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the amounts , net of related deferred tax liabilities of $ 163,000 and $ 95,000 at march 31 , 2015 and 2014 , respectively , are reflected as a component of accumulated other comprehensive loss within shareholders ' equity . 54 columbus mckinnon corporation notes to consolidated financial statements - ( continued ) ( tabular amounts in thousands , except share data ) 8. property , plant , and equipment consolidated property , plant , and equipment of the company consisted of the following : replace_table_token_19_th buildings include assets recorded under capital leases amounting to $ 4,838,000 and $ 4,779,000 for the years ended march 31 , 2015 and 2014 . story_separator_special_tag this section should be read in conjunction with our consolidated financial statements included elsewhere in this annual report . comments on the results of operations and financial condition below refer to our continuing operations , except in the section entitled โ discontinued operations. โ executive overview we are a leading worldwide designer , manufacturer and marketer of material handling products , systems and services which efficiently and safely move , lift , position and secure material . key products include hoists , actuators , cranes and rigging tools . the company is focused on serving commercial and industrial applications that require the safety and quality provided by the company 's superior design and engineering know-how . founded in 1875 , we have grown to our current size and leadership position through organic growth and acquisitions . we developed our leading market position over our 140-year history by emphasizing technological innovation , manufacturing excellence and superior after-sale service . in addition , acquisitions significantly broadened our product lines and services and expanded our geographic reach , end-user markets and customer base . ongoing initiatives include growing revenue by increasing our penetration of the asian , latin american and european marketplaces , pursuing new products and targeted vertical markets , and by improving our productivity . in accordance with our strategy , we have been investing in our sales and marketing activities , new product development and โ lean โ efforts across the company . shareholder value will be enhanced through continued emphasis on market expansion , customer satisfaction , new product development , manufacturing efficiency , cost containment , and efficient capital investment . during fiscal 2015 , we significantly enhanced our capital structure . we elected to redeem our 7 7/8 % notes . in connection with this , we entered into a new $ 150,000,000 senior secured revolving credit facility and established a new $ 125,000,000 delayed draw senior secured term loan facility effective january 23 , 2015. our previous revolving credit facility was canceled as a result of this transaction . both the revolver and the new term loan have five-year terms maturing in 2020. the proceeds from the new term loan and $ 25,000,000 in cash were used to redeem the 7 7/8 % notes . this refinancing provides additional flexibility to our capital structure by allowing prepayable debt and will significantly reduce our cash interest expense by approximately $ 7,600,000 annually . the cash interest savings are based on a weighted average interest rate of approximately 2.8 % which reflects the company 's policy of maintaining a fixed interest ratio of 50-70 % . additionally , our revenue base is geographically diverse with approximately 42 % derived from customers outside the u.s. for the year ended march 31 , 2015. we believe this will help balance the impact of changes that will occur in local economies as well as benefit the company from growth in emerging markets . as in the past , we monitor both u.s. and eurozone industrial capacity utilization statistics as indicators of anticipated demand for our products . since their june 2009 trough , these statistics have improved . however , over the past year , the eurozone statistics have been relatively flat as the outlook for the eurozone appears to be for low growth in the coming year . in addition , we continue to monitor the potential impact of other global and u.s. trends including industrial production , energy costs , steel price fluctuations , interest rates , foreign currency exchange rates and activity of end-user markets around the globe . from a strategic perspective , we are investing in global markets and new products as we focus on our greatest opportunities for growth . we maintain a strong north american market share with significant leading market positions in hoists , lifting and sling chain , forged attachments and actuators . we seek to maintain and enhance our market share by focusing our sales and marketing activities toward select north american and global market sectors including energy , automotive , heavy oem , entertainment , and construction and infrastructure . regardless of the economic climate and point in the economic cycle , we constantly explore ways to increase our operating margins as well as further improve our productivity and competitiveness . we have specific initiatives related to improved customer satisfaction , reduced defects , shortened lead times , improved inventory turns and on-time deliveries , reduced warranty costs , and improved working capital utilization . the initiatives are being driven by the continued implementation of our โ lean โ efforts which are fundamentally changing our manufacturing and business processes to be more responsive to customer demand and improving on-time delivery and productivity . in addition to โ lean , โ we are working to achieve these strategic initiatives through product simplification , the creation of centers of excellence , and improved supply chain management . we are also aggressively pursuing cost reduction opportunities to enhance future margins . we continuously monitor market prices of steel . we purchase approximately $ 30,000,000 to $ 40,000,000 of steel annually in a variety of forms including rod , wire , bar , structural and others . generally , as we experience fluctuations in our costs , we reflect them as price increases or surcharges to our customers with the goal of being margin neutral . story_separator_special_tag as of march 31 , 2015 , $ 40,122,000 of cash and cash equivalents were held by foreign subsidiaries . through january 23 , 2015 the company had access to borrow funds under a revolving credit facility ( `` replaced revolving credit facility '' ) . the replaced revolving credit facility provided availability up to a maximum of $ 100,000,000 and had an initial term ending october 31 , 2017. through february 19 , 2015 , the company had outstanding $ 150,000,000 principal amount of 7 7/8 % senior subordinated notes due 2019 registered under the securities act of 1933 , as amended ( 7 7/8 % notes ) . on january 23 , 2015 , the company , columbus mckinnon dutch holdings 3 b.v. ( โ bv 3 โ ) , and columbus mckinnon emea gmbh ( โ emea gmbh โ ) as borrowers ( collectively referred to as the `` borrowers '' ) , entered into a new credit agreement ( the `` new credit agreement '' ) . the borrowers entered into a new $ 150,000,000 senior secured revolving credit facility ( `` new revolving credit facility '' ) and established a new $ 125,000,000 delayed draw senior secured term loan facility ( โ term loan โ ) . the company 's replaced revolving credit facility was terminated in connection with this transaction . both the new revolving credit facility and the term loan have five-year terms maturing in 2020. the new revolving credit facility has an initial term ending january 23 , 2020 and the term loan has a term ending february 19 , 2020. the terms of the new credit agreement include the following : term loan : an aggregate $ 125,000,000 secured term loan facility which requires quarterly principal amortization of 2.5 % with the remaining principal due at maturity date . new revolving credit facility : an aggregate $ 150,000,000 secured revolving credit facility which includes sublimits for the issuance of standby letters of credit , swingline loans and multi-currency borrowings in certain specified foreign currencies . fees and interest rates : commitment fees and interest rates are determined on the basis of either a eurocurrency rate or a base rate plus an applicable margin based upon the company 's total leverage ratio ( as defined in the new credit agreement ) . accordion feature : provisions permitting a borrower from time to time to increase the aggregate amount of the credit facility by up to $ 75,000,000 , with a minimum increase of $ 20,000,000 . prepayments : provisions permitting a borrower to voluntarily prepay either the term loan or new revolving credit facility in whole or in part at any time , and provisions requiring certain mandatory prepayments of the term loan or new revolving credit facility on the occurrence of certain events which will permanently reduce the commitments under the new credit agreement , each without premium or penalty . reduction of commitment : a borrower may irrevocably cancel , in whole or in part , the unutilized portion of the commitments under the new credit agreement in excess of any outstanding loans , the stated amount of all outstanding letters of credit and all unreimbursed amounts drawn under any letters of credit . 28 covenants : provisions containing covenants required of the company and its subsidiaries including various affirmative and negative financial and operational covenants . key financial covenants include a minimum fixed charge coverage ratio of 1.25x ; a maximum total leverage ratio , net of cash , of 3.50x ( which may be temporarily increased following a material acquisition , which may be elected two times over the course of the new credit agreement , ( i ) if financed by secured debt the total leverage rate as at the end of the fiscal quarter in which such material acquisition occurs and the three fiscal quarters immediately thereafter , shall not be greater than 4.00:1.00 and as at the end of any fiscal quarter thereafter , the total leverage ratio shall not be greater than 3.50:1.00 , and ( ii ) if financed with unsecured or subordinated indebtedness , the total leverage ratio at the end of the fiscal quarter in which such material acquisition occurs and at the end of any fiscal quarter thereafter , shall not be greater than 4.50:1.00 , and permit the secured leverage ratio , to be greater than 3.25:1.00 ) , and maximum capital expenditures of $ 30 million per fiscal year ( $ 40 million following a material acquisition ) with the ability to transfer any unused portion of expenditure to the immediately following fiscal year . our actual fixed charges coverage ratio and total leverage ratio , as calculated per the terms of our new revolving credit facility , were 0.89x and 4.52x , respectively , at march 31 , 2015. the new revolving credit facility is secured by all u.s. inventory , receivables , equipment , real property , subsidiary stock ( limited to 65 % of non-u.s. subsidiaries ) and intellectual property . the new credit agreement allows , but limits our ability to pay dividends . on february 19 , 2015 , the company borrowed $ 124,442,000 under the term loan . the term loan proceeds were net of fees paid to creditors of $ 558,000 which were accounted for as a debt discount . on february 23 , 2015 the company redeemed all of the outstanding $ 150,000,000 of the 7 7 / 8 % notes . the aggregated price paid for the redemption was $ 156,630,000 , including a 3.938 % call premium or $ 5,907,000 , and $ 723,000 of accrued interest on the 7 7/8 % notes . the redemption was funded by the term loan and cash on hand . the unused portion of the new revolving credit facility totaled $ 143,546,000 net of outstanding borrowings of $ 0 and outstanding letters of credit of $ 6,454,000 as of march 31 , 2015 .
| results of operations fiscal 2015 compared to 2014 fiscal 2015 sales were $ 579,643,000 , down 0.6 % , or $ 3,647,000 compared with fiscal 2014 sales of $ 583,290,000 . sales for the year were positively impacted by $ 6,625,000 of price increases and $ 16,024,000 due to acquisitions . sales for the year were negatively impacted $ 13,453,000 due to a decrease in sales volume . the decline in sales volume was due to weakness in our north american hoist and european operations . unfavorable foreign currency translation impacted sales by $ 12,843,000. our gross profit was $ 181,607,000 and $ 181,048,000 or 31.3 % and 31.0 % of net sales in fiscal 2015 and 2014 , respectively . the fiscal 2015 increase in gross profit of $ 559,000 or 0.3 % is the result of $ 6,625,000 in price increases , $ 4,497,000 due to our recent acquisitions , and $ 573,000 in increased productivity net of other manufacturing cost increases , offset by $ 5,624,000 in decreased volume , $ 1,176,000 in costs associated with the consolidation of two european facilities , $ 794,000 in material inflation , and $ 434,000 in increased product liability costs . foreign currency translation had a unfavorable impact on gross profit of $ 3,108,000. selling expenses were $ 69,819,000 and $ 68,963,000 or 12.0 % and 11.8 % of net sales in fiscal years 2015 and 2014 , respectively . the incremental increase in selling expenses relates to our recent acquisitions resulting in $ 1,344,000 of additional selling expenses as well as additional investments to grow our business in asia and latin america . additionally , foreign currency translation had a $ 2,270,000 favorable impact on selling expenses . general and administrative expenses were $ 54,874,000 and $ 55,754,000 or 9.5 % and 9.6 % of net sales in fiscal 2015 and 2014 , respectively .
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the net amount related to location differentials is reported in โ product sales โ or โ cost of products sold โ on the consolidated statement of operations . revenue recognition revenue for our four operating segments is recognized as follows : terminalling and storage - revenue is recognized for storage contracts based on the contracted monthly tank fixed fee . for throughput contracts , revenue is recognized based on the volume moved through our terminals at the contracted rate . 49 for our tolling agreement , revenue is recognized based on the contracted monthly reservation fee and throughput volumes moved through the facility . when lubricants and drilling fluids are sold by truck or rail , revenue is recognized upon delivering product to the customers as title to the product transfers when the customer physically receives the product . natural gas services - ngl distribution revenue is recognized when product is delivered by truck to our ngl customers , which occurs when the customer physically receives the product . when product is sold in storage , or by pipeline , we recognize ngl distribution revenue when the customer receives the product from either the storage facility or pipeline . sulfur services - revenue from sulfur product sales is recognized when the customer takes title to the product at our plant or the customer facility . revenues from sulfur services is recognized as deliveries are made during each monthly period . marine transportation - revenue is recognized for time charters based on a per day rate . for contracted trips , revenue is recognized upon completion of the particular trip . equity method investments we use the equity method of accounting for investments in unconsolidated entities where the ability to exercise significant influence over such entities exists . investments in unconsolidated entities consist of capital contributions and advances plus the our share of accumulated earnings as of the entities ' latest fiscal year-ends , less capital withdrawals and distributions . investments in excess of the underlying net assets of equity method investees , specifically identifiable to property , plant and equipment , are amortized over the useful life of the related assets . excess investment representing equity method goodwill is not amortized but is evaluated for impairment , annually . under certain provisions of the financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) 350-20 , related to goodwill , this goodwill is not subject to amortization and is accounted for as a component of the investment . equity method investments are subject to impairment under the provisions of asc 323-10 , which relates to the equity method of accounting for investments in common stock . no portion of the net income from these entities is included in our operating income . we own 100 % of the class a and class b equity interests in redbird . redbird , as of december 31 , 2012 and 2011 , owned a 41.28 % and 40.08 % interest in cardinal , respectively . we own an unconsolidated 50 % interest in caliber gathering , llc ( `` caliber '' ) . goodwill goodwill is subject to a fair-value based impairment test on an annual basis , or more often if events or circumstances indicate there may be impairment . we are required to identify our reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities , including the existing goodwill and intangible assets . we are required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit . to the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit , we would be required to perform the second step of the impairment test , as this is an indication that the reporting unit goodwill may be impaired . all four of our โ reporting units โ , terminalling and storage , natural gas services , sulfur services and marine transportation , contain goodwill . we have historically performed our annual impairment testing of goodwill and indefinite-lived intangible assets as of september 30 of each year . during the third quarter of fiscal 2011 , we changed the annual impairment testing date from september 30 to august 31. we believe this change , which represents a change in the method of applying an accounting principle , is preferable in the circumstances as the earlier date provides additional time prior to our quarter-end to complete the goodwill impairment testing and report the results in our quarterly report on form 10-q . we have performed the annual impairment tests as of august 31 , 2012 , august 31 , 2011 , and september 30 , 2010 , and we have determined fair value in each reporting unit based on the weighted average of three valuation techniques : ( i ) the discounted cash flow method ; ( ii ) the guideline public company method ; and ( iii ) the guideline transaction method . at august 31 , 2012 , august 31 , 2011 , and september 30 , 2010 , the estimated fair value of each of our four reporting units was in excess of its carrying value , resulting in no impairment . no triggering events occurred that would cause us to perform an impairment test at either december 31 , 2012 or 2011. significant changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit which could give rise to future impairment . story_separator_special_tag changes to these estimates and assumptions can include , but may not 50 be limited to , varying commodity prices , volume changes and operating costs due to market conditions and or alternative providers of services . environmental liabilities and litigation we have not historically experienced circumstances requiring us to account for environmental remediation obligations . if such circumstances arise , we would estimate remediation obligations utilizing a remediation feasibility study and any other related environmental studies that we may elect to perform . we would record changes to our estimated environmental liability as circumstances change or events occur , such as the issuance of revised orders by governmental bodies or court or other judicial orders and our evaluation of the likelihood and amount of the related eventual liability . because the outcomes of both contingent liabilities and litigation are difficult to predict , when accounting for these situations , significant management judgment is required . amounts paid for contingent liabilities and litigation have not had a materially adverse effect on our operations or financial condition , and we do not anticipate they will in the future . allowance for doubtful accounts in evaluating the collectability of our accounts receivable , we assess a number of factors , including a specific customer 's ability to meet its financial obligations to us , the length of time the receivable has been past due and historical collection experience . based on these assessments , we record specific and general reserves for bad debts to reduce the related receivables to the amount we ultimately expect to collect from customers . our management closely monitors potentially uncollectible accounts . estimates of uncollectible amounts are revised each period , and changes are recorded in the period they become known . if there is a deterioration of a major customer 's creditworthiness or actual defaults are higher than the historical experience , management 's estimates of the recoverability of amounts due us could potentially be adversely affected . these charges have not had a materially adverse effect on our operations or financial condition . asset retirement obligations we recognize and measure our asset and conditional asset retirement obligations and the associated asset retirement cost upon acquisition of the related asset and based upon the estimate of the cost to settle the obligation at its anticipated future date . the obligation is accreted to its estimated future value and the asset retirement cost is depreciated over the estimated life of the asset . estimates of future asset retirement obligations include significant management judgment and are based on projected future retirement costs . such costs could differ significantly when they are incurred . revisions to estimated asset retirement obligations can result from changes in retirement cost estimates due to surface repair , and labor and material costs , revisions to estimated inflation rates and changes in the estimated timing of abandonment . for example , we do not have access to natural gas reserve information related to our gathering systems to estimate when abandonment will occur . our relationship with martin resource management martin resource management directs our business operations through its ownership and control of our general partner and under the omnibus agreement . in addition to the direct expenses , under the omnibus agreement , we are required to reimburse martin resource management for indirect general and administrative and corporate overhead expenses . for the years ended december 31 , 2012 , 2011 and 2010 , the conflicts committee of our general partner approved reimbursement amounts of $ 7.6 million , $ 4.8 million and $ 3.8 million , respectively , reflecting our allocable share of such expenses . the conflicts committee will review and approve future adjustments in the reimbursement amount for indirect expenses , if any , annually . we are required to reimburse martin resource management for all direct expenses it incurs or payments it makes on our behalf or in connection with the operation of our business . martin resource management also licenses certain of its trademarks and trade names to us under the omnibus agreement . we are both an important supplier to and customer of martin resource management . among other things , we sell sulfuric acid and provide marine transportation and terminalling and storage services to martin resource management . we purchase land transportation services , underground storage services , sulfuric acid and marine fuel from martin resource 51 management . all of these services and goods are purchased and sold pursuant to the terms of a number of agreements between us and martin resource management . for a more comprehensive discussion concerning the omnibus agreement and the other agreements that we have entered into with martin resource management , please see โ item 13. certain relationships and related transactions , and director independence โ agreements. โ story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > operating expenses . operating expenses increased $ 0.6 million , or 19 % , for the year ended december 31 , 2012 compared to the same period of 2011. this is primarily due to increased pipeline maintenance expenses of $ 0.2 million and increased compensation expense of $ 0.2 million . selling , general and administrative expenses . selling , general and administrative expenses increased $ 2.4 million , or 126 % , for the year ended december 31 , 2012 , as compared to the same period of 2011. this is primarily due to increased compensation expense of $ 1.4 million and an increase in bad debt expense of $ 0.7 million . depreciation and amortization . depreciation and amortization remained consistent for the year ended december 31 , 2012 , as compared to the same period of 2011. in summary , our natural gas services operating income increased $ 7.7 million , or 122 % , for the year ended december 31 , 2012 , compared to the same period of 2011. sulfur services
| results of operations the results of operations for the years ended december 31 , 2012 , 2011 , and 2010 have been derived from our consolidated financial statements . we evaluate segment performance on the basis of operating income , which is derived by subtracting cost of products sold , operating expenses , selling , general and administrative expenses , and depreciation and amortization expense from revenues . the following table sets forth our operating revenues and operating income by segment for the years ended december 31 , 2012 , 2011 , and 2010 . the natural gas services segment information below excludes the discontinued operations of the prism assets for all periods . replace_table_token_7_th 52 our results of operations are discussed on a comparative basis below . there are certain items of income and expense which we do not allocate on a segment basis . these items , including equity in earnings ( loss ) of unconsolidated entities , interest expense , and indirect selling , general and administrative expenses , are discussed after the comparative discussion of our results within each segment . year ended december 31 , 2012 compared to year ended december 31 , 2011 our total revenues before eliminations were $ 1,498.1 million for the year ended december 31 , 2012 compared to $ 1,253.9 million for the year ended december 31 , 2011 an increase of $ 244.2 million , or 19 % . our operating income before eliminations was $ 73.8 million for the year ended december 31 , 2012 compared to $ 47.4 million for the year ended december 31 , 2011 an increase of $ 26.4 million , or 56 % . the results of operations are described in greater detail on a segment basis below . terminalling and storage segment the following table summarizes our results of operations in our terminalling and storage segment . replace_table_token_8_th revenues .
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the company utilizes various estimates , processes and information to determine the as-if vacant property value . estimates of value are made using customary methods , including data from appraisals , comparable sales , discounted cash flow analysis and other methods . amounts allocated to land , land improvements , buildings and fixtures are based on cost segregation studies performed by independent third parties or on the company 's analysis of comparable properties in the company 's portfolio . identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates and the value of in-place leases as applicable . factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property , taking into account current market conditions and costs to execute similar leases . in estimating carrying costs , the company includes real estate taxes , insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period , which typically ranges from six to 24 months . the company also estimates costs to execute similar leases including leasing commissions , legal and other related expenses . above-market and below-market lease values for acquired properties are initially recorded based on the present value ( using a discount rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to each in-place lease and ( ii ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases . the capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining terms of the respective leases story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements . the following information contains forward-looking statements , which are subject to risks and uncertainties . should one or more of these risks or uncertainties materialize , actual results may differ materially from those expressed or implied by the forward-looking statements . please see โ forward-looking statements โ elsewhere in this report for a description of these risks and uncertainties . overview we are a diversified reit focused on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution related commercial real estate properties in the u.s. we own a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant properties that are net leased to investment grade and other creditworthy tenants and , as a result of the merger , a portfolio of retail properties consisting primarily of power centers and lifestyle centers . we intend to focus our future acquisitions primarily on net leased retail properties . as of december 31 , 2018 , we owned 626 properties , comprised of 19.1 million rentable square feet , which were 94.7 % leased , including 593 of net leased commercial properties ( 554 which are retail properties ) , representing 64 % of annualized rental income on straight-line basis , and 33 retail properties which were acquired in the merger . as of december 31 , 2017 , we owned 505 of net leased commercial properties , representing 61 % of annualized rental income on straight-line basis . we are a maryland corporation , incorporated on january 22 , 2013 , that elected to be taxed as a reit beginning with the taxable year ended december 31 , 2013. substantially all of our business is conducted through the op and its wholly-owned subsidiaries . on the listing date , we listed shares of our common stock , which had been renamed โ class a common stock โ in connection with a series of corporate actions effected earlier in july 2018 , on the nasdaq under the symbol โ afin. โ related to the listing , we incurred fees of $ 5.0 million for the year ended december 31 , 2018 for financial advisory and other transaction related costs . to effect the listing , and to address the potential for selling pressure that may have existed at the outset of listing , we listed only shares of our class a common stock , which represented approximately 50 % of our outstanding shares of common stock , on nasdaq on the listing date . our two other classes of outstanding stock at the time of the listing were class b-1 common stock , which comprised approximately 25 % of our outstanding shares of common stock at that time , and class b-2 common stock , which comprised approximately 25 % of our outstanding shares of common stock at that time . as of december 31 , 2018 , we had 106.2 million shares of common stock outstanding , comprised of approximately 80.0 million shares of class a common stock and approximately 26.2 million shares of class b-2 common stock . in accordance with their terms , all shares of class b-1 common stock automatically converted into shares of class a common stock and were listed on nasdaq on october 10 , 2018 and all shares of class b-2 common stock automatically converted into shares of class a common stock and were listed on nasdaq on january 9 , 2019. for additional information , see note 9 โ common stock and note 16 โ subsequent events to our consolidated financial statements included in this annual report on form 10-k. we have no employees . we have retained the advisor to manage our affairs on a day-to-day basis . the property manager serves as our property manager . the advisor and the property manager are under common control with ar global , and these related parties of ours receive compensation , fees and expense reimbursements for services related to managing our business . story_separator_special_tag the fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease , measured over the remaining term of the lease , including any below-market fixed rate renewal options for below-market leases . in allocating the fair value to assumed mortgages , amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows , which is calculated to account for either above or below-market interest rates . in a business combination , the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain . in allocating non-controlling interests in a business combination , amounts are recorded based on the fair value of units issued at the date of acquisition , as determined by the terms of the applicable agreement . in making estimates of fair values for purposes of allocating purchase price , we utilize a number of sources , including real estate valuations , prepared by independent valuation firms . we also consider information and other factors including : market conditions , the industry that the tenant operates in , characteristics of the real estate , i.e . : location , size , demographics , value and comparative rental rates , tenant credit profile , store profitability and the importance of the location of the real estate to the operations of the tenant 's business . 41 real estate investments that are intended to be sold are designated as โ held for sale โ on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale . real estate investments are no longer depreciated when they are classified as held for sale . if the disposal , or intended disposal , of certain real estate investments represents a strategic shift that has had or will have a major effect on our operations and financial results , the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations and comprehensive loss for all applicable periods . depreciation and amortization we are required to make subjective assessments as to the useful lives of the components of our real estate investments for purposes of determining the amount of depreciation to record on an annual basis . these assessments have a direct impact on our results from operations because if we were to shorten the expected useful lives of our real estate investments , we would depreciate these investments over fewer years , resulting in more depreciation expense and lower earnings on an annual basis . depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings , 15 years for land improvements , five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests . capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases . capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods . capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases . capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods . the value of in-place leases , exclusive of the value of above-market and below-market in-place leases , is amortized to expense over the remaining periods of the respective leases . assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages . impairment of long-lived assets when circumstances indicate the carrying value of a property may not be recoverable , we review the property for impairment . this review is based on an estimate of the future undiscounted cash flows , excluding interest charges , expected to result from the property 's use and eventual disposition . these estimates consider factors such as expected future operating income , market and other applicable trends and residual value , as well as the effects of leasing demand , competition and other factors . if impairment exists , due to the inability to recover the carrying value of a property , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used . for properties held for sale , the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset . these assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to the results of operations . goodwill goodwill , which is not amortized , represents the difference between the purchase price and the fair value of identifiable net assets acquired in a business combination . we review goodwill for impairment indicators throughout the year and test for impairment annually in the fourth quarter . impairment indicators may be an event or circumstance that would more likely than not reduce the fair value of a reporting unit below its carrying amount . for 2018 , we used a qualitative assessment approach to determine whether it is more likely than not that the fair value of the reporting unit , which contains goodwill , is less than its carrying value . based on our assessment we determined that goodwill was not impaired as of december 31 , 2018 , and no further analysis was required .
| results of operations comparison of the year ended december 31 , 2018 to 2017 there were 388 properties that we owned for the entirety of the years ended december 31 , 2018 and 2017 ( our โ 2017-2018 same store โ ) , comprised of approximately 10.6 million rentable square feet that were 99.4 % leased as of december 31 , 2018 . on february 16 , 2017 , we acquired 35 retail properties in the merger ( the โ merger acquisitions โ ) , comprised of 7.5 million rentable square feet that were 87.0 % leased as of december 31 , 2018 . additionally , during 2018 and 2017 , excluding properties acquired in the merger , we acquired 205 properties ( our โ acquisitions since january 1 , 2017 โ ) , comprised of 1.3 million rentable square feet that were 100.0 % leased as of december 31 , 2018 . during 2018 and 2017 , we sold 69 properties , including two properties acquired in the merger ( our โ disposals since january 1 , 2017 โ ) , comprised of approximately 3.0 million rentable square feet . the following table summarizes our leasing activity during the year ended december 31 , 2018 : replace_table_token_12_th _ ( 1 ) annualized rental income on a straight-line basis . ( 2 ) new leases reflect leases in which a new tenant took possession of the space during the year ended december 31 , 2018 , excluding new property acquisitions . lease renewals/amendments reflect leases in which an existing tenant executed terms to extend the term or change the rental terms of the lease during the year ended december 31 , 2018 . ( 3 ) represents leases that were terminated prior to their contractual lease expiration dates .
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as part of our audits 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 audits included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the financial statements . our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the financial statements . we believe that our audits provide a reasonable basis for our opinion . oum & co. llp san francisco , california march 30 , 2018 we have served as the company 's auditor since 2004. f- 2 titan pharmaceuticals , inc. balance sheets replace_table_token_12_th see accompanying notes to financial statements . f- 3 titan pharmaceuticals , inc. statements of operations and comprehensive income ( loss ) replace_table_token_13_th see accompanying notes to financial statements . f- 4 titan pharmaceuticals , inc statements of stockholders ' equity ( in thousands ) replace_table_token_14_th see accompanying notes to financial statements . f- 5 titan pharmaceuticals , inc. statements of cash flows replace_table_token_15_th see accompanying notes to financial statements . f- 6 titan pharmaceuticals , inc. notes to financial statements 1. organization and summary of significant accounting policies the company we are a pharmaceutical company developing proprietary therapeutics for the treatment of serious medical disorders . our product development programs utilize our proprietary long-term drug delivery platform , proneura , and focus primarily on innovative treatments for select chronic diseases for which steady state delivery of a drug provides an efficacy and or safety benefit . we are directly developing our product candidates and also utilize corporate , academic and government partnerships as appropriate . we operate in only one business segment , the development of pharmaceutical products . all share and per share amounts give retroactive effect to a 1 for 5.5 reverse stock split effected in september 2015. see note 12 โ stockholders ' equity โ reverse stock split . โ the accompanying financial statements have been prepared assuming we will continue as a going concern . in may 2016 , the u.s. food and drug administration ( โ fda โ ) approved our probuphine new drug application ( โ nda โ ) and pursuant to our license agreement with braeburn pharmaceuticals , inc. ( โ braeburn โ ) , as amended to date , we received a $ 15 million milestone payment and subsequently transferred the nda to braeburn . at december 31 , 2017 , we had cash and cash equivalents of approximately $ 7.5 million , which we believe , along with the approximately $ 2.4 million received from molteni in march 2018 less the $ 3.0 million prepayment of our loan from horizon in february 2018 , is sufficient to fund our planned operations into the third quarter of 2018. we will require additional funds , either through payments from braeburn under the license agreement or through other financing arrangements , to advance our current proneura development programs to later stage clinical studies and to complete the regulatory approval process necessary to commercialize any products we might develop . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . going concern assessment with the implementation of fasb 's standard on going concern , accounting standard update , or asu no . 2014-15 , beginning with the year ended december 31 , 2016 and all annual and interim periods thereafter , we will assess going concern uncertainty in our financial statements to determine if we have sufficient cash on hand and working capital , including available borrowings on loans , to operate for a period of at least one year from the date the financial statements are issued or available to be issued , which is referred to as the โ look-forward period โ as defined by asu no . 2014-15. as part of this assessment , based on conditions that are known and reasonably knowable to us , we will consider various scenarios , forecasts , projections story_separator_special_tag forward-looking statements statements in the following discussion and throughout this report that are not historical in nature are โ forward-looking statements โ within the meaning of section 27a of the securities act and section 21e of the exchange act . you can identify forward-looking statements by the use of words such as โ expect , โ โ anticipate , โ โ estimate , โ โ may , โ โ will , โ โ should , โ โ intend , โ โ believe , โ and similar expressions . although we believe the expectations reflected in these forward-looking statements are reasonable , such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct . actual results could differ from those described in this report because of numerous factors , many of which are beyond our control . these factors include , without limitation , those described under item 1a โ risk factors. โ we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes . story_separator_special_tag initial data from the first cohort of patients is expected in the first half of 2018 and further progress will depend on the data and available resources . our goal is to expand our product pipeline using the proneura implant platform , and we have been opportunistically evaluating other drugs and disease settings for use with the proneura platform in potential treatment applications where conventional treatment is limited by variability in blood drug levels and poor patient compliance . we operate in only one business segment , the development of pharmaceutical products . we make available free of charge through our website , www.titanpharm.com , our periodic reports as soon as reasonably practicable after we electronically file such material with , or furnish it to , the sec . 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 financial statements and accompanying notes . actual results could differ materially from those estimates . we believe the following accounting policies for the years ended december 31 , 2017 and 2016 to be applicable : revenue recognition we generate revenue principally from collaborative research and development arrangements , technology licenses , and government grants . consideration received for revenue arrangements with multiple components is allocated among the separate units of accounting based on their respective selling prices . the selling price for each unit is based on vendor-specific objective evidence , or vsoe , if available , third party evidence if vsoe is not available , or estimated selling price if neither vsoe nor third party evidence is available . the applicable revenue recognition criteria are then applied to each of the units . 33 revenue is recognized when the four basic criteria of revenue recognition are met : ( 1 ) a contractual agreement exists ; ( 2 ) transfer of technology has been completed or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . for each source of revenue , we comply with the above revenue recognition criteria in the following manner : technology license agreements typically consist of non-refundable upfront license fees , annual minimum access fees or royalty payments . non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed , provided that the technology transferred or accessed is not dependent on the outcome of our continuing research and development efforts . royalties earned are based on third-party sales of licensed products and are recorded in accordance with contract terms when third-party results are reliably measurable and collectability is reasonably assured . government grants , which support our research efforts in specific projects , generally provide for reimbursement of approved costs as defined in the notices of grants . grant revenue is recognized when associated project costs are incurred . collaborative arrangements typically consist of non-refundable and or exclusive technology access fees , cost reimbursements for specific research and development spending , and various milestone and future product royalty payments . if the delivered technology does not have stand-alone value , the amount of revenue allocable to the delivered technology is deferred . non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received , and are deferred if we have continuing performance obligations and have no evidence of fair value of those obligations . cost reimbursements for research and development spending are recognized when the related costs are incurred and when collections are reasonably expected . payments received related to substantive , performance-based โ at-risk โ milestones are recognized as revenue upon achievement of the clinical success or regulatory event specified in the underlying contracts , which represent the culmination of the earnings process . amounts received in advance are recorded as deferred revenue until the technology is transferred , costs are incurred , or a milestone is reached . share-based payments we recognize compensation expense for all share-based awards made to employees , directors and consultants . the fair value of share-based awards is estimated at the grant date based on the fair value of the award and is recognized as expense , net of estimated pre-vesting forfeitures , ratably over the vesting period of the award . we use the black-scholes option pricing model to estimate the fair value method of our awards . calculating stock-based compensation expense requires the input of highly subjective assumptions , including the expected term of the share-based awards , stock price volatility , and pre-vesting forfeitures . we estimate the expected term of stock options granted for the years ended december 31 , 2017 and 2016 based on the historical experience of similar awards , giving consideration to the contractual terms of the share-based awards , vesting schedules and the expectations of future employee behavior . we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock . the assumptions used in calculating the fair value of stock-based awards represent our best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . in addition , we are required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest . we estimate the pre-vesting forfeiture rate based on historical experience .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 license revenues were approximately $ 215,000 and $ 15.1 million for the years ended december 31 , 2017 and 2016 , respectively . 2017 license revenues reflect the recognition of royalties earned on net sales of probuphine . license revenues for the year ended december 31 , 2016 reflect approximately $ 65,000 from the recognition of royalties earned on net sales of probuphine and approximately $ 15.0 million from the recognition of the milestone payment earned upon fda approval of our probuphine nda in may 2016. research and development expenses for 2017 were approximately $ 9.6 million compared to approximately $ 6.1 million in 2016 , an increase of approximately $ 3.5 million , or 57 % . the increase in research and development costs was primarily associated with increases in external research and development expenses related to the support of our proneura product development programs , including the costs associated with the ind and commencement of clinical study of the ropinirole implant and the cost of preparing the probuphine maa for submission to the ema , employee related expenses and other research and development expenses . external research and development expenses include direct expenses such as cro charges , investigator and review board fees , patient expense reimbursements , expenses for nda preparation and contract manufacturing expenses . during 2017 , external research and development expenses relating to our product development programs were approximately $ 5.6 million compared to approximately $ 3.5 million in 2016. other research and development expenses include internal operating costs such as clinical research and development personnel-related expenses , clinical trials related travel expenses , and allocation of facility and corporate costs .
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the carrying values of the company 's convertible securities are as follows : replace_table_token_26_th _ ( 1 ) the carrying value is accreted to the principal amount at maturity over a remaining life of 23 years . 48 affiliated managers group , inc. notes to consolidated financial statements ( continued ) the 2007 junior convertible securities bear interest at 5.15 % per annum , payable quarterly in cash story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations of affiliated managers group , inc. and its subsidiaries ( collectively , the โ company โ or โ amg โ ) should be read in conjunction with the โ forward-looking statements โ section set forth in part i and the โ risk factors โ section set forth in item 1a of part i of this annual report on form 10-k and in any more recent filings with the u.s. securities and exchange commission ( the โ sec โ ) , each of which describe these risks , uncertainties and other important factors in more detail . executive overview the following executive overview summarizes the significant trends affecting our results of operations and financial condition . this overview and the remainder of this management 's discussion and analysis of financial condition and results of operations supplements , and should be read in conjunction with , the consolidated financial statements of amg and the notes thereto contained elsewhere in this annual report on form 10-k. in 2014 , we completed majority investments in southernsun asset management , llc ( `` southernsun '' ) , river road asset management , llc ( `` river road '' ) and veritas asset management , llp ( `` veritas '' ) . we also completed a minority investment in eig global energy partners , llc ( `` eig '' ) as well as an additional investment in our affiliate , aqr capital management , llc ( `` aqr '' ) , both of which are accounted for under the equity method of accounting . following the close of these transactions , affiliate partners continue to hold a substantial portion of the equity in their respective businesses and direct its day-to-day operations . for the year ended december 31 , 2014 , net income ( controlling interest ) was $ 452.1 million , and earnings per share ( diluted ) was $ 8.01 , representing a 22 % increase over the prior year . for the year ended december 31 , 2013 , net income ( controlling interest ) was $ 360.5 million , and earnings per share ( diluted ) was $ 6.55 . for the year ended december 31 , 2014 , economic net income ( controlling interest ) was $ 644.4 million , economic earnings per share was $ 11.45 , representing an 11 % increase over the prior year , and ebitda ( controlling interest ) was $ 900.8 million . for the year ended december 31 , 2013 , economic net income ( controlling interest ) was $ 570.1 million , economic earnings per share was $ 10.31 and ebitda ( controlling interest ) was $ 819.9 million . economic net income ( controlling interest ) , including economic earnings per share , and ebitda ( controlling interest ) are non-gaap performance measures and are discussed in `` supplemental performance measures . '' for the year ended december 31 , 2014 our assets under management increased 15 % to $ 620.2 billion . the increase was primarily the result of $ 43.7 billion from new investments , $ 21.4 billion from organic growth from net client cash flows and $ 15.0 billion from investment performance . the table below shows our financial highlights for each of the past three years : replace_table_token_5_th _ ( 1 ) economic net income ( controlling interest ) , including economic earnings per share , and ebitda ( controlling interest ) are non-gaap performance measures and are discussed in `` supplemental performance measures . '' supplemental performance measures economic net income ( controlling interest ) as supplemental information , we provide non-gaap performance measures that we refer to as economic net income ( controlling interest ) and economic earnings per share . we consider economic net income ( controlling interest ) an important 18 measure of our financial performance , as we believe it best represents our operating performance before our share of non-cash expenses relating to our acquisition of interests in our affiliates . economic net income ( controlling interest ) and economic earnings per share are used by our management and board of directors as our principal performance benchmarks , including as measures for aligning executive compensation with stockholder value . these measures are provided in addition to , but not as a substitute for , net income ( controlling interest ) and earnings per share ( diluted ) , or any other gaap measure of financial performance or liquidity . under our economic net income ( controlling interest ) definition , we add to net income ( controlling interest ) our share of amortization ( including equity method amortization ) and impairments , deferred taxes related to intangible assets , and other economic items which include non-cash imputed interest expense ( principally related to the accounting for convertible securities and contingent payment arrangements ) and certain affiliate equity expenses . we add back amortization and impairments attributable to acquired client relationships because these expenses do not correspond to the changes in value of these assets , which do not diminish predictably over time . the portion of deferred taxes generally attributable to intangible assets ( including goodwill ) is added back because we believe it is unlikely these accruals will be used to settle material tax obligations . we add back non-cash imputed interest expense and reductions or increases in contingent payment arrangements because it better reflects our contractual interest obligations . we add back non-cash expenses relating to certain transfers of equity between affiliate partners when these transfers have no dilutive effect to shareholders . story_separator_special_tag we believe that this analysis more closely correlates to the billing cycle of each distribution channel and , as such , provides a more meaningful relationship to revenue . 21 replace_table_token_10_th _ ( 1 ) in 2012 , 2013 and 2014 , revenue attributable to clients domiciled outside the u.s. was approximately 41 % , 38 % and 37 % of total revenue , respectively . ( 2 ) in 2012 and 2013 , we adjusted our estimate of contingent payment obligations . in 2012 , we recognized a gain of $ 35.8 million ( $ 22.0 million net of tax ) and allocated $ 19.9 million , $ 15.6 million and $ 0.3 million to our institutional , mutual fund and high net worth channels , respectively . in 2013 , we recognized a loss totaling $ 10.3 million and allocated $ 9.6 million and $ 0.7 million to our mutual fund and high net worth channels , respectively . ( 3 ) during 2012 , we reduced the carrying value of an indefinite-lived intangible asset at one of our affiliates and , accordingly , recorded expenses of $ 102.2 million ( $ 63.4 million net of tax ) . ( 4 ) ebitda ( controlling interest ) , including a reconciliation to net income ( controlling interest ) , is a non-gaap performance measure and is discussed in `` supplemental performance measure . '' story_separator_special_tag million or 21 % in 2014 , primarily from a 22 % increase in average assets under management at our consolidated affiliates . increases in average assets under management from net client cash flows and investment performance at existing affiliates increased revenue $ 183.6 million or 18 % and increases in average assets under management from our 2014 investments in new affiliates increased revenue $ 36.0 million or 3 % . our revenue in the mutual fund distribution channel increased $ 248.6 million or 32 % in 2013 , primarily from a 37 % increase in average assets under management from investment performance , net client cash flows and the full year impact of 23 our 2012 investments in new affiliates . this increase was partially offset by a decline in our ratio of revenue to average assets under management which reduced revenue by $ 33.5 million or 3 % primarily from our 2012 investments in new affiliates that have comparatively lower fee rates and changes in the composition of our assets under management within the channel , including decreases in assets under management in certain products that realize comparatively higher fee rates and increases in assets under management in certain products that realize comparatively lower fee rates . high net worth distribution channel our revenue in the high net worth distribution channel increased $ 28.4 million or 13 % in 2014 , primarily from a 17 % increase in average assets under management at our consolidated affiliates , partially offset by a decline in performance fees and other revenue of $ 4.3 million or 2 % . increases in average assets under management from net client cash flows and investment performance at existing affiliates increased revenue $ 17.9 million or 9 % and increases in average assets under management from our 2014 investments in new affiliates increased revenue $ 14.8 million or 7 % . our revenue in the high net worth distribution channel increased $ 47.3 million or 28 % in 2013 , primarily from a 32 % increase in average assets under management from our 2012 investments in new affiliates , investment performance and net client cash flows . the increases were partially offset by a decline in our ratio of revenue to average assets under management which reduced revenue by $ 8.0 million or 4 % primarily from our 2012 investments in new affiliates that have comparatively lower fee rates . operating expenses the following table summarizes our consolidated operating expenses : replace_table_token_11_th a substantial portion of our operating expenses was incurred by our affiliates , the majority of which was incurred by affiliates with revenue sharing arrangements . compensation and related expenses increased $ 83.0 million or 9 % in 2014 primarily as a result of increases in compensation expenses at existing affiliates of $ 25.6 million , increases in compensation expense from our 2014 investments in new affiliates of $ 28.6 million and compensation expense associated with affiliate equity transactions of $ 16.8 million . compensation and related expenses increased $ 162.8 million or 21 % in 2013 primarily as a result of increases in compensation expense at existing affiliates of $ 97.1 million and increases in compensation expense from the full year impact of our 2012 investments in new affiliates of $ 43.1 million and compensation expense associated with affiliate equity transactions of $ 21.8 million . selling , general and administrative expenses increased $ 58.3 million or 14 % in 2014 primarily from increases in sub-advisory and distribution expenses of $ 34.7 million at our affiliates in the mutual fund distribution channel , an increase of $ 9.5 million from our 2014 investments in new affiliates and an increase in acquisition-related professional fees of $ 6.4 million . selling , general and administrative expenses increased $ 60.3 million or 16 % in 2013 primarily from increases in sub-advisory and distribution expenses of $ 26.1 million at our affiliates in the mutual fund distribution channel and an increase of $ 15.6 million from the full year impact of our 2012 investments in new affiliates . intangible amortization and impairments decreased $ 6.0 million or 5 % in 2014 and $ 71.8 million or 36 % in 2013 . the decrease in 2014 was primarily due to a reduction of $ 30.2 million resulting from certain assets being fully amortized in 2013. this was partially offset by 2014 increases of $ 24.2 million on definite-lived assets at existing and new 2014 affiliates . the decrease in 2013 was primarily the result of a $ 102.2 million reduction in the carrying value of an indefinite-lived intangible asset at one of our affiliates in 2012 which did not reoccur in 2013.
| results of operations our affiliate investments are generally structured as revenue sharing arrangements . when we own a controlling interest , we consolidate the affiliates ' results . our discussion of revenue and operating expenses relates to our consolidated affiliates . when we hold a minority investment and are required to use the equity method of accounting , we do not consolidate the operating results of these firms ( including their revenue ) . our share of these firms ' earnings ( net of intangible amortization ) is reported in income from equity method investments . 22 revenue through our affiliates , we derive most of our revenue from investment management services . investment management fees ( `` asset-based fees '' ) are typically determined as a percentage fee charged on the value of a client 's assets under management . our private equity products generally bill for their services based on a percentage of committed or invested capital . in addition , certain affiliate alternative and equity products bill on the basis of investment performance , typically on an absolute basis or relative to a benchmark ( `` performance fees '' ) . these products , which are primarily in the institutional distribution channel , are often structured to have returns that are not directly correlated to changes in broader equity indices and , if earned , the performance fees are typically billed less frequently than an asset-based fee . although performance fees inherently depend on investment results and will vary from period to period , we anticipate performance fees to be a recurring component of our revenue . our revenue is generally determined by the level of our average assets under management and the composition of our assets across our distribution channels and products within our distribution channels , which realize different fee rates .
| 4,804 |
535,099 shares remain available for future awards under the plan at december 31 , 2020 , following the grant of options and the award of restricted stock grants through december 31 , 2020. the company recorded stock-based compensation of approximately $ 1,192,000 and $ 118,000 related to stock options during the years ended december 31 , 2020 and 2019 , respectively . total remaining unrecognized compensation expense for non-vested options is $ 2,480,912 as of december 31 , 2020 , and is expected to be recognized over a weighted average period of 1.3 years . the weighted average remaining contractual term of outstanding options at december 31 , 2020 is 8.5 years . f- 16 a summary of stock option activity under the plan during the years ended december 31 , 2020 and 2019 is presented below : replace_table_token_15_th for 2020 and 2019 , the fair value of each option granted was estimated using the black-scholes option-pricing model , using the following weighted average assumptions : replace_table_token_16_th the fair story_separator_special_tag you should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and the related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in item 1a titled โ risk factors โ included elsewhere in this annual report on form 10-k. overview we are a clinical stage biotechnology company , focused on leveraging artificial intelligence ( โ a.i. โ ) , machine learning and genomic data to streamline the drug development process and to identify the patients that will benefit from our targeted oncology therapies . our portfolio of therapies consists of small molecules that others have tried , but failed , to develop into an approved commercialized drug , as well as new compounds that we are developing with the assistance of our proprietary a.i . platform and our biomarker driven approach . our a.i . platform , known as radr ยฎ , currently includes more than 1.2 billion data points , and uses big data analytics ( combining molecular data , drug efficacy data , data from historical studies , data from scientific literature , phenotypic data from trials and publications , and mechanistic pathway data ) and machine learning to rapidly uncover biologically relevant genomic signatures correlated to drug response , and then identify the cancer patients that we believe may benefit most from our compounds . this data-driven , genomically-targeted and biomarker-driven approach allows us to pursue a transformational drug development strategy that identifies , rescues or develops , and advances potential small molecule drug candidates at what we believe is a fraction of the time and cost associated with traditional cancer drug development . our strategy is to both develop new drug candidates using our radr ยฎ platform , and other machine learning driven methodologies , and to pursue the development of drug candidates that have undergone previous clinical trial testing or that may have been halted in development or deprioritized because of insufficient clinical trial efficacy ( i.e. , a meaningful treatment benefit relevant for the disease or condition under study as measured against the comparator treatment used in the relevant clinical testing ) or for strategic reasons by the owner or development team responsible for the compound . importantly , these historical drug candidates appear to have been well-tolerated in many instances , and often have considerable data from previous toxicity , tolerability and adme ( absorption , distribution , metabolism , and excretion ) studies that have been completed . additionally , these drug candidates may also have a body of existing data supporting the potential mechanism ( s ) by which they achieve their intended biologic effect , but often require more targeted trials in a stratified group of patients to demonstrate statistically meaningful results . our dual approach to both develop de-novo , biomarker-guided drug candidates and โ rescue โ historical drug-candidates by leveraging a.i. , recent advances in genomics , computational biology and cloud computing is emblematic of a new era in drug development that is being driven by data-intensive approaches meant to de-risk development and accelerate the clinical trial process . in this context , we intend to create a diverse portfolio of oncology drug candidates for further development towards regulatory and marketing approval with the objective of establishing a leading a.i.-driven , methodology for treating the right patient with the right oncology therapy . a key component of our strategy is to target specific cancer patient populations and treatment indications identified by leveraging our radr ยฎ platform , a proprietary a.i . enabled engine created and owned by us . we believe the combination of our therapeutic area expertise , our a.i . expertise , and our ability to identify and develop promising drug candidates through our collaborative relationships with research institutions in selected areas of oncology gives us a significant competitive advantage . our radr ยฎ platform was developed and refined over the last four years and integrates millions of data points immediately relevant for oncology drug development and patient response prediction using artificial intelligence and proprietary machine learning algorithms . by identifying clinical candidates , together with relevant genomic and phenotypic data , we believe our approach will help us design more efficient pre-clinical studies , and more targeted clinical trials , thereby accelerating our drug candidates ' time to approval and eventually to market . although we have not yet applied for or received regulatory or marketing approval for any of our drug candidates , we believe our radr ยฎ platform has the ability to reduce the cost and time to bring drug candidates to specifically targeted patient groups . story_separator_special_tag the extent to which covid-19 impacts our operations and plans will depend on future developments , which are highly uncertain and can not be predicted with confidence , including the duration of the outbreak , new information which may emerge concerning the severity and treatment of covid-19 , and preventative or protective actions that governments , businesses , and organizations performing research and clinical trials may take in respect of covid-19 , among others . the existence and spread of an infectious disease , including covid-19 , may also result in the inability of our suppliers to deliver components or raw materials on a timely basis or materially and adversely affect our collaborators and out-license partner 's ability to perform and advance preclinical and nonclinical studies and clinical trials . for example , allarity therapeutics ( formerly known as oncology venture ) has informed us that continuing enrollment in the phase ii clinical trial for lp-100 ( irofulven ) has slowed during the pandemic . the timing of non-clinical research studies for our drug candidates by collaborators and service providers also slowed during the second and third quarters of 2020 in connection with the pandemic . 116 story_separator_special_tag terms . on june 15 , 2020 , we completed an initial public offering of 1,750,000 shares of our common stock at $ 15.00 per share , for gross proceeds of $ 26,250,000 , before deducting underwriting discounts , commissions and offering expenses , which substantially contributed to our liquidity . as of the years ended december 31 , 2020 and 2019 , we had cash and cash equivalents of approximately $ 19,229,000 and $ 1,232,000 , respectively . in january of 2021 , we completed an additional offering with gross proceeds of approximately $ 69,000,000. we believe that proceeds from this offering , based on the sale of 4,928,571 shares of common stock at the public offering price of $ 14.00 per share , together with our existing cash and cash equivalents as of december 31 , 2020 , and our anticipated expenditures and capital commitments for the calendar year 2021 and the first half of 2022 , will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of this report . 120 cash flows the following table summarizes our cash flow for the periods indicated : replace_table_token_10_th operating activities for the year ended december 31 , 2020 , net cash used in operating activities was $ 5,651,621 compared to $ 2,127,923 for the year ended december 31 , 2019. the increase in net cash used in operating activities was primarily the result of the increase in the net loss together with increases in prepaid expenses . investing activities for the year ended december 31 , 2020 , net cash used in investing activities was $ 16,137 , compared to $ 5,717 used in investing activities during the year ended december 31 , 2019. financing activities net cash provided by financing activities was $ 23,664,960 during the year ended december 31 , 2020 , attributable primarily to net proceeds from our initial public offering . net cash provided by financing activities during the year ended december 31 , 2019 was $ 2,920,507 , attributable to the sale of 658,571 shares of series a preferred stock and warrants to purchase series a preferred stock for proceeds of approximately $ 3,455,000 , of which approximately $ 2,920,000 consisted of cash and $ 535,000 consisted of the conversion of simple agreement for future equity ( โ safe โ ) agreements to series a preferred stock . operating capital and capital expenditure requirements we expect to continue to incur significant and increasing operating losses at least for the next several years as we commence our clinical trials of lp-184 and lp-300 , pursue development of our other drug candidates , and seek potential future marketing approval for our drug candidates which could be several years in the future , if at all . we do not expect to generate revenue , other than possible license revenue , unless and until we successfully complete development and obtain regulatory approval for our therapeutic candidates . our net losses may fluctuate significantly from quarter-to-quarter and year-to-year , depending on the timing of our planned clinical trials and our expenditures on other research and development activities . we have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect . because of the numerous risks and uncertainties associated with research , development and commercialization of pharmaceutical products , we are unable to estimate the exact amount of our operating capital requirements . we anticipate that our expenses will increase substantially as we : โ continue the development of our drug candidates ; โ initiate preclinical studies and clinical trials for any additional indications for our current drug candidates and any future drug candidates that we may pursue ; 121 โ continue to build our portfolio of drug candidates through the acquisition or in-license of additional drug candidates or technologies ; โ continue to develop , maintain , expand and protect our intellectual property portfolio ; โ pursue regulatory approvals for those of our current and future drug candidates that successfully complete clinical trials ; โ ultimately establish a sales , marketing , distribution and other commercial infrastructure to commercialize any drug candidate for which we may obtain marketing approval ; โ hire additional clinical , regulatory , scientific and accounting personnel ; โ incur additional legal , accounting and other expenses in operating as a public company ; and โ continue to develop , maintain , and expand our radr ยฎ platform . we expect that we will need to obtain substantial additional funding in order to complete our clinical trials .
