 2010 are distinct reporting periods as a result of our emergence from chapter 11 on august 31 , 2010 and the application of fresh start accounting . for a discussion on the results of operations we have combined the eight-month period ended august 31 , 2010 with the four-month period ended december 31 , 2010 in order to provide comparability of such information to the year ended december 31 , 2011. replace_table_token_12_th 35 year ended december 31 , 2011 compared to year ended december 31 , 2010 revenue ready-mixed concrete and concrete-related products . revenue from our ready-mixed concrete and concrete-related products segment increased $ 30.4 million , or 7.4 % , from $ 413.6 million in 2010 to $ 444.1 million in 2011. our ready-mixed sales volume for 2011 was approximately 4.0 million cubic yards , up 6.4 % from the 3.8 million cubic yards of concrete we sold in 2010. we also experienced an approximate 2.1 % increase in the ready-mix average sales price per cubic yard during 2011 , as compared to 2010. our volume and average sales prices were higher in most of our major markets . the improvement in volume was due primarily to an increase in the commercial construction activity . precast concrete products . revenue from our precast concrete products segment was up $ 11.0 million , or 19.6 % , from $ 56.0 million in 2010 to $ 67.0 million in 2011. this increase is reflected by a rise in revenues from public works and infrastructure construction in our southern california and mid-atlantic markets . this was offset by lower revenue for commercial construction in most of our markets .
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overview our reportable segments : machine clothing ( mc ) and engineered composites ( aec ) draw on many of the same advanced textiles and materials processing capabilities , and compete on the basis of proprietary , product-based advantage that is grounded in those core capabilities . as a result , technology and manufacturing advances in one tend to benefit the other . machine clothing is the company 's long-established core business and primary generator of cash . while the paper and paperboard industry in our traditional geographic markets has suffered from well-documented overcapacity in publication grades , especially newsprint , the industry is still expected to grow on a global basis , driven by demand for packaging and tissue grades , as well as the expansion of paper consumption and production in asia and south america . although we do not consider the market for machine clothing as having significant growth potential , we do believe it provides the company with significant prospects for long-term cash generation . we feel we are now well-positioned in these markets , with high-quality , low-cost production in growth markets , substantially lower fixed costs in mature markets , and continued strength in new product development , field services , and manufacturing technology . we seek to maintain the cash-generating potential of this business by maintaining the low costs that we achieved through restructuring , and competing vigorously by using our differentiated products and services to reduce our customers ' total cost of operation and improve their paper quality . we believe that aec provides the greatest growth potential , both near and long term , for our company . our strategy is to grow organically by focusing our proprietary technology on high-value aerospace and defense applications that can not be served effectively by conventional composites . aec supplies a number of customers in the aerospace industry . aec 's largest aerospace customer is the safran group , and the most significant program is the production of fan blades and other components for the leap engine . aec is also developing other new and potentially significant composite products for aerospace ( engine and airframe ) applications . consolidated results of operations net sales the following table summarizes our net sales by business segment : replace_table_token_6_th 2012 vs. 2011 · changes in currency translation rates had the effect of decreasing net sales by $ 15.4 million during 2012 as compared to 2011 . · excluding the effect of changes in currency translation rates , 2012 net sales decreased 1.4 % as compared to 2011 . · compared to 2011 , 2012 sales in western europe declined approximately 15 % due to economic weakness and customer overcapacity . · excluding the effect of changes in currency translation rates : · net sales in mc decreased 4.1 % . · net sales in engineered composites increased 41.0 % 23 2011 vs. 2010 · changes in currency translation rates had the effect of increasing net sales by $ 15.7 million during 2011 as compared to 2010 . · excluding the effect of changes in currency translation rates , 2011 net sales increased 3.9 % as compared to 2010 . · sales volume in 2011 increased in all of our business segments as worldwide economic conditions improved . · excluding the effect of changes in currency translation rates : · net sales in mc increased 3.2 % . · net sales in engineered composites increased 14.8 % backlog backlog in the machine clothing segment was $ 267.8 million at december 31 , 2012 , compared to $ 342.9 million at december 31 , 2011. the decrease reflects market weakness in europe and , additionally , shorter order-to-delivery times . backlog in the engineered composites segment was $ 33.2 million at december 31 , 2012 compared to $ 28.8 million at december 31 , 2011. backlog in both segments is generally expected to be invoiced during the next 12 months . gross profit the following table summarizes gross profit by business segment : replace_table_token_7_th the decrease in gross profit during 2012 was principally due to the net effect of the following : · $ 5.9 million increase due to higher gross profit margin in mc resulting from high plant utilization in the americas , favorable geographic sales mix , and the cumulative effect of restructuring initiatives . · $ 19.8 million decrease due to lower sales in mc , principally in western europe . · an increase of $ 5.1 million in engineered composites , principally due to higher sales related to the leap program . the increase in gross profit during 2011 was principally due to the net effect of the following : · $ 11.2 million increase due to higher gross profit margin in mc . · $ 15.8 million increase due to higher sales in mc . · $ 3.1 million increase in engineered composites gross profit , of which $ 1.6 million was due to inventory write-offs in 2010 that did not recur in 2011 . · $ 1.5 million improvement in unallocated expenses principally due to 2010 write-offs of $ 1.6 million in our mc machinery building operation in france . expenses associated with the u.s. postretirement medical plan represent the majority of the unallocated expenses in 2012 , 2011 and 2010 . 24 selling , technical , general , and research ( stg & r ) the following table summarizes stg & r by business segment : replace_table_token_8_th stg & r expenses for 2012 decreased $ 7.5 million in comparison with 2011 , principally due to the net effect of the following : · currency translation decreased stg & r by $ 7.1 million as compared to 2011 . · revaluation of nonfunctional currency assets and liabilities resulted in losses of $ 1.6 million in 2012 and gains of $ 2.7 million in 2011 . · pension expense decreased by $ 3.4 million as a result of settlement of certain pension plan liabilities . · we completed our global sap implementation in 2011. implementation charges in 2011 were $ 2.9 million . story_separator_special_tag · a net tax rate reduction of 1.7 % was recognized in 2012 from rate differences between non-u.s. and u.s. jurisdictions . the tax rate benefit from earnings in switzerland and brazil that are taxed at lower rates was offset by pension settlement and restructuring charges recognized outside the u.s. that resulted in a lower tax benefit , as compared to the benefit calculated using the u.s. notional tax rate of 35 % . · the income tax rate on continuing operations , excluding discrete items , was 39 % . significant items that impacted the 2011 tax rate included the following : · $ 22.8 million ( 42.1 % ) of expense for valuation allowances , principally in germany , that resulted from the company 's sale of albany door systems . · a favorable tax adjustment of $ 3.5 million ( 6.4 % ) to correct errors from periods prior to 2006 . ( the company does not believe that the corrected item was material to 2011 or any of the previously reported quarterly or annual financial statements . ) as a result , the company has not restated its previously issued financial statements . · a $ 3.3 million ( 6.2 % ) reduction in expense resulting from a change in the applicable tax regime in mexico . · a $ 1.2 million ( 2.2 % ) net tax benefit related to the settlement of certain audits and other discrete tax matters . · a net tax rate reduction of 14.3 % was recognized from rate differences between non-u.s. and u.s. jurisdictions . earnings in switzerland and brazil , where tax rates are lower than the u.s. notional rate of 35 % , contributed to the majority of the reduction noted . u.s. tax costs on foreign earnings and foreign withholdings offset the tax rate benefits gained from operating in low tax jurisdictions by 12.8 % . · the income tax rate on continuing operations , excluding discrete items , was 33 % . significant items that impacted the 2010 tax rate included the following : · $ 9.4 million ( 19.4 % ) of expense due to the redemption of our company-owned life insurance policies . · $ 2.3 million ( 4.7 % ) of discrete tax benefit due to the repatriation of prior year 's earnings from our subsidiary in mexico . · $ 0.5 million tax benefit resulting from other discrete income tax adjustments . · a net tax rate reduction of 28.2 % was recognized from rate differences between non-u.s. and u.s. jurisdictions . earnings in switzerland and brazil , where tax rates are lower than the u.s. notional rate of 35 % , contributed to the majority of the reduction noted . u.s. tax costs on foreign earnings and foreign withholdings offset the tax rate benefits gained from operating in low tax jurisdictions by 7.7 % . · the income tax rate on continuing operations , excluding discrete items , was 30 % . 27 discontinued operations in october , 2011 we entered into a contract to sell the assets and liabilities of our albany door systems business to assa abloy ab for $ 130 million . closing on the transaction occurred on january 11 , 2012 , and the company recorded a pre-tax gain of $ 57.4 million as a result of that sale . additionally , in march 2012 , we agreed with the purchaser on certain post-closing adjustments , and in april 2012 we received a payment of $ 5.0 million to reflect that agreement . under the terms of the contract , assa abloy ab acquired our equity ownership of albany doors systems gmbh in germany , albany door systems ab in sweden , and other affiliates in germany , france , the netherlands , turkey , poland , belgium , new zealand , and other countries , as well as the remaining business assets , most of which were located in the united states , australia , china , and italy . in the second quarter of 2012 , the purchaser completed certain legal registration activities in china , allowing the parties to complete the transfer of assets and liabilities of the business in that country . the initial purchase price of $ 130 million included $ 13 million to be paid in july 2013. we recorded the value of that consideration on a present value basis and , as of december 31 , 2012 , we had a receivable of $ 12.8 million included in accounts receivable . in may 2012 , we announced an agreement to sell our primaloft ® products business and that transaction closed on june 29 , 2012. under the terms of the agreement , the purchaser acquired all of the assets of that business , which were located in the united states , italy and germany . the purchase of $ 38.0 million included $ 3.8 million held in escrow accounts , and which is expected to be received in 2013. the company recorded a pre-tax gain of $ 34.9 million as result of that sale . we have provided customary representations and warranties in the sale of both of these businesses but we do not expect any material negative financial consequence will result from these arrangements . in accordance with the applicable accounting guidance for discontinued businesses , the associated results of operations and financial position are reported separately in the accompanying consolidated statements of income and balance sheets . cash flows of the discontinued operation were combined with cash flows from continuing operations in the consolidated statements of cash flows . with the sale of both businesses completed in 2012 , there are no remaining discontinued businesses as of december 31 , 2012. segment results of operations machine clothing segment business environment and trends machine clothing is our primary business segment and accounted for nearly 91 % of our consolidated revenues during 2012. machine clothing is purchased primarily by manufacturers of paper and paperboard .
| review of operations replace_table_token_13_th net sales · the increase in 2012 sales over 2011 was principally due to leap program activities . · the increase in 2011 sales over 2010 was principally due to the ramp-up of the leap program . gross profit the increase in 2012 gross profit included the following : · a $ 4.2 million increase due to higher sales related to the leap program . · ongoing improvements in the manufacturing processes also contributed to an increase in gross profit . the increase in 2011 gross profit included the following : · an increase of $ 1.6 million due to write-offs in 2010 related to obsolete equipment and materials which did not recur in 2011 . · ongoing improvements in the manufacturing processes also contributed to an increase in gross profit . operating income 2012 operating income improved principally due to the increase in gross profit as described above . 2011 operating income improved principally due to the following : · a $ 3.1 million increase due to higher gross profit . · an increase of $ 0.8 million due to lower restructuring costs . 30 outlook we expect continued year-over-year strong growth in 2013. if recently proposed accelerations to the leap production schedule are realized , aec capital spending would also be accelerated . liquidity and capital resources cash flow summary replace_table_token_14_th operating activities the decrease in cash provided by operating activities in 2012 was principally due to contributions to pension plans , which is included in changes in long-term liabilities , deferred taxes and other credits in the above table .
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acquired intangibles primarily consist story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations , referred to as the financial review , is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the company together with its subsidiaries . this discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes in item 8 of part ii of this annual report on form 10-k. the company 's fiscal year begins on april 1 and ends on march 31. unless otherwise noted , all references in this document to a particular year shall mean the company 's fiscal year . certain statements in this report constitute forward-looking statements . see item 1 business forward-looking statements in part i of this annual report on form 10-k for additional factors relating to these statements ; also see item 1a risk factors in part i of this annual report on form 10-k for a list of certain risk factors applicable to our business , financial condition and results of operations . we conduct our business through two operating segments : distribution solutions and technology solutions . see financial note 20 , segments of business , to the consolidated financial statements appearing in this annual report on form 10-k for a description of these segments . story_separator_special_tag /td > total revenues $ 112,084 $ 108,702 $ 106,632 revenues increased 3 % to $ 112.1 billion in 2011 and 2 % to $ 108.7 billion in 2010. the increase in revenues primarily reflects market growth in our distribution solutions segment , which accounted for approximately 97 % of our consolidated revenues . direct distribution and services revenues increased in 2011 compared to 2010 primarily due to market growth , which includes price increases and increased volume from new and existing customers , the effect of a shift from sales to customers ' warehouses to direct store delivery , the lapsing of which was completed in the third quarter of 2011 , and due to our acquisition of us oncology . these increases were partially offset by a decline in demand associated with the flu season and price deflation associated with brand to generic drug conversions . direct distribution and services revenues increased in 2010 compared to 2009 primarily due to a shift of revenues from sales to customers ' warehouses to direct store delivery and market growth , partially offset by greater sales of lower priced generic drugs and the loss of several customers in late 2009. revenues for 2010 benefited to a lesser extent from an increase in demand associated with the flu season . sales to customers ' warehouses for 2011 decreased compared to 2010 primarily reflecting reduced revenues associated with existing customers , the effect of a shift of revenues to direct store delivery , the lapsing of which was completed in the third quarter of 2011 , and the impact of brand to generic conversions . sales to customers ' warehouses for 2010 decreased compared to 2009 primarily due to a shift of revenues to direct store delivery , reduced revenues associated with a large customer and the loss of a large customer in mid-2009 , partially offset by expanded business with existing customers . sales to retail customers ' warehouses represent large volume sales of pharmaceuticals primarily to a limited number of large self-warehousing retail chain customers whereby we order bulk product from the manufacturer , receive and process the product through our central distribution facility and subsequently deliver the bulk product ( generally in the same form as received from the manufacturer ) directly to our customers ' warehouses . this distribution method is typically not marketed or sold by the company as a stand-alone service ; rather , it is offered as an additional distribution method for our large retail chain customers that have an internal self-warehousing distribution network . sales to customers ' warehouses provide a benefit to these customers because they can utilize the company as one source for both their direct-to-store business and their warehouse business . we generally have significantly lower gross profit margins on sales to customers ' warehouses as we pass much of the efficiency of this low cost-to-serve model on to the customer . these sales do , however , contribute to our gross profit dollars . 30 mckesson corporation financial review ( continued ) the customer mix of our u.s. pharmaceutical distribution revenues was as follows : years ended march 31 , 2011 2010 2009 direct sales independents 12 % 12 % 13 % institutions 34 32 32 retail chains 33 32 26 subtotal 79 76 71 sales to retail customers ' warehouses 21 24 29 total 100 % 100 % 100 % as previously described , a limited number of our large retail chain customers purchase products through both our direct and warehouse distribution methods , the latter of which generally has a significantly lower gross profit margin due to the low cost-to-serve model . when evaluating and pricing customer contracts , we do so based on our assessment of total customer profitability . as a result , we do not evaluate our performance or allocate resources based on sales to customers ' warehouses or gross profit associated with such sales . canadian pharmaceutical distribution and services revenues for 2011 increased compared to 2010 primarily due to a change in the foreign currency exchange rate of 7 % . on a constant currency basis , revenues increased 1 % in 2011. canadian revenues for 2011 increased due to market growth , offset by a government-imposed price reduction for generic pharmaceuticals in certain provinces and brand to generic conversions . canadian pharmaceutical distribution and services revenues for 2010 increased compared to 2009 primarily due to market growth and a favorable change in the foreign currency exchange rate of 3 % . story_separator_special_tag operating expenses : years ended march 31 , ( dollars in millions ) 2011 2010 2009 operating expenses distribution solutions ( 1 ) $ 2,673 $ 2,260 $ 2,777 technology solutions 1,108 1,077 1,096 corporate 368 351 309 subtotal 4,149 3,688 4,182 litigation ( credit ) , net ( 20 ) total $ 4,149 $ 3,668 $ 4,182 operating expenses as a percentage of revenues distribution solutions 2.45 % 2.14 % 2.68 % technology solutions 34.68 34.48 35.77 total 3.70 3.37 3.92 ( 1 ) operating expenses for 2011 and 2009 include $ 213 million and $ 493 million of awp litigation charges . operating expenses increased 13 % to $ 4.1 billion in 2011 and decreased 12 % to $ 3.7 billion in 2010. excluding the 2011 , 2010 and 2009 litigation charges ( credit ) of $ 213 million , $ ( 20 ) million and $ 493 million , operating expenses increased 7 % in 2011 and remained flat in 2010. excluding the litigation charges ( credit ) , operating expenses for 2011 increased compared to 2010 primarily due to higher costs associated with employee compensation and benefits including the mckesson corporation profit sharing investment plan ( psip ) and the addition of us oncology . excluding the litigation charges ( credit ) , operating expenses for 2010 approximated 2009 primarily due to lower psip expense , cost containment efforts and the sale of two businesses during 2009. these decreases were partially offset by an increase in expenses associated with employee compensation and benefit costs , our 2009 business acquisitions and other business initiatives . the mckesson corporation psip was a member of the settlement class in the consolidated securities litigation action . on april 27 , 2009 , the court issued an order approving the distribution of the settlement funds . on october 9 , 2009 , the psip received approximately $ 119 million of the consolidated securities litigation action proceeds . approximately $ 42 million of the proceeds were attributable to the allocated shares of mckesson common stock owned by the psip participants during the consolidated securities litigation action class-holding period and were allocated to the respective participants on that basis in the third quarter of 2010. approximately $ 77 million of the proceeds were attributable to the unallocated shares ( the unallocated proceeds ) of mckesson common stock owned by the psip in an employee stock ownership plan ( esop ) suspense account . in accordance with the plan terms , the psip distributed all of the unallocated proceeds to current psip participants after the close of the plan year in april 2010. the receipt of the unallocated proceeds by the psip was reimbursement for the loss in value of the company 's common stock held by the psip in its esop suspense account during the consolidated securities litigation action class-holding period and was not a contribution made by the company to the psip or esop . 33 mckesson corporation financial review ( continued ) accordingly , there were no accounting consequences to the company 's financial statements relating to the receipt of the unallocated proceeds by the psip . as a result of the psip 's receipt of the unallocated proceeds , in 2010 the company contributed $ 1 million to the psip . accordingly , psip expense for 2010 was nominal . in 2011 , the company resumed its contributions to the psip . psip expense by segment for the last three years was as follows : years ended march 31 , ( in millions ) 2011 2010 2009 distribution solutions $ 23 $ $ 23 technology solutions 32 1 28 corporate 4 2 psip expense $ 59 $ 1 $ 53 cost of sales ( 1 ) $ 17 $ $ 12 operating expenses 42 1 41 psip expense $ 59 $ 1 $ 53 ( 1 ) amounts recorded to cost of sales pertain solely to our mckesson technology solutions segment . on a segment basis , distribution solutions segment 's operating expenses increased in 2011 and decreased in 2010 primarily due to the awp litigation charges of $ 213 million and $ 493 million in 2011 and 2009. excluding the awp charge , operating expenses and operating expenses as a percentage of revenues increased in 2011 compared to 2010 primarily due to higher costs associated with employee compensation and benefits including psip expenses and the addition of us oncology . operating expenses in 2011 also increased as a result of changes in foreign currency exchange rates . excluding the awp charge , distribution solutions segment 's operating expenses and operating expenses as a percentage of revenues decreased in 2010 compared to 2009 primarily due to the sale of two businesses during 2009 , lower psip expense in 2010 and our continued focus on cost containment . these decreases were partially offset by increased expenses associated with our 2009 business acquisitions . as previously reported , in 2009 we reached an agreement to settle all private party claims relating to first databank , inc. 's published drug reimbursement benchmarks for $ 350 million . we also recorded an accrual of $ 143 million for pending and expected awp claims by public payers . the combination of the settlement for all awp private party claims and the decision by us to establish an estimated accrual for the pending and expected awp claims by public payers resulted in a pre-tax , non-cash charge of $ 493 million in the third quarter of 2009. in the second quarter of 2011 , we recorded a pre-tax charge of $ 24 million for the settlement with the state of connecticut relating to awp claims . the settlement included an express denial of liability and a release by connecticut of the company as to all matters alleged or which could have been alleged in the action . a cash payment of $ 26 million was made in the third quarter of 2011 for this settlement .
| results of operations overview : years ended march 31 , ( in millions , except per share data ) 2011 2010 2009 revenues $ 112,084 $ 108,702 $ 106,632 gross profit 5,970 5,676 5,378 operating expenses ( 1 ) ( 4,149 ) ( 3,668 ) ( 4,182 ) other income , net 36 43 12 interest expense ( 222 ) ( 187 ) ( 144 ) income from continuing operations before income taxes 1,635 1,864 1,064 income tax expense ( 505 ) ( 601 ) ( 241 ) income from continuing operations 1,130 1,263 823 discontinued operation gain on sale , net of tax 72 net income $ 1,202 $ 1,263 $ 823 diluted earnings per common share continuing operations $ 4.29 $ 4.62 $ 2.95 discontinued operation 0.28 total $ 4.57 $ 4.62 $ 2.95 weighted average diluted common shares 263 273 279 ( 1 ) includes pre-tax litigation charges ( credit ) of $ 213 million , $ ( 20 ) million and $ 493 million for 2011 , 2010 and 2009. revenues increased 3 % to $ 112.1 billion in 2011 and 2 % to $ 108.7 billion in 2010. the increase in revenues primarily reflects market growth in our distribution solutions segment , which accounted for approximately 97 % of our consolidated revenues . additionally , revenues for 2011 benefited from our december 30 , 2010 acquisition of us oncology holdings , inc. ( us oncology ) of the woodlands , texas and revenues for 2010 benefited to a lesser extent from an increase in demand related to the flu season . partially offsetting the 2010 increases , revenues for that year were affected by the loss of several customers in late 2009 .
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if , after assessing the totality of events and circumstances , an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired , then the entity is not required to take further action . however , if an entity concludes otherwise , then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with subtopic 350-30. this guidance is effective for fiscal years beginning after september 15 , 2012. early adoption is permitted . 71 the company does not expect that the adoption of this guidance story_separator_special_tag in addition to historical information , this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these statements relate to future events or to our future financial performance and involve known and unknown risks , uncertainties and other factors that may cause our or our industry 's actual results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these forward-looking statements . forward-looking statements include , but are not limited to , statements about : our goals and strategies ; our and our customers ' estimates regarding future revenues , operating results , expenses , capital requirements and liquidity ; our expectation that an increasing portion of our revenues will come from the bill-to location outside of north america in the future ; our expectation that we will incur significant incremental costs of revenue as a result of our continued diversification into the industrial lasers and sensors markets and other end-markets outside of the optical communications market or our further development of customized optics and glass manufacturing capabilities ; our expectation that our fiscal 2014 sg & a expenses will increase on an absolute dollar basis and slightly increase as a percentage of revenue compared to fiscal 2013 ; our expectation that our employee costs will increase in thailand and the prc ; our future capital expenditures and our needs for additional financing ; expansion of our manufacturing capacity , including into new geographies ; our expectation that we will incur incremental costs of revenue as a result of our planned expansion into new geographic markets ; the growth rates of our existing markets and potential new markets ; our ability and our customers ' and our suppliers ' ability to respond successfully to technological or industry developments ; our suppliers ' estimates regarding future costs ; our ability to increase our penetration of existing markets and penetrate new markets ; our plans to diversify our sources of revenues ; trends in the optical communications , industrial lasers and sensors markets , including trends to outsource the production of components used in those markets ; our ability to attract and retain a qualified management team and other qualified personnel and advisors ; 35 the impact that the october and november 2011 flooding in thailand may continue to have on the industry and our business , results of operations and liquidity , including our ability to recover amounts from our insurance carriers ; and competition in our existing and new markets . these forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in this annual report on form 10-k and , in particular , the risks discussed under the heading risk factors in item 1a of this annual report on form 10-k and those discussed in other documents we file with the securities and exchange commission . we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements . given these risks and uncertainties , readers are cautioned not to place undue reliance on such forward-looking statements . overview we provide advanced optical packaging and precision optical , electro-mechanical and electronic manufacturing services to original equipment manufacturers ( oems ) of complex products such as optical communication components , modules and sub-systems , industrial lasers and sensors . we offer a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process , including process design and engineering , supply chain management , manufacturing , advanced packaging , integration , final assembly and test . although , we focus primarily on low-volume production of a wide variety of high complexity products , which we refer to as low-volume , high-mix , we also have the capability to accommodate high-volume production . based on our experience with , and feedback from , customers , we believe we are a global leader in providing these services to the optical communications , industrial lasers and sensors markets . our customer base includes companies in complex industries that require advanced precision manufacturing capabilities , such as optical communications , industrial lasers and sensors . the products that we manufacture for our oem customers include : selective switching products ; tunable transponders and transceivers ; active optical cables ; solid state , diode-pumped , gas and fiber lasers ; and sensors . in many cases , we are the sole outsourced manufacturing partner used by our customers for the products that we produce for them . we also design and fabricate application-specific crystals , prisms , mirrors , laser components , substrates and other custom and standard borosilicate , clear fused quartz , and synthetic fused silica glass products . we incorporate our customized optics and glass into many of the products we manufacture for our oem customers , and we also sell customized optics and glass in the merchant market . story_separator_special_tag 37 revenues , by percentage , from individual customers representing 10 % or more of our total revenues in the respective periods were as follows : replace_table_token_6_th # in july 2012 , oclaro , inc. completed its acquisition of opnext , inc. the figures for the year ended june 28 , 2013 represent the combined revenues of oclaro , inc. and opnext , inc. * less than 10 % of total revenues in the period . during fiscal 2013 and fiscal 2012 , we had two customers and three customers , respectively , that each contributed 10 % or more of our total revenues , and such customers together accounted for 47 % and 47 % , respectively , of our total revenues during the periods . during fiscal 2011 , we had four customers that each contributed 10 % or more of our total revenues . because we depend upon a small number of customers for a significant percentage of our total revenues , a reduction in orders from , a loss of , or other adverse actions by , any one of these customers would reduce our revenues and could have a material adverse effect on our business , operating results and share price . moreover , our customer concentration increases the concentration of our accounts receivable and our exposure to payment default by any of our key customers . many of our existing and potential customers have substantial debt burdens , have experienced financial distress or have static or declining revenues , all of which may have been exacerbated by the impact of the flooding in thailand , the recent conditions in the credit markets , and the continued uncertainty in the global economies . certain of our customers have gone out of business , been acquired , or announced their withdrawal from segments of the optics market . we generate significant accounts payable and inventory for the services that we provide to our customers , which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers . therefore , any financial difficulties with our key customers could materially and adversely affect our operating results and financial condition by resulting in charges for inventory write-offs , provisions for doubtful accounts , and increases in working capital requirements due to increases in days in inventory and in days in accounts receivable . furthermore , reliance on a small number of customers gives those customers substantial purchasing power and leverage in negotiating contracts with us . in addition , although we enter into master supply agreements with our customers , the level of business to be transacted under those agreements is not guaranteed . instead , we are awarded business under those agreements on a project-by-project basis . some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us . if we are unable to maintain our relationships with our existing significant customers , our business , financial condition and operating results could be harmed . revenues by geography we generate revenues from three geographic regions : north america , asia-pacific and europe . revenues are attributed to a particular geographic area based on the bill-to location of our customers , notwithstanding that our customers may ultimately ship their products to end customers in a different geographic region . virtually all of our revenues are derived from our manufacturing facilities in asia-pacific . the percentage of our revenues generated from the bill-to location outside of north america has increased from 51.7 % in fiscal 2012 to 53.3 % in fiscal 2013 , primarily as a result of an increase in sales volume attributable to our customers in regions outside of north america after recovering from the october and november 2011 flooding in thailand . we expect that an increasing portion of our revenues will come from the bill-to location outside of north america in the future . 38 the following table presents percentages of total revenues by geographic regions : replace_table_token_7_th our contracts we enter into supply agreements with our customers that generally have an initial term of up to three years , subject to automatic renewals for subsequent one-year terms unless expressly terminated . although there are no minimum purchase requirements in our supply agreements , our customers do provide us with rolling forecasts of their demand requirements . our supply agreements generally include provisions for pricing and periodic review of pricing , consignment of our customer 's unique production equipment to us and the sharing of benefits from cost-savings derived from our efforts . we are generally required to purchase materials , which may include long lead-time materials and materials that are subject to minimum order quantities and or non-cancelable or non-returnable terms , to meet the stated demands of our customers . after procuring materials , we manufacture products for our customers based on purchase orders that contain terms regarding product quantities , delivery locations and delivery dates . our customers generally are obligated to purchase finished goods that we have manufactured according to their demand requirements . materials that are not consumed by our customers within a specified period of time , or are no longer required due to a product 's cancellation or end-of-life , are typically designated as excess or obsolete inventory under our contracts . once materials are designated as either excess or obsolete inventory , our customers are typically required to purchase such inventory from us even if they have chosen to cancel production of the related products . cost of revenues the key components of our cost of revenues are material costs , employee costs , and infrastructure-related costs . material costs generally represent the majority of our cost of revenues . several of the materials we require to manufacture products for our customers are customized for their products and , in many instances , sourced from a single supplier , or in some cases our own subsidiaries .
| results of operations the following table sets forth a summary of our consolidated statements of operations . we believe that period-to-period comparisons of operating results should not be relied upon as indicative of future performance . replace_table_token_9_th 45 the following table sets forth a summary of our consolidated statements of operations as a percentage of total revenues for the periods indicated . replace_table_token_10_th the following table sets forth our revenues by end market for the periods indicated . as necessary , comparative figures have been adjusted to conform with changes in presentation in the current year . replace_table_token_11_th we operate and internally manage a single operating segment . as such , discrete information with respect to separate product lines and segments is not accumulated . comparison of year ended june 28 , 2013 to year ended june 29 , 2012 total revenues . our total revenues increased by $ 76.8 million , or 13.6 % , to $ 641.5 million for fiscal 2013 , as compared to $ 564.7 million for fiscal 2012. this increase was primarily due to an increase in optical communication product sales volume resulting from restoration of our operations , which had been temporarily suspended during the three months ended december 30 , 2011 due to the october and november 2011 flooding in thailand . revenues from optical communications products represented 70.1 % of our total revenues fiscal 2013 , as compared to 67.8 % for fiscal 2012. cost of revenues .