| components of our results of operations revenues we did not recognize revenues for the years ended december 31 , 2020 and 2019. general and administrative general and administrative expenses consist of our operating expenses that are not included in the direct costs of production or cost of goods sold which include : โ corporate office overhead expenses such as salaries of administrative staff and corporate officers ; โ legal expenses ; โ accounting expenses ; and โ rent , utilities and supplies . research and development research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates , which include : โ expenses incurred towards consultants , laboratories and investigators that conduct our preclinical or clinical research activities ; and โ the cost of acquiring and developing preclinical study materials and lab supplies . we expense research and development costs to operations as incurred . for the years ended december 31 , 2020 and 2019 , we incurred an aggregate of approximately $ 2,243,000 and $ 953,000 , respectively , in research and development expenses related to the development of lp-100 , lp- 184 , lp 300 and our radr ยฎ platform . we expect that our research and development expenses will increase as we plan for and commence our clinical trials of lp-184 and lp-300 . 117 our research and development costs by project category for the year ended december 31 , 2020 are as follows : replace_table_token_8_th * as a private company , we did not track our research and development costs by project category primarily because research and development salary expenses were not further allocated to each project . as a result , our tracking of research and development costs by project category commenced during the three months ended june 30 , 2020 in connection with the company 's ipo .
| 4,805 |
individual story_separator_special_tag in addition to historical information , the following discussion contains forward-looking statements that are subject to risks and uncertainties . our actual results may differ substantially from those expressed in or implied by any forward-looking statements herein due to a number of factors , including but not limited to the risks and uncertainties described in this item 7 , in item 1a โ risk factors โ and elsewhere in this annual report . these forward-looking statements reflect our views and assumptions only as of the date such forward-looking statements are made . except as required by law , we assume no responsibility for updating any forward-looking statements , whether as a result of new information , future events or otherwise . the following discussion should be read in conjunction with our audited consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report and other reports and filings made with the sec . overview kratos is a mid-tier government contractor at the forefront of the dod 's third offset strategy . kratos is a leading technology , intellectual property and proprietary product and solution company focused on the u.s. and its allies ' national security . kratos ' primary focus areas are unmanned systems , satellite communications , microwave electronics , cyber security/warfare , missile defense and combat systems . we believe that our technology , intellectual property , proprietary products and designed-in positions on our customers ' platforms and systems is a competitive advantage and high barrier to entry into our markets . our work force is primarily technically oriented and highly skilled with a significant number holding national security clearances . our entire organization is focused on executing our strategy of becoming the leading technology and intellectual property based company in our industry . our primary end customers are u.s. government agencies , including the dod , classified agencies , intelligence agencies , other national security agencies and homeland security related agencies . we also conduct business with local , state and foreign governments and domestic and international commercial customers . in fiscal 2016 , 2015 and 2014 , we generated 60 % , 61 % and 57 % , respectively , of our total revenues from contracts with the u.s. government ( including all branches of the u.s. military ) , either as a prime contractor or a subcontractor . we believe our stable customer base , strong customer relationships , intellectual property , specialized and differentiated products , broad array of contract vehicles , โ designed in โ positions on strategic national security platforms , our targeted investments in strategic growth areas , large employee base possessing specialized skills , security clearances , specialized manufacturing facilities and equipment , extensive list of past performance qualifications , and significant management and operational capabilities position us for success . we were incorporated in the state of new york on december 19 , 1994 and began operations in march 1995. we reincorporated in the state of delaware in 1998 . 33 industry background faced with significant budget pressures , in recent years the u.s. government has implemented reductions in government spending , including reductions in appropriations for the dod and other federal agencies , pursuant to the bca , as amended by the american taxpayer relief act of 2012 and the bipartisan budget act of 2013. pursuant to the terms of the bca , a sequestration went into effect in march 2013 resulting in a 7.8 % reduction to the dod budget for fy 2013 to $ 495.5 billion , excluding funding for military personnel . the dod budget was approximately $ 496.0 billion in fy 2014 and remained at a similar level in fy 2015. the dod base budget excludes funding for overseas contingency operations , such as those in afghanistan , iraq and syria , which are appropriated separately and are not currently subject to the bca . on november 2 , 2015 , barack obama signed the bipartisan budget act of 2015 , formalizing the terms of a two year budget agreement which raised the u.s. debt ceiling and lifted the sequestration spending caps by $ 80.0 billion . under the budget agreement , the total federal spending increase over the bca topline funding caps was $ 50.0 billion in fy 2016 and $ 30.0 billion in fy 2017 , with the amounts divided equally between defense and domestic priorities . the overall discretionary budget was set at $ 1.067 trillion in fy 2016 and $ 1.07 trillion in fy 2017. the fy 2016 discretionary defense budget was $ 548.1 billion , a $ 25.0 billion increase over the bca topline funding caps . under the bipartisan budget act of 2015 , the obama administration received $ 33.0 billion of the $ 38.0 billion national defense spending increase it sought in fy 2016. in summary the budget agreement : extended the bca out to 2025 ; suspended the u.s. debt limit/ceiling until march 2017 ; increased spending caps for fy 2016 and fy 2017 by $ 80.0 billion , including $ 50.0 billion in fy 2016 and $ 30.0 billion in fy 2017 , split evenly between defense and domestic priorities ; and included a fy 2016 dod base budget of $ 548.0 billion and a fy 2016 overseas contingency operation budget of $ 59.0 billion . on december 18 , 2015 , congress passed and mr. obama signed the consolidated appropriations act of 2016 , which provided funding for the u.s. government for fy 2016 , providing $ 1.1 trillion in discretionary funding for federal agencies through september 2016. mr. obama signed a continuing resolution in september 2016 , which was extended in december 2016 , and provides funding for the u.s. government at fy 2016 levels through april 28 , 2017. current reporting segments the company operates in three reportable segments . the kgs reportable segment is comprised of an aggregation of kgs operating segments , including our microwave electronic products , satellite communications , modular systems and rocket support operating segments . story_separator_special_tag due to the federal acquisition regulation rules that govern our business , most types of costs are allowable , and we do not focus on individual cost groupings ( such as cost of sales or general and administrative costs ) as much as we do on total contract costs , which are a key factor in determining contract operating income . as a result , in evaluating our operating performance , we look primarily at changes in sales and service revenues , and operating income , including the effects of significant changes in operating income . changes in contract estimates are reviewed on a contract-by-contract basis and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision in accordance with gaap . significant management judgments and estimates , including the estimated costs to complete the project , which determine the project 's percentage complete , must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of our revenue for any period if management makes different judgments or utilizes different estimates . 35 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > december 25 , 2016 from $ 495.3 million for the year ended december 27 , 2015 . the $ 19.8 million increase in cost of revenues was primarily a result of increased revenue discussed above , as well as an $ 18.7 million loss accrual recorded in 2016 on the lcasd cost share contract , which is expected to be incurred by the company over the period of performance of the contract , and was incurred in order to retain the intellectual property rights for the new lcasd platform . cost of revenues was also impacted by approximately $ 4.1 million in unexpected cost growth on pss projects recorded during 2016 which negatively impacted our revenues . this unexpected cost growth is primarily related to several large long-term security integration projects which are nearing completion in 2017. gross margin percentage decreased to 23.0 % for the year ended december 25 , 2016 compared to 24.6 % for the year ended december 27 , 2015 . margins on services increased to 26.5 % for the year ended december 25 , 2016 from 24.8 % for the year ended december 27 , 2015 , due primarily to a more favorable mix of revenues . margins on product sales decreased for the year ended december 25 , 2016 as compared to december 27 , 2015 to 19.1 % from 24.5 % , respectively , primarily as a result of a change in the mix of products sold . margins in the kgs segment increased to 26.3 % for the year ended december 25 , 2016 from 25.4 % for the year ended december 27 , 2015 , primarily as a result of change in the mix of products sold . margins in the us segment decreased to ( 2.9 ) % for the year ended december 25 , 2016 from 16.3 % for the year ended december 27 , 2015 , reflecting an $ 18.7 million loss accrual recorded on the lcasd cost share contract , which is expected to be incurred by the company over the period of performance of the contract , and was incurred in order to retain the intellectual property rights for the new lcasd platform . margins in the pss segment increased slightly to 26.1 % for the year ended december 25 , 2016 from 26.0 % for the year ended december 27 , 2015 as a result of a more favorable mix of revenues , resulting from the strategic shift in focus on smaller sized , higher margin projects and only selectively bidding on larger sized lower margin projects , the completion of certain lower margin projects , as well as the impact of cost reduction actions that were taken during the year ended december 25 , 2016 , offset partially by the impact of approximately $ 4.1 million in unexpected cost growth recorded during 2016 on several large long-term security integration projects which are nearing completion . selling , general and administrative expenses ( sg & a ) . sg & a decreased $ 4.4 million to $ 146.3 million for the year ended december 25 , 2016 from $ 150.7 million for the year ended december 27 , 2015 . the decrease was primarily the result of a $ 2.5 million reduction of amortization of intangibles in 2016 , as a result of certain intangible assets being fully amortized , as well as cost reduction actions taken by the company , offset partially by increased discretionary investments to pursue business opportunities in the unmanned tactical aircraft market . as a percentage of revenues , sg & a decreased to 21.9 % for fiscal 2016 from 22.9 % for fiscal 2015 . excluding amortization of intangibles of $ 10.5 million for the year ended december 25 , 2016 and amortization of intangibles of $ 13.0 million for the year ended december 27 , 2015 , sg & a decreased as a percentage of revenues to 20.3 % from 21.0 % for the year ended december 25 , 2016 and december 27 , 2015 , respectively , due primarily to the cost reduction actions the company has taken and the increased leverage on the company 's public company infrastructure costs as revenues expand . internal research and development ( ir & d ) expenses . ir & d expenses decreased to $ 13.9 million for the year ended december 25 , 2016 from $ 16.2 million for the year ended december 27 , 2015 . as a percentage of revenues , ir & d decreased to 2.1 % of revenues for the year ended december 25 , 2016 from 2.5 % of revenues for the year ended december 27 , 2015 .
| results of operations comparison of results for the year ended december 25 , 2016 to the year ended december 27 , 2015 revenues . revenues by reportable segment for the years ended december 25 , 2016 and december 27 , 2015 are as follows ( in millions ) : replace_table_token_4_th revenues increased $ 11.6 million to $ 668.7 million in 2016 from $ 657.1 million in 2015 . the increase in revenues was the result of increased revenues of $ 19.7 million in our kgs segment primarily resulting from increased shipments and work performed in our satellite communications business of approximately $ 21.1 million , our simulation and training business of approximately $ 6.7 million and our ballistic missile target businesses of approximately $ 8.6 million , offset by a reduction in shipments of our specialized ground equipment products resulting primarily from delays in contract awards of $ 11.8 million and other reductions primarily in our government services business , which includes our weapons reset business , of approximately $ 4.9 million . increased revenues of $ 9.5 million in our us segment resulted from recent contract awards in unmanned combat aerial systems and unmanned aerial target systems as well as an increase in shipments of unmanned aerial target systems . declines in our pss segment of $ 17.6 million were primarily the result of our change in strategic direction in the fourth quarter of 2014 to capture higher margin work and only selectively bid on larger security integration projects that traditionally generate lower margins , coupled with the impact of approximately $ 4.1 million in unexpected cost growth recorded during 2016 which negatively impacted our revenues .
| 4,806 |
generally , forward-looking statements include words or phrases such as โ anticipates , โ โ believes , โ โ estimates , โ โ expects , โ โ intends , โ โ plans , โ โ projects , โ โ could , โ โ may , โ โ might , โ โ should , โ โ will โ and words and phrases of similar impact . the forward-looking statements include , but are not limited to , statements regarding future operations , industry trends or conditions and the business environment , and statements regarding future levels of or trends in business strategy and expectations , new business opportunities , cost control initiatives , business wins , market demand , revenue , operating expenses , capital expenditures , and financing . the forward-looking statements are made pursuant to safe harbor provisions of the private securities litigation reform act of 1995. numerous factors could cause actual results to differ materially from those in the forward-looking statements , including the following : ( i ) the availability to ctg of qualified professional staff , ( ii ) domestic and foreign industry competition for clients and talent , including technical , sales and management personnel , ( iii ) increased bargaining power of large clients , ( iv ) the company 's ability to protect confidential client data , ( v ) the partial or complete loss of the revenue the company generates from international business machines corporation ( ibm ) and other significant clients , ( vi ) the uncertainty of clients ' implementations of cost reduction projects , ( vii ) the effect of healthcare reform and initiatives , ( viii ) the mix of revenue between staffing and solutions , ( ix ) currency exchange risks , ( x ) risks associated with operating in foreign jurisdictions , ( xi ) renegotiations , nullification , or breaches of contracts with clients , vendors , subcontractors or other parties , ( xii ) the impact of current and future laws and government regulation , as well as repeal or modification of such , affecting the information technology ( it ) solutions and staffing industry , taxes and the company 's operations in particular , ( xiii ) industry and economic conditions , including fluctuations in demand for it services , ( xiv ) consolidation among the company 's competitors or clients , ( xv ) the need to supplement or change our it services in response to new offerings in the industry or changes in client requirements for it products and solutions , ( xvi ) the risks associated with acquisitions , ( xvii ) actions of activist shareholders , ( xviii ) the effects of the covid-19 pandemic and the regulatory , social , and business responses thereto on the company 's business , operations , employees , contractors , and clients , and ( xix ) the risks described in item 1a of the company 's most recently filed annual report on form 10-k , and from time to time , in the company 's reports filed with the securities and exchange commission ( sec ) . industry trends the market demand for the company 's services is heavily dependent on information and technology-related spending by major corporations , organizations and government entities in the markets and regions that we serve . the pace of technology advances , changes in business requirements , and the practices of our clients all have a significant impact on the demand for the services we provide . competition for new engagements and pricing pressure has been strong as there are numerous competitors . the demand for the company 's information and technology-related solutions business , primarily in our healthcare vertical market in north america , improved in 2018 and 2019. in 2020 , demand was significantly reduced , primarily in our staffing business , as the covid-19 global pandemic ( โ pandemic โ ) had a significant negative impact on the economies of the countries and the markets we serve . to offset this decrease in demand , the company took action to reduce its expenses , including a full-time furlough for certain employees and a 20 % furlough for nearly all other non-billable employees , including the senior management team . this furlough was in place for about six months , and ended with the close of the company 's fiscal third quarter . the company also actively participated in government-sponsored programs in its european operations , including belgium , france and luxembourg , that partially reimbursed the company for the costs of employees that were made idle by the pandemic . this primarily included employees that were previously billable on an engagement , but the client made a decision to stop or end a project prior to completion . the company is continuing to participate in these programs , but the benefit to the company 's european operations was diminished subsequent to august 2020 as the respective governments reduced the reimbursement under these programs at that time . the company believes that if these employees had remained billable throughout 2020 , the revenue they would have generated would have approximated the reimbursements received from the various governments . the company operates in one industry segment , providing information technology and related services to its clients . these services include information and technology-related solutions , including supplemental staffing as a solution . with solution services , the company generally takes responsibility for the deliverables and some level of project and staff management , and services may include high-end advisory or business-related consulting . when providing staffing services , including managed staffing , staff augmentation , and volume staffing , personnel are provided to clients , who then , in turn , take their direction from the clients ' managers . story_separator_special_tag selling , general and administrative ( sg & a ) expenses were 18.5 % of revenue in 2020 as compared with 17.3 % of revenue in 2019. the increase in sg & a expenses as a percentage of revenue in 2020 as compared with 2019 is primarily due to the loss of operating leverage from lower revenue , and the continued investment in business development , solutions , recruiting and marketing that support it solutions services in order to focus on the company 's long-term growth . operating income was 2.5 % of revenue in 2020 as compared with 1.8 % of revenue in 2019. operating income from the north american operations was $ 0.6 million in 2020 after allocations of $ 1.8 million to foreign operations , compared 22 with operating income of $ 2.3 million in 2019 after allocations of $ 1.6 million . operating income from our european operations was $ 8.5 million in 2020 after allocations of $ 1.8 million from our north american operations , compared with $ 4.6 million in 2019 after allocations of $ 1.6 million . other income ( expense ) was 0.4 % of revenue in 2020 and ( 0.2 ) % of revenue in 2019. in 2020 , the company recorded non-taxable life insurance gains of approximately $ 1.0 million as two of its former executives passed away , and gains of approximately $ 0.8 million from the sale of a building . the company 's effective tax rate ( etr ) is calculated based upon the full year 's operating results and various tax related items . the etr in 2020 was 28.3 % , while the 2019 etr was 34.4 % . the etr in 2020 was impacted by a number of items , including non-taxable life insurance gains , a one-time tax benefit of approximately $ 0.08 per share for a change in tax legislation , offset by higher effective tax rates in the company 's european operations where the company generated most of its income in 2020. net income for 2020 was 2.1 % of revenue or $ 0.53 per diluted share , compared with 1.0 % of revenue or $ 0.29 per diluted share in 2019. diluted earnings per share were calculated using 14.4 million weighted-average equivalent shares outstanding in 2020 and 14.0 million in 2019 . 2019 as compared with 2018 the company recorded revenue in 2019 and 2018 as follows : replace_table_token_13_th the revenue increase in north america in 2019 as compared with 2018 was primarily due to a significant increase in demand for the company 's it solutions business , primarily in our healthcare vertical market , and a modest increase in demand for our it and other staffing business , primarily in our technology services provider vertical market . the revenue increase in europe is primarily due to strong demand for the company 's services in the european markets we serve , and the acquisition of tech-it on february 6 , 2019 , which at the time of acquisition had estimated annual revenue of approximately $ 20 million . reimbursable expenses billed to clients and included in revenue totaled $ 2.6 million and $ 3.2 million in 2019 and 2018 , respectively . on a consolidated basis , it solutions revenue increased $ 28.2 million or 24.9 % in 2019 as compared with 2018. the increase was primarily due to an increase in it solutions services in both north america and europe and the addition of tech-it , which conducts its operations in luxembourg . in north america , we continue to shift our focus to it solutions services , as the profit on those engagements is significantly higher than the profit on our it staffing services . in our european operations , greater than 50 % of the services we provide to clients are it solutions , and those operations have consistently grown organically at a rate that far exceeds the growth rate for it services of 3-5 % in the markets in which we conduct business . the acquisition of tech-it expanded our it solutions services by adding software and hardware services , including consulting , infrastructure and software design and development , infrastructure integration , project management , and training . also on a consolidated basis , it and other staffing revenue increased $ 7.2 million or 2.9 % during 2019 as compared with 2018. the it staffing revenue increase was primarily due to growth in it staffing in north america with our largest client , ibm . additionally , given the company 's strategic focus on becoming a more solutions-centric company , a decision was made , starting in the second half of 2019 , to critically evaluate each significant staffing engagement as it comes up for renewal to determine if the company wants to continue to provide those services to its client . those decisions are based on , among other factors , critically evaluating the work performed , the availability of the resources , the client , the long-term opportunities for the service provided at the client , and the revenue and profit associated with the engagement . accordingly , the company made a decision to disengage from several small engagements and a large staffing engagement late in 2019. while these decisions negatively affected revenue during 2020 , the company believes the reallocation of resources away from these engagements to other higher margin , it solutions services will positively impact the company in the long-term , and aid in the transformation to a more solutions-centric it services provider . 23 following the acquisition of ctg france ( soft company ) in 2018 , which relies heavily on billable subcontractors ( non-employees ) , we revised how we define and calculate headcount in order to report all billable consultants , including both employees and subcontractors . accordingly , the company 's billable consultants were approximately 3,950 at december 31 , 2019 , which was a 4.8 % decrease from approximately 4,150 billable consultants at december 31 , 2018. approximately 91 % of this headcount was for technical resources and 9 % for support positions .
| results of operations the table below sets forth percentage information calculated as a percentage of consolidated revenue as reported on the company 's consolidated statements of operations as included in item 8 , โ financial statements and supplementary data โ in this report . replace_table_token_11_th 2020 as compared with 2019 the company recorded revenue in 2020 and 2019 as follows : replace_table_token_12_th the company 's strategy throughout its operations is to expand the amount of it solutions services it provides to its clients as compared with it staffing services , and to focus on delivering digital solutions . it solutions provide significant value to our clients , and drive higher bill rates and margins for the company . our existing solutions include business , technology , and operations solutions that aid our clients in digitally transforming their company , and ultimately meet the needs of their clients . the digital services the company delivers includes the internet of things , intelligent automation , data and analytics , cloud and automated testing . the revenue decrease in north america in 2020 as compared with 2019 was primarily due to a significant decrease in demand for the company 's it staffing business due to the impact the pandemic had on the economies in the markets we serve . additionally , the company continues to disengage from its lowest margin staffing services as part of its strategy . demand in some areas of our it solutions business , primarily in our healthcare vertical market , also declined driven by the impact of the pandemic . the revenue increase in europe was primarily due to strong demand for the company 's services in the european markets we serve , and the acquisition of stardust on march 3 , 2020 , which at the time of acquisition had estimated annual revenue of approximately $ 6 million .
| 4,807 |
we have optimized our business and solutions to enable network operators to create and deliver the broad array of high-bandwidth services relied upon by enterprise and consumer end users . we provide equipment , software and services that support the transport , switching , aggregation , service delivery and management of voice , video and data traffic on communications networks . in addition to our high-capacity hardware platforms , we offer network management and control software platforms that help network operators simplify and automate their networks and virtualize certain network functions . our solutions are designed to enable network operators to adopt open , multi-vendor , software-programmable network infrastructures that improve automation , reduce network complexity and flexibly support changing service requirements . our solutions yield business and operational value for our customers by enabling them to introduce new , revenue-generating services and to reduce network complexity and expense . our converged packet optical , packet networking and optical transport products are used , individually or as part of an integrated solution , by communications service providers , cable and multiservice operators , web-scale providers , submarine network operators , governments , enterprises , research and education ( r & e ) institutions and other network operators across the globe . our products , which support applications from the network core to network access points , allow network operators to scale capacity , increase transmission speeds , allocate traffic and adapt dynamically to changing end-user service demands . our software solutions are oriented around our blue planet software platform , a modular , network virtualization , service orchestration and network management software platform designed to simplify the creation , automation and delivery of services across multi-vendor and multi-domain network environments . to complement our hardware and software solutions , we offer a broad range of network transformation and related support services that help our customers design , optimize , deploy , manage and maintain their networks . the rapid proliferation of communications services and devices , together with increased mobility , growth in video , cloud-based services and data center interconnection , have fundamentally affected the bandwidth and service demands placed upon communications networks . as the capacity of their network infrastructures are pressured , many network operators also face a rapidly changing business environment and shifting competitive landscape . newer market entrants , such as cloud service and over-the-top content providers , are challenging certain traditional business models . our op n architecture , which enables increased network scalability , flexibility and programmability , is designed to meet these challenges . it allows for network-level software applications to control and configure the network dynamically , while flexible interfaces integrate computing , storage and other network resources . this approach enables highly configurable network infrastructures that can meet the โ on-demand โ service requirements of both our customers and their end-users . by enhancing software-based management and control , enabling network functions to be provided virtually , and reducing required network elements , our op n approach optimizes network infrastructures . at the same time , it increases network scale at reduced cost and simplifies the management , deployment and orchestration of multi-vendor hardware and software elements . our op n architecture , which underpins our solutions offering and guides our research and development strategy , is described more fully in the โ strategy โ section of the description of our business in item 1 of part i of this report . our quarterly reports on form 10-q , annual reports on form 10-k , and current reports on form 8-k filed with the sec are available through the sec 's website at www.sec.gov or free of charge on our website as soon as reasonably practicable after we file these documents . we routinely post the reports above , recent news and announcements , financial results and other information about ciena that is important to investors in the `` investors '' section of our website at www.ciena.com . investors are encouraged to review the โ investors โ section of our website because , as with the other disclosure channels that we use , from time to time we may post material information on that site that is not otherwise disseminated by us . acquisition of cyan , inc. on august 3 , 2015 , we acquired cyan , inc. ( โ cyan โ ) , a leading provider of software-defined networking ( sdn ) , network function virtualization ( nfv ) and metro packet-optical solutions , in a cash and stock transaction . subject to the terms and conditions of the merger agreement , at closing each outstanding cyan share was exchanged for 0.19936 shares of ciena common stock and $ 0.63 in cash , resulting in an exchange of all of the outstanding shares of cyan common stock for approximately $ 33.6 million in cash and 10.6 million shares of ciena common stock . ciena assumed all then-outstanding cyan stock options and unvested 42 restricted stock unit awards and substituted for them approximately 1.0 million ciena restricted stock unit awards and stock options exercisable for approximately 2.4 million shares of ciena common stock . see note 2 to our consolidated financial statements included in in item 8 of part ii of this report for more information relating to this transaction . our acquisition of cyan is intended to advance a strategy that started with the introduction of our op n architecture and was extended with the launch of our agility software division in fiscal 2014. we believe that cyan 's best-in-class blue planet software solutions portfolio will significantly strengthen our software offering . complementing ciena 's network control and application software technologies , cyan adds multi-vendor network virtualization , service orchestration and next-generation network management software . the blue planet portfolio offers a carrier-grade , multi-vendor sdn and nfv platform designed to automate , orchestrate , and manage the lifecycle of virtualized services across data centers and the wide area network ( wan ) . story_separator_special_tag we may also face increased competition from companies , including those in our supply chain , who develop networking products based on off-the-shelf or commoditized hardware technology , referred to as โ white box โ hardware , particularly where our customer 's network strategies seek to emphasize deployment of those product offerings . against the backdrop of these competitive dynamics , maintaining incumbency with key customers around the globe , and securing new opportunities with a diverse set of network operators , often requires that we agree to aggressive pricing , significant commercial concessions or other unfavorable commercial terms . these terms have previously and may in the future adversely affect our quarterly results of operations and contribute to fluctuations in our results . these terms can also lengthen our revenue recognition or cash collection cycles , add start-up costs to initial sales or deployment of our solutions , require financial commitments or performance bonds , and include onerous contractual commitments that place a disproportionate allocation of risk upon us . convertible notes indebtedness maturity of 4.0 % convertible senior notes due 2015. on march 15 , 2015 , our outstanding 4.0 % convertible senior notes due 2015 ( the โ 2015 notes โ ) matured . as a result of conversion elections made by holders of a substantial majority of the outstanding 2015 notes under the terms of the indenture governing the 2015 notes , together with certain private exchange transactions conducted by us prior to maturity , approximately $ 180.6 million in aggregate principal amount of the 2015 notes , representing 96.3 % of the outstanding aggregate principal amount of the 2015 notes , was settled through the issuance of ciena common stock at or prior to maturity . in total , we issued approximately 8.9 million shares of ciena common stock as a result of the conversion elections and private exchange transactions in respect of the 2015 notes . we repaid in cash approximately $ 6.9 million in aggregate principal amount of the 2015 notes at maturity . assumption and conversion of cyan convertible notes . upon the closing of our acquisition of cyan , we assumed its $ 50.0 million in outstanding principal amount of 8.0 % convertible senior secured notes due 2019 ( the `` 2019 notes '' ) . under the terms of the indenture governing the 2019 notes , following the closing of the acquisition , the note holders were given the right to convert the 2019 notes at an increased conversion rate of approximately 91.79 shares of ciena common stock and $ 290.08 in cash for each $ 1,000 principal amount of the 2019 notes . during the fourth quarter of fiscal 2015 , holders representing all of the outstanding aggregate principal amount of the 2019 notes surrendered their notes for conversion and , accordingly , there are no remaining 2019 notes outstanding . in satisfaction of such conversions , during the fourth quarter of fiscal 2015 , we issued approximately 4.6 million shares of ciena common stock and paid $ 14.5 million in cash . see note 15 to our consolidated financial statements included in in item 8 of part ii of this report for more information relating to our outstanding convertible notes . financial results for fourth quarter of fiscal 2015 revenue for the fourth quarter of fiscal 2015 was $ 692.0 million , representing a sequential increase of 14.8 % from $ 602.9 million in the third quarter of fiscal 2015 . fourth quarter revenue includes $ 84.4 million from products and services relating to the cyan business acquired on august 3 , 2015. revenue-related details reflecting sequential changes from the third quarter of fiscal 2015 include the following : product revenue for the fourth quarter of fiscal 2015 increased by $ 80.4 million , primarily reflecting increases of $ 76.3 million in converged packet optical and $ 6.5 million in packet networking . these increases were partially offset by a decrease of $ 1.7 million in software . increased converged packet optical revenue reflects $ 81.0 million 44 relating to the z-series packet-optical platform acquired from cyan . sales of this platform primarily benefited from significantly increased sales to windstream corporation , which has been participating in certain u.s. government-supported funding programs at levels that we do not expect to recur . accordingly , we expect quarterly revenue for this product during fiscal 2016 to decrease considerably from the level attained in the fourth quarter . service revenue for the fourth quarter of fiscal 2015 increased by $ 8.7 million , inclusive of $ 3.4 million from the acquired cyan business . revenue from north america for the fourth quarter of fiscal 2015 was $ 480.0 million , an increase from $ 389.6 million in the third quarter of fiscal 2015 . this primarily reflects increases of $ 75.7 million in converged packet optical , $ 7.6 million in packet networking , and $ 6.8 million in software and services . europe , middle east and africa ( `` emea '' ) revenue for the fourth quarter of fiscal 2015 was $ 94.0 million , a slight increase from $ 93.2 million in the third quarter of fiscal 2015 . this primarily reflects an increase of $ 2.3 million in converged packet optical , partially offset by a decrease of $ 1.0 million in software and services . caribbean and latin america ( `` cala '' ) revenue for the fourth quarter of fiscal 2015 was $ 45.7 million , a decrease from $ 65.1 million in the third quarter of fiscal 2015 . this primarily reflects a decrease of $ 21.4 million in converged packet optical offset by an increase of $ 2.5 million in software and services . asia pacific ( `` apac '' ) revenue for the fourth quarter of fiscal 2015 was $ 72.3 million , an increase from $ 55.0 million in the third quarter of fiscal 2015 .
| consolidated results of operations operating segments for the periods covered by this report , ciena 's internal organizational structure and the management of its business were grouped into the following operating segments , each of which is more fully described in the `` products and services '' section of the description of our business in item 1 of part i of this annual report : converged packet optical โ includes the 6500 packet-optical platform and the 5430 reconfigurable switching system , which feature our wavelogic coherent optical processors . products also include waveserver , the family of coredirectorยฎ multiservice optical switches and the otn configuration for the 5410 reconfigurable switching system . revenue from sales of the z-series packet-optical platform acquired from cyan is included in our converged packet optical segment . this segment also includes sales of operating system software and enhanced software features embedded in each of these products . revenue from this segment is included in product revenue on the consolidated statement of operations . packet networking โ includes the 3000 family of service delivery switches and service aggregation switches and the 5000 family of service aggregation switches . this segment also includes the 8700 packetwave platform and the ethernet packet configuration for the 5410 service aggregation switch . this segment also includes sales of operating system software and enhanced software features embedded in each of these products . revenue from this segment is included in product revenue on the consolidated statement of operations . optical transport โ includes the 4200 advanced services platform , corestreamยฎ agility optical transport system , 5100/5200 advanced services platform , common photonic layer ( cpl ) and 6100 multiservice optical platform . this segment includes sales from sonet/sdh , transport and data networking products , as well as certain enterprise-oriented transport solutions that support storage and lan extension , interconnection of data centers , and virtual private networks .
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the company has no t recognized any impairment charges related to goodwill to date . f-13 intangible assets , net intangible assets , net consist of acquired core technology and in-licensed rights with finite lives , net of accumulated amortization . the company amortizes its intangible assets using the straight-line method over their estimated economic story_separator_special_tag the following information should be read in conjunction with the consolidated financial statements and related notes thereto included in this annual report on form 10-k. in addition to historical information , this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from plans and results discussed in forward-looking statements . we encourage you to review the risks and uncertainties discussed in the sections entitled item 1a . โ risk factors โ and โ forward-looking statements โ included at the beginning of this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends . we caution readers not to place undue reliance on any forward-looking statements made by us , which speak only as of the date they are made . we disclaim any obligation , except as specifically required by law and the rules of the sec , to publicly update or revise any such statements to reflect any change in our expectations or in events , conditions or circumstances on which any such statements may be based , or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements . overview we are a biotechnology company committed to researching , developing , and commercializing potentially transformative gene therapies for severe genetic diseases and cancer . we have built an integrated product platform with broad therapeutic potential in a variety of indications based on our lentiviral gene addition platform , gene editing and cancer immunotherapy capabilities . our severe genetic disease ( `` sgd '' ) programs include beti-cel , lentiglobin for scd gene therapy , and eli-cel . our programs in oncology are focused on developing novel t cell-based immunotherapies , including car and tcr t cell therapies . bb2121 ( idecabtagene vicleucel , or ide-cel ) , and bb21217 are car-t cell product candidates for the treatment of multiple myeloma and partnered under our collaboration arrangement with bms . we are commercializing beti-cel as zynteglo in the eu and began to treat patients in the commercial context in the first quarter of 2021. however , in february 2021 we temporarily suspended marketing of zynteglo in light of safety events in the hgb-206 clinical study of lentiglobin for scd , which is manufactured using the same vector as zynteglo . additionally , the ema has paused the renewal procedure for zynteglo 's conditional marketing authorization while the ema 's pharmacovigilance risk assessment committee reviews the risk-benefit assessment for zynteglo and determines whether any additional pharmacovigilance measures are necessary . we are engaged with the ema in discussions regarding our proposed development plans for beti-cel as a treatment for patients with tdt who are less than 12 years of age and for patients who have a ฮฒ 0 /ฮฒ 0 genotype . we are engaged with the fda in discussions regarding our proposed development plans for beti-cel as a treatment for patients with tdt . contingent upon successful resolution of the fda 's concerns arising out of the safety events in our scd program , we currently expect to complete our bla submission for beti-cel in mid-2021 for the treatment of patients with tdt across all genotypes , including non-ฮฒ 0 /ฮฒ 0 and ฮฒ 0 /ฮฒ 0 genotypes , and patients with tdt who are less than 12 years of age . based on our prior discussions with the fda , we believe that we may be able to seek accelerated approval for lentiglobin for scd in the united states on the basis of clinical data from group c of our hgb-206 clinical study , with our hgb-210 clinical study providing confirmatory data for full approval . however , in light of a susar of acute myeloid leukemia and a susar of myelodysplastic syndrome in our hgb-206 clinical study , the fda has placed our clinical studies of lentiglobin for scd on clinical hold . we are investigating these events and plan to continue to work closely with the fda in their review of these events . in addition , we are also engaged with the ema in discussions regarding our proposed development plans for lentiglobin for scd in europe . in october 2020 , the ema accepted our marketing authorization application in the eu for eli-cel for the treatment of patients with cald . based on our discussions with the fda , we believe that we may be able to seek approval for eli-cel for the treatment of patients with cald on the basis of our clinical data from our ongoing starbeam study , safety data from our ongoing ald-104 study , and the completed ald-103 observational study . we currently expect to submit the bla for eli-cel for the treatment of patients with cald in mid-2021 . in collaboration with bms , we are developing ide-cel and the bb21217 product candidates as treatments for multiple myeloma . we are co-developing and co-promoting ide-cel in the united states with bms and we have exclusively licensed to bms the development and commercialization rights for ide-cel outside of the united states . in september 2020 , the fda accepted for priority review the bla submitted by bms for ide-cel as a treatment for relapsed and refractory multiple myeloma . we have exclusively licensed the development and commercialization rights for the bb21217 product candidate to bms , with an option for us to elect to co-develop and co-promote bb21217 within the united states . in addition , we are 75 independently pursuing next-generation bcma-targeting car-t approaches for treating multiple myeloma . story_separator_special_tag in response to the covid-19 pandemic , we have implemented policies at our locations to mitigate the risk of exposure to covid-19 by our personnel , including restrictions on the number of staff in any given research and development laboratory or manufacturing facility , a work-from-home policy applicable to the majority of our personnel , and a phased approach to bringing personnel back to our locations over time . given the importance of supporting our patients , we are diligently working with our suppliers , healthcare providers and partners to provide patients with access to zynteglo , while taking into account regulatory , institutional , and government guidance , policies and protocols . further , we are working with our clinical study sites to understand the duration and scope of the impact on enrollment , develop protocols to help mitigate the impact of the covid-19 pandemic , and other activities for our ongoing clinical studies . however , the ultimate impact of the covid-19 pandemic on our business operations is highly uncertain and subject to change and will depend on future developments which are difficult to predict . we expect our cash , cash equivalents and marketable securities of $ 1.27 billion as of december 31 , 2020 , will be sufficient to fund planned operations for at least the next twelve months from the date of issuance of these financial statements , though we may pursue additional cash resources through public or private equity or debt financings or by establishing additional collaborations with other companies . in january 2021 , we announced our intent to separate our severe genetic disease and oncology programs into two separate , independent publicly traded companies , bluebird bio , inc. and a new company , which we refer to as oncology newco in this annual report on form 10-k. bluebird bio , inc. intends to retain focus on our severe genetic disease programs and oncology newco is expected to focus on our oncology programs . the transaction is expected to be completed in late 2021 and is anticipated to be tax-free , subject to receipt of a favorable irs ruling . financial operations overview revenue to date , we have not generated any revenues from the sale of products . our revenues have been derived from collaboration arrangements , out-licensing arrangements , research fees , and grant revenues . to date , revenue recognized under our collaborative arrangements has been primarily generated from our collaboration arrangement with bms . the terms of the arrangement with respect to ide-cel contain multiple promised goods or services , which include at inception : ( i ) research and development services , ( ii ) a license to ide-cel , and ( iii ) manufacture of vectors and associated payload for incorporation into ide-cel under the license . as of september 2017 , the collaboration also included the following promised goods or services with respect to bb21217 : ( i ) research and development services , ( ii ) a license to bb21217 , and ( iii ) manufacture of vectors and associated payload for incorporation into bb21217 under the license . we entered into an agreement with bms to co-develop and co-promote ide-cel in march 2018 , which was subsequently amended in may 2020 , in which both parties will share equally in u.s. costs and profits . revenue from our collaborative arrangements is recognized as the underlying performance obligations are satisfied . we analyze our collaboration arrangements to assess whether they are within the scope of asc 808 , collaborative arrangements ( โ asc 808 โ ) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities . this assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement . for collaboration arrangements within the scope of asc 808 , we first determine which elements of the collaboration are deemed to be within the scope of asc 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of asc 606 , revenue from contracts with customers ( โ topic 606 โ or `` asc 606 '' ) . for elements of collaboration arrangements that are accounted for pursuant to asc 808 , an appropriate recognition method is determined and applied consistently , generally by analogy to topic 606. amounts that are owed to collaboration partners are recognized as an offset to collaborative arrangement revenues as such amounts are incurred by the 77 collaboration partner . where amounts owed to a collaboration partner exceed our collaborative arrangement revenues in a quarterly period , such amounts in excess are classified as research and development expense . for those elements of the arrangement that are accounted for pursuant to topic 606 , we apply the five-step model prescribed in topic 606. effective january 1 , 2020 , we adopted accounting standards update ( `` asu '' ) no . 2018-18 , collaborative arrangements ( topic 808 ) : clarifying the interaction between topic 808 and topic 606 ( `` asu 2018-18 '' ) on a retrospective basis . as a result , prior periods are presented in accordance with the new standard . prior to the adoption of asu 2018-18 , we presented all revenue recognized under our collaborative arrangements as collaboration revenue on our consolidated statement of operations and comprehensive loss . however , as we recognize revenue under our collaborative arrangements both within and outside the scope of topic 606 , we have revised our presentation of revenue on our consolidated statement of operations and comprehensive loss as follows : service revenue includes revenue from collaborative partners recognized within the scope of topic 606 and collaborative arrangement revenue includes only revenue from collaborative partners recognized outside the scope of topic 606. nonrefundable license fees are recognized as revenue upon delivery of the license provided there are no unsatisfied performance obligations in the arrangement .
| results of operations comparison of the years ended december 31 , 2020 and 2019 : replace_table_token_3_th revenue . total revenue was $ 250.7 million for the year ended december 31 , 2020 , compared to $ 44.7 million for the year ended december 31 , 2019. the increase of $ 206.1 million was primarily attributable to a cumulative catch-up adjustment to revenue recorded in connection with the may 2020 bms contract modification , as well as an increase in royalty and other revenue primarily attributable to revenue recognized under an out-license agreement with juno therapeutics , inc. research and development expenses . research and development expenses were $ 588.0 million for the year ended december 31 , 2020 , compared to $ 582.4 million for the year ended december 31 , 2019. the increase of $ 5.5 million was primarily attributable to the following : $ 12.8 million of increased collaboration research funding costs , primarily due to an increase in collaboration costs incurred by bms as a result of bms assuming the contract manufacturing agreements relating to ide-cel adherent lentiviral vector under the may 2020 contract modification ; $ 8.2 million of increased net employee compensation , benefit , and other headcount related expenses , which is primarily driven by an increase in headcount in the quality and manufacturing organizations to support overall growth and includes a $ 7.9 million decrease in stock-based compensation expense due to the recognition of expense on performance-based restricted stock units that vested in june 2019. refer to note 14 , stock-based compensation , in the notes to consolidated financial statements for discussion of stock-based compensation expense recognized on the performance-based restricted stock units ; $ 7.0 million of increased license and milestone fees primarily due to a sublicense fee upon execution of the may 2020 bms contract modification ; and $ 5.3 million of increased consulting fees primarily related to the quality and manufacturing organizations .