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risk factors ” for a discussion of important factors that could cause our actual results to differ materially from our expectations . our fiscal year ends on june 30 , and references to a specific fiscal year are the twelve months ended june 30 of such year ( for example , `` fiscal 2016 `` refers to the year ended june 30 , 2016 ) . 22 business overview we are a leading global provider of process optimization software solutions designed to manage and optimize plant and process design , operational performance , and supply chain planning . our aspenone software and related services have been developed specifically for companies in the process industries , including the energy , chemicals , and engineering and construction industries . customers use our solutions to improve their competitiveness and profitability by increasing throughput and productivity , reducing operating costs , enhancing capital efficiency , and decreasing working capital requirements . our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domain expertise we have amassed from focusing on solutions for the process industries for 35 years . we have developed our applications to design and optimize processes across three principal business areas : engineering , manufacturing and supply chain . we are a recognized market and technology leader in providing process optimization software for each of these business areas . we have established sustainable competitive advantages within our industry based on the following strengths : innovative products that can enhance our customers ' profitability ; long-term customer relationships ; large installed base of users of our software ; and long-term license contracts . we have approximately 2,100 customers globally . our customers consists of companies engaged in process industries such as energy , chemicals , engineering and construction , as well as consumer packaged goods , power , metals and mining , pulp and paper , pharmaceuticals and biofuels . we license our software products primarily through a subscription offering which we refer to as our aspenone licensing model . our aspenone products are organized into two suites : 1 ) engineering and 2 ) manufacturing and supply chain , or msc . the aspenone licensing model provides customers with access to all of the products within the aspenone suite ( s ) they license . customers can change or alternate the use of multiple products in a licensed suite through the use of exchangeable units of measurement , called tokens , licensed in quantities determined by the customer . this licensing system enables customers to use products as needed and to experiment with different products to best solve whatever critical business challenges they face . customers can increase their usage of our software by purchasing additional tokens as business needs evolve . we believe easier access to all of the aspenone products will lead to increased software usage and higher revenue over time . recent events acquisition of fidelis in june 2016 , we completed the acquisition of all the outstanding shares of fidelis group , llc , a provider of asset reliability software used to predict and optimize asset performance . the purchase price consisted of $ 8.0 million of cash paid at closing and up to $ 2.0 million payment to be paid in december 2017. acquisition bid and credit agreement in january 2016 we placed an offer to acquire the share capital of kbc advanced technologies plc ( “ kbc ” ) for 185 pence sterling per share , which valued kbc at approximately £158 million ( `` the acquisition bid '' ) . the acquisition bid would have been funded by cash on hand of approximately $ 91.0 million and $ 140.0 million to be funded by a credit facility . on february 26 , 2016 , we entered into a $ 250.0 million credit agreement ( the “ credit agreement ” ) and borrowed $ 140.0 million ( refer to note 9 , credit agreement , of our consolidated financial statements for further discussion of the credit agreement ) . in february 2016 , kbc announced it had agreed to accept an acquisition offer of 210 pence sterling per share from yokogawa electric corporation ( “ yokogawa ” ) and we announced we did not intend to revise our offer . in april 2016 kbc was acquired by yokogawa . during the year ended june 30 , 2016 , we incurred $ 5.2 million of costs related to the acquisition bid , as well as $ 3.4 million of foreign exchange losses , which were recognized in our results of operations as a component of general and administrative expenses and other income ( expense ) , net , respectively . transition to the aspenone licensing model prior to fiscal 2010 , we offered term or perpetual licenses to specific products , or specifically defined sets of products , which we refer to as point products . the majority of our license revenue was recognized under an `` upfront revenue model , '' in 23 which the net present value of the aggregate license fees was recognized as revenue upon shipment of the point products , provided all revenue recognition criteria were met . customers typically received one year of post-contract software maintenance and support , or sms , with their license agreements and then could elect to renew sms annually . revenue from sms was recognized ratably over the period in which the sms was delivered . in fiscal 2010 , we introduced the following changes to our licensing model : ( i ) we began offering our software on a subscription basis allowing our customers access to all products within a licensed suite ( aspenone engineering or aspenone manufacturing and supply chain ) . sms is included for the entire term of the arrangement and customers are entitled to any software products or updates introduced into the licensed suite . we refer to this license arrangement as our aspenone licensing model . story_separator_special_tag operating expenses selling and marketing expenses . selling expenses consist primarily of the personnel and travel expenses related to the effort expended to license our products and services to current and potential customers , as well as for overall management of customer relationships . marketing expenses include expenses needed to promote our company and our products and to conduct market research to help us better understand our customers and their business needs . research and development expenses . research and development expenses consist primarily of personnel expenses related to the creation of new software products , enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility . general and administrative expenses . general and administrative expenses include the costs of corporate and support functions , such as executive leadership and administration groups , finance , legal , human resources and corporate communications , and other costs , such as outside professional and consultant fees and provision for bad debts . other income and expenses interest income . interest income is recorded for the accretion of interest on the installment payments of our term software license contracts when revenue is recognized upfront at net present value , and from the investment in marketable securities and short-term money market instruments . interest expense . during fiscal 2016 , interest expense is primarily related to our credit agreement . during fiscal 2015 and 2014 , interest expense was comprised of miscellaneous interest charges . 25 other income ( expense ) , net . other income ( expense ) , net is comprised primarily of foreign currency exchange gains ( losses ) generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units . provision for income taxes . provision for income taxes is comprised of domestic and foreign taxes . benefits from income taxes are comprised of any deferred benefit for tax deductions and credits that we expect to utilize in the future . we record interest and penalties related to income tax matters as a component of income tax expense . we expect the amount of income tax expense to vary each reporting period depending upon fluctuations in our taxable income by jurisdiction . key business metrics background the changes to our licensing model in fiscal 2010 resulted in a reduction to license revenue in fiscal 2010 , as compared to the fiscal years preceding our licensing model changes . by fiscal 2013 , the number of license arrangements renewed on the aspenone licensing model resulted in sufficient ratable revenue to generate an operating profit , but we would not recognize levels of revenue reflective of the value of our active license agreements until all term license agreements executed under our upfront revenue model ( i ) reached the end of their original terms ; and ( ii ) were renewed . as a result , we believed that until the revenue transition was completed , a number of our performance indicators based on gaap , including revenue , gross profit , operating income ( loss ) , net income ( loss ) , and trend in deferred revenue , should be reviewed in conjunction with certain non-gaap and other business measures in assessing our performance , growth and financial condition . during the transition period , from fiscal year 2010 through 2015 , we utilized the following non-gaap and other key business metrics to track our business performance . total term contract value ; annual spend ; adjusted total costs ; and free cash flow . as of june 30 , 2015 , we had fully transitioned our term license arrangements to the aspenone licensing model . the changes to our licensing model did not have any material impact on subscription revenue results for fiscal 2016 , and we do not expect any material impact on subscription revenue results for fiscal 2017 and beyond . consequently , we believe our performance indicators based on gaap , including revenue , gross profit , operating income ( loss ) , net income ( loss ) , and trend in deferred revenue , now provide a more meaningful representation of business performance . nonetheless , we will continue to utilize certain key non-gaap and other business measures to track and assess the performance of our business and we plan to make these measures available to investors . we have refined the set of appropriate business metrics in the context of our evolving business and in consideration of the completion of the revenue transition and now expect to use the following non-gaap business metrics in addition to gaap measures , to track our business performance : annual spend ; free cash flow ; and non-gaap operating income . the annual spend metric is closely related to the total term contract metric because both provide insight into the growth component of license bookings during a fiscal period . however , we believe that annual spend is a more meaningful metric because its value and growth rate are more closely related to the value and growth rate of subscription and software revenue . we now use non-gaap operating income instead of adjusted total costs because non-gaap operating income provides additional insight into our business and financial performance and incorporates the elements of adjusted total cost . none of these metrics should be considered as an alternative to any measure of financial performance calculated in accordance with gaap . annual spend annual spend is an estimate of the annualized value of our portfolio of term license arrangements , as of a specific date . annual spend is calculated by summing the most recent annual invoice value of each of our active term license contracts . annual spend also includes the annualized value of standalone sms agreements purchased in conjunction with term license 26 agreements .
| results of operations the following table sets forth the results of operations , percentage of total revenue and the year-over-year percentage change in certain financial data for fiscal 2016 , 2015 and 2014 : replace_table_token_8_th revenue fiscal 2016 compared to fiscal 2015 total revenue increased by $ 32.0 million during fiscal 2016 as compared to the prior fiscal year . the increase was due to higher subscription and software revenue of $ 34.8 million , partially offset by lower services and other revenue of $ 2.8 million . total revenue recognized during fiscal 2016 included $ 6.1 million related to the completion of customer arrangements recognized under completed contract accounting . this amount was recognized as $ 5.1 million of subscription and software revenue and $ 1.0 million of services and other revenue . we did not have a comparable event in fiscal 2015 . fiscal 2015 compared to fiscal 2014 total revenue increased by $ 48.9 million during fiscal 2015 as compared to the prior fiscal year . the increase was due to higher subscription and software revenue of $ 55.1 million , partially offset by lower services and other revenue of $ 6.2 million . total revenue recognized during fiscal 2014 included $ 7.6 million related to the completion of a significant customer arrangement recognized under completed contract accounting . this amount was recognized as $ 4.9 million of subscription and software revenue and $ 2.7 million of services and other revenue . we did not have a comparable event in fiscal 2015 . 29 subscription and software revenue replace_table_token_9_th fiscal 2016 compared to fiscal 2015 the increase in subscription and software revenue during fiscal 2016 as compared to the prior fiscal year was primarily the result of a larger base of license arrangements being recognized on a ratable basis .
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we have received multiple inquires about the need for such a device during 2008 and have invested engineering resources to create a working device . in the fall of 2009 we discovered a device in china that fit our specifications closely so we decided to enter the market with that device instead of continuing to spend our own engineering dollars . we commenced internet sales efforts of the mini as a distributor in february 2010. we had a net of seventeen sales in 2010. we have not had additional sales of this product , and we are not actively pursuing sales at this time . during fiscal years ended december 31 , 2012 and 2011 , we received 22 % and 65 % of our product sales revenue for a single state municipal agency . if a significant decrease in this revenue occurs in subsequent years it could have a material effect on the financial statements . in 2011 we had 21 viewscan units ordered by correctional facilities of which we delivered 7 units , and 60 units ordered by domestic schools and police departments , of which we delivered 21 units . we also received purchase orders for a total of 12 viewscan units from a customer in bangladesh , of which we delivered 2 units in 2011 and the remainder in 2012. our ability to fill these orders on a timely basis was hampered by a lack of cash needed to acquire the necessary parts . our strategy for 2013 for viewscan will be to extend our sales and service provisions . to increase sales we offer demonstrations of our products to potential customers in specific geographical areas and at region - specific trade shows , such as sheriff 's conventions , court administrators ' meetings , civil support team , state police and dealer shows . when a demonstration results in a sale of one of our products , then we attempt to expand that market by contacting other potential customers in the area , such as , correctional facilities , courthouses and other municipal buildings . in the short term , management plans to raise funds through sales of our common stock for fulfillment ( manufacturing , packaging and shipment ) , which will set the stage for future orders becoming self funding . then the next phase of our business plan will be to raise additional funds through common stock offerings to provide working capital to finance several acquisitions and the integration of new technologies and businesses .. we also intend to continue to strengthen our balance sheet by paying off debt either through exchange of equity for cancellation of debt obligations or the payment of debt obligations with cash . when possible we have conserved our cash by paying employees , consultants , and independent contractors with our common stock . as of march 2010 , our outstanding equity compensation and equity incentive plans established in 1999 and 2000 had expired by their terms . we implemented two new plans in april and june 2010 , respectively . on april 2 , 2010 , by majority shareholder consent , we adopted our 2010 equity incentive plan . reserved for equity issuances under the equity incentive plan are 50,000,000 shares of our common stock . on june 1 , 2010 , by majority shareholder consent , we adopted our 2010 service provider stock compensation plan . reserved for equity issuances under the service provider stock compensation plan are 50,000,000 shares of our common stock . on july 21 , 2010 , we registered the -28- common stock issuable under the 2010 equity incentive plan and the 2010 service provider stock compensation plan . a total of 100,000,000 shares are reserved for issuances under the two plans . no merger or acquisition pending in 2013 we have not entered into definite agreements or decisions about any business combination opportunities , although we did have several discussions with interested parties that appeared to be promising . none of those discussions resulted in the execution of a term sheet or other document , and we do not believe that such discussions with such parties will be resumed . however , we continue to explore potential merger and acquisition options . we continue to have net tax loss carry-forward of approximately $ 24,000,000 that has been of interest to some potential acquirers . discontinued operation fiber optic contract installations peaked for 2010 in the summer months . although this market is seasonal and slow in the fall and winter months , we did not secure meaningful subcontract work during 2011. we have chosen not to pursue fiber optic network installations and have discontinued this area of our business . form s-1 registration statement declared effective on october 7 , 2010 , we filed a registration statement with the u.s. securities & exchange commission ( “ sec ” ) on form s-1 to register 50,000,000 shares of our common stock with the hope of raising up to $ 1 million . the form s-1 was declared effective by the sec on march 25 , 2011. the stated primary purposes of the offering are to obtain additional capital to : ( 1 ) facilitate product fulfillment ( manufacturing , packaging and shipment ) , which we anticipate will enable future orders to be self funding ; ( 2 ) provide working capital to finance corporate acquisitions and the integration of new technologies ; and ( 3 ) retire debt through cash payment or the exchange of debt obligations with payment in registered common stock . the registration statement also registered for resale 1,500,000 shares of restricted common stock issued to one of our consultants in exchange for forgiveness of debt . having our registration statement declared effective proved to be only the first step in pursuit of restructuring our debts with the help of a registered securities offering . story_separator_special_tag therefore , this resulted in total other expense during fiscal year ended december 31 , 2012 of ( $ 21,010 ) compared to total other expense during fiscal year ended december 31 , 2011 of ( $ 1,073,217 ) . after deducting other expense , we realized a net loss of ( $ 888,022 ) or ( $ 0.01 ) for fiscal year ended december 31 , 2012 compared to a net loss of ( $ 1,761,019 ) or ( $ 0.02 ) for fiscal year ended december 31 , 2011. the weighted average number of shares outstanding was 157,505,068 for fiscal year ended december 31 , 2012 compared to 114,385,592 for fiscal year ended december 31 , 2011. liquidity , capital resources and going concern fiscal year ended december 31 , 2012 as of december 31 , 2012 , our current assets were $ 399,983 and our current liabilities were $ 1,881,855 , which resulted in a working capital deficit of $ 1,481,872. as of december 31 , 2012 , current assets were comprised of : ( i ) $ 107,181 in cash ; ( ii ) $ 41,675 in accounts receivable ( net of allowance for doubtful accounts of $ -0- ) ; ( iii ) $ 142,065 in inventory ; and ( iv ) $ 109,062 in prepaid expenses . as of december 31 , 2012 , current liabilities were comprised of : ( i ) $ 681,197 in accounts payable and accrued expenses ; ( ii ) $ 28,102 in deferred compensation ; ( iii ) $ 155,886 in accrued and withheld payroll taxes payable ; ( iv ) $ 54,885 in accrued interest payable ; ( v ) $ $ 225,000 in accrued royalties payable ; ( vi ) $ $ 199,173 in loans from stockholders ; ( vii ) $ 197,058 in notes payable ; ( viii ) $ 124,578 in stock settlement payable ; and ( ix ) deferred revenue of $ 215,976. as of december 31 , 2012 , our total assets were $ 446,271 comprised of : ( i ) $ 399,983 in current assets ; ( ii ) property and equipment ( net ) of $ 16,150 ; ( iii ) $ 27,266 in prepaid expenses ( non-current portion ) ; and ( iv ) $ 2,872 in deposits . the increase in total assets during fiscal year ended december 31 , 2012 from fiscal year ended december 31 , 2011 was primarily due to the increase in cash and prepaid expenses . as of december 31 , 2012 , our total liabilities were $ 1,958,086 comprised of : ( i ) $ 1,881,855 in current liabilities ; and ( ii ) $ 76,231 in long term portion of notes payable . the decrease in liabilities during fiscal -32- year ended december 31 , 2012 from fiscal year ended december 31 , 2011 was primarily due to the decrease in deferred compensation and in deferred revenue . stockholders ' deficit decreased from ( $ 1,886,757 ) for fiscal year ended december 31 , 2011 to ( $ 1,511,815 ) for fiscal year ended december 31 , 2012. cash flows from operating activities we have not generated positive cash flows from operating activities . for fiscal year ended december 31 , 2012 , net cash flows used in operating activities was $ 262,599 compared to $ 20,580 for fiscal year ended december 31 , 2011. net cash flows used in operating activities consisted primarily of a net loss of $ 888,022 ( 2011 : $ 1,761,019 ) , which was partially adjusted by : ( i ) $ 479,396 ( 2011 : $ 155,065 ) in common stock issued for services ; ( ii ) $ 44,297 ( 2011 : $ -0- ) in preferred stock issued for services ; ( iii ) $ 14,978 ( 2011 : $ 124,219 ) in depreciation and amortization ; ( iv ) a gain of ( $ 41,010 ) ( 2011 : $ 83,601 ) from re-negotiated debt ; ( v ) $ 15,000 in interest expense paid with stock ; ( v ) $ -0- ( 2011 : $ 7,235 in bad debt expense ; and ( vi ) $ -0- ( 2011 : $ 885,233 ) in loss from impairment . net cash flows used in operating activities was further changed by : ( i ) $ 36,547 ( 2011 : ( $ 7,008 ) ) in accounts receivable ; ( ii ) $ 19,284 ( 2011 : ( $ 158,625 ) ) in inventories ; ( iii ) $ 29,100 ( 2012 : ( $ 29,100 ) in pre-paid expenses ; ( iv ) $ 211,811 ( 2011 : $ 262,283 ) in accounts payable and accrued expenses ; ( v ) $ 47,412 ( 2011 : $ 75,514 ) in deferred compensation ; ( vi ) $ 18,490 ( 2012 : $ 61,075 ) in payroll taxes accrued and withheld ; ( vii ) $ 27,045 ( 2011 : $ 41,477 ) in accrued interest ; and ( viii ) ( $ 182,102 ) ( 2012 : ( $ 239,808 ) ) in deferred revenue . cash flows from investing activities for fiscal years ended december 31 , 2012 and december 31 , 2011 , net cash flows used in investing activities was $ -0-. cash flows from financing activities we have financed our operations primarily from debt or the issuance of equity instruments .
| results of operations the following discussions are based on the consolidated financial statements of view systems and its subsidiaries . these charts and discussions summarize our financial statements for the years ended december 31 , 2012 and 2011 and should be read in conjunction with the financial statements , and notes thereto , included with this report at part ii , item 8 , below . replace_table_token_1_th revenue is generally considered earned when the product is shipped to the customer . the concealed weapons detection system and the digital video system each require installation and training . training is a revenue source separate and apart from the sale of the product . in those cases revenue is recognized at the completion of the installation and training . the following chart provides a breakdown of our sales in 2012 and 2011. replace_table_token_2_th our sales backlog at december 31 , 2012 , was $ 257,000 and our backlog at december 31 , 2011 was $ 220,000. the delay between the time of the purchase order and shipping of the product results in a delay of recognition of the revenue from the sale . this delay in recognition of revenues will continue as part of our results of operations . we measure backlog as orders for which a purchase order or contract has been signed or a verbal commitment for order or delivery has been made , but which has not yet been shipped and for which revenues have not been recognized . we typically ship our products weeks or months after receiving an order . however , we are attempting to shorten this lead time to several weeks .
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should read the following discussion and analysis of our financial condition and results of operations together with the section of this annual report on form 10-k entitled selected financial data and our financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties , such as statements of our plans , objectives , expectations and intentions . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section of this annual report on form 10-k entitled risk factors. overview we are a commercial-stage medical device company that designs , manufactures and sells image-guided , catheter-based systems that are used by physicians to treat patients with peripheral artery disease , or pad . patients with pad have a build-up of plaque in the arteries that supply blood to area away from the heart , particularly the pelvis and legs . our mission is to dramatically improve the treatment of vascular disease through the introduction of products based on our lumivascular platform , the only intravascular image-guided system available in this market . we manufacture and sell a suite of products in the united states and select european markets . our current products include our lightbox imaging console , as well as our wildcat , kittycat , and the ocelot family of catheters , which are designed to allow physicians to penetrate a total blockage in an artery , known as a chronic total occlusion , or cto , and pantheris , our image-guided atherectomy device which is designed to allow physicians to precisely remove arterial plaque in pad patients . in october 2015 , we received 510 ( k ) clearance from the u.s. food and drug administration , or fda , for commercialization of pantheris , and we received an additional 510 ( k ) clearance for an enhanced version of pantheris in march 2016 and commenced sales of pantheris in the u.s. and select european countries promptly thereafter . we believe that pantheris will significantly enhance our market opportunity within pad and can expand the overall addressable market for pad endovascular procedures . during the first quarter of 2015 , we completed enrollment of patients in vision , a clinical trial designed to support our august 2015 510 ( k ) filing with the fda for our pantheris atherectomy device . vision was designed to evaluate the safety and efficacy of pantheris to perform atherectomy using intravascular imaging and successfully achieved all primary and secondary safety and efficacy endpoints . we believe the data from vision will also allow us to demonstrate that avoiding damage to healthy arterial structures , and in particular disruption of the external elastic lamina , which is the membrane between the outermost layers of the artery , reduces the likelihood of restenosis , or re-narrowing , of the diseased artery . we have recently commenced commercialization of pantheris as part of our lumivascular platform in the united states and in select european countries , after obtaining the required marketing authorizations . we focus our direct sales force , marketing efforts and promotional activities on interventional cardiologists , vascular surgeons and interventional radiologists . we also work on developing strong relationships with physicians and hospitals that we have identified as key opinion leaders . although our sales and marketing efforts are directed at these physicians because they are the primary users of our technology , we consider the hospitals and medical centers where the procedure is performed to be our customers , as they typically are responsible for purchasing our products . we are designing future products to be compatible with our lumivascular platform , which we expect to enhance the value proposition for hospitals to invest in our technology . we also believe that pantheris will qualify for existing reimbursement codes currently utilized by other atherectomy products , further facilitating adoption of our products . 48 prior to the introduction of our lumivascular platform our non-imaging catheter products were manufactured by third parties . all of our products are now manufactured in- house at our facilities in redwood city , california using components and sub-assemblies manufactured both in-house and by outside vendors . we expect our current manufacturing facility will be sufficient to meet our anticipated growth through at least 2017. we assemble all of our products at our manufacturing facility , but certain critical processes such as coating and sterilization are done by outside vendors . we began commercializing our initial non-lumivascular platform products in 2009 and introduced our lumivascular platform products in the united states in late 2012. we generated revenues of $ 10.7 million in 2015 , $ 11.2 million in 2014 and $ 13.0 million in 2013. during the years ended december 31 , 2015 , 2014 and 2013 , our net loss was $ 47.3 million , $ 32.0 million and $ 39.9 million , respectively . we have not been profitable since inception and as of december 31 , 2015 , our accumulated deficit was $ 196.3 million . since inception , we have financed our operations primarily through private placements of our preferred securities and , to a lesser extent , debt financing arrangements . in january 2015 , we completed an initial public offering , or ipo , of 5.0 million shares . as a result of our ipo , which closed in february 2015 , we received net proceeds of approximately $ 56.9 million , after underwriting discounts and commissions of approximately $ 4.5 million and other expenses associated with our ipo of approximately $ 3.6 million . story_separator_special_tag these expenses include employee compensation , including stock-based compensation , supplies , materials , quality assurance expenses allocated to r & d programs , consulting , related travel expenses and facilities expenses . clinical expenses include clinical trial design , clinical site reimbursement , data management , travel expenses and the cost of manufacturing products for clinical trials . in the future , we expect r & d expenses to increase in absolute dollars as we continue to develop new products and enhance existing products and technologies . however , we expect r & d expenses as a percentage of revenues to vary over time depending on the level and timing of our new product development efforts , as well as our clinical development , clinical trial and other related activities . selling , general and administrative expenses our sales organization is divided into two primary roles , one focused on sale and use of our disposable catheters and the other focused on sale and service of our lightbox console . our current sales efforts focus on establishing new lumivascular platform sites by marketing our products to physicians and hospital administrators . additionally , we seek to increase the use of our lumivascular platform products by our current customers through case coverage , clinical training and other programs . selling , general and administrative , or sg & a , expenses consist primarily of compensation for personnel , including stock-based compensation , related to selling and marketing functions , physician education programs , business development , finance , information technology and human resource functions . other sg & a expenses include commissions , training , travel expenses , educational and promotional activities , marketing initiatives , market research and analysis , conferences and trade shows , professional services fees , including legal , audit and tax fees , insurance costs , a 2.3 % tax on u.s. sales of medical devices , general corporate expenses and allocated facilities-related expenses . effective january 1 , 2016 , the excise tax of 2.3 % on u.s sales of medical devices has been suspended for two years . we expect to continue to grow our sales force in order to support current customers and attract new users of our lumivascular platform products . we believe that expanding our u.s. sales infrastructure and establishing distributor relationships in select regions outside the united states will drive further adoption of our lumivascular platform . we expect sg & a expenses to continue to increase in absolute dollars but decrease as a percentage of revenues through at least 2016 , as we expand our infrastructure to drive and support anticipated growth in revenues . interest income ( expense ) , net interest income ( expense ) , net consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our various debt agreements . other income ( expense ) , net other income ( expense ) , net primarily consisted of gains and losses resulting from the remeasurement of the fair value of our common stock warrant liability and the compound embedded derivative instrument associated with our convertible promissory notes , or the notes , which were repaid in full in september 2015 , and the loss on the extinguishment of the notes . we continued to record adjustments to the estimated fair value of the common stock warrants until the series e preferred stock issuance in september 2014 , upon which the common stock warrant exercise price was fixed at $ 12.60 per share . at that time we re-evaluated the terms of the common stock warrants and determined that the common stock warrants issued with the convertible notes met the requirements for equity classification and the fair value of the warrant liability was reclassified to additional paid-in capital . we continued to record adjustments to the estimated fair value of the compound embedded derivative instrument associated with the notes until the notes were repaid in september 2015. upon extinguishment of the notes , the associated current fair value of the embedded derivative asset was expensed to other income ( expense ) , net . additionally , for the year ended december 31 , 2015 , other income ( expense ) , net includes charges to reflect the carrying value of our ongoing royalty obligation to pdl biopharma , or pdl . 50 story_separator_special_tag ended december 31 , 2013. this increase was primarily attributable to the growth in sales of our lightbox imaging console . research and development expenses . r & d expenses decreased $ 4.8 million , or 30 % , to $ 11.2 million during the year ended december 31 , 2014 , compared to $ 16.0 million during the year ended december 31 , 2013. this decrease was primarily due to a $ 2.2 million decrease in personnel-related expenses associated with our headcount reduction during the third and fourth quarters of 2013 , a decrease of $ 1.5 million in product development materials and related costs and a reduction of $ 1.1 million in outside services and , as we focused our research and development efforts on our lumivascular platform products , particularly pantheris . selling , general and administrative expenses . sg & a expenses decreased $ 7.3 million , or 28 % , to $ 18.5 million during the year ended december 31 , 2014 , compared to $ 25.8 million during the year ended december 31 , 2013. this decrease was primarily due to a $ 6.1 million decrease in personnel-related expenses associated with our headcount reduction during the third and fourth quarters of 2013 and a reduction of $ 1.4 million in consulting , legal and professional fees , associated with our reduction in headcount and cost reduction actions taken in the second half of 2013 partially offset by an increase of $ 0.3 million in tradeshow and travel-related expenses . interest income ( expense ) , net .
| results of operations : replace_table_token_7_th comparison of years ended december 31 , 2015 and 2014 revenues . revenues decreased $ 0.5 million , or 4 % , to $ 10.7 million during the year ended december 31 , 2015 , compared to $ 11.2 million during the year ended december 31 , 2014. for the year ended december 31 , 2015 , sales of our lightbox imaging console increased by 6 % to $ 4.1 million while sales of our disposable catheters decreased by 10 % to $ 6.6 million . the decrease in disposable catheter revenues in 2015 and changes in revenue mix related to our continuing commercial focus on our lumivascular programs to broaden physician exposure to optical coherence tomography , or ( oct , image interpretation and building the installed base of the lightbox imaging console prior to the commercial launch of pantheris , which began in march 2016. cost of revenues and gross margin . cost of revenues of $ 6.5 million during the year ended december 31 , 2015 , were unchanged compared to the year ended december 31 , 2014. gross margin for the year ended december 31 , 2015 was 40 % , compared to 42 % during the year ended december 31 , 2014. this decrease was primarily attributable to increases in manufacturing overhead costs as we invested in operational infrastructure to support anticipated growth and the commercial launch of pantheris . research and development expenses . r & d expenses increased $ 4.5 million , or 40 % , to $ 15.7 million during the year ended december 31 , 2015 , compared to $ 11.2 million during the year ended december 31 , 2014. this increase was primarily due to a $ 3.8 million increase in personnel-related expenses and an increase of $ 1.0 million in outside services , partially offset by a decrease of $ 0.4 million in product development materials and related costs .
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revolving credit loans may be requested under the revolving credit facility at any time prior to its maturity on february 2 , 2019 , and bear interest , at lamar media 's option , at the adjusted libo rate or the adjusted base rate plus applicable margins , such margins are set at an initial rate with the possibility of a step down based on lamar media 's ratio of debt to trailing four quarters ebitda , as defined in the senior credit facility . the terms of lamar media 's senior credit facility and the indentures relating to lamar media 's outstanding notes restrict , among other things , the ability of lamar advertising and lamar media to : dispose of assets ; incur or repay debt ; create liens ; make investments ; story_separator_special_tag this report contains forward-looking statements . these statements are subject to risks and uncertainties including those described in item 1a under the heading risk factors , and elsewhere in this annual report , that could cause actual results to differ materially from those projected in these forward-looking statements . the company cautions investors not to place undue reliance on the forward-looking statements contained in this document . these statements speak only as of the date of this document , and the company undertakes no obligation to update or revise the statements , except as may be required by law . lamar advertising company the following is a discussion of the consolidated financial condition and results of operations of the company for the years ended december 31 , 2014 , 2013 and 2012. this discussion should be read in conjunction with the consolidated financial statements of the company and the related notes . overview the company 's net revenues are derived primarily from the rental of advertising space on outdoor advertising displays owned and operated by the company . revenue growth is based on many factors that include the company 's ability to increase occupancy of its existing advertising displays ; raise advertising rates ; and acquire new advertising displays and its operating results are therefore affected by general economic conditions , as well as trends in the advertising industry . advertising spending is particularly sensitive to changes in general economic conditions , which affect the rates the company is able to charge for advertising on its displays and its ability to maximize advertising sales or occupancy on its displays . historically , the company made strategic acquisitions of outdoor advertising assets to increase the number of outdoor advertising displays it operates in existing and new markets . the company continues to evaluate and pursue strategic acquisition opportunities as they arise . the company has financed its historical acquisitions and intends to finance any future acquisition activity from available cash , borrowings under its senior credit facility or the issuance of debt or equity securities . see liquidity and capital resources below . during the year ended december 31 , 2014 , the company completed acquisitions for a total cash purchase price of approximately $ 65.0 million . the company 's business requires expenditures for maintenance and capitalized costs associated with the construction of new billboard displays , the entrance into and renewal of logo sign and transit contracts , and the purchase of real estate and operating equipment . the following table presents a breakdown of capitalized expenditures for the past three years : replace_table_token_7_th we expect our capital expenditures to be approximately $ 100 million in 2015. non-gaap financial measures our management reviews our performance by focusing on several key performance indicators not prepared in conformity with generally accepted accounting principles in the united states ( gaap ) . we believe these non-gaap performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of , or as a substitute for their most directly comparable gaap financial measures . included in our analysis of our results of operations are discussions regarding earnings before interest , taxes , depreciation and amortization ( adjusted ebitda ) , funds from operations ( ffo ) , as defined by the national association of real estate investment trusts , adjusted funds from operations ( affo ) and acquisition-adjusted net revenue . we define adjusted ebitda as net income before income tax expense ( benefit ) , interest expense ( income ) , gain ( loss ) on extinguishment of debt and investments , stock-based compensation , depreciation and amortization and gain or loss on disposition of assets and investments . 24 ffo is defined as net income before gains or losses from the sale or disposal of real estate assets and investments and real estate related depreciation and amortization and including adjustments to eliminate non-controlling interest . we define affo as ffo before ( i ) straight-line revenue and expense ; ( ii ) stock-based compensation expense ; ( iii ) non-cash tax expense ( benefit ) ; ( iv ) non-real estate related depreciation and amortization ; ( v ) amortization of deferred financing and debt issuance costs , ( vi ) loss on extinguishment of debt ; ( vii ) non-recurring infrequent or unusual losses ( gains ) ; ( viii ) less maintenance capital expenditures ; and ( ix ) an adjustment for non-controlling interest . acquisition-adjusted net revenue adjusts our net revenue for the prior period by adding to it the net revenue generated by the acquired assets before our acquisition of these assets for the same time frame that those assets were owned in the current period . in calculating acquisition-adjusted revenue , therefore , we include revenue generated by assets that we did not own in the period but acquired in the current period . we refer to the amount of pre-acquisition revenue generated by the acquired assets during the prior period that corresponds with the current period in which we owned the assets ( to the extent within the period to which this report relates ) as acquisition net revenue . story_separator_special_tag see uses of cash tender offers and debt repayment for more information . the increase in operating income and decrease in interest expense , offset by the increase in loss on extinguishment of debt over the comparable period in 2013 , resulted in an $ 80.4 million increase in net income before income taxes . the company recorded an income tax benefit of $ 110.1 million for the year ended december 31 , 2014 , which is primarily the write off of a substantial amount of the company 's deferred tax liabilities resulting from the company 's conversion to a real estate investment trust . as a result of the above factors , the company recognized net income for the year ended december 31 , 2014 of $ 253.5 million , as compared to net income of $ 40.1 million for the same period in 2013. reconciliations : because acquisitions occurring after december 31 , 2012 ( the acquired assets ) have contributed to our net revenue results for the periods presented , we provide 2013 acquisition-adjusted net revenue , which adjusts our 2013 net revenue for the year ended december 31 , 2013 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the year ended december 31 , 2014. reconciliations of 2013 reported net revenue to 2013 acquisition-adjusted net revenue for the year ended december 31 , 2013 as well as a comparison of 2013 acquisition-adjusted net revenue to 2014 reported net revenue for the year ended december 31 , 2014 , are provided below : reconciliation and comparison of reported net revenue to acquisition-adjusted net revenue replace_table_token_9_th 26 key performance indicators net income/adjusted ebitda ( in thousands ) replace_table_token_10_th adjusted ebitda for the year ended december 31 , 2014 increased 2.4 % to $ 558.0 million . the increase in adjusted ebitda was primarily attributable to the increase in our gross margin ( net revenue less direct advertising expense ) of $ 24.8 million , and was partially offset by an increase in general administrative and corporate expenses of $ 11.9 million , excluding the impact of stock-based compensation expense . net income/ffo/affo ( in thousands ) replace_table_token_11_th ffo for the year ended december 31 , 2014 was $ 372.7 million as compared to ffo of $ 322.5 million for the same period in 2013. affo for the year ended december 31 , 2014 increased 12.2 % to $ 388.5 million as compared to $ 346.2 million for the same period in 2013. affo growth was primarily attributable to the increase in our gross margin ( net revenue less direct advertising expense ) and decrease in interest expense , partially offset by increases in general and administrative expenses and corporate expenses . 27 year ended december 31 , 2013 compared to year ended december 31 , 2012 net revenues increased $ 66.1 million or 5.6 % to $ 1.25 billion for the year ended december 31 , 2013 from $ 1.18 billion for the same period in 2012. this increase was attributable primarily to an increase in billboard net revenues of $ 52.1 million or 5.0 % over the prior period , which reflects an increase in advertising rate of 1 % , occupancy remaining relatively constant and growth attributable to the addition of 100 additional digital billboard displays , an increase in logo sign revenue of $ 6.0 million , which represents an increase of 9.5 % over the prior period ; and an $ 8.0 million increase in transit revenue , which represents an increase of 11.8 % over the prior period . for the year ended december 31 , 2013 , there was a $ 26.9 million increase in net revenues as compared to acquisition-adjusted net revenue for the year ended december 31 , 2012. the $ 26.9 million increase in revenue primarily consists of a $ 19.4 million increase in billboard revenue , a $ 3.6 million increase in logo revenue and a $ 4.0 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2012. this increase in revenue represents an increase of 2.2 % over the comparable period in 2012. see reconciliations below . operating expenses , exclusive of depreciation and amortization and gain on sale of assets , increased $ 42.7 million or 6.2 % to $ 725.6 million for the year ended december 31 , 2013 , which includes a $ 10.5 million increase in non-cash compensation . excluding non-cash compensation , operating expenses related to the operations of our outdoor advertising assets increased $ 28.3 million and corporate expenses increased $ 3.9 million , of which $ 2.1 million is related to the company 's evaluation of an election to real estate investment trust status . depreciation and amortization expense increased $ 4.5 million for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 , primarily due to the company 's capital expenditures . during the year ended december 31 , 2013 , gain on disposition of assets decreased $ 10.0 million over the comparable period ended december 31 , 2012 , primarily due to a gain of $ 9.8 million related to two asset swap transactions , which occurred in 2012. due to the above factors , operating income increased $ 8.9 million to $ 223.4 million for the year ended december 31 , 2013 compared to $ 214.5 million for the same period in 2012. during the year ended december 31 , 2013 , the company recognized a $ 14.3 million loss on debt extinguishment related to the early extinguishment of lamar media 's 9 3/4 % senior notes due 2014. approximately $ 4.0 million of the loss is a non-cash expense attributable to the write off of unamortized debt issuance fees and unamortized discounts associated with the retired debt . see uses of cash tender offers and debt repayment for more information .
| results of operations the following table presents certain items in the consolidated statements of operations as a percentage of net revenues for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_16_th year ended december 31 , 2014 compared to year ended december 31 , 2013 net revenues increased $ 41.2 million or 3.3 % to $ 1.29 billion for the year ended december 31 , 2014 from $ 1.25 billion for the same period in 2013. this increase was attributable primarily to an increase in billboard net revenues of $ 35.7 million or 3.2 % over the prior period which is primarily related to an increase in billboard units obtained through acquisitions in 2013 and 2014 as well as the addition of approximately 200 digital units during the year , an increase in logo sign revenue of $ 4.0 million , which represents an increase of 6.0 % over the prior period due to the addition of the wisconsin logo program during 2014 , and a $ 1.5 million increase in transit revenue , which represents an increase of 2.0 % over the prior period . for the year ended december 31 , 2014 , there was a $ 28.6 million increase in net revenues as compared to acquisition-adjusted net revenue for the year ended december 31 , 2013. the $ 28.6 million increase in revenue primarily consists of a $ 25.3 million increase in billboard revenue , a $ 3.6 million increase in logo revenue and a $ 0.3 million decrease in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2013. the increase in revenue represents an increase of 2.3 % over the comparable period in 2013. see reconciliations below . operating expenses , exclusive of depreciation and amortization and gain on sale of assets , increased $ 27.5 million or 3.8 % to $ 752.8 million for the year ended december 31 , 2014.
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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 in part i , item 1a , “ risk factors ” in this annual report on form 10-k. see the sections entitled “ risk factors ” and “ cautionary note regarding forward-looking statements. ” company overview we are a clinical-stage pharmaceutical company focused on treating metabolic and inflammatory diseases to minimize their long-term complications and improve the lives of patients . we have an innovative pipeline of first-in-class small molecule clinical and pre-clinical drug candidates for the treatment of a wide range of diseases . 43 our pipeline is led by our programs for the treatment of type 1 diabetes ( ttp399 ) and for psoriasis ( hpp737 ) . we completed the simplici-t1 study , an adaptive phase 1b/2 study supported by jdrf international ( “ jdrf ” ) , to explore the effects of ttp399 in patients with type 1 diabetes at the beginning of 2020. in february 2020 , we reported positive results from the phase 2 - part 2 confirming phase of this study which achieved its primary objective by demonstrating statistically significant improvements in hba1c ( long-term blood sugar ) for ttp399 compared to placebo . we are working on the design for pivotal and registrational studies for ttp399 , with input from the fda . in addition to the pivotal studies of ttp399 , we are conducting a phase 1 mechanistic study in patients with type 1 diabetes to determine the impact of ttp399 on ketone body formation during a period of acute insulin withdrawal . in addition , we are conducting a multiple ascending dose phase 1 study of hpp737 , an orally administered phosphodiesterase type 4 ( “ pde4 ” ) inhibitor , to assess the pharmacokinetics , pharmacodynamics , safety and tolerability of hpp737 in healthy volunteers as part of our psoriasis program . the goal of this study is to confirm the maximum tolerated dose with minimal or no gastrointestinal intolerance in the form of nausea , vomiting , or diarrhea . we expect to complete this study in the second quarter of 2021. on december 15 , 2020 , the company announced that the phase 2 elevage study of azeliragon in people with mild alzheimer 's disease and type 2 diabetes did not meet its primary objective of demonstrating an improvement in cognition as assessed by the 14-item alzheimer 's disease assessment scale – cognitive subscale ( adas-cog14 ) relative to placebo . we are planning an adaptive phase 1b/2 clinical trial assessing the pharmacokinetics , pharmacodynamics , safety and tolerability of ttp273 , an orally administered non-peptidic agonist that targets the glucagon-like peptide 1 receptor ( “ glp-1r ” ) , in patients with cystic fibrosis related diabetes and are seeking a funding partner to enable the conduct of this clinical trial . in addition to our internal development programs , we are furthering the clinical development of four other programs , a small molecule glp-1r agonist , a pde4 inhibitor , a ppar-delta agonist , and an nrf2 activator through partnerships with pharmaceutical partners via licensing arrangements . in december 2017 , we entered into a license agreement with hangzhou zhongmei huadong pharmaceutical co. , ltd. ( “ huadong ” ) ( the “ huadong license agreement ” ) , under which huadong obtained an exclusive and sublicensable license to develop and commercialize our glucagon-like peptide-1 receptor agonist ( “ glp-1r ” ) program , including the compound ttp273 , in china and certain other pacific rim territories , including australia and south korea . we also entered into a license agreement with reneo pharmaceuticals , inc. ( “ reneo ” ) ( the “ reneo license agreement ” ) in december 2017 , under which reneo obtained an exclusive , worldwide , sublicensable license to develop and commercialize our peroxisome proliferation activated receptor delta agonist program , including the compound hpp593 . in may 2018 , we entered into a license agreement with newsoara biopharma co. , ltd. , ( “ newsoara ” ) ( the “ newsoara license agreement ” ) , under which newsoara obtained an exclusive and sublicensable license to develop and commercialize our phosphodiesterase type 4 inhibitors ( “ pde4 ” ) program , including the compound hpp737 , in china and other pacific rim territories . in december 2020 , we entered into a license agreement with anteris bio , inc. ( “ anteris ” ) ( the “ anteris license agreement ” ) , under which anteris obtained a worldwide , exclusive and sublicensable license to develop and commercialize vtv llc 's nrf2 activator , hpp971 . for more information regarding the huadong license agreement , reneo license agreement and the newsoara license agreement , see part 1 – item 1 – “ business – partnered development programs ” of this annual report . vtv therapeutics inc. ( the “ company ” , the “ registrant ” , “ we ” or “ us ” ) is a holding company , and its principal asset is a controlling equity interest in vtv therapeutics llc ( “ vtv llc ” ) , the company 's principal operating subsidiary . the company has determined that vtv llc is a variable-interest entity ( “ vie ” ) for accounting purposes and that vtv therapeutics inc. is the primary beneficiary of vtv llc because ( through its managing member interest in vtv llc and the fact that the senior management of vtv therapeutics inc. is also the senior management of vtv llc ) it has the power to direct all of the activities of vtv llc , which include those that most significantly impact vtv llc 's economic performance . vtv therapeutics inc. has therefore consolidated vtv llc 's results under the vie accounting model in its consolidated financial statements . story_separator_special_tag if we fail to complete the development of our drug candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue and our results of operations and financial position will be materially adversely affected . research and development expenses since our inception , we have focused our resources on our research and development activities , including conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings for our drug candidates . we recognize research and development expenses as they are incurred . our direct research and development expenses consist primarily of 45 external costs such as fees paid to investigators , consultants , central laboratories and clinical research organizations ( “ cro ( s ) ” ) , in connection with our clinical trials , and costs related to acquiring and manufacturing clinical trial materials . our indirect research and development costs consist primarily of salaries , benefits and related overhead expenses for personnel in research and development functions and depreciation of leasehold improvements , laboratory equipment and computers . since we typically use our employee and infrastructure resources across multiple research and development programs such costs are not allocated to the individual projects . from our inception through december 31 , 2020 , we have incurred approximately $ 591.0 million in research and development expenses . our research and development expenses by project for the years ended december 31 , 2020 , 2019 and 2018 were as follows ( in thousands ) : replace_table_token_1_th we plan to continue to incur significant research and development expenses for the foreseeable future as we continue the development of ttp399 and hpp737 and further advance the development of our other drug candidates , subject to the availability of additional funding . the successful development of our clinical and preclinical drug candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical drug candidates or the period , if any , in which material net cash inflows from these drug candidates may commence . this is due to the numerous risks and uncertainties associated with the development of our drug candidates , including : the uncertainty of the scope , rate of progress and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; the potential benefits of our candidates over other therapies ; our ability to market , commercialize and achieve market acceptance for any of our drug candidates that we are developing or may develop in the future ; future clinical trial results ; our ability to enroll patients in our clinical trials ; the timing and receipt of any regulatory approvals ; and the filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights , and the expense of doing so . a change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a drug candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that drug candidate . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and related costs for employees in executive , finance , corporate development , human resources and administrative support functions . other significant general and administrative expenses include accounting and legal services , expenses associated with obtaining and maintaining patents , cost of various consultants , occupancy costs and information systems . 46 interest expense , net interest expense , net primarily consists of our cash and non-cash interest expense related to our loan agreement . cash interest on the loan agreement was recognized at a floating interest rate equal to 10.5 % plus the amount by which the one-month london interbank offer rate ( “ libor ” ) exceeds 0.5 % . non-cash interest expense represents the amortization of the costs incurred in connection with the loan agreement , the allocated fair value of the warrants to purchase shares of our class a common stock issued in connection with the loan agreement ( the “ warrants ” ) and the accretion of the final interest payment ( which will be paid in cash upon loan maturity ) , all of which are recognized in our consolidated statement of operations using the effective interest method . other income ( expense ) , net other income ( expense ) , net primarily consists of gains and losses related to the adjustment of the fair value of the warrants issued to macandrews in connection with the letter agreements . story_separator_special_tag requirements to date , we have not generated any revenue from drug product sales . we do not know when , or if , we will generate any revenue from drug product sales . we do not expect to generate revenue from drug sales unless and until we obtain regulatory approval of and commercialize any of our drug candidates . at the same time , we expect our expenses to continue or to increase in connection with our ongoing development activities , particularly as we continue the research , development and clinical trials of , and seek regulatory approval for , our drug candidates . in addition , subject to obtaining regulatory approval of any of our drug candidates , we expect to incur significant commercialization expenses for product sales , marketing , manufacturing and distribution . we anticipate that we will need substantial additional funding in connection with our continuing operations .
| results of operations in this section , we discuss the results of our operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. for a discussion of the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , please refer to part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2019. comparison of the year ended december 31 , 2020 and 2019 the following table sets forth certain information concerning our results of operations for the periods shown : replace_table_token_2_th revenues revenues were $ 6.4 million and $ 2.8 million for the years ended december 31 , 2020 and 2019 , respectively . the revenue recognized in 2020 is primarily attributable to the upfront payment and fair value of the equity interest received by the company in connection with the anteris license agreement . the revenue earned during 2019 primarily relates to the recognition of amounts deferred at the initiation of our license agreements which were related to the transfer of technology performance obligations . the technology service period for our license agreement with reneo ended in the second quarter of 2019. further , in 2019 we recognized an additional $ 1.0 million of revenue related to the satisfaction of a milestone within our license agreement with newsoara . research and development expenses research and development expenses were $ 11.0 million and $ 15.1 million for the years ended december 31 , 2020 and 2019 , respectively .
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interest on outstanding borrowings is at a margin of 150 basis points over libor ( 1.78 % at december 31 , 2011 ) and story_separator_special_tag the following discussion and analysis is based primarily on the consolidated financial statements of national health investors , inc. for the periods presented and should be read together with the notes thereto contained in this annual report on form 10-k. other important factors are identified in item 1. business and item 1a . risk factors above . executive overview nhi , a maryland corporation incorporated in 1991 , is a reit which invests in income-producing health care properties primarily in the long-term care and senior housing industries . as of december 31 , 2011 , our portfolio consisted of real estate ( excluding corporate office and assets held for sale ) and mortgage investments with a carrying value totaling $ 472,741,000 and other investments in preferred stock and marketable securities of $ 49,496,000 resulting in total invested assets of $ 522,237,000. we are a self-managed reit , with our own management reporting directly to our board of directors . our mission is to invest in health care real estate which generates current income that will be distributed to stockholders . we have pursued this mission by investing in leased properties and mortgage loans nationwide , primarily in the long-term health care and senior housing industries . portfolio at december 31 , 2011 , our continuing operations consisted of investments in real estate and mortgage notes receivable in 127 health care facilities located in 24 states consisting of 81 skilled nursing facilities , 36 assisted living facilities , 2 medical office buildings , 4 independent living facilities , and 4 hospitals . these investments consisted of approximately $ 394,069,000 of net real estate investments in 97 health care facilities with 18 lessees and $ 78,672,000 aggregate carrying value of mortgage notes receivable from 15 borrowers related to 30 health care facilities . major customer - nhc national healthcare corporation ( nhc ) , is a publicly-held company and our largest customer . we lease 41 health care facilities to nhc . these 41 facilities include 4 centers subleased to and operated by other companies , the lease payments of which are guaranteed to us by nhc . our rental income from continuing operations in 2011 was $ 76,050,000 ( $ 35,996,000 or 47 % from nhc ) ; in 2010 was $ 71,289,000 ( $ 35,212,000 or 49 % from nhc ) ; and in 2009 was $ 53,648,000 ( $ 34,782,000 or 65 % from nhc ) . consistent with our strategy of diversification , we have increased our portfolio so that the portion of our real estate portfolio leased by nhc has been reduced from 100 % of our total portfolio on october 17 , 1991 ( the date we began operations ) to 9.7 % of our total real estate portfolio on december 31 , 2011 , based on the net book value ( carrying amount ) of these properties of $ 46,282,000. in 1991 , these assets were transferred by nhc to us at net book value in a non-taxable exchange . many of these assets were substantially depreciated as a result of having been carried on nhc 's books for as many as 20 years . because the annual rental income from these properties is equivalent to 78 % of their carrying value , we believe the current fair value of these assets is significantly in excess of their net book value . subsequent additions to our portfolio related to non-nhc facilities reflect their higher book value based on the cost of the properties on the date the investment was made . as with all assets in our portfolio , we monitor the financial and operating results of each of the nhc properties on a quarterly basis . in addition to reviewing the consolidated financial results of nhc , the individual center financial results are reviewed including their occupancy , patient mix , state survey results and other relevant information . 25 the following tables summarize our investments in real estate ( excluding corporate office and assets held for sale ) and mortgage notes receivable as of december 31 , 2011 ( dollars in thousands ) : replace_table_token_2_th for the year ended december 31 , 2011 , operators of facilities which provided more than 3 % of our total revenues were ( in alphabetical order ) : bickford senior living ; community health systems , inc. ; emeritus senior living ; health services management , inc. ; legend healthcare , llc ; national healthcare corporation ; senior living management corporation , llc ; and suite living senior specialty services . as of december 31 , 2011 , the average effective annual rental income was $ 7,473 per bed for snfs , $ 10,074 per unit for assisted living facilities , $ 4,060 per unit for ilfs , $ 26,109 per bed for hospitals , and $ 12 per square foot for mobs . we invest a portion of our funds in the preferred and common shares of other publicly-held reits to ensure a substantial portion of our assets are invested for real estate purposes . at december 31 , 2011 , our investments in preferred and common 26 shares of publicly-held reits were $ 49,496,000. refer to notes 5 , 6 and 7 of our consolidated financial statements for further information . areas of focus we are evaluating and will potentially make new investments in 2012 while continuing to monitor and improve our existing properties . we continue to cautiously evaluate new portfolio investments and monitor the current prices being offered for health care assets . however , even as we make new investments , we expect to maintain a relatively low level of debt compared to our total book capitalization . new investments in real estate and mortgage notes in 2012 are expected to be funded by our liquid investments and by debt financing . story_separator_special_tag 3 ) reit status and taxes - we believe that we have operated our business so as to qualify as a reit under sections 856 through 860 of the internal revenue code and we intend to continue to operate in such a manner , but no assurance can be given that we will be able to qualify at all times . if we qualify as a reit , we will generally not be subject to federal corporate income taxes on our net income that is currently distributed to our stockholders . this treatment substantially eliminates the double taxation ( at the corporate and stockholder levels ) that typically applies to corporate dividends . our failure to continue to qualify under the applicable reit qualification rules and regulations would cause us to owe state and federal income taxes and would have a material adverse impact on our financial position , results of operations and cash flows . acquisitions and new leases of real estate during 2011 , we funded or made new commitments to fund $ 97,178,000 in healthcare real estate as described in note 3 to the consolidated financial statements . the properties acquired by us are leased to tenants under long-term , triple-net leases with initial annual lease rates between 8.5 % to 10 % plus annual fixed escalators . planned or completed dispositions of certain real estate as described in note 3 to the consolidated financial statements , for the year ended december 31 , 2011 , we sold properties having a carrying value of $ 9,623,000 and recognized gains on those sales of $ 3,348,000. as previously disclosed , we have agreed to sell five snfs in texas to affiliates of our tenant when they arrange long-term hud financing . these facilities have a carrying value of $ 29,381,000. investments in mortgage loans as described in note 4 to the consolidated financial statements , for the year ended december 31 , 2011 , we made $ 3,200,000 of mortgage loan commitments at interest yields ranging from 13 % to 21 % . real estate and mortgage notes receivable write-downs and recoveries our borrowers and tenants experience periods of significant financial pressures and difficulties similar to other health care providers . governments at both the federal and state levels have enacted legislation to lower or at least slow the growth in payments to health care providers . furthermore , the costs of professional liability insurance have increased significantly during this same period . since the inception of our company , a number of our facility operators and mortgage loan borrowers have experienced bankruptcy . others have been forced to surrender properties to us in lieu of foreclosure or for certain periods have failed to make timely payments on their obligations to us . 28 the following table summarizes our write-downs and recoveries for the last three years for both continuing and discontinued operations : replace_table_token_3_th during 2011 , we received a payment of $ 99,000 as a recovery of a previous note write-down . the payment resulted from the full payoff of a note receivable related to a snf in oklahoma . during 2010 , we received payments totaling $ 573,000 as a recovery of previous mortgage note write-downs . the payments resulted from the settlement of bankruptcy proceedings related to a former borrower to whom we had originally provided mortgage note financing on five snfs in georgia . in february 2009 , we received payment in full of $ 3,150,000 on the pro-rata portion of a note secured by a georgia snf and recorded a recovery of amounts previously written down of $ 1,077,000. during 2008 , we recorded an impairment charge of $ 1,986,000 related to two kansas facilities to reduce the carrying value of these facilities to fair value less the cost of selling the facilities . one of the facilities , located in hoisington , kansas , was sold in november 2008. the remaining facility , located in emporia , kansas , was sold during the first quarter of 2009. prior to selling the emporia facility , an additional impairment charge of $ 25,000 was recorded to further reduce its carrying value . we believe that the carrying amounts of our real estate properties are recoverable and our mortgage notes receivable are realizable and supported by the value of the underlying collateral . however , it is possible that future events could require us to make significant adjustments to these carrying amounts . security writedowns and recoveries a decline in the market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount to fair value . the impairment is charged to operations and a new cost basis for the security is established . to determine whether an impairment is other-than-temporary , we consider whether we have the ability and intent to hold the investment until a market price recovery and consider whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary . evidence considered in this assessment includes the reasons for the impairment , the severity and duration of the impairment , changes in value subsequent to a reporting date and forecasted performance of the investment . at december 31 , 2011 , we concluded there were no other-than-temporary impairments of our marketable securities . during 2011 , we sold 381,000 shares of ltc properties , inc. ( ltc ) for an average price of $ 29.00 per share . as a result , we recorded $ 8,655,000 as a gain on the sale , $ 2,732,000 of which was a recovery of a previously recorded other-than-temporary impairment . during the fourth quarter of 2009 , we sold 100,000 common shares of ltc for an average price of $ 26.00 per share . as a result , we recorded $ 1,931,000 as a gain on the sale , $ 717,000 of which was a recovery of a previously recorded other-than-temporary impairment .
| results of operations the results of operations for facilities included in assets held for sale or facilities sold , including the gain or loss on such sales , have been reported in the current and prior periods as discontinued operations . the reclassifications to retrospectively reflect the disposition of these facilities had no impact on previously reported net income . the significant items affecting revenues and expenses are discussed below . 30 year ended december 31 , 2011 compared to year ended december 31 , 2010 replace_table_token_4_th ( 1 ) past due rent received and recognized into income on alfs currently leased to emeritus senior living ( 2 ) see note 15 to the consolidated financial statements nm not meaningful 31 financial highlights of the year ended december 31 , 2011 compared to the same period in 2010 were as follows : · rental income increased $ 4,761,000 or 6.7 % when compared to the same period in the prior year primarily as a result of funding new real estate investments of $ 121,672,000 in 2010 and $ 75,806,000 in 2011. rental income for 2010 included $ 1,520,000 of past due rent received and recognized into income from rgl development , the former tenant of eight alfs which are currently leased to emeritus senior living . future increases in rental income depend on our ability to make new investments which meet our underwriting criteria . · mortgage interest income decreased $ 91,000 due to normal amortization , final maturity or early payoffs of our mortgage loans of $ 4,540,000 , but was partially offset by interest earned on new mortgage loan investments of $ 12,422,000 funded in 2010 and $ 6,566,000 funded in 2011. unless we continue to make new investments in mortgages in 2012 and future years , our mortgage interest income will continue to decrease due to the normal amortization and scheduled maturities of our loans .
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at december 31 , 2011 , $ 200.0 million and $ 300.0 million of the 2018 and 2020 notes were swapped story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes appearing in part ii , item 8 of the annual report on form 10-k. overview the manitowoc company , inc. is a multi-industry , capital goods manufacturer in two principal markets : cranes and related products ( crane ) and foodservice equipment ( foodservice ) . crane is recognized as one of the world 's leading providers of lifting equipment for the global construction industry , including lattice-boom cranes , tower cranes , mobile telescopic cranes , and boom trucks . foodservice is one of the world 's leading innovators and manufacturers of commercial foodservice equipment serving the ice , beverage , refrigeration , food preparation , and cooking needs of restaurants , convenience stores , hotels , healthcare , and institutional applications . on december 15 , 2010 , the company reached a definitive agreement to divest its kysor/warren and kysor/warren de mexico ( collectively kysor/warren ) businesses , which manufacture frozen , medium temperature and heated display merchandisers , mechanical refrigeration systems and remote mechanical and electrical houses to lennox international for approximately $ 145 million , including a preliminary working capital adjustment . the transaction subsequently closed on january 14 , 2011 and the net proceeds were used to pay down outstanding debt . on july 1 , 2011 , the company made a payment to lennox international of $ 2.4 million as the final working capital adjustment under the sale agreement . the results of these operations have been classified as discontinued operations . in order to secure clearance for the acquisition of enodis from various regulatory authorities including the european commission and the united states department of justice , manitowoc agreed to sell substantially all of enodis ' global ice machine operations following completion of the transaction . in may 2009 , the company completed the sale of the enodis global ice machine operations to braveheart acquisition , inc. , an affiliate of warburg pincus private equity x , l.p. , for $ 160 million . the businesses sold were operated under the scotsman , ice-o-matic , simag , barline , icematic , and oref brand names . the company also agreed to sell certain non-ice businesses of enodis located in italy that are operated under the tecnomac and icematic brand names . prior to disposal , the antitrust clearances required that the ice businesses were treated as standalone operations , in competition with manitowoc . the results of these operations have been classified as discontinued operations . see further detail related to these businesses at note 4 , discontinued operations. the following discussion and analysis covers key drivers behind our results for 2009 through 2011 and is broken down into three major sections . first , we provide an overview of our results of operations for the years 2009 through 2011 on a consolidated basis and by business segment . next we discuss our market conditions , liquidity and capital resources , off balance sheet arrangements , and obligations and commitments . finally , we provide a discussion of risk management techniques , contingent liability issues , critical accounting policies , impacts of future accounting changes , and cautionary statements . all dollar amounts , except per share amounts , are in millions of dollars throughout the tables included in this management 's discussion and analysis of financial conditions and results of operations unless otherwise indicated . the 2010 and 2009 results have been revised to reflect the correction of errors relating to these periods . see note 1 , company and basis of presentation for further discussion . 23 story_separator_special_tag utilized . see further detail at note 13 , income taxes. the results from discontinued operations were a loss of $ 3.9 million and a loss of $ 7.6 million , net of income taxes , for the years ended december 31 , 2011 and 2010 , respectively . the loss from discontinued operations relates primarily to the kysor/warren business that was sold on january 14 , 2011. see additional discussion at note 4 , discontinued operations. for the year ended december 31 , 2011 , a net loss attributable to a noncontrolling interest of $ 6.5 million was recorded in relation to our partially-owned chinese affiliate with the shareholders of tai'an dongyue heavy machinery co. , ltd. ( tai'an dongyue ) . there was a net loss of $ 2.7 million in connection with the partially-owned affiliate for the same period of 2010. year ended december 31 , 2010 compared to 2009 consolidated net sales decreased 13.2 % in 2010 to $ 3.1 billion from $ 3.6 billion in 2009. this decrease was the result of lower year-over-year sales in the crane segment primarily due to the global macro-economic downturn as well as continued weakness in the global credit markets . sales in our crane segment decreased 23.5 % for the year ended december 31 , 2010 compared to 2009. partially offsetting the lower crane net sales were higher sales in the foodservice segment as a result of additional revenue related to new product introductions , market share increase , and geographic penetration outpacing the market . the weaker foreign currencies as compared to the u.s. dollar had an unfavorable impact on consolidated net sales of approximately $ 37.5 million or 1.1 % for the year ended december 31 , 2010 compared to the year ended december 31 , 2009. further analysis of the changes in sales by segment is presented in the sales and operating earnings by segment section below . 25 gross profit decreased for the year ended december 31 , 2010 to $ 766.1 million compared to $ 797.4 million for the year ended december 31 , 2009 , a decrease of 3.9 % . story_separator_special_tag 26 in jurisdictions where the company operates its crane business , management analyzes the ability to utilize the deferred tax assets arising from net operating losses on a seven year cycle , consistent with the crane business cycles , as this provides the best information to evaluate the future profitability of the business units . during 2009 , the company determined that it was more likely than not that the deferred tax assets would potentially not be utilized in several jurisdictions , including china , slovakia , spain , the uk and a portion of the wisconsin net operating loss . the company continues to record valuation allowances on these deferred tax assets as it remains more likely than not that they will not be utilized . the company recorded a full valuation allowance of $ 48.8 million on the net deferred tax asset for net operating loss carryforwards in france during the fourth quarter of 2010 as the french operations moved into a seven year cumulative loss position in the fourth quarter and the company determined that the positive evidence supporting partial future realization of the asset was outweighed by the more objectively verifiable negative evidence . the total valuation allowance adjustments of $ 55.2 million in 2010 had an unfavorable impact to income tax expense . the patient protection and affordable care act was signed into law during the first quarter of 2010 and eliminated the tax deductibility of retiree health care costs to the extent of federal subsidies that provide retiree prescription drug benefits equivalent to medicare part d coverage . the company 's income tax expense was unfavorably impacted by $ 1.6 million for this law change . the results from discontinued operations were a loss of $ 7.6 million and a loss of $ 34.1 million , net of income taxes , for the years ended december 31 , 2010 and 2009 , respectively . the 2010 loss primarily related to the classification of the kysor/warren business as a discontinued operation . the loss included an impairment charge of $ 9.8 million , net of income taxes , which was incurred to bring the carrying value of the associated net assets in line with the selling price , less costs to sell . we also realized an after tax loss of $ 24.2 million on the sale of the enodis ice businesses and the marine segment as a result of final settlement of working capital and tax adjustments in 2009. for the year ended december 31 , 2010 , a net loss attributable to a noncontrolling interest of $ 2.7 million was recorded in relation to our partially-owned chinese affiliate with the shareholders of tai'an dongyue heavy machinery co. , ltd. ( tai'an dongyue ) . there was a net loss of $ 2.5 million in connection with the partially-owned affiliate for the same period of 2009. sales and operating earnings by segment operating earnings reported below by segment include the impact of reductions due to restructurings and plant consolidation costs , whereas these expenses were separately identified in the results of consolidated operations table above . cranes and related products segment replace_table_token_11_th year ended december 31 , 2011 compared to 2010 crane segment net sales for the year ended december 31 , 2011 increased 29.4 % to $ 2.2 billion versus $ 1.7 billion for the year ended december 31 , 2010. crane segment sales increased in all geographic regions and in all product lines from the prior year due to modest economic recoveries in the americas region and emerging markets . as of december 31 , 2011 , total crane segment backlog was $ 760.5 million , an increase of 33.0 % from the december 31 , 2010 backlog of $ 571.7 million and consistent with the september 30 , 2011 backlog of $ 774.6 million . the trend for new orders , net of insignificant cancellations , continued to improve throughout the year . for the year ended december 31 , 2011 , the crane segment reported operating earnings of $ 106.8 million compared to $ 89.8 million for the year ended december 31 , 2010. operating earnings for the crane segment were favorably affected by higher sales volumes and higher factory absorption , but were offset by increases in material costs , labor costs and additional provisions for warranty and excess and obsolete inventory . in addition , es & a expense was affected by increased employee compensation and benefit costs , marketing expenses and increased levels of research and development . operating margin for the year ended december 31 , 2011 was 4.9 % versus 5.1 % for the year ended december 31 , 2010. crane 's operating margin decreased primarily due to the increased costs noted above offsetting the benefit of sales growth on a percentage basis . the prior year also benefited from the collection of a previously reserved receivable of $ 4.2 million and a favorable adjustment to the inventory excess and obsolete inventory reserve of $ 5.0 million . crane segment restructuring expenses totaled $ 3.2 million for the year ended december 31 , 2011. these expenses primarily related to the continued consolidation of certain european operations . 27 year ended december 31 , 2010 compared to 2009 crane segment net sales for the year ended december 31 , 2010 decreased 23.5 % to $ 1.7 billion versus $ 2.3 billion for the year ended december 31 , 2009. net sales for the year ended december 31 , 2010 decreased over the prior year in all major geographic regions except asia and in many product lines . as of december 31 , 2010 , total crane segment backlog was $ 571.8 million , consistent with the december 31 , 2009 backlog of $ 572.7 million and a 27.8 % increase versus the september 30 , 2010 backlog of $ 448.1 million .
| results of consolidated operations replace_table_token_10_th year ended december 31 , 2011 compared to 2010 consolidated net sales increased 19.4 % in 2011 to $ 3.7 billion from $ 3.1 billion in 2010. the increase was the result of year-over-year increases in both the crane and foodservice segments . crane segment sales increased in all regions and in all product lines from the prior year due to modest economic recoveries in the americas region and in emerging markets . crane segment sales increased 23.8 % for the year ended december 31 , 2011 compared to 2010. foodservice sales increased in all regions from the prior year due to continued penetration of global chains with whom we partner and modest economic improvements . foodservice sales increased 6.8 % for the year ended december 31 , 2011 compared to 2010. weaker foreign currencies as compared to the u.s. dollar had a favorable impact on consolidated net sales of $ 55.1 million or 1.8 % for the year ended december 31 , 2011 compared with the year ended december 31 , 2010. further analysis of the changes in sales by segment is presented in the sales and operating earnings by segment section below . gross profit increased for the year ended december 31 , 2011 to $ 838.0 million compared to $ 766.1 million for the year ended december 31 , 2010 , an increase of 9.4 % . gross margin decreased in 2011 to 22.9 % from 24.4 % in 2010. the increase in consolidated gross profit is attributable to sales volume increases in both the crane and foodservice segments in all regions . crane segment gross profit increases were partially offset by increases in material costs , labor costs and additional provisions for warranty and excess and obsolete inventory . foodservice segment gross profit increases were offset by higher material and other manufacturing costs .