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the adviser 's services under the investment advisory agreement are not exclusive , and it is free to furnish similar services to other entities story_separator_special_tag the information contained in this section should be read in conjunction with โ item 8. consolidated financial statements and supplementary data โ . this discussion contains forward-looking statements , which relate to future events or the future performance or financial condition of owl rock core income corp. and involves numerous risks and uncertainties , including , but not limited to , those described in โ item 1a . risk factors โ . this discussion also should be read in conjunction with the โ cautionary statement regarding forward looking statements โ set forth on page 1 of this annual report on form 10-k. actual results could differ materially from those implied or expressed in any forward-looking statements . overview owl rock core income corp. ( the โ company โ , โ we โ , โ us โ , or โ our โ ) is an externally managed , non-diversified closed-end management investment company that has elected to be treated as a business development company ( โ bdc โ ) under the 1940 act . formed as a maryland corporation on april 22 , 2020 , we are externally managed by owl rock capital advisors llc ( the โ adviser โ ) which is responsible for sourcing potential investments , conducting due diligence on prospective investments , analyzing investment opportunities , structuring investments and monitoring our portfolio on an ongoing basis . the adviser is registered as an investment adviser with the securities and exchange commission ( โ sec โ ) . we intend to elect to be treated as a ric under subchapter m of the code , and we intend to operate in a manner so as to to qualify for the tax treatment applicable to rics . on october 23 , 2020 , we formed a wholly-owned subsidiary , or lending ic llc , a delaware limited liability company . we are managed by our adviser . our adviser is registered with the sec as an investment adviser under the advisers act . subject to the overall supervision of our board , our adviser manages the day-to-day operations of , and provides investment advisory and management services , to us . the adviser or its affiliates may engage in certain organizational activities and receive attendant arrangement , structuring or similar fees . our adviser is responsible for managing our business and activities , including sourcing investment opportunities , conducting research , performing diligence on potential investments , structuring our investments , and monitoring our portfolio companies on an ongoing basis through a team of management professionals . our board consists of eight directors , five of whom are independent . we have received an exemptive order that permits us to offer multiple classes of shares of common stock and to impose asset-based servicing and distribution fees and early withdrawal fees . we intend to offer on a best efforts , continuous basis up to $ 2,500,000,000 in any combination of amount of shares of class s , class d , and class i common stock . the share classes have different upfront selling commissions and ongoing servicing fees . each class of common stock will be offered through owl rock capital securities llc ( d/b/a owl rock securities ) ( the โ dealer manager โ ) . the dealer manager is entitled to receive upfront selling commissions of up to 3.50 % of the offering price of each class s share sold in the offering and 1.50 % of the offering price of each class d share sold . class i shares are not subject to upfront selling commissions . any upfront selling commissions for the class s shares and class d shares sold in the offering will be deducted from the purchase price . class s , class d and class i shares will be offered at initial purchase prices per shares of $ 10.35 , $ 10.15 and $ 10.00 , respectively . thereafter , the purchase price per share for each class of common stock will vary and will not be sold at a price below the company 's net asset value per share of such class , as determined in accordance with the company 's share pricing policy , plus applicable upfront selling commissions . on september 30 , 2020 , the advisor purchased 100 shares of our class i common stock at $ 10.00 per share , which represents the initial public offering price . the adviser will not tender these shares for repurchase as long as owl rock capital advisors llc remains the investment adviser of owl rock core income corp. there is no current intention for owl rock capital advisors llc to discontinue its role . on october 15 , 2020 , we received a subscription agreement , totaling $ 25.0 million for the purchase of class i common shares of our common stock from feeder owl rock feeder fic orcic equity llc ( โ feeder fic equity โ ) , an entity affiliated with the adviser . we commenced our continuous public offering of up to $ 2,500,000,000 in any combination of amount of shares of class s , class d , and class i common stock on november 12 , 2020. on november 12 , 2020 , we sold 700,000 shares pursuant to the subscription agreement and met the minimum offering requirement for our continuous public offering of $ 2.5 million . the purchase price of these shares sold in the private placement was $ 10.00 per share . since meeting the minimum offering requirement and commencing our continuous public offering through december 31 , 2020 , the company has issued 1,300,100 shares of class i common stock for gross proceeds of $ 13.0 million , including $ 1,000 of seed capital contributed by our adviser in september 2020 and approximately $ 13.0 million in gross proceeds raised in the private placement from feeder fic equity . story_separator_special_tag , and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing . in addition , pursuant to an exemptive order issued by the sec on april 8 , 2020 and applicable to all bdcs , through december 31 , 2020 , we were permitted , subject to the satisfaction of certain conditions , to complete follow-on investments in our existing portfolio 79 companies with certain private funds managed by the adviser or its affiliates and covered by our exemptive relief , even if such other funds had not previously invested in such existing portfolio company . without this order , private funds would not be able to participate in such follow-on investments with us unless the private funds had previously acquired securities of the portfolio company in a co-investment transaction with us . although the conditional exemptive order has expired , the sec 's division of investment management has indicated that until march 31 , 2022 , it will not recommend enforcement action , to the extent that any bdc with an existing coinvestment order continues to engage in certain transactions described in the conditional exemptive order , pursuant to the same terms and conditions described therein . the owl rock advisers ` allocation policy seeks to ensure equitable allocation of investment opportunities over time between us and or other funds managed by our advisers . as a result of the exemptive relief , there could be significant overlap in our investment portfolio and the investment portfolio of other funds established by our advisers that could avail themselves of exemptive relief . we have elected to be regulated as a bdc under the 1940 act and intend to elect to be taxed as a regulated investment company ( โ ric โ ) for tax purposes under the code . as a result , we are required to comply with various statutory and regulatory requirements , such as : the requirement to invest at least 70 % of our assets in โ qualifying assets โ , as such term is defined in the 1940 act ; source of income limitations ; asset diversification requirements ; and the requirement to distribute ( or be treated as distributing ) in each taxable year at least 90 % of our investment company taxable income and tax-exempt interest for that taxable year . covid-19 developments in march 2020 , the outbreak of covid -19 was recognized as a pandemic by the world health organization . shortly thereafter , the president of the united states declared a national emergency throughout the united states attributable to such outbreak . the outbreak has become increasingly widespread in the united states , including in the markets in which we operate , and in response to the outbreak , our adviser instituted a work from home policy until it is deemed safe to return to the office . we have and continue to assess the impact of covid-19 on our portfolio companies . we can not predict the full impact of the covid-19 pandemic , including its duration in the united states and worldwide , the effectiveness of governmental responses designed to mitigate strain to businesses and the economy and the magnitude of the economic impact of the outbreak . the covid-19 pandemic and preventative measures taken to contain or mitigate its spread have caused , and are continuing to cause , business shutdowns , cancellations of events and travel , significant reductions in demand for certain goods and services , reductions in business activity and financial transactions , supply chain interruptions and overall economic and financial market instability both globally and in the united states . such effects will likely continue for the duration of the pandemic , which is uncertain , and for some period thereafter . while several countries , as well as certain states , counties , and cities in the united states , have relaxed initial public health restrictions with a view to partially or fully reopening their economies many cities world-wide have since experienced a surge in the reported number of cases , hospitalizations and deaths related to the covid-19 pandemic . these increases have led to the re-introduction of restrictions and business shutdowns in certain states , counties and cities in the united states and globally and could continue to lead to the re-introduction of such restrictions and business shutdowns elsewhere . additionally , as of late december 2020 , travelers from the united states are not allowed to visit canada , australia or the majority of countries in europe , asia , africa and south america . these continued travel restrictions may prolong the global economic downturn . in addition , although the federal food and drug administration authorized vaccines for emergency use starting in december 2020 , it remains unclear how quickly the vaccines will be distributed nationwide and globally or when โ herd immunity โ will be achieved and the restrictions that were imposed to slow the spread of the virus will be lifted entirely . the delay in distributing the vaccines could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time . even after the covid-19 pandemic subsides , the u.s. economy and most other major global economies may continue to experience a recession , and we anticipate our business and operations could be materially adversely affected by a prolonged recession in the united states and other major markets . some economists and major investment banks have expressed concerns that the continued spread of the virus globally could lead to a world-wide economic downturn . we are unable to predict the duration of any business and supply-chain disruptions , whether covid-19 will negatively affect our portfolio companies ' operating results or the impact that such disruptions may have on our results of operations and financial condition .
| results of operations the following table represents the operating results for the year ended december 31 , 2020 : ( $ in thousands ) year ended december 31 , 2020 ( 1 ) ( 2 ) total investment income $ 69 less : net operating expenses 795 net investment income ( loss ) ( 726 ) net change in unrealized gain ( loss ) ( 2 ) net increase ( decrease ) in net assets resulting from operations per share of class i common stock $ ( 728 ) ( 1 ) the company commenced operations on november 10 , 2020 . ( 2 ) per share is based on class i shares as class i is the only share class outstanding as of december 31 , 2020. net increase ( decrease ) in net assets resulting from operations can vary from period to period as a result of various factors , including the level of new investment commitments , expenses , the recognition of realized gains and losses and changes in unrealized appreciation and deprecation on the investment portfolio . additionally , we were initially capitalized on september 30 , 2020 and commenced investing activities on november 10 , 2020. as a result , comparisons may not be meaningful . investment income investment income for the year ended december 31 , 2020 was as follows : ( $ in thousands ) year ended december 31 , 2020 ( 1 ) interest income from investments $ 60 dividend income 2 other income 7 total investment income $ 69 < td bgcolor= '' # ffffff ''
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for more information about our dividends , see โ item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities. โ issuance of preferred stock under the u.s. department of the treasury 's small business lending fund on august 11 , 2011 , first savings financial group entered into and consummated a securities purchase agreement ( the โ purchase agreement โ ) with the secretary of the treasury , pursuant to which first savings financial group issued 17,120 shares of senior non-cumulative perpetual preferred stock , series a ( the โ series a preferred stock โ ) , having a liquidation amount per share equal to $ 1,000 , for a total purchase price of $ 17.1 million . the purchase agreement was entered into , and the series a preferred stock was issued , pursuant to the small business lending fund program , a $ 30 billion fund established under the small business jobs act of 2010 , that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $ 10 billion . see note 24 of the notes to consolidated financial statements beginning of page f-1 of this annual report for additional information regarding the terms of the series a preferred stock . balance sheet analysis cash and cash equivalents . at september 30 , 2014 and 2013 , cash and cash equivalents totaled $ 20.3 million and $ 20.8 million , respectively . the bank is required to maintain reserve balances on hand and with the federal reserve bank which are unavailable for investment but interest-bearing . the average amount of those reserve balances for the year ended september 30 , 2014 was approximately $ 7.1 million . loans . our primary lending activity is the origination of loans secured by real estate . we originate one-to four-family mortgage loans , multifamily loans , commercial real estate loans , commercial business loans and construction loans . to a lesser extent , we originate various consumer loans including home equity lines of credit . 36 residential mortgage loans comprise the largest segment of our loan portfolio . at september 30 , 2014 , these loans totaled $ 182.7 million , or 40.9 % of total loans , compared to $ 184.4 million , or 44.1 % of total loans at september 30 , 2013. total residential mortgage loan balances decreased in 2014 primarily due to repayments and refinancings that were sold in the secondary market . we generally originate loans for investment purposes , although , depending on the interest rate environment , we typically sell 25-year and 30-year fixed-rate residential mortgage loans that we originate into the secondary market in order to limit exposure to interest rate risk and to earn noninterest income . management intends to continue offering short-term adjustable rate residential mortgage loans and sell long-term fixed rate mortgage loans in the secondary market with servicing released . commercial real estate loans totaled $ 153.9 million , or 34.5 % of total loans at september 30 , 2014 , compared to $ 117.8 million , or 28.2 % of total loans at september 30 , 2013. the balance of commercial real estate loans has increased primarily due to the previously discussed lending program that is focused on loans secured by low loan-to-value , single-tenant commercial properties that are leased to investment grade national-brand retailers . management continues to focus on pursuing nonresidential loan opportunities in order to further diversify the loan portfolio . multi-family real estate loans totaled $ 21.3 million , or 4.8 % of total loans at september 30 , 2014 , compared to $ 26.8 million , or 6.4 % of total loans at september 30 , 2013. the balance of multi-family real estate loans decreased primarily due to repayments and increased competition in the marketplace . residential construction loans totaled $ 14.5 million , or 3.3 % of total loans , at september 30 , 2014 of which $ 4.8 million were speculative construction loans . at september 30 , 2013 , residential construction loans totaled $ 12.5 million , or 3.0 % of total loans , of which $ 7.7 million were speculative loans . the general slowdown in the housing market in our primary market area and , to a lesser extent , increased competition in the market for these loans has somewhat decreased the opportunity to originate these loans and significantly grow this segment of the portfolio . we intend to continue pursuing quality construction lending opportunities as the housing market continues to recover . commercial construction loans totaled $ 8.4 million , or 1.9 % of total loans , at september 30 , 2014 compared to $ 6.7 million , or 1.6 % of total loans at september 30 , 2013. the general slowdown of commercial construction in our primary market area and increased competition in the marketplace has decreased the opportunity to originate these loans and significantly grow this segment of the portfolio . land and land development loans totaled $ 11.3 million , or 2.5 % of total loans at september 30 , 2014 , compared to $ 11.4 million , or 2.7 % of total loans at september 30 , 2013. these loans are primarily secured by vacant lots to be improved for residential and nonresidential development and farmland . the general slowdown of residential and commercial construction in our primary market area and increased competition in the marketplace has decreased the opportunity to originate these loans and grow this segment of the portfolio . commercial business loans totaled $ 28.4 million , or 6.4 % of total loans , at september 30 , 2014 compared to $ 31.6 million , or 7.6 % of total loans , at september 30 , 2013. the balance of commercial business loans has decreased primarily due to repayments , payoffs , charge-offs and increased competition in the marketplace . management continues to focus story_separator_special_tag for more information about our dividends , see โ item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities. โ issuance of preferred stock under the u.s. department of the treasury 's small business lending fund on august 11 , 2011 , first savings financial group entered into and consummated a securities purchase agreement ( the โ purchase agreement โ ) with the secretary of the treasury , pursuant to which first savings financial group issued 17,120 shares of senior non-cumulative perpetual preferred stock , series a ( the โ series a preferred stock โ ) , having a liquidation amount per share equal to $ 1,000 , for a total purchase price of $ 17.1 million . the purchase agreement was entered into , and the series a preferred stock was issued , pursuant to the small business lending fund program , a $ 30 billion fund established under the small business jobs act of 2010 , that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $ 10 billion . see note 24 of the notes to consolidated financial statements beginning of page f-1 of this annual report for additional information regarding the terms of the series a preferred stock . balance sheet analysis cash and cash equivalents . at september 30 , 2014 and 2013 , cash and cash equivalents totaled $ 20.3 million and $ 20.8 million , respectively . the bank is required to maintain reserve balances on hand and with the federal reserve bank which are unavailable for investment but interest-bearing . the average amount of those reserve balances for the year ended september 30 , 2014 was approximately $ 7.1 million . loans . our primary lending activity is the origination of loans secured by real estate . we originate one-to four-family mortgage loans , multifamily loans , commercial real estate loans , commercial business loans and construction loans . to a lesser extent , we originate various consumer loans including home equity lines of credit . 36 residential mortgage loans comprise the largest segment of our loan portfolio . at september 30 , 2014 , these loans totaled $ 182.7 million , or 40.9 % of total loans , compared to $ 184.4 million , or 44.1 % of total loans at september 30 , 2013. total residential mortgage loan balances decreased in 2014 primarily due to repayments and refinancings that were sold in the secondary market . we generally originate loans for investment purposes , although , depending on the interest rate environment , we typically sell 25-year and 30-year fixed-rate residential mortgage loans that we originate into the secondary market in order to limit exposure to interest rate risk and to earn noninterest income . management intends to continue offering short-term adjustable rate residential mortgage loans and sell long-term fixed rate mortgage loans in the secondary market with servicing released . commercial real estate loans totaled $ 153.9 million , or 34.5 % of total loans at september 30 , 2014 , compared to $ 117.8 million , or 28.2 % of total loans at september 30 , 2013. the balance of commercial real estate loans has increased primarily due to the previously discussed lending program that is focused on loans secured by low loan-to-value , single-tenant commercial properties that are leased to investment grade national-brand retailers . management continues to focus on pursuing nonresidential loan opportunities in order to further diversify the loan portfolio . multi-family real estate loans totaled $ 21.3 million , or 4.8 % of total loans at september 30 , 2014 , compared to $ 26.8 million , or 6.4 % of total loans at september 30 , 2013. the balance of multi-family real estate loans decreased primarily due to repayments and increased competition in the marketplace . residential construction loans totaled $ 14.5 million , or 3.3 % of total loans , at september 30 , 2014 of which $ 4.8 million were speculative construction loans . at september 30 , 2013 , residential construction loans totaled $ 12.5 million , or 3.0 % of total loans , of which $ 7.7 million were speculative loans . the general slowdown in the housing market in our primary market area and , to a lesser extent , increased competition in the market for these loans has somewhat decreased the opportunity to originate these loans and significantly grow this segment of the portfolio . we intend to continue pursuing quality construction lending opportunities as the housing market continues to recover . commercial construction loans totaled $ 8.4 million , or 1.9 % of total loans , at september 30 , 2014 compared to $ 6.7 million , or 1.6 % of total loans at september 30 , 2013. the general slowdown of commercial construction in our primary market area and increased competition in the marketplace has decreased the opportunity to originate these loans and significantly grow this segment of the portfolio . land and land development loans totaled $ 11.3 million , or 2.5 % of total loans at september 30 , 2014 , compared to $ 11.4 million , or 2.7 % of total loans at september 30 , 2013. these loans are primarily secured by vacant lots to be improved for residential and nonresidential development and farmland . the general slowdown of residential and commercial construction in our primary market area and increased competition in the marketplace has decreased the opportunity to originate these loans and grow this segment of the portfolio . commercial business loans totaled $ 28.4 million , or 6.4 % of total loans , at september 30 , 2014 compared to $ 31.6 million , or 7.6 % of total loans , at september 30 , 2013. the balance of commercial business loans has decreased primarily due to repayments , payoffs , charge-offs and increased competition in the marketplace . management continues to focus
| overview . the company reported net income of $ 5.4 million and net income available to common shareholders of $ 5.2 million ( $ 2.34 per common share diluted ; weighted average common shares outstanding of 2,229,314 , as adjusted ) for the year ended september 30 , 2014 , compared to net income of $ 4.7 million and net income available to common shareholders of $ 4.5 million ( $ 1.99 per common share diluted ; weighted average common shares outstanding of 2,269,063 , as adjusted ) for the year ended september 30 , 2013. as discussed in โ noninterest expense โ below , the company recognized nonrecurring pretax charges totaling $ 317,000 during the year ended september 30 , 2014 for consulting services and travel expenses related to a revenue enhancement and operating expense efficiencies project undertaken by the company in 2014 , including professional fees of $ 257,000 and other miscellaneous travel expenses of $ 60,000. the company also recognized nonrecurring pretax income totaling $ 277,000 during the year ended september 30 , 2014 for a litigation settlement received as a partial recovery of losses on commercial bond investments recognized by community first in 2008 , as discussed in โ noninterest income โ below . net interest income .
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during the second quarter of 2009 , the company exited the status of development stage enterprise and commenced its planned principal operations since the company earned revenues during the quarter ended june 30 , 2009. during august 2010 , tomi entered into negotiations with bit technology a division of l-3 , and we began to develop applications for and distribution of the steramist tm equipment that currently accounts for nearly all of our revenue . in april 2013 we completed the acquisition of binary ionization technology ยฎ certain assets ( โ bit tm โ ) from l-3 applied technologies , inc. ( โ l-3 โ ) for $ 3,510,000. this technology relates to a disinfection/decontamination system that applies cold plasma activation to a hydrogen peroxide based mist and fog and produces a reactive oxygen species ( ros ) mist . bit tm deactivates organic compounds and quickly and effectively kills viruses , bacteria , bacteria spores , molds spores , other fungi and yeast , both in the air and on surfaces . the product is environmentally friendly and leaves no residue or fumes . 14 overview you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and related notes included elsewhere in this report . also refer to item 1. business โ overview for more detailed descriptions . our financial position was as follows : replace_table_token_2_th during our year ended december 31 , 2013 our debt and liquidity positions were affected by the following : โ net cash used in operations of approximately $ 1,306,000 ; โ acquisition of intangibles of $ 3,288,000 ; โ proceeds from the issuance of convertible notes of $ 5,074,000 ; โ proceeds from the issuance of common stock of $ 1,011,000 ; looking forward certain key factors will affect our future financial and operating results . these include , but are not limited to , the following : โ procurement of critical part components for our products of approximately $ 310,000 ; โ we anticipate interest payments of approximately $ 507,000 during 2014 ; โ repayments on convertible notes payable of $ 5,074,000 during 2015 . โ our 2014 expectations , particularly with respect to sales volumes may differ significantly from actual quarter and full year results due to competition , demand for our products , sales and marketing success , and our ability to effectively and efficiently manufacture our products . story_separator_special_tag style= '' display : inline ; font-family : times new roman ; font-size : 10pt ; font-weight : bold '' > 17 summary of revenues replace_table_token_4_th sales information of geographic basis replace_table_token_5_th liquidity and capital resources operating activities cash used in operating activities during the year ended december 31 , 2013 and 2012 was approximately $ 1,306,000 and $ 386,000 , respectively . cash used in operating activities increased $ 920,000 as compared to the year ended december 31 , 2012 , primarily due to : 1 ) an increase in accounts receivable balances of approximately $ 374,000 , 2 ) a building inventory stockpiles for an anticipated increase in sales of approximately $ 408,000 , and 3 ) an increase in accounts payable of $ 360,000. investing activities cash used in investing activities during the year ended december 31 , 2013 , amounted to approximately $ 3,461,000 , primarily due to the acquisition of patents related to the steramist tm line of products from l-3 . these patents relate to a mechanical disinfection/decontamination system that applies cold plasma activation to a hydrogen peroxide based mist and fog and produces a reactive oxygen species ( ros ) which deactivates organic compounds and quickly and effectively kills viruses , bacteria , spores , molds spores , other fungi and yeast , both in the air and on surfaces . the product is environmentally friendly and leaves no residue or fumes . on april 15 , 2013 , we completed the acquisition of a binary ionization technology and related patents and other assets consisting of personal property and inventory related to implementation of the binary ionization technology related to these patents from l-3 . all of these assets are pledged as collateral for the convertible notes issued as described below in financing activities . the technology relates to a mechanical disinfection/decontamination system that applies cold plasma activation to a hydrogen peroxide based mist and fog and produces a reactive oxygen species ( ros ) . the technology , which we sell under the name steramist tm , deactivates organic compounds and quickly and effectively kills viruses , bacteria , bacteria spores , mold spores , other fungi and yeast , both in the air and on surfaces . the ros that the company 's technology produces leaves no residue and may be used on all delicate medical and other technologies without damage . the only by-products produced are in the form of water ( humidity ) and oxygen , making our technology a green technology . 18 cash used in investing activities during the year ended december 31 , 2012 , amounted to approximately $ 48,000 , primarily from the acquisition of equipment . financing activities cash provided by financing activities during the year ended december 31 , 2013 amounted to approximately $ 5,400,000 , primarily from gross proceeds received from the issuance of convertible notes amounting to $ 5,074,000 we also received proceeds of approximately $ 1,011,000 in the current period from the issuance of common stock . story_separator_special_tag 104 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) service has been rendered or delivery has occurred ; ( 3 ) the selling price is fixed and determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgment regarding the fixed nature of the selling prices of the services rendered or products delivered and the collectability of those amounts . provisions for discounts to customers , and allowance , and other adjustments will be provided for in the same period the related sales are recorded . fair value measurement the authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . market participants are buyers and sellers in the principal market that are ( i ) independent , ( ii ) knowledgeable , ( iii ) able to transact , and ( iv ) willing to transact . the guidance describes a fair value hierarchy based on the levels of inputs , of which the first two are considered observable and the last unobservable , that may be used to measure fair value , which are the following : level 1 : quoted prices in active markets for identical assets or liabilities . level 2 : inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities . level 3 : unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities . the company 's financial instruments include cash and equivalents , accounts receivable , accounts payable and accrued expenses and loans payable . all these items were determined to be level 1 fair value measurements . the carrying amounts of cash and equivalents , accounts receivable , accounts payable and accrued expenses , and loans payable approximated fair value because of the short maturity of these instruments . the recorded value of long-term convertible debt approximates its fair value as the terms and rates approximate market rates . 20 inventories inventories are valued at the lower of cost or market using the first-in , first-out ( โ fifo โ ) method . inventories consist primarily of finished goods and demo equipment . property and equipment we account for property and equipment at cost less accumulated depreciation . we compute depreciation using the straight-line method over the estimated useful lives of the assets , generally three to five years . depreciation for equipment , furniture and fixtures and vehicles commences once placed in service for its intended use . deferred financing costs the company follows authoritative guidance for accounting for financing costs as it relates to convertible debt issuance cost . these costs are deferred and amortized over the term of the debt period or until redemption of the convertible debentures . stock-based compensation we account for stock-based compensation in accordance with financial accounting standards board ( โ fasb โ ) , asc 718 , compensation- โ stock compensation. โ under the provisions of fasb asc 718 , stock-based compensation cost is estimated at the grant date based on the award 's fair value and is recognized as expense over the requisite service period . the company currently has one active stock-based compensation plan , tomi environmental solutions , inc. stock option and restricted stock plan ( the โ plan โ ) . the plan calls for the company , through a committee of its board of directors , to issue up to 2,500,000 shares of restricted common stock or stock options . the company generally issues grants to its employees , consultants , and board members . stock options are granted with an exercise price equal to the closing price of its common stock on the date of the grant with a term no greater than 10 years . generally , stock options vest over two to four years . incentive stock options granted to shareholders who own 10 % or more of the company 's outstanding equity securities are granted at an exercise price that may not be less than 110 % of the closing price of the company 's common stock on the date of grant and have a term no greater than five years . on the date of a grant , the company determines the fair value of the stock option award and recognizes compensation expense over the requisite service period , which is generally the vesting period of the award . the fair value of the stock option award is calculated using the black-scholes option-pricing model . concentrations of credit risk financial instruments that potentially subject the company to significant concentrations of credit risk consist principally of cash and cash equivalents . the company maintains cash balances at financial institutions which exceed the current federal deposit insurance corporation ( โ fdic โ ) limit of $ 250,000 at times during the year . long-lived assets including acquired intangible assets we will review our intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable . we will measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate . if intangible assets are considered to be impaired , the impairment to be recognized equals the amount
| results of operations results of operations for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 sales during the year ended december 31 , 2013 and 2012 , we had net revenue of approximately $ 1,166,000 and $ 564,000 , respectively , representing a increase in revenue of $ 602,000 or 107 % . the primary reason for the increase in revenue was attributable to 1 ) completion of the bio-mass reduction and decontamination services at the complejo hospitalario metropolitano in panama city , panama in 2013 amounting to $ 420,000 , and 2 ) our ability in 2013 to acquire and take control over the entire steramist tm product line , including manufacturing , which facilitated us having sufficient supply of product to fill orders , as well as diversify our client base . 15 cost of sales during the year ended december 31 , 2013 and 2012 , we had cost of sales of approximately $ 481,000 and $ 342,000 , respectively , representing an increase of $ 139,000 or 40 % . the primary reason for the increase in cost of sales was attributed to the completion of the bio-mass reduction and decontamination services at the complejo hospitalario metropolitano in panama city , panama in 2013 amounting to $ 168,000. slightly offsetting this was the company gaining economies of scale through the acquisition of the steramist tm line of products from l-3 as well as an increase in bit solution sales . professional fees professional fees for the year ended december 31 , 2013 totaled approximately $ 339,000 as compared to $ 208,000 during the prior year representing an increase of approximately $ 131,000 or 63 % .
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all internal control processes , no matter how well designed , have inherent limitations . therefore , even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation . further , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate . management of associates assessed the effectiveness of its internal control over financial reporting , as it is applicable to the partnership , as of the end of the partnership 's most recent fiscal year . in making this assessment , it used the criteria set forth in internal control โ integrated framework issued by the committee of sponsoring organizations of the treadway commission ( coso ) . based on its assessment , management of associates concluded that , for the reasons set forth above under โ disclosure controls and procedures โ , the internal control over financial reporting , as it is applicable to the partnership , was not effective as of march 31 , 2019. for purposes of the securities exchange act of 1934 , the term โ material weakness โ is a deficiency , or a combination of deficiencies , in a reporting company 's internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company 's annual or interim financial statements will not be prevented or detected on a timely basis . for the reasons discussed above in this item 9a , sub-section ( a ) under the caption โ evaluation of disclosure controls and procedures , โ the partnership 's internal control over financial reporting has not been effective in permitting timely reporting of the partnership 's financial information . accordingly , the management of associates believes that this inability to generate timely reports constitutes a material weakness in its internal control over financial reporting . ( c ) changes in internal controls there were no changes in the partnership 's internal control over financial reporting that occurred during the quarter ended march 31 , 2019 that materially affected , or are reasonably likely to materially affect , the partnership 's internal control over financial reporting . 37 item 9b . other information none part iii . item 10. directors and executive officers and corporate governance ( a ) identification of directors , ( b ) identification of executive officers , ( c ) identification of certain significant employees , ( d ) family relationships , and ( e ) business experience the partnership has no directors , executive officers or employees of its own . the business of the partnership is conducted primarily through associates . associates is a california corporation which was organized in 1971. the following biographical information is presented for the officers and employees of associates with principal responsibility for the partnership 's affairs . wnc & associates , inc. is a california corporation which was organized in 1971. its officers and significant employees are : wilfred n. cooper , sr. chairman wilfred n. cooper , jr. president , chief executive officer michael j. gaber executive vice president david n. shafer , esq . executive vice president melanie r. wenk , cpa executive vice president โ chief financial officer darrick metz senior vice president โ originations christine a. cormier senior vice president โ investor relations anand kannan president โ community preservation partners gregory s. hand senior vice president โ developer relations anil advani executive vice president โ originations and finance in addition to wilfred n. cooper , sr. , the directors of wnc & associates , inc. are wilfred n. cooper , jr. , kay l. cooper and jennifer e. cooper . wilfred n. cooper , sr. is the founder and chairman of the board of directors of wnc & associates , inc. , a director of wnc capital corporation , and a general partner in some of the partnerships previously sponsored by wnc & associates , inc. mr. cooper has been actively involved in the affordable housing industry since 1968. previously , during 1970 and 1971 , he was founder and a principal of creative equity development corporation , a predecessor of wnc & associates , inc. , and of creative equity corporation , a real estate investment firm . for 12 years before that , mr. cooper was employed by rockwell international corporation , last serving as its manager of housing and urban developments where he had responsibility for factory-built housing evaluation and project management in urban planning and development . he has testified before committees of the u.s. senate and the u.s. house of representatives on matters pertaining to the affordable housing industry . mr. cooper is a life director of the national association of home builders ( โ nahb โ ) , a national trustee for nahb 's political action committee , and a past chairman of nahb 's multifamily council . he is a life trustee of the national housing conference , and a co-founder and director emeritus of the california housing consortium . he is the husband of kay cooper and the father of wilfred n. cooper , jr. mr. cooper graduated from pomona college in 1956 with a bachelor of arts degree . 38 wilfred n. cooper , jr. is president , chief executive officer , a director , and a member of the investment committee , of wnc & associates , inc. he is president and a director of , and a registered principal with , wnc capital corporation . story_separator_special_tag if multiple unrelated parties share such power , as defined , no party will be required to consolidate the vie . further , the guidance requires continual reconsideration of the primary beneficiary of a vie . based on this guidance , the local limited partnerships in which the partnership invests meet the definition of a vie because the owners of the equity at risk in these entities do not have the power to direct their operations . however , management does not consolidate the partnership 's interests in these vies , as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities . the partnership currently records the amount of its investment in these local limited partnerships as an asset on its balance sheets , recognizes its share of partnership income or losses in the statements of operations , and discloses how it accounts for material types of these investments in its financial statements . the partnership 's balance in investment in local limited partnerships , plus the risk of recapture of tax credits previously recognized on these investments , represents its maximum exposure to loss . the partnership 's exposure to loss on these local limited partnerships is mitigated by the condition and financial performance of the underlying housing complexes as well as the strength of the local general partners and their guarantee against credit recapture to the investors in the partnership . income taxes the partnership has elected to be treated as a pass-through entity for income tax purposes and , as such , is not subject to income taxes . rather , all items of taxable income , deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns . the partnership 's federal tax status as a pass-through entity is based on its legal status as a partnership . accordingly , the partnership is not required to take any tax positions in order to qualify as a pass-through entity . the partnership is required to file and does file tax returns with the internal revenue service and other taxing authorities . accordingly , these financial statements do not reflect a provision for income taxes and the partnerships has no other tax positions which must be considered for disclosure . income tax returns filed by the partnership are subject to examination by the internal revenue service for a period of three years . while no income tax returns are currently being examined by the internal revenue service , tax years since 2015 remain open . impact of recent accounting pronouncements in february 2015 , the fasb issued asu no . 2015-02 , โ consolidation ( topic 810 ) : amendments to the consolidation analysis โ . in addition , in october 2016 , the fasb issued asu no . 2016-17 , โ consolidation ( topic 810 ) : interests held through related parties that are under common control โ , to provide further clarification guidance to asu no . 2015-02. this will improve certain areas of consolidation guidance for reporting organizations that are required to evaluate whether to consolidate certain legal entities such as limited partnerships , limited liability corporations and securitization structures . asu 2015-02 and asu 2016-17 simplify and improve gaap by : eliminating the presumption that a general partner should consolidate a limited partnership , eliminating the indefinite deferral of fasb statement no . 167 , thereby reducing the number of variable interest entity ( vie ) consolidation models from four to two ( including the limited partnership consolidation model ) and clarifying when fees paid to a decision maker should be a factor to include in the consolidation of vies . asu 2015-02 is effective for periods beginning after december 15 , 2015. asu 2016-17 is effective for periods beginning after december 15 , 2016. the adoption of these updates did not materially affect the partnership 's financial statements . certain risks and uncertainties see item 1a for a discussion of risks regarding the partnership . to date , certain local limited partnerships have incurred significant operating losses and have working capital deficiencies . in the event these local limited partnerships continue to incur significant operating losses , additional capital contributions by the partnership and or the local general partners may be required to sustain the operations of such local limited partnerships . if additional capital contributions are not made when they are required , the partnership 's investment in certain of such local limited partnerships could be lost , and the loss and recapture of the related low income housing tax credits could occur . 18 anticipated future and existing cash resources of the partnership are not sufficient to pay existing liabilities of the partnership . however , substantially all of the existing liabilities of the partnership are payable to the general partner and or its affiliates . though the amounts payable to the general partner and or its affiliates are contractually currently payable , the partnership anticipates that the general partner and or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of then existing contractual obligations and then anticipated future foreseeable obligations of the partnership . the partnership would be adversely affected should the general partner and or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any other reason . financial condition the partnership 's assets at march 31 , 2019 consisted of $ 502,000 in cash and cash equivalents , $ 20,000 in prepaid asset management fees , and $ 9,000 in other assets . liabilities at march 31 , 2019 consisted of $ 45,000 of accrued fees and expenses due to the general partner and or its affiliates ( see โ future contractual cash obligations โ below
| results of operations year ended march 31 , 2019 compared to year ended march 31 , 2018 the partnership 's net loss for the year ended march 31 , 2019 was $ 241,000 , reflecting a decrease of $ 835,000 from the net income of $ 594,000 experienced for the year ended march 31 , 2018. the change was mainly due to a gain on sale of local limited partnerships of $ 516,000 for the year ended march 31 , 2018 compared to no gain on sale recorded during the year ended march 31 , 2019. the gain recorded by the partnership can vary depending on the sales prices and values of the housing complexes that are sold . legal and accounting fees increased by $ 147,000 for the year ended march 31 , 2019. the increase was mainly due to legal expenses incurred for a local limited partnership and its general partner as discussed in item 3. legal proceeding . asset management fees decreased by $ 1,000 during the year ended march 31 , 2019. the fees are calculated based on the value of invested assets , which decreased due to the sales of local limited partnerships . the partnership received $ 20,000 in distribution income and reporting fees from local limited partnerships during the year ended march 31 , 2019 compared to $ 192,000 received during the year ended march 31 , 2018. distributions and reporting fees vary depending on when the local limited partnerships ' cash flows will allow for the payment . write off of other assets decreased by $ 2,000 during the year ended march 31 , 2019 compared to the year ended march 31 , 2018. capitalized costs from potential disposition of local limited partnerships were expensed due to the length of time it has taken to dispose of the properties .
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since the collaborative research period ended in july 2013 , bristol-myers squibb has and will continue to have sole responsibility for any further research , development , manufacture and commercialization of products developed under the collaboration and will bear all costs and expenses associated with those activities . for each product developed by bristol-myers squibb under the collaboration , we will story_separator_special_tag some of the statements under in this โ management 's discussion and analysis of financial condition and results of operations โ are forward-looking statements . these statements are based on our current expectations , assumptions , estimates and projections about our business and our industry and involve known and unknown risks , uncertainties and other factors that may cause our company 's or our industry 's results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied in , or contemplated by , the forward-looking statements . words such as โ believe , โ โ anticipate , โ โ expect , โ โ intend , โ โ plan , โ โ focus , โ โ assume , โ โ goal , โ โ objective , โ โ will , โ โ may โ โ would , โ โ could , โ โ estimate , โ โ predict , โ โ target , โ โ potential , โ โ continue , โ โ encouraging โ or the negative of such terms or other similar expressions identify forward-looking statements . our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements . factors that might cause such a difference include those discussed in โ item 1a . risk factors โ as well as those discussed elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this report . overview exelixis , inc. ( โ exelixis , โ โ we , โ โ our โ or โ us โ ) is a biopharmaceutical company that discovers , develops and commercializes small molecule therapies for the treatment of cancer . our business focuses predominantly on the development and commercialization of cabozantinib , an internally-discovered inhibitor of multiple receptor tyrosine kinases , in various tumor indications . cabozantinib is currently approved in the united states and european union for the treatment of progressive , metastatic medullary thyroid cancer , or mtc , and is marketed under the brand name cometriq ยฎ . in the past year , we obtained positive clinical results from our phase 3 pivotal trial meteor ( met astatic rcc phase 3 study e valuating cab o zantinib vs. eve r olimus ) , suggesting that cabozantinib also has the potential to make a meaningful difference in the lives of patients suffering from advanced renal cell carcinoma , or rcc , a serious form of cancer with a significantly larger patient population than mtc . following the positive results from meteor , the u.s. food and drug administration , or fda , granted breakthrough therapy and fast track designations for cabozantinib in rcc . these data from meteor ultimately formed the basis of a new drug application , or nda , submission to the fda , which was completed in december 2015. on january 27 , 2016 , the fda granted priority review to the nda , with a prescription drug user fee act action date of june 22 , 2016. we are actively preparing for a potential commercial launch of cabozantinib in advanced rcc , and will soon be launch-ready for this indication should a positive regulatory decision come in the united states . in january 2016 , our marketing authorization application , or maa , for cabozantinib as a treatment for patients with advanced rcc who have received one prior therapy was accepted for review and granted accelerated assessment by the european medicines agency , or ema . on february 29 , 2016 , we entered into a collaboration and license agreement with ipsen pharma sas , or ipsen , pursuant to which ipsen has exclusive commercialization rights for current and potential future cabozantinib indications outside of the united states , canada and japan . the companies have agreed to collaborate on the development of cabozantinib for current and potential future indications . with respect to remaining markets , we are evaluating opportunities to partner cabozantinib in japan and intend to seek regulatory approval for cabozantinib in canada and commercialize the drug there ourselves . beyond mtc and rcc , we are engaged in a broad development program to explore the clinical potential of cabozantinib in additional tumor types . this program includes late stage trials that we conduct ourselves , such as celestial ( c abozantinib phas e 3 control le d st udy i n hep a tocellu l ar carcinoma ) , our phase 3 trial of cabozantinib in advanced hepatocellular carcinoma , or hcc , and earlier stage trials conducted through our cooperative research and development agreement with the national cancer institute 's cancer therapy evaluation program or our investigator sponsored trial program . we intend to use these earlier stage trials to prioritize our later stage development program . during 2015 , there was also significant progress with respect to the clinical development , regulatory status and commercial potential of certain of our partnered compounds . for example , cobimetinib , a compound we out-licensed in 2006 to genentech , inc. ( a member of the roche group ) , or genentech , was approved by the fda on november 10 , 2015 , under the brand name cotellic tm , in combination with vemurafenib , as a treatment for patients with braf v600e or v600k mutation-positive advanced melanoma . cotellic in combination with vemurafenib has also been approved in switzerland , the european union and canada for use in the same indication . story_separator_special_tag our objective , therefore , is to continue to work with genentech on the execution of the u.s. cotellic commercial plan and maximize the revenue potential of cobimetinib under our collaboration with genentech . we have accrued for our cotellic expense obligations under the collaboration agreement , but are in discussions with genentech over the level and type of expenses that have been allocated to cotellic under the collaboration . other collaborations with respect to our partnered compounds , other than cabozantinib and cobimetinib , we are eligible to receive potential contingent payments totaling approximately $ 2.3 billion in the aggregate on a non-risk adjusted basis , of which 10 % are related to clinical development milestones , 42 % are related to regulatory milestones and 48 % are related to commercial milestones , all to be achieved by the various licensees , which may not be paid , if at all , until certain conditions are met . certain factors important to understanding our financial condition and results of operations successful development of drugs is inherently difficult and uncertain . our business requires significant investments in research and development over many years , and products often fail during the research and development process . our long-term prospects depend upon our ability , and the ability of our partners , to successfully commercialize new therapeutics in highly competitive areas such as cancer treatment . our financial performance is driven by many factors , including those described below , and is subject to the risks set forth in โ item 1a - risk factors โ . limited sources of revenues and the need to raise additional capital we have incurred net losses since inception through december 31 , 2015 , with the exception of the 2011 fiscal year . we anticipate net losses and negative operating cash flow for the foreseeable future . for the year ended december 31 , 2015 , we incurred a net loss of $ 169.7 million and as of december 31 , 2015 , we had an accumulated deficit of $ 1.9 billion . these losses have had , and will continue to have , an adverse effect on our stockholders ' deficit and working capital . because of the numerous risks and uncertainties associated with developing drugs , we are unable to predict the extent of any future losses or whether or when we will become profitable , if at all . excluding fiscal 2011 , our research and development expenditures and selling , general and administrative expenses have exceeded our revenues for each fiscal year , and we expect to spend significant additional amounts to fund the continued development and commercialization of cabozantinib . as a result , we expect to continue to incur substantial operating expenses and , consequently , we will need to generate significant additional revenues to achieve future profitability . we commercially launched cometriq for the treatment of progressive , metastatic mtc in the united states in late january 2013 , and from the commercial launch through december 31 , 2015 , we have generated $ 74.3 million in net revenues from the sale of cometriq . other than revenues from cometriq , we have derived substantially all of our revenues since inception from collaborative research and development agreements , which depend on research funding , the achievement of milestones , and royalties we earn from any future products developed from the collaborative research . the amount of our net losses will depend , in part , on : the rate of growth , if any , in our sales of cometriq ; the level of sales of cabozantinib in the united states for the treatment of advanced rcc , if approved by the fda for such indication ; receipt of the upfront payment , achievement of clinical , regulatory and commercial milestones and the amount of royalties from sales of cabozantinib for the treatment of advanced rcc in the european union and elsewhere , if approved for such indication under our collaboration with ipsen ; our share of the net profits and losses for the commercialization of cotellic in the u.s. ; the amount of royalties from cotellic sales outside the u.s. ; other license and contract revenues ; and , the level of expenses primarily with respect to expanded commercialization activities for cabozantinib . as of december 31 , 2015 , we had $ 253.3 million in cash and investments , which included $ 169.0 million available for operations , $ 81.6 million of compensating balance investments that we are required to maintain on deposit with silicon valley bank , and $ 2.7 million of long-term restricted investments . we anticipate that our current cash and cash equivalents , and short-term investments available for operations , and product revenues , will enable us to maintain our operations for a period of at least 12 months following the filing date of this report . however , our future capital requirements will be substantial , and we may need to raise additional capital in the future . our capital requirements will depend on many factors , and we may need to use available capital resources and raise additional capital significantly earlier than we currently anticipate . 46 for a description of the factors upon which our capital requirements depend , please see โ โ liquidity and capital resources โ capital requirements . โ clinical development and commercialization of cabozantinib our primary development and commercialization program is focused on cabozantinib , an inhibitor of multiple receptor tyrosine kinases , currently approved under the brand name cometriq in the united states and the european union for the treatment of metastatic mtc . however , cabozantinib may fail to show adequate safety or efficacy as an anti-cancer drug in clinical testing in other types of cancer . for example , our two phase 3 clinical trials ( comet-1 and comet-2 ) of cabozantinib in metastatic castration-resistant prostate cancer , or mcrpc , failed to meet their primary endpoints .
| fiscal year convention exelixis has adopted a 52- or 53-week fiscal year that generally ends on the friday closest to december 31st . fiscal year 2013 , a 52-week year , ended on december 27 , 2013 , fiscal year 2014 , a 53-week year , ended on january 2 , 2015 , fiscal year 2015 , a 52-week year , ended on january 1 , 2016 , and fiscal year 2016 will end on december 30 , 2016. for convenience , references in this report as of and for the fiscal years ended december 27 , 2013 , january 2 , 2015 and january 1 , 2016 , are indicated on a calendar year basis , ended december 31 , 2013 , 2014 and 2015 , respectively . the quarter ended january 2 , 2015 is a 14-week fiscal quarter ; all other interim periods presented are 13-week fiscal quarters . results of operations โ comparison of years ended december 31 , 2015 , 2014 and 2013 revenues total revenues by category were as follows ( dollars in thousands ) : replace_table_token_6_th ( 1 ) includes royalties and amortization of upfront payments . ( 2 ) includes contingent and milestone payments . product revenues relate to the sale of cometriq .
| 4,814 |
in january 2017 , the fasb issued asu 2017-01 , business combinations ( topic 805 ) clarifying the definition of a business . the amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions ( or disposals ) of assets or businesses . the definition of a business affects many areas of accounting including acquisitions , disposals , goodwill , and consolidation . the guidance is effective for annual periods beginning after december 15 , 2017 , including interim periods within those periods . the company adopted this guidance effective november 1 , 2016. recent accounting pronouncements . in february 2016 , fasb issued asu no . 2016-02 , leases ( topic 842 ) , which supersedes fasb asc topic 840 , leases ( topic 840 ) and provides principles for the recognition , measurement , presentation and disclosure of leases for both lessees and lessors . the new standard requires lessees to apply a dual approach , classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee . this classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease , respectively . a lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification . leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases . the standard is effective for annual and interim periods beginning after december 15 , 2018 , with early adoption permitted upon issuance . when adopted , the company expects this guidance to have a material impact on its consolidated balance sheet . f- 8 polarityte , inc. and subsidiaries notes to consolidated financial statements in march 2016 , the fasb issued asu no . 2016-09 , compensation-stock compensation ( topic 718 ) , improvements to employee share-based payment accounting . under asu no . 2016-09 , companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital ( โ apic โ ) . instead , they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the apic pools will be eliminated . in addition , asu no . 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them . asu no . 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity . furthermore , asu no . 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer 's statutory income tax withholding obligation . an employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee 's applicable jurisdiction ( s ) . asu no . 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows . under current u.s. gaap , it was not specified how these cash flows should be classified . in addition , companies will now have to elect whether to account for forfeitures on share-based payments by story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with โ selected financial data โ and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited to , those set forth under โ risk factors โ and elsewhere in this annual report on form 10-k. overview on december 1 , 2016 , majesco entertainment company ( n/k/a polarityte , inc. ) , a delaware corporation ( the โ company โ ) entered into an agreement to acquire the assets of polarity nv ( as defined below ) , a regenerative medicine company . the asset acquisition was subject to shareholder approval , which was received on march 10 , 2017 and the transaction closed on april 7 , 2017 , as more fully described below . in january 2017 , the company changed its name to โ polarityte , inc. โ ( โ polarity โ ) . 43 on december 1 , 2016 , the company appointed dr. denver lough as chief executive officer , chief scientific officer and chairman of our board of directors and dr. ned swanson as chief operating officer of the company . until their respective appointments , both doctors were associated with johns hopkins university , baltimore , maryland , as full-time residents . on december 1 , 2016 , dr. lough assigned the patent application as well as all related intellectual property to a newly-formed nevada corporation , polarityte , inc. ( โ polarity nv โ ) , and the company entered into an agreement and plan of reorganization ( the โ agreement โ ) with polarity nv and dr. lough . story_separator_special_tag 44 we have identified the policies below as critical to our business operations and to the understanding of our financial results . the impact and any associated risks related to these policies on our business operations is discussed throughout management 's discussion and analysis of financial condition and results of operations when such policies affect our reported and expected financial results . accounting for stock-based compensation . stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period . determining the fair value of stock-based awards at the grant date requires judgment , including , in the case of stock option awards , estimating expected stock volatility . in addition , judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited . if actual results differ significantly from these estimates , stock-based compensation expense and our results of operations could be materially impacted . accounting for common and preferred stock and warrant transactions . we issued units consisting of preferred shares and warrants and common stock and warrants and subsequently remeasured certain of those warrants . determining the fair value of the securities in these transactions requires significant judgment , including adjustments to quoted share prices and expected stock volatility . such estimates may significantly impact our results of operations and losses applicable to common stockholders . commitments and contingencies . we record a liability for contingencies when the amount is both probable and reasonably estimable . we record associated legal fees as incurred . story_separator_special_tag to the company 's common stock and all other securities of the company that do not expressly provide that such securities rank on parity with or senior to the preferred e shares . until converted , each preferred e share is entitled to two votes for every share of common stock into which it is convertible on any matter submitted for a vote of stockholders . the preferred e shares participate on an โ as converted โ basis with all dividends declared on the company 's common stock . redeemable series f preferred shares on september 20 , 2017 , the company sold an aggregate of $ 17,750,000 worth of units ( the โ units โ ) of the company 's securities to accredited investors at a purchase price of $ 2,750 per unit with each unit consisting of ( i ) one share of the company 's newly authorized 6 % series f convertible preferred stock , par value $ 0.001 per share ( the โ series f preferred stock โ ) , which are convertible into one hundred ( 100 ) shares of the company 's common stock , and ( ii ) a two-year warrant to purchase 322,727 shares of the company 's common stock , at an exercise price of $ 30.00 per share . the company incurred issuance costs of approximately $ 356,000 associated with the unit offering . the company entered into separate registration rights agreements , and subsequently amended such agreements , with each of the investors , pursuant to which the company agreed to undertake to file a registration statement to register the resale of the conversion shares and warrant shares within 150 days of the closing of the transaction , to cause such registration statement to be declared effective by the securities and exchange commission within ninety days following its filing and to maintain the effectiveness of the registration statement until all of such conversion shares and warrant shares have been sold or are otherwise able to be sold pursuant to rule 144 under the securities act , without any restrictions . in the event the company fails to file , or obtain effectiveness of , such registration statement with the specified period of time , the company will be obligated to pay liquidated damages equal to the product of one 1 % percent multiplied by the aggregate subscription amount paid by such investor for every thirty ( 30 ) days during which such filing is not made and or effectiveness obtained , such fee being subject to certain exceptions , up to a maximum of twelve 12 % percent . pursuant to the subscription agreements , for as long as the lead investor holds securities , except with certain issuances , the company shall not incur any senior debt or issue any preferred stock with liquidation rights senior to the securities sold thereunder . during this period , the company will not , without the consent of the investors holding a majority of the then issued and outstanding shares on the date of such consent ( including the lead investor ) , enter into any equity line of credit or similar agreement , nor issue nor agree to issue any common stock , common stock equivalents , floating or variable priced equity linked instruments nor any of the foregoing or equity with price reset rights ( subject to adjustment for stock splits , distributions , dividends , recapitalizations and the like ) . the shares of series f preferred stock are convertible into shares of the company 's common stock based on a conversion calculation equal to the stated value of the series f preferred stock , plus all accrued and unpaid dividends , if any , on such series f preferred stock , as of such date of determination , divided by the conversion price . the stated value of each share of series f preferred stock is $ 2,750 and the initial conversion price is $ 27.50 per share , each subject to adjustment for stock splits , stock dividends , recapitalizations , combinations , subdivisions or other similar events .
| results of operations year ended october 31 , 2017 versus the year ended october 31 , 2016 research and development expenses . for the year ended october 31 , 2017 , research and development expenses were approximately $ 7.1 million . research and development costs consist of salaries of approximately $ 2.4 million , stock-based compensation of approximately of $ 1.8 million , travel related expenses of approximately $ 664,000 , trade show related expenses of $ 530,000 , medical equipment depreciation of approximately $ 431,000 , consulting expense of $ 240,000 , rent expense of $ 206,000 , samples expense of $ 179,000 , medical study expense of $ 174,000 , health insurance of $ 166,000 and various other expenses totaling approximately $ 393,000. there was no research and development activity in the comparative 2016 period . research and development - intellectual property acquired . for the year ended october 31 , 2017 , research and development - intellectual property acquired relates to the polarity nv asset acquisition and the issuance of 7,050 shares of series e preferred stock convertible into an aggregate of 7,050,000 shares of the company 's common stock with a fair value of approximately $ 104.7 million which is equal to 7,050,000 common shares times $ 14.85 ( the closing price of the company 's common stock as of april 7 , 2017 ) . since the assets purchased were in-process research and development assets , the total purchase price was immediately expensed as research and development - intellectual property acquired since there is no alternative future use . there was no research and development โ intellectual property acquired activity in the comparative 2016 period . general and administrative expenses .