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these risks and other factors include , among others , those listed under “ forward-looking statements ” and “ risk factors ” and those included elsewhere in this annual report . plan of operation over the next 12 months we intend to market our services by performing in person sales calls to senior citizen residential property offices , nursing homes and senior care facilities and posting flyers in our local network targeting elderly residences ( the “ marketing plan ” ) . our current focus is to generate revenue to support our business operations by executing our marketing plan to senior care facilities throughout new york city , northern new jersey , westchester county , new york and the southern connecticut area ( the “ local network ” ) . at this time , we have provided services throughout new york city and northern new jersey . we believe the market in the local network for the company 's potential clients is large without many competitors . nasmm lists less than 100 seniors move managers in our local network while this region together holds large populations of residents relative to suburban regions . we intend to focus the scope of our operations in the most densely populated urban communities of the local network . revenue we plan to generate revenue through word of mouth , the marketing plan , and entering into strategic agreements in our local network to be the exclusive senior move manager for elderly care and nursing facilities ( the “ care facilities ” ) . we believe the care facilities would be inclined to enter into strategic agreements with the company because we believe clients of the care facilities are uncomfortable making a transition out of their long-time home . we believe our senior move management services would benefit these care facilities by providing a level of comfort to their clients through personalized senior move management services . in order to enter into these strategic agreements , terms will have to be negotiated and we may have to reduce our fees as a concession to obtain business . we intend to use the proceeds from our private placement ( i ) to pay operating and business development expenses , ( ii ) to pay other expenses related to marketing of our moving services , and ( iii ) for general working capital . amounts actually expended and the timing of expenditures may vary considerably based on several factors including our results of operations . however , the proceeds generated from our private placement are not sufficient to pay for our operating costs for the next 12 months . as a result , the company may finance its operations through debt , equity or credit financing . if we are unable to secure this funding , our sole officer and director has verbally agreed to provide capital to support our business operations , offering expenses and reporting expenses as disclosed in exhibit 10.2 to our amended registration statement . however , the company has no recourse against our sole officer and director in the event that she is unable to provide capital . please see our liquidity and capital resources below for a more detailed explanation as to our plans on meeting our operating costs for 12 months from november 30 , 2013 . 16 going concern as reflected in the accompanying consolidated financial statements , we are in the development stage with limited operations and a net loss of $ 40,421 for the fiscal year ended november 30 , 2013. the financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . this raises substantial doubt about our ability to continue as a going concern . the ability of the company to continue as a going concern is dependent on the company 's ability to raise additional capital and implement its business plan . financing transactions may include the issuance of equity or debt securities , obtaining credit facilities , or other financing mechanisms . however , the potential trading price of our common stock and a downturn in the u.s. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities . even if we are able to raise the funds required , it is possible that we could incur unexpected costs and expenses , fail to collect amounts owed to us , or experience unexpected cash requirements that would force us to seek alternative financing . furthermore , if we issue additional equity or debt securities , stockholders may experience additional dilution or the new equity securities may have rights , preferences or privileges senior to those of existing holders of our common stock . if we are unable to secure additional funding in the manner noted above , our sole officer and director has verbally agreed to provide capital to support our business operations , offering expenses and reporting expenses as disclosed in exhibit 10.2 to our amended registration statement . however , the company has no recourse against our sole officer and director in the event that she is unable to provide capital . we believe this provides the opportunity for the company to continue as a going concern . story_separator_special_tag roman ; font-size : 10pt '' > the methods , estimates , and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements . the sec has defined “ critical accounting policies ” as those accounting policies that are most important to the portrayal of our financial condition and results , and require us to make our most difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . based upon this definition , our most critical estimates relate to the fair value of warrant liabilities story_separator_special_tag these risks and other factors include , among others , those listed under “ forward-looking statements ” and “ risk factors ” and those included elsewhere in this annual report . plan of operation over the next 12 months we intend to market our services by performing in person sales calls to senior citizen residential property offices , nursing homes and senior care facilities and posting flyers in our local network targeting elderly residences ( the “ marketing plan ” ) . our current focus is to generate revenue to support our business operations by executing our marketing plan to senior care facilities throughout new york city , northern new jersey , westchester county , new york and the southern connecticut area ( the “ local network ” ) . at this time , we have provided services throughout new york city and northern new jersey . we believe the market in the local network for the company 's potential clients is large without many competitors . nasmm lists less than 100 seniors move managers in our local network while this region together holds large populations of residents relative to suburban regions . we intend to focus the scope of our operations in the most densely populated urban communities of the local network . revenue we plan to generate revenue through word of mouth , the marketing plan , and entering into strategic agreements in our local network to be the exclusive senior move manager for elderly care and nursing facilities ( the “ care facilities ” ) . we believe the care facilities would be inclined to enter into strategic agreements with the company because we believe clients of the care facilities are uncomfortable making a transition out of their long-time home . we believe our senior move management services would benefit these care facilities by providing a level of comfort to their clients through personalized senior move management services . in order to enter into these strategic agreements , terms will have to be negotiated and we may have to reduce our fees as a concession to obtain business . we intend to use the proceeds from our private placement ( i ) to pay operating and business development expenses , ( ii ) to pay other expenses related to marketing of our moving services , and ( iii ) for general working capital . amounts actually expended and the timing of expenditures may vary considerably based on several factors including our results of operations . however , the proceeds generated from our private placement are not sufficient to pay for our operating costs for the next 12 months . as a result , the company may finance its operations through debt , equity or credit financing . if we are unable to secure this funding , our sole officer and director has verbally agreed to provide capital to support our business operations , offering expenses and reporting expenses as disclosed in exhibit 10.2 to our amended registration statement . however , the company has no recourse against our sole officer and director in the event that she is unable to provide capital . please see our liquidity and capital resources below for a more detailed explanation as to our plans on meeting our operating costs for 12 months from november 30 , 2013 . 16 going concern as reflected in the accompanying consolidated financial statements , we are in the development stage with limited operations and a net loss of $ 40,421 for the fiscal year ended november 30 , 2013. the financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . this raises substantial doubt about our ability to continue as a going concern . the ability of the company to continue as a going concern is dependent on the company 's ability to raise additional capital and implement its business plan . financing transactions may include the issuance of equity or debt securities , obtaining credit facilities , or other financing mechanisms . however , the potential trading price of our common stock and a downturn in the u.s. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities . even if we are able to raise the funds required , it is possible that we could incur unexpected costs and expenses , fail to collect amounts owed to us , or experience unexpected cash requirements that would force us to seek alternative financing . furthermore , if we issue additional equity or debt securities , stockholders may experience additional dilution or the new equity securities may have rights , preferences or privileges senior to those of existing holders of our common stock . if we are unable to secure additional funding in the manner noted above , our sole officer and director has verbally agreed to provide capital to support our business operations , offering expenses and reporting expenses as disclosed in exhibit 10.2 to our amended registration statement . however , the company has no recourse against our sole officer and director in the event that she is unable to provide capital . we believe this provides the opportunity for the company to continue as a going concern . story_separator_special_tag roman ; font-size : 10pt '' > the methods , estimates , and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements . the sec has defined “ critical accounting policies ” as those accounting policies that are most important to the portrayal of our financial condition and results , and require us to make our most difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . based upon this definition , our most critical estimates relate to the fair value of warrant liabilities
| results of operations results of operations for the year ended november 30 , 2012 as compared to the year ended november 30 , 2013. the following table summarizes changes in selected operating indicators of the company , illustrating the relationship of income and expense items to net earnings ( loss ) for the respective periods presented ( components may not add or subtract to totals due to rounding ) : replace_table_token_1_th revenue revenues for the year ended november 30 , 2012 were $ 2,952 as compared to $ 1,900 for the year ended november 30 , 2013. the decrease in revenues for the year ended november 30 , 2013 was primarily attributable to a decrease in referrals from a care facility . 17 for each of our clients our sole officer and director performed senior move management services , including , but not limited to general home organization , item logging , storage or disposal analysis , oversight of sales of belongings , preparing and monitoring shipping of items to family and friends , preparing of residence for arrival of new home owners , oversight of physical move by third parties , organization of documents , packing and unpacking belongings , and liaising with moving companies and cleaning service providers . the market for our services is the local network ( as defined above ) , which has various care facilities that the elderly consider when making a moving transition . if these care facilities cease business operations , stop referring us business or no longer need our services it may have an unfavorable impact on our net sales , revenues , or income from continuing operations .
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entered into in june 2020 with mid-con energy partners , lp ( “ mid-con ” ) ( nasdaq : mcep ) , which was terminated at the closing of the mid-con acquisition ( as defined below ) between the company and mid-con on january 21 , 2021 ) ; and ● potential acquisitions of pdp-heavy assets , with attractive , discounted valuations , in stressed/distressed scenarios or from non-industry owners , such as the silvertip acquisition ( as defined below ) . story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes and other information included elsewhere in this report . overview we are a fort worth , texas based independent oil and natural gas company . our business is to maximize production and cash flow from our offshore properties in the shallow waters of the gulf of mexico ( “ gom ” ) and onshore properties primarily located in oklahoma , texas , wyoming and louisiana and use that cash flow to explore , develop , exploit and acquire oil and natural gas properties across the united states . impact of the covid-19 pandemic a novel strain of the coronavirus ( “ covid-19 ” ) surfaced in late 2019 and has spread , and continues to spread , around the world , including to the united states . in march 2020 , the world health organization declared covid-19 a pandemic , and the president of the united states declared the covid-19 pandemic a national emergency . the covid-19 pandemic has significantly affected the global economy , disrupted global supply chains and created significant volatility in the financial markets . in addition , the covid-19 pandemic has resulted in travel restrictions , business closures and other restrictions that have disrupted the demand for oil throughout the world and , when combined with the oil supply increase attributable to the battle for market share among the organization of petroleum exporting countries ( “ opec ” ) , russia and other oil producing nations , resulted in oil prices declining significantly beginning in late february 2020. while there has been a modest recovery in oil prices , the length of this demand disruption is unknown , and there is significant uncertainty regarding the long-term impact to global oil demand , which has negatively impacted the company 's results of operations and planned 2020 capital activities . due to the extreme volatility in oil prices and the impact of covid-19 on the financial condition of our upstream peers , we suspended our drilling program in the southern delaware basin in the first quarter of 2020 and focused on certain measures that included , but were not limited to , the following : ● work from home initiatives for all but critical staff and the implementation of social distancing measures ; ● a company-wide effort to cut costs throughout the company 's operations ; ● utilization of the company 's available storage capacity to temporarily store a portion of its production for later sale at higher prices when advantageous to do so ( such as the approximate 50,000 barrels of second quarter oil production we stored and sold during the third quarter of 2020 at higher oil prices ) ; ● suspension of any further plans for operated onshore and offshore drilling in 2020 ; ● pursuit of additional “ fee for service ” opportunities similar to the management services agreement entered into in june 2020 with mid-con energy partners , lp ( “ mid-con ” ) ( nasdaq : mcep ) , which was terminated at the closing of the mid-con acquisition ( as defined below ) between the company and mid-con on january 21 , 2021 ; and ● potential acquisitions of pdp-heavy assets , with attractive , discounted valuations , in stressed/distressed scenarios or from non-industry owners , such as our silvertip acquisition ( as defined below ) . from our initial entry into the southern delaware basin in 2016 and through early 2019 , we focused on the development of our initial 6,500 net acre position in pecos county , texas ( “ bullseye ” ) , and in december 2018 , we purchased an additional 4,200 gross operated ( 1,700 net ) acres and 4,000 gross non-operated ( 200 net ) acres to the northeast of our bullseye acreage ( “ ne bullseye ” ) for approximately $ 7.5 million . we paid $ 3.2 million cash in december 2018 , with the remaining cash balance paid in installments in march and october of 2019. our 2019 drilling program in west texas included the completion of one well previously drilled in the bullseye area , the drilling and completion of a second bullseye well , and the drilling and completion of three wells in the ne bullseye area . in december 2019 , we began completion operations on the fourth ne bullseye well , which began producing in january 2020. as of december 31 , 2020 , we were producing from 18 wells over our approximate 16,200 gross ( 7,500 net ) acre position in west texas , prospective for the wolfcamp a , wolfcamp b and second bone spring formations . in response to low commodity prices , and a related window of opportunity to acquire producing properties on very attractive terms , we concluded our 2019 drilling program , which was designed to only preserve core areas of our west texas play . thereafter , we focused on identifying , evaluating and acquiring producing reserves . story_separator_special_tag concurrently with the announcement of the mid-con acquisition , we announced the execution of an agreement with a select group of institutional and accredited investors to sell 26,451,988 common shares of the company . on october 27 , 2020 , we closed the private placement for net proceeds of approximately $ 38.8 million , after deducting the underwriting discount and fees and expenses . the use of those proceeds was in connection with the mid-con 58 acquisition and for general corporate purposes , including the repayment of debt outstanding under our credit agreement . on november 27 , 2020 , we entered into a purchase and sale agreement with an undisclosed seller to acquire certain oil and natural gas properties located in the big horn basin in wyoming and montana , in the powder river basin in wyoming and in the permian basin in texas and new mexico ( collectively the “ silvertip acquisition ” ) for aggregate consideration of approximately $ 58 million . the silvertip acquisition closed on february 1 , 2021 , for a net consideration of approximately $ 53.2 million , after customary closing adjustments , including the results of operations during the period between the effective date of august 1 , 2020 and the closing date . see note 4 – “ acquisitions and dispositions ” for more information . on december 1 , 2020 , we completed another private placement of 14,193,903 shares of common stock for net proceeds of approximately $ 21.7 million , after deducting the underwriting discount and fees and expenses . the n et proceeds were used to fund the silvertip acquisition and for general corporate purposes , including the repayment of debt outstanding under our credit agreement . throughout 2020 , we continued to identify opportunities for cost reductions and operating efficiencies in all areas of operations , while also searching for new resource acquisition opportunities . acquisition efforts have been , and will continue to be , focused on pdp-heavy assets where we might also be able to leverage our geological and operational experience and expertise to reduce operating expenses and enhance production and identify and develop additional drilling opportunities that we believe will enable the company to economically grow production and add reserves . for 2021 , we believe that a continuing challenging commodity price environment , and a shortage of capital available to the energy industry , may present more opportunities to acquire additional producing properties that could provide strong production , cash flow and future development potential at attractive rates of return . we plan to continue to be active in pursuing such acquisition opportunities and then allowing our technical teams to leverage our experience and expertise to work on increasing returns through cost reduction , production enhancement and future development of the undeveloped drilling locations that come with the production acquired . we can provide no assurances that we will acquire any producing property opportunities on attractive terms , or at all , or that we will realize the expected benefits of any acquisition . we currently have a conservative capital expenditure program planned for 2021 and plan to limit that program to drilling and workover projects that we believe may provide compelling returns in this current commodity price environment , or where necessary , to preserve strategic acreage in our core areas , while simultaneously continuing to make balance sheet strength a priority in 2021 as we utilize excess cash flow to reduce debt and increase our capacity to quickly react to acquisition opportunities . our production sales for the year ended december 31 , 2020 were approximately 6.1 mmboe ( or 16.7 mboe/d ) , comprised of 27 % oil , 52 % natural gas and 21 % ngls . our production for the three months ended december 31 , 2020 were approximately 1.3 mmboe ( or 14.4 mboe/d ) , comprised of 28 % oil , 49 % natural gas and 23 % ngls . our onshore properties contributed approximately 82 % and 84 % of our total production sales for the three and twelve months ended december 31 , 2020 , respectively . revenues and profitability our revenues , profitability and future growth depend substantially on our ability to find , develop and acquire oil and natural gas reserves that are economically recoverable , as well as prevailing prices for oil and natural gas . reserve replacement generally , producing properties offshore in the gulf of mexico have high initial production rates , followed by steep declines . likewise , initial production rates on new wells in the onshore resource plays start out at a relatively high rate with a decline curve which results in 60 % to 70 % of the ultimate recovery of present value occurring in the first eighteen months of the well 's life . we must locate and develop , or acquire , new oil and natural gas reserves to replace those being depleted by production . substantial capital expenditures are required to find , develop and or acquire oil and natural gas reserves . a prolonged period of depressed commodity prices could have a significant impact on the value and volumetric quantities of our proved reserve portfolio , assuming no other changes in our development plans . 59 use of estimates the preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . significant estimates with regard to these financial statements include estimates of remaining proved oil , natural gas and ngl reserves , the timing and costs of future drilling and development , estimates of oil , natural gas and ngl revenues , income taxes , stock-based compensation , impairment of oil and natural gas properties , valuation of derivatives , asset retirement obligations , accrued liabilities and purchase price allocations . see “ item 1a .
| results of operations the table below sets forth our average net daily production sales data in mboe/d from our regions for each of the periods indicated : replace_table_token_23_th ( 1 ) increase in production sales during the three months ended december 31 , 2019 due to including november 2019 and december 2019 production from the white star and will energy acquired properties . see note 4 – “ acquisitions and dispositions ” for more information . increase in production sales during the three months ended march 31 , 2020 due to including a full quarter of production from the white star and will energy acquired properties . ( 2 ) decrease in production sales during the three months ended june 30 , 2020 due to allocating approximately 50,000 bbls of oil ( net to the company ) to inventory storage ( 0.5 mboe/d ) due to the dramatic decline in crude oil prices . increase in production sales during the three months ended september 30 , 2020 due to the sale of this inventory at improved prices . decrease in production sales during the three months ended december 31 , 2020 primarily due to downtime related to workovers and routine repair and maintenance . ( 3 ) decrease in production sales during the three months ended december 31 , 2020 primarily due to downtime related to weather and routine repair and maintenance . ( 4 ) increase in production sales during the three months ended december 31 , 2019 due to bringing three wells online in our ne bullseye area . the three months ended december 31 , 2020 includes an additional 0.4 mboe/d due to a reallocation adjustment related to a previous quarter 's production . ( 5 ) includes production from various non-core properties in our south , southeast and east texas , louisiana and wyoming areas , including properties acquired from white star and will energy .
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our md & a should be read in conjunction with the consolidated financial statements and related notes included in item 8 , `` financial statements and supplementary data , '' of this annual report on form 10-k. story_separator_special_tag corp. '' , dn= '' 1 '' , chk=140147 , folio='30 ' , file='disk124 : [ 17zaa1.17zaa46901 ] dm46901a . ; 9 ' , user='abeauli ' , cd='23-mar-2017 ; 15:19 ' -- > deposits to $ 272.3 million for 2016 from $ 240.3 million for 2015. the increase in the average balance of deposits primarily reflected growth in money market and cd accounts . interest expense on borrowings for the year ended december 31 , 2016 totaled $ 1.7 million , representing a decrease of $ 257 thousand , or 13 % , from the $ 2.0 million of interest expense on borrowings for the same period in 2015. the decrease in interest expense on borrowings was primarily due to a decrease of $ 8.9 million in the average balance of fhlb advances , which decreased interest expense by $ 193 thousand . additionally , the average cost of fhlb advances decreased by 11 basis points and reduced interest expense by $ 85 thousand during 2016. the decrease in interest expense on fhlb advances was partially offset by an increase of $ 21 thousand in interest expense on debentures , primarily due to increases in libor rates . analysis of net interest income net interest income is the difference between income on interest-earning assets and the expense on interest-bearing liabilities . net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them . the following table sets forth average balances , average yields and costs , and certain other information for the years indicated . all average balances are daily average balances . the yields set forth below include the effect of deferred loan fees , deferred origination costs , and discounts and premiums that are amortized or accreted to interest income or expense . we do not accrue interest on loans that are on non-accrual status ; however , the balance of these loans is included in the total average balance , which has the effect of reducing average loan yields . 31 replace_table_token_18_th ( 1 ) amount is net of deferred loan fees , loan discounts and loans in process , and includes deferred origination costs , loan premiums and loans receivable held for sale . ( 2 ) includes non-accrual interest of $ 493 thousand , reflecting interest recoveries on non-accrual loans that were paid off , and deferred cost amortization of $ 290 thousand for the year ended december 31 , 2016 . ( 3 ) includes non-accrual interest of $ 246 thousand , reflecting interest recoveries on non-accrual loans that were paid off , and deferred cost amortization of $ 288 thousand for the year ended december 31 , 2015 . ( 4 ) net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . ( 5 ) net interest rate margin represents net interest income as a percentage of average interest-earning assets . 32 changes in our net interest income are a function of changes in both rates and volumes of interest-earning assets and interest-bearing liabilities . the following table sets forth information regarding changes in our interest income and expense for the years indicated . information is provided in each category with respect to ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) , ( ii ) changes attributable to changes in rate ( changes in rate multiplied by prior volume ) , and ( iii ) the total change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_19_th loan loss provision recapture for the year ended december 31 , 2016 , we recorded a loan loss provision recapture of $ 550 thousand compared to $ 3.7 million for the year ended december 31 , 2015. the loan loss provision recapture during 2016 resulted from a decrease in alll requirements resulting from the continued improvement in the overall credit quality of our loan portfolio and from loan repayments , which was partially offset by an increase in the alll requirements on loans originated during 2016. the loan loss provision recapture during 2015 was primarily due to the continued improvement in our loan loss experience , as well as the improved asset quality in our loan portfolio as a result of reductions in our problem loans and in the balances of certain loan classes that we believe bear higher risk , such as church and commercial real estate loans . see `` allowance for loan losses '' for additional information . 33 non-interest income for the year ended december 31 , 2016 , non-interest income totaled $ 1.0 million , compared to $ 2.9 million for the same period in 2015. the decrease of $ 1.9 million in non-interest income was primarily because there were no loan sales during 2016 , whereas during 2015 , we recorded a gain on sale of loans of $ 1.8 million from the sale of $ 164.1 million in loans during 2015. additionally , the grant received from the u.s. treasury 's community development financial institutions ( cdfi ) fund in 2016 was lower by $ 90 thousand than the amount received in 2015. non-interest expense for the year ended december 31 , 2016 , non-interest expense totaled $ 11.8 million , compared to $ 13.4 million for the same period in 2015. the decrease of $ 1.6 million in non-interest expense was primarily due to a decrease of $ 1.1 million in compensation and benefits expense , as the fourth quarter of 2015 included a special accrual of $ 1.2 million for a contribution to the bank 's esop . story_separator_special_tag at least quarterly we conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local market . the determination of the appropriate level for the allowance is based on that review , considering such factors as historical loss experience for each type of loan , the size and composition of our loan portfolio , the levels and composition of our loan delinquencies , non-performing loans and net loan charge-offs , the value of underlying collateral on problem loans , regulatory policies , general economic conditions , and other factors related to the collectability of loans in the portfolio . our alll decreased to $ 4.6 million , or 1.20 % of our gross loans receivable held for investment , at december 31 , 2016 , from $ 4.8 million , or 1.56 % of our gross loans receivable held for investment , at december 31 , 2015 , primarily reflecting loan loss provision recaptures of $ 550 thousand , which were partially offset by recoveries of $ 325 thousand . our loan portfolio as of december 31 , 2016 included $ 82.3 million of loans that were purchased in november 2015 , for which there was no assigned allowance for loan losses . we purchased these loans at fair value and we have not identified any deterioration of credit quality in these loans since purchase . the reduction in alll at december 31 , 2016 compared to december 31 , 2015 , and the loan loss provision recaptures during 2016 , reflect the results of our quarterly reviews of the adequacy of the alll . we continue to maintain our alll at a level that we believe is appropriate , given the significant reduction in delinquencies and non-performing loans , the continued improvement in our asset credit quality metrics and the high quality of our loan originations . our loan delinquencies and non-performing loans ( `` npls '' ) are at their lowest levels since december 2009. we had total delinquencies of $ 1.4 million at december 31 , 2016 and 2015. npls consist of delinquent loans that are 35 90 days or more past due and other loans , including troubled debt restructurings that do not qualify for accrual status . at december 31 , 2016 , npls totaled $ 2.9 million , compared to $ 4.2 million at december 31 , 2015. the decrease of $ 1.3 million in npls was primarily due to payoffs of $ 1.3 million and repayments of $ 406 thousand , which were partially offset by the placement of a church loan for $ 463 thousand into non-accrual status . in connection with our review of the adequacy of our alll , we track the amount and percentage of our npls that are paying currently , but nonetheless must be classified as npl for reasons unrelated to payments , such as lack of current financial information and an insufficient period of satisfactory performance . as of december 31 , 2015 , all of our npls were current in their payments . also , in determining the alll , we consider the ratio of the alll to npls , which increased to 156.35 % at december 31 , 2016 from 114.22 % at december 31 , 2015. when reviewing the adequacy of the alll , we also consider the impact of charge-offs , including the changes and trends in loan charge-offs . there were no loan charge-offs during 2016 compared to $ 89 thousand during 2015. in determining charge-offs , we update our estimates of collateral values on npls by obtaining new appraisals at least every nine months . if the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan , a charge-off for the difference is recorded to reduce the loan to its estimated fair value , less estimated selling costs . therefore , certain losses inherent in our total npls are recognized periodically through charge-offs . the impact of updating these estimates of collateral value and recognizing any required charge-offs is to increase charge-offs and reduce the alll required on these loans . due to prior charge-offs and increases in collateral values , the average recorded investment in npls was only 47 % of estimated fair value less estimated selling costs as of december 31 , 2016. recoveries during the 2016 and 2015 totaled $ 325 thousand and $ 152 thousand , respectively . recoveries during 2016 primarily resulted from the payoffs of five non-accrual loans which had been previously partially charged off . impaired loans at december 31 , 2016 were $ 11.9 million , compared to $ 15.8 million at december 31 , 2015. specific reserves for impaired loans were $ 656 thousand , or 5.51 % of the aggregate impaired loan amount at december 31 , 2016 , compared to $ 995 thousand , or 6.30 % , at december 31 , 2015. excluding specific reserves for impaired loans , our coverage ratio ( general allowance as a percentage of total non-impaired loans ) decreased to 1.06 % at december 31 , 2016 , from 1.31 % at december 31 , 2015. the decrease in our coverage ratio reflects a decline in our historical charge-offs and the continued improvement in our asset credit quality . we believe that the alll is adequate to cover probable incurred losses in the loan portfolio as of december 31 , 2016 , but there can be no assurance that actual losses will not exceed the estimated amounts . in addition , the occ and the fdic periodically review the alll as an integral part of their examination process . these agencies may require an increase in the alll based on their judgments of the information available to them at the time of their examinations .
| overview total assets increased by $ 26.2 million to $ 429.1 million at december 31 , 2016 from $ 402.9 million at december 31 , 2015. during 2016 , we increased our net loans receivable by $ 75.3 million , which was funded with $ 49.4 million in cash and cash equivalents , an increase of $ 14.8 million in deposits , and an increase of $ 13.0 million in fhlb advances , as we grew our multi-family residential loan portfolio to improve net interest income . we recorded net income of $ 3.5 million for the year ended december 31 , 2016 , compared to $ 9.1 million for the year ended december 31 , 2015. results during 2016 included an income tax benefit of $ 2.2 million and a loan loss provision recapture of $ 550 thousand . also , results for 2016 were impacted by non-recurring professional fees totaling $ 369 thousand related to the repurchase of shares from the u.s. treasury , described below . in contrast , net income for the year ended december 31 , 2015 included an income tax benefit of $ 4.6 million and loan loss provision recaptures of $ 3.7 million . furthermore , 2015 results also included $ 1.8 million in gains on the sale of $ 164.1 million in loans , which were sold to meet regulatory guidelines regarding loan concentration . there were no loan sales during 2016 and no gains on the sale of loans . we became subject to the basel iii capital requirements effective january 1 , 2015. the basel iii capital rules included a new ratio of common equity tier 1 capital to risk-weighted assets and increased the minimum capital requirements . a new capital conservation buffer has also been established at levels above the regulatory minimum capital requirements . the final rules also revise the definition and calculation of tier 1 capital , total capital and risk-weighted assets .
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the following discussion and certain other sections of this annual report on form 10-k contain statements reflecting the company 's views about its future performance that constitute “ forward-looking statements ” under the private securities litigation reform act of 1995. these forward-looking statements are based on current expectations , estimates , forecasts and projections about the industry and markets in which the company operates as well as management 's beliefs and assumptions . any statements contained herein ( including without limitation statements to the effect that stanley black & decker , inc. or its management “ believes , ” “ expects , ” “ anticipates , ” “ plans ” and similar expressions ) that are not statements of historical fact should be considered forward-looking statements . these statements are not guarantees of future performance and involve certain risks , uncertainties and assumptions that are difficult to predict . there are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements . these factors include , without limitation , those set forth , or incorporated by reference , below under the heading “ cautionary statements under the private securities litigation reform act of 1995. ” the company does not intend to update publicly any forward-looking statements whether as a result of new information , future events or otherwise . strategic objectives the company continues to pursue a growth and acquisition strategy , which involves industry , geographic and customer diversification to foster sustainable revenue , earnings and cash flow growth , and employ the following strategic framework in pursuit of its vision to reach $ 22 billion in revenue by 2022 while expanding its margin rate ( `` 22/22 vision '' ) : continue organic growth momentum by utilizing the stanley fulfillment system ( `` sfs '' ) 2.0 operating system , diversifying toward higher-growth , higher-margin businesses , and increasing the relative weighting of emerging markets ; be selective and operate in markets where brand is meaningful , the value proposition is definable and sustainable through innovation , and global cost leadership is achievable ; and pursue acquisitive growth on multiple fronts by building upon its existing global tools platform , expanding the industrial platform in engineered fastening and infrastructure , consolidating the commercial electronic security industry , and pursuing adjacencies with sound industrial logic . execution of the above strategy has resulted in approximately $ 9.4 billion of acquisitions since 2002 ( excluding the black & decker merger ) , several divestitures , improved efficiency in the supply chain and manufacturing operations , and enhanced investments in organic growth , enabled by cash flow generation and increased debt capacity . in addition , the company 's continued focus on diversification and organic growth has resulted in improved financial results and an increase in its global presence . the company also remains focused on increasing its presence in emerging markets , with a goal of generating greater than 20 % of annual revenues from those markets over time , and leveraging sfs 2.0 to upgrade innovation and digital capabilities , maintain commercial and supply chain excellence , and focus on reducing sg & a , in part , through functional transformation . lastly , the company continues to make strides towards achieving its 22/22 vision by becoming known as one of the world 's leading innovators , delivering top-quartile financial performance and elevating its commitment to social responsibility . the company 's long-term financial objectives remain as follows : 4-6 % organic revenue growth ; 10-12 % total revenue growth ; 10-12 % total eps growth ( 7-9 % organically ) excluding acquisition-related charges ; free cash flow equal to , or exceeding , net income ; and sustain 10+ working capital turns . in terms of capital allocation , the company remains committed , over time , to returning approximately 50 % of free cash flow to shareholders through a strong and growing dividend as well as opportunistically repurchasing shares . the remaining free cash flow ( approximately 50 % ) will be deployed towards acquisitions . 24 the following represents recent examples of the company executing its strategic objectives : acquisitions and other transactions on january 2 , 2019 , the company acquired a 20 percent interest in mtd holdings inc. ( `` mtd '' ) , a privately held global manufacturer of outdoor power equipment , for $ 234 million in cash . with 2017 revenues of $ 2.4 billion , mtd manufactures and distributes gas-powered lawn tractors , zero turn mowers , walk behind mowers , snow throwers , trimmers , chain saws , utility vehicles and other outdoor power equipment . under the terms of the agreement , the company has the option to acquire the remaining 80 percent of mtd beginning on july 1 , 2021 and ending on january 2 , 2029. in the event the option is exercised , the companies have agreed to a valuation multiple based on mtd 's 2018 ebitda , with an equitable sharing arrangement for future ebitda growth . the investment in mtd increases the company 's presence in the $ 20 billion global lawn and garden segment and will allow the two companies to work together to pursue revenue and cost opportunities , improve operational efficiency , and introduce new and innovative products for professional and residential outdoor equipment customers , utilizing each company 's respective portfolios of strong brands . on april 2 , 2018 , the company acquired nelson fastener systems ( “ nelson ” ) from the doncasters group for approximately $ 430 million . this acquisition is complementary to the company 's product offerings , enhances its presence in the general industrial end markets , expands its portfolio of highly-engineered fastening solutions , and will deliver cost synergies . the results of nelson are being consolidated into the industrial segment . story_separator_special_tag the engineered fastening business is a highly profitable , gdp+ growth business offering highly engineered , value-added innovative solutions with recurring revenue attributes and global scale . the security business , with its attractive recurring revenue , presents a significant margin accretion opportunity over the longer term and has historically provided a stable revenue stream through economic cycles , is a gateway into the digital world and an avenue to capitalize on rapid digital changes . security has embarked on a business transformation which will apply technology to lower its cost to serve and create new offerings for its small to medium enterprise and large key account customers . while diversifying the business portfolio through strategic acquisitions remains important , management recognizes that the core franchises described above are important foundations that continue to provide strong cash flow and growth prospects . management is committed to growing these businesses through innovative product development , brand support , continued investment in emerging markets and a sharp focus on global cost-competitiveness . 26 continuing to invest in the stanley black & decker brands the company has a strong portfolio of brands associated with high-quality products including stanley® , black+decker® , d e walt® , flexvolt® , irwin® , lenox® , craftsman® , porter-cable® , bostitch® , proto® , mac tools® , facom® , aeroscout® , powers® , lista® , sidchrome® , vidmar® , sonitrol® , and gq® . among the company 's most valuable assets , the stanley® , black+decker® and d e walt® brands are recognized as three of the world 's great brands , while the craftsman® brand is recognized as a premier american brand . during 2018 , the stanley® , d e walt® and craftsman® brands had prominent signage in major league baseball ( `` mlb '' ) stadiums appearing in many mlb games . the company has also maintained long-standing nascar and nhra racing sponsorships , which provided brand exposure during nearly 60 events in 2018 with the stanley® , d e walt® , craftsman® , irwin® and mac tools® brands . the company also advertises in the english premier league , which is the number one soccer league in the world , featuring stanley® , stanley security , black+decker® and dewalt® brands to a global audience . starting in 2014 , the company became a sponsor for one of the world 's most popular football clubs , fc barcelona ( `` fcb '' ) , including player image rights , hospitality assets and stadium signage . in 2018 , the company was announced as the first ever shirt sponsor for the fcb women 's team in support of its commitment to global diversity and inclusion . also in 2018 , the company joined forces by sponsoring the envision virgin racing formula e team , in support of the company 's commitment to sustainability and the future of electric mobility . the above marketing initiatives highlight the company 's strong emphasis on brand building and support , which has resulted in more than 300 billion brand impressions via digital and traditional advertising annually and a steady improvement across the spectrum of brand awareness measures . the company will continue allocating its brand and advertising spend wisely to capture the emerging digital landscape , whilst continuing to evolve proven marketing programs to deliver famous global brands that are deeply committed to societal improvement , along with transformative technologies to build relevant and meaningful 1:1 customer , consumer , employee and shareholder relationships in support of the company 's 22/22 vision . the stanley fulfillment system and sfs 2.0 over the years , the company has successfully leveraged sfs to drive efficiency throughout the supply chain and improve working capital performance in order to generate incremental free cash flow . historically , sfs focused on streamlining operations , which helped reduce lead times , realize synergies during acquisition integrations , and mitigate material and energy price inflation . in 2015 , the company launched a refreshed and revitalized sfs operating system , entitled sfs 2.0 , to drive from a more programmatic growth mentality to a true organic growth culture by more deeply embedding breakthrough innovation and commercial excellence into its businesses , and at the same time , becoming a significantly more digitally-enabled enterprise . leveraging sfs 2.0 , the company is building a culture in which it strives to become known as one of the world 's great innovative companies by embracing the current environment of rapid innovation and digital transformation . to pursue faster innovation , the company is building a vast ecosystem to remain aware of and open to new technologies and advances by leveraging both internal initiatives and external partnerships . the innovation ecosystem and focus on digital disruption will allow the company to apply innovation to its core processes in manufacturing and back office functions to reduce operating costs and inefficiencies , develop core and breakthrough product innovations within each of its businesses , and pursue disruptive business models to either push into new markets or change existing business models before competition or new market entrants capture the opportunity . the company has already made progress towards these objectives , as evidenced by the creation of breakthrough innovation teams in each business , the stanley ventures group , which invests capital in new and emerging start-ups in core focus areas , the techstars partnership , which selects start-ups from around the world with the goal of bringing breakthrough manufacturing technologies to market , and a silicon valley based team , which is building its own set of disruptive initiatives and exploring new business models . the company has made a significant commitment to sfs 2.0 and management believes that its success will be characterized by continued organic growth in the 4-6 % range as well as expanded operating margin rates over the next 3 to 5 years as the company leverages the growth and reduces structural sg & a levels .
| results of operations below is a summary of the company 's operating results at the consolidated level , followed by an overview of business segment performance . certain amounts reported in the previous years have been recast as a result of the retrospective adoption of new accounting standards in the first quarter of 2018. refer to note a , significant accounting policies , for further discussion . terminology : the term “ organic ” is utilized to describe results aside from the impacts of foreign currency fluctuations , acquisitions during their initial 12 months of ownership , and divestitures . this ensures appropriate comparability to operating results of prior periods . net sales : net sales were $ 13.982 billion in 2018 compared to $ 12.967 billion in 2017 , representing an increase of 8 % with strong organic growth of 5 % . acquisitions , primarily newell tools and nelson , increased sales by 3 % . tools & storage net sales increased 9 % compared to 2017 due to strong organic growth of 7 % , fueled by solid growth across all regions , and acquisition growth of 2 % . industrial net sales increased 11 % compared to 2017 primarily due to acquisition growth of 9 % and favorable currency of 2 % . security net sales increased 2 % compared to 2017 due to increases of 1 % in price , 3 % in small bolt-on commercial electronic security acquisitions and 1 % in foreign currency , partially offset by declines of 1 % from the sale of the majority of the mechanical security businesses and 2 % from lower volumes . net sales were $ 12.967 billion in 2017 compared to $ 11.594 billion in 2016 , representing an increase of 12 % fueled by strong organic growth of 7 % . acquisitions , primarily newell tools , and foreign currency increased sales by 7 % and 1 % , respectively , while the impact of divestitures decreased sales by 3 % .
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fifty percent ( 50 % ) of each rsu award will vest upon fda approval of an nda for lefamulin , and the remaining fifty percent ( 50 % ) will vest on the one year anniversary of such approval . if the fda does not approve an nda for lefamulin within two years of the grant date , the rsu award will terminate in full . the award of rsus to dr. broom is contingent upon shareholder approval of an amendment to our 2017 share incentive plan . the following table sets forth the number of our ordinary shares issuable upon exercise of the share awards granted to our named executive officers in 2018 : name option award ( # ) rsu award ( # ) colin broom 200,000 67,500 gary story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our historical consolidated financial statements and the related notes thereto appearing 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 and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the `` risk factors '' section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical stage biopharmaceutical company engaged in the research and development of novel anti-infective agents to treat serious infections , with a focus on the pleuromutilin class of antibiotics . we are developing our lead product candidate , lefamulin , to be the first pleuromutilin antibiotic available for systemic administration in humans . we are developing both intravenous , or iv , and oral formulations of lefamulin for the treatment of community-acquired bacterial pneumonia , or cabp and may potentially develop lefamulin for additional indications other than cabp . we initiated the first of two pivotal , international phase 3 clinical trials of lefamulin , which we refer to as lefamulin evaluation against pneumonia 1 , or leap 1 , in september 2015 and initiated the second trial , which we refer to as leap 2 , in april 2016. on september 18 , 2017 , we announced positive top-line results for leap 1. in leap 1 , which enrolled 551 patients , lefamulin met all of the primary endpoints of non-inferiority compared to moxifloxacin with or without linezolid as required by the u.s. food and drug administration , or fda , and european medicines agency , or ema . lefamulin also showed a favorable tolerability profile in the leap 1 trial , with no unexpected safety signals or evidence of off-target activity . we completed patient enrollment of 738 adult patients in leap 2 in december 2017 and expect to have top-line data available from leap 2 in the spring of 2018. if the results of leap 2 are also favorable , including achievement of the primary efficacy endpoints of the trial , we expect to submit a new drug application , or nda , for marketing approval of lefamulin for the treatment of cabp in adults in the united states in the second half of 2018. we also expect to submit a marketing authorization application , or maa , for lefamulin for the treatment of cabp in adults in europe a few months after our nda filing . we believe that pleuromutilin antibiotics can help address the major public health threat posed by bacterial resistance , which the world health organization , or who , characterized in 2017 as one of the biggest threats to human health . increasing resistance to antibiotics used to treat cabp is a growing concern and has become an issue in selecting the appropriate initial antibiotic treatment prior to determining the specific microbiological cause of the infection , referred to as empiric treatment . for example , the u.s. centers for disease control and prevention , or cdc , has classified streptococcus pneumoniae , the most common respiratory pathogen , as a serious threat to human health as a result of increasing resistance to currently available antibiotics . in addition , the cdc recently reported on the growing evidence of widespread resistance to macrolides , widely used antibiotics that disrupt bacterial protein synthesis , in mycoplasma pneumoniae , a common cause of cabp that is associated with significant morbidity and mortality . furthermore , staphylococcus aureus , including methicillin-resistant s. aureus , or mrsa , which has also been designated as a serious threat to human health by the cdc , has emerged as a more common cause of cabp in some regions of the world , and a possible pathogen to be covered with empiric therapy . as a result of increasing resistance to antibiotics and the wide array of potential pathogens that cause cabp , the current standard of care for hospitalized patients with cabp whose treatment is 112 initiated in the hospital usually involves first-line empiric treatment with a combination of antibiotics ( beta-lactams and macrolides ) to address all likely bacterial pathogens or monotherapy with a fluoroquinolone . combination therapy presents the logistical challenge of administering multiple drugs with different dosing regimens , with some drugs available only as iv , and increases the risk of drug-drug interactions and the potential for serious side effects . fluoroquinolones are associated with safety and tolerability concerns , including a relatively high risk for developing clostridium difficile infection and increasing rates of resistance for uropathogens . these concerns have resulted in a decreasing use of flouroquinolones and restriction of their use within a growing number of hospitals . story_separator_special_tag our ability to generate profits from operations and remain profitable depends on our ability to successfully develop and commercialize drugs that generate significant revenue . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . we expect our expenses to increase substantially in connection with our ongoing activities , particularly as we continue the development of and seek marketing approval for lefamulin and , possibly , other product candidates and continue our research activities . our expenses will increase if we suffer any delays in our phase 3 clinical program for lefamulin for cabp , including regulatory delays . if we obtain marketing approval for lefamulin or any other product candidate that we develop , we expect to incur significant commercialization expenses related to product sales , marketing , distribution and manufacturing . based on our current plans , we do not expect to generate significant revenue unless and until we obtain marketing approval for , and commercialize , lefamulin . we do not expect to obtain marketing approval before 2019 , if at all . accordingly , we will need to obtain substantial additional funding in connection with our continuing operations . adequate additional financing may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we could be forced to delay , reduce or eliminate our research and development programs or any future commercialization effort . 114 financial operations overview revenue to date we have not generated any revenues from product sales . and we do not expect to generate any revenue from the sale of products in the near future . we do not expect to generate significant revenue unless and until we obtain marketing approval for , and commercialize , lefamulin . we do not expect to obtain marketing approval before 2019 , if at all . if our development efforts result in clinical success and regulatory approval we may also enter into collaboration agreements with third parties and we may generate revenue from those agreements . our revenue consists principally of governmental research premiums , non-refundable government grants and the benefit of government loans at below-market interest rates , which are more fully described below under `` critical accounting policies . '' research and development expenses research and development expenses represented 74.9 % , 78.0 % and 62.7 % of our total operating expenses for the years ended december 31 , 2015 , 2016 and 2017 , respectively . for each of our research and development programs , we incur both direct and indirect expenses . direct expenses include third party expenses related to these programs such as expenses for manufacturing services , non-clinical and clinical studies and other third party development services . indirect expenses include salaries and related costs , including stock-based compensation , for personnel in research and development functions , infrastructure costs allocated to research and development operations , costs associated with obtaining and maintaining intellectual property associated with our research and development operations , laboratory consumables , consulting fees related to research and development activities and other overhead costs . we utilize our research and development staff and infrastructure resources across multiple programs , and many of our indirect costs historically have not been specifically attributable to a single program . accordingly , we can not state precisely our total indirect costs incurred on a program-by-program basis . the following table summarizes our direct research and development expenses by program and our indirect costs . replace_table_token_22_th we expect to continue to incur research and development expenses in connection with our activities related to our ongoing leap 2 clinical trial of lefamulin for the treatment of cabp , our subsequent nda and maa filings and the pursuit of the clinical development of lefamulin for additional indications and engage in earlier stage research and development activities . it is difficult to estimate the duration and completion costs of our research and development programs . 115 the successful development and commercialization of our product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with product development and commercialization , including the uncertainty of : the scope , progress , costs and results of clinical trials and other research and development activities ; the costs , timing and outcome of regulatory review of our product candidates ; the efficacy and potential advantages of our product candidates compared to alternative treatments , including any standard of care , and our ability to achieve market acceptance for any of our product candidates that receive marketing approval ; the costs and timing of commercialization activities , including product sales , marketing , distribution and manufacturing , for any of our product candidates that receive marketing approval ; and the costs and timing of preparing , filing and prosecuting patent applications , maintaining , enforcing and protecting our intellectual property rights and defending against any intellectual property-related claims . a change in the outcome of any of these variables with respect to the development of our product candidates could result in a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we have completed or currently contemplate will be required for the completion of clinical development of any product candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional resources and time on the completion of clinical development of that product candidate . general and administrative expenses general and administrative expenses represented 25.1 % , 22.0 % and 37.3 % of our total operating expenses for the years ended december 31 , 2015 , 2016 and 2017 , respectively .
| results of operations comparison of years ended december 31 , 2016 and 2017 replace_table_token_23_th revenues revenues , consisting primarily of research premium and grant revenue , decreased by $ 1.2 million from $ 6.5 million for the year ended december 31 , 2016 to $ 5.3 million for the year ended december 31 , 2017. the change was primarily due to a $ 1.4 million decrease in grant revenue from research premiums provided to us by the austrian government as a result of lower applicable research and development expenses , which was offset by a $ 0.2 million increase in grant income . research and development expenses research and development expenses increased by $ 1.6 million from $ 48.0 million for the year ended december 31 , 2016 to $ 49.6 million for the year ended december 31 , 2017. the increase was primarily due to a $ 2.1 million increase in staff costs due to the addition of employees and a $ 1.2 million increase in share-based compensation expense also due to the inclusion of additional employees in our share-based compensation plan , partially offset by a $ 1.5 million decrease in direct costs for purchased services related to the development of lefamulin and a $ 0.2 million decrease of advisory and external consultancy , travel and other expenses .
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the company evaluates the credit worthiness of its customers and exercises judgment to recognize revenue based upon the amount the company expects to be paid for each sales transaction it enters into with its customers . some customer arrangements include variable consideration , such as volume rebates , some of which story_separator_special_tag and results of operations in addition to historical financial information , this discussion of the business of sigmatron international , inc. ( “ sigmatron ” ) , its wholly-owned subsidiaries standard components de mexico s.a. , ablemex , s.a. de c.v. , digital appliance controls de mexico , s.a. de c.v. , spitfire controls ( vietnam ) co. ltd. , spitfire controls ( cayman ) co. ltd. , wholly-owned foreign enterprises wujiang sigmatron electronics co. , ltd. and sigmatron electronic technology co. , ltd. ( collectively , “ sigmatron china ” ) and international procurement office sigmatron taiwan branch ( collectively , the “ company ” ) and other items in this annual report on form 10-k contain forward-looking statements concerning the company 's business or results of operations . words such as “ continue , ” “ anticipate , ” “ will , ” “ expect , ” “ believe , ” “ plan , ” and similar expressions identify forward-looking statements . these forward-looking statements are based on the current expectations of the company . because these forward-looking statements involve risks and uncertainties , the company 's plans , actions and actual results could differ materially . such statements should be evaluated in the context of the risks and uncertainties inherent in the company 's business including , but not necessarily limited to , the company 's continued dependence on certain significant customers ; the continued market acceptance of products and services offered by the company and its customers ; pricing pressures from the company 's customers , suppliers and the market ; the activities of competitors , some of which may have greater financial or other resources than the company ; the variability of our operating results ; the impairment of long-lived asset s ; the variability of our customers ' requirements ; the availability and cost of necessary components and materials ; the ability of the company and our customers to keep current with technological changes within our industries ; regulatory compliance , including conflict minerals ; the continued availability and sufficiency of our credit arrangements ; changes in u.s. , mexican , chinese , vietnamese or taiwanese regulations affecting the company 's business ; the turmoil in the global economy and financial markets ; the stability of the u.s. , mexican , chinese , vietnamese and taiwanese economic , labor and political systems and conditions ; the impacts of tariffs ; currency exchange fluctuations ; and the ability of the company to manage its growth . these and other factors which may affect the company 's future business and results of operations are identified throughout the company 's annual report on form 10-k and as risk factors , may be detailed from time to time in the company 's filings with the securities and exchange commission . these statements speak as of the date of such filings , and the company undertakes no obligation to update such statements in light of future events or otherwise unless required by law . overview the company operates in one business segment as an independent provider of ems , which includes printed circuit board assemblies and completely assembled ( box-build ) electronic products . in connection with the production of assembled products , the company also provides services to its customers , including ( 1 ) automatic and manual assembly and testing of products ; ( 2 ) material sourcing and procurement ; ( 3 ) manufacturing and test engineering support ; ( 4 ) design services ; ( 5 ) warehousing and distribution services ; and ( 6 ) assistance in obtaining product approval from governmental and other regulatory bodies . the company provides these manufacturing services through an international network of facilities located in the united states , mexico , china , vietnam and taiwan . 20 the company relies on numerous third-party suppliers for components used in the company 's production process . certain of these components are available only from single-sources or a limited number of suppliers . in addition , a customer 's specifications may require the company to obtain components from a single-source or a small number of suppliers . in the past twelve months the component marketplace has experienced shortages of various components , which in some cases has delayed delivery of product to customers . the loss of any such suppliers could have a material impact on the company 's results of operations . further , the company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers . the company does not enter into long-term purchase agreements with major or single-source suppliers . the company believes that short-term purchase orders with its suppliers provides flexibility , given that the company 's orders are based on the changing needs of its customers . sales can be a misleading indicator of the company 's financial performance . sales levels can vary considerably among customers and products depending on the type of services ( turnkey versus consignment ) rendered by the company and the demand by customers . consignment orders require the company to perform manufacturing services on components and other materials supplied by a customer , and the company charges only for its labor , overhead and manufacturing costs , plus a profit . in the case of turnkey orders , the company provides , in addition to manufacturing services , the components and other materials used in assembly . turnkey contracts , in general , have a higher dollar volume of sales for each given assembly , owing to inclusion of the cost of components and other materials in net sales and cost of goods sold . story_separator_special_tag for convenience , the company records these inventory reserves against the inventory cost through a contra asset rather than through a new cost basis . upon a subsequent sale or disposal of the impaired inventory , the corresponding reserve is relieved to ensure the cost basis of the inventory reflects any reductions . actual results differing from these estimates could significantly affect the company 's inventories and cost of products sold as the inventory is sold or otherwise relieved . intangible assets - intangible assets are comprised of finite life intangible assets including patents , trade names , backlog , non-compete agreements , and customer relationships . finite life intangible assets are amortized on a straight line basis over their estimated useful lives of 5 years for patents , 20 years for trade names , 1 year for backlog and 7 years for non-compete agreements except for customer relationships which are amortized on an accelerated basis over their estimated useful life of 15 years . impairment of long-lived assets - the company reviews long-lived assets , including amortizable intangible assets , for impairment . property , machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment . if events or changes in circumstances occur that indicate possible impairment , the company first performs an impairment review based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities . this analysis requires management judgment with respect to changes in technology , the continued success of product lines , and future volume , revenue and expense growth rates . if the carrying value exceeds the undiscounted cash flows , the company records an impairment , if any , for the difference between the estimated fair value of the asset group and its carrying value . the company further conducts annual reviews for idle and underutilized equipment , and reviews business plans for possible impairment . in the fourth quarter of fiscal year 2018 , the company determined that the carrying value of the trade name intangible asset was not recoverable and recorded a fourth quarter charge of $ 690,107 for the entire carrying amount . the company 's analysis for fiscal year 2019 did not indicate that any of its other long-lived assets were impaired . 22 income tax - the company 's income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . the company is subject to income taxes in both the u.s. and several foreign jurisdictions . significant judgments and estimates by management are required in determining the consolidated income tax expense assessment . deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities , and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse . in evaluating the company 's ability to recover its deferred tax assets within the jurisdiction from which they arise , the company considers all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations . in projecting future taxable income , the company begins with historical results and changes in accounting policies , and incorporates assumptions including the amount of future state , federal and foreign pre-tax operating income , the reversal of temporary differences , and the implementation of feasible and prudent tax planning strategies . these assumptions require significant judgment and estimates by management about the forecasts of future taxable income and are consistent with the plans and estimates the company uses to manage the underlying businesses . in evaluating the objective evidence that historical results provide , the company considers three years of cumulative operating income and or loss . valuation allowances are established when necessary to reduce deferred income tax assets to an amount more likely than not to be realized . the company 's valuation allowance was $ 1,294,605 and $ 78,100 as of april 30 , 2019 and april 30 , 2018 , respectively . the calculation of the company 's tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across its global operations . changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future . except as noted below , management is not aware of any such changes that would have a material effect on the company 's results of operations , cash flows or financial position . a tax benefit from an uncertain tax position may only be recognized when it is more likely than not that the position will be sustained upon examination , including resolutions of any related appeals or litigation processes , based on the technical merits . the company adjusts its tax liabilities when its judgment changes as a result of the evaluation of new information not previously available . due to the complexity of some of these uncertainties , the ultimate resolution may result in a payment that is materially different from its current estimate of the tax liabilities . these differences will be reflected as increases or decreases to income tax expense in the period in which they are determined . reclassifications - certain reclassifications have been made to the previously reported 2018 financial statements to conform to the 2019 presentation . there was no change to net income . new accounting standards : see note b – summary of significant accounting policies in the consolidated financial statements .
| financing summary . debt and capital lease obligations consisted of the following at april 30 , 2019 and april 30 , 2018 : replace_table_token_2_th notes payable - banks on march 31 , 2017 , the company entered into a $ 35,000,000 senior secured credit facility with u.s. bank , which expires on march 31 , 2022. the credit facility is collateralized by substantially all of the company 's domestically located assets . the facility allows the company to choose among interest rates at which it may borrow funds : the bank fixed rate of five percent or libor plus one and one half percent ( effectively 4.09 % at april 30 , 2019 ) . interest is due monthly . under the senior secured credit facility , the company may borrow up to the lesser of ( i ) $ 35,000,000 or ( ii ) an amount equal to a percentage of the eligible accounts receivable plus a percentage of the eligible inventory ( the “ borrowing base ” ) . on july 16 , 2018 , the company and u.s. bank entered into an amendment of the revolving line of credit under the senior secured credit facility . the amended revolving credit facility allows the company to borrow up to the lesser of ( i ) $ 45,000,000 ( the “ revolving line cap ” ) less reserves or ( ii ) the borrowing base , but no more than 90 % of the company 's revolving line cap , except that the 90 % limitation will expire if the company 's actual revolving loans for 90 consecutive days after the amendment 's effective date are less than 80 % of the company 's borrowing base and the company maintains a fixed charge coverage ratio of 1.2 to 1.0 for four consecutive quarters . the amendment also imposes sublimits on categories of inventory equal to $ 10,500,000 on raw materials , $ 10,000,000 on finished goods and $ 28,000,000 on all eligible inventory .
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story_separator_special_tag management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements , the notes thereto , and other statistical information included in this annual report . executive summary the company offers a wide range of wealth management services to high net worth individuals , families , businesses and select institutions through its three reportable segments : private banking , investment management , and wealth advisory . this executive summary provides an overview of the most significant aspects of our operating segments and the company 's operations in 2013. details of the matters addressed in this summary are provided elsewhere in this document and , in particular , in the sections immediately following . net income attributable to the company was $ 70.5 million for the year ended december 31 , 2013 , compared to net income of $ 53.3 million in 2012 and $ 39.1 million in 2011 . the company recognized diluted earnings per share of $ 0.68 for the year ended december 31 , 2013 , compared to diluted earnings per share of $ 0.61 in 2012 and $ 0.46 in 2011 . key items that affected the company 's 2013 story_separator_special_tag discussion and analysis of financial condition and results of operations - loan portfolio and credit quality. ” 30 deposits at the bank increased $ 198.2 million , or 4 % , to $ 5.2 billion in 2013 from $ 5.0 billion in 2012. a discussion of the company 's deposits can be found below in part ii . item 7 . “ management 's discussion and analysis of financial condition and results of operations - financial condition. ” investment management the following table presents a summary of selected financial data for the investment management segment continuing operations for 2013 , 2012 , and 2011 . replace_table_token_9_th the company 's investment management segment reported net income attributable to the company of $ 5.0 million in the year ended december 31 , 2013 , compared to net income attributable to the company of $ 3.6 million in 2012 and $ 4.2 million in 2011 . the $ 1.5 million , or 41 % , increase in 2013 was primarily due to an increase in investment management fees , partially offset by an increase in operating expenses . the increase in investment management fees was due to additional performance fees related to the increase in aum . aum increased $ 2.0 billion , or 23 % , to $ 10.4 billion at december 31 , 2013 from $ 8.4 billion at december 31 , 2012 . in 2013 , the increase in aum was primarily the result of market appreciation of $ 2.2 billion , partially offset by net outflows of $ 0.3 billion . wealth advisory the following table presents a summary of selected financial data for the wealth advisory segment continuing operations for 2013 , 2012 , and 2011 . replace_table_token_10_th the company 's wealth advisory segment reported net income attributable to the company of $ 6.2 million in the year ended december 31 , 2013 , compared to net income attributable to the company of $ 4.6 million in 2012 and $ 4.5 million 31 in 2011 . the $ 1.6 million , or 36 % , increase in 2013 was due to increased wealth advisory fee revenue offset by increased salaries and employee benefits expense and increased professional services expense . aum increased $ 1.3 billion , or 16 % , to $ 9.3 billion at december 31 , 2013 from $ 8.1 billion at december 31 , 2012 . in 2013 , the increase in aum was primarily the result of market appreciation of $ 1.0 billion and net inflows of $ 0.3 billion . the wealth advisory segment adds fee income to the company 's revenue base that is more resistant to fluctuations in market conditions in comparison to the investment management segment since financial planning fees are typically less correlated to the equity markets . critical accounting policies critical accounting policies are reflective of significant judgments and uncertainties , and could potentially result in materially different results under different assumptions and conditions . the company believes that its most critical accounting policies upon which its financial condition depends , and which involve the most complex or subjective decisions or assessments are as follows : allowance for loan and lease losses the allowance for loan losses ( “ allowance ” ) is an estimate of the inherent risk of loss in the loan portfolio as of the consolidated balance sheet dates . management estimates the level of the allowance based on all relevant information available . changes to the required level in the allowance result in either a provision for loan loss expense , if an increase is required , or a credit to the provision , if a decrease is required . loan losses are charged to the allowance when management believes that the collectability of the loan principal is unlikely . recoveries on loans previously charged-off are credited to the allowance when received in cash . the company 's allowance is accounted for in accordance with guidance issued by various regulatory agencies , including : the federal financial institutions examination council policy statement on the allowance for loan and lease losses ( december 2006 ) ; sec staff accounting bulletin no . 102 , selected loan loss methodology and documentation issues ; the financial accounting standards board ( the “ fasb ” ) accounting standards codification ( “ asc ” ) 310 , receivables ( “ asc 310 ” ) ; and asc 450 , contingencies . the allowance consists of three primary components : general reserves on pass graded loans , allocated reserves on non-impaired special mention and substandard loans , and the allocated reserves on impaired loans . the calculation of the allowance involves a high degree of management judgment and estimates designed to reflect the the inherent risk of loss in the loan portfolio at the measurement date . story_separator_special_tag while this evaluation process utilizes historical and other objective information , the classification of loans and the establishment of the allowance for loan losses rely to a great extent on the judgment and experience of management . while management evaluates currently available information in establishing the allowance for loan losses , future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations . in addition , various regulatory agencies , as an integral part of their examination process , periodically review a financial institution 's allowance for loan losses as well as loan grades/classifications . such agencies may require the financial institution to recognize additions to the allowance or increases to adversely graded loans based on their judgments about information available to them at the time of their examination . valuation of goodwill/intangible assets and analysis for impairment the company allocates the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . other intangible assets identified in acquisitions generally consist of advisory contracts , core deposit intangibles , and non-compete agreements . the value attributed to advisory contracts is based on the time period over which they are expected to generate economic benefits . the advisory contracts are generally amortized over 8-15 years depending on the contract . core deposit intangibles are valued based on the expected longevity of the core deposit accounts and the expected cost savings associated with the use of the existing core deposit base rather than alternative funding sources . the core deposit intangibles are generally amortized , on an accelerated basis , over a period of 10-12 years . the 33 company currently has no core deposit intangibles . non-compete agreements are valued based on the expected receipt of future economic benefits protected by clauses in the non-compete agreements that restrict competitive behavior . non-compete agreements are amortized over the life of the agreement , generally seven years . the company 's non-compete agreements became fully amortized during 2013. other intangible assets with definite lives are tested for impairment at the reporting unit level at least annually in the fourth quarter or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred . the company tests other intangible assets with definite lives for impairment by comparing the carrying amount to the sum of the net undiscounted cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . if the carrying amount of the asset exceeds its net undiscounted cash flows , then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value , determined based upon the discounted value of the expected cash flows generated by the asset . the intangible impairment test is performed at the reporting unit level , and each affiliate is considered a reporting unit for goodwill and intangible impairment testing purposes , if applicable . intangible assets with an indefinite useful economic life are not amortized , but are subject to impairment testing at the reporting unit on an annual basis , or when events or changes in circumstances indicate that the carrying amounts are impaired . the excess of the purchase price for acquisitions over the fair value of the net assets acquired , including other intangible assets , is recorded as goodwill . goodwill is not amortized but is tested for impairment at the reporting unit level , defined as the affiliate level , at least annually in the fourth quarter or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred . goodwill is tested for impairment using a two-step process that begins with an estimation of the fair value of a reporting unit . goodwill impairment exists when a reporting unit 's carrying value of goodwill exceeds its implied fair value . significant judgment is applied when goodwill is assessed for impairment . this judgment includes developing cash flow projections , selecting appropriate discount rates , identifying relevant market comparables , incorporating general economic and market conditions , and selecting an appropriate control premium . the selection and weighting of the various fair value techniques may result in a higher or lower fair value . judgment is applied in determining the weightings that are most representative of fair value . the first step ( “ step 1 ” ) of impairment testing requires a comparison of each reporting unit 's fair value to its carrying value to identify potential impairment . the reporting units fall under one of the three segments : private banking , investment management , and wealth advisory . for the private banking segment , the company utilizes a market approach to determine fair value . for the market approach , earnings and market capitalization multiples of comparable public companies are selected and applied to the private banking reporting unit 's applicable metrics . for the investment management and wealth advisory segments , the company utilizes both the income and market approaches to determine fair value . the income approach is primarily based on discounted cash flows derived from assumptions of income statement activity . for the market approach , earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) and revenue multiples of comparable companies are selected and applied to the financial services reporting unit 's applicable metrics . the aggregate fair values are compared to market capitalization as an assessment of the appropriateness of the fair value measurements . a control premium analysis is performed to determine whether the implied control premium was within range of overall control premiums observed in the market place . the second step ( “ step 2 ” ) of impairment testing is necessary only if a reporting unit 's carrying amount exceeds its fair value .
| results include : ▪ recurring fees and income , which includes investment management fees , wealth advisory fees , private banking wealth management and trust fees , other banking fee income , and gain on sale of loans , net , for the year ended december 31 , 2013 was $ 122.7 million , an increase of $ 13.3 million , or 12 % , from 2012 . the 2013 increase was due to increased fee-based revenue , primarily related to the increase in aum . ▪ the company issued series d preferred stock for net proceeds of $ 47.8 million , and at the same time repurchased all of its series b preferred stock for $ 69.8 million . the repurchase of the series b preferred stock resulted in a deemed dividend , which reduced net income available to common shareholders by $ 11.7 million and diluted eps by $ 0.15 per share . ▪ the company completed the sale of the bank 's pacific northwest offices and recorded a $ 10.6 million pretax gain on the sale . ▪ the company recorded a credit to the provision for loan losses of $ 10.0 million for the year ended december 31 , 2013 , compared to a credit to the provision for loan losses of $ 3.3 million in 2012 . the 2013 credit to the provision for loan losses was primarily due to reductions in criticized loans ; net recoveries in 2013 , compared to net charge offs in 2012 ; partially offset by loan growth during 2013 . ▪ the company recorded total operating expenses of $ 221.4 million for the year ended december 31 , 2013 , compared to total operating expenses of $ 232.5 million in 2012 . the 2012 expenses included restructuring charges of $ 5.9 million primarily related to severance costs for changes made in 2012 to the company 's management structure at the bank and holding company .