| 4,815 |
the following table shows an aging analysis of the unpaid principal balance related to loans held for investment by delinquency status as of december 31 ( in thousands ) : replace_table_token_49_th loans held for sale loans held for sale consisted of the following as of december 31 ( in thousands ) : replace_table_token_50_th 6. servicing rights as of december 31 , 2017 and 2016 , we serviced term loans we sold with a remaining unpaid principal balance of $ 181.0 million and $ 222.0 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this report . some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the โ cautionary note regarding forward-looking statements โ and item 1a . risk factors sections of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . 39 overview we are a leading platform for online small business lending . we are seeking to make it efficient and convenient for small businesses to access capital . enabled by our proprietary technology and analytics , we aggregate and analyze thousands of data points from dynamic , disparate data sources to assess the creditworthiness of small businesses rapidly and accurately . small businesses can apply for a term loan or line of credit on our website in minutes and , using our proprietary ondeck score ยฎ , we can make a funding decision immediately and , if approved , transfer funds as fast as the same day . qualified customers may carry both a term loan and line of credit simultaneously which we believe provides additional repeat business opportunities , as well as increased value to our customers . we originated $ 2.1 billion of loans in 2017 and more than $ 8 billion of loans since we made our first loan in 2007. we generate the majority of our revenue through interest income and fees earned on the loans we make to our customers . our term loans , which we offer in principal amounts ranging from $ 5,000 to $ 500,000 and with maturities of 3 to 36 months , feature fixed dollar repayments . our lines of credit range from $ 6,000 to $ 100,000 , and are generally repayable within six months of the date of the most recent draw . we earn interest on the balance outstanding and lines of credit are subject to a monthly fee unless the customer makes a qualifying minimum draw , in which case it is waived for the first six months . the balance of our other revenue primarily comes from our servicing and other fee income , most of which consists of marketing fees from our issuing bank partner , fees generated by ondeck-as-a-service , and fees we receive for servicing loans owned by third parties . we rely on a diversified set of funding sources for the capital we lend to our customers . our primary source of this capital has historically been debt facilities with various financial institutions . we have also used proceeds from operating cash flow to fund loans in the past and continue to finance a portion of our outstanding loans with these funds . as of december 31 , 2017 , we had $ 690.4 million of funding debt principal outstanding and $ 1.0 billion total borrowing capacity under such debt facilities . during the years ended 2017 , 2016 and 2015 , we sold approximately $ 74.2 million , $ 378.5 million and $ 617.7 million , respectively , of loans to ondeck marketplace purchasers . of the total principal outstanding as of december 31 , 2017 , including our loans held for investment , plus loans sold to ondeck marketplace purchasers which had a balance remaining as of december 31 , 2017 , 3 % were funded via ondeck marketplace purchasers , 58 % were funded via our debt facilities , 30 % were financed via proceeds raised from our securitization transaction and 9 % were funded via our own equity . we originate loans throughout the united states , canada and australia , although , to date , substantially all of our revenue has been generated in the united states . these loans are originated through our direct marketing , including direct mail , social media and other online marketing channels . we also originate loans through our outbound sales team , referrals from our strategic partners , including banks , payment processors and small business-focused service providers , and through funding advisors who advise small businesses on available funding options . key financial and operating metrics we regularly monitor a number of metrics in order to measure our current performance and project our future performance . these metrics aid us in developing and refining our growth strategies and making strategic decisions . beginning with the three months ended march 31 , 2016 , we refined the calculation of effective interest yield , or eiy , and certain related definitions to present eiy on a business day adjusted basis and to reflect the substantial growth and impact of ondeck marketplace in 2015. we also refined the calculation of net interest margin , or nim , and certain related definitions to present nim on a calendar day adjusted basis . in addition , effective january 1 , 2016 , we adopted a new requirement in accordance with accounting principles generally accepted in the united states of america , or gaap , regarding the presentation of debt issuance costs . all revisions have been applied retrospectively . 40 replace_table_token_3_th * non-gaap measure . refer to `` non-gaap financial measures '' below for an explanation and reconciliation to gaap . story_separator_special_tag reserve ratio reserve ratio is our allowance for loan losses as of the end of the period divided by the unpaid principal balance as of the end of the period . 15+ day delinquency ratio 15+ day delinquency ratio equals the aggregate unpaid principal balance for our loans that are 15 or more calendar days past due as of the end of the period as a percentage of the unpaid principal balance . the unpaid principal balance for our loans that are 15 or more calendar days past due includes loans that are paying and non-paying . because the majority of our loans require daily repayments , excluding weekends and holidays , they may be deemed delinquent more quickly than loans from traditional lenders that require only monthly payments . 15+ day delinquency ratio is not annualized , but reflects balances as of the end of the period . net charge-off rate net charge-off rate is calculated as our annualized net charge-offs for the period divided by the average unpaid principal balance outstanding . annualization is based on 4 quarters per year and is not business day adjusted . net charge-offs are charged-off loans in the period , net of recoveries . pre-provision operating income pre-provision operating income represents income ( loss ) from operations plus provision for loan losses in the period . our use of pre-provision operating income has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . in particular , pre-provision operating income excludes provision for loan losses , and as a result does not reflect the estimated loss of principal associated with the failure of our customers to repay their loans in full , which is a material cost of our business . pre-provision operating income yield pre-provision operating yield represents pre-provision operating income divided by average interest earning assets , annualized . annualization is based on a 365 days per year and is calendar day adjusted . our use of pre-provision operating yield has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . in particular , pre-provision operating yield excludes provision for loan losses and has the same limitations as described above for pre-provision operating income . 42 on deck capital , inc. and subsidiaries consolidated average balance sheets ( in thousands ) replace_table_token_4_th average balance sheet items for the period represent the average as of the beginning of the month in the period and as of the end of each month in the period . non-gaap financial measures we believe that the non-gaap metrics in this report can provide useful supplemental measures for period-to-period comparisons of our core business and useful supplemental information to investors and others in understanding and evaluating our operating results . however , non-gaap metrics are not calculated in accordance with gaap , and should not be considered an alternative to any measures of financial performance calculated and presented in accordance with gaap . other companies may calculate these non-gaap metrics differently than we do . the reconciliations below reconcile each of our non-gaap metrics to their most comparable respective gaap metric . adjusted ebitda adjusted ebitda represents our net income ( loss ) , adjusted to exclude interest expense associated with debt used for corporate purposes ( rather than funding costs associated with lending activities ) , income tax expense , depreciation and amortization , 43 stock-based compensation expense and warrant liability fair value adjustments . stock-based compensation includes employee compensation as well as compensation to third-party service providers . our use of adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . some of these limitations are : although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; adjusted ebitda does not reflect the potentially dilutive impact of equity-based compensation ; adjusted ebitda does not reflect interest associated with debt used for corporate purposes or tax payments that may represent a reduction in cash available to us ; and adjusted ebitda does not reflect the potential costs we would incur if certain of our warrants were settled in cash . the following table presents a reconciliation of net loss to adjusted ebitda for each of the periods indicated : replace_table_token_5_th adjusted net ( loss ) income adjusted net ( loss ) income represents our net loss adjusted to exclude stock-based compensation expense and warrant liability fair value adjustment , each on the same basis and with the same limitations as described above for adjusted ebitda . 44 the following table presents a reconciliation of net loss to adjusted net ( loss ) income for each of the periods indicated : replace_table_token_6_th net interest margin net interest margin , is calculated as annualized net interest income divided by average interest earning assets . net interest income represents interest income less funding cost during the period . interest income is net of fees on loans held for investment and held for sale . net deferred origination costs in loans held for investment and loans held for sale consist of deferred origination costs as offset by corresponding deferred origination fees . deferred origination fees include fees paid up front to us by customers when loans are funded . deferred origination costs are limited to costs directly attributable to originating loans such as commissions , vendor costs and personnel costs directly related to the time spent by the personnel performing activities related to loan origination .
| results of operations the following table sets forth our consolidated statements of operations data for each of the periods indicated . replace_table_token_19_th 59 the consolidated statements of operations data as a percentage of gross revenue for each of the periods indicated . replace_table_token_20_th 60 comparison of years ended december 31 , 2017 and 2016 replace_table_token_21_th revenue replace_table_token_22_th 61 gross revenue increased by $ 59.6 million , or 20.5 % , from $ 291.3 million in 2016 to $ 351.0 million in 2017 . this growth was in part attributable to a $ 69.7 million , or 26.3 % , increase in interest income , which was driven by a greater volume of loans being held on our balance sheet as evidenced by the 24.1 % increase in average loans to $ 990.6 million from $ 798.1 million . the increase in interest income was also attributed to an increase in our eiy on loans outstanding to 33.9 % from 33.3 % over the same period . gain on sales of loans decreased by $ 11.9 million , from $ 14.4 million in 2016 to $ 2.5 million in 2017 . this decrease was primarily attributable to a $ 304.4 million decrease in sales of loans through ondeck marketplace and a decrease in marketplace gain on sale rate from 3.8 % in 2016 to 3.4 % in 2017 . other revenue increased $ 1.8 million , or 15 % , primarily attributable to an increase of $ 3.0 million in platform fees and an increase of $ 0.9 million in monthly fees earned from lines of credit as the total number of line of credit units increased period over period . this increase was partially offset by a decrease of $ 1.0 million in marketing fees from our issuing bank partner and $ 1.1 million decrease from our syndication program . cost of revenue replace_table_token_23_th provision for loan losses .
| 4,816 |
( d ) included in the discrete items for 2018 is a $ 0.6 million tax expense related to israel foreign currency . included in the discrete items for 2017 is a $ 1.6 million tax benefit related to israel foreign currency and deferred tax rate change , offset by $ 1.5 million of income tax expense impact from tax reform . financial metrics we utilize several financial measures and metrics to evaluate the performance and assess the future direction of our business . these key financial measures and metrics include net revenues , gross profit margin , end-of-period backlog , book-to-bill ratio , and inventory turnover . gross profit margin is gross profit shown as a percentage of net revenues . gross profit is generally net revenues less costs of products sold , but could also include certain other period costs . gross profit margin is clearly a function of net revenues , but also reflects our cost-cutting programs and our ability to contain fixed costs . end-of-period backlog is one indicator of potential future sales . we include in our backlog only open orders that have been released by the customer for shipment in the next twelve months . if demand falls below customers ' forecasts , or if customers do not control their inventory effectively , they may cancel or reschedule the shipments that are included in our backlog , in many instances without the payment of any penalty . therefore , the backlog is not necessarily indicative of the results to be expected for future periods . another important indicator of demand in our industry is the book-to-bill ratio , which is the ratio of the amount of product ordered during a period compared with the product that we ship during that period . a book-to-bill ratio that is greater than one indicates that demand is higher than current revenues and manufacturing capacities , and it indicates that we may generate increasing revenues in future periods . conversely , a book-to-bill ratio that is less than one is an indicator of lower demand compared to existing revenues and current capacities and may foretell declining sales . we focus on our inventory turnover as a measure of how well we are managing our inventory . we define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period - 28 - divided by our average inventory ( computed using each quarter-end balance ) for this same period . a higher level of inventory turnover reflects more efficient use of our capital . the quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business . the following table shows net revenues , gross profit margin , the end-of-period backlog , the book-to-bill ratio , and the inventory turnover for our business as a whole during the five quarters beginning with the fourth quarter of 2017 and through the fourth quarter of 2018 ( dollars in thousands ) : replace_table_token_6_th replace_table_token_7_th net revenues for the fourth quarter of 2018 increased 2.0 % from the net revenues of $ 75.5 million reported in the third quarter of 2018 , and increased 10.9 % from $ 69.4 million for the comparable prior year period . net revenues in the foil technology products segment of $ 36.7 million in the fourth quarter of 2018 increased 2.3 % from $ 35.9 million in the third quarter of 2018 , and increased 22.9 % from $ 29.9 million in the fourth quarter of 2017 . the sequential increase in net revenues from the third quarter was primarily attributable to precision resistor products in asia for ems and distribution customers in the test and measurement and avionics , military and space markets . compared to the fourth quarter of 2017 , net revenues increased due to higher revenue related to precision resistor products in all regions for distribution and ems customers , primarily in the test and measurement and avionics , military and space markets . in addition , advance sensors products in asia for - 29 - oem customers in the force measurement market and pacific instruments products in the americas for end users customers in the avionics , military and space market contributed to the increase . net revenues in the force sensors segment of $ 17.0 million in the fourth quarter of 2018 decreased 3.4 % compared to revenues of $ 17.6 million in the third quarter of 2018 due to lower volume attributable to distribution customers in the precision weighing market , mainly in the americas . net revenues in the fourth quarter of 2018 decreased 4.1 % compared to $ 17.7 million in the fourth quarter of 2017 mainly due to lower volume attributable to distribution customers in the force measurement market , primarily in the americas . net revenues in the weighing and control systems segment of $ 23.2 million in the fourth quarter of 2018 increased 5.8 % from $ 22.0 million in the third quarter of 2018 and increased 6.5 % from $ 21.8 million in the fourth quarter of 2017 . the sequential increase in net revenues was primarily attributable to a volume increase in the steel product line in asia and process weighing product line in europe , partially offset by a reduction in volume for the steel product line in europe . compared to the fourth quarter of 2017 , the increase in net revenues was primarily attributable to the steel product line in asia and process weighing product line in the americas and europe . the gross profit margin for the fourth quarter of 2018 decreased 0.5 % compared to the third quarter of 2018 , and increased 1.5 % from the fourth quarter of 2017 . sequentially , improved gross profit margins in the force sensors and weighing and control systems segments were partially offset by a decline in gross profit margin in the foil technology products segment . story_separator_special_tag production transfers , facility consolidations , and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs . we are realizing the benefits of our restructuring through lower labor costs and other operating expenses , and expect to continue reaping these benefits in future periods . however , these programs to improve our profitability also involve certain risks which could materially impact our future operating results , as further detailed in part i , item 1a โ risk factors โ of this annual report on form 10-k. the company recorded restructuring costs of $ 0.3 million , $ 2.0 million , and $ 2.7 million during the years ended december 31 , 2018 , 2017 , and 2016 , respectively . restructuring costs were comprised primarily of employee termination costs , including severance and statutory retirement allowances , and were incurred in connection with various cost reduction programs . we are evaluating plans to further reduce our costs by consolidating additional manufacturing operations . these plans may require us to incur restructuring and severance costs in future periods . while streamlining and reducing fixed overhead , we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes . foreign currency we are exposed to foreign currency exchange rate risks , particularly due to transactions in currencies other than the functional currencies of certain subsidiaries . u.s. gaap requires that entities identify the โ functional currency โ of each of their subsidiaries and measure all elements of the financial statements in that functional currency . a subsidiary 's functional currency is the currency of the primary economic environment in which it operates . in cases where a subsidiary is relatively self-contained within a particular country , the local currency is generally deemed to be the functional currency . however , a foreign subsidiary that is a direct and integral component or extension of the parent company 's operations generally would have the parent company 's currency as its functional currency . we have subsidiaries that fall into each of these categories . foreign subsidiaries which use the local currency as the functional currency our operations in europe , canada , and certain locations in asia primarily generate and expend cash using local currencies , and accordingly , these subsidiaries utilize the local currency as their functional currency . for those subsidiaries where the local currency is the functional currency , assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date . translation adjustments do not impact the results of operations and are reported as a separate component of equity . for those subsidiaries where the local currency is the functional currency , revenues and expenses are translated at the average exchange rate for the year . while the translation of revenues and expenses into u.s. dollars does not directly impact the consolidated - 31 - statements of operations , the translation effectively increases or decreases the u.s. dollar equivalent of revenues generated and expenses incurred in those foreign currencies . foreign subsidiaries which use the u.s. dollar as the functional currency our operations in israel and certain locations in asia primarily generate cash in u.s. dollars , and accordingly , these subsidiaries utilize the u.s. dollar as their functional currency . for those foreign subsidiaries where the u.s. dollar is the functional currency , all foreign currency financial statement amounts are remeasured into u.s. dollars . exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations . while these subsidiaries transact most business in u.s. dollars , they may have significant costs , particularly related to payroll , which are incurred in the local currency . effects of foreign exchange rate on operations for the year ended december 31 , 2018 , exchange rate impacts increased net revenues by $ 3.1 million , and increased costs of products sold and selling , general , and administrative expenses by $ 2.7 million , when compared to the prior year . for the year ended december 31 , 2017 , exchange rate impacts reduced net revenues by $ 0.1 million , and increased costs of products sold and selling , general , and administrative expenses by $ 2.8 million , when compared to the prior year . for the year ended december 31 , 2016 , exchange rate impacts reduced net revenues by $ 2.8 million , and costs of products sold and selling , general , and administrative expenses by $ 3.1 million , when compared to the prior year . off-balance sheet arrangements as of december 31 , 2018 and 2017 , we did not have any off-balance sheet arrangements . critical accounting policies and estimates our significant accounting policies are summarized in note 1 to our consolidated financial statements . we identify here a number of policies that entail significant judgments or estimates by management . revenue recognition we recognize revenue when the obligation under the terms of a contract with our customer are satisfied , which generally occurs with the transfer of control of our products . for certain contracts with post-shipment obligations , revenue is recognized when the post-shipment obligation is satisfied . revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing post-shipment obligations . sales , value add and other taxes collected concurrent with revenue-producing activities are excluded from revenue . given the specialized nature of our products , we generally do not allow product returns . inventories we value our inventories at the lower of cost or market , with cost determined under the first-in , first-out method , and market based upon net realizable value . the valuation of our inventories requires management to make market estimates .
| overview vpg is an internationally recognized designer , manufacturer and marketer of sensors , and sensor-based measurement systems , as well as specialty resistors and strain gages based upon our proprietary technology . we provide precision products and solutions , many of which are โ designed-in โ by our customers , specializing in the growing markets of stress , force , weight , pressure , and current measurements . a significant portion of our products and solutions are primarily based upon our proprietary foil technology and are produced as part of our vertically integrated structure . we believe this strategy results in higher quality , more cost effective and focused solutions for our customers . our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality . our global operations enable us to produce a wide variety of products in strategically effective geographic locations that also optimize our resources for specific technologies , sensors , assemblies , and systems . the company also has a long heritage of innovation in precision foil resistors , foil strain gages , and sensors that convert mechanical inputs into an electronic signal for display , processing , interpretation , or control by our instrumentation and systems products . our advanced sensor product line continues this heritage by offering high-quality foil strain gages produced in a proprietary , highly automated environment . precision sensors are essential to the accurate measurement , resolution and display of force , weight , pressure , torque , tilt , motion , or acceleration , especially in the legal-for-trade , commercial , and industrial marketplaces . this expertise served as a foundation for our expansion into strain gage instrumentation , load cells , transducers , weighing modules , and complete systems for process control and on-board weighing . although our products are typically used in the industrial market , our advanced sensors have been used in a consumer electronics product and are being evaluated for other non-industrial applications .
| 4,817 |
our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed in the section titled โ risk factors โ and in other parts of this annual report on form 10-k. overview our mission is to make video communications frictionless and secure . we provide a video-first unified communications platform that delivers happiness and fundamentally changes how people interact . we connect people through frictionless and secure video , voice , chat , and content sharing and enable face-to-face video experiences for thousands of people in a single meeting across disparate devices and locations . our cloud-native platform delivers reliable , high-quality video that is easy to use , manage , and deploy ; provides an attractive return on investment ; is scalable ; and easily integrates with applications and physical spaces . we believe that rich and reliable communications lead to interactions that build greater empathy and trust . we strive to live up to the trust our customers place in us by delivering a communications solution that โ just works โ while prioritizing their privacy and security . our goal is to make zoom meetings better than in-person meetings . our 21 co-located data centers located worldwide and the public cloud enable us to provide both high-quality and high-definition , real-time video to our customers even in low-bandwidth environments . we generate revenue from the sale of subscriptions to our unified communications platform . subscription revenue is driven primarily by the number of paid hosts as well as purchases of additional products , including zoom rooms , zoom video webinars , zoom phone , and hardware-as-a-service ( โ haas โ ) for rooms and phones . a host is any user of our unified communications platform who initiates a zoom meeting and invites one or more participants to join that meeting . we refer to hosts who subscribe to a paid zoom meeting plan as โ paid hosts. โ we define a customer as a separate and distinct buying entity , which can be a single paid host or an organization of any size ( including a distinct unit of an organization ) that has multiple paid hosts . our basic offering is free and gives hosts access to zoom meetings with core features but with the limitation that meetings with more than two endpoints time-out at 40 minutes . our paid offerings include our pro , business , enterprise , education , and healthcare plans , which provide incremental features and functionality , such as different participant limits , administrative controls , and reporting . for zoom phone , plans include zoom phone pro , which provides extension-to-extension calling or can be used with the bring your own carrier model wherein the customer connects zoom phone to an existing carrier . we also offer regional unlimited and regional metered calling plans in three specific markets ( united states/canada , united kingdom/ireland , and australia/new zealand ) . in addition , we introduced the global select plan in august 2020 , which allows customers to select from local numbers and domestic calling in over 40 countries and territories where zoom has local pstn coverage . in addition , the zoom united plan launched in december 2020 provides a single license for customers to purchase zoom phone , meetings and chat capabilities as a bundled offering . our revenue was $ 2,651.4 million , $ 622.7 million , and $ 330.5 million for the fiscal years ended january 31 , 2021 , 2020 , and 2019 , respectively , representing period-over-period growth rate of 326 % and 88 % for fiscal year 2021 and fiscal year 2020 , 45 respectively . we had net income of $ 672.3 million , $ 25.3 million , and $ 7.6 million for the fiscal years ended january 31 , 2021 , 2020 , and 2019 , respectively . net cash provided by operating activities was $ 1,471.2 million , $ 151.9 million , and $ 51.3 million for the fiscal years ended january 31 , 2021 , 2020 , and 2019 , respectively . recent developments covid-19 in december 2019 , an outbreak of the covid-19 disease was first identified and began to spread across the globe . in march 2020 , the world health organization declared covid-19 a pandemic , impacting many countries around the world . governments have instituted lockdown or other similar measures to slow infection rates . many organizations have resorted to mandating employees to work from home , which has resulted in these organizations seeking out video communication solutions like ours to keep employees as productive as possible , even while working from home . schools , colleges , and universities globally have also closed as a result of this pandemic . many of these institutions are utilizing our platform to provide remote instruction to their students . to help teachers and students navigate this unprecedented situation , we have temporarily removed the 40-minute time limit for meetings with more than two endpoints from our free basic accounts for more than 125,000 k-12 domains worldwide . while we have experienced a significant increase in paid hosts and revenue due to the pandemic , the aforementioned factors have also driven increased usage of our services and have required us to expand our network , data storage , and processing capacity , both in our own co-located data centers as well as through third-party cloud hosting , which has resulted , and is continuing to result , in an increase in our operating costs . furthermore , a significant portion of the increase in usage of our platform is attributable to free basic accounts and our removal of the time limit for school domains , which do not generate any revenue , but still require us to incur these additional operating costs to expand our capacity . therefore , the recent increase in usage of our platform has adversely impacted , and may continue to adversely impact , our gross margin . story_separator_special_tag onzoom is an online event platform for zoom users to create and host free , paid , and fundraising events . onzoom is currently offered as a public beta for u.s. users to attend online events . zoom apps are a new app type coming soon to the zoom app marketplace . these in-product integrations will be accessible directly from zoom meetings and the zoom desktop client and are designed to facilitate collaboration and engagement during meetings . international expansion our platform addresses the communications needs of users worldwide , and we see international expansion as a major opportunity . our revenue from the rest of world ( apac and emea ) represented 31 % , 19 % , and 18 % of our total revenue for the fiscal years ended january 31 , 2021 , 2020 , and 2019 , respectively . we plan to add local sales support in further select international markets over time . we use strategic partners and resellers to sell in certain international markets where we have limited or no direct sales presence . while we believe global demand for our platform will continue to increase as international market awareness of zoom grows , our ability to conduct our operations internationally will require considerable management attention and resources , and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages , cultures , customs , legal and regulatory systems , alternative dispute systems , and commercial markets . key business metrics we review the following key business metrics to measure our performance , identify trends , formulate financial projections , and make strategic decisions . customers with more than 10 employees increasing awareness of our platform and its broad range of capabilities has enabled us to substantially expand our customer base , which includes organizations of all sizes across industries . we define a customer as a separate and distinct buying entity , which can be a single paid host or an organization of any size ( including a distinct unit of an organization ) that has multiple paid hosts . to better distinguish business customers from our broader customer base , we review the number of customers with more than 10 employees . as of january 31 , 2021 , 2020 , and 2019 , we had approximately 467,100 , 81,900 , and 50,800 customers , respectively , with more than 10 employees . when disclosing the number of customers , we round down to the nearest hundred . since the start of the covid-19 pandemic early this fiscal year , our customer cohort with 10 or fewer employees expanded as business owners and individual users adopted zoom for many personal , professional , and social events . as a result , we have experienced a shift in the makeup of customer cohorts , with 36 % of revenue attributable to customers with 10 or fewer employees during the fiscal year ended january 31 , 2021 , compared to 18 % for the prior fiscal year . 47 customers contributing more than $ 100,000 of trailing 12 months revenue we focus on growing the number of customers that contribute more than $ 100,000 of trailing 12 months revenue as a measure of our ability to scale with our customers and attract larger organizations to zoom . revenue from these customers represented 20 % , 33 % , and 30 % of total revenue for the fiscal years ended january 31 , 2021 , 2020 , and 2019 , respectively . as of january 31 , 2021 , 2020 , and 2019 , we had 1,644 , 641 , and 344 customers , respectively , that contributed more than $ 100,000 of trailing 12 months revenue , demonstrating our rapid penetration of larger organizations , including enterprises . these customers are a subset of the customers with more than 10 employees . non-gaap financial measure in addition to our results determined in accordance with gaap , we believe that free cash flow ( โ fcf โ ) , a non-gaap financial measure , is useful in evaluating our liquidity . free cash flow we define fcf as gaap net cash provided by operating activities less purchases of property and equipment . we believe that fcf is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our operations that , after investments in property and equipment , can be used for future growth . fcf is presented for supplemental informational purposes only , has limitations as an analytical tool , and should not be considered in isolation or as a substitute for analysis of other gaap financial measures , such as net cash provided by operating activities . it is important to note that other companies , including companies in our industry , may not use this metric , may calculate this metric differently , or may use other financial measures to evaluate their liquidity , all of which could reduce the usefulness of this non-gaap metric as a comparative measure . the following table presents a summary of our cash flows for the fiscal years presented and a reconciliation of fcf to net cash provided by operating activities , the most directly comparable financial measure calculated in accordance with gaap : replace_table_token_4_th components of results of operations revenue we derive our revenue from subscription agreements with customers for access to our unified communications platform . our customers generally do not have the ability to take possession of our software . we also provide services , which include professional services , consulting services , and online event hosting , which are generally considered distinct from the access to our unified communications platform . cost of revenue cost of revenue primarily consists of costs related to hosting our unified communications platform and providing general operating support services to our customers .
| results of operations the following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenue for each of the fiscal years indicated : replace_table_token_5_th replace_table_token_6_th 50 comparison of fiscal years ended january 31 , 2021 and 2020 revenue year ended january 31 , 2021 2020 $ change % change ( in thousands , except percentages ) revenue $ 2,651,368 $ 622,658 $ 2,028,710 326 % revenue for the fiscal year ended january 31 , 2021 increased by $ 2,028.7 million , or 326 % , compared to the fiscal year ended january 31 , 2020. d ue to the covid-19 pandemic , t here was an increase in usage of our services , as many organizations around the world started utilizing our platform to continue their operations remotely . as a result , the increase in revenue was primarily due to subscription services provided to new customers , which accounted for approximately 73 % of the increase , and to subscription services provided to existing customers , which accounted for approximately 27 % of the increase . cost of revenue replace_table_token_7_th cost of revenue for the fiscal year ended january 31 , 2021 increased by $ 706.6 million , or 612 % , compared to the fiscal year ended january 31 , 2020. in response to the covid-19 pandemic , we have temporarily removed the 40-minute time limit for meetings with more than two endpoints from our free basic accounts for more than 125,000 k-12 school domains worldwide . we also experienced a significant increase in usage from paid users as more companies started utilizing our platform to allow their employees to work remotely . this increase in usage resulted in an increase of $ 619.2 million in costs related to third-party cloud hosting , integrated third-party pstn services , and our co-located data centers to support the increase in customers and expanded use of our unified communications platform by existing customers .
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asc 718-10 requires measurement of the cost of employee services received in exchange for an award of equity story_separator_special_tag general you should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly in `` risk factors . '' overview liveperson provides digital engagement solutions offering a cloud-based platform which enables businesses to pro-actively connect with consumers and an online marketplace providing information and knowledge . we are organized into two operating segments : business and consumer . the business segment facilitates real-time online interactions โ chat , voice , and content delivery , across multiple channels and screens for global corporations of all sizes . the consumer segment facilitates online transactions between independent service providers ( โ experts โ ) and individual consumers ( โ users โ ) seeking information and knowledge for a fee via real-time chat . we were incorporated in the state of delaware in november 1995 and the liveperson service was introduced initially in november 1998. in order to sustain growth in these segments , our strategy is to expand our position as the leading provider of online engagement solutions that facilitate real-time assistance and expert advice . to accomplish this , we are focused on the following current initiatives : expanding business with existing customers and adding new customers . we are expanding our sales capacity by adding enterprise and midmarket sales agents . we have also expanded our efforts to retain existing smb customers through increased interaction with them during the early stages of their usage of our services . introducing new products and capabilities . we are investing in product marketing , research and development and executive personnel to support our expanding efforts to build and launch new products and capabilities to support existing customer deployments , and to further penetrate our total addressable market . these investments are initially focused in the areas of online marketing engagement and chat transcript text analysis . over time , we expect to develop and launch additional capabilities that leverage our existing market position as a leader in proactive , intelligence-driven online engagement . expanding our international presence . we continue to increase our investment in sales and support personnel in the united kingdom , asia-pacific , latin america and western europe , particularly france and germany . we are also working with sales and support partners as we expand our investment in the asia-pacific region . we continue to improve the multi-language and translation capabilities within our hosted solutions to further support international expansion . key metrics financial overview of the three and twelve months ended december 31 , 2013 compared to the comparable periods in 2012 are as follows : revenue increased 10 % and 13 % to $ 46.9 million and $ 177.8 million in the three and twelve months ended december 31 , 2013 , respectively from $ 42.5 million and $ 157.4 million in the comparable periods in 2012 . revenue from our business segment increased 11 % and 14 % to $ 43.0 million and $ 162.7 million in the three and twelve months ended december 31 , 2013 , respectively from $ 38.8 million and $ 142.3 million in the comparable periods in 2012 . gross profit margin remained flat at 76 % in the three months ended december 31 , 2013 and the comparable period in 2012. gross profit margin decreased to 76 % from 77 % in the twelve months ended december 31 , 2013 , from the comparable period in 2012 . cost and expenses increased 19 % and 24 % to $ 47.5 million and $ 182.3 million in the three and twelve months ended december 31 , 2013 , respectively from $ 40.0 million and $ 147.1 million in the comparable periods in 2012 . net loss increased 147 % to $ 0.7 million in the three months ended december 31 , 2013 from net income of $ 1.5 million for the three months ended december 31 , 2012 . net loss increased 155 % to $ 3.5 million in the twelve months ended december 31 , 2013 from net income of $ 6.4 million for the twelve months ended december 31 , 2012 . bookings increased 15 % and 17 % to $ 10.0 million and $ 34.7 million in the three and twelve months ended december 31 , 2013 , respectively , from $ 8.7 million and $ 29.7 million in the comparable periods in 2012 . we include in our bookings metrics new contractual commitments from either new or existing midmarket and or enterprise customers for recurring subscription based fees , but exclude from such amounts non-recurring fees such as one time implementation costs or one time consulting fees . the bookings metric generally does not include or represent usage 30 based and or pay-for-performance based contracts , month-to-month contracts or transaction-based services . accordingly , while we believe that bookings is a relevant metric in providing management with insight into certain recent activity in our business , there is no assurance that bookings amounts will be recognized as revenue in future periods , based on our revenue recognition policy , potential customer cancellations , delays in implementations or otherwise . story_separator_special_tag additionally , we perform as an agent without any risk of loss for collection , and are not involved in selecting the expert or establishing the expert 's fee . we collect a fee from the consumer and retain a portion of the fee , and then remit the balance to the expert . revenue from these transactions is recognized when there is persuasive evidence of an arrangement , no significant company obligations remain , collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable . stock-based compensation we follow asc 718-10 , โ stock compensation , โ which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services , with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions . asc 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award ( with limited exceptions ) . incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized . as of december 31 , 2013 , there was approximately $ 30.1 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements . that cost is expected to be recognized over a weighted average period of approximately 2.0 years . accounts receivable our customers are located primarily in the united states . we perform ongoing credit evaluations of our customers ' financial condition ( except for customers who purchase the liveperson services by credit card via internet download ) and have established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers , historical trends and other information that we believe to be reasonable , although they may change in the future . if there is a deterioration of a customer 's credit worthiness or actual write-offs are higher than our historical experience , our estimates of recoverability for these receivables could be adversely affected . although our large number of customers limits our concentration of credit risk we do have several large customers . if we experience a significant write-off from one of these large customers , it could have a material adverse impact on our consolidated financial statements . no single customer accounted for or exceeded 10 % of our total revenue in 2013 , 2012 or 2011 . one customer accounted for approximately 12 % and 15 % of accounts receivable at december 31 , 2013 and 2012 , respectively . we increased our allowance for doubtful accounts by $ 0.5 million to approximately $ 1.2 million , principally due to an increase in the proportion of our receivables due from customers with greater credit risk . a large proportion of receivables are due from larger corporate customers that typically have longer payment cycles . goodwill in accordance with asc 350 , โ goodwill and other intangible assets , โ goodwill and indefinite-lived intangible assets are not amortized , but reviewed for impairment upon the occurrence of events or changes in circumstances that would reduce the fair value below its carrying amount . goodwill is required to be tested for impairment at least annually . in september 2011 , the fasb issued asu no . 2011-08 , intangibles โ goodwill and other ( topic 350 ) . asu 2011-08 permits an entity to first assess qualitative factors to determine whether it is โ more likely than not โ that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in topic 350. the more-likely-than-not threshold is defined as having a likelihood of more than 50 % . if it is determined that the fair value of a reporting unit is more likely than not to be less than its carrying value ( including unrecognized intangible assets ) than it is necessary to perform the second step of the goodwill impairment test . the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions . similarly , estimates and assumptions are used in determining the fair value of other intangible assets . these estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge . we perform internal valuation analyses and consider other market information that is publicly available . estimates of fair value are primarily determined using discounted cash flows and market comparisons . these approaches use significant estimates and assumptions including projected future cash flows ( including timing ) , discount rates reflecting the risk inherent in future cash flows , perpetual growth rates , determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables . in the third quarter of 2013 , we determined that it is not more-likely that the fair value of the reporting units is less than their carrying amount . accordingly , we did not perform the two-step goodwill impairment test . 32 impairment of long-lived assets in accordance with asc 360-10 , โ accounting for the impairment or disposal of long-lived assets , โ long-lived assets , such as property , plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset . the company does not have any long-lived assets , including intangible assets , which it considered to be impaired . revenue the majority of our revenue is generated from monthly service revenues and related professional services from the sale of the liveperson services . we charge a monthly fee , which varies by service and customer usage .
| results of operations the company is organized into two operating segments : business and consumer . the business segment facilitates real-time online interactions โ chat , voice , and content delivery , across multiple channels and screens for global corporations of all sizes . the consumer segment facilitates online transactions between experts and users seeking information and knowledge for a fee via real-time chat . the following tables set forth our results of operations for the periods presented and as a percentage of our revenues for those periods . the period-to-period comparison of financial results is not necessarily indicative of future results . replace_table_token_9_th 34 revenue replace_table_token_10_th business revenue increased by 14 % to $ 162.7 million for the year ended december 31 , 2013 , from $ 142.3 million for the year ended december 31 , 2012. this increase is primarily attributable to revenue from existing customers who increased their services in the amount of approximately $ 12.2 million , net of cancellations ; revenue from new customers in the amount of approximately $ 6.0 million ; and to a lesser extent , to professional services revenue of approximately $ 2.2 million . our current revenue growth has been impacted by the necessary lead time required to get our global sales team up to full capacity in anticipation of our roll out of the liveengage platform . in addition , our revenue growth has traditionally been driven by a mix of revenue from new customers as well as expansion from existing customers .
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64 trimas corporation notes to consolidated financial statements ( continued ) as part of purchasing the remaining membership interest , the company finalized the calculation of the redeemable noncontrolling interest as of march 11 , 2014. changes in the carrying amount of redeemable noncontrolling interest are summarized as follows ( dollars in thousands ) : redeemable noncontrolling interest balance , december 31 , 2013 $ 29,480 distributions to noncontrolling interests ( 580 ) net income attributable to noncontrolling interests 810 balance , march 11 , 2014 $ 29,710 the difference between the cash purchase price and final redeemable noncontrolling interest as of march 11 , 2014 was recorded as a reduction in paid story_separator_special_tag the statements in the discussion and analysis regarding industry outlook , our expectations regarding the performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in item 1a `` risk factors . '' our actual results may differ materially from those contained in or implied by any forward-looking statements . you should read the following discussion together with item 8 , `` financial statements and supplementary data . '' introduction we are a global manufacturer and distributor of products for commercial , industrial and consumer markets . we are principally engaged in four reportable segments : packaging , aerospace , energy and engineered components . on june 30 , 2015 , we completed the spin-off of our cequent businesses , creating a new independent publicly-traded company , horizon global corporation ( `` horizon '' ) . on june 30 , 2015 , our stockholders received two shares of horizon common stock for every five shares of trimas common stock that they held as of the close of business on june 25 , 2015. the financial position , results of operations and cash flows of horizon are reflected as discontinued operations for all periods presented through the date of the spin-off . key factors and risks affecting our reported results . our businesses and results of operations depend upon general economic conditions and we serve some customers in cyclical industries that are highly competitive and themselves significantly impacted by changes in economic conditions . there has been low overall economic growth over the past few years , particularly in the united states and europe . the most significant external factor impacting us recently is the impact of lower oil prices , which began to decline in late 2014 , declined throughout 2015 and remained at low levels during 2016. this decline most directly impacts our arrow engine business within our engineered components reportable segment ( which serves the upstream oil and natural gas markets at the well site ) , and also impacts our energy reportable segment , which primarily serves petrochemical and other refineries in the downstream oil and gas markets , as well as historically having a fraction of its business dedicated to upstream activity . between arrow engine and the energy segment , we experienced approximately $ 66 million of net sales decline from 2014 to 2015 , and an additional $ 56 million decline from 2015 to 2016. specific to arrow engine , net sales declined more than 50 % during 2015 as compared to 2014 , and by more than 50 % again in 2016 compared with 2015 , and are expected to remain at a low level until the price of oil increases over a sustained period where its customers decide to increase their activity levels and related well-site investments . the business reacted aggressively in cutting costs and structuring its business over the past two years in response to the lower demand levels , and was able to remain at an approximately break-even profit level in 2015 , and near break-even in 2016 , despite these significant reductions in sales levels . in our energy segment , the impact of the lower oil prices was muted in 2015 by market share gains and adding product content to our product portfolio . we were able to essentially hold 2015 sales levels flat with 2014 until the fourth quarter of 2015 , when capital spending was significantly reduced at many of our customers , and sales levels dropped more than 20 % on a sequential basis . the sales level has remained at a low level throughout 2016 , as customers tightly managed spending initiatives , and we have chosen to deemphasize or exit certain lower margin products and sales in underperforming geographic regions . in addition to the impact of lower oil prices , there has been a shift over the past two to three years in our energy reportable segment from historical demand and activity , both in the united states and internationally . petrochemical plants and refinery customers deferred shutdown activity , and we experienced decreases in engineering and construction ( `` e & c '' ) customer activity . as noted above , we were able to hold sales levels essentially flat on a sequential quarterly basis in 2014 and until fourth quarter of 2015 with market share gains and additional product content ; however , our margins declined significantly due to the mix of product sales and inefficiencies that resulted from the shift in activity levels . the current lower oil prices have continued to place further pressure on the top-line and predictability of customer order patterns . given these factors , we have been realigning the business and its fixed cost structure with the current business environment , aggressively closing and consolidating facilities and seeking alternate lower-cost sources for input costs . we have begun , and expect to continue , to realize the cost savings and operational efficiencies associated with leveraging the new lower fixed cost structure and other initiatives , and continue to evaluate the cost structure and physical footprint of the business . story_separator_special_tag as noted earlier , our arrow engine business is most directly impacted by significant volatility in oil prices . arrow 's pumpjack and other engine sales and related parts , which comprise a significant portion of the business , are impacted by oil drilling levels , rig counts and commodity pricing . in addition , a portion of our energy reportable segment serves upstream customers at oil well sites that have been impacted by changes in oil prices . the majority of this segment provides parts for refineries and chemical plants , which may or may not decide to incur capital expenditures or changeover production stock , both of which require retooling with our gaskets and bolts , in times of fluctuating oil prices . our packaging reportable segment may be impacted by oil prices , as it is a significant driver of resin pricing , although we generally are able to maintain profit levels when oil prices change due to escalator/de-escalator clauses in contracts with many of our customers . 30 segment information and supplemental analysis the following table summarizes financial information for our four reportable segments ( dollars in thousands ) : replace_table_token_4_th 31 story_separator_special_tag valuation allowances on certain deferred tax assets including foreign tax operating loss carryforwards . loss from continuing operations decreased approximately $ 11.1 million to $ 39.8 million in 2016 , from a loss of $ 28.7 million in 2015 . the decrease was primarily the result of an approximately $ 39.7 million decrease in operating profit , which includes an approximate $ 23.2 million increase in goodwill and intangible asset impairment charges . the decrease was partially offset by a decrease in income tax benefit ( expense ) of approximately $ 24.9 million , a decrease in debt extinguishment costs of approximately $ 2.0 million , decreases in other expenses , net of approximately $ 1.3 million and a decrease in interest expense of approximately $ 0.4 million . see below for a discussion of operating results by reportable segment . packaging . net sales increased approximately $ 7.0 million , or 2.1 % , to $ 341.3 million in 2016 , as compared to $ 334.3 million in 2015 . sales of our health , beauty and home care products increased approximately $ 10.5 million , due to growth in the european , north american and asian markets . sales of our industrial products increased approximately $ 3.4 million , primarily due to increased demand in the north american market . sales of our food and beverage products also increased approximately $ 0.7 million , primarily due to increased demand in the united states . these increases were partially offset by approximately $ 7.5 million of unfavorable currency exchange , as our reported results in u.s. dollars were negatively impacted as a result of the stronger u.s. dollar relative to foreign currencies . packaging 's gross profit increased approximately $ 0.4 million to $ 121.0 million , or 35.4 % of sales , in 2016 , as compared to $ 120.6 million , or 36.1 % of sales , in 2015 . gross profit increased approximately $ 5.2 million due to higher sales levels , excluding the impact of unfavorable foreign exchange , and by approximately $ 1.1 million due to improved overhead cost absorption and a more favorable product sales mix . these increases were partially offset by approximately $ 1.5 million of start-up costs for the new mexican manufacturing facility , the impact of the reduction of an estimated acquisition liability of approximately $ 1.2 million during 2015 , which did not repeat in 2016 , and approximately $ 3.2 million of unfavorable currency exchange , as our reported results in u.s. dollars were negatively impacted as a result of the stronger u.s. dollar relative to foreign currencies . packaging 's selling , general and administrative expenses increased approximately $ 0.8 million to $ 42.8 million , or 12.5 % of sales , in 2016 , as compared to $ 42.0 million , or 12.6 % of sales , in 2015 . the increase was primarily due to approximately $ 1.0 million of severance and other costs related to the closure of our existing mexico manufacturing facility and establishment and move to the new manufacturing facility in mexico , as well as the impact of the reduction in the arminak contingent liability of approximately $ 1.1 million in 2015. in addition , professional fees increased approximately $ 1.7 million as a result of our front end reorganization to operate on a global versus regional basis , combined with other growth and product initiatives . these increases were partially offset by a decrease in selling , general and administrative expenses of approximately $ 1.7 million due the impact of foreign currency , with the remainder of the decrease primarily related to lower employee related costs as a result of execution of the fip . 33 packaging 's operating profit decreased approximately $ 0.6 million to $ 77.8 million , or 22.8 % of sales , in 2016 , as compared to $ 78.5 million , or 23.5 % of sales , in 2015 . although sales levels increased , operating profit and related margin declined primarily due to the reduction in acquisition and contingent liabilities in 2015 , which did not repeat in 2016 , costs related to the closure and move from our existing facility in mexico to a new facility , higher professional fees and unfavorable currency exchange , which the incremental profit generated on higher sales levels and lower employee costs mostly offset . aerospace . net sales decreased approximately $ 1.6 million , or 0.9 % , to $ 174.9 million in 2016 , as compared to $ 176.5 million in 2015 . sales to distribution customers declined by approximately $ 8.3 million , primarily as a result of certain large customers continuing planned reductions of their investment in on-hand inventory levels of certain fastener products .
| results of operations year ended december 31 , 2016 compared with year ended december 31 , 2015 the principal factors impacting us during the year ended december 31 , 2016 , compared with the year ended december 31 , 2015 were : the impact of lower oil prices , primarily impacting sales and profit levels in our engineered components and energy reportable segments ; costs incurred and savings achieved from our fip and other cost savings actions , spread across all of our reportable segments , with the largest amounts within our energy reportable segment ; the impact of production and scheduling costs and inefficiencies , as well as the impact of lower distribution customer sales , all within our aerospace reportable segment ; the impact of our november 2015 acquisition of the tolleson , arizona machined components facility from parker-hannifin corporation within our aerospace reportable segment ; the impact of a stronger u.s. dollar , primarily in our packaging and energy reportable segments ; the spin-off of the cequent businesses in 2015 , including costs incurred to affect and reclassifying to discontinued operations for all periods presented , and amending our credit agreement ( `` credit agreement '' ) ; and an approximate $ 98.9 million goodwill and intangible asset impairment charge in 2016 in our aerospace reportable segment and an approximate $ 74.1 million goodwill impairment charge in 2015 within our energy and engineered components reportable segments . overall , net sales decreased approximately $ 70.0 million , or approximately 8.1 % , to $ 794.0 million in 2016 , as compared to $ 864.0 million in 2015 , primarily as a result of the impact of lower oil prices and oil-related activity on our energy and engineered components reportable segments , which more than offset growth in our packaging reportable segment and $ 10.6 million of additional sales from the recent acquisition in our aerospace reportable segment .
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any impairment losses are reported as realized losses and are part of net story_separator_special_tag december 31 , 2018 and 2017 , and our consolidated results of operations for the three years in the period ended december 31 , 2018 , and where appropriate , factors that may affect future financial performance . this analysis should be read in conjunction with our audited consolidated financial statements , notes thereto and selected consolidated financial data appearing elsewhere in this report . cautionary statement regarding forward-looking information all statements , trend analyses and other information contained in this report and elsewhere ( such as in filings by us with the sec , press releases , presentations by us or our management or oral statements ) relative to markets for our products and trends in our operations or financial results , as well as other statements including words such as `` anticipate '' , `` believe '' , `` plan '' , `` estimate '' , `` expect '' , `` intend '' and other similar expressions , constitute forward-looking statements . we caution that these statements may and often do vary from actual results and the differences between these statements and actual results can be material . accordingly , we can not assure you that actual results will not differ materially from those expressed or implied by the forward-looking statements . factors that could contribute to these differences include , among other things : general economic conditions and other factors , including prevailing interest rate levels and stock and credit market performance which may affect ( among other things ) our ability to sell our products , our ability to access capital resources and the costs associated therewith , the fair value of our investments , which could result in impairments and other than temporary impairments , and certain liabilities , and the lapse rate and profitability of policies ; customer response to new products and marketing initiatives ; changes in federal income tax laws and regulations which may affect the relative income tax advantages of our products ; increasing competition in the sale of fixed annuities ; regulatory changes or actions , including those relating to regulation of financial services affecting ( among other things ) bank sales and underwriting of insurance products and regulation of the sale , underwriting and pricing of products ; and the risk factors or uncertainties listed from time to time in our filings with the sec . for a detailed discussion of these and other factors that might affect our performance , see item 1a of this report . executive summary excellent customer service teamed with our ability to offer innovative insurance products that provide principal protection and lifetime income continued to result in significant sales of our annuity products . in 2018 , our sales were $ 4.4 billion which has resulted in cash and investments in excess of $ 49 billion at december 31 , 2018 . our sales for the last five years have ranged from $ 4.2 billion to $ 7.1 billion . we have applied a conservative investment strategy to the annuity deposits we continue to manage which has provided reliable returns on our invested assets . our profitability has also been driven by maintaining an efficient operation . the economic and personal investing environments continued to be conducive for high sales levels as retirees and others look to put their money in instruments that will protect their principal and provide them with consistent cash flow sources in their retirement years . our sales increased in 2018 as compared to 2017 due to the launch of new products during 2018 to improve our competitive position in the guaranteed lifetime income benefit market , the continued competitiveness of our accumulation products and higher yields which supported increases in payout factors on our guaranteed income products . in addition , we benefited from an increase in industry sales of fixed index annuities during 2018 in part due to the dol conflict of interest fiduciary rule being vacated . these factors were partially mitigated by continued competitive pressures within each of our distribution channels . we continue to face a challenging environment for sales of fixed index annuities due to a highly competitive market . we continue to be in the midst of an unprecedented period of low interest rates and low yields for investments with the credit quality we prefer which presents a strong headwind to achieving our target rate for investment spread . in response , we have been reducing policyholder crediting rates for new annuities and existing annuities since the fourth quarter of 2011. in addition , options costs for certain index strategies have been increasing in the last several quarters which has caused an increase in our aggregate cost of money . we continue to have flexibility to reduce our crediting rates if necessary and could decrease our cost of money by approximately 63 basis points if we reduce current rates to guaranteed minimums . in addition , starting in 2017 we began to invest in asset classes that were not traditionally in our portfolio , focusing on investments with less liquidity that provide higher yields and have a track record of positive credit performance . investment yields available to us in 2018 increased compared to 2017 due to an increase in interest rates on the asset classes we targeted for purchase and investment in new asset classes as noted above . we are looking to improve our investment yield through the opportunistic replacement of lower yielding securities with higher yielding securities . during 2018 we sold $ 2.1 billion in book value of lower yielding securities for a yield pick-up of approximately 170 basis points on these investments . as book yields on the securities sold were less than market yields , we recognized losses of approximately $ 50 million with $ 38 million recognized in net realized gains ( losses ) , and $ 12 million recognized as otti . story_separator_special_tag see note 9 to our audited consolidated financial statements . net income is also impacted by the change in fair value of derivatives and embedded derivatives which fluctuates from year to year based upon changes in fair values of call options purchased to fund the annual index credits for fixed index annuities and changes in the interest rate used to discount the embedded derivative liability . net income for the year ended december 31 , 2018 was positively impacted by an increase in the discount rate used to estimate our embedded derivative liabilities while net income for the years ended december 31 , 2017 and 2016 was negatively impacted by a decrease in the discount rate used to estimate our embedded derivative liabilities . we periodically revise the key assumptions used in the calculation of amortization of deferred policy acquisition costs and deferred sales inducements retrospectively through an unlocking process when estimates of current or future gross profits/margins ( including the impact of realized investment gains and losses ) to be realized from a group of products are revised . in addition , we periodically revise the assumptions used in determining the liability for lifetime income benefit riders as experience develops that is different from our assumptions . net income for 2018 , 2017 and 2016 includes effects from revisions to assumptions as follows : replace_table_token_10_th we review these assumptions quarterly and as a result of these reviews , we made adjustments to assumptions used in the calculation of amortization of deferred policy acquisition costs and deferred sales inducements during 2018. the most significant revisions to such assumptions were account balance true-ups which were favorable to us due to stronger index credits than we assumed due to strong equity market performance and adjustments to generally decrease lapse rate assumptions to reflect better persistency experienced than assumed . the favorable impact of the account balance true-ups and lapse rate assumption changes was partially offset by revisions to lower our future investment spread assumptions primarily due to an increase in the cost of money we have been experiencing . the most significant revisions made during 2017 as a result of our quarterly reviews were account balance true-ups which were favorable to us due to stronger index credits than we assumed due to strong equity market performance and adjustments to generally decrease lapse rate assumptions to reflect better persistency experienced than assumed . the favorable impact of the account balance true-ups and lapse rate assumption changes was partially offset by reductions in estimated future gross profits attributable to revisions to assumptions used in determining the liability for lifetime income benefit riders as well as an increase in estimated expenses associated with a reinsurance agreement with an unaffiliated reinsurer . the most significant revisions during 2016 as a result of our quarterly reviews were adjustments to lower future spread assumptions as actual investment spreads being earned showed investment spread and gross profits being less than what we were assuming in our models due to decreases in the average yield on invested assets resulting from the continued low interest rate environment . we also made adjustments to extend the period of time in which we assume investment spread will grade up to our long-term spread targets by an additional two years as yields obtained on investment purchases were much lower than we had anticipated as a result of the overall decline in investment yields that followed the brexit vote . in addition , revisions to assumptions used in determining the liability for lifetime income benefit riders during 2016 resulted in a decrease in estimated future gross profits . the 2018 , 2017 and 2016 revisions to the liability for lifetime income benefit riders were consistent with the revisions used in the calculation of amortization of deferred policy acquisition costs and deferred sales inducements described above . the 2018 revisions were primarily attributable to account balance true-ups and future investment spread assumptions . the impact of the account balance true-ups and future investment spread changes was partially offset by the lapse rate assumptions changes described above . the 2017 revisions were primarily due to the lapse rate assumption changes described above and changes to our account value growth projections . the 2016 revisions were primarily due to actual index credits on policies being lower than projected over the past four quarters . 22 non-gaap operating income , a non-gaap financial measure ( see reconciliation to net income in item 6. selected consolidated financial data ) increased 49 % to $ 425.7 million in 2018 and 133 % to $ 285.1 million in 2017 from $ 122.3 million in 2016 . in addition to net income , we have consistently utilized non-gaap operating income , a non-gaap financial measure commonly used in the life insurance industry , as an economic measure to evaluate our financial performance . non-gaap operating income equals net income adjusted to eliminate the impact of items that fluctuate from year to year in a manner unrelated to core operations , and we believe measures excluding their impact are useful in analyzing operating trends . the most significant adjustments to arrive at non-gaap operating income eliminate the impact of fair value accounting for our fixed index annuity business and are not economic in nature but rather impact the timing of reported results . in addition , 2017 includes a $ 35.9 million adjustment to arrive at non-gaap operating income resulting from the tax cuts and jobs act of 2017 , which was enacted on december 22 , 2017 and required a revaluation of our net deferred tax assets from 35 % to 21 % . we believe the combined presentation and evaluation of non-gaap operating income together with net income provides information that may enhance an investor 's understanding of our underlying results and profitability . non-gaap operating income is not a substitute for net income determined in accordance with gaap .
| executive summary for a discussion of our actions in response to the increase in option costs and the low interest rate environment . 20 results of operations for the three years ended december 31 , 2018 annuity deposits by product type collected during 2018 , 2017 and 2016 , were as follows : replace_table_token_9_th over these years competition has increased significantly within the fixed index annuity market . while we continue to be in the top three companies for sales of fixed index annuities within the independent agent channel , the new entrants into the market have expanded the overall market through other distribution channels and our overall market share has declined from second in 2016 to sixth based on information available through the nine-months ended september 30 , 2018 according to wink 's sales and market report published by wink , inc. we attribute our leading position to our attractive product offerings , our consistent presence in the fixed index annuity market , our continued strong relationships with and excellent service provided to our distribution partners , the increased attractiveness of safe money products in volatile markets and lower interest rates on competing products such as bank certificates of deposit . annuity deposits before coinsurance ceded increased 5 % during 2018 compared to 2017 and decreased 41 % during 2017 compared to 2016 . annuity deposits after coinsurance ceded increased 5 % during 2018 as compared to 2017 and decreased 30 % in 2017 as compared to 2016 . the increase in sales in 2018 was due to the launch of new products during 2018 to improve our competitive position in the guaranteed lifetime income benefit market , the continued competitiveness of our accumulation products and higher yields which supported increases in payout factors on our guaranteed income products .
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the company has designed five product lines that incorporate the same underlying proprietary technology and value for producing a unique alternative to grid-tied charging , having a built-in renewable energy source in the form of attached solar panels and or light wind generator to produce power and battery storage to store the power . these products are rapidly deployable and attractively designed . our product lines include : - ev arc electric vehicle autonomous renewable charger โ a patented , rapidly deployed , infrastructure product that uses integrated solar power and battery storage to provide a mounting asset and a source of power for factory installed electric vehicle charging stations of any brand . in 2019 , we began deploying our upgraded version , the ev arc 2020 , which provides all of the features of the original ev arc in addition to elevating the electronics to the underside of the solar array making the unit flood-proof up to nine feet and making more space available on the engineered ballast and traction pad which gives the product stability . 21 - solar treeยฎ dcfc โ off-grid , renewably energized and rapidly deployed , patented single-column mounted smart generation and energy storage system with the capability to provide a 50kw dc fast charge to one or more electric vehicles or larger vehicles . - ev arc dcfc โ dc fast charging system for charging evs . - ev-standard tm โ patent issued on december 31 , 2019 and still under development . a lamp standard , ev charging and emergency power product which uses an existing streetlamp 's foundation and a combination of solar , wind , grid connection and onboard energy storage to provide curbside charging . - uav arc - patent issued on november 24 , 2020 and still under development . an off-grid , renewably energized and rapidly deployed product and network used to charge aerial drone ( uav ) fleets . we believe that there is a clear need for a rapidly deployable and highly scalable ev charging infrastructure , and that our products fulfill that requirement . unlike grid-tied installations which require general and electrical contractors , engineers , consultants , digging trenches , permitting , pouring concrete , wiring , and ongoing utility bills , the ev arc system can be deployed in minutes , not months , and is powered by renewable energy so there is no utility bill . we are agnostic as to the ev charging service equipment or provider and integrate best of breed solutions based upon our customer 's requirements . for example , our ev arc and solar treeยฎ products have been deployed with chargepoint , blink , enel x , electrify america and other high quality ev charging solutions . we can make recommendations to customers or we can comply with their specifications and or existing charger networks . our products replace the infrastructure required to support ev chargers , not the chargers themselves . we do not sell ev charging , rather we sell products which enable it . we believe our chief differentiators for our electric vehicle charging infrastructure products are : ยท our patented , renewably energized products which dramatically reduce the cost , time and complexity of the installation and operation of ev charging infrastructure and outdoor media platforms when compared to traditional , utility grid tied alternatives ; ยท our first-to-market advantage with ev charging infrastructure products which are renewably energized , rapidly deployed and require no construction or electrical work on site . ยท our products ' capability to operate during grid outages and to provide a source of ev charging and emergency power rather than becoming inoperable during times of emergency or other grid interruptions ; and ยท our ability to continuously create new and patentable inventions which are marketable and a complex integration of our own proprietary technology and parts , and other commonly available engineered components , creating a further barrier to entry for our competition . our revenues increased from $ 5.1 million in 2019 to $ 6.2 million in 2020. historically , we have generated revenue primarily from the sale of ev arcs to a few large customers , such as google , the city of new york , and the state of california . during the year ended december 31 , 2020 , product sales were more diversified with sales to a wider variety of municipalities , colleges , commercial businesses , utilities , and federal customers such as the u.s. navy and national laboratories . in addition , we are still maintaining our contracts with the city of new york and the state of california , as well as initiating state-wide contracts with massachusetts and florida , and we received a large award from electrify america for the deployment of 30 units in central california . with a change of administration in washington , we believe there is increased support for funding ev charging infrastructure , as well as a number of federal grants available in addition to the federal solar investment tax credit , the code 30c tax credit and rule 179 accelerated depreciation which provide a strong financial incentive for many of our target customers . in late 2020 , we were awarded a general services administration ( gsa ) multiple award schedule contract that will help our customers to streamline purchases from federal agencies and state and local governments . during 2020 , we invested in sales in marketing resources including a seasoned vice president of sales and marketing , an increase in our sales team , a strong public relations firm and a company name change and rebranding to promote awareness of who we are . in addition , we expect the electric vehicle market to experience significant growth over the next decade , and with that will be the need for ev charging infrastructure . we believe our products are uniquely positioned to benefit from this growth , as well as increase market share as a result of the features our product ads . story_separator_special_tag the company regularly reviews inventory components and quantities on hand and performs annual physical inventory counts . a reserve is established if this review process determines the net realizable value of such inventory may be below the carrying value . leases . in february 2016 , the financial accounting standards board issued accounting standards update no . 2016-02 : โ leases ( topic 842 ) โ whereby lessees need to recognize almost all leases on the balance sheet as a right of use asset and a corresponding lease liability . the company adopted this standard as of january 1 , 2019 using the effective date method and applying the package of practical expedients to leases that commenced before the effective date whereby the company elected not to reassess the following : ( i ) whether any expired or existing contracts contain leases , and ( ii ) initial direct costs for any existing leases . for contracts entered into after the effective date , at the inception of a contract the company assesses whether the contract is , or contains , a lease . the company 's assessment is based on : ( 1 ) whether the contract involves the use of a distinct identified asset , ( 2 ) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period , and ( 3 ) whether it has the right to direct the use of the asset . the company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments . the company has elected to not recognize right of use assets and lease liabilities for short term leases that have a term of 12 months or less . impairment of long-lived assets . the company accounts for long-lived assets in accordance with the provisions of asc 360-10-35-15 โ impairment or disposal of long-lived assets. โ this guidance requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . accounting for derivatives . the company evaluates its convertible instruments , options , warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under asc topic 815 , โ derivatives and hedging. โ the result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability . in the event that the fair value is recorded as a liability , the change in fair value is recorded in the statement of operations as other income ( expense ) . upon conversion of a note where the embedded conversion option has been bifurcated and accounted for as a derivative liability , the company records the shares at fair value , relieves all related notes , derivatives , and debt discounts , and recognizes a net gain or loss on extinguishment . equity instruments that are initially classified as equity that become subject to reclassification under asc topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date . revenue recognition . beam follows the revenue standards of financial accounting standards board update no . 2014-09 : โ revenue from contracts with customers ( topic 606 ) . โ the core principle of this topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . revenue is recognized in accordance with that core principle by applying the following five steps : 1 ) identify the contracts with a customer ; 2 ) identify the performance obligations in the contract ; 3 ) determine the transaction price ; 4 ) allocate the transaction price to the performance obligations ; and 5 ) recognize revenue when ( or as ) we satisfy a performance obligation . revenues are primarily derived from the direct sales of manufactured products . revenues may also consist of maintenance fees for the maintenance of previously sold products and revenues from sales of professional services . revenues from inventoried product are recognized upon the final delivery of such product to the customer or when legal transfer of ownership takes place . revenue values are fixed price arrangements determined at the time an order is placed or a contract is entered into . the customer is typically obligated to make payment for such products within a 30-45 day period after delivery . 24 revenues from maintenance fees for services provided by the company are recognized equally over the period of the maintenance term . revenue values are fixed price arrangements determined at the time an order is placed or a contract is entered into . the customer is typically obligated to make payment for the service in advance of the maintenance period . extended maintenance or warranty services , where the customer has the option to purchase this extension as a separate purchase option , are considered a separate performance obligation .
| results of operations comparison of results of operations for fiscal years ended december 31 , 2020 and 2019 revenue . for the year ended december 31 , 2020 , our revenues were $ 6,210,350 compared to $ 5,111,545 for the same period in 2019 , an increase of $ 1,098,805 or 21 % . revenues for the year ended december 31 , 2020 included the sale of 69 ev arc units including 29 units to electrify america for deployment in california , as well as to various municipalities , colleges , utilities and federal agencies . it also included the sale of three solar treeยฎ systems and an ev arc dc fast charging system for a rest stop in california . revenues for the solar treeยฎ and ev arc dcfc are significantly higher than those for ev arc 2020 units because they are more complex , have more storage , and deliver more energy and power . revenues for the year ended december 31 , 2019 were derived primarily from the sale and delivery of 65 evarc units which included 34 units to the city of new york and two ev arc dc fast charging deployments to two rest stops in california . during fiscal 2020 , we invested in sales and marketing employees , resources and programs to raise awareness of the benefits and value of our products . the receipt of orders may continue to be uneven due to the timing of customer approvals or budget cycles . gross loss .
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the company valued these warrant issued at on the date of grant using the black-scholes option pricing model , and recorded the fair value of warrants $ 334,437 as of december 31 , 2013. the following are the assumptions used for fair value of warrants valued using the black scholes option-pricing model : replace_table_token_18_th a summary of the company 's warrant activity during the year ended december 31 , 2013 is presented below : replace_table_token_19_th note 12 โ commitments and contingencies the company may be involved from time to time in claims , lawsuits , and disputes with third parties , actions involving allegations or discrimination or breach of contract actions incidental in the normal operations of the business . in the opinion of management ; no pending or known threatened claims , actions or proceedings against the company are expected to have a material adverse effect on avt 's financial position , results of operations or cash flows . avt can not predict with certainty , however , the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims . there can be no assurance as to the ultimate outcome of any lawsuits and investigations . the company leases its office , manufacturing and warehouse from a third party for a period of 5 years from april 1 , 2010. rent expense for the years ended december 31 , 2013 and 2012 amounted to $ 207,504 and $ 322,049 , respectively . minimum future lease payments for the next five years are as follows : 2014 213,840 2015 53,856 2016 - 2017 2018 and thereafter - $ 267,696 note 13 โ subsequent events during january 1 , 2014 to october 23 , 2014 , the company issued various notes in total amount of $ 230,000 to third parties . these notes are subject to annual interest of 10 % which are payable quarterly in cash or stock and have terms averaging to 3 years . the notes are convertible to common stock based on 75 % of the average closing price for the immediate preceding 10 trading days if converted within a period of 12 months from the issuance date ; or 85 % of the average closing price for the immediate preceding 10 trading days if converted after 12 months from the issuance date up to the 24 th month from the issuance date or 90 % of the average closing price for the immediate preceding 10 trading days if converted after 24 months from the issuance date . on september 15 , 2014 , the company issued a 10 % three-year notes in amount of $ 250,000 to a related party . the notes are convertible to common stock based on 75 % of the average closing price for the immediate preceding 10 trading days if converted within a period of 12 months from the issuance date ; or 85 % of the average closing price for the immediate preceding 10 trading days if converted after 12 months from the issuance date up to the 24 th month from the issuance date or 90 % of the average closing price for the immediate preceding 10 trading days if converted after 24 months from the issuance date . during january 1 , 2014 to october 23 , 2014 , the company issued 485,208 shares of common stock to third parties for cash in amount of $ 799,850 . during january 1 , 2014 to october 23 , 2014 , the company issued 355,408 shares of common stock to a related party for cash in amount of $ 355,408 . during january 1 , 2014 to october 23 , 2014 , the company issued 29,669 shares of common stock for convertible note interest . on april 15 , 2014 , the company issued 5,002 shares of common stock for compensation . on july 3 , 2014 , the company issued 15,132 shares of common stock for settlement amount $ 35,000 . on january 31 , 2014 , the company converted various notes in total amount of $ 200,000 into 212,089 shares of common stock . during january 1 , 2014 to october 23 , 2014 , the company converted 459,219 shares of preferred stock into 2,755,314 shares of common stock . during january 1 , 2014 to october 23 , 2014 , the company issued 305,000 shares of preferred stock for cash and debt forgiveness . story_separator_special_tag forward looking statements this report contains certain forward- looking statements regarding , among other things , the anticipated financial and operating results of the company . for this purpose , forward- looking statements are any statements contained herein that are not statements of historical fact and include , but are not limited to , those preceded by or that include the words , โ estimate โ , โ could โ , โ should โ , โ would โ , โ likely โ , โ may โ , โ will โ , โ plan โ , โ intend โ , โ believes โ , โ expects โ , โ anticipates โ , โ projected โ , or similar expressions . those statements are subject to known and unknown risks , uncertainties and other factors that could cause actual results to differ materially from those contemplated by the statements . the forward looking information is based on various factors and was derived using numerous assumptions . for these statements , we claim the protection of the โ bespeaks caution โ doctrine . story_separator_special_tag all forward-looking statements in this document are based on information currently available to us as of the date of this report , and we assume no obligation to update any forward-looking statements . story_separator_special_tag 10pt '' > during the fiscal year ended december 31 , 2013 , financing activities provided $ 2,393,200. financing activities provided $ 2,266,153 to us during the fiscal year ended december 31 , 2012. we received $ 2,509,558 in proceeds from long-term notes and convertible notes . critical accounting policies and estimates use of estimates the preparation of the financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period . actual results could differ from those estimates . fair value of financial instruments the carrying value of cash and cash equivalents , accounts receivable , accounts payable and accrued liabilities , and debt approximate their fair values because of the short-term nature of these instruments . long-term convertible notes approximate fair value since the related rates of interest approximate current market rates . management believes the company is not exposed to significant interest or credit risks arising from these financial instruments . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs . the company utilizes a fair value hierarchy based on three levels of inputs , of which the first two are considered observable and the last unobservable . โ level 1- quoted prices in active markets for identical assets or liabilities . these are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets . โ level 2 - quoted prices for similar assets and liabilities in active markets ; quoted prices included for identical or similar assets and liabilities that are not active ; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets . these are typically obtained from readily-available pricing sources for comparable instruments . โ level 3 - unobservable inputs , where there is little or no market activity for the asset or liability . these inputs reflect the reporting entity 's own beliefs about the assumptions that market participants would use in pricing the asset or liability , based on the best information available in the circumstances . the following table presents the derivative financial instruments , the company 's only financial liabilities measured and recorded at fair value on the company 's balance sheets on a recurring basis , and their level within the fair value hierarchy as of december 31 , 2013 : replace_table_token_1_th the following table presents the derivative financial instruments , the company 's only financial liabilities measured and recorded at fair value on the company 's balance sheets on a recurring basis , and their level within the fair value hierarchy as of december 31 , 2012 replace_table_token_2_th the following table provides a summary of the changes in fair value , including net transfers in and or out , of the derivative financial instruments , measured at fair value on a recurring basis using significant unobservable inputs : balance at december 31 , 2012 $ 1,955,279 fair value of derivative liabilities at issuance 885,780 unrealized derivative ( gains ) losses included in other expense ( 1,563,766 ) termination of derivative liabilities ( 137,793 ) balance at december 31 , 2013 $ 1,139,500 the fair value of the derivative liabilities are calculated at the time of issuance and the company records a derivative liability for the calculated value . changes in the fair value of the derivative liabilities are recorded in other income ( expense ) in the statements of operations . the following are the assumptions used for derivative instruments valued using the black scholes option pricing model : replace_table_token_3_th cash and cash equivalents the company considers all highly liquid investments with maturities of three months or less when purchased , to be cash equivalents . revenue recognition the company derives revenues primarily from pilot programs , sales of customized vending machines and sales of vending goods . the company recognizes revenues in accordance with sec staff accounting bulletin no . 104 โ revenue recognition in financial statements ( sab 104 ) โ ( codified within accounting standards codification ) . revenue is recognized once the company has established that ( i ) there is evidence of an arrangement ( ii ) delivery has occurred and the performance obligation is substantially complete ; ( iii ) the fee is fixed or determinable and ( iv ) collection is probable . for pilot programs , the company provides integrated software development , and manufactures the prototype of vending machines . all pilot program contracts are fixed price contract , which requires 30 % -50 % advance payment from customers . the company also manufactures customized vending machines based on customers ' orders . a 30 % -50 % deposit is also required from customers . the company will periodically record deferred revenues relating to advance payments in contracts and orders . the company also operates its own vending machines to sell vending goods . revenue is recognized at the point of sale which coincides with collection . inventories inventories are valued at the lower of cost or market ; cost being determined using weighted average method . income taxes the company provides for income taxes under asc 740 , accounting for income taxes . asc 740 requires the use of an asset
| results of operations revenues we generated revenues of $ 6,953,820 during the fiscal year ended december 31 , 2013 , a decrease of $ 6,573,694 or 49 % , as compared to $ 13,527,418 for the fiscal year ended december 31 , 2012. this decrease in revenue was caused by decrease in manufacturing machine sales by $ 6,612,630. during 2012 our top three customers accounted for over 82 % of our revenue , but by 2013 those same top three accounted for 69 % . to better insulate ourselves from the fluctuations of a handful of clients our plans to diversify our base of revenue and customers is taking hold . we expect that in 2014 these top three will account for approximately 55 % of our total , and that our run-rate for 2015 will show even greater diversity for 2015. costs of sales for the year ended december 31 , 2013 , we had cost of sales of $ 4,872,542 , a decrease of $ 6,473,257 or 57 % , as compared to $ 11,345,799 for the fiscal year ended december 31 , 2012. gross margin for the year ended december 31 , 2013 , we had gross margin of 29 % as compared to 16 % for the fiscal year ended december 31 , 2012. the increase in gross margin in 2013 is due to driven by effective internal control .
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level 3ยvaluations that require inputs that reflect the company 's own assumptions that are both significant to the fair value measurement and unobservable . to the extent that valuation is based on models or inputs that are less observable or unobservable in the market , the determination of fair value requires more judgment . accordingly , the degree of judgment exercised by the company in determining fair value is greatest for instruments categorized in level 3. a financial instrument 's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement . the company had no liabilities classified as level 1 or level story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the ยrisk factorsย section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biotechnology company focused on discovering novel , differentiated biologic therapeutics and developing them for the treatment of life-threatening infectious diseases , including those caused by drug-resistant pathogens . drug-resistant infections account for 2,000,000 illnesses in the united states and 700,000 deaths worldwide each year . we intend to address drug-resistant infections using product candidates from our lysin platform . lysins are enzymes derived from naturally occurring bacteriophage , which are viruses that infect bacteria . when recombinantly produced and then applied to bacteria , lysins cleave a key component of the target bacteria 's peptidoglycan cell wall , resulting in rapid bacterial cell death . conventional antibiotics require bacterial cell division and metabolism to occur in order to exert their intended effect ( i.e. , cell death or cessation of growth ) . based on in vitro tests , lysins , however , are fundamentally different in that they kill bacteria rapidly by enzymatic cleavage of the bacterial cell wall without need for bacterial growth and cell division . in addition to the speed of action and potent cidality , we believe lysins are differentiated by their other hallmark features , which include the demonstrated ability to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models . importantly , lysins also have a ยnarrow spectrum , ย meaning they kill only specific species of bacteria or closely related bacteria . as such , we believe that lysins targeting gram-positive pathogens will not have negative effects on the beneficial , normal human gi microbiome , in contrast to conventional ยbroad spectrumย antibiotics which can kill the body 's normal , beneficial bacteria . we believe that the therapeutic profile of lysins is complimentary to that of conventional antibiotics . as such , our approach includes the use of lysins in addition to conventional antibiotics for the treatment of serious , drug-resistant bacterial infections , including biofilm-associated infections , to achieve greater efficacy and improve clinical outcomes , as well as potentially protecting against antibiotic resistance . we believe that the properties of our lysins will make them suitable for targeting antibiotic-resistant organisms , such as staphylococcus aureus ( ย staph aureusย ) and pseudomonas aeruginosa ( ย p.aeruginosaย ) , which cause serious infections such as bacteremia , pneumonia and osteomyelitis . beyond lysins , we continue to seek and identify novel antibacterial product candidates . we recently discovered a new class of novel lytic agents , called amurin peptides . our preliminary characterization studies indicate that amurin peptides have potency across a wide range of resistant gram-negative pathogens , including species that are part of the eskape pathogens ( e nterococcus faecium , s taphylococcus aureus , k lebsiella pneumoniae , a cinetobacter baumannii , p seudomonas aeruginosa , and e nterobacter species ) , which are the leading causes of hospital acquired infections throughout the world . these pathogens are considered to be urgent or serious threats to global health by the u.s. center for disease control ( ยcdcย ) and critical priorities by the world health organization ( ยwhoย ) . we believe that the amurin peptides will be highly complementary to our pathogen-specific lysin platform in addressing these infections . we aim to improve outcomes in patient with these life-threatening bacterial infections through use of our differentiated biologic candidates developed from our new classes of molecules . we have not generated any revenues and , to date , have funded our operations primarily through our ipo , our follow-on public offerings , private placements of convertible preferred stock and convertible debt to our investors , and grant funding received . in our most recent financing in july and august 2018 , we sold an 66 aggregate of 5,750,000 shares of our common stock , including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering , at a public offering price of $ 2.00 per share in an underwritten follow-on offering , generating net proceeds of approximately $ 10.4 million after underwriting discounts , commissions and offering expenses payable by us . we have never been profitable and our net losses were $ 37.7 million , $ 15.5 million and $ 28.5 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . we expect to incur significant expenses and increasing operating losses for the foreseeable future . story_separator_special_tag we have discovered and engineered lysins with potent activity against drug-resistant p. aeruginosa bacteria in preclinical studies , a major cause of morbidity and mortality , often related to hospital acquired pneumonia and a major medical challenge , particularly for patients with cystic fibrosis . we are initiating animal studies of our most promising anti-pseudomonal lysins with the goal of moving this program to the clinic as soon as possible . beyond our lysin programs , we continue our proprietary research to expand our pipeline of complimentary , nontraditional antimicrobials to address unmet medical needs . we are continuing to progress cf-404 , which is an aerosolized treatment for life-threatening human influenza composed of three human mabs which target all seasonal and most pandemic strains of influenza . we have discovered a novel class of phage-derived lytic agents , known as amurin peptides , which display potent bacteriocidal activity against a wide range of gram-negative pathogens in preclinical studies , including deadly , drug-resistant p. aeruginosa , klebsiella pneumoniae , escherichia coli , acinetobacter baumannii and enterobacter cloacae bacteria species . we are currently evaluating the in vitro and in vivo profiles of the amurin peptides as we continue to advance the program . to date , a large portion of our research and development work has related to the establishment of our lysin platform technologies , the advancement of our research projects to discovery of clinical candidates , manufacturing and preclinical testing of our clinical candidates and clinical testing of exebacase . we currently expect to focus the majority of our resources on the exebacase program . in the future , we intend to further 68 leverage our employee and infrastructure resources across multiple development programs well as research projects . in the years ended december 31 , 2018 , 2017 and 2016 , we recorded approximately $ 22.4 million , $ 17.3 million and $ 22.1 million , respectively , of research and development expenses . a breakdown of our research and development expenses by category is shown below . we do not currently utilize a formal time or laboratory project expense allocation system to allocate employee-related expenses , laboratory costs or depreciation to any particular project . accordingly , we do not allocate these expenses to individual projects or product candidates . however , we do allocate some portions of our research and development expenses in the product development , external research and licensing and professional fees categories , by project , including exebacase and cf-404 , as shown below . the following table summarizes our research and development expenses by category for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_4_th the following table summarizes our research and development expenses by program for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_5_th we anticipate that our research and development expenses will increase substantially in connection with the commencement of additional clinical trials for our product candidates . however , the successful development of future product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our research and development activities ; clinical trial results ; the terms and timing of regulatory approvals ; our ability to market , commercialize and achieve market acceptance for our product candidates in the future ; and the expense , filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights . 69 a change in the outcome of any of these variables with respect to the development of exebacase or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of exebacase or any such product candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of exebacase or if we experience significant delays in enrollment in any clinical trials of exebacase , we could be required to expend significant additional financial resources and time on the completion of the clinical development of exebacase . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including non-cash share-based compensation expense , in our executive , finance , legal , human resource and business development functions . other general and administrative expenses include facility costs , insurance expenses and professional fees for legal , consulting and accounting services . we anticipate that our general and administrative expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount , expanded infrastructure , increased legal , compliance , accounting and investor and public relations expenses associated with being a public company and increased insurance premiums , among other factors . interest income interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments . we base our estimates on our limited historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions .
| results of operations comparison of years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_6_th research and development expenses research and development expense was $ 22.4 million for the year ended december 31 , 2018 , compared with $ 17.3 million for the year ended december 31 , 2017 , an increase of $ 5.1 million . this increase was primarily attributable to a $ 4.5 million increase in expenditures on our product candidates as we completed enrollment in and delivery of topline data for the phase 2 clinical trial of exebacase , partially offset by a continued reduction in expenditures on cf-404 activities . the increase was also due to an overall $ 0.6 million increase primarily in other research and development expenses , including laboratory and external research costs in support of the discovery and study of additional product candidates . general and administrative expenses general and administrative expense was $ 8.7 million for the year ended december 31 , 2018 , compared with $ 9.2 million for the year ended december 31 , 2017 , a decrease of $ 0.5 million . this decrease was primarily attributable to decreased compensation costs , including severance costs of $ 0.8 million , which were partially offset by a $ 0.5 million increase in payroll taxes due to a refundable payroll tax credit realized in the year ended december 31 , 2017 . 72 other ( expense ) income other expense was $ 6.6 million for the year ended december 31 , 2018 compared with other income of $ 11.0 million for the year ended december 31 , 2017 , a decrease of $ 17.6 million .
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note that the capital structures of the predecessor story_separator_special_tag results of operations the following discussion should be read in conjunction with , and is qualified in its entirety by reference to , item 6 , ย selected financial dataย and our consolidated financial statements and related notes included elsewhere in this annual report . the discussions in this section contain forward-looking statements that involve risks and uncertainties , including , but not limited to , those described in item 1a , ยrisk factors.ย actual results could differ materially from those discussed below . overview we are one of the largest providers of highly engineered thermal solutions for process industries . for over 50 years , we have served a diverse base of thousands of customers around the world in attractive and growing markets , including energy , chemical processing and power generation . we are a global leader and one of the few thermal solutions providers with a global footprint and a full suite of products and services required to deliver comprehensive solutions to complex projects . we serve our customers locally through a global network of sales and service professionals and distributors in more than 30 countries and through our four manufacturing facilities on three continents . these global capabilities and longstanding relationships with some of the largest multinational energy , chemical processing , power and epc companies in the world have enabled us to diversify our revenue streams and opportunistically access high growth markets worldwide . for fiscal 2012 , approximately 66 % of our revenues were generated outside of the united states . revenue . our revenues are derived from providing customers with a full suite of innovative and reliable heat tracing solutions , including electric and steam heat tracing , tubing bundles , control systems , design optimization , engineering services and installation services . our sales are primarily to industrial customers for petroleum and chemical plants , oil and gas production facilities and power generation facilities . demand for industrial heat tracing solutions falls into two categories : ( i ) new facility construction , which we refer to as greenfield projects , and ( ii ) recurring maintenance , repair and operations and facility upgrades or expansions , which we refer to as mro/ue . greenfield construction projects often require comprehensive heat tracing solutions . we believe that greenfield revenue consists of sales revenues by customer in excess of $ 1 million annually ( excluding sales to agents , who typically resell our products to multiple customers ) , and typically includes most orders for projects related to facilities that are new or that are built independent of existing facilities . we refer to sales revenues by customer of less than $ 1 million annually , which we believe are typically derived from mro/ue , as mro/ue revenue . based on our experience , we believe that $ 1 million in annual sales is an appropriate threshold for distinguishing between greenfield revenue and mro/ue revenue . however , we often sell our products to intermediaries or subcontract our services ; accordingly , we have limited visibility into how our products or services may ultimately be used and can provide no assurance that our categorization may accurately reflect the sources of such revenue . furthermore , our customers do not typically enter into long-term forward maintenance contracts with us . in any given year , certain of our smaller greenfield projects may generate less than $ 1 million in annual sales , and certain of our larger plant expansions or upgrades may generate in excess of $ 1 million in annual sales , though we believe that such exceptions are few in number and insignificant to our overall results of operations . we believe that our pipeline of planned projects , as evidenced by our growing backlog of signed purchase orders , provides us with strong visibility into our future revenue , as historically we have experienced few order cancellations , and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog . the small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of greenfield project construction . our backlog at march 31 , 2012 was $ 117.7 million . the timing of recognition of revenue out of backlog is not always certain , as it is subject to a variety of factors that may cause delays , many of which are beyond our control ( such 26 as customers ' delivery schedules and levels of capital and maintenance expenditures ) . when delays occur , the recognition of revenue associated with the delayed project is likewise deferred . cost of sales . our cost of revenues includes primarily the cost of raw material items used in the manufacture of our products , cost of ancillary products that are sourced from external suppliers and construction labor cost . additional costs of revenue include contract engineering cost directly associated to projects , direct labor cost , external sales commissions , and other costs associated with our manufacturing/fabrication shops . the other costs associated with our manufacturing/fabrication shops are mainly indirect production costs , including depreciation , indirect labor costs , and the costs of manufacturing support functions such as logistics and quality assurance . key raw material costs include polymers , copper , stainless steel , insulating material , and other miscellaneous parts related to products manufactured or assembled as part of our heat tracing solutions . historically , the costs of our primary raw materials have been stable and readily available from multiple suppliers , and we have been generally successful with passing along raw material cost increases to our customers . therefore , increases in the cost of key raw materials of our products have not generally affected our gross margins . story_separator_special_tag mro/ue revenues are typically highest during the second and third fiscal quarters , as most of our customers perform preventative maintenance prior to the winter season . story_separator_special_tag 2011. in fiscal 2011 , there was a non-cash $ 7.6 million negative impact to gross profit due to a purchase accounting adjustment related to the chs transactions . under purchase accounting rules , inventories that were carried at lower of cost or market are stepped up to fair value , which eliminates gross profit in the period in which the units are sold . excluding the purchase accounting adjustment , gross margin would have been 46.2 % in fiscal 2011. on an adjusted basis , profit margin was 2.6 % higher in fiscal 2012. this increase is attributable to the higher mix of mro/ue sales during the year as mro/ue revenue generally provides us with higher gross margins . marketing , general and administrative and engineering . marketing , general and administrative and engineering costs were $ 76.3 million in fiscal 2012 , compared to $ 58.9 million in fiscal 2011 , an increase of $ 17.4 million , or 29.5 % . the increase is mostly 29 attributable to an increase in salaries and benefits of $ 11.1 million to support our growing business . of this amount , we had a $ 4.6 million increase in stock compensation expense associated with the acceleration of employee stock options at the ipo date . during fiscal 2012 we added 178 additional employees to support our growing sales and engineering needs . fiscal 2012 also reflected an increase of $ 6.1 million in management fees paid to our private equity sponsors over fiscal 2011. management fee expense of $ 8.1 million during fiscal 2012 included a payment of $ 7.4 million in connection with the termination of the management services agreement at the time of the ipo . as a percentage of revenues , marketing , general and administrative and engineering expenses were 28.2 % in fiscal 2012 and 24.7 % in fiscal 2011. excluding the management fees , that will no longer be recurring , marketing , general and administrative and engineering would have been 25.2 % of revenue . amortization of intangible assets . amortization of intangible assets was $ 11.4 million in fiscal 2012 , compared to $ 18.2 million in fiscal 2011 , a decrease of $ 6.8 million . we expect that fiscal 2012 is more representative of our estimated expense for amortization of intangible assets for the foreseeable future subject to foreign translation adjustments . amortization of intangible assets was higher in fiscal 2011 because it included the amortization of estimated backlog that was expensed over five months , which was the estimated life for that intangible asset generated by the chs transactions . the amortization related to backlog accounted for the entire $ 6.8 million difference between the comparative periods . interest expense , net . interest expense and loss on redemptions of debt combine for a total of $ 23.3 million in fiscal 2012 , compared to $ 29.6 million in fiscal 2011 , a decrease of $ 6.3 million . in fiscal 2012 , we made redemptions on our senior notes totaling $ 70.9 million and in fiscal 2011 , our predecessor repaid $ 109 million of debt in connection with the completion of the chs transactions which occurred april 30 , 2010. as a result of these repayments , deferred debt cost acceleration and other prepayment costs totaled $ 6.9 million and $ 4.9 million for fiscal 2012 and fiscal 2011 , respectively . interest expense on outstanding principal was $ 17.6 million and $ 21.3 million for fiscal 2012 and fiscal 2011 , respectively . miscellaneous expense . miscellaneous expense was $ 1.7 million in fiscal 2012 , compared to $ 14.1 million in fiscal 2011 , a decrease in expense of $ 12.4 million . miscellaneous expense in fiscal 2012 consisted primarily of a $ 1.6 million loss on foreign exchange transactions . miscellaneous expense in fiscal 2011 consisted primarily of $ 11.4. million in fees and expenses related to the chs transactions . we did not incur any chs transaction expenses in fiscal 2012. income taxes . we reported an income tax expense of $ 7.5 million in fiscal 2012 , compared to an $ ( 11.3 ) million tax benefit in fiscal 2011 , an increase of $ 18.8 million . the effective tax rates were 38.3 % in fiscal 2012 and a benefit rate of 42.6 % in fiscal 2011. we have subsidiaries in multiple foreign locations and the statutory income tax rate in many of our foreign subsidiaries is lower than the u.s. federal rate of 35 % . to the extent that we expect to repatriate dividends from these subsidiaries , we are required to accrue the estimated incremental u.s. tax in anticipation of the foreign dividends being repatriated . the accrual for these estimated taxes results in an effective tax rate which is nearly the same as the u.s. federal statutory rate plus state and other miscellaneous taxes . subject to events which may trigger a change in our deferred tax assets and liabilities , we expect that the fiscal 2012 tax rate will be a reasonable estimation of our effective tax for our operations in the future . see also note 15 , ยincome taxesย to the consolidated financial statements of tgh . the effective tax rate for fiscal 2011 was significantly impacted by the chs transactions . permanent items recorded in fiscal 2011 included non-deductible portions of the chs transactions costs as well a recorded valuation allowance on foreign tax carry forwards . net income ( loss ) . net income was $ 12.0 million in fiscal 2012 as compared to net loss of ( $ 15.2 ) million in fiscal 2011 , an increase of $ 27.2 million . the increase in net income was primarily due to increased gross profit in fiscal 2012 of $ 30.0 million .
| results of operations the following table sets forth our statements of operations as a percentage of sales for the periods indicated . replace_table_token_6_th 28 ( 1 ) the closing of the chs transactions on april 30 , 2010 established a new basis of accounting that primarily affected inventory , intangible assets , goodwill , taxes , debt and equity . this resulted in additional amortization expense , interest expense and tax expense for the period from may 1 , 2010 through march 31 , 2011 ( ยsuccessorย ) as compared to the period from april 1 , 2010 through april 30 , 2010 ( ยpredecessorย ) . except for purchase accounting adjustments , the results for the two combined periods are comparable . therefore , we believe that combining the two periods into a single period for comparative purposes gives the most clarity for the users of this financial information . please refer to note 2 to the table set forth in item 6 , ยselected financial dataย and our consolidated financial statements and notes thereto for fiscal 2011 included elsewhere in this annual report for a separate presentation of the results for the predecessor and successor periods in accordance with gaap . ( 2 ) in fiscal 2011 , there was a non-cash negative impact of $ 7.6 million to cost of sales and , consequently , gross profit due to a purchase accounting adjustment related to the chs transactions . ( 3 ) interest expense for fiscal 2011 of $ 29.0 million reflected in part increased interest expense on our senior secured notes issued in connection with the chs transactions . in addition , we recorded $ 4.9 million in acceleration of amortized loan costs of the predecessor as well as $ 1.6 million of amortized loan costs related to the successor . interest expense for fiscal 2012 included $ 3.1 million of accelerated amortized loan costs due to certain partial redemptions of our senior secured notes and $ 1.0 million of amortized loan costs .
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through our marketplace , dealer websites and other digital products , we showcase dealer inventory , elevate and amplify dealers ' and automotive manufacturers ( โ oems โ ) brands , connect sellers with our ready-to-buy audience and empower shoppers with the resources and information needed to make confident car buying decisions . our digital solutions strategy builds on the rich data and audience of our digital marketplace to offer media and solutions that drive growth and efficiency for the automotive industry . our portfolio of brands now includes cars.com , dealer inspire , dealerrater , fuel , auto.com , pickuptrucks.com and newcars.com . story_separator_special_tag style= '' font-weight : normal ; font-style : normal ; text-decoration : none ; background-color : # auto ; color : # auto ; font-size:10pt ; font-family : 'times new roman ' ; text-transform : none ; font-variant : normal ; letter-spacing:0pt ; '' > provisions to accommodate the replacement of the existing libor rate with a successor benchmark interest rate ; and ended the covenant adjustment period that was implemented pursuant to the amendment entered into in june 2020 ( the โ second amendment โ ) and removed the related minimum liquidity requirement and anti-cash hoarding covenant . as of december 31 , 2020 , our liquidity was $ 297.7 million including cash and cash equivalents and availability under the revolving credit facility . impact of covid-19 on our business . in march 2020 , the world health organization categorized covid-19 as a pandemic , and it has since spread throughout the united states and the rest of the world with different geographical locations impacted more than others . the pandemic resulted in governmental authorities around the country implementing numerous measures to contain the virus , such as quarantines , shelter-in-place orders and business shutdowns ( the โ related restrictions โ ) . while certain jurisdictions have relaxed or reversed some of these related restrictions , many have been subsequently reinstated . the pandemic has adversely affected our business , financial condition , liquidity and operating results for the year ended december 31 , 2020. the covid-19 pandemic and related restrictions caused a widespread increase in unemployment and resulted in reduced consumer spending and an economic recession . in the second quarter of 2020 , we took numerous significant actions to mitigate the expected impact to our business as a result of the covid-19 pandemic and related restrictions . these actions included providing , among other measures , financial relief in the form of certain invoice credits of 50 % in april , 30 % in may and 30 % in june 2020 to our dealer customers . with respect to managing our expenses , we implemented several initiatives , including both permanent and temporary measures , to adjust expenses with changes in revenue . invoice credits ended at the end of june , and we have since returned to normalized pricing . we believe our core strategic strengths , including our powerful family of brands , growing high-quality audience and suite of digital solutions for advertisers will assist us as we navigate a rapidly changing marketplace . additionally , we are focused on equipping our dealer customers with digital solutions to enable them to compete in an environment in which an increasing number of car-buying 23 consumers are shopping from home and consider their car an extension of their home . these solutions include virtual showrooms , home delivery badging , online chat and our fuel pro duct that allows dealers to target in-market buyers on streaming platforms . the future effects of the covid-19 pandemic and related restrictions still remain relatively unknown and depend on factors outside of our control . however , we believe our marketplace , advertising and digital solutions were critical in helping our customers navigate the challenges of the pandemic and related restrictions through december 31 , 2020 , and we believe our solutions will continue to be important tools to our customers in the future and , in particular , any potential future impacts of the pandemic and related restrictions . key operating metrics . we regularly review a number of key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make operating and strategic decisions . information regarding traffic , average monthly unique visitors and direct monthly average revenue per dealer is as follows : replace_table_token_3_th information regarding our dealer customers is as follows : replace_table_token_4_th traffic ( visits ) . traffic is fundamental to our business . traffic to the cars network of websites and mobile apps provides value to our advertisers in terms of audience , awareness , consideration and conversion . in addition to tracking traffic volume and sources , we monitor activity on our properties , allowing us to innovate and refine our consumer-facing offerings . traffic is defined as the number of visits to cars desktop and mobile properties ( responsive sites and mobile apps ) , measured using adobe analytics . traffic does not include traffic to dealer inspire websites . traffic provides an indication of our consumer reach . although our consumer reach does not directly result in revenue , we believe our ability to reach in-market car shoppers is attractive to our dealer customers and national advertisers . we believe the growth in traffic was driven by our brand strength , heightened consumer demand and a gravitation towards online marketplaces , particularly in the second and third quarter of 2020 , and a focus on driving high quality organic traffic , all of which supported our traffic and lead growth . for the years ended december 31 , 2020 and december 31 , 2019 , mobile traffic accounted for 75 % and 72 % of total traffic , respectively . average monthly unique visitors ( โ uvs โ ) . growth in unique visitors and consumer traffic to our network of websites and mobile apps increases the number of impressions , clicks , leads and other events we can monetize to generate revenue . story_separator_special_tag for information related to the affiliate market conversions , see note 7 ( unfavorable contracts liability ) to the accompanying consolidated financial statements included in part ii , item 8. , โ financial statements and supplementary data โ of this annual report on form 10-k. the overall decrease was primarily due to the second quarter impact of the covid-19 pandemic and related restrictions , during which we provided invoice credits to our dealer customers and experienced a decline in dealer customers . this was partially offset by an increase in revenue from the affiliate conversions and growth in digital solutions and fuel . retail revenueโnational advertising . national advertising revenue consists of display advertising and other solutions sold to oems , advertising agencies and automotive dealer customers . national advertising revenue represents 13.4 % and 13.3 % of total revenue for the years ended december 31 , 2020 and 2019 , respectively . national advertising revenue declined 9 % , primarily due to higher cancellations , principally due to the covid-19 pandemic and related restrictions . wholesale revenue . wholesale revenue represented the fees we charged for marketplace and digital solutions sold to dealer customers by affiliates . the fees represented approximately 60 % of the retail value for the same marketplace subscription advertising sold by our direct sales team . as of october 2019 , we successfully converted all affiliates to our direct control , and no longer record 26 wholesale revenue . for information related to the affiliate market conversions , see note 7 ( unfavorable contracts liability ) to the accompanying consolidated financial statements included in part ii , item 8. , โ financial statements and supplementary data โ of this annual report on form 10-k. cost of revenue and operations . cost of revenue and operations expense primarily consists of expenses related to our pay-per-lead products , third-party costs for processing dealer vehicle inventory , product fulfillment , customer service and compensation costs . cost of revenue and operations expense represents 18.5 % and 16.4 % of total revenue for the years ended december 31 , 2020 and 2019 , respectively . cost of revenue and operations expense increased $ 2.0 million , primarily due to higher compensation costs related to the growth in dealer websites and costs related to growth in other digital solutions , which have an inherently higher cost of revenue . product and technology . the product team creates and manages consumer and dealer-facing innovation , manages consumer user experience and includes the costs associated with our editorial , search engine optimization and data strategy teams . the technology team develops and supports our products and websites . product and technology expense includes compensation costs , hardware/software maintenance , software licenses , data center and other infrastructure costs . product and technology expense represents 11.1 % and 10.4 % of total revenue for the years ended december 31 , 2020 and 2019 , respectively . product and technology expense decreased $ 2.2 million , primarily driven by lower compensation costs as a result of the technology transformation and our management of expenses to adjust to changes in revenue primarily related to the second quarter discounts given to our dealers due to the covid-19 pandemic and related restrictions . marketing and sales . marketing and sales expense primarily consists of traffic and lead acquisition costs ( including search engine marketing and other online marketing ) , tv and digital display/video advertising and creative production , market research , trade events and compensation costs for the marketing , sales and sales support teams . marketing and sales expense represents 33.5 % and 35.8 % of total revenue for the years ended december 31 , 2020 and 2019 , respectively . marketing and sales expense decreased $ 34.0 million , primarily driven by a reduction of marketing expense , which was achieved by focusing on customer acquisition and leveraging efficiencies gained , while carefully maintaining consumer engagement as evidenced by our strong organic traffic . in addition , we benefited from an overall consumer trend from in-person to virtual automobile research and shopping , driven by the covid-19 pandemic and related restrictions . general and administrative . general and administrative expense primarily consists of compensation costs for certain of the executive , finance , legal , human resources , facilities and other administrative employees . in addition , general and administrative expense includes office space rent , legal , accounting and other professional services , transaction-related costs and costs related to the write-off and loss on assets , excluding the goodwill and intangible asset impairment discussed below . general and administrative expense represents 10.8 % and 12.2 % of total revenue for the years ended december 31 , 2020 and 2019 , respectively and decreased $ 14.7 million and 20 % versus the prior year . during the years ended december 31 , 2020 and 2019 , general and administrative expense included the following costs ( in thousands ) : replace_table_token_6_th ( 1 ) transaction-related costs are certain expense items resulting from actual or potential transactions such as business combinations , mergers , acquisitions , dispositions , spin-offs , financing transactions , and other strategic transactions , including , without limitation , ( a ) transaction-related bonuses and ( b ) expenses for advisors and representatives such as investment bankers , consultants , attorneys and accounting firms . transaction-related costs may also include , without limitation , transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees , in addition to consulting , compensation and other incremental costs associated with integration projects . excluding these costs , general and administrative expense increased by $ 1.9 million , primarily due to higher compensation costs . affiliate revenue share . affiliate revenue share expense represents payments made to affiliates pursuant to our affiliate agreements offset in part by amortization of the unfavorable contracts liability related to converted markets .
| overview of results . replace_table_token_2_th ( 1 ) the net loss for the year ended december 31 , 2020 is primarily attributed to the $ 905.9 million goodwill and intangible asset impairment , as well as the impact of the covid-19 pandemic and related restrictions . ( 2 ) the net loss for the year ended december 31 , 2019 is primarily attributed to the $ 461.5 million goodwill and indefinite-lived intangible asset impairment . ( 3 ) the year ended december 31 , 2018 includes the impact of $ 9.8 million in consulting services and other costs incurred as part of our settlement agreement with our stockholder activist ; $ 13.2 million in transaction costs , primarily related to the acquisition of dealer inspire , inc. and launch digital marketing llc ( referred to collectively as โ dealer inspire โ ) and the process to explore strategic alternatives to enhance shareholder value ; $ 4.4 million related to the sales transformation ; $ 6.8 million in incremental stock-based compensation ; the addition of dealer inspire 's business and the incremental costs of being a public company . 2020 and recent highlights . traffic . traffic provides an indication of our consumer reach . although our consumer reach does not directly result in material revenue to our business , we believe our ability to reach in-market car shoppers is attractive to our dealers and national advertisers . we have been diligently focused on growing our audience , the fundamental deliverable of any marketplace business . driven by our brand strength , organic search rankings growth , paid media efficiencies , and a shift from in-person to virtual automobile research and shopping , average monthly unique visitors grew 5 % and total traffic grew 8 % in 2020 compared to the prior year . organic traffic was 73 % of total traffic and grew 10 % year-over-year . this is a testament to the consistent , high-quality audience that we deliver to our dealer customers .