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we hatch chicks , grow and maintain flocks of pullets ( young female chickens , under 20 weeks of age ) , layers ( mature female chickens ) and breeders ( male or female birds used to produce fertile eggs to be hatched for egg production flocks ) , manufacture feed , and produce , process and distribute shell eggs . we are the largest producer and marketer of shell eggs in the u.s. we market the majority of our shell eggs in the southwestern , southeastern , mid-western , and mid-atlantic regions of the u.s. we market our shell eggs through our extensive distribution network to a diverse group of customers , including national and regional grocery store chains , club stores , foodservice distributors , and egg product consumers . our operating results are directly tied to egg prices , which are highly volatile and subject to wide fluctuations , and are outside of our control . for example , the urner-barry southeastern regional large egg market price per dozen eggs , annual average , for our fiscal 2004-2014 ranged from a low of $ 0.72 during 2005 to a high of $ 1.43 during fiscal 2014. the shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss . in the past , during periods of high profitability , shell egg producers tended to increase the number of layers in production with a resulting increase in the supply of shell eggs , which generally caused a drop in shell egg prices until supply and demand returned to balance . as a result , our financial results from year to year may vary significantly . shorter term , retail sales of shell eggs historically have been greatest during the fall and winter months and lowest during the summer months . our need for working capital generally is highest in the last and first fiscal quarters ending in may and august , respectively , when egg prices are normally at seasonal lows . prices for shell eggs fluctuate in response to seasonal factors and a natural increase in shell egg production during the spring and early summer . shell egg prices tend to increase with the start of the school year and are highest prior to holiday periods , particularly thanksgiving , christmas , and easter . consequently , we generally experience lower sales and net income in our first and fourth fiscal quarters ending in august and may , respectively . because of the seasonal and quarterly fluctuations , comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons . for fiscal 2014 , we produced approximately 74 % of the total number of shell eggs sold by us , with approximately 5 % of such shell egg production being provided by contract producers . contract producers utilize their facilities in the production of shell eggs by layers owned by us . we own the shell eggs produced under these arrangements . for fiscal 2014 , approximately 26 % of the total number of shell eggs sold by us was purchased from outside producers for resale . our cost of production is materially affected by feed costs , which are highly volatile and subject to wide fluctuations . for fiscal 201 4 , feed costs averaged about 66 % of our total farm egg production cost . changes in market prices for corn and soybean meal , the primary ingredients in the feed we use , result in changes in our cost of goods sold . for example for our last five fiscal years , average feed cost per dozen sold has ranged from a low of $ 0.35 in fiscal 2010 to a high of $ 0.54 in fiscal 2013. the cost of our feed ingredients , which are commodities , are subject to factors over which we have little or no control such as volatile price changes caused by weather , size of harvest , transportation and storage costs , demand and the agricultural and energy policies of the u.s. and foreign governments . favorable weather conditions and improved yields for the 2014 crop should increase available supplies for both corn and soybean meal for fiscal year 2015 , however we expect the outlook for feed prices to remain volatile . the acquisition of our joint venture partner 's 50 % interest in delta egg farm , llc ( “ delta egg ” ) and the purchases of the commercial egg assets of pilgrim 's pride corporation and maxim production co. , inc. as described in note 2 of the notes to the 21 consolidated financial statements are referred to below as the “ acquisitions ” . our fiscal 2014 and 2013 financial results include the operations of delta egg beginning march 1 , 2014 , maxim beginning november 15 , 2012 , and pilgrim 's pride beginning august 10 , 2012 . prior to march 1 , 2014 , our 50 % interest in the earnings of delta egg is included in equity in earnings of affiliates under the equity method of accounting . story_separator_special_tag shell eggs sold through co-pack arrangements represented approximately 25.2 % and 3.9 % , of our shell egg dollar sales , compared to 24.5 % and 3.5 % for the thirteen-week period ended june 1 , 2013 , respectively . for the thirteen-week period ended may 31 , 2014 , specialty shell eggs and specialty shell eggs sold through co-pack arrangements accounted for approximately 18.7 % and 2.9 % of the total shell egg dozen volume , compared to 16.4 % and 2.3 % for the thirteen-week period ended june 1 , 2013 , respectively . the shell egg sales classified as “ other ” represent hard cooked eggs , hatching eggs , and other egg products , which are included with our shell egg operations . egg products are shell eggs that are broken and sold in liquid , frozen , or dried form . story_separator_special_tag as a percent of net sales , selling , general and administrative expense increased from 10.1 % in fiscal 2013 to 10.9 % in fiscal 2014. replace_table_token_8_th 26 selling , general , and administrative expense was $ 43.8 million for the thirteen-week period ended may 31 , 2014 , an increase of $ 13.0 million , or 42.2 % , compared to $ 30.8 million for the thirteen-week period ended june 1 , 2013. excluding the acquisitions , selling , general , and administrative expense for the thirteen-week period ended may 31 , 2014 was $ 3 5.9 million , an increase of $ 7 . 0 million , or 2 4.3 % , compared to $ 28.9 million for the thirteen-week period ended june 1 , 2013. the increase in specialty egg expense for the thirteen-week period ended may 31 , 2014 compared to the same period of fiscal 2013 is attributable to a 16.9 % increase specialty shell egg dozens sold resulting in an increase in advertising promotions and franchise expense . operating income as a result of the above , our operating income was $ 146.1 million for fiscal 2014 , compared to $ 59.6 million for fiscal 2013. operating income as a percent of net sales for fiscal 2014 was 10.1 % , compared to 4.6 % for fiscal 2013. in fiscal 2013 we recorded legal settlement expense of $ 28.0 million related to the settlement reached in the in re processed egg products antitrust litigation . other income ( expense ) total o ther income ( expense ) consists of income ( expenses ) not directly charged to , or related to , operations such as interest expense , royalty income , and patronage income , equity in earnings of affiliates , among other items . total o ther income for fiscal 2014 was $ 15.8 million compared to $ 16.0 million for fiscal 2013. as a percent of net sales , total other income was 1.1 % for fiscal 2014 , compared to 1.2 % for fiscal 2013. patronage income was $ 6.1 million for fiscal 2014 , a decrease of $ 8.2 million , compared to $ 14.3 million for fiscal 2013 primarily due to a decrease in patronage refunds received from eggland 's best , inc. other income , net , increased from $ 2.1 million in fiscal 2013 to $ 8.8 million in fiscal 2014 primarily due to a non-taxable , non-cash gain of $ 4.0 million for the remeasurement of our equity interest in delta egg to the fair value in connection with the purchase of our joint venture partner 's 50 % membership interest on march 1 , 2014 . income taxes for the fiscal year ended may 31 , 2014 , our pre-tax income was $ 161.8 million , compared to $ 75.6 million for fiscal 2013. income tax expense of $ 52.0 million was recorded for fiscal 2014 with an effective income tax rate of 32.1 % , compared to $ 24.8 million for fiscal 201 3 with an effective income tax rate of 32.8 % . included in fiscal 2014 income tax expense are items related to the acquisition of delta egg , which resulted in a $ 3 . 3 million decrease to deferred income tax expense related to the outside basis of our equity investment in delta egg , with a corresponding non-recurring , non-cash $ 1.5 million reduction to income taxes expense on the non-taxable remeasurement gain associated with the acquisition . other items causing our effective rate to differ from the federal statutory income tax rate of 35 % are state income taxes and certain items included in income or loss for financial reporting purposes that are not included in taxable income or loss for income tax purposes , including tax exempt interest income , the domestic manufacturers deduction , and net income or loss attributable to noncontrolling interest . net income attributable to noncontrolling interest net income attributable to noncontrolling interest in aep and tep for fiscal 201 4 was $ 600 ,000 as compared to $ 338 ,000 for fiscal 201 3 . net income attributable to cal-maine foods , inc. as a result of the above , net income for fiscal 201 4 was $ 109.2 million , or $ 4.54 per basic share and $ 4.52 per diluted share , compared to $ 50.4 million , or $ 2.10 per basic and diluted share for fiscal 201 3 . 27 fiscal year ended june 1 , 2013 compared to fiscal year ended june 2 , 2012 net sales in fiscal 2013 , a pproximately 96 % of our net sales consisted of shell egg s , approximately 3 % was for egg products , with the 1 % balance consisting of incidental feed and feed ingredients . net sales for the fiscal year ended june 1 , 2013 were $ 1,288.1 million , an increase of $ 175 million , or 15.7 % , from $ 1,113.1 million for fiscal 2012. in fiscal 2013 total dozens of eggs sold and egg selling prices increased compared to fiscal 2012. in fiscal 2013 total dozens of shell eggs sold were 948.5 million , an increase of 64.2 million dozen , or 7.3 % , compared to 884.3 million sold in fiscal 2012. our average selling price of shell eggs increased from $ 1.205 per dozen for fiscal 2012 to $ 1.301 per dozen for fiscal 2013 , an increase of $ 0.096 per dozen , or 8.0 % . our net average shell egg selling price is the blended price for all sizes and grades of shell eggs , including non-graded shell egg sales , breaking stock and undergrades . our operating results are significantly affected by wholesale shell egg market prices , which are outside of our control . small changes in production or demand levels can have a large effect on shell egg prices .
| results of operations the following table sets forth , for the years indicated , certain items from our consolidated statements of income expressed as a percentage of net sales . percentage of net sales fiscal years ended replace_table_token_3_th executive overview of results – may 31 , 2014 , june 1 , 2013 , and june 2 , 2012 our operating results are significantly affected by wholesale shell egg market prices and feed costs , which can fluctuate widely and are outside of our control . the majority of our shell eggs are sold at prices related to the urner barry spot egg market quotations for the southeastern and southcentral region s of the country , or formulas related to our costs of production which include the cost of corn and soybean meal . the following table shows our net income , net average shell egg selling price , feed cost per dozen produced , and the average urner barry wholesale large shell egg prices in the southeast region , for each of our three most recent fiscal years . replace_table_token_4_th 1- average daily price for the large market ( i.e . generic shell egg ) in the southeastern region the shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss . the periods of high profitability reflect increased consumer demand relative to supply while the periods of significant loss reflect 22 excess supply for the then prevailing consumer demand . historically , demand for shell eggs increases in line with overall population growth . as reflected above , our operating results fluctuate with changes in the spot egg market quote and feed costs . the net average shell egg selling price is the blended price for all sizes and grades of shell eggs , including non-graded shell egg sales , breaking stock and undergrades .
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on september 27 , 2016 , we and gecm entered into the investment management agreement and the administration agreement , and , upon closing the merger , we began to accrue obligations to our external investment manager under those agreements . the investment management agreement renews for successive annual periods , subject to requisite board and or stockholder approvals . we have elected to be treated as a ric for u.s. federal income tax purposes . as a ric , we will not be taxed on our income to the extent that we distribute such income each year and satisfy other applicable income tax requirements . to qualify as a ric , we must , among other things , meet source-of-income and asset diversification requirements and annually distribute to our stockholders generally at least 90 % of our investment company taxable income on a timely basis . if we qualify as a ric , we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders . investments our level of investment activity can and does vary substantially from period to period depending on many factors , including , among others , the amount of debt and equity capital available from other sources to middle-market companies , the level of merger and acquisition activity , pricing in the high yield and leveraged loan credit markets , our expectations of future investment opportunities , the general economic environment as well as the competitive environment for the types of investments we make . as a bdc , our investments and the composition of our portfolio are required to comply with regulatory requirements . see “ regulation as a business development company ” and “ material federal income tax matters. ” revenues we generate revenue primarily from interest on the debt investments that we hold . we may also generate revenue from dividends on the equity investments that we hold , capital gains on the disposition of investments , and lease , fee , and other income . our investments in fixed income instruments generally have an expected maturity of three to five years , although we have no lower or upper constraint on maturity . our debt investments generally pay interest quarterly or semi-annually . payments of principal of our debt investments may be amortized over the stated term of the investment , deferred for several years or due entirely at maturity . in some cases , our debt investments and preferred stock investments may defer payments of cash interest or dividends or pik . in addition , we may generate revenue in the form of prepayment fees , commitment , origination , due diligence fees , end-of-term or exit fees , fees for providing significant managerial assistance , consulting fees and other investment-related income . 52 expenses our primary operating expenses include the payment of a base management fee , administration fees ( including the allocable portion of overhead under the administration agreement ) , and , depending on our operating results , an incentive fee . the base management fee and incentive fee remunerates gecm for work in identifying , evaluating , negotiating , closing and monitoring our investments . the administration agreement provides for reimbursement of costs and expenses incurred for office space rental , office equipment and utilities allocable to us under the administration agreement , as well as certain costs and expenses incurred relating to non-investment advisory , administrative or operating services provided by gecm or its affiliates to us . we also bear all other costs and expenses of our operations and transactions . in addition , our expenses include interest on our outstanding indebtedness . critical accounting policies valuation of portfolio investments we value our portfolio investments at fair value based upon the principles and methods of valuation set forth in policies adopted by our board . fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date . market participants are buyers and sellers in the principal ( or most advantageous ) market for the asset that ( 1 ) are independent of us ; ( 2 ) are knowledgeable , having a reasonable understanding about the asset based on all available information ( including information that might be obtained through due diligence efforts that are usual and customary ) ; ( 3 ) are able to transact for the asset ; and ( 4 ) are willing to transact for the asset ( that is , they are motivated but not forced or otherwise compelled to do so ) . investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent fair value . debt and equity securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value , are valued at fair value using a valuation process consistent with our board-approved policy . our board approves in good faith the valuation of our portfolio as of the end of each quarter . due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value , the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize . in addition , changes in the market environment and other events may impact the market quotations used to value some of our investments . those investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach , an income approach , or both approaches , as appropriate . the market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities ( including a business ) . story_separator_special_tag ( 2 ) includes scheduled principal payments , prepayments , sales , and repayments ( inclusive of those on revolving credit facilities ) . 55 portfolio classification the following table shows the fair value of our portfolio of investments by industry as of december 31 , 2020 and 2019 replace_table_token_6_th 56 story_separator_special_tag ended december 31 , 2020 included a reversal of approximately $ 0.4 million in incentive fees accrued in prior periods . this reversal was primarily attributable to the sale of commercial barge in february 2020 , for which the resulting proceeds did not fully cover the accreted cost of the investment . management fees also decreased for the year ended december 31 , 2020 as compared to the prior year due to decreases in management fee assets during the year . 58 realized gain s ( loss es ) replace_table_token_9_th ( 1 ) the per share amounts are based on a weighted average of 13,309,463 outstanding common shares for the year ended december 31 , 2020 and a weighted average of 10,249,578 outstanding common shares for the year ended december 31 , 2019. during the year ended december 31 , 2020 , net realized losses on investments were primarily driven by the sales of commercial barge , the finance company ( “ tfc ” ) , and full house resorts , inc. ( “ full house ” ) during the period , for which we recognized realized losses of $ 9.8 million , $ 1.4 million , and $ 1.3 million , respectively . these losses were partially offset by realized gains on the early repayment of investments , including $ 1.9 million on our investments in tensar 's first and second lien loans , $ 0.4 million on investment in the duff & phelps revolver , and $ 0.3 million on our investment in asp chromaflo technologies corp. 's second lien loan . realized gains for the year ended december 31 , 2020 also includes approximately $ 1.2 million in realized gain on repurchases of debt below par . during the year ended december 31 , 2019 , we recognized gross realized gains on the sale of our investments in international wire group , inc. ( “ international wire ” ) and michael baker international , llc secured bonds of $ 1.1 million and $ 0.4 million , respectively . in addition , we recognized approximately $ 0.4 million in realized gain due to the acceleration of discount in connection with paydowns . during the year ended december 31 , 2019 , gross realized losses were primarily related to the realized loss of $ 0.8 million on the sale of our investment in sungard availability services capital , inc. secured loan . unrealized appreciation ( depreciation ) on investments replace_table_token_10_th ( 1 ) the per share amounts are based on a weighted average of 13,309,463 outstanding common shares for the year ended december 31 , 2020 and a weighted average of 10,249,578 outstanding common shares for the year ended december 31 , 2019. for the year ended december 31 , 2020 , net unrealized depreciation was largely driven by decreases in portfolio company valuations as compared to the prior year end . most notably , we recognized unrealized depreciation of $ 16.1 million on our investment in avanti 2 nd lien secured bond , approximately $ 8.0 million on our investments in cpk , which went through a restructuring in november , and $ 4.1 million on our investment in davidzon . during the year ended december 31 , 2020 , unrealized appreciation was primarily due to the sales of commercial barge in february and tfc in november , for which we relieved approximately $ 6.3 million and $ 1.2 million , respectively , of unrealized losses on the positions as of december 31 , 2019. in addition , we had unrealized appreciation due to increases in fair value of investments , including $ 3.2 million on investment in crestwood , $ 2.4 million on our investment in prestige , and $ 1.1 million on our investment in aptim corp. 59 for the year ended december 31 , 2019 , net unrealized depreciation was primarily driven by our investments in avanti , commercial barge , tru taj and pfs , for which w e recognized unrealized depreciation of $ 7.9 million , $ 4.7 million , $ 4.2 million and $ 2.1 million , respectively . the net unrealized depreciation for avanti and tru taj are primarily driven by decreases in the fair value of the investment while net unreali zed depreciation for commercial barge reflects both a decrease in the fair value of the investment and increase in the cost basis of the investment as a result of the accretion of discount . during the year ended december 31 , 2019 , we recognized unrealized appreciation of $ 1.0 million and $ 0.4 million as result of the sale of our investments in international wire and sesac , respectively . in addition , we recognized unrealized appreciation of $ 0.7 million , $ 0.6 million and $ 0.5 million as a result of increased fair value of our investments in finastra holdings group , ltd. , subcom , llc , and mitchell international , inc. , respectively . in the table above , the presentation of gross unrealized appreciation and depreciation amounts for the year ended december 31 , 2019 has been updated consistent with the current year presentation which groups the funded and unfunded portion of revolvers together . please see “ item 7. management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the fiscal year ended december 31 , 2019 for a discussion of fiscal year 2018. as discussed under “ —recent developments ” , we can not predict the duration of the covid-19 pandemic and the resulting impact to our individual portfolio companies or the broader market . it is likely that any recovery may be slow and or volatile .
| results of operations this “ —results of operations ” discussion should be read in conjunction with the discussion of ( “ covid-19 ” ) under “ —recent developments—covid 19 ” . investment income replace_table_token_7_th ( 1 ) the per share amounts are based on a weighted average of 13,309,463 outstanding common shares for the year ended december 31 , 2020 and a weighted average of 10,249,578 outstanding common shares for the year ended december 31 , 2019. investment income consists of interest income , including net amortization of premium and accretion of discount on loans and debt securities , dividend income and other income , which primarily consists of amendment fees , commitment fees and funding fees on loans . for the years ended years ended december 31 , 2020 , 2019 and 2018 , income includes non-cash pik income of $ 5.7 million , $ 5.4 million and $ 8.2 million , respectively . the decrease in interest income for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 is primarily due to exits from certain high income-generating positions , such as pe facility solutions , llc ( “ pefs ” ) , and sesac holdco ii llc ( “ sesac ” ) in the third quarter of 2019 and commercial barge line company ( “ commercial barge ” ) in the first quarter of 2020 , as well as general downward trends in the london interbank offered rate ( “ libor ” ) , the primary base rate referenced in our floating rate debt investments . in addition , during the year ended december 31 , 2020 , several investments , including davidzon radio , inc. ( “ davidzon ” ) , pfs holdings corp. ( “ pfs ” ) and california pizza kitchen ( “ cpk ” ) 2nd lien loan , were put on nonaccrual status resulting in lower interest income for the current period than if interest payments had continued per the terms of each respective loan .
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our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under “ risk factors ” and elsewhere in this report . 30 merger with advanced photonix , inc. on may 8 , 2015 , we completed a merger with advanced photonix , inc. ( `` api '' ) , pursuant to the agreement and plan of merger and reorganization ( the `` merger agreement '' ) , dated as of january 30 , 2015 , by and among luna , api and api merger sub , inc. , our wholly owned subsidiary ( `` api merger sub '' ) . in accordance with the terms of the merger agreement , upon the completion of the merger , api merger sub merged with and into api , with api surviving as our wholly-owned subsidiary . in the merger , former api stockholders received 0.31782 shares of our common stock for each share of api common stock they owned at the effective time of the merger . the merger is being accounted for under the acquisition method of accounting in accordance with financial accounting standards board accounting standard topic 805 , business combinations ( `` asc 805 '' ) with luna treated as the accounting acquirer . business overview we are a leader in advanced optical technology , providing unique capabilities in high speed optoelectronics and high performance fiber optic test products for the telecommunications industry and distributed fiber optic sensing for the aerospace and automotive industries . our high-speed optical receiver ( `` hsor '' ) transmission products are deployed in the internet infrastructure to enable the high-speed bandwidth necessary to support video and data . our distributed fiber optic sensing products provide critical stress , strain and temperature information to designers and manufacturers working with advanced materials . our custom optoelectronic products are sold to scientific instrumentation manufacturers for various applications such as metrology , missile guidance , flame monitoring , and temperature sensing . in addition , we provide applied research services , typically under research programs funded by the u.s. government , in areas of advanced materials , sensing , and healthcare applications . our business model is designed to accelerate the process of bringing new and innovative products to market . we use our in-house technical expertise across a range of technologies to perform applied research services for companies and for government funded projects . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . we are organized into two main business segments , our products and licensing segment and our technology development segment . our products and licensing segment develops , manufactures and markets fiber optic sensing products , as well as test & measurement products , and also conducts applied research in the fiber optic sensing area for both corporate and government customers . we are continuing to develop and commercialize our fiber optic technology for strain and temperature sensing applications for the aerospace , automotive , and energy industries . our products and licensing segment revenues represented approximately 72 % and 69 % of our total revenues for the years ended december 31 , 2016 and 2015 , respectively . our technology development segment performs applied research principally in the areas of sensing & instrumentation , advanced materials , and health sciences . our technology development segment comprised approximately 28 % and 31 % of our total revenues for the years ended december 31 , 2016 and 2015 , respectively . most of the government funding for our technology development segment is derived from the small business innovation research ( `` sbir '' ) , program coordinated by the u.s. small business administration ( `` sba '' ) . our technology development segment revenues have historically accounted for a large portion of our total revenues , and we expect that they will continue to represent a significant portion of our total revenues for the foreseeable future . within the technology development segment , we have historically had a backlog of contracts for which work has been scheduled , but for which a specified portion of work has not yet been completed . we define backlog as the dollar amount of obligations payable to us under negotiated contracts upon completion of a specified portion of work that has not yet been completed , exclusive of revenues previously recognized for work already performed under these contracts , if any . total backlog includes funded backlog , which is the amount for which money has been directly authorized by the u.s. government and for which a purchase order has been received by a commercial customer , and unfunded backlog , representing firm orders for which funding has not yet been appropriated . indefinite delivery and quantity contracts and unexercised options are not reported in total backlog . the approximate value of our technology development segment backlog was $ 17.6 million and $ 16.7 million at december 31 , 2016 and 2015 , respectively . the approximate value of our products and licensing segment backlog was $ 10.4 million and $ 10.7 million at december 31 , 2016 and 2015 , respectively . revenues from product sales are mostly derived from the sales of our hsor , optoelectronics , sensing and test & measurement products that make use of light-transmitting optical fibers , or fiber optics . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . although we have been successful in licensing certain technology in past years , we do not expect license revenues to represent a significant portion of future revenues . over time , however , we do intend to gradually increase such revenues . in the near term , we expect revenues from product sales to continue to be primarily in areas associated with our hsor , optoelectronics , fiber optic test & measurement and sensing platforms . story_separator_special_tag in may 2012 , we entered into another loan modification agreement with svb under which we extended the maturity date of the line of credit to may 2014 and adjusted certain covenants . on may 8 , 2015 , we entered into a loan modification agreement with svb to borrow an additional $ 6 million , which we primarily used to repay the previously outstanding loans of api that existed at the time of our merger . on september 29 , 2015 , we entered into another loan modification with svb under which we borrowed an additional $ 1 million to finance specified planned capital expenditures . on december 15 , 2016 , we entered into another loan modification with svb , under which we and svb adjusted specified covenants . at december 31 , 2016 , we had $ 4.3 million outstanding on the term loan . during the years ended december 31 , 2016 and 2015 , interest expense primarily included interest accrued on our outstanding bank credit facilities and interest incurred with respect to our capital lease obligations . critical accounting policies and estimates technology development revenues we perform research and development for u.s. federal government agencies , educational institutions and commercial organizations . we recognize revenue under research contracts when a contract has been executed , the contract price is fixed and determinable , delivery of services or products has occurred , and collectability of the contract price is considered reasonably assured and can be reasonably estimated . revenue is earned under cost reimbursable , time and materials and fixed price contracts . direct contract costs are expensed as incurred . under cost reimbursable contracts , we are reimbursed for costs that are determined to be reasonable , allowable and allocable to the contract and paid a fixed fee representing the profit negotiated between us and the contracting agency . revenue from cost reimbursable contracts is recognized as costs are incurred plus an estimate of applicable fees earned . we consider fixed fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the contract . revenue from time and materials contracts is recognized based on direct labor hours expended at contract billing rates plus other billable direct costs . fixed price contracts may include either a product delivery or specific service performance throughout a period . for fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables , we recognize revenue based on the proportion of the cost of the deliverables compared to the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements . for fixed price contracts that provide for the development and delivery of a specific prototype or product , revenue is recognized based upon the percentage of completion method . our contracts with agencies of the u.s. government are subject to periodic funding by the respective contracting agency . funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided . in evaluating the probability of funding for purposes of assessing collectability of the contract price , we consider our previous experience with our customers , communication with our customers regarding funding status and our knowledge of available funding for the contract or program . if funding is not assessed as probable , revenue recognition is deferred until realization is reasonably assured . contract revenue recognition inherently involves estimation , including the contemplated level of effort to accomplish the tasks under the contract , the cost of the effort and an ongoing assessment of progress toward completing the contract . from time to time , as part of normal management processes , facts may change , causing revisions to estimated total costs or revenues expected . the cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known . 33 the underlying bases for estimating our contract research revenues are measurable expenses , such as labor , subcontractor costs and materials , and data that are updated on a regular basis for purposes of preparing our cost estimates . our research contracts generally have a period of performance of six months to three years , and our estimates of contract costs have historically been consistent with actual results . revisions in these estimates between accounting periods to reflect changing facts and circumstances have not had a material impact on our operating results , and we do not expect future changes in these estimates to be material . whether certain costs under government contracts are allowable is subject to audit by the government . certain indirect costs are charged to contracts using provisional or estimated indirect rates , which are subject to later revision based on government audits of those costs . management is of the opinion that costs subsequently disallowed , if any , would not likely have a significant impact on revenues recognized for those contracts . products and licensing revenues we recognize revenue relating to our product sales when persuasive evidence of an arrangement exists , delivery has occurred , the selling price is fixed or determinable and collectability of the resulting receivable is reasonably assured . for tangible products that contain software that is essential to the tangible product 's functionality , we consider the product and software to be a single unit of accounting and recognize revenue accordingly . we evaluate product sales that are a part of multiple-element revenue arrangements to determine whether separate units of accounting exist , and we follow appropriate revenue recognition policies for each separate unit . for multi-element arrangements we allocate revenue to all significant deliverables based on their relative selling prices .
| results of operations the following table shows information derived from our consolidated statements of operations expressed as a percentage of total revenues for the periods presented . replace_table_token_4_th year ended december 31 , 2016 compared to year ended december 31 , 2015 revenues replace_table_token_5_th our technology development segment revenues increased $ 3.2 million to $ 16.8 million for the year ended december 31 , 2016 compared to $ 13.6 million for the year ended december 31 , 2015 . this increase was attributable primarily to growth in our biomedical and intelligent systems groups . these groups saw a significant increase in the number of active contracts along with an increase in the average revenue per contract . our products and licensing segment revenues increased $ 12.0 million to $ 42.4 million for the year ended december 31 , 2016 compared to $ 30.4 million for the year ended december 31 , 2015 . this increase was due primarily to inclusion of product sales associated with api 's legacy operations for the full year of 2016 compared to the period from the closing of our merger on may 8 , 2015 through december 31 , 2015 for 2015. the increase in product revenue from api 's legacy operations due to inclusion of the full year for 2016 was approximately $ 10.0 million . sales of hsor products for the telecom market and instrumentation for measuring strain in composite materials contributed to the additional increase in product revenues . 36 cost of revenues replace_table_token_6_th our technology development segment costs increased $ 2.3 million , to $ 12.7 million for the year ended december 31 , 2016 compared to $ 10.4 million for the year ended december 31 , 2015 . the overall increase in technology development segment costs was consistent with the rate of growth in technology development segment revenues .
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these commitments are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held-for-sales since the company is exposed to interest rate risk during the period between issuing a loan commitment and the sales of the loan into the secondary market . listed below is a summary of loan commitments , unused lines of credit and standby letters of credit as of december 31 , 2019 and 2018. replace_table_token_42_th there are various contingent liabilities that are not reflected in the consolidated financial statements , including claims and legal actions arising in the ordinary course of business . in the opinion of management , after consultation with legal counsel , the ultimate disposition of these matters is not expected to have a material effect on the company 's consolidated financial condition or results of operations . f- 16 the risk characteristics of each loan portfolio segment are as follows : commercial & industrial and agricultural commercial & industrial and agricultural loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower . the cash flows of borrowers , however , may not be as expected and the collateral securing these loans may fluctuate in value . most commercial loans are secured by the assets being financed or other business assets , such as accounts receivable or inventory , and may include a personal guarantee . short-term loans may be made on an unsecured basis . in the case of loans secured by accounts receivable , the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers . commercial real estate ( owner and nonowner occupied ) commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate . commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan . commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy . the characteristics of properties securing the company 's commercial real estate portfolio are diverse , but with geographic location almost entirely in the company 's market area . management monitors and evaluates commercial real estate loans based on collateral , geography and risk grade criteria . in general , the company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk . in addition , management tracks the level of owner-occupied commercial real estate versus story_separator_special_tag . sb financial group , inc. ( “ sb financial ” ) , is a financial holding company registered with the federal reserve board and subject to regulation under the bank holding company act of 1956 , as amended . through its direct and indirect subsidiaries , sb financial is engaged in commercial and retail banking , wealth management and private client financial services . the following discussion provides a review of the consolidated financial condition and results of operations of sb financial and its subsidiaries ( collectively , the “ company ” ) . this discussion should be read in conjunction with the company 's consolidated financial statements and related footnotes as of and for the years ended december 31 , 2019 and 2018. strategic discussion the focus and strategic goal of the company is to grow into and remain a top decile ( > 90 th percentile ) independent financial services company . the company intends to achieve and maintain that goal by executing our five key initiatives . increase profitability through ongoing diversification of revenue streams : for the twelve months ended december 31 , 2019 , the company generated $ 18.0 million in noninterest income , or 34.1 percent of total operating revenue from fee-based products . these revenue sources include fees generated from saleable residential mortgage loans , retail deposit products , wealth management services , saleable business-based loans ( small business and farm service ) and title agency revenue . for the twelve months ended december 31 , 2018 , the company generated $ 16.6 million in revenue from fee-based products , or 33.3 percent of total operating revenue . strengthen our penetration in all markets served : over our 117-year history of continuous operation in northwest ohio , we have established a significant presence in our traditional markets in defiance , fulton , paulding and williams counties in ohio . in our newer markets of bowling green , columbus , findlay , toledo ( ohio ) and ft. wayne ( indiana ) , our current market penetration is minimal but we believe our potential for growth is significant . we continue to seek to expand this presence and penetration in all of our markets . expand product utilization by new and existing customers : as of december 31 , 2019 , we served 30,377 households and provided 91,154 products and services ( 3.00 products & services per household ) to these households . our strategy is to continue to expand the scope of our relationship with each household via our dynamic “ on-boarding ” process . proactively identifying client needs is a key ingredient of our value proposition . as of december 31 , 2018 , we served 29,562 households and provided 87,202 products and services ( 2.95 products & services per household ) to these households . deliver gains in operational excellence : our management team believes that becoming and remaining a high-performance financial services company will depend upon seamlessly and consistently delivering operational excellence , as demonstrated by the company 's leadership in the origination and servicing of residential mortgage loans . story_separator_special_tag deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in rates on the deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date . 36 changes in financial condition total assets at december 31 , 2019 , were $ 1.04 billion , compared to $ 986.8 million at december 31 , 2018. loans ( excluding loans held for sale ) were $ 825.5 million at december 31 , 2019 , compared to $ 771.9 million at december 31 , 2018. total deposits were $ 840.2 million at december 31 , 2019 , compared to $ 802.6 million at december 31 , 2018. total equity was $ 136.1 million at december 31 , 2019 , up 4.4 percent from $ 130.4 million at december 31 , 2018. net income less dividends increase retained earnings by $ 8.7 million for 2019. replace_table_token_18_th replace_table_token_19_th loans held for investment increased $ 53.6 million , or 7.0 percent , to $ 825.5 million at december 31 , 2019. the largest component of this increase was in commercial real estate loans , which rose $ 26.0 million , followed by commercial business and agriculture loans , which rose $ 23.1 million . deposits increased $ 37.7 million , or 4.7 percent , to $ 840.2 million at december 31 , 2019. deposit growth for the year included $ 13.8 million in noninterest demand deposits and $ 16.3 million in time deposits . stockholders ' equity at december 31 , 2019 , was $ 136.1 million or 13.1 percent of total assets compared to $ 130.4 million or 13.2 percent of total assets at december 31 , 2018 . 37 replace_table_token_20_th nonperforming assets consisting of loans , other real estate owned ( “ oreo ” ) and accruing tdrs totaled $ 6.7 million , or 0.64 percent of total assets at december 31 , 2019 , an increase of $ 2.7 million or 68.4 percent from 2018. net charge offs were down during 2019 , at $ 0.21 million , which was a $ 0.15 million decrease compared to 2018. the company 's loan loss allowance at december 31 , 2019 , now covers nonperforming loans at 137 percent , down from 213 percent at december 31 , 2018. regulatory capital reporting is required for state bank only , as the company is now exempt from quarterly regulatory capital level measurement pursuant to the small bank holding company policy statement . as of december 31 , 2019 , state bank met all regulatory capital levels required to be considered well-capitalized ( see note 15 to the consolidated financial statements ) . earnings summary – 2019 vs. 2018 net income for 2019 was $ 12.0 million , and net income available to common shareholders was $ 11.0 million , or $ 1.51 per diluted share , compared with net income of $ 11.6 million and net income available to common of $ 10.7 million , or $ 1.51 per diluted share , for 2018. state bank reported net income for 2019 of $ 12.5 million , which was down from the $ 12.9 million in net income in 2018. sbfg title reported net income for 2019 of $ 0.3 million . positive results for 2019 included loan growth of $ 53.6 million , and deposit growth of $ 37.7 million . the mortgage banking business line continues to contribute significant revenues , with residential real estate loan production of $ 445.3 million for the year , resulting in $ 8.4 million of revenue from gains on sale . the level of mortgage origination was up from the $ 342.1 million in 2018. the company 's loans serviced for others ended the year at $ 1.2 billion , up from $ 1.1 billion at december 31 , 2018. operating revenue was up compared to the prior year by $ 3.0 million , or 5.9 percent , which is impacted by a $ 1.1 million temporary omsr impairment . our 2019 results include the impact from our two new subsidiaries : sbfg title with net income of $ 0.3 million and sb captive with net income of $ 0.9 million . net interest margin on a fully tax equivalent basis ( “ fte ” ) for 2019 was 3.82 percent , down 13 basis points from 2018. operating expense was up compared to the prior year by $ 2.6 million , or 7.4 percent , due to compensation and fringe benefit cost increases as a result of higher mortgage commission levels . net charge offs for 2019 of $ 0.21 million resulted in a loan loss provision of $ 0.8 million , compared to net charge offs of $ 0.36 million and a $ 0.6 million loan loss provision in 2018 . 38 story_separator_special_tag type : arabic ; name : pageno -- > 41 the company experienced negative cash flows from investing activities in 2019 and 2018. net cash used in investing activities was $ 67.6 and $ 87.6 million for the years ended december 31 , 2019 and 2018 , respectively . the changes for 2019 include the purchase of available-for-sale securities of $ 38.5 million , and net increase in loans of $ 65.5 million . the changes for 2018 include the purchase of available-for-sale securities of $ 29.3 million and net increase in loans of $ 76.5 million . the company had proceeds from repayments , maturities , sales and calls of securities of $ 29.9 and $ 20.2 million in 2019 and 2018 , respectively . the company experienced positive cash flows from financing activities in 2019
| results of operations replace_table_token_21_th 1 operating revenue equals net interest income plus noninterest income . net interest income years ended december 31 , ( $ in thousands ) 2019 2018 % change total net interest income $ 34,826 $ 33,267 4.7 % net interest income was $ 34.8 million for 2019 compared to $ 33.3 million for 2018 , an increase of $ 1.6 million or 4.7 percent . average earning assets increased to $ 915.0 million in 2019 , compared to $ 845.7 million in 2018 , an increase of $ 69.3 million or 8.2 percent due to higher loan volume . the consolidated 2019 full year net interest margin on an fte basis decreased 12 basis points to 3.83 percent compared to 3.95 percent for the full year of 2018. provision for loan losses of $ 0.8 million was taken in 2019 compared to $ 0.6 million taken for 2018. for 2019 , net charge offs totaled $ 0.21 million , or 0.03 percent of average loans . this charge off level was lower than 2018 , in which net charge offs were $ 0.36 million or 0.06 percent of average loans . replace_table_token_22_th 39 total noninterest income was $ 18.0 million for 2019 compared to $ 16.6 million for 2018 , representing an increase of $ 1.4 million , or 8.4 percent , year-over-year . this increase was driven by a 22.5 percent increase in gains on sale of residential real estate loans and the addition of our title agency . the company sold $ 367.3 million of originated mortgages into the secondary market , which allowed our serviced loan portfolio to grow to $ 1.2 billion at december 31 , 2019 from $ 1.1 billion at december 31 , 2018. the higher servicing balance of the portfolio led to the 9.1 percent increase in mortgage loan servicing income .
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” this discussion and analysis contains forward-looking statements that involve risk , uncertainties and assumptions . certain risks , uncertainties and other factors , including but not limited to those set forth under “ forward-looking statements , ” on page 3 of this form 10-k , may cause actual results to differ materially from those projected in the forward-looking statements . financial overview and highlights community west bancshares is a financial services company headquartered in goleta , california that provides full service banking and lending through its wholly-owned subsidiary community west bank ( “ cwb ” ) , which has five california branch banking offices located in goleta , santa barbara , santa maria , ventura and westlake village and a loan production office in san luis obispo . financial result highlights of 2015 net income available to common stockholders for the company of $ 2.6 million , or $ 0.30 per diluted share for 2015 , compared to $ 6.3 million , or $ 0.75 per diluted share for 2014 and $ 7.9 million or $ 0.98 per diluted share for 2013. the significant factors impacting the company during 2015 were : · net income of $ 2.9 million for 2015 compared to a net income of $ 7.0 million for 2014 and $ 9.0 million for 2013 . · net interest margin for the year ended december 31 , 2015 increased to 4.80 % compared to 4.50 % for the year ended 2014 . · the provision ( credit ) for loan losses was ( $ 2.3 million ) for 2015 compared to ( $ 5.1 million ) in 2014 and ( $ 1.9 million ) in 2013 , resulting from reduced loss factors and net charge-offs along with continued improvement in credit quality . net charge-offs ( recoveries ) were ( $ 1.3 million ) for 2015 compared to ( $ 0.8 million ) in 2014 and $ 0.3 million in 2013 . · net nonaccrual loans decreased to $ 5.0 million at december 31 , 2015 , compared to $ 11.0 million at december 31 , 2014 . · allowance for loan losses was $ 6.9 million at december 31 , 2015 , or 1.44 % of total loans held for investment compared to 1.84 % at december 31 , 2014 . · total deposits increased 14.1 % to 544.3 million at december 31 , 2015 , compared to $ 477.1 million a year ago . · total loans increased 9.8 % to $ 543.5 million at december 31 , 2015 compared to $ 495.1 million at december 31 , 2014 . · during 2015 , the company redeemed 7,014 shares of series a preferred stock for $ 6.9 million and recognized discount on the partial redemption of $ 0.1 million . · loan litigation settlement of $ 7.1 million in the second quarter of 2015 . · loan production office opened in san luis obispo , california . the impact to the company from these items , and others of both a positive and negative nature , will be discussed in more detail as they pertain to the company 's overall comparative performance for the year ended december 31 , 2015 throughout the analysis sections of this report . a summary of our results of operations and financial condition and select metrics is included in the following table : replace_table_token_3_th asset quality for all banks and bank holding companies , asset quality plays a significant role in the overall financial condition of the institution and results of operations . the company measures asset quality in terms of nonaccrual loans as a percentage of gross loans , and net charge-offs as a percentage of average loans . net charge-offs are calculated as the difference between charged-off loans and recovery payments received on previously charged-off loans . the following table summarizes these asset quality metrics : 16 index replace_table_token_4_th asset and deposit growth the ability to originate new loans and attract new deposits is fundamental to the company 's asset growth . the company 's assets and liabilities are comprised primarily of loans and deposits . total assets increased to $ 621.2 million at december 31 , 2015 from $ 557.3 million at december 31 , 2014. total loans including net deferred fees and unearned income increased by $ 48.4 million , or 9.8 % , to $ 543.5 million as of december 31 , 2015 compared to december 31 , 2014. total deposits increased to $ 544.3 million as of december 31 , 2015 from $ 477.1 million as of december 31 , 2014. story_separator_special_tag compared to 2014 declined mostly due to one corporate legal matter . accounting and audit fees declined for 2015 compared to 2014 primarily from increased credit quality which resulted in changes to the frequency of external loan review . loan servicing and collection expenses decreased for 2015 compared to 2014 due to improved credit quality and fewer foreclosures . total non-interest expenses for the year ended december 31 , 2014 compared to 2013 decreased by $ 2.1 million , or 9.3 % primarily due to decreased loan collection and related costs as a result of improved credit quality . net ( gain ) loss on sales/write-downs of foreclosed real estate and repossessed assets improved by $ 0.8 million in 2014 compared to 2013 due to improved asset values . the fdic insurance assessment was reduced by $ 0.7 million in 2014 compared to 2013 due to the improvement in the company and release from regulatory agreements . loan servicing and collection expenses declined by $ 0.6 million in 2014 compared to 2013 as the volume of loans in collection and foreclosure declined . salaries and benefits were $ 0.6 million lower in 2014 compared to 2013 mostly due to severance and commissions paid in 2013 when the roseville office was closed . partially offsetting these declined expenses were increased costs associated with professional services of $ 0.3 million mostly from increased legal and consulting expenses . story_separator_special_tag commercial real estate commercial real estate and construction loans are primarily made for the purpose of purchasing , improving or constructing , commercial and industrial properties or single-family residences . this loan category also includes sba 504 loans and land loans . commercial and industrial real estate loans are primarily secured by nonresidential property . office buildings or other commercial property primarily secure these types of loans . loan to appraised value ratios on nonresidential real estate loans are generally restricted to 75 % of appraised value of the underlying real property if occupied by the owner or owner 's business ; otherwise , these loans are generally restricted to 70 % of appraised value of the underlying real property . the company makes real estate construction loans on commercial properties and single family dwellings . these loans are collateralized by first and second trust deeds on real property . construction loans are generally written with terms of six to eighteen months and usually do not exceed a loan to appraised value of 80 % . sba 504 loans are made in conjunction with certified development companies . these loans are granted to purchase or construct real estate or acquire machinery and equipment . the loan is structured with a conventional first trust deed provided by a private lender and a second trust deed which is funded through the sale of debentures . the predominant structure is terms of 10 % down payment , 50 % conventional first loan and 40 % debenture . construction loans of this type must provide additional collateral to reduce the loan-to-value to approximately 75 % . conventional and investor loans are sometimes funded by our secondary-market partners and cwb receives a premium for these transactions . 25 index sba loans sba loans consist of sba 7 ( a ) and business and industry loans ( “ b & i ” ) . the sba 7 ( a ) loan proceeds are used for working capital , machinery and equipment purchases , land and building purposes , leasehold improvements and debt refinancing . at present , the sba guarantees as much as 85 % on loans up to $ 150,000 and 75 % on loans more than $ 150,000. the sba 's maximum exposure amount is $ 3,750,000. the company may sell a portion of the loans , however , under the sba 7 ( a ) loan program ; the company is required to retain a minimum of 5 % of the principal balance of each loan it sells into the secondary market . b & i loans are guaranteed by the u.s. department of agriculture . the maximum guaranteed amount is 80 % for loans of $ 5 million or less . b & i loans are similar to the sba 7 ( a ) loans but are made to businesses in designated rural areas . these loans can also be sold into the secondary market . agricultural loans for real estate and operating lines the company has an agricultural lending program for agricultural land , agricultural operational lines , and agricultural term loans for crops , equipment and livestock . the primary product is supported by guarantees issued from the u.s. department of agriculture ( “ usda ” ) , farm service agency ( “ fsa ” ) , and the usda b & i loan program . the fsa loans typically issue a 90 % guarantee up to $ 1,392,000 ( amount adjusted annually based on inflation ) for up to 40 years . the company had $ 50.5 million of these loans at december 31 , 2015. cwb is an approved federal agricultural mortgage corporation ( “ farmer mac ” ) lender under the farmer mac i and farmer mac ii programs . under the farmer mac i program , loans are sourced by cwb , underwritten , funded and serviced by farmer mac . cwb receives an origination fee and an ongoing field servicing fee for maintaining the relationship with the borrower and performing certain loan compliance monitoring , and other duties as directed by the central servicer . the farmer mac ii program was authorized by congress in 1991 to establish a uniform national secondary market for originators and investors using the usda guaranteed loan programs . under this program , cwb will sell the guaranteed portions of usda loans directly to farmer mac 's subsidiary , farmer mac ii llc , service the loans , and retain the unguaranteed portions of those loans in accordance with the terms of the existing usda guaranteed loan programs . eligible loans include fsa and b & i loans . single family real estate loans until the third quarter of 2015 , the company originated loans that consisted of first and second mortgage loans secured by trust deeds on one-to-four family homes . these loans were made to borrowers for purposes such as purchasing a home , refinancing an existing home , interest rate reduction or home improvement . manufactured housing loans cwb originates loans secured by manufactured homes located in approved mobile home parks along the california coast from san diego to san francisco . the loans are serviced internally and are originated under one of two programs : fixed rate loans written for terms of 10 to 25 years ; and adjustable rate loans written for a terms of 25 to 30 years with the initial interest rates fixed for the first 5 or 10 years and then adjusting annually subject to caps and floors . heloc the bank holds a portfolio of lines of credit collateralized by residential real estate , home equity lines of credit ( “ heloc ” ) , for consumer related purposes . typically , helocs are collateralized by a second deed of trust . the combined loan-to-value , first trust deed and second trust deed , are not to exceed 75 % on all helocs . the bank is not actively originating new helocs . other installment loans installment loans consist of automobile and general-purpose loans made to individuals .
| results of operations the following table sets forth a summary financial overview for the comparable years : replace_table_token_5_th 17 index interest rates and differentials the following table illustrates average yields on interest-earning assets and average rates on interest-bearing liabilities for the periods indicated : replace_table_token_6_th ( 1 ) includes nonaccrual loans . ( 2 ) net interest margin is computed by dividing net interest income by total average earning assets . ( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . 18 index replace_table_token_7_th ( 1 ) includes nonaccrual loans . ( 2 ) net interest margin is computed by dividing net interest income by total average earning assets . ( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . 19 index the table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the company on such assets and liabilities . for purposes of this table , nonaccrual loans have been included in the average loan balances . replace_table_token_8_th ( 1 ) changes due to both volume and rate have been allocated to volume changes . comparison of interest income , interest expense and net interest margin the company 's primary source of revenue is interest income .
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in determining whether an arrangement exists , the company ensures that a written contract is in place , such as a standard insertion order or a customer-specific agreement . the company assesses whether performance story_separator_special_tag this report contains forward-looking statements . these statements relate to future events or our future financial performance . in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ will , ” “ should , ” “ could , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ future , ” “ intend , ” “ seek , ” “ likely , ” “ potential ” or “ continue , ” the negative of such terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . 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 . moreover , neither we , nor any other person , assume responsibility for the accuracy and completeness of the forward-looking statements . except as required by law we are under no obligation to update any of the forward-looking statements after the filing of this annual report to conform such statements to actual results or to changes in our expectations . the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report . readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business , including without limitation the disclosures made in item 1a of part ii of this annual report under the caption “ risk factors. ” risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to : volatility in our revenues and results of operations ; changing conditions in the financial markets ; our ability to generate sufficient revenues to achieve and maintain profitability ; our exposure to credit risk ; the short term nature of our engagements ; the accuracy of our estimates and valuations of inventory or assets in “ guarantee ” based engagements ; competition in the asset management business ; potential losses related to our auction or liquidation engagements ; our dependence on communications , information and other systems and third parties ; potential losses related to purchase transactions in our auction and liquidations business ; the potential loss of financial institution clients ; potential losses from or illiquidity of our proprietary investments ; changing economic and market conditions ; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation ; potential mark-downs in inventory in connection with purchase transactions ; failure to successfully compete in any of our segments ; loss of key personnel ; our ability to borrow under our credit facilities or at-the-market offering as necessary ; failure to comply with the terms of our credit agreements or senior notes ; our ability to meet future capital requirements ; our ability to realize the benefits of our completed acquisitions , including our ability to achieve anticipated opportunities and operating cost savings , and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all ; the diversion of management time on acquisition- related issues ; the failure of our brand investment portfolio licensees to pay us royalties ; and the intense competition to which our brand investment portfolio is subject . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . except as otherwise required by the context , references in this annual report to the “ company , ” “ b . riley , ” “ b . riley financial , ” “ we , ” “ us ” or “ our ” refer to the combined business of b. riley financial , inc. and all of its subsidiaries . overview general b. riley financial , inc. ( nasdaq : rily ) and its subsidiaries provide collaborative financial services and solutions through several operating subsidiaries including : ● b. riley fbr , inc. ( “ b . riley fbr ” ) is a leading , full service investment bank providing financial advisory , corporate finance , research , securities lending and sales and trading services to corporate , institutional and high net worth individual clients . b. riley fbr was formed in november 2017 through the merger of b. riley & co , llc and fbr capital markets & co. ( “ fbr ” ) , which the company acquired in june 2017 ; the name of the combined broker dealer was subsequently changed to b. riley fbr , inc. ● b. riley wealth management , inc. ( “ b . riley wealth management ” ) provides comprehensive wealth management and brokerage services to individuals and families , corporations and non-profit organizations , including qualified retirement plans , trusts , foundations and endowments . b. riley wealth management was formerly wunderlich securities , inc. , which the company acquired on july 3 , 2017 and renamed in june 2018 . story_separator_special_tag on october 11 , 2019 , we closed on the issuance of an additional 300,000 additional depositary shares pursuant to the full exercise of the underwriters ' over-allotment option . the depositary shares were offered pursuant to our september 2019 shelf registration . december 2019 at market issuance sales agreement on december 5 , 2019 , we entered into the december 2019 sales agreement with b. riley fbr , pursuant to which the company may offer and sell , from time to time , up to $ 100,000,000 of december 2019 offered securities . sales of the december 2019 offered securities pursuant to the sales agreement , if any , may be made in transactions that are deemed to be “ at the market offerings ” as defined in rule 415 under the securities act . b. riley fbr is not required to sell any specific number of the december 2019 offered securities , but b. riley fbr will make all sales using commercially reasonable efforts consistent with its normal trading and sales practices on mutually agreed terms between b. riley fbr and the company . under the december 2019 sales agreement , b. riley fbr will be entitled to compensation of up to 2.0 % of the gross proceeds of all december 2019 offered securities sold through it as the company 's agent . 6.375 senior notes due 2025 on february 12 , 2020 , we closed our underwritten public offering of $ 132,250,000 aggregate principal amount of 2025 notes , which included $ 17.25 million of notes issued pursuant to the full exercise by the underwriters of their overallotment option . the offering was conducted pursuant to an underwriting agreement , dated february 10 , 2020 , by and among us and b. riley fbr , as representative of the several underwriters named therein . the 2025 notes were offered pursuant to the september 2019 shelf registration and the company 's registration statement on form s-3 ( registration no . 333-236347 ) filed with the sec and effective on february 10 , 2020. february 2020 shelf registration statement and at market issuance sales agreement on february 14 , 2020 , we filed the february 2020 registration statement , which was declared effective by the sec on february 24 , 2020. contemporaneously , we entered into the february 2020 sales agreement with b. riley fbr , pursuant to which the company may offer and sell , from time to time , up to $ 150,000,000 of february 2020 offered securities . sales of the february 2020 offered securities pursuant to the february 2020 sales agreement , if any , may be made in transactions that are deemed to be “ at the market offerings ” as defined in rule 415 under the securities act . b. riley fbr is not required to sell any specific number of the february 2020 offered securities , but february 2020 will make all sales using commercially reasonable efforts consistent with its normal trading and sales practices on mutually agreed terms between b. riley fbr and the company . under the february 2020 sales agreement , b. riley fbr will be entitled to compensation of up to 2.0 % of the gross proceeds of all february 2020 offered securities sold through it as the company 's agent . 57 acquisition of majority interest in br brand on october 28 , 2019 , the company and the b. riley member completed the acquisition of a majority equity interest in br brand in exchange for ( i ) aggregate consideration of $ 116.5 million in cash and ( ii ) the issuance by the company to bluestar , an affiliate of the manager of br brand , of a warrant to purchase up to 200,000 shares of the company 's common stock , par value $ 0.0001 per share , at an exercise price per share equal to $ 26.24. one-third of the shares of common stock issuable under the warrant vested and became exercisable immediately upon its issuance at the closing , and the remaining two-thirds of such shares of common stock will vest and become exercisable following the first and or second anniversaries of the closing , subject to br brand 's ( or another related joint venture with bluestar ) satisfaction of specified financial performance targets . in connection with the closing , the manager of br brand caused the transfer to br brand of certain trademarks , domain names , license agreements and related assets from existing brand owners . each of the b. riley member and the manager of br brand is , as applicable , subject to certain post-closing obligations to indemnify br brand for breaches of representations or warranties , covenants certain tax liabilities certain pre-closing liabilities . results of operations the following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results . year ended december 31 , 2019 compared to year ended december 31 , 2018 consolidated statements of income ( dollars in thousands ) replace_table_token_5_th n/m - not applicable or not meaningful . 58 revenues the table below and the discussion that follows are based on how we analyze our business . replace_table_token_6_th n/m - not applicable or not meaningful . total revenues increased approximately $ 229.1 million to $ 652.1 million during the year ended december 31 , 2019 from $ 423.0 million during the year ended december 31 , 2018. the increase in revenues during the year ended december 31 , 2019 was primarily due to an increase in revenue from services and fees of $ 182.9 million , an increase in revenue from interest income — loans and securities lending of $ 38.9 million and increase in revenue from sale of goods of $ 7.3 million .
| cash flow summary replace_table_token_15_th year ended december 31 , 2019 compared to year ended december 31 , 2018 cash used in operating activities was $ 30.4 million during the year ended december 31 , 2019 compared to cash used in operating activities of $ 104.8 million during the year ended december 31 , 2018. cash used in operating activities for the year ended december 31 , 2019 included net income of $ 81.9 million adjusted for noncash items of $ 38.0 million and changes in operating assets and liabilities of $ 150.3 million . noncash items of $ 38.0 million include ( a ) depreciation and amortization of $ 19.0 million , ( b ) share-based compensation of $ 15.9 million , ( c ) loss on equity investments of $ 1.4 million , ( d ) provision for doubtful accounts of $ 2.1 million , ( e ) income allocated for mandatorily redeemable noncontrolling interests of $ 1.2 million , ( f ) other noncash interest and other of $ 12.3 million , ( g ) deferred income taxes of $ 10.9 million , and ( h ) impairment of leaseholds , intangibles and lease loss accrual and gain on disposal of fixed assets of $ 0.3 million .
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we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement , whether due to error or fraud story_separator_special_tag overview established in 1891 in northern idaho 's silver valley , we believe we are the oldest operating precious metals mining company in the united states and the largest silver producer in the u.s. our corporate offices are in coeur d'alene , idaho and vancouver , british columbia . our production profile includes : silver , gold , lead , and zinc contained in concentrates shipped to various smelters or sold to brokers ; and doré containing gold and silver , which is further refined before sale of the metals to precious metal traders . our operating properties comprise our five business segments for financial reporting purposes : the greens creek operating unit on admiralty island in alaska , the lucky friday operating unit in idaho , the casa berardi operating unit in quebec , canada , the san sebastian operating unit in durango , mexico , and the nevada operations unit in northern nevada . since our operating mines are located in the u.s. , canada , and mexico , we believe they have low or relatively moderate political risk , and less economic risk than mines located in other parts of the world . our exploration interests are also in the united states , canada , and mexico , and are located in historical mining districts . our operating and strategic framework is based on expanding our production and locating and developing new resource potential . in 2018 , we reported sales of products of $ 567.1 million , which was the third highest in our history , after our record set in 2016 and the second highest in 2017 , in spite of a strike at our lucky friday unit since march 2017. achieved gold production that was the highest in our history , primarily as a result of higher throughput at casa berardi , continued production at san sebastian , and the addition of our nevada operations in july 2018. completed the acquisition of klondex in july 2018 , giving us ownership of a mill , operating mines and other mineral interests in northern nevada ( discussed further below ) . generated $ 94.2 million in net cash flows from operating activities . see the financial liquidity and capital resources section below for further discussion . produced the most gold at our casa berardi unit since its acquisition in 2013 , primarily due to record ore throughput . completed underground development at our san sebastian unit and ramped-up underground production there after it commenced in january 2018 ( discussed further below ) . made capital expenditures ( including lease additions , capitalized interest , and other non-cash items ) of approximately $ 146.5 million , including $ 43.6 million at greens creek , $ 39.8 million at casa berardi , $ 35.7 million at nevada operations , $ 14.2 million at lucky friday , and $ 8.5 million at san sebastian . increased overall proven and probable reserves at december 31 , 2018 , with reserves for silver , gold , zinc and lead increasing by 8 % , 26 % , 11 % and 5 % , respectively , compared to their levels in 2017. the reserves for silver , gold and lead represent the highest levels in our history with , zinc reserves representing the second highest in our history . see item 2. property descriptions for additional information on proven and probable reserves at each of our operating units . 58 performed exploration and pre-development activities during the year , drilling targets at our land packages in alaska , idaho , nevada , british columbia , quebec and mexico . the average realized silver , lead and zinc prices decreased in 2018 to $ 15.63 , $ 1.04 and $ 1.27 , respectively , with the realized gold price increasing slightly to $ 1,265 , from average realized prices of $ 17.23 for silver , $ 1,261 for gold , $ 1.06 for lead , and $ 1.32 for zinc in 2017. average realized prices for all four metals were higher in 2017 compared to their annual averages in 2016 , which were $ 17.16 for silver , $ 1,245 for gold , $ 0.85 for lead , and $ 0.95 for zinc . lead and zinc represent important by-products at our greens creek and lucky friday segments , and gold is also a significant by-product at greens creek and san sebastian . see the story_separator_special_tag unit . also , we drew $ 71 million under our revolving credit facility during 2018 , all of which was repaid during 2018. amounts drawn on the revolving credit facility are subject to a variable rate of interest . see note 7 of notes to consolidated financial statements for more information on our debt arrangements . as discussed in the financial liquidity and capital resources section below , we believe that we will be able to meet the obligations associated with the senior notes , rq notes and amounts drawn on our revolving credit facility ; however , a number of factors could impact our ability to meet the debt obligations and fund our other projects . we strive to achieve excellent mine safety and health performance . we seek to implement this goal by : training employees in safe work practices ; establishing , following and improving safety standards ; investigating accidents , incidents and losses to avoid recurrence ; involving employees in the establishment of safety standards ; and participating in the national mining association 's coresafety program . we attempt to implement reasonable best practices with respect to mine safety and emergency preparedness . we work with the mine safety and health administration ( “ msha ” ) to address issues outlined in investigations and inspections and continue to evaluate our safety practices . story_separator_special_tag berardi of $ 10.9 million in 2018 was higher than $ 7.4 million in 2017 , but lower than $ 13.9 million in 2016. see the greens creek segment , the lucky friday segment , the casa berardi segment , the san sebastian segment and the nevada operations segment sections below . income tax benefit of $ 6.7 million in 2018 compared to income tax provisions of $ 21.0 million in 2017 and $ 28.1 million in 2016. the provision in 2017 included a write-down of u.s. deferred tax assets , mainly due to a change to tax laws under the tax cuts and jobs act enacted in december 2017 , and taxes related to our operations in mexico and quebec , partially offset by a benefit from a change in income tax position recognized in the first quarter of 2017 related to the timing of deduction of # 4 shaft development costs at lucky friday . the provision in 2016 is primarily related to pre-tax net income , partially offset by a decrease in the valuation allowance for u.s. deferred tax assets . see corporate matters and note 6 of notes to consolidated financial statements for more information . suspension costs of $ 20.7 million in 2018 compared to $ 21.3 million in 2017 , with no such activity in 2016 . $ 19.6 million of the costs in 2018 related to suspension at the lucky friday mine resulting from the strike , which started in march 2017 , and included non-cash depreciation expense of $ 5.0 million . the cost for 2018 also included $ 1.1 million related to curtailment of production at the midas mine . all of the costs for 2017 related to lucky friday and included $ 4.2 million for non-cash depreciation . costs related to the acquisition of klondex of $ 10.0 million in 2018 , with no acquisition costs in 2017 and costs for the acquisition of mines management of $ 2.7 million in 2016 . 62 exploration and pre-development expense increased to $ 40.6 million in 2018 from $ 29.0 million in 2017 and $ 17.9 million in 2016. our activity in 2018 included a continuation of exploration work at our greens creek , san sebastian and casa berardi units , and at our other projects in quebec , canada , and our start of exploration at our nevada operations unit acquired in july 2018 . `` pre-development expense '' is defined as costs incurred in the exploration stage that may ultimately benefit production , such as underground ramp development , which are expensed due to the lack of proven and probable reserves . pre-development expense was primarily related to advancement of our montanore and rock creek projects . research and development expense of $ 5.4 million in 2018 compared to $ 3.3 million in 2017 and $ 0.2 million in 2016 , related to evaluation and development of technologies that would be new to our operations . interest expense , net of amounts capitalized , of $ 40.9 million in 2018 compared to $ 38.0 million in 2017 and $ 21.8 million in 2016. the interest is primarily related to our senior notes issued in april 2013 , with the net proceeds used to partially fund the acquisition of aurizon , and additional issuances in 2014 to satisfy the funding requirements for one of our defined benefit pension plans ( see notes 7 and 17 of notes to consolidated financial statements ) . the increase in 2018 and 2017 was primarily due to a reduction in amount capitalized as a result of completion of the # 4 shaft project at lucky friday in january 2017. in addition , interest expense in 2018 included amounts related to the rq notes issued in march 2018 , and interest expense for 2017 included $ 0.9 million in costs related to our proposed private offering of new senior notes in june 2017 and concurrent tender offer to purchase our existing senior notes , which were not completed . gain on disposition of properties , plants , equipment , and mineral interests of $ 2.8 million in 2018 compared to $ 6.0 million in 2017 and $ 0.1 million in 2016. the gains in 2018 and 2017 included $ 4.4 million and $ 7.7 million , respectively , in insurance proceeds related to the collapse of the mill building at the troy mine in february 2017 due to snow . net foreign exchange gain of $ 10.3 million in 2018 compared to losses of $ 9.7 million in 2017 and $ 2.7 million in 2016. as discussed in note 11 of notes to consolidated financial statements , in 2016 we initiated hedging programs to manage our exposure to fluctuations in the exchange rate between the u.s. dollar and canadian dollar and mexican peso and the impact on our future operating costs at our casa berardi and san sebastian units . general and administrative costs , which decreased to $ 36.5 million in 2018 and $ 35.6 million in 2017 from $ 45.0 million in 2016 , primarily due to differences in incentive compensation . net gain on base metal forward contracts of $ 40.3 million in 2018 compared to a net loss of $ 21.3 million in 2017 and gain of $ 4.4 million in 2016. during the third quarter of 2018 , we settled , prior to their maturity date , contracts in a gain position for cash proceeds to us of approximately $ 32.8 million . these gains and losses are related to financially-settled forward contracts on forecasted zinc and lead production as part of a risk management program , and resulted from changes in zinc and lead prices during each period . we do not include silver and gold in this program .
| results of operations section below for a discussion of the factors impacting income applicable to common stockholders for the three years ended december 31 , 2018 , 2017 and 2016. key issues we intend to achieve our long-term objective of generating financial returns , improving operating performance , and expanding our proven and probable reserves by operating , developing and acquiring long-lived , low-cost mines with large land positions in politically stable jurisdictions . our strategic plan requires that we manage multiple challenges and risks inherent in conducting mining , development , exploration and metal sales at multiple locations . one such risk involves metals prices , over which we have no control except , on a limited basis , through the use of derivative contracts . as discussed in the critical accounting estimates section below , metals prices are influenced by a number of factors beyond our control . while we believe global economic and industrial trends could result in continued demand for the metals we produce , prices have been volatile and there can be no assurance that current prices will continue . volatility in global financial markets poses a significant challenge to our ability to access credit and equity markets , should we need to do so , and to predict sales prices for our products . we utilize forward contracts to manage exposure to declines in the prices of silver , gold , zinc and lead contained in our concentrates that have been shipped but have not yet settled , and zinc and lead that we forecast for future concentrate shipments . in addition , we have in place a $ 250 million revolving credit agreement under which approximately $ 199 million was available as of the filing date of this report .