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the aggregate number of shares of the company 's common stock subject to award under the recognition plan totaled 63,547 ( as adjusted for the conversion described in note 1 ) . as shares were acquired for the recognition plan , the purchase price of these shares was recorded as a contra equity account . as the shares are distributed , the contra equity account is reduced . on december story_separator_special_tag general our profitability depends primarily on our net interest income , which is the difference between interest and dividend income on interest-earning assets , principally loans , investment securities and interest-earning deposits in other institutions , and interest expense on interest-bearing deposits and borrowings from the federal home loan bank of dallas . net interest income is dependent upon the level of interest rates and the extent to which such rates are changing . our profitability also depends , to a lesser extent , on non-interest income , provision for loan losses , non-interest expenses and federal income taxes . home federal bancorp , inc. of louisiana had net income of $ 2.8 million in fiscal 2012 compared to net income of $ 1.9 million in fiscal 2011. historically , our business consisted primarily of originating single-family real estate loans secured by property in our market area . typically , single-family loans involve a lower degree of risk and carry a lower yield than commercial real estate , construction , commercial business and consumer loans . during fiscal 2009 , we hired three commercial loan officers and began to offer commercial real estate loans , commercial business loans and real estate secured lines of credit which typically have higher rates and shorter terms than single-family loans . although our loans continue to be primarily funded by certificates of deposit , which typically have a higher interest rate than passbook accounts , it is now our policy to require commercial customers to have a deposit relationship with us , which has increased our balance of now accounts in recent periods . the combination of these factors has resulted in higher interest rate spreads in fiscal 2012. due to the continued low interest rate environment , we have sold a substantial amount of our fixed rate single-family residential loan originations in recent periods . we have also sold investment securities as available-for-sale to realize gains in the portfolio . because of a decrease in our cost of funds and the volume increase of interest earning assets , our net interest margin increased from 3.60 % to $ 4.00 % during fiscal 2012 compared to 2011 and our net interest income increased to $ 9.7 million for fiscal 2012 as compared to $ 7.1 million for fiscal 2011. we expect to continue to emphasize consumer and commercial lending in the future in order to improve the yield on our portfolio . in july , 2009 , we began offering security brokerage and advisory services at our agency office through tipton wealth management . 30 home federal bancorp 's operations and profitability are subject to changes in interest rates , applicable statutes and regulations and general economic conditions , as well as other factors beyond our control . business strategy our business strategy is focused on operating a growing and profitable community-oriented financial institution . our current business strategy includes : ยท continuing to grow and diversify our loan portfolio . we intend to grow and continue to diversify of loan portfolio by , among other things , emphasizing the origination of commercial real estate and business loans . at june 30 , 2012 , our commercial real estate loans amounted to $ 39.2 million , or 23.0 % of the total loan portfolio . our construction loans at june 30 , 2012 amounted to $ 22.7 million or 13.3 % of the total loan portfolio and commercial business loans amounted to $ 12.3 million or 7.3 % of the total loan portfolio . commercial real estate , commercial business , construction and development and consumer loans all typically have higher yields and are more interest sensitive than long-term single-family residential mortgage loans . we plan to continue to grow and diversify our loan portfolio , and we intend to continue to grow our holdings of commercial real estate and business loans . ยท diversify our products and services . we intend to continue to emphasize our commercial business products to provide a full-service banking relationship to our commercial customers . we have introduced mobile and internet banking and remote deposit capture , to better serve our commercial clients . additionally , we have developed new deposit products focused on expanding our deposit base to new types of customers . ยท managing our expenses . we have incurred significant additional expenses related to personnel and infrastructure in recent periods as we implemented our business strategy . our total non-interest expense increased $ 1.7 million , or 25.5 % , in fiscal 2012 compared to 2011. our efficiency ratio for 2012 was 62.9 % compared to 66.9 % for fiscal 2011 . ยท enhancing core earnings . we expect to continue to emphasize commercial real estate and business loans which generally bear interest rates higher than residential real estate loans and sell a substantial part of our fixed rate residential mortgage loan originations . the average interest rate spread for the year ended june 30 , 2012 was 3.62 % as compared to 3.09 % for the year ended june 30 , 2011 . ยท expanding our franchise in our market area and contiguous communities . we intend to pursue opportunities to expand our market area by opening additional de novo banking offices and possibly , through acquisitions of other financial institutions and banking related businesses ( although we have no current plans , understandings or agreements with respect to any specific acquisitions ) . we expect to focus on contiguous areas to our current locations in caddo and bossier parishes . ยท maintain our asset quality . story_separator_special_tag 32 loans receivable , net increased $ 42.9 million , or 34.2 % , from $ 125.4 million at june 30 , 2011 to $ 168.3 million at june 30 , 2012. the increase in loans receivable , net was attributable primarily to increases in one-to four-family residential loans of $ 13.8 million , construction loans of $ 12.3 million , commercial real estate loans of $ 6.5 million , multi-family residential loans of $ 4.6 million , commercial business loans of $ 2.1 million , land loans of $ 1.1 million and home equity and second mortgage loans of $ 1.0 million at june 30 , 2012 , compared to the prior year period . at june 30 , 2012 , the balance of purchased loans approximated $ 8.7 million , which consisted solely of one-to-four family residential loans purchased from a mortgage originator in arkansas . we have not purchased any loans since fiscal 2008. as part of implementing our business strategy , in recent periods we diversified the loan products we offer and increased our efforts to originate higher yielding commercial real estate loans and lines of credit and commercial business loans . in fiscal 2009 , we hired three commercial loan officers and began offering commercial real estate loans and lines of credit and commercial business loans which were deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans . as of june 30 , 2012 , home federal bank had $ 39.2 million of commercial real estate loans and $ 12.4 million of commercial business loans . although commercial loans are generally considered to have greater credit risk than other certain types of loans , we attempt to mitigate such risk by originating such loans in our market area to known borrowers . securities available-for-sale decreased $ 6.6 million , or 8.8 % , from $ 75.0 million at june 30 , 2011 to $ 68.4 million at june 30 , 2012. this decrease resulted primarily from the sale of securities , normal principal paydowns , and by market value declines in the portfolio , partially offset by new investment acquisitions of $ 46.5 million . during the past two years , there have been significant loan prepayments due to the heavy volume of loan refinancing . however , with interest rates at their cyclical lows , management is reluctant to invest in long-term , fixed rate mortgage loans for the portfolio and instead sold the majority of the long-term , fixed rate mortgage loan production . during the quarter ended june 30 , 2012 , $ 3.6 million of mortgage-backed securities designated as held-to-maturity were transferred to the investment securities available for sale category as management determined they no longer had the intent to hold the securities to maturity . new investment securities purchased during fiscal 2012 consisted primarily of $ 43.0 million of mortgage-backed securities and $ 3.0 million in government agency notes . the agency notes were sold shortly after they were acquired . cash and cash equivalents increased $ 25.3 million , or 263.2 % , from $ 9.6 million at june 30 , 2011 to $ 34.9 million at june 30 , 2012. the net increase in cash and cash equivalents was attributable to a non-recurring deposit during the fourth quarter which had a remaining balance of approximately $ 31.7 million at june 30 , 2012. this short-term deposit was fully withdrawn early in the first quarter of fiscal 2013. total liabilities increased $ 64.2 million , or 35.2 % , from $ 182.1 million at june 30 , 2011 to $ 246.3 million at june 30 , 2012 due primarily to an increase of $ 67.8 million , or 44.1 % , in deposits , offset by a decrease in advances from the federal home loan bank of $ 3.4 million , or 12.7 % . the increase in deposits was attributable primarily to increases in our money market accounts and certificates of deposit . money market accounts increased $ 37.2 million as the result of an expansion of commercial deposit accounts and the effects of a $ 31.7 million short-term deposit as of june 30 , 2012. certificates of deposit increased $ 23.0 million , or 26.8 % , from $ 85.7 million at june 30 , 2011 to $ 108.6 million at june 30 , 2012. now accounts increased $ 2.4 million from $ 14.5 million at june 30 , 2011 to $ 16.9 million at june 30 , 2012 and non-interest bearing deposit accounts increased $ 5.7 million from $ 14.8 million at june 30 , 2011 to $ 20.6 million at june 30 , 2012. at june 30 , 2012 , we held $ 10.4 million in brokered certificates of deposit . shareholders ' equity decreased $ 1.3 million , or 2.5 % , to $ 49.9 million at june 30 , 2012 , from $ 51.2 million at june 30 , 2011. the primary reasons for the decrease in shareholders ' equity from june 30 , 2011 , were the acquisition of treasury stock of $ 2.7 million , the acquisition of common stock for the company 's recognition and retention plan trust in the amount of $ 1.1 million , dividends paid of $ 727,000 and a decrease in the company 's accumulated other comprehensive income of $ 54,000. these decreases in shareholders ' equity were partially offset by net income of $ 2.8 million for the year ended june 30 , 2012 , proceeds from the issuance of common stock from the exercise of stock options of $ 201,000 and the vesting of restricted stock awards , stock options and release of employee stock ownership plan shares totaling $ 242,000. the change in accumulated other comprehensive income was primarily due to the change in net unrealized loss on securities available for sale due to recent declines in interest rates . the net unrealized loss on securities available-for-sale is affected by interest rate fluctuations .
| general . net income amounted to $ 2.8 million for the year ended june 30 , 2012 , reflecting an increase of $ 905,000 compared to net income of $ 1.9 million for the year ended june 30 , 2011. this increase was due to a $ 2.1 million increase in net interest income after provision for loan losses and a $ 694,000 increase in non-interest income , offset by an increase of $ 1.7 million in non-interest expense and an increase of $ 189,000 in the provision for income taxes . net interest income . net interest income amounted to $ 9.7 million for fiscal year 2012 , an increase of $ 2.6 million , or 36.0 % , compared to $ 7.1 million for fiscal year 2011. the increase was due primarily to an increase of $ 2.4 million in total interest income , and a $ 136,000 decrease in interest expense . the average interest rate spread increased from 3.09 % for fiscal 2011 to 3.62 % for fiscal 2012 while the average balance of net interest-earning assets increased from $ 47.7 million to $ 55.9 million during the same periods . the percentage of average interest-earning assets to average interest-bearing liabilities decreased slightly to 130.09 % for fiscal 2012 compared to 131.85 % for fiscal 2011. the increase in the average interest rate spread reflects the decline in interest rates paid on interest bearing liabilities .
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our ts cards product line , we believe , is the first complete solution to allow customers to pay only for the most basic low-frequency proximity access technology while having the ability to evolve to the higher-security high-frequency and highest-security pki-based access credentials . this product line exemplifies our values : we place no burden on our customers , instead providing the most cost-effective solution to their basic needs ; and then delivering within this platform the ability for them to move to higher-level needs and capabilities , when they want , when they are ready and when they will realize economic and experience benefits . our transponder products span the full range of high frequency ( โ hf โ ) and ultra-high frequency ( โ uhf โ ) technologies . our differentiation is analogous to application-specific integrated circuits ( โ asics โ ) in the semiconductor market . we leverage our flexible platform , our deep technical expertise and our infrastructure and supply chain to deliver solutions optimized for our customers ' business goals . we believe we are more responsive , more flexible , more experienced in business-optimized solutions and have a better track record of sustained delivery of solution-specific , high-quality rfid devices than our competitors . these products are manufactured in our state-of-the-art facility in singapore and are used in a diverse range of physical applications , including electronic entertainment such as virtual reality ( โ vr โ ) , games , loyalty cards , mobile payment systems , transit and event ticketing , brand authenticity from pharmaceuticals to consumer goods , hospital resource management , cold-chain management and many others . leveraging our expertise in rfid , physical access and physical authentication , we are developing new solutions to extend our platforms across a wide variety of physical use cases . the next major opportunity in our connected world is the internet of things , which fundamentally is about physical things . we believe our core strength in physical access and physical instrumentation ( rfid ) markets , our well-established platforms and our deep knowledge of the relevant technologies , position us well in this growth market . all other the all other segment includes legacy product lines , such as chipdrive and digital media readers . the products included in the all other segment do not meet the quantitative thresholds for determining reportable segments and therefore have been combined for reporting purposes . they are not expected to generate revenues going beyond 2016 . 25 we primarily conduct sales and marketing activities in each of the markets in which we compete , utilizing our own sales and marketing organization to solicit prospective channel partners and customers , provide technical advice and support with respect t o products , systems and services , and manage relationships with customers , distributors and or oems . we utilize indirect sales channels that may include oems , dealers , systems integrators , value added resellers , resellers or internet sales , although we als o sell directly to end users . in support of our sales efforts , we participate in industry events and conduct sales training courses , targeted marketing programs , and ongoing customer , channel partner and third-party communications programs . our corporate headquarters are located in fremont , california . we maintain research and development facilities in california , chennai , india , munich , germany , and local operations and sales facilities in germany , the united kingdom , hong kong , singapore , india and the united states . we were founded in 1990 in munich , germany and incorporated in 1996 under the laws of the state of delaware . for a discussion of our net revenue by segment and geographic location , see note 9 , segment reporting and geographic information in the accompanying notes to our consolidated financial statements . trends in our business geographic net revenue , based on each customer 's ship-to location , for the years ended december 31 , 2016 and 2015 is as follows : replace_table_token_2_th net revenue trends net revenue in 2016 was $ 56.2 million , down 8 % compared with $ 60.8 million in 2015. approximately 44 % of our net revenue came from our pacs segment . net revenue in our pacs segment in 2016 was $ 24.7 million compared with $ 20.0 million in 2015. net revenue in our credentials segment represented approximately 32 % of our net revenue . net revenue in our credentials segment in 2016 was $ 18.0 million compared with $ 27.3 million in 2015. net revenue in the identity segment , which represents approximately 23 % of total net revenue , was $ 12.9 million in 2016 compared with $ 12.0 million in 2015. net revenue in the americas net revenue in the americas was $ 38.1 million in 2016 , accounting for 68 % of total net revenue and down 7 % compared with $ 40.8 million in 2015. net revenue from our pacs solution for security programs within various u.s. government agencies , as well as rfid and nfc products , inlays and tags comprise a significant proportion of our net revenue in the americas region . net revenue in our pacs segment in the americas increased by approximately 25 % in 2016 compared with the previous year , while net revenue in our credentials segment decreased 44 % in 2016 compared to 2015. pacs net revenue increases were primarily due to an increase in orders for physical access control solutions from federal government customers , and higher sales through our channel partners . story_separator_special_tag research and development expenses in 2016 decreased primarily due to the benefit of restructuring initiatives realized during 2016. selling and marketing replace_table_token_6_th selling and marketing expenses consist primarily of employee compensation as well as amortization expense of certain intangible assets , tradeshow participation , advertising and other marketing and selling costs . selling and marketing expenses decreased primarily due to a reduction in headcount and marketing program spending attributable to our restructuring initiatives realized during 2016. general and administrative replace_table_token_7_th 30 general and administrative expenses consist primarily of compensation expenses for employees performing administrative functions , and professional fees incurred for legal , auditing and other consulting services . general and administrative expenses decreased primarily due to lower legal and professional fees and the benefit of restructuring initiatives realized during 2016. impairment charges fiscal 2016 fiscal 2015 $ change % change ( $ in thousands ) impairment of goodwill $ โ $ 8,771 $ ( 8,771 ) ( 100.0 ) % as detailed in note 5 , goodwill and intangible assets in the accompanying notes to our consolidated financial statements , under our accounting policy , we are required to perform an annual impairment review of our goodwill and an interim analysis of our long-lived assets , when there are changes in our business that may indicate impairment of those assets . during the second quarter of 2015 , we noted certain indicators of impairment , including a sustained decline in the price of our common stock and continued reduced performance in our identity reporting unit . based on the results of the first step of the goodwill impairment analysis , we determined that the net adjusted carrying value exceeded the estimated fair value of the identity reporting unit . as a result , we concluded that the carrying value of goodwill for our identity reporting unit was fully impaired and recorded an impairment charge of approximately $ 1.0 million in our consolidated statements of operations during the second quarter of 2015. during the quarter ended december 31 , 2015 , our stock price declined significantly which resulted in a significant reduction in our fair value and market capitalization . the stock price declined from $ 3.64 as of october 1 , 2015 to $ 1.99 as of december 31 , 2015 , and subsequently dropped further , reaching a low of $ 1.56 in february 2016. additionally , our net losses continued in the quarter ended december 31 , 2015. as a result , based on qualitative factors , we concluded that the carrying value of goodwill for the pacs reporting unit was fully impaired and recorded an impairment charge of $ 7.8 million in our consolidated statement of operations in the fourth quarter of 2015. restructuring and severance charges fiscal 2016 fiscal 2015 $ change % change ( $ in thousands ) restructuring and severance $ 3,088 $ 1,266 $ 1,822 143.9 % in the first quarter of 2016 , we implemented a worldwide restructuring plan designed to refocus our resources on our core business segments , including physical access and transponders , and to consolidate our operations in several worldwide locations . the restructuring plan included reducing our non-manufacturing employee base , reallocating overhead roles into direct business activities and eliminating certain management and executive roles . as a result , we incurred $ 3.1 million in restructuring costs and severance costs in 2016. during 2015 , we recorded $ 1.3 million in restructuring and severance costs as part of management 's continuing efforts to simplify business operations in 2015. see note 10 , restructuring and severance in the accompanying notes to our consolidated financial statements for more information . non-operating income ( expense ) information about our non-operating income ( expense ) for the fiscal years ended december 31 , 2016 and 2015 is set forth below . interest expense , net fiscal 2016 fiscal 2015 $ change % change ( $ in thousands ) interest expense , net $ ( 2,378 ) $ ( 1,908 ) $ ( 470 ) 24.6 % 31 interest expense , net consists of interest on financial liabilities and interest accretion expense for a liability to a long-term payment obligation arising from our acquisition of hirsch electronics corporation . the h igher net interest expense in 2016 compared with 2015 is primarily due to the write-down of unamortized debt issuance costs of approximately $ 0.2 million relating to the revolving loan facility modification in the first quarter of 2016 and amortization of costs associated with warrants issued to opus in 2016 of $ 0.6 million . see note 6 , long-term payment obligation and note 7 , financial liabilities in the accompanying notes to our consolidated financial statements for more information on our interest expense and financial obligations . foreign currency gains ( losses ) , net fiscal 2016 fiscal 2015 $ change % change ( $ in thousands ) foreign currency gains ( losses ) , net $ 27 $ ( 1,211 ) $ 1,238 ( 102.2 ) % changes in currency valuation in the periods mainly were the result of exchange rate movements between the u.s. dollar and the euro . accordingly , they are predominantly non-cash items . our foreign currency gains and losses primarily result from the valuation of current assets and liabilities denominated in a currency other than the functional currency of the respective entity in the local financial statements . income taxes fiscal 2016 fiscal 2015 $ change % change ( $ in thousands ) income tax provision $ ( 132 ) $ ( 222 ) $ 90 ( 40.5 ) % our tax rate is affected by recurring items , such as tax rates in foreign jurisdictions and the relative amount of income ( loss ) we earn in jurisdictions . it is also affected by discrete items that may occur in any given year , but are not consistent from year to year . the following items had the most significant impact
| results of operations the following table includes segment net revenue and segment net profit information by business segment and reconciles gross profit to results of continuing operations before income taxes and noncontrolling interest . 27 the following table sets forth our s tatements of operations as a percentage of net revenue for the periods indicated : replace_table_token_3_th 28 replace_table_token_4_th fiscal 2016 compared with fiscal 2015 net revenue net revenue in 2016 was $ 56.2 million , down 8 % compared with $ 60.8 million in 2015. net revenue was lower in 2016 primarily driven by lower sales in our credentials and all other segments , partially offset by higher sales in our pacs and identity segments . a more detailed discussion of revenues by segment follows below . net revenue in our pacs segment was $ 24.7 million in 2016 , an increase of 24 % from $ 20.0 million in 2015. the increase was due primarily to higher sales of physical access control solutions , including an increase in professional services engagements , attributable to greater demand from federal government customers and higher sales through our channel partners compared to the comparable period of the prior year . net revenue in our identity segment of $ 12.9 million in 2016 increased 8 % from $ 12.0 million in 2015. this increase in identity segment net revenue was primarily due to higher sales of smart card readers , modules , and reader chipsets in the u.s. and to federal government customers , partially offset by lower smart card reader sales in the europe and the middle east and the asia-pacific regions .
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story_separator_special_tag introduction we are a publicly traded limited partnership principally engaged in the transportation , storage and distribution of petroleum products . our three operating segments including the assets of our joint ventures include : our refined products segment , comprised of our 9,500-mile refined products pipeline system with 53 terminals as well as 27 independent terminals not connected to our pipeline system and our 1,100-mile ammonia pipeline system ; our crude oil segment , comprised of approximately 1,600 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of approximately 21 million barrels , of which 12 million is used for leased storage . we own a 50 % interest in bridgetex pipeline company , llc ( `` bridgetex '' ) , which began commercial operation of the bridgetex pipeline in september 2014 , and these assets are now included in the pipeline miles and storage capacity amounts of our crude oil segment ; and our marine storage segment , consisting of marine terminals located along coastal waterways with an aggregate storage capacity of approximately 26 million barrels . the following discussion provides an analysis of the results for each of our operating segments , an overview of our liquidity and capital resources and other items related to our partnership . the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in this annual report on form 10-k for the year ended december 31 , 2014. recent developments bridgetex pipeline . bridgetex pipeline began commercial service in september 2014 , delivering crude oil from west texas to the houston gulf coast area . crude deliveries on the bridgetex pipeline during fourth quarter 2014 averaged nearly 200,000 barrels per day . deliveries are expected to continue to ramp up over time , as the bridgetex pipeline is capable of transporting up to 300,000 barrels per day of crude oil . we do not consolidate bridgetex in our financial statements , but we recognize our 50 % share of its profits in our consolidated statements of income as earnings of non-controlled entities . bridgetex 's net income for 2014 was $ 30.7 million ( our 50 % share was $ 15.3 million ) ; however , we did not recognize any amounts from bridgetex 's earnings in our 2014 distributable cash flow as the cash distributions paid to us on these earnings will not be made until the first quarter of 2015. in november 2014 , in connection with occidental petroleum corporation 's ( `` oxy '' ) sale of its ownership interest in bridgetex to a third party , we acquired oxy 's ownership interest in a 40 -mile crude oil pipeline that extends from our east houston , texas terminal to texas city , texas , and 1.4 million barrels of crude oil tankage and related infrastructure at our east houston , texas terminal for $ 75.0 million . concurrent with these transactions , bridgetex entered into a long-term lease agreement for capacity on our houston-area crude oil distribution system . cash distribution . in january 2015 , the board of directors of our general partner declared a quarterly cash distribution of $ 0.695 per unit for the period of october 1 , 2014 through december 31 , 2014. this quarterly cash distribution was paid on february 13 , 2015 to unitholders of record on february 6 , 2015. the total distribution paid on 227.4 million limited partner units outstanding was $ 158.1 million . impact of commodity prices . our operating margin is generated primarily from fee-based services for the transportation , storage and distribution of refined petroleum products and crude oil . however , a portion of our operating margin is directly or indirectly impacted by commodity prices , including the product margin we earn from our butane blending activities and the value of product overages on our refined products and crude oil pipelines ( which reduce operating expenses ) . in recent months , the prices of petroleum products , such as gasoline and crude oil , have declined considerably , which will result in lower profits from our commodity-related activities and product 42 overages . further , although a significant portion of our crude oil pipeline volumes are supported by customer commitments , lower crude oil prices could result in lower demand for spot shipments , reducing the transportation revenues we generate . if commodity prices remain low throughout 2015 , we expect to generate less net income and distributable cash flow than in 2014. even at these current lower commodity levels , we expect to generate distributable cash flow more than sufficient to achieve our goal of 15 % distribution growth to our investors for 2015. overview our pipelines and terminals generate the majority of our operating margin from the transportation and storage services we provide to our customers . the revenue generated from these activities is significantly influenced by demand for refined products and crude oil . in addition , we generate operating margin from commodity-related activities . operating expenses are principally fixed costs related to routine maintenance and system integrity as well as field and support personnel . other costs , including power , fluctuate with volumes transported on our pipelines and stored in our terminals . refined products . our common carrier pipeline system is comprised of 9,500 miles of pipeline and 53 terminals that provide transportation , storage and distribution services for refined products in a 15-state area across the central united states . through direct refinery connections and interconnections with other interstate pipelines , our refined products pipeline can access approximately 48 % of the u.s. refining capacity . in 2014 , the refined products segment generated 69 % of its revenue , excluding the sale of refined products , primarily through transportation tariffs for refined products shipped . these tariffs vary depending upon where the product originates , where ultimate delivery occurs and any applicable discounts . story_separator_special_tag the project also includes construction of more than one million barrels of storage , dock improvements and two additional truck rack bays at our terminal as well as pipeline connectivity between our terminal and a nearby third-party facility . the splitter will be capable of processing 50,000 barrels per day of condensate . we expect the condensate splitter and related infrastructure to cost approximately $ 250 million and to be operational during the second half of 2016 , subject to receipt of necessary permits and authorizations . little rock pipeline . in may 2014 , we announced plans to develop a pipeline system capable of transporting refined products from our ft. smith , arkansas terminal to little rock , arkansas . we have entered into an agreement with a third party to utilize an existing pipeline for a portion of the route , which we will extend to our ft. smith terminal and to the little rock market with approximately 50 miles of newly-constructed pipeline . we further plan to make enhancements to our pipeline system to accommodate additional volumes . the little rock pipeline project 44 is expected to cost approximately $ 150 million and to be operational in early 2016 , subject to receipt of regulatory and other approvals . saddlehorn pipeline . in october 2014 , we announced plans to construct a pipeline to transport crude oil from the niobrara play in northeast colorado to our storage facilities in cushing , oklahoma . the saddlehorn pipeline project includes construction of an approximate 600-mile pipeline capable of transporting up to 400,000 barrels per day of crude oil . we have received binding commitments from two entities for shipments on this pipeline . we are currently in the process of obtaining permits and rights-of-way and expect to complete the pipeline in mid-2016 , subject to receipt of any necessary permits and regulatory approvals . the estimated construction cost of the pipeline , which considers recent cost revisions , is in the range of approximately $ 800 to $ 850 million , and we are currently in discussions with third parties regarding potential equity ownership in the project . we currently expect to spend approximately $ 650 million in 2015 and $ 100 million in 2016 to complete the expansion construction projects currently underway . these expansion capital estimates exclude potential acquisitions , construction of the saddlehorn pipeline ( because the ownership structure is not yet known ) or spending on more than $ 500 million of other potential growth projects in earlier stages of development . story_separator_special_tag style= '' padding-left:0px ; text-indent:0px ; line-height : normal ; padding-top:10px ; '' > replace_table_token_10_th ( a ) product margin does not include depreciation or amortization expense . 49 transportation and terminals revenue increased by $ 167.6 million , resulting from : an increase in refined products revenue of $ 77.3 million . excluding the pipeline systems we acquired in 2013 , refined products revenue increased $ 65.3 million primarily due to a 3 % increase in transportation volumes and higher rates . shipments were higher primarily due to increased demand for gasoline and distillates . the average rate per barrel increased due to the mid-year 2012 and 2013 tariff rate increases of 8.6 % and 4.6 % , respectively ; an increase in crude oil revenue of $ 86.1 million primarily due to crude oil deliveries from our longhorn pipeline , which represented approximately 85 % of the increase . our longhorn pipeline began delivering crude oil in 2013 and averaged approximately 125,000 barrels per day from its mid-april start date through december 31 , 2013. we also benefited from higher utilization on our houston-area crude oil distribution system and additional condensate throughput at our corpus christi terminal ; and an increase in marine storage revenue of $ 4.2 million primarily due to new storage placed into service at our galena park , texas terminal since late 2012 and higher throughput fees , partially offset by lower utilization mainly due to additional integrity work during the 2013 period . affiliate management fee revenue increased $ 12.6 million , primarily resulting from a full year of construction management fees received from bridgetex in 2013 to reimburse us for our costs of providing construction services to bridgetex , compared to one month of fees received in 2012. operating expenses increased $ 17.6 million , resulting from : an increase in refined products expenses of $ 3.0 million primarily due to higher asset integrity costs , compensation , power costs and property taxes , as well as $ 5.1 million of expenses related to operation of the pipeline systems we acquired in 2013 , partially offset by higher product overages ( which reduce operating expenses ) , lower losses on asset retirements , the 2013 favorable adjustment of an accrual for air emission fees at our east houston terminal and lower environmental accruals . the higher compensation costs were due to increased employee headcount and higher bonus accruals . the higher power costs primarily reflected the increase in product shipments over 2012 and the higher property taxes were the result of asset additions and improved profitability ; an increase in crude oil expenses of $ 13.9 million primarily due to costs related to the operation of our longhorn pipeline , which we placed into crude oil service during 2013 , including pipeline rental costs to access product from third-party origination sources , higher personnel costs , power and integrity spending , partially offset by more favorable product overages ( which reduce operating expenses ) ; and an increase in marine storage expenses of $ 0.9 million primarily due to higher asset integrity costs in 2013 resulting from additional tank work , higher insurance costs and higher property taxes , partially offset by the 2013 favorable adjustment of an accrual for potential air emission fees at our galena park facility and lower environmental accruals .
| results of operations we believe that investors benefit from having access to the same financial measures utilized by management . operating margin , which is presented in the following tables , is an important measure used by management to evaluate the economic performance of our core operations . operating margin is not a generally accepted accounting principles ( โ gaap โ ) measure , but the components of operating margin are computed using amounts that are determined in accordance with gaap . a reconciliation of operating margin to operating profit , which is its nearest comparable gaap financial measure , is included in the following tables . operating profit includes expense items , such as depreciation and amortization expense and general and administrative ( โ g & a โ ) expenses , which management does not focus on when evaluating the core profitability of our separate operating segments . additionally , product margin , which management primarily uses to evaluate the profitability of our commodity-related activities , is provided in these tables . product margin is a non-gaap measure ; however , its components of product sales and cost of product sales are determined in accordance with gaap . our butane blending , fractionation and other commodity-related activities generate significant revenue . we believe the product margin from these activities , which takes into account the related cost of product sales , better represents its importance to our results of operations . 45 year ended december 31 , 2013 compared to year ended december 31 , 2014 replace_table_token_9_th ( a ) product margin does not include depreciation or amortization expense . 46 transportation and terminals revenue increased by $ 264.3 million , resulting from : an increase in refined products revenue of $ 120.7 million .
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โ these statements may use forward-looking terms , such as โ anticipate , โ โ believe , โ โ could , โ โ estimate , โ โ expect , โ โ intend , โ โ likely , โ โ may , โ โ probable , โ โ plan , โ โ project , โ โ should , โ โ will , โ โ would , โ โ possible , โ or their negatives or other variations on these terms , and include statements related to , among others , gains and losses on derivatives , plans to pay dividends and redeem or repurchase excess capital stock , future credit losses , future classification of securities , and reform legislation . the bank cautions that by their nature , forward-looking statements involve risk or uncertainty that could cause actual results to differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective , projection , estimate , or prediction is realized . these risks and uncertainties include , among others , the following : changes in economic and market conditions , including conditions in the mortgage , housing , and capital markets ; the volatility of market prices , rates , and indices ; the timing and volume of market activity ; natural disasters , widespread health emergencies ( such as the outbreak of covid-19 ) , terrorist attacks , civil unrest , or other unanticipated or catastrophic events ; political events , including legislative , regulatory , judicial , or other developments that affect the bank , its members , counterparties , or investors in the consolidated obligations of the federal home loan banks ( fhlbanks ) , such as the impact of any government-sponsored enterprises ( gse ) legislative reforms , changes in the federal home loan bank act of 1932 , as amended ( fhlbank act ) , changes in applicable sections of the federal housing enterprises financial safety and soundness act of 1992 , or changes in other statutes or regulations applicable to the fhlbanks ; changes in the bank 's capital structure and composition ; the ability of the bank to pay dividends or redeem or repurchase capital stock ; membership changes , including changes resulting from mergers or changes in the principal place of business of bank members ; the soundness of other financial institutions , including bank members , nonmember borrowers , other counterparties , and the other fhlbanks ; changes in bank members ' demand for bank advances ; changes in the value or liquidity of collateral underlying advances to bank members or nonmember borrowers or collateral pledged by the bank 's derivative counterparties ; changes in the fair value and economic value of , impairments of , and risks associated with the bank 's investments in mortgage loans and mortgage-backed securities ( mbs ) or other assets and the related credit enhancement protections ; changes in the bank 's ability or intent to hold mbs and mortgage loans to maturity ; competitive forces , including the availability of other sources of funding for bank members ; the willingness of the bank 's members to do business with the bank ; changes in investor demand for consolidated obligations ( including the terms of consolidated obligations ) and or the terms of interest rate exchange or similar agreements ; the impact of any changes and developments in fhlbank system-wide debt issuance and governance practices ; the ability of each of the other fhlbanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the bank has joint and several liability ; changes in key bank personnel ; technology changes and enhancements , and the bank 's ability to develop and support technology and information systems sufficient to manage the risks of the bank 's business effectively ; changes in the fhlbanks ' long-term credit ratings ; and the impending discontinuance of the london interbank offered rate ( libor ) or any other interest rate benchmark and the adverse consequences it could have for market participants , including the bank . 25 readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report , as well as those discussed under โ item 1a . risk factors. โ overview net income for 2020 was $ 335 million , compared with net income of $ 327 million for 2019. the increase in net income of $ 8 million from 2019 to 2020 primarily reflected an increase in other income of $ 38 million and a decrease in other expense of $ 22 million , which were offset by a decrease in net interest income of $ 26 million and an increase in provision for credit losses of $ 26 million . the $ 38 million increase in other income primarily reflected the bank 's receipt of $ 85 million in disgorgement proceeds in connection with a securities and exchange commission enforcement action in the third quarter of 2020 , which was partially offset by an increase in net fair value losses associated with derivatives and financial instruments carried at fair value . the $ 22 million decrease in other expense primarily reflected a decrease of $ 15 million in expense associated with voluntary charitable contributions to the quality jobs fund and a reduction in operating expense of $ 9 million that was primarily related to higher expenses associated with the relocation of the bank 's premises during the second quarter of 2019. net interest income in 2020 decreased by $ 26 million , which primarily reflected a lower interest rate environment and lower average balances of interest-earning assets , partially offset by an increase in prepayment fees on advances of $ 30 million and a decrease in dividends paid on mandatory redeemable capital stock ( classified as interest expense ) of $ 9 million . story_separator_special_tag the effects of the covid-19 pandemic , and of governmental and public actions taken in response , on the global and u.s. economy and on the bank are continuing to evolve , and the full duration and impact of the pandemic and subsequent governmental and public actions are uncertain . as the covid-19 pandemic persists , the demand for advances may continue to decrease because of further government intervention , lower interest rates , and reduced member asset activity . the risk of credit losses is likely to increase . the bank believes that lower demand from the bank 's members for advances will likely continue into the foreseeable future . in addition , other possible effects from the covid-19 pandemic on the bank may include , but are not limited to , further disruption to the bank 's members , uncertainties in the credit markets , and a decline in the fair value of assets or an increase in the write-down of investments . the bank has implemented certain relief measures to help members serve customers affected by the covid-19 pandemic , such as accommodating forbearance and modifications to pledged loan collateral and allowing electronic signatures on loan documentation in specific circumstances . the board of directors also approved subsidized credit and grant programs to assist our members in responding to the challenges brought about by the covid-19 pandemic . 27 story_separator_special_tag roman ' , sans-serif ; font-size:11pt ; font-weight:400 ; line-height:120 % '' > during 2020 , the bank received disgorgement proceeds in the amount of $ 85 million in connection with a securities and exchange commission enforcement action . the bank had no gains on disgorgement settlements during 2019. other expense . other expenses totaled $ 165 million in 2020 compared to $ 187 million in 2019. the $ 22 million decrease in other expense primarily reflected a decrease of $ 15 million in expense associated with voluntary charitable contributions to the quality jobs fund and a $ 9 million reduction in operating expense that was primarily related to higher expenses associated with the relocation of the bank 's premises during the second quarter of 2019. affordable housing program . the fhlbank act requires each fhlbank to establish and fund an ahp . each fhlbank 's ahp provides subsidies to members , which use the funds to assist in the purchase , construction , or rehabilitation of housing for households earning up to 80 % of the median income for the area in which they live . subsidies may be in the form of direct grants or below-market interest rate advances . to fund the ahp , the fhlbanks must set aside , in the aggregate , the greater of $ 100 million or 10 % of the current year 's net earnings ( income before interest expense related to dividends paid on mandatorily redeemable capital stock and the assessment for the ahp ) . to the extent that the aggregate 10 % calculation is less than $ 100 million , the fhlbank act requires that each fhlbank contribute such prorated sums as may be required to ensure that the aggregate contribution of the fhlbanks equals $ 100 million . the proration would be made on the basis of the income of the fhlbanks for the previous year . in the aggregate , the fhlbanks set aside $ 315 million and $ 362 million for their ahps in 2020 and 2019 , respectively , and there was no ahp shortfall in any of those years . the bank 's total ahp assessments equaled $ 38 million in 2020 and $ 38 million in 2019. return on average equity . return on average equity was 5.32 % in 2020 , compared to 4.92 % in 2019. this increase reflected lower average equity and higher net income in 2020. average equity was $ 6.3 billion for 2020 , compared to $ 6.7 billion for 2019 . dividends and retained earnings . in 2020 , the bank paid dividends at an annualized rate of 5.53 % , totaling $ 164 million , including $ 159 million in dividends on capital stock and $ 5 million in dividends on mandatorily redeemable capital stock . in 2019 , the bank paid dividends at an annualized rate of 7.00 % , totaling $ 220 million , including $ 206 million in dividends on capital stock and $ 14 million in dividends on mandatorily redeemable capital stock . the bank paid these dividends in cash . dividends on capital stock are recognized as dividends on the statements of capital accounts , and dividends on mandatorily redeemable capital stock are recognized as interest expense on the statements of income . on february 18 , 2021 , the bank 's board of directors declared a quarterly cash dividend on the capital stock outstanding during the fourth quarter of 2020 at an annualized rate of 5.00 % totaling $ 30 million , including $ 30 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock . the bank recorded the quarterly dividend on february 18 , 2021. the bank expects to pay the quarterly dividend on march 18 , 2021. dividends on mandatorily redeemable capital stock will be recognized as interest expense in the first quarter of 2021. the bank 's excess stock repurchase , retained earnings , and dividend framework ( framework ) assesses the level and adequacy of retained earnings and establishes amounts to be retained in restricted retained earnings , which are not made available in the current dividend period , and maintains an amount of total retained earnings at least equal to its required retained earnings as described in the framework . as determined using the bank 's methodology , the required level of total retained earnings had ranged from $ 2.4 billion to $ 2.5 billion during 2019 and continuing through september 2020. in september 2020 , the methodology was revised and resulted in a required level of retained earnings of $ 2.9 billion .
| results of operations comparison of 2020 and 2019 net interest income . the primary source of the bank 's earnings is net interest income , which is the interest earned on advances , mortgage loans , and investments , including net accretion of related income from improvement in expected cash flows on certain plrmbs that were other-than-temporarily-impaired prior to january 1 , 2020 , less interest paid on consolidated obligations , deposits , mandatorily redeemable capital stock , and other borrowings . the average balance sheets table that follows presents the average balances of interest-earning asset categories and the sources that funded those interest-earning assets ( liabilities and capital ) for the years ended december 31 , 2020 and 2019 , together with the related interest income and expense . it also presents the average rates on total interest-earning assets and the average costs of total funding sources . 28 replace_table_token_4_th ( 1 ) the average balances of afs securities and htm securities are reflected at amortized cost . as a result , the average rates do not reflect changes in fair value or non-credit-related losses . ( 2 ) interest income on afs securities includes accretion of yield adjustments on other-than-temporarily impaired plrmbs ( resulting from improvement in expected cash flows ) recognized pursuant to the impairment guidance in effect prior to january 1 , 2020 , totaling $ 59 million and $ 61 million in 2020 and 2019 , respectively . ( 3 ) interest income/expense and average rates include the effect of associated interest rate exchange agreements , as follows : 29 replace_table_token_5_th replace_table_token_6_th ( 4 ) includes forward settling transactions and valuation adjustments for certain cash items . ( 5 ) includes non-credit-related losses on htm securities for 2020. includes non-credit-related losses on afs and htm securities for 2019 . ( 6 ) net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities .
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it also reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio . on a quarterly basis , management performs a detailed analysis of the allowance to verify the adequacy story_separator_special_tag the company the company is a savings and loan holding company chartered as a corporation in the state of maryland in 1990. it conducts business primarily through four subsidiaries , the bank , sbi , the title company , and hyatt commercial . hyatt commercial conducts business as a commercial real estate brokerage and property management company . sbi holds mortgages that do not meet the underwriting criteria of the bank and is the parent company of crownsville , which does business as annapolis equity group and acquires real estate for syndication and investment purposes . the title company engages in title work related to real estate transactions . the bank has seven branches in anne arundel county , maryland , which offer a full range of deposit products and originate mortgages in its primary market of anne arundel county , maryland and , to a lesser extent , in other parts of maryland , delaware , and virginia . overview the company provides a wide range of personal and commercial banking services . personal services include mortgage and consumer lending as well as deposit products such as personal internet banking and online bill pay , checking accounts , individual retirement accounts , money market accounts , and savings and time deposit accounts . commercial services include commercial secured and unsecured lending services as well as business internet banking , corporate cash management services , and deposit services . the company also provides atms , credit cards , debit cards , safe deposit boxes , and telephone banking , among other products and services . we have experienced a decreased level of profitability in our operations in 2019 , primarily due to loan runoff and increased noninterest expenses . less fourth quarter interest income was generated from lower volumes of interest-earning assets , particularly from significantly lower medical-use cannabis related deposits that earned overnight interest income during the first half of 2019. also , loan interest income decreased from lower loan volumes , which was slightly offset by a reduction in interest expense from less reliance on borrowings . our income before income taxes amounted to $ 11.6 million in 2019 and $ 11.5 million in 2018. in 2019 , the mid-atlantic region in which we operate continued to experience improved regional economic performance . the national economy improved as well throughout the year . consumer confidence has been bolstered by certain positive economic trends such as lower unemployment and increased housing metrics . these positive trends have enabled us to maintain strong levels of liquidity , capital , and credit quality , despite decreased profitability . the company expects to experience similar stable market conditions during 2020. if interest rates increase , demand for borrowing may decrease and our interest rate spread could decrease . if interest rates decrease , demand for borrowing may increase , which could improve our interest rate spread , depending on other factors . we will continue to manage loan and deposit pricing against the risks of rising costs of our deposits and borrowings . interest rates are outside of our control , so we must attempt to balance the pricing and duration of the loan portfolio against the risks of rising costs of our deposits and borrowings . the continued success and attraction of anne arundel county , maryland and vicinity , will also be important to our ability to originate and grow mortgage loans and deposits , as will our continued focus on maintaining low overhead . if the market and or economy worsens , our business , financial condition , results of operations , access to funds , and the price of our stock could be materially and adversely impacted . critical accounting policies our accounting and financial reporting policies conform to accounting principles generally accepted in the u.s. ( โ gaap โ ) and general practice within the banking industry . accordingly , preparation of the financial statements requires management to exercise significant judgment or discretion or make significant assumptions and estimates based on the information available that have , or could have , a material impact on the carrying value of certain assets or on income . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements 28 and the reported amounts of income and expenses during the periods presented . the accounting policies we view as critical are those relating to the allowance , the valuation of securities , the valuation of real estate acquired through foreclosure , and the valuation of deferred tax assets and liabilities . significant accounting policies are discussed in detail in โ notes to consolidated financial statements - note 1 - summary of significant account policies โ in this annual report on form 10-k. story_separator_special_tag new roman , times , serif ; font-size : 10pt ; '' > the โ rate/volume analysis โ below indicates the changes in our net interest income as a result of changes in volume and rates . we maintain an asset and liability management policy designed to provide a proper balance between rate-sensitive assets and rate-sensitive liabilities to attempt to optimize interest margins while providing adequate liquidity for our 30 anticipated needs . changes in interest income and interest expense that result from variances in both volume and rates have been allocated to rate and volume changes in proportion to the absolute dollar amounts of the change in each . replace_table_token_3_th provision for loan losses our loan portfolio is subject to varying degrees of credit risk and an allowance is maintained to absorb losses inherent in our loan portfolio . story_separator_special_tag total deposits decreased $ 118.5 million , or 15.2 % , to $ 661.0 million at december 31 , 2019 compared to $ 779.5 million at december 31 , 2018. long-term borrowings decreased by $ 38.5 million , or 52.4 % , to $ 35.0 million at december 31 , 2019 compared to $ 73.5 million at december 31 , 2018 as we paid off fhlb advances and a commercial note payable . securities we utilize the securities portfolio as part of our overall asset/liability management practices to enhance interest revenue while providing necessary liquidity for the funding of loan growth or deposit withdrawals . we continually monitor the credit risk associated with investments and diversify the risk in the securities portfolios . we held $ 12.9 million and $ 12.0 million in securities classified as afs as of december 31 , 2019 and 2018 , respectively . we held $ 26.0 million and $ 38.9 million in securities classified as htm as of december 31 , 2019 and 2018 , respectively . changes in current market conditions , such as interest rates and the economic uncertainties in the mortgage , housing , and banking industries impact the securities market . quarterly , we review each security in our afs portfolio to determine the nature of any decline in value and evaluate if any impairment should be classified as other-than-temporary impairment ( โ otti โ ) . such evaluations resulted in the determination that no otti charges were required during 2019 or 2018. all of the afs and htm securities that were impaired as of december 31 , 2019 were so due to declines in fair values resulting from changes in interest rates or increased credit/liquidity spreads compared to the time they were purchased . we have the intent to hold these securities to maturity and it is more likely than not that we will not be required to sell the securities before recovery of value . as such , management considers the impairments to be temporary . 32 our securities portfolio composition is as follows at december 31 : replace_table_token_4_th the amortized cost , estimated fair values , and weighted average yields of debt securities at december 31 , 2019 , by contractual maturity , are shown below . actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations . replace_table_token_5_th weighted yields are based on amortized cost . mbs are assigned to maturity categories based on their final maturity . we did not hold any securities with an aggregate book value and market value in excess of 10 % of stockholders ' equity . lhfs we originate residential mortgage loans for sale on the secondary market . at december 31 , 2019 and 2018 , such lhfs , which are carried at fair value , amounted to $ 10.9 million and $ 9.7 million , respectively , the majority of which are subject to purchase commitments from investors . when we sell mortgage loans we make certain representations to the purchaser related to loan ownership , loan compliance and legality , and accurate documentation , among other things . if a loan is found to be out of compliance with any of the representations subsequent to the date of purchase , we may be required to repurchase the loan or indemnify the purchaser for losses related to the loan , depending on the agreement with the purchaser . in addition other factors may cause us to be required to repurchase or `` make-whole '' a loan previously sold . the most common reason for a loan repurchase is due to a documentation error or disagreement with an investor , or on rare occasions for fraud . repurchase requests are negotiated with each investor at the time we are notified of the demand and an appropriate reserve is taken at that time . we did not repurchase any loans during 2019 or 2018. we do not expect 33 increases in repurchases or related losses to be a growing trend nor do we see it having a significant impact on our financial results . loans our loan portfolio is expected to produce higher yields than investment securities and other interest-earning assets ; the absolute volume and mix of loans and the volume and mix of loans as a percentage of total interest-earning assets is an important determinant of our net interest margin . the following table sets forth the composition of our loan portfolio net of unearned loan fees as of december 31 : replace_table_token_6_th loans decreased by $ 36.7 million , or 5.4 % , to $ 645.7 million at december 31 , 2019 compared to $ 682.3 million at december 31 , 2018. this decrease was primarily due to decreased residential mortgage , commercial real estate , and adc loan demand , as well as significant runoff in 2019 in those loan segments . commercial loans increased 20.2 % as we increased our focus on commercial lending in 2019. approximately 53 % of our loans had adjustable rates as of december 31 , 2019. our variable-rate loans adjust to the current interest rate environment , whereas fixed rates do not allow this flexibility . if interest rates were to increase in the future , our interest earned on the variable-rate loans would improve , and if rates were to fall , the interest we earn on such loans would decline , thus impacting our interest income . some variable-rate loans have rate floors and or ceilings which may delay and or limit changes in interest income in a period of changing rates . see our discussion in โ interest rate sensitivity โ later in this item for more information on interest rate fluctuations . the following table sets forth the maturity distribution for our loan portfolio at december 31 , 2019. some of our loans may be renewed or repaid prior to maturity . therefore , the following table should not be used as a forecast of our future cash collections .
| results of operations net income net income decreased by $ 195,000 , or 2.3 % , to $ 8.4 million for 2019 , compared to $ 8.6 million for 2018. basic and diluted income per share decreased to $ 0.66 and $ 0.65 , respectively , for 2019 , compared to $ 0.68 and $ 0.67 , respectively , for 2018. we recognized an increase in net interest income and noninterest income compared to 2018. noninterest expenses increased in 2019 compared to 2018 and we recorded a larger reversal of the provision for loan losses in 2019 compared to 2018. net interest income net interest income , which is interest earned net of interest expense , increased by $ 1.5 million , or 5.0 % , to $ 30.5 million for 2019 , compared to $ 29.1 million for 2018. the increase in net interest income was primarily due to an increase in the average balance of interest-earning assets , along with a decrease in the average volume of borrowings . our net interest margin decreased from 3.66 % in 2018 to 3.50 % in 2019 and our net interest spread decreased from 3.29 % in 2018 to 3.17 % in 2019. interest income interest income increased by $ 2.2 million , or 5.7 % , to $ 39.8 million for 2019 , compared to $ 37.7 million for 2018. average interest-earning assets increased from $ 793.8 million in 2018 to $ 871.5 million in 2019. the yield on average assets decreased from 4.74 % for 2018 to 4.57 % in 2019 primarily as a result of decreasing interest rates in the latter part of 2019 , mostly affecting interest on our other interest-earning assets by decreasing the average yield from 2.88 % in 2018 to 1.87 % in 2019. average loans outstanding increased by $ 1.2 million in 2019 compared to 2018 due to increased originations , primarily in the commercial segment .