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in some cases , you can identify forward-looking statements by terminology such as estimate , may , might , believe , will , provide , anticipate , future , could , growth , plan , intend , expect , should , would , if , seek , possible , potential , likely or the negative of such terms or comparable terminology . these forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by such forward-looking statements . we caution readers not to place undue reliance on any such forward-looking statements . we have based the forward-looking statements on information available to us on the date of this annual report on form 10-k. except as required by the federal securities laws , we undertake no obligation to revise or update any forward-looking statements , whether as a result of new information , future events or otherwise . you are advised to review any additional disclosures that we may make directly to you or through reports that we in the future may file with the sec , including annual reports on form 10-k , quarterly reports on form 10-q and current reports on form 8-k. the following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included in item 8 of this annual report on form 10-k. historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of operating results for any future periods . overview general we are an externally managed , closed-end , non-diversified management investment company that has elected to be regulated as a business development company under the 1940 act . in addition , for u.s. federal income tax purposes , we have elected to be treated as a ric under subchapter m of the code . as a business development company and a ric , we are also subject to certain constraints , including limitations imposed by the 1940 act and the code . we were incorporated under the general corporation law of the state of delaware on february 18 , 2005. we were established for the purpose of investing in debt and equity securities of established private businesses in the united states ( u.s. ) . debt investments primarily come in the form of three types of loans : senior term loans , senior subordinated loans and junior subordinated debt . equity investments take the form of preferred or common equity ( or warrants or options to acquire the foregoing ) , often in connection with buyouts and other recapitalizations . to a much lesser extent , we also invest in senior and subordinated syndicated loans . our investment objectives are ( a ) to achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses , make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time and ( b ) to provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains . we aim to maintain a portfolio consisting of approximately 80 % debt investment and 20 % equity investment , at cost . we focus on investing in small and medium-sized private u.s. businesses that meet certain criteria , including some but not all of the following : the potential for growth in cash flow , adequate assets for loan collateral , experienced management teams with a significant ownership interest in the borrower , profitable operations based on the borrower 's cash flow , reasonable capitalization of the borrower ( usually by leveraged buyout funds or venture capital funds ) and the potential to realize appreciation and gain liquidity in our equity position , if any . we anticipate that liquidity in our equity position will be achieved through a merger or acquisition of the borrower , a public offering of the borrower 's stock or by exercising our right to require the borrower to repurchase our warrants , though there can be no assurance that we will always have these rights . we lend to borrowers that need funds to finance growth , restructure their balance sheets or effect a change of control . we invest by ourselves or jointly with other funds and or management of the portfolio company , depending on the opportunity . if we are participating in an investment with one or more co-investors , our investment is likely to be smaller than if we were investing alone . our common stock and term preferred stock are traded on the nasdaq global select market ( nasdaq ) under the symbols gain and gainp , respectively . 36 business environment the strength of the global economy , and the u.s. economy in particular , continues to be uncertain and volatile , and we remain cautious about a long-term economic recovery . the recession in general , and the disruptions in the capital markets in particular , have impacted our liquidity options and increased the cost of debt and equity capital . many of our portfolio companies , as well as those that we evaluate for possible investments , are impacted by these economic conditions . if these conditions persist , it may affect their ability to repay our loans or engage in a liquidity event , such as a sale , recapitalization or initial public offering . story_separator_special_tag in circumstances where the failure to meet the 50 % threshold is the result of fluctuations in the value of our assets , including as a result of the sale of assets , we will still be deemed to have satisfied the 50 % threshold and , therefore , maintain our ric status , provided that we have not made any new investments , including additional investments in our existing portfolio companies ( such as advances under outstanding lines of credit ) , since the time that we fell below the 50 % threshold . as of march 31 , 2013 , we satisfied the 50 % threshold primarily through the purchase of short-term qualified securities , which was funded through a short-term loan agreement . subsequent to the march 31 , 2013 , measurement date , the short-term qualified securities matured and we repaid the short-term loan . see recent developments short-term loan for more information regarding this transaction . as of the date of this filing , we are once again below the 50 % threshold . thus , while we currently qualify as a ric despite our recent inability to continuously meet the 50 % threshold and potential inability to do so in the future , if we make any new or additional investments before regaining continuous compliance with the asset diversification test , our ric status could be threatened . if we make a new or additional investment and fail to regain compliance with the 50 % threshold on the next quarterly measurement date following such investment , we will be in non-compliance with the ric rules and will have thirty days to cure our failure to meet the 50 % threshold to avoid the loss of our ric status . potential cures for failure of the asset diversification test include raising additional equity or debt capital , or changing the composition of our assets , which could include full or partial divestitures of investments , such that we would once again exceed the 50 % threshold on a consistent basis . until the composition of our assets satisfies the required 50 % threshold on a consistent basis , we will continue to seek to employ similar purchases of qualified securities using short-term loans that would allow us to satisfy the 50 % threshold , thereby allowing us to make additional investments . there can be no assurance , however , that we will be able to enter into such a transaction on reasonable terms , if at all . we also continue to explore a number of other strategies , including changing the composition of our assets , which could include full or partial divestitures of investments , and raising additional equity or debt capital , such that we would once again exceed the 50 % threshold on a consistent basis . our ability to implement any of these strategies will be subject to market conditions and a number of risks and uncertainties that are , in part , beyond our control . our ability to seek external debt financing , to the extent that it is available under current market conditions , is further subject to the asset coverage limitations of the 1940 act , which require us to have an asset coverage ratio ( as defined in section 18 ( h ) of the 1940 act ) , of at least 200 % on our senior securities representing indebtedness and our senior securities that are stock , which we refer to collectively as senior securities. as of march 31 , 2013 , our asset coverage ratio was 272 % . the ratio is impacted , in part , by our need to obtain a short-term loan at quarter end to satisfy the 50 % threshold for our ric status . between the quarter end measurement dates , when we do not have a short-term loan outstanding , our leverage and asset coverage ratio improve . however , until the composition of our assets is above the required 50 % threshold on a consistent basis , we will have to continue to obtain short-term loans on a quarterly basis . this strategy , while allowing us to satisfy the 50 % threshold for our ric status , limits our ability to use increased debt capital to make new investments , due to our asset coverage ratio limitations under the 1940 act . our common stock offering during fiscal year , was completed , in part , to provide us additional equity capital to help ensure continued compliance with the 200 % asset coverage ratio . story_separator_special_tag style= '' margin-top:18px ; margin-bottom:0px '' > short-term loan for each quarter end since december 31 , 2009 ( the measurement dates ) , we satisfied the 50 % threshold to maintain our status as a ric , in part , through the purchase of short-term qualified securities , which were funded primarily through a short-term loan agreement . subsequent to each of the measurement dates , the short-term qualified securities matured , and we repaid the short-term loan , at which time we again fell below the 50 % threshold . for the march 31 , 2013 measurement date , we purchased $ 65.0 million of short-term united states treasury bills ( t-bills ) through jefferies & company , inc. ( jefferies ) on march 28 , 2013. the t-bills were purchased on margin using $ 7.0 million in cash and the proceeds from a $ 58.0 million short-term loan from jefferies with an effective annual interest rate of approximately 1.42 % . on april 4 , 2013 , when the t-bills matured , we repaid the $ 58.0 million loan from jefferies and received the $ 7.0 million margin payment sent to jefferies to complete the transaction .
| investment highlights during the fiscal year ended march 31 , 2013 , we disbursed $ 68.0 million in new debt and equity investments and extended $ 15.5 million of investments to existing portfolio companies through revolver draws or additions to term notes . from our initial public offering in june 2005 through march 31 , 2013 , we have made 192 investments in 98 companies for a total of approximately $ 800.0 million , before giving effect to principal repayments on investments and divestitures . investment activity during our fiscal year ended march 31 , 2013 , the following significant transaction occurred : in may 2012 , we invested $ 9.5 million in a new affiliate investment , packerland whey products , inc. ( packerland ) , through a combination of debt and equity . packerland is a processor of raw fluid whey , specializing in the production of protein supplements for dairy and beef cattle . in december 2012 , our $ 7.0 million debt investment was paid off at par . in july 2012 , we invested $ 21.3 million in a new control investment , drew foam companies , inc. ( drew foam ) , through a combination of debt and equity . drew foam is an expanded polystyrene foam molder and fabricator for a variety of applications in construction and packaging . in september 2012 , $ 4.0 million of the debt and the line of credit was refinanced with a third-party . in december 2012 , $ 1.8 million of our equity investment was sold to a third-party at cost . in july 2012 , we invested $ 22.5 million in a new control investment , ginsey holdings , inc. ( ginsey ) , through a combination of debt and equity . ginsey designs and markets a broad line of branded juvenile and adult bath products . in august 2012 , we participated out $ 5.0 million of the debt to a third-party .
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the company 's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth below under the heading “ forward looking statements ” and in item 1a of this report under the heading “ risk factors. ” fiscal year 2019 overview the company is a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients , creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical , food , pet food , feed , industrial , fuel , bioenergy and fertilizer industries . with operations on five continents , the company collects and transforms all aspects of animal by-product streams into useable and specialty ingredients , such as collagen , edible fats , feed-grade fats , animal proteins and meals , plasma , pet food ingredients , organic fertilizers , yellow grease , fuel feedstocks , green energy , natural casings and hides . the company also recovers and converts recycled oils ( used cooking oil and animal fats ) into valuable feed and fuel ingredients , and collects and processes residual bakery products into feed ingredients . in addition , the company provides environmental services , such as grease trap collection and disposal services to food service establishments . the company sells its products domestically and internationally and operates within three industry segments : feed ingredients , food ingredients and fuel ingredients . the feed ingredients operating segment includes the company 's global activities related to ( i ) the collection and processing of beef , poultry and pork animal by-products in north america and europe into non-food grade oils and protein meals , ( ii ) the collection and processing of bakery residuals in north america into cookie meal® , which is predominantly used in poultry and swine rations , ( iii ) the collection and processing of used cooking oil in north america into non-food grade fats , ( iv ) the collection and processing of porcine and bovine blood in china , europe , north america and australia into blood plasma powder and hemoglobin , ( v ) the processing of selected portions of slaughtered animals into a variety of meat products for use in pet food in europe and north america , ( vi ) the processing of cattle hides and hog skins in north america , ( vii ) the production of organic fertilizers using protein produced from the company 's animal by-products processing activities in north america and europe , and ( viii ) the rearing and processing of black soldier fly larvae into specialty proteins for use in animal feed and pet food in north america ; and ( ix ) the provision of grease trap services to food service establishments in north america . non-food grade oils and fats produced and marketed by the company are principally sold to third parties to be used as ingredients in animal feed and pet food , as an ingredient for the production of biodiesel and renewable diesel , or to the oleo-chemical industry to be used as an ingredient in a wide variety of industrial applications . protein meals , blood plasma powder and hemoglobin produced and marketed by the company are sold to third parties to be used as ingredients in animal feed , pet food and aquaculture . the food ingredients operating segment includes the company 's global activities related to ( i ) the purchase and processing of beef and pork bone chips , beef hides , pig skins , and fish skins into collagen in europe , china , south america and north america , ( ii ) the collection and processing of porcine and bovine intestines into natural casings in europe , china and north america , ( iii ) the extraction and processing of porcine mucosa into crude heparin in europe , ( iv ) the collection and refining of animal fat into food grade fat in europe , and ( v ) the processing of bones to bone chips for the collagen industry and bone ash in europe . collagens produced and marketed by the company are sold to third parties to be used as ingredients in the pharmaceutical , nutraceutical , food , pet food and technical ( e.g. , photographic ) industries . natural casings produced and marketed by the company are sold to third parties to be used as an ingredient in the production of sausages and other similar food products . the fuel ingredients operating segment includes the company 's global activities related to ( i ) the company 's share of the results of its equity investment in diamond green diesel holdings llc , a joint venture with valero energy corporation ( “ valero ” ) to convert animal fats , recycled greases , used cooking oil , inedible corn oil , soybean oil , or other feedstocks that become economically and commercially viable into renewable diesel ( the “ dgd joint venture ” ) as described in note 2 to the company 's consolidated financial statements for the period ended december 28 , 2019 included herein , ( ii ) the conversion of animal fats and recycled greases into biodiesel in north america , ( iii ) the conversion of organic sludge and food waste into biogas in europe , ( iv ) the collection and conversion of fallen stock and certain animal by-products pursuant to applicable e.u . regulations into low-grade energy sources to be used in industrial applications , and ( v ) the processing of manure into natural bio-phosphate in europe . corporate activities principally includes unallocated corporate overhead expenses , acquisition-related expenses , interest expense net of interest income , and other non-operating income and expenses . page 47 operating performance indicators the company monitors the performance of its business segments using key financial metrics such as results of operations , non-gaap measurements ( adjusted ebitda ) , segment operating income , raw material processed , gross margin percentage , foreign currency translation , and corporate activities . story_separator_special_tag the jacobsen reports industry sales from the prior day 's activity by product . included on the jacobsen are reported prices for finished products such as mbm , pm and feather meal ( “ fm ” ) , hides , bft and yg and corn , which is a substitute commodity for the company 's bbp as well as a range of other branded and value-added products , which are products of the company 's feed ingredients segment . in the u.s. the company regularly monitors the jacobsen for mbm , pm , fm , bft , yg and corn because it provides a daily indication of the company 's u.s. revenue performance against business plan benchmarks . in europe , the company regularly monitors thomson reuters ( “ reuters ” ) to track the competing commodities palm oil and soy meal . although the jacobsen and reuters provide useful metrics of performance , the company 's finished products are commodities that compete with other commodities such as corn , soybean oil , palm oil complex , soybean meal and heating oil on nutritional and functional values . therefore , actual pricing for the company 's finished products , as well as competing products , can be quite volatile . in addition , neither the jacobsen nor reuters provides forward or future period pricing for the company 's commodities . the jacobsen and reuters prices quoted below are for delivery of the finished product at a specified location . although the company 's prices generally move in concert with reported jacobsen and reuters prices , the company 's actual sales prices for its finished products may vary significantly from the jacobsen and reuters because of production and delivery timing differences and because the company 's finished products are delivered to multiple locations in different geographic regions which utilize alternative price indexes . in addition , certain of the company 's premium branded finished products may sell at prices that may be higher than the closest product on the related jacobsen or reuters index . during fiscal year 2019 , the company 's actual sales prices by product trended with the disclosed jacobsen and reuters prices . average jacobsen and reuters prices ( at the specified delivery point ) for fiscal year 2019 , compared to average jacobsen and reuters prices for fiscal year 2018 are : replace_table_token_4_th the following table shows the average jacobsen and reuters prices for the fourth quarter of fiscal year 2019 , compared to the average jacobsen and reuters prices for the third quarter of fiscal year 2019. page 49 replace_table_token_5_th story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; text-indent:48px ; font-size:10pt ; '' > selling , general and administrative expenses . selling , general and administrative expenses were $ 57.9 million during fiscal year 2019 , a $ 12.1 million increase from $ 45.8 million during fiscal year 2018. the increase was primarily due to an increase in corporate related compensation benefits and other corporate expenses . depreciation and amortization . depreciation and amortization charges decreased $ 0.5 million to $ 10.4 million during fiscal year 2019 as compared to $ 10.9 million during fiscal year 2018. the decrease was due to certain of the company 's corporate assets becoming fully depreciated as compared to fiscal year 2018. interest expense . interest expense was $ 78.7 million for fiscal year 2019 , compared to $ 86.4 million for fiscal year 2018 , a decrease of $ 7.7 million . the decrease was primarily due to an interest rate decrease on the company 's euro and u.s. based senior notes , a reduction in deferred loan cost amortization and a reduction in term loan a and term loan b interest due to lower interest rates and lower debt outstanding as compared to fiscal year 2018. debt extinguishment costs . debt extinguishment costs were $ 12.1 million for fiscal year 2019 , compared to $ 23.5 million for fiscal year 2018. the decrease was due to lower tender and redemption premiums and write-off of deferred loan costs on the 5.375 % senior notes as compared to the 4.75 % senior notes extinguished in fiscal year 2018. foreign currency losses . foreign currency losses were $ 1.3 million during fiscal year 2019 , as compared to a loss of approximately $ 6.4 million for fiscal year 2018. the decrease is due primarily to lower losses on the revaluation of non-functional currency liabilities as compared to the same period in fiscal 2018. page 52 gain ( loss ) on disposal of subsidiaries . gain ( loss ) on disposal of subsidiaries represents a gain incurred in fiscal year 2019 on the sale of the company 's trap business in canada and a gain on the sale of a foreign consolidated joint venture in europe . the loss on sale of subsidiaries in fiscal year 2018 represents the loss recorded on the sale of a domestic subsidiary that more than offset a gain recorded on the liquidation of a majority owned foreign joint venture . other income/expense . other expense was $ 6.7 million for fiscal year 2019 , compared to $ 7.6 million in fiscal year 2018. the decrease in other expense was primarily due to an increase in insurance proceeds on fire and casualty losses that more than offset an increase in the non-service cost component of pension expense and a reduction of interest income . equity in net income in investment of other unconsolidated subsidiaries . this primarily represents the company 's pro rata share of the net income from its foreign unconsolidated subsidiaries other than the dgd joint venture that more than offset net losses from a domestic unconsolidated subsidiary . income taxes . the company recorded income tax expense of $ 59.5 million for fiscal year 2019 , compared to $ 12.0 million of income tax expense recorded in fiscal year 2018 , an increase of $ 47.5 million , which was primarily due to an increase in income from operations before income taxes .
| segment results segment operating income for the fiscal year ended december 28 , 2019 was $ 475.8 million , which reflects an increase of $ 220.8 million or 86.6 % as compared to the fiscal year ended december 29 , 2018. replace_table_token_6_th replace_table_token_7_th page 50 feed ingredients segment raw material volume . in fiscal year 2019 , the raw material processed by the company 's feed ingredients segment totaled 8.74 million metric tons . compared to fiscal year 2018 , overall raw material volume processed in the feed ingredients segment increased approximately 1.7 % . sales . during the year ended december 28 , 2019 , net sales for the feed ingredients segment were $ 1,970.6 million as compared to $ 1,952.6 million for the year ended december 29 , 2018 , an increase of approximately $ 18.0 million . net sales for fats were approximately $ 584.3 million and $ 564.7 million for the years ended december 28 , 2019 and december 29 , 2018 , respectively . protein net sales were approximately $ 791.3 million and $ 842.9 million for the years ended december 28 , 2019 and december 29 , 2018 , respectively . other rendering net sales , which include hides , pet food , and service charges , were approximately $ 167.9 million and $ 129.3 million for the years ended december 28 , 2019 and december 29 , 2018 , respectively . total rendering net sales were approximately $ 1,543.5 million and $ 1,536.9 million for the years ended december 28 , 2019 and december 29 , 2018 , respectively . used cooking oil net sales were approximately $ 185.7 million and $ 166.7 million for the years ended december 28 , 2019 and december 29 , 2018 , respectively .
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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 innovative solutions for vascular and coronary disease . our peripheral arterial disease ( “ pad ” ) products , the diamondback 360 ® peripheral orbital atherectomy system ( “ oas ” ) ( “ diamondback 360 peripheral ” ) , the diamondback 360 ® 60cm peripheral oas , the diamondback 360 4 french 1.25 peripheral oas , the diamondback 360 1.50 peripheral oas , and the diamondback 360 2.00 peripheral oas , and the stealth 360 ® peripheral oas ( “ stealth 360 ” ) , are catheter-based platforms capable of treating a broad range of plaque types in leg arteries both above and below the knee and address many of the limitations associated with existing surgical , catheter and pharmacological treatment alternatives . the micro-invasive devices use smaller access sheaths that can provide procedural benefits and allow physicians to treat pad patients in even the small and tortuous vessels located below the knee through alternative access sites in the ankle and foot as well as in the groin . we refer to each of the products above in this report as the “ peripheral oas. ” our coronary arterial disease ( “ cad ” ) product , diamondback 360 ® coronary oas ( “ coronary oas ” ) , is marketed as a treatment for severely calcified coronary arteries . the coronary oas is a catheter-based platform designed to facilitate stent delivery in patients with cad who are acceptable candidates for percutaneous transluminal coronary angioplasty or stenting due to de novo , severely calcified coronary artery lesions . the coronary oas design is similar to technology used in our peripheral oas , customized specifically for the coronary application . from 1989 to 1997 , we engaged in research and development on several different product concepts . since 1997 , we have devoted substantially all of our resources to the development of the peripheral oas and , since 2007 , to the approval of our coronary oas . in 2006 , we obtained an investigational device exemption from the u.s. food and drug administration ( “ fda ” ) to conduct our pivotal oasis pad 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 . 32 in august 2007 , the fda granted us 510 ( k ) clearance for the use of the diamondback 360 peripheral as a therapy in patients with pad . we commenced commercial introduction of the diamondback 360 peripheral 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 no longer market the predator 360. we received 510 ( k ) clearance of the diamondback 360 60cm peripheral oas in march 2014 , in april 2015 , we received 510 ( k ) clearance of the diamondback 360 4 french 1.25 peripheral oas , and in october 2015 , we received 510 ( k ) clearance of the diamondback 360 1.50 and 2.00 peripheral oas . we have developed modified versions of the peripheral oas to treat coronary arteries . a coronary application required us to conduct a clinical trial and file a premarket approval ( “ pma ” ) application , and obtain approval from the fda . in march 2013 , we completed submission of our pma application to the fda for our orbital atherectomy system to treat calcified coronary arteries . in october 2013 , we received pma from the fda to market the coronary oas as a treatment for severely calcified coronary arteries . we commenced a commercial launch of our coronary oas following receipt of pma . we market the peripheral and coronary oas 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 and the single-use catheter used in the peripheral oas with components purchased from third-party suppliers , as well as with components manufactured in-house . supplemental products are purchased from third-party suppliers . in october 2014 , we received ce mark for our stealth 360 device and are currently evaluating the timing and structure of our plans to commercialize our products in europe . in july 2016 , we submitted an application to japan 's pharmaceuticals and medical devices agency ( “ pmda ” ) for approval of our diamondback 360 ® coronary oas micro crown , our second generation coronary device . pending approval , japan would become the first international market for any csi product and would represent a significant milestone for us . we are currently evaluating potential distribution partners in japan . as of june 30 , 2016 , we had an accumulated deficit of $ 327.4 million . we expect our losses to decline as we balance revenue growth with a pathway to profitability and positive cash flow . to date , we have financed our operations primarily from the issuance of common and preferred stock , convertible promissory notes , and debt . financial overview net revenues . we derive substantially all of our revenues from the sale of peripheral oas , the coronary oas and other ancillary products . the peripheral oas and coronary oas each use a disposable , single-use , low-profile catheter that travels over our proprietary viperwire guide wire . the systems use a saline infusion pump as a power supply for the operation of the catheter . additional ancillary products include the viperslide lubricant and vipertrack radiopaque tape . we also had an exclusive distribution agreement with asahi to market its peripheral guide wire line in the united states , which expired in june 2015. cost of goods sold . story_separator_special_tag we have inventories that are principally comprised of capitalized direct labor and manufacturing overhead , raw materials and components , and finished goods . due to the technological nature of our products , there is a risk of obsolescence for 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 analysis of inventory levels , expected product lives , product at risk of expiration , sales levels by product and projections of future sales demand . stock-based compensation . we have stock-based compensation plans , which include stock options , nonvested share awards , and an employee stock purchase plan . we determine the fair value of our option awards using option-pricing models . we determine the fair value of nonvested share awards with market conditions using the monte carlo simulation . fair value of nonvested share awards that vest based upon performance or time conditions is determined by the closing market price of our stock on the date of grant . stock-based compensation expense is recognized ratably over the requisite service period for the awards expected to vest . management 's key assumptions are developed with input from independent third-party valuation advisors . 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 reasonably 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 . 35 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > and $ 12.2 million , respectively , for stock-based compensation , which decreased due to lower than expected attainment of performance based restricted stock award goals . we expect our selling , general and administrative expenses to decrease in fiscal 2017 due to cost management initiatives . research and development expenses . research and development expenses decreased by $ 5.0 million , or 16.3 % , from $ 31.0 million for the year ended june 30 , 2015 to $ 25.9 million for the year ended june 30 , 2016 . research and development expenses relate to the specific projects to develop new products or expand into new markets , such as the development of new versions of our peripheral oas and coronary oas , and ancillary products , and pad and cad clinical studies . the decrease primarily related to the completion of enrollment in several of our clinical studies . research and development expenses for the years ended june 30 , 2016 and 2015 include $ 1.8 million and $ 1.5 million , respectively , for stock-based compensation . we generally expect to incur research and development expenses slightly higher in fiscal 2017 than amounts incurred for the year ended june 30 , 2016 due to timing of projects and studies . fluctuations could occur based on the number of projects and studies and the timing of expenditures . restructuring charges . in march 2016 , we announced a broad-based restructuring to reduce costs as a key part of our plan to balance revenue growth with a pathway to profitability and positive cash flow . as a result , we recorded a restructuring expense of $ 2.4 million during the year ended june 30 , 2016 , which was comprised of severance and other employee related costs . we do not anticipate additional charges related to restructuring activities . legal settlement . on june 28 , 2016 , we entered into a settlement agreement with the united states of america , acting through the united states attorney for the western district of north carolina ( the “ doj ” ) and on behalf of the office of inspector general of the department of health and human services , and travis thams ( the “ relator ” ) , to resolve the previously disclosed investigation by the doj and the qui tam complaint filed by the relator pursuant to the false claims act in the united states district court for the western district of north carolina , charlotte division . we recorded an $ 8.0 million legal settlement expense during the year ended june 30 , 2016. payments will be made as follows : an initial payment of $ 3.0 million , made in july 2016 , with the remaining $ 5.0 million , which bears interest at 1.8 % per annum , payable in 11 equal quarterly installments , beginning january 1 , 2017. comparison of fiscal year ended june 30 , 2015 with fiscal year ended june 30 , 2014 replace_table_token_4_th net revenues . revenues increased by $ 44.9 million , or 32.9 % , from $ 136.6 million for the year ended june 30 , 2014 , to $ 181.5 million for the year ended june 30 , 2015. this increase was primarily attributable to sales of our coronary oas which contributed approximately $ 26.9 million in revenues for the year ended june 30 , 2015 , compared to approximately $ 5.0 million in the year ended june 30 , 2014 following our pma in october 2013. revenues from our peripheral oas also increased $ 19.0 million , or 16.5 % , which reflects 16.7 % more device units sold .
| 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 : comparison of fiscal year ended june 30 , 2016 with fiscal year ended june 30 , 2015 replace_table_token_3_th net revenues . net revenues decreased by $ 3.4 million , or 1.9 % , from $ 181.5 million for the year ended june 30 , 2015 , to $ 178.2 million for the year ended june 30 , 2016 . this decrease was primarily attributable to expiration in june 2015 of our exclusive distribution agreement with asahi to market its peripheral guidewire line in the united states , which contributed approximately $ 7.5 million in sales during the year ended june 30 , 2015. revenues from our peripheral oas decreased $ 6.6 million , or 4.9 % , primarily reflecting a 3.4 % decrease in the average selling prices , as well as a 1.5 % decrease in the number of devices sold , primarily resulting from challenges associated with the expansion of our sales force and the transition to a dual-franchise ( peripheral and coronary ) sales organization . sales of our coronary oas increased approximately $ 9.2 million , or 34.2 % , reflecting 35.2 % more devices sold from the expansion of our customer base . other product revenue decreased $ 6.0 million , or 29.5 % , during the year ended june 30 , 2016 , driven by the absence of sales of the asahi guidewires , partially offset by an increase of $ 1.6 million in other products that support our peripheral oas and coronary oas . currently , all of our revenues are in the united states ; however , we intend to sell internationally in the future and have commenced the process of seeking approval to do so in both europe and japan .
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accrued dividends were $ 18.3 million at december 31 , 2020. prior to june 30 , 2020 , the company accrued its series b preferred stock payments ; the june 30 , september 30 , and december 31 , 2020 payments were made in cash . dividend payments are not deductible in calculating the company 's federal and state income taxes . deferred taxes - covid-19 the cares act was enacted on march 27 , 2020 , in response to the covid-19 emergency . the cares act includes many measures to assist companies , including temporary changes to income and non-income-based tax laws . some of the key income tax-related provisions of the cares act include : eliminating the 80 % of taxable income limitation by allowing corporate entities to fully utilize net operating losses ( “ nols ” ) to offset taxable income in 2018 , 2019 or 2020 allowing nols originating in 2018 , 2019 or 2020 to be carried back five years increasing the net interest expense deduction limit to 50 % of adjusted taxable income from 30 % for tax years beginning 1 january 2019 and 2020 allowing taxpayers with alternative minimum tax ( “ amt ” ) credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years , as originally enacted by the tax cuts and jobs act ( “ tcja ” ) payroll tax deferral the new nol carryforward and interest expense deduction rules are favorable for the company and will help defer future cash tax liabilities . the company has filed an election to refund $ 0.5 million amt credit in april 2020 that was received in the third quarter . the company has also made use of the payroll deferral provision to defer the 6.2 % social security tax , which is approximately $ 13.6 million through december 31 , 2020. this amount is required to be paid at 50 % on each of december 31 , 2021 and december 31 , 2022 . 42 contractual obligations the following table sets forth our contractual obligations and commitments for the periods indicated as of december 31 , 2020 : replace_table_token_10_th ( 1 ) represents the contractual principal payment due dates on our outstanding debt . ( 2 ) includes variable rate interest using december 31 , 2020 rates . ( 3 ) represents the mandatorily redeemable debt - series b preferred with expected redemption date of february 15 , 2025 . ( 4 ) future declared dividends have been included at 12 % but payment determination will be evaluated each quarter resulting in differing accumulated dividend rates . ( 5 ) we have obligations , including associated interest , recognized under various finance leases for equipment totaling $ 60.8 million at december 31 , 2020. net amounts recognized within property , plant and equipment , net in the condensed consolidated balance sheet under these financed lease agreements at december 31 , 2020 totaled $ 72.9 million . ( 6 ) we lease real estate , vehicles , office equipment and certain construction equipment from unrelated parties under non-cancelable leases . lease terms range from month-to-month to terms expiring through 2038. off-balance sheet arrangements as is common in our industry , we have entered into certain off-balance sheet arrangements in the ordinary course of business . our significant off-balance sheet transactions include liabilities associated with letter of credit obligations , surety and performance and payment bonds entered into in the normal course of business , liabilities associated with deferred compensation plans and liabilities associated with certain indemnification and guarantee arrangements . letters of credit and surety bonds in the ordinary course of business , we may be required to post letters of credit and surety bonds to customers in support of performance under certain contracts . such letters of credit are generally issued by a bank or similar financial institution . the letter of credit or surety bond commits the issuer to pay specified amounts to the holder of the letter of credit or surety bond under certain conditions . if the letter of credit or surety bond issuer were required to pay any amount to a holder , we would be required to reimburse the issuer , which , depending upon the circumstances , could result in a charge to earnings . as of december 31 , 2020 and 2019 , we were contingently liable under letters of credit issued under our respective revolving lines of credit in the amount of $ 7.8 million and $ 21.0 million , respectively , related to projects . in addition , as of december 31 , 2020 and 2019 , we had outstanding surety bonds on projects of $ 2.8 billion and $ 2.4 billion . we anticipate that our current bonding capacity will be sufficient for the next twelve months based on current backlog and available capacity . see note 9. commitments and contingencies to our consolidated financial statements for further discussion pertaining to certain of our off-balance sheet arrangements . critical accounting policies and estimates this management 's discussion and analysis of our financial condition and results of operations is based upon iea 's consolidated financial statements included in item 8 , which have been prepared in accordance with gaap . the preparation of these consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes . 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 of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . given that 43 management estimates , by their nature , involve judgments regarding future uncertainties , actual results may differ from these estimates if conditions change or if certain story_separator_special_tag accrued dividends were $ 18.3 million at december 31 , 2020. prior to june 30 , 2020 , the company accrued its series b preferred stock payments ; the june 30 , september 30 , and december 31 , 2020 payments were made in cash . dividend payments are not deductible in calculating the company 's federal and state income taxes . deferred taxes - covid-19 the cares act was enacted on march 27 , 2020 , in response to the covid-19 emergency . the cares act includes many measures to assist companies , including temporary changes to income and non-income-based tax laws . some of the key income tax-related provisions of the cares act include : eliminating the 80 % of taxable income limitation by allowing corporate entities to fully utilize net operating losses ( “ nols ” ) to offset taxable income in 2018 , 2019 or 2020 allowing nols originating in 2018 , 2019 or 2020 to be carried back five years increasing the net interest expense deduction limit to 50 % of adjusted taxable income from 30 % for tax years beginning 1 january 2019 and 2020 allowing taxpayers with alternative minimum tax ( “ amt ” ) credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years , as originally enacted by the tax cuts and jobs act ( “ tcja ” ) payroll tax deferral the new nol carryforward and interest expense deduction rules are favorable for the company and will help defer future cash tax liabilities . the company has filed an election to refund $ 0.5 million amt credit in april 2020 that was received in the third quarter . the company has also made use of the payroll deferral provision to defer the 6.2 % social security tax , which is approximately $ 13.6 million through december 31 , 2020. this amount is required to be paid at 50 % on each of december 31 , 2021 and december 31 , 2022 . 42 contractual obligations the following table sets forth our contractual obligations and commitments for the periods indicated as of december 31 , 2020 : replace_table_token_10_th ( 1 ) represents the contractual principal payment due dates on our outstanding debt . ( 2 ) includes variable rate interest using december 31 , 2020 rates . ( 3 ) represents the mandatorily redeemable debt - series b preferred with expected redemption date of february 15 , 2025 . ( 4 ) future declared dividends have been included at 12 % but payment determination will be evaluated each quarter resulting in differing accumulated dividend rates . ( 5 ) we have obligations , including associated interest , recognized under various finance leases for equipment totaling $ 60.8 million at december 31 , 2020. net amounts recognized within property , plant and equipment , net in the condensed consolidated balance sheet under these financed lease agreements at december 31 , 2020 totaled $ 72.9 million . ( 6 ) we lease real estate , vehicles , office equipment and certain construction equipment from unrelated parties under non-cancelable leases . lease terms range from month-to-month to terms expiring through 2038. off-balance sheet arrangements as is common in our industry , we have entered into certain off-balance sheet arrangements in the ordinary course of business . our significant off-balance sheet transactions include liabilities associated with letter of credit obligations , surety and performance and payment bonds entered into in the normal course of business , liabilities associated with deferred compensation plans and liabilities associated with certain indemnification and guarantee arrangements . letters of credit and surety bonds in the ordinary course of business , we may be required to post letters of credit and surety bonds to customers in support of performance under certain contracts . such letters of credit are generally issued by a bank or similar financial institution . the letter of credit or surety bond commits the issuer to pay specified amounts to the holder of the letter of credit or surety bond under certain conditions . if the letter of credit or surety bond issuer were required to pay any amount to a holder , we would be required to reimburse the issuer , which , depending upon the circumstances , could result in a charge to earnings . as of december 31 , 2020 and 2019 , we were contingently liable under letters of credit issued under our respective revolving lines of credit in the amount of $ 7.8 million and $ 21.0 million , respectively , related to projects . in addition , as of december 31 , 2020 and 2019 , we had outstanding surety bonds on projects of $ 2.8 billion and $ 2.4 billion . we anticipate that our current bonding capacity will be sufficient for the next twelve months based on current backlog and available capacity . see note 9. commitments and contingencies to our consolidated financial statements for further discussion pertaining to certain of our off-balance sheet arrangements . critical accounting policies and estimates this management 's discussion and analysis of our financial condition and results of operations is based upon iea 's consolidated financial statements included in item 8 , which have been prepared in accordance with gaap . the preparation of these consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes . 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 of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . given that 43 management estimates , by their nature , involve judgments regarding future uncertainties , actual results may differ from these estimates if conditions change or if certain
| segment results the company operated our business as two reportable segments : the renewables segment and the specialty civil segment . each of our reportable segments is comprised of similar business units that specialize in services unique to the respective markets that each segment serves . the classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management . our segments may perform services across industries or perform joint services for customers in multiple industries . to determine reportable segment gross profit , certain allocations , including allocations of shared and indirect costs , such as facility costs , equipment costs and indirect operating expenses , were made based on segment revenue . 37 the following table sets forth segment revenues and gross profit for the years indicated , as well as the dollar and percentage change from the prior year : replace_table_token_6_th replace_table_token_7_th renewables segment results revenue . renewables revenue was $ 1,142.8 million for the year ended december 31 , 2020 as compared to $ 834.0 million for 2019 , an increase of 37.0 % , or $ 308.8 million . the increase in revenue was primarily due to an increase in customer demand from the extension of the ptc credit , which increased the number of wind projects in construction during the year , coupled with further increased growth in the solar market during 2020 : the increased customer demand allowed the company to construct 28 projects of greater than $ 5.0 million of revenue in 2020 compared to only 23 projects during 2019 , the average value of the 28 projects was $ 40.1 million in 2020 compared to $ 37.1 million related to the 23 projects during 2019 , and solar revenue increased $ 106.3 million for the year ended december 31 , 2020 when compared to 2019. gross profit .
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