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the update is effective for financial statements issued for reporting periods beginning after december 15 , 2015. this guidance should be applied on a retrospective basis with disclosures for a change in accounting principle , if applicable . the company adopted this update on january 1 , 2016. the adoption of this guidance did not have an impact on the company 's consolidated financial statements . in november 2015 , the fasb issued new guidance on the balance sheet classification of deferred taxes . to simplify presentation , the new guidance requires that all deferred tax assets and liabilities , along with any related valuation allowance , be classified as noncurrent on the balance sheet . the accounting standard is effective for public business entities for annual reporting periods ( including interim reporting periods within those periods ) beginning after december 15 , 2016. early adoption is permitted . the company has not yet adopted this pronouncement and is currently evaluating the impact , if any , it may have on its consolidated financial statements . f- 11 in january 2016 , the fasb issued a new accounting standard on recognition and measurement of financial assets and financial liabilities . the accounting standard primarily affects the accounting for equity investments , financial liabilities under the fair value option , and the presentation and disclosure requirements for financial instruments . in addition , it includes a clarification related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities . the accounting guidance is effective for annual reporting periods ( including interim periods within those periods ) beginning after december 15 , 2017. early adoption is permitted for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income . the company is currently evaluating the impact , if any , that the pronouncement will have on the consolidated financial statements . fair value of financial instruments and concentrations of credit risk financial instruments that potentially subject the company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable . the company maintains its cash in bank deposit accounts , which , at times , may exceed federally insured amounts . the company believes it is not exposed to significant credit risk on cash and cash equivalents . the carrying amount of current assets and liabilities approximates their fair values due to their short-term maturities . use of estimates the preparation of consolidated 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 the financial statements and accompanying notes . the company 's most critical accounting estimates relate to accounting policies for derivatives , notes payable valuation , clinical trial accruals and share-based arrangements . management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances . actual results may differ from those estimates , and such differences may be material to the consolidated financial statements . derivatives the company entered into investment agreements with spectrum ( see note 4 ) resulting in a purchase price derivative . in accordance with gaap , derivative instruments are recognized as either assets or liabilities on the consolidated balance sheets and are measured at fair value with gains or losses recognized in earnings or other comprehensive income depending on the nature of the derivative . the company determines the fair value of derivative instruments based on available market data using appropriate valuation models , giving consideration to all of the rights and obligations of each instrument . the derivative liability is re-measured at fair value at the end of each reporting period as long as it is outstanding . 3. related party transactions in 2015 , the company began utilizing the services of crown biosciences , inc. ( โ crown bio โ ) to perform certain research and development testing . the ceo of crown bio is also a board member of casi . the total value of the services is $ 66,545 , of which $ 20,898 was payable as of december 31 , 2015. the research and development expense recognized for the services provided for the year ended december 31 , 2015 was $ 33,648 . in october 2015 , the company entered into a material transfer and research agreement with origene technologies , inc. ( โ origene โ ) for certain research materials . the ceo of origene is also the chairman of the board of casi . no materials have been purchased as of december 31 , 2015 , and there is no minimum commitment associated with this agreement . 4. license arrangements and acquisition of in-process research and development in september 2014 , the company acquired certain product rights and perpetual exclusive licenses from spectrum to develop and commercialize the following commercial oncology drugs and drug candidates in china , taiwan , hong kong and macau ( the โ territories โ ) : f- 12 ยท marqibo ยฎ ( vincristine sulfate liposome injection ) ( โ marqibo โ ) ; ยท zevalin ยฎ ( ibritumomab tiuxetan ) ( โ zevalin โ ) ; and ยท evomela ( melphalan hydrochloride ) for injection ( โ evomela โ ) . casi is responsible for developing and commercializing these three drugs in the territories , including the submission of import drug registration applications and conducting confirmatory clinical trials as needed . story_separator_special_tag our critical accounting policies , including the items in our financial statements requiring significant estimates and judgments , are as follows : โ revenue recognition โ 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 . โ research and development โ 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 . โ expenses for clinical trials โ 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 . - stock-based compensation โ 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 . the fair value of awards whose fair values are calculated using the black-scholes option pricing model is generally being amortized on a straight-line basis over the requisite service period and is recognized based on the proportionate amount of the requisite service period that has been rendered during each reporting period . the fair value of awards with market conditions , which are valued using a binomial model , is being amortized based upon the estimated derived service period . share based awards granted to employees with a performance condition are measured based on the probable outcome of that performance condition during the requisite service period . such an award with a performance condition will be expensed if it is probable that a performance condition will be achieved . for the year ended december 31 , 2014 , $ 686,600 was expensed for share awards with performance conditions that became probable during that period . for the year ended december 31 , 2015 , no expense has been recorded for share awards with performance conditions . using the straight-line expense attribution method over the requisite service period , which is generally the option vesting term ranging from immediately to one to three years , share-based compensation expense recognized for the year ended december 31 , 2015 and 2014 totaled approximately $ 1,541,000 and $ 2,189,000 , respectively . 24 the determination of fair value of stock-based payment awards on the date of grant using the black-scholes valuation model is affected by our stock price , as well as the input of other subjective assumptions . these assumptions include , but are not limited to , the expected forfeiture rate and expected term of stock options and our expected stock price volatility over the term of the awards . changes in the assumptions can materially affect the fair value estimates . any future changes to our share-based compensation strategy or programs would likely affect the amount of compensation expense recognized . - fair value measurements โ at each reporting period , we perform a detailed analysis of our assets and liabilities that are measured at fair value . all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as level 3 in accordance with the hierarchy established by u.s. gaap . as of december 31 , 2015 , we remeasured the contingent rights and will continue to do so at every balance sheet date until settlement . in measuring the fair value of both financial instruments we used level 3 unobservable inputs , including such inputs as our estimated borrowing rate and our future capital requirements , and the timing , probability , size and characteristics of those capital raises , among other inputs . story_separator_special_tag in 2015 from $ 1,514,000 in 2014. this variance is primarily attributed to increased salary and benefit costs associated with new employees , including our chief medical officer , in china during 2015 . โ also reflected in our 2015 research and development expenses are outsourced consultant costs of $ 306,000 , and facility and related expenses of $ 402,000. in 2014 , these expenses totaled $ 151,000 and $ 214,000 , respectively . the fluctuation in outsourced consultant costs reflects higher costs associated with clinical trial management , including site visits and regulatory activities .
| results of operations years ended december 31 , 2015 and 2014. revenues and cost of product sales . revenues were approximately $ 47,700 and $ 23,700 in 2015 and 2014 , respectively . our product sales related to the dosing of zevalin ยฎ to patients in hong kong . the cost of sales for 2015 and 2014 were $ 6,274 and $ 7,467 , respectively . these expenses include the cost of the zevalin kit and isotope purchase . research and development expenses . our 2015 research and development expenses totaled $ 4,076,000 as compared to $ 2,765,000 in 2014 , a 47 % increase . in 2015 , our research and development expenses reflect direct project costs for enmd-2076 of $ 1,555,000 and $ 744,000 for development of our drug delivery platform in china . the 2014 amount reflects direct project costs for enmd-2076 of $ 970,000 and $ 419,000 for development of our drug delivery platform . the increase in 2015 research and development spending reflects higher clinical trial costs in 2015 due to costs associated with our food effect study of enmd-2076 in healthy human subjects in advance of initiating our flc trial , an increase in start-up costs and patient enrollment in the flc trial and tnbc trial in china , costs related to our new chief medical officer , as well as increased costs associated with our research and development operations , in china during 2015. at december 31 , 2015 , and , since acquired , accumulated direct project expenses for enmd-2076 totaled $ 25,959,000 , and for development of our new drug delivery platform , accumulated project expenses totaled $ 1,176,000. our research and development expenses also include non-cash stock-based compensation totaling $ 747,000 and $ 690,000 , respectively , for 2015 and 2014. the increase in stock-based compensation expense is related to the increase in stock options granted in 2015. the balance of our research and development
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in the event of termination of the chief executive officer within two years of a change of control , he would receive severance benefits equal to two times base compensation , two times the average bonus for the prior three years and the continuation of health and welfare benefits for two years . in the event of such a termination of the other key members of management , including our other three executive officers , within two years of a change of control , they would receive severance benefits equal to one times base compensation , one times the average bonus for the prior three years and the continuation of health and welfare benefits for one year . in addition , for any covered executive that is terminated within two years of a change of control , all of their stock options and restricted stock would vest immediately , and outplacement services would be provided . ( 1 3 ) leases we have operating leases for certain equipment , office space and vehicles . we determine whether an arrangement is a lease at its inception if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration . leases with an initial term of twelve months or less are not recorded on our consolidated balance sheet . lease expense for operating leases with original terms of more than twelve months was $ 1.3 million in 2020 , $ 1.6 million in 2019 and $ 1.5 million in 2018. most of our leases include options to extend or terminate the leases which are exercised at our sole discretion . as most of our leases do not provide an implicit interest rate , we use our incremental borrowing rate as of the commencement date in determining the present value of lease payments , which represents an estimate of the interest rate we would incur at the lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term . 39 supplemental cash flow and non-cash information related to leases is as follows : year ended ( in thousands ) october 3 , 2020 cash paid for operating leases included in operating cash flows $ 1,301 right-of-use assets obtained in exchange for new lease obligations 1,771 supplemental balance sheet information related to leases is as follows : ( in thousands ) october 3 , 2020 right-of-use assets : other assets $ 2,522 lease liabilities : accrued expenses 1,230 other liabilities 1,300 total operating lease liabilities $ 2,530 as of october 3 , 2020 , our operating leases had a weighted average remaining lease term of 2.3 years and a weighted average discount rate of 4.4 % . aggregate future operating lease payments as of october 3 , 2020 are as follows : replace_table_token_29_th ( 1 4 ) earnings per share the computation of basic and diluted earnings per share attributable to common shareholders is as follows : replace_table_token_30_th options and rsus that were antidilutive and not included in the diluted eps calculation amounted to 369,000 shares in 2020 , 240,000 shares in 2019 and 83,000 shares in 2018 . ( 1 5 ) business segment information our operations are entirely focused on the manufacture and marketing of steel wire reinforcing products for concrete construction applications . our concrete reinforcing products consist of two product lines : pc strand and wwr . based on the criteria specified in asc topic 280 , segment reporting , we have one reportable segment . 40 our net sales and long-lived assets ( consisting of net property , plant and equipment , assets held for story_separator_special_tag . the matters discussed in this section include forward-looking statements that are subject to numerous risks . you should carefully read the โ cautionary note regarding forward-looking statements โ and โ risk factors โ in this form 10-k. overview our operations are entirely focused on the manufacture and marketing of concrete reinforcing products for the concrete construction industry . our business strategy is focused on : ( 1 ) achieving leadership positions in our markets ; ( 2 ) operating as the lowest cost producer in our industry ; and ( 3 ) pursuing growth opportunities within our core businesses that further our penetration of the markets we currently serve or expand our footprint . on march 16 , 2020 , we , through our wholly-owned subsidiary , iwp , purchased substantially all of the assets of stm for an adjusted purchase price of $ 19.4 million , which reflects certain post-closing adjustments . stm was a leading manufacturer of pc strand for concrete construction applications . we acquired , among other assets , stm 's accounts receivable , inventories , production equipment and facility located in summerville , south carolina and assumed certain of its accounts payable and accrued liabilities . subsequent to the acquisition , we elected to consolidate our pc strand operations with the closure of the summerville facility . impact of covid-19 in march 2020 , the world health organization characterized covid-19 as a pandemic , and the president of the united states declared the covid-19 outbreak a national emergency . the rapid spread of the outbreak has caused significant disruptions in the u.s. and global economies , and economists expect the impact will continue during fiscal 2021. we are a company operating in a critical infrastructure industry , as defined by the u.s. department of homeland security and our facilities have been allowed to remain open . accordingly , covid-19 has had limited impact on our operations to date . we have implemented new procedures to support the health and safety of our employees and we are following all u.s. centers for disease control and prevention and state and local health department guidelines . the costs associated with these safety procedures were not material . story_separator_special_tag the reduction in inventories was primarily driven by lower raw material purchases and unit costs . the reduction in accounts receivable was primarily related to lower selling prices and a decrease in days sales outstanding . we may elect to adjust our operating activities as there are changes in the conditions in our construction end-markets , which could materially impact our cash requirements . while a downturn in the level of construction activity affects sales to our customers , it generally reduces our working capital requirements . 16 investing activities investing activities used $ 23.2 million of cash in 2020 primarily due to the stm acquisition ( $ 18.4 million ) and capital expenditures ( $ 7.1 million ) partially offset by the receipt of proceeds from the sale of assets held for sale ( $ 2.2 million ) . investing activities used $ 9.6 million in 2019 primarily due to $ 10.5 million of capital expenditures offset by $ 1.2 million of insurance proceeds related to an insurance claim at our dayton , texas facility . capital expenditures for both years focused on cost and productivity improvement initiatives in addition to recurring maintenance requirements . our investing activities are largely discretionary , providing us with the ability to significantly curtail outlays should future business conditions warrant that such actions be taken . financi ng activities financing activities used $ 2.5 million of cash in 2020 and $ 2.8 million of cash in 2019. in 2020 , $ 2.3 million of cash was used for dividend payments . in 2019 , $ 2.3 million of cash was used for dividend payments and $ 263,000 for financing costs associated with the amendment of our revolving credit facility . cash management our cash is principally concentrated at one financial institution , which at times exceeds federally insured limits . we invest excess cash primarily in money market funds , which are highly liquid securities that bear minimal risk . credit facilit y we have a $ 100.0 million revolving credit facility ( the โ credit facility โ ) that is used to supplement our operating cash flow and fund our working capital , capital expenditure , general corporate and growth requirements . in may 2019 , we entered into a new credit agreement , which amended and restated in its entirety the previous agreement pertaining to the revolving credit facility that had been in effect since june 2010. the new credit agreement , among other changes , extended the maturity date of the credit facility from may 13 , 2020 to may 15 , 2024 and provided for an accordion feature whereby its size may be increased by up to $ 50.0 million , subject to our lender 's approval . advances under the credit facility are limited to the lesser of the revolving loan commitment amount ( currently $ 100.0 million ) or a borrowing base amount that is calculated based upon a percentage of eligible receivables and inventories . as of october 3 , 2020 , no borrowings were outstanding on the credit facility , $ 90.0 million of borrowing capacity was available and outstanding letters of credit totaled $ 1.5 million ( see note 8 to the consolidated financial statements ) . as of september 28 , 2019 , there were no borrowings outstanding on the credit facility . we believe that , in the absence of significant unanticipated cash demands , cash and cash equivalents , cash generated by operating activities and the borrowing availability provided under the credit facility will be sufficient to satisfy our expected requirements for working capital , capital expenditures , dividends and share repurchases , if any . we also expect to have access to the amounts available under our credit facility as required . however , should we experience future reductions in our operating cash flows due to weakening conditions in our construction end-markets and reduced demand from our customers , we may need to curtail capital and operating expenditures , delay or restrict share repurchases , cease dividend payments and or realign our working capital requirements . should we determine , at any time , that we require additional short-term liquidity , we would evaluate the alternative sources of financing that were potentially available to provide such funding . there can be no assurance that any such financing , if pursued , would be obtained , or if obtained , would be adequate or on terms acceptable to us . however , we believe that our strong balance sheet , flexible capital structure and borrowing capacity available to us under our credit facility position us to meet our anticipated liquidity requirements for the foreseeable future . impact of inflation we are subject to inflationary risks arising from fluctuations in the market prices for our primary raw material , hot-rolled carbon steel wire rod , and , to a much lesser extent , freight , energy and other consumables that are used in our manufacturing processes . we have generally been able to adjust our selling prices to pass through increases in these costs or offset them through various cost reduction and productivity improvement initiatives . however , our ability to raise our selling prices depends on market conditions and competitive dynamics , and there may be periods during which we are unable to fully recover increases in our costs . in 2020 , selling prices for our products declined in response to low-priced import competition , which negatively impacted our financial results . during 2019 , the year-over-year escalation in our raw material costs exceeded the increase in our selling prices due to competitive pricing pressures . the timing and magnitude of any future increases in raw material costs and the impact on selling prices for our products is uncertain at this time . 17 off - balance sheet arrangements we do not have any material transactions , arrangements , obligations ( including contingent obligations ) , or other relationships with
| results of operations the table below presents a summary of our results of operations for fiscal 2020 and fiscal 2019. see part ii , item 7 of our annual report on form 10-k for the fiscal year ended september 28 , 2019 , filed with the sec on october 25 , 2019 , for management 's discussion and analysis of financial condition and results of operations for the fiscal year ended september 29 , 2018 . 14 statements of operations โ selected data ( dollars in thousands ) replace_table_token_2_th 20 20 compared with 201 9 net sales net sales increased 3.7 % to $ 472.6 million in 2020 from $ 455.7 million in 2019 , reflecting a 17.3 % increase in shipments offset by an 11.5 % decrease in average selling prices . the increase in shipments was primarily due to improved market conditions , the additional business provided by the stm acquisition , the extra week in 2020 based on our fiscal calendar and strengthening demand for our products relative to the prior year , which was unfavorably impacted by unusually wet weather across many of our markets . the decrease in average selling prices was driven primarily by competitive pricing pressures resulting from an increase in low-priced import competition . shipments for the current year were not materially impacted by the covid-19 pandemic . gross profit gross profit increased 85.6 % to $ 55.8 million , or 11.8 % of net sales , in 2020 from $ 30.1 million , or 6.6 % of net sales , in 2019. the year over year increase was primarily due to higher spreads between average selling prices and raw material costs ( $ 20.3 million ) and the increase in shipments ( $ 5.4 million ) . the increase in spreads was driven by lower raw material costs ( $ 83.6 million ) and freight expense ( $ 691,000 ) partially offset by lower average selling prices ( $ 64.0 million ) .
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at the end of the eleven-month period , recoupment will increase to 50 % for six months . at the end of the six months ( or 29 months from the receipt of the initial accelerated payment ) , medicare will issue a letter for full repayment of any remaining balance , as applicable . in such event , if payment is not received within 30 days , interest will accrue at the annual percentage rate of four percent ( 4 % ) from the date the letter was issued , and will be assessed for each full 30-day period that the balance remains unpaid . as of december 31 , 2020 , approximately $ 425 million of medicare accelerated payments are reflected within accrued liabilities-other in the consolidated balance sheet while the remaining approximately $ 656 million are included within other long-term liabilities . the company 's estimate of the current liability is a function of historical cash receipts from medicare and the repayment terms set forth above . new accounting pronouncements . in march 2020 , the fasb issued accounting standards update ( โ asu โ ) 2020-04 , โ reference rate reform : facilitation of the effects of reference rate reform on financial reporting . โ this asu provides optional expedients and exceptions story_separator_special_tag you should read this discussion together with our consolidated financial statements and the accompanying notes to consolidated financial statements included elsewhere in this form 10-k. executive overview we are one of the largest publicly traded hospital companies in the united states and a leading operator of general acute care hospitals and outpatient facilities in communities across the country . we provide healthcare services through the hospitals that we own and operate and affiliated businesses in generally larger non-urban and selected urban markets throughout the united states . we generate revenues by providing a broad range of general and specialized hospital healthcare services and outpatient services to patients in the communities in which we are located . as of december 31 , 2020 , we owned or leased 89 hospitals , comprised of 87 general acute care hospitals and two stand-alone rehabilitation or psychiatric hospitals . for the hospitals that we own and operate , we are paid for our services by governmental agencies , private insurers and directly by the patients we serve . since 2017 , we have implemented a portfolio rationalization and deleveraging strategy by divesting hospitals and non-hospital businesses that are attractive to strategic and other buyers . this portfolio rationalization and deleveraging strategy was completed at the end of 2020 , inclusive of definitive agreements with respect to sales of five hospitals entered into in 2020 which have closed or are expected to close in 2021 , as noted below . we continue to receive interest from potential acquirers for certain of our hospitals , and may , from time to time , consider selling additional hospitals if we consider any such disposition to be in our best interests . covid-19 pandemic a novel strain of coronavirus causing the disease known as covid-19 was first identified in wuhan , china in december 2019 , and has spread throughout the world , including across the united states . in january 2020 , the secretary of hhs declared a national public health emergency due to the novel coronavirus . in march 2020 , the world health organization declared the covid-19 outbreak a pandemic . in an attempt to contain the spread and impact of covid-19 , authorities throughout the united states and the world have implemented measures such as travel bans and restrictions , quarantines , stay-at-home and shelter-in-place orders , the promotion of social distancing , and limitations on business activity . this pandemic has resulted in a significant economic downturn in the united states and globally , and has also led to significant disruptions and volatility in capital and financial markets . moreover , while vaccines have been developed and have begun to be distributed in the united states , covid-19 cases have significantly increased in the united states in recent months compared to earlier levels . as a provider of healthcare services , we are significantly affected by the public health and economic effects of the covid-19 pandemic . the safety of our patients , physicians , nurses , and employees in the communities in which we serve remains our primary focus . we have been working with federal , state and local health authorities to respond to the covid-19 pandemic cases in the communities we serve and have been taking or supporting measures to try to limit the spread of the virus , protect our employees and mitigate the burden on the healthcare system , including , at times , rescheduling or cancelling elective procedures at our hospitals and other healthcare facilities . in addition , some states have been requiring hospitals to maintain a reserve of personal protective equipment and mandating covid-19 screening for new patients and certain hospital staff . beginning in march 2020 , we experienced a substantial reduction in the number of elective surgeries , physician office visits and emergency room volumes at our hospitals and other healthcare facilities due to restrictions on elective procedures , quarantines , stay-at-home and shelter-in-place orders , the promotion of social distancing , as well as general concerns related to the risk of contracting covid-19 from interacting with the healthcare system . some restrictive measures remain in place and , as of the time of this filing , some states and local governments are continuing to impose restrictions due to elevated rates of covid-19 cases , including in select markets that we serve , which may continue to adversely impact our operating results . in this regard , while volumes have not returned to pre-pandemic levels , they have improved from their lows in the immediate aftermath of the pandemic in march and april 2020. our hospitals , medical clinics , medical personnel , and employees have been actively caring for covid-19 patients . story_separator_special_tag during 2019 , we completed the divestiture of 12 hospitals , including two which closed effective january 1 , 2019 ( for these hospitals , we received the net proceeds at a preliminary closing on december 31 , 2018 ) , but not including the three hospitals noted above which closed on january 1 , 2020. these 12 hospitals represented annual net operating revenues in 2018 of approximately $ 1.1 billion and , excluding the net proceeds for the two hospitals that preliminarily closed on december 31 , 2018 and the three hospitals that preliminarily closed on december 31 , 2019 , we received total net proceeds of approximately $ 335 million in connection with the disposition of these hospitals . during 2018 , we completed the divestiture of 11 hospitals . these 11 hospitals represented annual net operating revenues in 2017 of approximately $ 950 million and , including the net proceeds for the two additional hospitals that preliminarily closed on december 31 , 2018 noted above , we received total net proceeds of approximately $ 405 million in connection with the disposition of these hospitals . 52 the following table provides a summary of hospitals that we divested during the years ended december 31 , 2020 , 2019 and 2018 : hospital buyer city , state licensed beds effective date 2020 divestitures : berwick hospital center fayette holdings , inc. berwick , pa 90 december 1 , 2020 brownwood regional medical center hendrick health system brownwood , tx 188 october 27 , 2020 abilene regional medical center hendrick health system abilene , tx 231 october 27 , 2020 san angelo community medical center shannon health system san angelo , tx 171 october 24 , 2020 bayfront health st. petersburg orlando health , inc. st. petersburg , fl 480 october 1 , 2020 hill regional hospital ahrk holdings , llc hillsboro , tx 25 august 1 , 2020 st. cloud regional medical center orlando health , inc. st. cloud , fl 84 july 1 , 2020 northern louisiana medical center allegiance health management , inc. ruston , la 130 july 1 , 2020 shands live oak regional medical center hca live oak , fl 25 may 1 , 2020 shands starke regional medical center hca starke , fl 49 may 1 , 2020 southside regional medical center bon secours mercy health system petersburg , va 300 january 1 , 2020 southampton memorial hospital bon secours mercy health system franklin , va 105 january 1 , 2020 southern virginia regional medical center bon secours mercy health system emporia , va 80 january 1 , 2020 2019 divestitures : bluefield regional medical center princeton community hospital association bluefield , wv 92 october 1 , 2019 lake wales medical center adventist health system lake wales , fl 160 september 1 , 2019 heart of florida regional medical center adventist health system davenport , fl 193 september 1 , 2019 college station medical center st. joseph regional health center college station , tx 167 august 1 , 2019 tennova healthcare - lebanon vanderbilt university medical center lebanon , tn 245 august 1 , 2019 chester regional medical center medical university hospital authority chester , sc 82 march 1 , 2019 carolinas hospital system - florence medical university hospital authority florence , sc 396 march 1 , 2019 springs memorial hospital medical university hospital authority lancaster , sc 225 march 1 , 2019 carolinas hospital system - marion medical university hospital authority mullins , sc 124 march 1 , 2019 memorial hospital of salem county community healthcare associates , llc salem , nj 126 january 31 , 2019 mary black health system - spartanburg spartanburg regional healthcare system spartanburg , sc 207 january 1 , 2019 mary black health system - gaffney spartanburg regional healthcare system gaffney , sc 125 january 1 , 2019 2018 divestitures : sparks regional medical center baptist health fort smith , ar 492 november 1 , 2018 sparks medical center - van buren baptist health van buren , ar 103 november 1 , 2018 alliancehealth deaconess integris health oklahoma city , ok 238 october 1 , 2018 munroe regional medical center adventist health system ocala , fl 425 august 1 , 2018 tennova healthcare - dyersburg regional west tennessee healthcare dyersburg , tn 225 june 1 , 2018 tennova healthcare - regional jackson west tennessee healthcare jackson , tn 150 june 1 , 2018 tennova healthcare - volunteer martin west tennessee healthcare martin , tn 100 june 1 , 2018 williamson memorial hospital mingo health partners , llc williamson , wv 76 june 1 , 2018 byrd regional hospital allegiance health management leesville , la 60 june 1 , 2018 tennova healthcare - jamestown rennova health , inc. jamestown , tn 85 june 1 , 2018 bayfront health dade city adventist health system dade city , fl 120 april 1 , 2018 effective september 30 , 2020 , one or more affiliates of the company finalized an agreement to terminate the lease and cease operations of shands lake shore regional medical center ( 99 licensed beds ) in lake city , florida , including transferring leased assets back to the landlord , the lake shore hospital authority . the company recorded an impairment charge of approximately $ 3 million during the year ended december 31 , 2020 in conjunction with exiting the lease to operate this hospital . on november 30 , 2020 , we completed the sale of 50 % ownership interest in merit health biloxi ( 153 licensed beds ) and its associated healthcare businesses in biloxi , mississippi to memorial properties , inc. , an affiliate of memorial hospital of gulfport pursuant to the terms of a definitive agreement which was entered into october 12 , 2020. merit health biloxi and its associated healthcare businesses will remain consolidated entities of the company .
| results of operations our hospitals offer a variety of services involving a broad range of inpatient and outpatient medical and surgical services . these include general acute care , emergency room , general and specialty surgery , critical care , internal medicine , obstetrics , diagnostic services , psychiatric and rehabilitation services . historically , the strongest demand for hospital services generally occurs during january through april and the weakest demand for these services generally occurs during the summer months . accordingly , eliminating the effects of new acquisitions and or divestitures , our net operating revenues and earnings are historically highest during the first quarter and lowest during the third quarter . as previously noted , the covid-19 pandemic has disrupted the pattern of demand for services we provide . 59 the following tables summarize , for the periods indicated , selected operating data . replace_table_token_9_th replace_table_token_10_th ( a ) operating expenses include salaries and benefits , supplies , other operating expenses , government and other legal settlements and related costs , lease cost and rent , net of the reduction in operating expenses through december 31 , 2020 , resulting from the receipt and recognition of pandemic relief funds . ( b ) admissions represents the number of patients admitted for inpatient treatment . ( c ) adjusted admissions is a general measure of combined inpatient and outpatient volume . we computed adjusted admissions by multiplying admissions by gross patient revenues and then dividing that number by gross inpatient revenues . ( d ) average length of stay represents the average number of days inpatients stay in our hospitals . ( e ) includes acquired hospitals to the extent we operated them in both periods and excludes information for the hospitals sold or closed during 2019 and 2020 and the hospital that opened in 2020. items ( b ) โ ( e ) are metrics used to manage our performance .
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given the uncertainties that surround such statements , you are cautioned not to place undue reliance on such forward-looking statements . overview description of business general information eos inc. ( โ we , โ โ us , โ โ our , โ or the โ company โ ) was incorporated in the state of nevada on april 3 , 2015. on or about november 18 , 2016 , the company formed eos inc. taiwan branch , a taiwanese corporation ( โ eitb โ ) and the company owns 100 % of eitb . during the year ended december 31 , 2017 , the company paid the expenses of eitb in the amount of approximately $ 6,290. additionally , the company will continue to pay the expenses of eitb . the principal executive office of eitb is located at 372 , linsen n. road , suite 519 , zhongshan district , taipei city , 104 , taiwan ( republic of china ) . the company reimburses eitb for the rent for that office , the average amount of which is approximately $ 370 per month . yu-cheng yang , a shareholder of the company , is the sole director of eitb . yu-hsiang chia is the branch manager of eitb . mr. chia holds 2,700,000 shares of the company 's common stock . emperor star international trade co. , ltd. , ( โ emperor star โ ) , was incorporated on november 16 , 2015 under the laws of taiwan . emperor star is in the business of marketing and distributing various consumer products , including detergents , nutrition supplements , and skin care products . on may 3 , 2017 , the company entered into and closed a share purchase and sale agreement ( the โ purchase agreement โ ) with emperor star to acquire all issued and outstanding shares of emperor star in consideration of $ 30,562 in cash . as a result of the transaction , emperor star became the company 's wholly owned subsidiary . upon consummation of the transaction , the company has assumed the business of emperor star and ceased to be a shell company . yu-hsiang chia currently serves as the officer and director of emperor star . 10 we have never been a party to any bankruptcy , receivership or similar proceeding , nor have we undergone any material reclassification , merger , consolidation , purchase or sale of a significant amount of assets not in the ordinary course of business . general business overview we market and distribute skin care products manufactured by a.c. ( usa ) , inc. ( โ a.c. โ ) , which is headquartered in the city of industry , california and has offices in taiwan . we market and distribute a.c. skin care products to resellers who will recognize the needs of their targeted customers in various regions in asia , such as people 's republic of china ( โ prc โ ) , singapore and malaysia . we acquire the products from a.c. 's taiwan warehouses . our strategy is to target spas , department stores and specialty stores that sell similar skin products . as of the date of this annual report , we have sold the a.c. products to local distributors and specialty stores . the skin care products that we will distribute are designed to address various skin care needs . those products include moisturizers , serums , cleansers , toners , body care , exfoliators , acne and oil correctors , facial masks , cleansing devices and sun care products . a number of those products are developed for use on particular areas of the body , such as the face or hands or around the eyes . we believe the company , together with its subsidiaries , distributes highly innovative personal care products and ecologically friendly cleaning products in taiwan and plans to expand its distribution to china , malaysia , and thailand . emperor star 's product line includes anti-aging products that address the key signs of aging to reinvigorate and provide youthful energy and nutrition supplements . the company stopped the line of ecologically friendly cleaning products in 2018. in april 2018 , we , through our emperor star , started purchasing a type of water purifying machines from cosminergy hitech development co. , ltd. ( โ cosminergy โ ) and reselling the water purifying machines in certain asian areas and countries . the sales generated from selling the water purifying machines for the year ended december 31 , 2018 were $ 556,600 , accounting for approximately 31.30 % of the total revenue of the said period . in addition , we provided inventory , membership and business management software that designed by cks information co. , ltd. to our customers in the fiscal year of 2018. distribution agreement on may 1 , 2015 , we entered into a written distribution agreement with a.c. pursuant to which we have an exclusive right to market and distribute in taiwan certain skin care products manufactured by a.c. for a period of 5 years ( the โ distribution agreement โ ) . pursuant to the provisions of the distribution agreement , we will market and promote the a.c. products as defined therein in taiwan . accordingly , we are the exclusive distributor for those a.c. products in taiwan . on april 30 , 2018 , we , through our emperor star , entered into a distribution agreement ( the โ cosminergy distribution agreement โ ) with cosminergy hitech development co. , ltd. ( cosminergy โ ) pursuant to which we started purchasing a type of water purifying machines from cosminergy and reselling the water purifying machines in certain asian areas and countries . story_separator_special_tag asc 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell . management has determined that no impairments of long lived assets currently exist . revenue recognition during the fiscal year 2018 , the company has adopted accounting standards codification ( โ asc โ ) , topic 606 ( asc 606 ) , revenue from contracts with customers , using the modified retrospective method to all contracts that were not completed as of january 1 , 2018. the company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of 2018. the results for the company 's reporting periods beginning on and after january 1 , 2018 are presented under asc 606 , while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period . based on the company 's review of existing sales contracts as of january 1 , 2018 , the company concluded that the adoption of the new guidance did not have a significant change on the company 's revenue during all periods presented . pursuant to asc 606 , the company recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that the company determines is within the scope of asc 606 , the company performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the company satisfies a performance obligation . the company only applies the five-step model to contracts when it is probable that the company will collect the consideration the company is entitled to in exchange for the goods or services the company transfers to the customers . at inception of the contract , once the contract is determined to be within the scope of asc 606 , the company assesses the goods or services promised within each contract , determines those that are performance obligations , and assesses whether each promised good or service is distinct . the company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . merchandise sales : the company recognizes sales revenues from merchandise sales when customers obtain control of the company 's products , which typically occurs upon delivery to customer . merchandise sales revenues are recorded at the sales price , or โ transaction price โ . trade discount and allowances : the company generally does not provide invoice discounts on product sales to its customers for prompt payment . product returns : the company generally does not provide customers with the right to return a product for a full or partial refund , a credit , or an exchange for another product . to date , product allowance and returns have been minimal and , based on its experience , the company believes that returns of its products will continue to be minimal . 13 the following tables provide details of revenue by major products and by geography . revenue by major products for the year ended december 31 , 2018 : nutrition supplement $ 503,049 skin care product 630,796 water purifier machine 556,600 software 86,320 other s 1,180 total $ 1,777,945 revenue by geography for the year ended december 31 , 2018 : asia pacific $ 1,777,945 total $ 1,777,945 advertising costs advertising costs are expensed at the time such advertising commences . advertising expenses were $ 13,299 and $ 50 for the years ended december 31 , 2018 and 2017 , respectively . post-retirement and post-employment benefits the company 's subsidiaries in taiwan adopted the government mandated defined contribution plan pursuant to the taiwan labor pension act ( the โ act โ ) . such labor regulations require that the rate of contribution made by an employer to the labor pension fund per month shall not be less than 6 % of the worker 's monthly salaries . pursuant to the act , the company makes monthly contribution equal to 6 % of employees ' salaries to the employees ' pension fund . the company has no legal obligation for the benefits beyond the contributions made . the total amounts for such employee benefits , which were expensed as incurred , were $ 7,958 and $ 1,629 for the years ended december 31 , 2018 and 2017 , respectively . other than the above , the company does not provide any other post-retirement or post-employment benefits . fair value measurements fasb asc 820 , โ fair value measurements โ defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value , establishes a framework for measuring fair value and expands disclosures about fair value measurements . it requires that an entity measure its financial instruments to base fair value on exit price , maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price . it establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value .
| results of operations the following presents the consolidated results of the company for the years ended december 31 , 201 8 and december 31 , 201 7 . net revenue : net revenue was $ 1,777,945 for the year ended december 31 , 2018 , representing an increase of $ 268,065 , or 17.75 % , as compared to $ 1,509,880 for the year ended december 31 , 2017. the increase was primarily due to the increase in sales of skin care products and water purifiers . cost of sales : cost of sales was $ 216,505 for the year ended december 31 , 2018 , representing a decrease of $ 61,202 , or 22.03 % , as compared to $ 277,707 for the year ended december 31 , 2017. the decrease was mainly because the unit cost of water purifier products was lower than the skin care products and nutrition supplement products . gross profit : gross profit was $ 1,561,440 for the year ended december 31 , 2018 , compared to $ 1,232,173 for the year ended december 31 , 2017. gross profit as a percentage of net sales was approximately 87.94 % for the year ended december 31 , 2018 , compared to approximately 81.61 % in the same period in 2017. the change in gross profit margin was because more skin care products and water purifiers with higher yield margin were sold during the year ended december 31 , 2018. selling , general and administrative expenses : selling , general and administrative expenses have increased to $ 547,680 for the year ended december 31 , 2018 , representing an increase of $ 196,640 or 56.02 % , as compared to $ 351,040 for the year ended december 31 , 2017. the increase in general and administrative expenses was primarily attributable to the increase in accounting , legal and professional fees of $ 80,000 and payroll expenses of $ 106,137. income ( loss ) from operations : income ( loss ) from operations was $ 1,013,760 for the year
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as of december 31 , 2015 , the company is not under examination by any income tax jurisdiction . the company is no longer subject to examination for years prior to 2012. net loss per share in accordance with fasb accounting standards codification no . 260 ( โ โ fasb asc 260 `` ) , โ โ earnings per share , `` basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period . diluted net income ( loss ) per share is computed by dividing net income ( loss ) available to common stockholders by the weighted average number of diluted shares outstanding during the period calculated using the treasury stock method . due to the company 's net loss in 2015 , 2014 and 2013 , the assumed exercise of story_separator_special_tag important note about forward-looking statements the following discussion and analysis should be read in conjunction with our audited consolidated financial statements as of december 31 , 2015 and notes thereto included in this document and our unaudited 10-q filings for the first three quarters of 2015 and the notes thereto . in addition to historical information , the following discussion and other parts of this form 10-k contain forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed elsewhere in this form 10-k. the statements that are not historical constitute โ โ forward-looking statements . '' said forward-looking statements involve risks and uncertainties that may cause the actual results , performance or achievements of the company to be materially different from any future results , performance or achievements , expressed or implied by such forward-looking statements . these forward-looking statements are identified by the use of such terms and phrases as โ โ expects , '' โ โ intends , '' โ โ goals , '' โ โ estimates , '' โ โ projects , '' โ โ plans , '' โ โ anticipates , '' โ โ should , '' โ โ future , '' โ โ believes , '' and โ โ scheduled . '' the variables , which may cause differences include , but are not limited to , the following : general economic and business conditions ; competition ; success of operating initiatives ; operating costs ; advertising and promotional efforts ; the existence or absence of adverse publicity ; changes in business strategy or development plans ; the ability to retain management ; availability , terms and deployment of capital ; business abilities and judgment of personnel ; availability of qualified personnel ; labor and employment benefit costs ; availability and costs of raw materials and supplies ; and changes in , or failure to comply with various government regulations . although the company believes that the assumptions underlying the forward-looking statements contained herein are reasonable , any of the assumptions could be inaccurate ; therefore , there can be no assurance that the forward-looking statements included in this form 10-k will prove to be accurate . in light of the significant uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by the company or any person that the objectives and expectations of the company will be achieved . overview cui global , inc. is a colorado corporation organized on april 21 , 1998. the company 's principal place of business is located at 20050 sw 112th avenue , tualatin , oregon 97062 , phone ( 503 ) 612-2300. cui global is a platform company dedicated to maximizing shareholder value through the acquisition , development and commercialization of new , innovative technologies . through its subsidiaries , cui global has built a diversified portfolio of industry leading technologies that touch many markets . critical accounting policies our financial statements and related public financial information are based on the application of accounting principles generally accepted in the united states ( โ โ gaap '' ) . gaap requires the use of estimates , assumptions , judgments and subjective interpretations of accounting principles that have an impact on the assets , liabilities , revenue , and expense amounts reported . these estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies , risk and financial condition . we believe our use of estimates and underlying accounting assumptions adhere to gaap and are consistently and conservatively applied . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . we continue to monitor significant estimates made during the preparation of our financial statements . 35 while all of our significant accounting policies impact the company 's financial condition and results of operations , we view certain of these policies as critical . policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates . actual results may differ from those estimates . our management believes that given current facts and circumstances , it is unlikely that applying any other reasonable judgments or estimate methodologies would have caused a material change in our results of operations , financial position or liquidity for the periods presented in this report . asset impairment the company reviews its long-lived assets including finite-lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable . in performing the review for recoverability , the company estimates the future cash flows expected to result from the use of the asset and its eventual disposition . story_separator_special_tag we determined that the most recent 12-month period of stock price fluctuations best reflected the expected volatility for determining the fair value of our stock options due to the significant changes to the company , including the 2013 equity raise , acquisition of orbital , increased institutional ownership and other such factors that have impacted volatility . for the august 2014 options grant , the company extended the volatility historical period to twenty months as the company had remained consistent with regards to the aforementioned factors . the company may continue to change its expected volatility factor to include a longer historical period , once the company has remained consistent with regards to the aforementioned factors . 37 valuation of non-cash capital stock issuances the company values its stock transactions based upon the fair value of the equity instruments . various methods can be used to determine the fair value of an equity instrument . the company may use the fair value of the consideration received , the quoted market price of the stock or a contemporaneous cash sale of the common or preferred stock . each of these methods may produce a different result . management uses the method it determines most appropriately reflects the stock transaction . if a different method was used it could impact the expense and equity stock accounts . revenue recognition power and electromechanical segment product revenue is recognized in the period when persuasive evidence of an arrangement with a customer exists , the products are shipped and title has transferred to the customer , the price is fixed or determinable , and collection is reasonably assured . the company sells to distributors pursuant to distribution agreements that have certain terms and conditions such as the right of return and price protection , which inhibit revenue recognition unless they can be reasonably estimated as we can not assert the price is fixed and determinable and estimate returns . for one distributor that comprises 20 % of revenue , we have such history and ability to estimate and therefore recognized revenue upon sale to the distributor and record a corresponding reserve for the estimated returns . for two other distributor arrangements that represents a combined 7 % of revenue , we do not have sufficient history to reasonably estimate price protection reserve and the right of return and accordingly defer revenue and the related costs until such time as the distributor resells the product . energy segment for production-type contracts meeting the company 's minimum threshold , revenues and related costs on the contracts , are recognized using the โ โ percentage of completion method '' of accounting in accordance with asc 605-35 , accounting for performance of construction-type and certain production type contracts ( โ โ asc 605-35 '' ) . under this method , contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract . costs include direct material , direct labor , subcontract labor and any allocable indirect costs . the company captures certain job costs as work progresses , including labor , material and costs not invoiced . margin adjustments are made as information pertaining to contracts changes . all un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred . the amount of costs not invoiced is captured to ensure an estimated margin consistent with that expected at the completion of the project . in the event a loss on a contract is foreseen , the company recognizes the loss when it is determined . contract costs plus recognized profits are accumulated as deferred assets , and billings and or cash received are recorded to a deferred revenue liability account . the net of these two accounts for any individual project is presented as โ โ costs in excess of billings , '' an asset account , or โ โ billings in excess of costs , '' a liability account . 38 production type contracts that do not qualify for use of the percentage of completion method are accounted for using the โ โ completed contract method '' of accounting in accordance with asc 605-35-25-57. under this method , contract costs are accumulated as deferred assets , and billings and or cash received is recorded to a deferred revenue liability account , during the periods of construction , but no revenues , costs , or profits are recognized in operations until the period within which completion of the contract occurs . a contract is considered complete when all costs except insignificant items have been incurred ; the equipment is operating according to specifications and has been accepted by the customer . for product sales in the energy segment , revenue is recognized in the period when persuasive evidence of an arrangement with a customer exists , the products are shipped and title has transferred to the customer , the price is fixed or determinable , and collection is reasonably assured . revenues from warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period and the unrecognized portion is recorded as deferred revenue . liquidity and capital resources general as of december 31 , 2015 , cui global held cash and cash equivalents of $ 7.3 million .
| results of operations the following tables set forth , for the periods indicated , certain financial information regarding revenue and costs by segment . replace_table_token_7_th replace_table_token_8_th 45 replace_table_token_9_th revenue replace_table_token_10_th 2015 compared to 2014 revenues are attributable to continued sales and marketing efforts , sales through the distribution channel customers , and the addition in march 2015 of cui canada related product line , and the revenues generated since the january 2015 opening of orbital gas systems , north america , inc. the customer orders related to the power and electromechanical segment are associated with the existing product offering , continued new product introductions , continued sales and marketing programs , new customer engagements , the addition of a third distribution channel , and the addition in march 2015 of the products from cui canada . the power and electromechanical segment held a backlog of customer orders of approximately $ 19.7 million as of december 31 , 2015 compared to a backlog of customer orders of approximately $ 12.5 million as of december 31 , 2014. at december 31 , 2015 , orbital held a backlog of customer orders of approximately $ 12.5 million compared to approximately $ 15.9 million as of december 31 , 2014. not included in orbital 's backlog at december 31 , 2015 was the purchase order announced in february 2016 for the sale of 400 of the company 's gaspt analyzers to europe 's largest natural gas transmission company , which is orbital 's first large-scale order for this product . the company intends to grow this product line to become a major portion of orbital 's revenue going forward .
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special note regarding forward-looking statements the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes to those statements included herein . in addition to historical financial information , this report contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed in the forward-looking statements . the statements contained in this report that are not purely historical are forward-looking statements within the meaning of section 27a of the securities act and section 21e of the securities exchange act of 1934 , as amended , or the exchange act . forward-looking statements are often identified by the use of words such as , but not limited to , โ anticipate , โ โ believe , โ โ can , โ โ continue , โ โ could , โ โ estimate , โ โ expect , โ โ intend , โ โ may , โ โ plan , โ โ project , โ โ seek , โ โ should , โ โ strategy , โ โ target , โ โ will , โ โ would โ and similar expressions or variations intended to identify forward-looking statements . these statements are based on the beliefs and assumptions of our management based on information currently available to management . such forward-looking statements are subject to risks , uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified below . furthermore , such forward-looking statements speak only as of the date of this report . except as required by law , we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . โ arcadia biosciences , '' `` sonova '' and `` sonova gla safflower oil and design '' are our registered trademarks in the united states and , in some cases , in certain other countries . this report may also contain trademarks , service marks , and trade names of other companies . solely for convenience , the trademarks , service marks and trade names referred to in this report may appear without the ยฎ , tm , or sm symbols , but such references do not constitute a waiver of any rights that might be associated with the respective trademarks , service marks , or trade names . overview we are a consumer-driven , agricultural food ingredient company . we aim to create value across the agricultural production and supply chain beginning with enhanced crop productivity for farmers and ultimately delivering accelerated innovation in nutritional quality foods to consumers . we use state of the art gene-editing technology and advanced breeding techniques to naturally enhance the nutritional quality of grains and oilseeds to address the rapidly evolving trends in consumer health and nutrition . in addition , we have developed a broad pipeline of high value crop productivity traits designed to enhance farm economics . consumers are demanding food companies provide healthier , high quality foods , naturally and sustainably produced with greater ingredient simplicity and transparency . now , more than ever , consumers are paying premium pricing to satisfy their dietary health requirements , such as higher fiber and lower gluten in grains , healthier oils and fewer processed ingredients . consumer food companies recognize this shift but can not rely upon the legacy ag-supply chain and traditional crop breeding techniques to meet these demands . conventional and transgenic breeding processes can take between nine and 13 years to bring new food varieties or quality traits to market , causing consumer food companies to search for alternative means to satisfy the evolving customer demands . the need for rapid product differentiation at the consumer level has opened up a premium food market opportunity that is becoming one of the fastest growing segments in the food industry . to address this large and growing demand , we are building on our industry leading scientific expertise and advanced plant breeding and transformation technologies developed over the past 15 years , to directly edit the plant genome without introducing foreign dna , to produce nutrient-dense crops for use in the major foods we eat . by employing gene editing technology and our tilling platform , we believe we can reduce the time to market for novel ingredient traits by half , thereby providing consumer food companies a steady and reliable source of cost effective , healthy natural food options . 49 in 2018 , we launched our goodwheat brand , a non-transgenic ( non-gm ) portfolio of wheat products that enables food manufacturers to differentiate their consumer-facing brands . the brand launch is a key element of the company 's go-to-ma rket strategy to achieve greater value for its innovations by participating in downstream consumer revenue opportunities . arcadia designed the brand to make an immediate connection with consumers that products made with goodwheat meet their demands for he althier wheat options that also taste great . the goodwheat brand encompasses arcadia 's current and future non-gm wheat portfolio of high fiber resistant starch ( rs ) and reduced gluten wheat varieties , as well as future wheat innovations . in october 2018 , the u.s. patent and trademark office has granted arcadia a patent for extended shelf life wheat , the newest trait in our non-genetically modified ( non-gm ) goodwheat portfolio . this new trait was designed to promote whole wheat consumption by improving the shelf life and taste of whole grain wheat products . we expect to market goodwheat products in 2019. increased fiber consumption is well recognized as a way to improve gut health and to control excessive weight gain . concurrently , we are developing three additional wheat varieties , a reduced gluten wheat , an extended shelf life wheat and a superior yielding wheat . story_separator_special_tag it also included provisions for legalizing on a federal level hemp 's cultivation , transport and sale for the first time in more than 75 years . hemp , previously considered a schedule 1 drug and banned as an agricultural crop , lacks substantive plant biology research and suffers from suboptimal genetics , highly fragmented germplasm and rampant inconsistencies . as with our wheat and soybean products , we plan to create hemp-based solutions that allow farmers to be more productive and enable consumer packaged goods companies to differentiate their brands in the marketplace . in the near term , our focus will be on acquiring federal and state licensure in key geographies to launch our research and pilot programs , for which we expect to begin operations in early 2019. in parallel , we are evaluating key partnerships to extend our capabilities vertically to maximize the value creation potential of our innovations . the hemp business journal estimates the hemp cbd market โ the primary non-psychoactive compound in cannabis โ totaled $ 190 million in 2018. by 2022 , the brightfield group , a cannabis and cbd market research firm , projects sales to reach $ 22 billion . since our inception , we have devoted substantially all our efforts to research and development activities , including the discovery , development , and testing of our traits and products in development incorporating our traits . to date , we have not generated revenues from sales of commercial products , other than limited revenues from our sonova products . we do receive revenues from fees associated with the licensing of our traits to commercial partners . our long-term business plan and growth strategy is based in part on our expectation that revenues from products that incorporate our traits will comprise a significant portion of our future revenues . we have never been profitable and had an accumulated deficit of $ 178.4 million as of december 31 , 2018. we incurred net losses of $ 13.5 million and $ 15.7 million for the years ended december 31 , 2018 and 2017 , respectively . we expect to incur substantial costs and expenses before we obtain any revenues from the sale of seeds incorporating our traits . as a result , our losses in future periods could become even more significant , and we will need additional funding to support our operating activities . 51 components of our statements of operations data revenues we derive our revenues from product revenues , licensing agreements , contract research agreements , and government grants . given our acute focus on the near-term commercialization of our nutritional ingredient traits and products , we do not intend to continue pursuing contract research agreements and government grant projects at the levels we have historically . over the next nine to 18 months , we expect these revenues to decline as our current contract research agreements and government grant projects conclude and not replaced . concurrently , as we introduce our new nutritional ingredient traits and products to the market , we expect revenues to increase from such activities . furthermore , with the implementation of accounting standards codification ( asc ) topic 606 , as described more fully in note 6 , future license revenues no longer include the amortization of deferred up-front license fees from existing license agreements . product revenues our product revenues to date have consisted solely of sales of our sonova products . we generally recognize revenue from product sales upon sale to our third-party distributors or customers . our revenues fluctuate depending on the timing of orders from our customers and distributors . license revenues our license revenues to date consist of up-front , nonrefundable license fees , annual license fees , and subsequent milestone payments that we receive under our research and license agreements . milestone fees are a variable consideration that is initially constrained and recognized only when it is probable that such amounts would not be reversed . given the seasonality of agriculture and time required to progress from one milestone to the next , achievement of milestones is inherently uneven , and our license revenues are likely to fluctuate significantly from period to period . contract research and government grant revenues contract research and government grant revenues consist of amounts earned from performing contracted research primarily related to breeding programs or the genetic engineering of plants for third parties . we also receive payments from government entities in the form of government grants . operating expenses cost of product revenues cost of product revenues relates to the sale of our sonova products and consists of in-licensing and royalty fees , any adjustments or write-downs to inventory , as well as the cost of raw materials , including inventory and third-party services costs related to procuring , processing , formulating , packaging , and shipping our sonova products . research and development expenses research and development expenses consist of costs incurred in the discovery , development , and testing of our products and products in development incorporating our traits . these expenses consist primarily of employee salaries and benefits , fees paid to subcontracted research providers , fees associated with in-licensing technology , land leased for field trials , chemicals and supplies , and other external expenses . these costs are expensed as incurred . additionally , we are required from time to time to make certain milestone payments in connection with the development of technologies in-licensed from third parties . our research and development expenses may fluctuate from period to period as a result of the timing of various research and development projects . 52 selling , general , and administrative expenses selling , general , and administrative expenses consist primarily of employee costs , professional service fees , and overhead costs . our selling , general , and administrative expenses may fluctuate from period to period . in connection with our commercialization activities for our consumer ingredient products , we expect to increase our investments in sales and marketing and business development .
| results of operations comparison of the years ended december 31 , 2018 and 2017 replace_table_token_6_th revenues product revenues accounted for 45 % and 13 % of our total revenues for the years ended december 31 , 2018 and 2017 , respectively . the $ 143,000 , or 28 % , increase in product revenues from sales of our sonova products was primarily driven by additional encapsulated orders . license revenues accounted for 10 % and 37 % of our total revenues for the years ended december 31 , 2018 and 2017 , respectively . the $ 1.3 million , or 90 % , decrease in license revenue was due , in part , to the termination of several agreements in 2017 that resulted in the recognition of previously deferred upfront license fees at the end of 2017. the company adopted asc topic 606 on january 1 , 2018 and , as a result , revenue recognized in 2017 for the amortization of up-front license fees previously collected and amortized over the entire commercial development timeline is not present in 2018 as up-front fees are currently recognized upon agreement execution under the new guidance . there were no license agreements executed in 2018. contract research and government grant revenues accounted for 45 % and 51 % of our total revenues for the years ended december 31 , 2018 and 2017 , respectively . the $ 1.4 million , or 68 % , decrease in contract research and government grant revenues was primarily driven by the completion of agreements and grants , as well as less activity for existing grants . contract research and government grant revenues can vary from year-to-year depending on the timing of contract research projects and the completion of services provided , and the timing of eligible research and development expenses .
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โ overview we are a leading technology company providing cloud-based platforms empowering data-driven healthcare . through the inovalon one ยฎ platform , inovalon brings to the marketplace a national-scale capability to interconnect with the healthcare ecosystem , aggregate and analyze data in real-time , and empower the application of resulting insights to drive meaningful impact at the point of care . leveraging its platform , unparalleled proprietary data sets , and industry-leading subject matter expertise , inovalon enables better care , efficiency , and financial performance across the healthcare ecosystem . from health plans and provider organizations , to pharmaceutical , medical device , and diagnostics companies , inovalon 's unique achievement of value is delivered through the effective progression of โ turning data into insight , and insight into action ยฎ . โ supporting thousands of clients , including 24 of the top 25 u.s. health plans and 22 of the top 25 global pharma companies , inovalon 's technology platforms and analytics are informed by data pertaining to more than 964,000 physicians , 519,000 clinical facilities , 264 million americans , and 42 billion medical events . 2018 marked a bookend of a period of transformation in which the company experienced meaningful , positive inflection . a multitude of dynamics have been navigated with inovalon emerging with recognized market differentiation and leadership , high-value cloud-based capabilities , meaningful operating leverage , and significant accelerating organic growth . we generate the substantial majority of our revenue through the sale or subscription licensing of our platform solutions , as well as revenue from related arrangements for advisory , implementation , and support services . recent developments on april 2 , 2018 , the company completed the acquisition of ability , for aggregate consideration of $ 1.19 billion in cash and restricted shares of our class a common stock . ability is a leading cloud-based software-as-a-service ( โ saas โ ) technology company helping to simplify the administrative and clinical complexities of healthcare . through the my ability ยฎ software platform , an integrated set of cloud-based applications for providers , ability provides core connectivity , administrative , clinical , and quality analysis , management , and performance improvement capabilities to more than 44,000 acute , post-acute and ambulatory point-of-care provider facilities . the extensive datasets , on-demand compute capability , advanced analytics , and broad healthcare ecosystem connectivity enabled by the inovalon one ยฎ platform are expected to provide a significant expansion of application offerings within the my ability ยฎ software platform while also expanding the nature and reach of high-value solutions for inovalon 's existing payer , pharma , and device client-base . the combination of inovalon and ability created a vertically integrated cloud-based platform empowering the achievement of real-time , value-based care from payers , manufacturers , and diagnostics all the way to the patient 's point of care . see โ note 3โbusiness combinations โ in the notes to our audited consolidated financial statements included elsewhere within this annual report on form 10-k for more information . 33 in connection with the ability acquisition , on april 2 , 2018 , the company entered into a credit agreement with a group of lenders and morgan stanley senior funding , inc. , as administrative agent , providing for : ( i ) a term loan b facility with the company as borrower in a total principal amount of $ 980.0 million ( the โ 2018 term facility โ ) ; and ( ii ) a revolving credit facility with the company as borrower in a total principal amount of up to $ 100.0 million ( the โ 2018 revolving facility โ and , together with the 2018 term facility , the โ 2018 credit facilities โ ) . the entire $ 980.0 million 2018 term facility was borrowed on april 2 , 2018 , and was used to pay off all of the company 's existing debt obligations under its previous credit facilities as well as to provide the financing necessary to fund , in part , the cash consideration paid to acquire ability . see โ note 10 โdebt โ in the notes to our audited consolidated financial statements included elsewhere within this annual report on form 10-k for more information . the company adopted new accounting guidance on revenue from contracts with customers as of january 1 , 2018 using the modified retrospective approach . revenues for periods beginning after january 1 , 2018 are presented under accounting standards codification ( โ asc โ ) 606 , revenue from contracts with customers , while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under asc 605. see โ note 4โrevenue โ in the notes to our audited consolidated financial statements included elsewhere within this annual report on form 10-k for more information . key metrics we review a number of metrics , including the key metrics shown in the table below . we believe that these metrics are indicative of our overall level of analytical activity and the underlying growth in our business . data resulting from the integration with ability is not yet fully reflected within the more 2 registry ยฎ dataset and is therefore not fully reflected within the related data metrics below as of this date . replace_table_token_3_th _ ( 1 ) more 2 registry ยฎ dataset metrics and trailing 12 month pam , each of which is presented in the table , are key operating metrics that management uses to assess our level of operational activity . while we believe that each of these metrics is indicative of our overall level of analytical activity and the underlying growth in our business , increases or decreases in these metrics do not necessarily correlate to proportional increases or decreases in revenue , or net income . story_separator_special_tag we believe subscription-based cloud-based platform offerings provide more advanced capabilities , higher value , and greater visibility to clients , as well as improved visibility , market differentiation , and financial performance for us . over time , we expect that subscription-based cloud-based platform offerings will continue to represent an increasing share of our total revenue , contributing to an increasing base of recurring revenue . additionally , through the ability acquisition , we have expanded our subscription-based cloud-based platform offering revenues and we began to achieve revenue synergies realized through i ) the infusion of inovalon 's data and analytics into ability 's 35 existing offerings , ii ) the combination of the inovalon one ยฎ platform and my ability ยฎ platform capabilities to introduce new and more vertically integrated offerings which appeal to both organizations ' traditional market base , iii ) the enhancement of inovalon 's offerings from ability 's provider point-of-care data , connectivity , and workflow presence , and iv ) the leveraging of ability 's sales channel , techniques and capacity . breadth of healthcare industry connectivity . the healthcare industry is undergoing a significant transition as it becomes increasingly data-driven . as part of this transition , participants across the healthcare industry , including health plans , pharmaceutical companies , medical device manufacturers , and diagnostic companies , are increasingly interested in achieving timely and seamless access to relevant data and being able to drive impact directly with providers and their patients . concurrently , providers are also increasingly interested in access to more advanced analytical tools to support and improve their clinical and financial performance . enhancing and expanding our industry connectivity with payer administrative systems , provider facilities , diagnostic systems , pharmacy systems , healthcare industry systems ( e.g. , electronic healthcare record systems , health information exchange systems , claims processing systems , decision support systems , etc . ) , and other healthcare clinical and business systems , offers the potential for increased differentiation in the healthcare marketplace as well as improved efficiency of our operations . client and analytical process count growth . our business is generally driven by the number of underlying patients for which our platform solutions are being utilized . as such , we track the number of analytical processes that we run on patients each month in fulfillment of our client contracts , as totaled for the trailing 12 months . we believe that pam is indicative of our overall level of analytical activity , and we expect our period-to-period comparisons of our pam to be indicative of underlying growth of our business , although changes in levels of analytical activity do not always directly translate to changes in financial performance of our business . differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , or net income ( and vice versa ) . therefore , in situations in which a new engagement is initiated for analytical processes that have a higher than average fee rate , revenue could expand disproportionately faster than the increase in pam . likewise , if engagements for analytical processes that have a higher than average fee rate are concluded then such conclusions can negatively affect revenue disproportionately more than pam . seasonality . the nature of our customers ' end-market results in partial seasonality reflected in both revenue and cost of revenue differences during the year . regulatory impact of data submission deadlines in , for example , january , march , june , and september drive some degree of predictable timing of analytics and data processing activity variances from quarter to quarter . further , regulatory clinical encounter deadlines of june 30th and december 31st drive predictable intervention concentrations variances from quarter to quarter . the timing of these factors results in analytical and intervention activity mix variances , which have limited predictable impact in the aggregate on our financial performance from quarter to quarter . however , quarter to quarter financial performance may increasingly vary from historical seasonal trends as we continue to expand into adjacent markets and increase the portion of our revenue generated from new offerings . further , we also expect the impact of seasonality to decrease over time as we expand our mix of revenue generated from a subscription-based model . the timing of new contract signings and their respective implementations can also lead to variances in our seasonal revenue performance . regulatory , economic and industry trends . our clients are affected , sometimes directly and sometimes counter-intuitively , by macro-economic trends such as economic growth ( or economic recession ) , inflation , and unemployment . further , industry trends in federal and state laws and regulations , as well as emerging trends in private sector payment models , affect our clients ' businesses and their need for technologies and services to support these challenges . these factors have various effects on our business , and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services . on the other hand , changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time , particularly as regulators introduce complex requirements with which our clients must comply . components of results of operations revenue we earn revenue primarily through the sale or subscription licensing of our platform solutions , as well as revenue from related arrangements for advisory , implementation , and support services . platform solutions include arrangements for technology-based offerings representing subscription-based cloud-based platform offerings , including solutions offered through the my ability ยฎ software platform , and legacy platform solutions that are not cloud-based and not billed under a subscription-based contract structure .
| results of operations the following tables set forth our consolidated statement of operations data for each of the periods presented ( in thousands , except percentages ) : replace_table_token_5_th _ replace_table_token_6_th * asterisk denotes not meaningful 39 the following table sets forth our consolidated statement of operations data for each of the periods presented as a percentage of revenue : replace_table_token_7_th years ended december 31 , 2018 , 2017 , and 2016 revenue 2018 compared with 2017 . revenue for the year ended december 31 , 2018 was $ 527.7 million , an increase of 17 % compared with revenue of $ 449.4 million for the year ended december 31 , 2017 . this increase was primarily attributable to $ 121.2 million in revenue contributed by the acquired businesses of ability and ccs , through the anniversary date of the acquisition , and $ 24.2 million in revenue contributed from new clients signed , which was partially offset by a decrease of $ 67.0 million in revenue from existing clients resulting from a combination of factors including decisions in 2017 by a limited number of clients to withdraw from aca markets , the transition of client contracts to newer product offerings and more subscription-based agreements versus the year-ago period , and the conclusion of client contracts included in the year-ago period . 2017 compared with 2016 .
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this discussion also should be read in conjunction with the ยcautionary statement regarding forward looking statementsย set forth on page ii of this annual report . for simplicity , this report uses the terms ยcompany , ย ยwe , ย ยus , ย and ยourย to refer to tcw direct lending vii llc . story_separator_special_tag similar charges incurred in connection with the purchase or sale of securities ( including merger fees ) ; ( y ) costs and expenses attributable to normal and extraordinary investment banking , commercial banking , accounting , auditing , appraisal , valuation , administrative agent activities , custodial and registration services provided to us , including in each case services with respect to the proposed purchase or sale of securities by us that are not reimbursed by the issuer of such securities or others ( whether or not such purchase or sale is consummated ) ; ( z ) costs of amending , restating or modifying the llc agreement or advisory agreement or related documents of us or related entities ; ( aa ) fees , costs , and expenses incurred in connection with the termination , liquidation or dissolution of the company or related entities ; and ( bb ) all other properly and reasonably chargeable expenses incurred by the company or the administrator in connection with administering our business . however , in the event of a reorganization ( as defined in the llc agreement ) that results in a public fund ( as defined in the llc agreement ) or an extension fund ( as defined in the llc agreement ) , including a reorganization ( as defined in the llc agreement ) pursuant to which the company becomes the public fund ( as defined in the llc agreement ) or the extension fund ( as defined in the llc agreement ) , the fees , costs and expenses associated with any such restructuring , initial public offering , listing of equity securities or reorganization will be borne appropriately by the public fund ( as defined in the llc agreement ) and the extension fund ( as defined in the llc agreement ) ( and indirectly only by unitholders that elect to become investors in the public fund ( as defined in the llc agreement ) or the extension fund ( as defined in the llc agreement ) ) , as the case may be , and no others will directly or indirectly bear such fees , costs or expenses . however , we will not bear ( a ) more than an amount equal to 10 basis points of our aggregate commitments for organizational expenses and offering expenses in connection with the offering of units through january 14 , 2019 and ( b ) more than an amount equal to 12.5 basis points of our aggregate commitments computed annually for company expenses ; provided , that , any amount by which actual annual expenses in ( b ) exceed the 12.5 basis point limit shall be carried over to the next year , without limitation , as additional expense until the earlier of the reorganization ( as defined in the llc agreement ) or the dissolution of the company , with any partial year assessed on a pro rata basis ; and provided , further , that in determining the company expenses subject to the 12.5 basis point limit in ( b ) , the following expenses shall be excluded and shall be borne by us as incurred without regard to the 12.5 basis point limit in ( b ) : the management fee , the incentive fee , organizational and offering expenses ( which are subject to the separate cap ) , amounts incurred in connection with our borrowings ( including interest , bank fees , legal fees and other transactional expenses arising out of or related to any borrowing or borrowing facility and similar costs ) , transfer agent fees , federal , state and local taxes and other governmental charges assessed against us , expenses of calculating our net asset value ( including the cost and expenses of any independent valuation firm engaged for that purpose and the costs and expenses of the valuation of our portfolio investments performed by our independent auditors in order to comply with applicable public company accounting oversight board standards ) , costs and expenses incurred in connection with arranging or structuring investments and their ongoing operations ( including expenses and liabilities related to the formation and ongoing operations of any special purpose entity or entities in connection with an investment ) , legal costs associated with any requests for exemptive relief , ยno-actionย positions or other guidance sought from a regulator pertaining to us , costs and expenses relating to any reorganization ( as defined in the llc agreement ) or liquidation of the 30 company , and any extraordinary expenses ( such as litigation expenses and indemnification payments ) . notwithstanding the foregoing , in no event will the company carryforward to future periods the amount by which actual annual company expenses for a year exceed the 12.5 basis point limit for more than three years from the date on which such expenses were reimbursed . ยadviser operating expensesย means overhead and operating and administrative expenses incurred by or on behalf of the adviser or any of its affiliates , including us , in connection with maintaining and operating the adviser 's office , including salaries and other compensation ( including compensation due to its officers ) , rent , routine office equipment expense and liability and insurance premiums ( other than those incurred in maintaining fidelity bonds and indemnitee insurance policies ) , in furtherance of providing supervisory investment management services for us . adviser operating expenses include any expenses incurred by the adviser or its affiliates in connection with the adviser 's registration as an investment adviser under the investment advisers act of 1940 , as amended , or with its compliance as a registered investment adviser thereunder . story_separator_special_tag the table below describes our non-controlled/non-affiliated investments by industry classification and enumerates the percentage , by fair value , of the total portfolio assets by industries as of december 31 , 2019 : replace_table_token_3_th interest income from non-controlled/non-affiliated investments , including interest income paid-in-kind , was $ 87.7 million and $ 13.1 million for the years ended december 31 , 2019 and 2018 , respectively . during the year ended december 31 , 2019 , we also earned $ 0.1 million in other fee income from our non-controlled/non-affiliated investments . 32 our operating results for the years ended december 31 , 2019 and 2018 were as follows ( dollar amounts in thousands ) : replace_table_token_4_th total investment income total investment income for the years ended december 31 , 2019 and 2018 was $ 87.7 million and $ 13.1 million , respectively . during the years ended december 31 , 2019 and 2018 , our total investment income included $ 0.1 million and $ 0 of other fee income from our non-controlled/non-affiliated investments . the increase in total investment income during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 reflects our ramp up of operations since the quarter ended june 30 , 2018 , which is when we commenced operations . our portfolio of investments increased to 54 total debt and equity investments from 21 , during the years ended december 31 , 2019 and 2018 , respectively . net investment income net investment income for the years ended december 31 , 2019 and 2018 was $ 35.4 million and $ 4.7 million , respectively . the increase is primarily attributable to the increase in the size of our portfolio during the year ended december 31 , 2019 compared to the year ended december 31 , 2018. operating expenses for the years ended december 31 , 2019 and 2018 were as follows ( dollar amounts in thousands ) : replace_table_token_5_th our total operating expenses were $ 52.4 million and $ 8.0 million , respectively , for the years ended december 31 , 2019 and 2018. operating expenses included management fees attributed to the adviser of $ 13.3 million and $ 2.4 million ; and incentive fees attributed to the advisor of $ 12.1 million and $ 0 , in the years ended december 31 , 2019 and 2018 , respectively . net expenses include an expense recapture of $ 0 and $ 0.5 million for the years ended december 31 , 2019 and 2018 , respectively . the expense recapture during the prior year is primarily due to organizational and offering costs which were previously reimbursed by the adviser . 33 net realized gain on non-controlled/non-affiliated investments our net realized gain on non-controlled/non-affiliated investments for years ended december 31 , 2019 and 2018 was $ 0.8 million and $ 1.2 million , respectively . our net realized gain during the year ended december 31 , 2019 was primarily due to our term loans to smtc corporation and heligear acquisition co. , for which we recognized $ 0.4 million and $ 0.3 million in realized gains , respectively , during the year . our net realized gain on non-controlled/non-affiliated investments for the year ended december 31 , 2018 was primarily due to our term loans to vpi aware topco , llc and shipston group u.s inc. for which recognized realized gains of $ 0.7 million and $ 0.2 million , respectively . net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments our net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments for years ended december 31 , 2019 and 2018 was $ 7.6 million and $ 3.6 million , respectively . our net change in unrealized appreciation/depreciation during the year ended december 31 , 2019 was primarily due to the following investments ( dollar amounts in thousands ) : replace_table_token_6_th our net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments during the year ended december 31 , 2018 , was primarily due to our term loans to vpi aware topco , llc , winsight , llc and navistar defense , llc for which we collectively recognized $ 2.4 million in unrealized appreciation during the year . net increase in members ' capital from operations our net increase in members ' capital from operations during the years ended december 31 , 2019 and 2018 was $ 43.7 million and $ 9.5 million , respectively . our net increase in members ' capital during the year ended december 31 , 2019 was primarily due to the increase in net investment income resulting from the significant increase in the size of our portfolio during the year compared to prior year , during which our operations did not commence until the second quarter . our net increase in members ' capital during the year ended december 31 , 2018 was primarily attributable to the commencement and ramp up of operations which began during the second quarter of fiscal year 2018. financial condition , liquidity and capital resources on april 13 , 2018 , we completed the first closing of the sale of our units to persons not affiliated with the adviser . we also commenced operations during the second quarter of fiscal year 2018. on january 14 , 2019 , we completed our fourth and final closing sale of our units . we generate cash from ( 1 ) drawing down capital in respect of units , ( 2 ) cash flows from investments and operations and ( 3 ) borrowings from banks or other lenders . our primary use of cash is for ( 1 ) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements , ( 2 ) the cost of operations ( including expenses , the management fee , the incentive fee , and any indemnification obligations ) , ( 3 ) debt service of any borrowings and ( 4 ) cash distributions to the unitholders .
| overview we were formed on may 23 , 2017 as a limited liability company under the laws of the state of delaware . we conducted a private offering of our common limited liability company units ( the ยunitsย ) to investors in reliance on exemptions from the registration requirements of the u.s. securities act of 1933 , as amended ( the ยsecurities actย ) . on december 29 , 2017 , we filed an election to be regulated as a bdc under the 1940 act . we are treated for u.s. federal income tax purposes as a ric under subchapter m of the code . we are required to meet the minimum distribution and other requirements for ric qualification . as such , we are required to comply with various regulatory requirements , such as the requirement to invest at least 70 % of our assets in ยqualifying assets , ย source of income limitations , asset diversification requirements , and the requirement to distribute annually at least 90 % of our taxable income and tax-exempt interest . on april 13 , 2018 , ( the ยinitial closing dateย ) we began accepting subscription agreements from investors for the private sale of our units and on january 14 , 2019 , we completed our fourth and final closing sale of our units . as of december 31 , 2019 , we have sold 13,734,010 units for an aggregate offering price of approximately $ 1.4 billion . each unitholder is obligated to contribute capital equal to their commitment and each unit 's commitment obligation is $ 100.00 per unit . the sale of the units was made pursuant to subscription agreements entered into by us and each investor . under the terms of the subscription agreements , we may draw down all or any portion of the undrawn commitment with respect to each unit generally upon at least ten business days ' prior written notice to the unitholders .
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unless otherwise noted , the discussion that follows includes a comparison of our results of operations , liquidity and capital resources , and cash flows for fiscal years 2020 and 2019. for a discussion of changes from fiscal year 2018 to fiscal year 2019 , refer to management 's discussion and analysis of financial condition and results of operations in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on february 19 , 2020. the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in these forward-looking statements . 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 in โ cautionary note on forward-looking statements โ and item 1a , โ risk factors . โ our business we are a premier provider of specialized and sustainable material solutions that transform customer challenges into opportunities , bringing new products to life for a better world . our products include specialty engineered materials , advanced composites , color and additive systems and polymer distribution . we are also a highly specialized developer and manufacturer of performance enhancing additives , liquid colorants and fluoropolymer and silicone colorants . headquartered in avon lake , ohio , with 2020 sales of $ 3.2 billion ( $ 3.8 billion on a pro forma basis to include clariant mb ) , we have manufacturing sites and distribution facilities around the globe , with 69 % and 44 % of our respective color , additives and inks and specialty engineered materials segments ' sales outside the united states . we provide value to our customers through our ability to link our knowledge of polymers and formulation technology with our manufacturing and supply chain capabilities to provide value-added solutions to designers , assemblers and processors of plastics . strategy and key trends to achieve our vision , we have implemented a strategy with four core components : specialization , globalization , operational excellence and commercial excellence . specialization differentiates us through products , services , technology and solutions that add value . globalization allows us to service our customers with consistency wherever their operations might be around the world . operational excellence empowers us to respond to the voice of the customer while focusing on continuous improvement . commercial excellence enables us to deliver value to customers by supporting their growth and profitability with superior customer service . we are also committed to sustainability through our four cornerstones of people , products , planet , and performance . we have invested in and are making important contributions to each , which are discussed in depth in our most recent sustainability report . in the short term , we will maintain our focus on sales growth with expanding margins , with a goal of offsetting economic headwinds in certain end markets and geographies , raw material volatility and logistics cost inflation . longer term , we will continue to focus on accelerating the launch of new products and collaborating with our customers to develop new and unique solutions for their benefit while focusing on our four cornerstones of sustainability named above to ensure the growth we achieve is sustainable for us and our customers . capital expenditures will be focused primarily to support sales growth , investment in recent acquisitions , and other strategic investments . we also continue to consider acquisitions and other synergy opportunities that complement our core platforms . these actions will ensure that we continue to invest in our core capabilities and continue to support growth in key markets and product offerings . we will continue our enterprise-wide lean six sigma program directed at improving margin , profitability and cash flow by applying proven management techniques and strategies to key areas of the business , such as pricing , supply chain and operations management , productivity and quality . long-term trends that currently provide opportunities to leverage our strategy and commitment to sustainability include improving health and wellness , protecting the environment , globalizing and localizing and increasing energy efficiency . examples of how our 18 avient corporation strategy supports these trends can be found in numerous initiatives : active participation in the medical device market , leveraging our global footprint to deliver consistent solutions globally , light weighting and metal replacement and development of solutions that respond to ever-changing market needs by offering alternatives to traditional materials . recent developments covid-19 we are closely monitoring the impact of the covid-19 pandemic on all aspects of our business , including how it will impact our employees , customers , supply chain and distribution network . although we are unable to predict the ultimate impact of the covid-19 outbreak at this time , the pandemic has adversely affected , and is expected to continue to adversely affect our business . while we concluded there were no indicators of impairment as of december 31 , 2020 , any significant sustained adverse change in financial results or macroeconomic conditions could result in future impairments of long-lived assets . the extent to which our operations may continue to be impacted by the covid-19 pandemic will depend largely on future developments , which are highly uncertain and can not be accurately predicted , including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact . clariant mb acquisition on july 1 , 2020 , the company completed the clariant mb acquisition . the clariant mb acquisition increased the company 's scale , product depth and geographic reach in its color , additives and inks segment . clariant mb has leading portfolios of solid and liquid masterbatches that include sustainable solutions for alternative energy , and reduced material requirements for packaging and light weighting . story_separator_special_tag operating income at the segment level does not include : corporate general and administrative costs that are not allocated to segments ; intersegment sales and profit eliminations ; charges related to specific strategic initiatives , such as the consolidation of operations ; restructuring activities , including employee separation costs resulting from personnel reduction programs , plant closure and phase-in costs ; costs incurred directly in relation to acquisitions or divestitures ; integration costs ; executive separation agreements ; share-based compensation costs ; environmental remediation costs and other liabilities for facilities no longer owned or closed in prior years ; actuarial gains and losses associated with our pension and post-retirement benefit plans ; and certain other items that are not included in the measure of segment profit or loss that is reported to and reviewed by our chief operating decision maker . these costs are included in corporate and eliminations . avient has three reportable segments : ( 1 ) color , additives and inks ; ( 2 ) specialty engineered materials ; and ( 3 ) distribution . our segments are further discussed in note 15 , segment information , to the accompanying consolidated financial statements . sales and operating income replace_table_token_5_th 22 avient corporation color , additives and inks sales increased $ 499.1 million , or 49.7 % , as a result of the clariant mb acquisition . organic sales decreased by 4.5 % in 2020 compared to 2019 as a result of the combination of lower sales due to the covid-19 pandemic , partially offset by strong demand in healthcare and packaging end markets . on a pro forma basis to include clariant mb in all periods , sales decreased by 3.7 % in 2020 compared to 2019 , as gains in the healthcare end market , as well as improved pricing and mix , were more than offset by weakness in sales due to the covid-19 pandemic . operating income increased $ 33.4 million , or 22.7 % , driven by the clariant mb acquisition partially offset by lower sales due to the covid-19 pandemic . organic operating income decreased by 7 % due to lower sales , including weakness in our higher margin specialty inks business . on a pro forma basis to include clariant mb in all periods , operating income increased by 2.5 % as the demand decline as a result of the covid-19 pandemic was more than offset by favorable mix , lower raw material input costs and the benefit of expanded margins driven by early capture of integration synergies . specialty engineered materials sales decreased by $ 36.9 million , or 4.9 % , in 2020 compared to 2019 , largely driven by lower demand in north america and europe due to the covid-19 pandemic , which offset improvements in composites demand . operating income increased by $ 10.7 million in 2020 compared to 2019 as lower raw material costs , improved mix and lower discretionary spending more than offset the negative volume impact of the covid-19 pandemic . distribution sales declined $ 81.9 million , or 6.9 % , in 2020 compared to 2019 driven primarily by raw material deflation which subsequently resulted in lower selling prices . operating income declined $ 5.9 million , or 7.8 % , in 2020 compared to 2019 primarily as a result of lower sales . corporate and eliminations corporate and eliminations operating income increased $ 5.7 million in 2020 compared to 2019 due to costs associated with the clairant mb acquisition , offset by lower acquisition earn-out adjustments related to plasticomp and fiber-line , and lower discretionary spending . liquidity and capital resources our objective is to finance our business through operating cash flow and an appropriate mix of debt and equity . by laddering the maturity structure , we avoid concentrations of debt maturities , reducing liquidity risk . we may from time to time seek to retire or purchase our outstanding debt with cash and or exchanges for equity securities , in open market purchases , privately negotiated transactions or otherwise . we may also seek to repurchase our outstanding common shares . such repurchases , if any , will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved have been and may continue to be material . the following table summarizes our liquidity as of december 31 , 2020 : ( in millions ) cash and cash equivalents $ 649.5 revolving credit availability 279.9 liquidity $ 929.4 as of december 31 , 2020 , approximately 72 % of the company 's cash and cash equivalents resided outside the united states . based on current projections , we believe that we will be able to continue to manage and control working capital , discretionary spending and capital expenditures and that cash provided by operating activities , along with available borrowing capacity under our revolving credit facilities , will allow us to maintain adequate levels of available capital to fund our operations , meet debt service obligations , continue paying dividends , and opportunistically repurchase outstanding common shares . expected sources of cash needed to satisfy cash requirements in 2021 include our cash on hand , cash from operations and available liquidity under our revolving credit facility , if needed . expected uses of cash in 2021 include integration costs related to the clariant mb acquisition , interest payments , cash taxes , dividend payments , share 23 avient corporation repurchases , environmental remediation costs , capital expenditures and debt repayment . capital expenditures are currently estimated to be approximately $ 95.0 million in 2021 , primarily to support sales growth , our continued investment in recent acquisitions and other strategic investments .
| effect if actual results differ from assumptions environmental liabilities based upon our estimates , we had an undiscounted accrual of $ 119.7 million at december 31 , 2020 for probable future environmental expenditures . any such provision is recognized using the company 's best estimate of the amount of loss incurred , or at the lower end of an estimated range , when a single best estimate is not determinable . with respect to the former goodrich corporation calvert city site , the united states environmental protection agency ( usepa ) issued its record of decision ( rod ) in september 2018 , selecting a remedy consistent with our accrual assumptions . in april 2019 , the respondents signed an administrative settlement agreement and order on consent with the usepa to conduct the remedial design . in october 2019 , the usepa sent a special notice letter to avient , westlake vinyls , and goodrich corporation , inviting negotiation of a consent decree to perform the remedial actions at the site . in 2020 , the three companies , usepa , and the us department of justice signed the agreed consent decree , which is currently under federal court review . franklin-burlington , a subsidiary of avient , is listed as a cooperating party along with approximately 70 other companies . the cooperating parties are working with the epa on the lower passaic river study area . based on currently available information as of december 31 , 2020 , we have not identified evidence that franklin-burlington contributed materially to the contamination into the lower passaic river and that the best estimate of any liability that may be assigned to franklin-burlington will not be material to the consolidated financial statements . in some cases , the company recovers a portion of the costs relating to these obligations from insurers or other third parties ; however , the company records such amounts only when they are collected .
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the acquisition expanded the breadth and depth of the company 's national network of restaurant partners and active diners . the company granted restricted stock story_separator_special_tag overview the following management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. unless otherwise stated , the discussion below primarily reflects the historical condition and results of operations for grubhub inc. for the periods presented and the results of acquired businesses from the relevant acquisition dates . in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect the company 's plans , estimates , and beliefs . actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in part i , item 1a , โ risk factors โ . this overview summarizes the md & a , which includes the following sections : our business โ for a general description of our business , strategy , challenges and products and services see part i , item 1 , โ business โ of this annual report on form 10-k. significant accounting policies and critical estimates โ for further discussion of accounting policies that require critical judgments and estimates see part ii , item 8 , note 2 , summary of significant accounting policies , of the accompanying notes to our consolidated financial statements in this annual report on form 10-k. 27 operations review โ an analysis o f our consolidated results of operations for the three years presented in our consolidated financial statements , pro-forma results of operations and non-gaap financial measures . liquidity and capital resources โ an analysis of cash flows , contractual obligations and commitments , the impact of inflation , changes in interest rates and fluctuations in foreign currency and an overview of financial position . significant accounting policies and critical estimates our financial statements are prepared in accordance with gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances . our actual results could differ from these estimates . we believe our most critical accounting policies and estimates relate to the following : revenue recognition website and software development costs recoverability of intangible assets with finite lives and other long-lived assets stock-based compensation goodwill income taxes for a description of our significant accounting policies including critical judgments and estimates , see part ii , item 8 , note 2 , summary of significant accounting policies , of the accompanying notes to our consolidated financial statements in this annual report on form 10-k. operations review executive overview in 2018 , we continued our strong growth trajectory , generating 47 % revenue growth and accelerated growth in daily average grubs throughout 2018 as compared to 2017. compared to 2017 , our revenues increased by $ 324.2 million , or 47 % , to $ 1.0 billion for the year ended december 31 , 2018. the increase was primarily related to the significant growth in active diners , which increased from 14.5 million as of december 31 , 2017 to 17.7 million at the end of december 31 , 2018 , driving an increase in daily average grubs to 435,900 during the year ended december 31 , 2018 from 334,000 daily average grubs during 2017. we processed $ 5.1 billion in gross food sales in 2018 , a 34 % increase from the $ 3.8 billion in gross food sales processed in 2017. the growth in active diners and daily average grubs was due to increased product and brand awareness largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets , technology and product improvements to drive more orders and the full year impact of the eat24 acquisition . in addition , revenue increased during the year ended december 31 , 2018 compared to the same period in 2017 due to an increase in our average commission rates , a higher average order size and the inclusion of results from our recent acquisitions ( see part ii , item 8 , note 4 , acquisitions ) . net income decreased by $ 20.5 million to $ 78.5 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the decrease was driven by the one-time income tax benefit of $ 34.1 million recognized in the year ended december 31 , 2017 related to the tax act ( see part ii , item 8 , note 11 , income taxes ) . additionally , net income during the year ended december 31 , 2018 reflects the impact of increased costs due to the expansion of the company 's delivery services and increased advertising to generate organic growth as well as an increase in certain other expenses to support organic growth in the business and higher order volume and as a result of the impact of recent acquisitions . these costs primarily included compensation and benefits expenses , payment processing costs , as well as depreciation and amortization of recently acquired intangible assets and other general and administrative expenses of the acquired companies . on november 7 , 2018 , we acquired tapingo and on september 13 , 2018 , we acquired levelup . the aggregate purchase price for the acquisitions was $ 521.5 million , net of cash acquired and including non-cash consideration . story_separator_special_tag basis of presentation revenues on january 1 , 2018 , the company adopted asc topic 606 using the modified retrospective method applied to those contracts which were not completed as of january 1 , 2018. results for reporting periods beginning on or after january 1 , 2018 are presented under asc topic 606 , while prior period amounts are not adjusted and continue to be reported in accordance with historical accounting guidance under asc topic 605. see part ii , item 8 , note 2 , significant accounting policies , and note 3 , revenue , in this annual report on form 10-k for additional details , including a description of the company 's revenue recognition policies under asc topic 606. the adoption of asc topic 606 did not have a material impact on the company 's results of operations , financial position or cash flows . we generate revenues primarily when diners place an order on our platform through our mobile applications , our websites , or through third-party websites that incorporate our api or one of our listed phone numbers . restaurants pay us a commission , typically a percentage of the transaction on orders that are processed through our platform . most of the restaurants on our platform can choose their level of commission rate , at or above the base rate . a restaurant can choose to pay a higher rate which affects its prominence and exposure to diners on the platform . additionally , restaurants that use our delivery services pay an additional commission for the use of those services . we may also charge a delivery fee directly to the diner . for most orders , diners use a credit card to pay us for their meal when the order is placed . for these transactions , we collect the total amount of the diner 's order net of payment processing fees from the payment processor and remit the net proceeds to the restaurant less commissions . we generally accumulate funds and remit the net proceeds to the restaurants on at least a monthly basis . we also deduct commissions for other transactions that go through our platform , such as cash transactions for restaurants in our network , from the aggregate proceeds received . we periodically provide incentive offers to restaurants and diners to use our platform . these promotions are generally cash credits to be applied against purchases . these incentive offers are recorded as reductions in revenues , generally on the date the corresponding revenue is recorded . we also derive some revenues from mobile application development professional services and access to the respective order ahead platforms and related tools and services . we generate a small amount of revenues directly from companies that participate in our corporate ordering program and by selling advertising on our allmenus.com website . we do not anticipate that corporate fees , advertising , professional services or fees to access order ahead platforms and tools will generate a significant portion of our revenues in the foreseeable future . costs and expenses operations and support operations and support expenses consist of salaries and benefits , stock-based compensation expense and bonuses for salaried employees and payments to independent contractors engaged in customer care , operations and restaurant delivery services . operations and support expenses also include payment processing costs for diner orders , costs of uploading and maintaining restaurant menu content , communications costs related to orders , facilities costs allocated on a headcount basis and other expenses related to operating and maintaining an independent delivery network . sales and marketing sales and marketing expenses contain advertising expenses including search engine marketing , television , online display , media and other programs . sales and marketing expenses also consist of salaries , commissions , benefits , stock-based compensation expense and bonuses for restaurant sales , restaurant sales support , corporate and campus program customer sales and marketing employees , payments to contractors and facilities costs allocated on a headcount basis . technology ( exclusive of amortization ) technology ( exclusive of amortization ) expenses consist of salaries and benefits , stock-based compensation expense and bonuses for salaried employees and payments to contractors engaged in the design , development , maintenance and testing of our platform , including our websites , mobile applications and other products . technology expenses also include facilities costs allocated on a headcount basis but do not include amortization of capitalized website and software development costs . 30 general and administrative general and administrative expenses consist of salaries , benefits , stock-based compensation expense and bonuses for executive , finance , accounting , legal , human resources and administrative support . general and administrative expenses also include legal , accounting , other third-party professional services , other miscellaneous expenses and facilities costs allocated on a headcount basis . depreciation and amortization depreciation and amortization expenses primarily consist of amortization of acquired intangibles and depreciation of computer equipment , furniture and fixtures , leasehold improvements and capitalized website and software development costs . income tax ( benefit ) expense income tax ( benefit ) expense consists of federal and state income taxes in the united states and income taxes in certain foreign jurisdictions , deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes , excess tax benefits or deficiencies from stock-based compensation and net operating loss carryforwards . story_separator_special_tag expense increased by $ 34.1 million , or 66 % , for the year ended december 31 , 2018 compared to 2017 . the increase was primarily attributable to higher depreciation and amortization expense related to the amortization of intangible assets acquired in recent acquisitions as well as an increase in capital spending on internally developed software , leasehold improvements , restaurant facing technology and office equipment to support the growth of our business .
| results of operations the following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenues : replace_table_token_4_th ( a ) totals of percentage of revenues may not foot due to rounding ( b ) for an explanation of adjusted ebitda as a measure of the company 's operating performance and a reconciliation to net earnings , see โ non-gaap financial measureโadjusted ebitda โ below . revenues replace_table_token_5_th 2018 compared to 2017 revenues increased by $ 324.2 million , or 47 % , for the year ended december 31 , 2018 compared to 2017 . the increase was primarily related to significant growth in active diners , which increased from 14.5 million to 17.7 million at the end of each year , driving an increase in daily average grubs to 435,900 during the year ended december 31 , 2018 from 334,000 daily average grubs during 2017 . the growth in active diners and daily average grubs was due to increased product and brand awareness largely as a result of marketing efforts and word-of-mouth referrals , better restaurant choices for diners in our markets , and technology and product improvements to drive more orders , as well as the impact of eat24 , orderup and foodler . in addition , revenue increased 31 during the year ended december 31 , 2018 compared to 2017 due to an increase in our average commission rates , higher average order size and the inclusion of resul ts from acquisitions ( see part ii , item 8 , note 4 , acquisitions to our consolidated financial statements in this annual report on form 10-k ) .
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credit quality indicators : the company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as : current financial information , historical payment experience , credit documentation , public information , and current economic trends , among other factors . the company establishes a risk rating at origination for all commercial loan and commercial real estate relationships . for relationships over $ 750 thousand management monitors the loans on an ongoing basis for any changes in the borrower 's ability to service their debt . management also affirms the risk ratings for the loans and leases in their respective portfolios on an annual story_separator_special_tag the following presents a discussion and analysis of farmers ' financial condition and results of operations by its management . the review highlights the principal factors affecting earnings and the significant changes in balance sheet items for the years 2014 , 2013 and 2012. financial information for prior years is presented when appropriate . the objective of this financial review is to enhance the reader 's understanding of the accompanying tables and charts , the consolidated financial statements , notes to financial statements , and financial statistics appearing elsewhere in this annual report on form 10-k. where applicable , this discussion also reflects management 's insights of known events and trends that have or may reasonably be expected to have a material effect on farmers ' business , financial condition or results of operations . cautionary note regarding forward looking statements discussions in this annual report on form 10-k that are not statements of historical fact ( including statements that include terms such as โ will , โ โ may , โ โ should , โ โ believe , โ โ expect , โ โ anticipate , โ โ estimate , โ โ project , โ intend , โ and โ plan โ ) are forward-looking statements that involve risks and uncertainties . any forward-looking statement is not a guarantee of future performance , and actual future results could differ materially from those contained in forward-looking information . factors that could cause or contribute to such differences include , without limitation , risks and uncertainties detailed from time to time in farmers ' filings with the securities and exchange commission , including without limitation the risk factors disclosed in item 1a , โ risk factors โ of this annual report on form 10-k. many of these factors are beyond the company 's ability to control or predict , and readers are cautioned not to put undue reliance on those forward-looking statements . the following list , which is not intended to be an all-encompassing list of risks and uncertainties affecting the company , summarizes several factors that could cause the company 's actual results to differ materially from those anticipated or expected in these forward-looking statements : โ general economic conditions in market areas where farmers conducts business , which could materially impact credit quality trends ; โ business conditions in the banking industry ; 25 โ the regulatory environment ; โ fluctuations in interest rates ; โ demand for loans in the market areas where farmers conducts business ; โ rapidly changing technology and evolving banking industry standards ; โ competitive factors , including increased competition with regional and national financial institutions ; โ new service and product offerings by competitors and price pressures ; and โ other similar items . other factors not currently anticipated may also materially and adversely affect farmers ' business , financial condition , results of operations or cash flows . there can be no assurance that future results will meet expectations . while the company believes that the forward-looking statements in this annual report on form 10-k are reasonable , the reader should not place undue reliance on any forward-looking statement . in addition , these statements speak only as of the date made . farmers does not undertake , and expressly disclaims , any obligation to update or alter any statements whether as a result of new information , future events or otherwise , except as may be required by applicable law . results of operations comparison of operating results for the years ended december 31 , 2014 and 2013. the company 's net income totaled $ 9.0 million during 2014 , compared to $ 7.8 million for 2013. on a per share basis , diluted earnings per share were $ 0.48 as compared to $ 0.41 diluted earnings per share for 2013. common comparative ratios for results of operations include the return on average assets and return on average stockholders ' equity . for 2014 , the return on average equity was 7.45 % , compared to 6.66 % for 2013. the return on average assets was 0.79 % for 2014 and 0.68 % for 2013. the results for 2014 included $ 457 thousand in gains on sales of securities , compared to $ 863 thousand in 2013. during 2013 , the com pany completed the acquisition of all outstanding stock of the retirement planning consultancy national associates , inc. of cleveland , ohio . the company is a leading independent consultant to retirement plans and offers actuarial , plan design , compliance and administrative services . as a third party administrator , nai provides services to 401 ( k ) , defined benefit , profit sharing , flexible spending , 403 ( b ) , esop and other plans . in acquiring nai , the company assumes a professional staff that is highly qualified and credentialed . synergies and the cost savings resulting from the combining of the operations of the companies will help drive an increase of non-interest income . nai contributed $ 1.8 million of gross revenues to the company resulting in a net loss of $ 671 thousand for the year ended december 31 , 2014. the net loss was mainly due to the $ 764 thousand goodwill impairment charge . the goodwill was partially impaired as described in note 6 , by an amount equal to the reduction in the contingent consideration payable . story_separator_special_tag the cost of interest-bearing liabilities decreased from 0.58 % in 2013 to 0.54 % in 2014. management will continue to evaluate future changes in interest rates and the shape of the treasury yield curve so that assets and liabilities may be priced accordingly to minimize the impact on the net interest margin . noninterest income total noninterest income increased by $ 1.4 million in 2014. the increase in noninterest income is due to several factors . retirement plan consulting fees increased to $ 1.8 million compared to $ 628 thousand in 2013 , reflecting a full twelve months this year compared to six months of income earned from the newly acquired entity , nai in 2013. service charges on deposit accounts increased from $ 2.4 million in 2013 to $ 2.6 million in 2014 as the company made adjustments to the service charge structure of its deposit accounts . trust fees also increased $ 509 thousand , insurance agency commissions increased $ 111 thousand and investment commissions increased $ 37 thousand , as management continues to focus on diversifying revenue sources to decrease the reliance on net interest income as the main driver of revenue . noninterest expenses noninterest expense for 2014 was $ 38.2 million , compared to $ 39.1 million in 2013 , representing a decrease of $ 895 thousand , or 2.3 % . most of the decrease was a result of a 5.3 % decrease in salary and employee benefits , mainly due to severance costs recorded in 2013 and not in 2014. state and local taxes decreased $ 435 thousand to $ 878 thousand in 2014 compared to $ 1.3 million in 2013. the decrease is the result of the new and reduced financial institution 's tax rate by the state of ohio in 2014. merger related costs also decreased $ 330 thousand in 2014. professional fees increased 10.8 % as a result of corporate legal and consulting fees related to compensation practices and other business advisory fees . intangible amortization increased $ 143 thousand as a result of a full twelve months of amortization of intangible assets related to the acquisition of nai . advertising increased $ 201 thousand . 27 the company 's tax equivalent efficiency ratio for the twelve month period ended december 31 , 2014 was 70.24 % , compared to 74.82 % for the same period in 2013. the main factor leading to the improvement in the efficiency ratio was the decrease in noninterest expenses and increase in noninterest income as explained earlier in this section . the efficiency ratio is calculated as follows : non-interest expense divided by the sum of tax equivalent net interest income plus non-interest income , excluding security gains and losses and intangible amortization . this ratio is a measure of the expense incurred to generate a dollar of revenue . management will continue to closely monitor and keep the increases in other expenses to a minimum . income taxes income tax expense totaled $ 2.6 million for 2014 and $ 1.7 million in 2013. income taxes are computed using the appropriate effective tax rates for each period . the increase in the current year tax expense can be mainly attributed to the $ 2.1 million increase in income before taxes . the effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income . the effective income tax rate was 22.7 % for 2014 and 17.8 % for 2013. the effective tax rate increase compared to the same period in 2013 was primarily due to an increase in taxable noninterest income relative to tax exempt income from securities , loans and bank owned life insurance . refer to note 14 to the consolidated financial statements for additional information regarding the effective tax rate . comparison of operating results for the years ended december 31 , 2013 and 2012. the company 's net income totaled $ 7.8 million during 2013 , compared to $ 9.9 million for 2012. on a per share basis , diluted earnings per share were $ 0.41 as compared to $ 0.53 diluted earnings per share for 2012. for 2013 , the return on average equity was 6.66 % , compared to 8.42 % for 2012. the return on average assets was 0.68 % for 2013 and 0.89 % for 2012. the results for 2013 included $ 863 thousand in gains on sales of securities , compared to $ 1.1 million in 2012. during 2013 , the company completed the acquisition of all outstanding stock of the retirement planning consultancy national associates , inc. of cleveland , ohio . the company is a leading independent consultant to retirement plans and offers actuarial , plan design , compliance and administrative services . as a third party administrator , nai provides services to 401 ( k ) , defined benefit , profit sharing , flexible spending , 403 ( b ) , esop and other plans . in acquiring nai , the company assumes a professional staff that is highly qualified and credentialed . synergies and the cost savings resulting from the combining of the operations of the companies will help drive an increase of non-interest income . net interest income for 2013 , taxable equivalent net interest income decreased $ 822 thousand , or 2.12 % , from 2012. interest-earning assets averaged $ 1.061 billion during 2013 , increasing $ 30.4 million , or 2.95 % , compared to 2012. the company 's interest-bearing liabilities decreased 0.34 % from $ 881.6 million in 2012 to $ 878.7 million in 2013. total taxable equivalent interest income was $ 43.0 million for 2013 , which is $ 2.0 million less than the $ 45.0 million reported in 2012. in comparing the years ending december 31 , 2013 and 2012 , yields on earning assets decreased 31 basis points while the cost of interest bearing liabilities decreased 12 basis points .
| summary of loan loss experience the following is an analysis of the allowance for loan losses for the periods indicated : replace_table_token_11_th provisions charged to operations amounted to $ 1.9 million in 2014 , compared to $ 1.3 million in 2013 , an increase of $ 590 thousand . this increase is primarily due to an increase in the level of charge-offs and the overall $ 33.2 million increase in total loans , which are factors considered in management 's estimate of loan loss provisions and the adequacy of the allowance for loan losses . net charge-offs for the year ended december 31 , 2014 were $ 1.8 million , $ 465 thousand higher than net charge-offs for the year ended december 31 , 2013. the allowance for loan losses to total loans decreased from 1.20 % at december 31 , 2013 to 1.15 % at december 31 , 2014. conversely , nonperforming loans to total loans decreased from 1.44 % at december 31 , 2013 to 1.28 % at december 31 , 2014. the change in this ratio was the result of a decrease in nonperforming loans of $ 596 thousand from december 31 , 2013. in determining the estimate of the allowance for loan losses , management computes the historical loss percentage based upon the loss history of the past 12 quarters . the company believes that using a loss history of the previous 12 quarters helps mitigate volatility in the timing of charge-offs and better reflects probable incurred losses . the provision for loan losses charged to operating expense is based on management 's judgment after taking into consideration all factors connected with the collectability of the existing loan portfolio . management evaluates the loan portfolio in light of economic conditions , changes in the nature and volume of the loan portfolio , industry standards and other relevant factors .
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this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under โ risk factors , โ set forth in part i , item 1a of this annual report . see โ special note regarding forward-looking statements โ above . overview we are improving business through data science and analytics by enabling analytic producers , regardless of technical acumen , to quickly and easily transform data into actionable insights and deliver improved data-driven business outcomes . every day , our users leverage our end-to-end analytic platform to quickly and easily discover , access , prepare , and analyze data from a multitude of sources , then deploy and share analytics at scale . the ease-of-use , speed , and sophistication that our platform provides is enhanced through intuitive and highly repeatable visual workflows . our platform has been adopted by organizations across a wide variety of industries and sizes . we derive a large portion of our revenue from subscriptions for use of our platform . our software can be licensed for use on a desktop or server , or it can be deployed in the cloud . subscription periods for our platform generally range from one to three years and the subscription fees are typically billed annually in advance . we also generate revenue from professional services , including training and consulting services . 2019 developments acquisition of clearstory data inc. and feature labs , inc. in april and october 2019 , we acquired all of the equity interests in clearstory data inc. for a total consideration of $ 19.6 million and in feature labs , inc. for a total consideration of $ 25.2 million , respectively . the acquisitions were made to augment our research and develop team , machine learning capabilities and acquire certain developed technology . convertible senior notes . in august 2019 , we sold $ 400.0 million aggregate principal amount of our 0.50 % convertible senior notes due 2024 and $ 400.0 million aggregate principal amount of our 1.00 % convertible senior notes due 2026 , including the initial purchasers ' exercise in full of their options to purchase an additional $ 50.0 million of each series of convertible senior notes , in a private offering . 48 key factors affecting our performance we believe that our current and future performance are dependent on many factors , including , but not limited to , those described below . while these areas present significant opportunity , they also present risks that we must manage to achieve successful results . for more information about these risks , see the section titled โ risk factors โ included elsewhere in this annual report . if we are unable to address these risks , our business and operating results could be adversely affected . expansion and further penetration of our customer base . we employ a โ land and expand โ business model that focuses on efficiently acquiring new customers and growing our relationships with existing customers over time . our current and future revenue growth and our ability to maintain profitability is dependent upon our ability to continue landing new customers and expanding the adoption of our platform by additional users within their organizations . we have increased our number of customers from 3,673 at march 31 , 2018 to 6,087 at december 31 , 2019 . we have maintained a net expansion rate in excess of 125 % in each of the periods presented . see dollar-based net expansion rate within this management 's discussion and analysis of financial condition and result of operations for additional information . international expansion . we have continued to focus on international markets . for the years ended december 31 , 2019 , 2018 , and 2017 , we derived 29 % , 29 % , and 23 % of our revenue outside of the united states , respectively . we believe that the global opportunity for self-service data analytics solutions is significant , and should continue to expand as organizations outside the united states seek to adopt self-service platforms as we have experienced with our existing customers . to capitalize on this opportunity , we intend to continue to invest in growing our presence internationally . investment in growth . operating expenses have increased from $ 128.0 million for the year ended december 31 , 2017 to $ 340.8 million for the year ended december 31 , 2019 as we continue investing in our business so that we can capitalize on our market opportunity . full-time headcount has increased over this same time period from 555 employees to 1,291 employees . we intend to continue to add headcount to our global sales and marketing teams to acquire new customers and to increase sales to existing customers . we intend to continue to add headcount to our research and development team to extend the functionality and range of our platform by bringing new and improved products and services to our customers . we believe that these investments will contribute to our long-term growth , although they may adversely affect our operating results in the near term . market adoption of our platform . a key focus of our sales and marketing efforts is to continue creating market awareness about the benefits of our platform . during the year ended december 31 , 2019 , we added a third annual inspire user conference in asia-pacific to augment our existing events in the united states and europe , and continued to expand the events in the united states and europe resulting in a worldwide attendance across all three events of over 6,400 . story_separator_special_tag revenue from professional 50 services relating to training results from contracts to provide educational services to customers and channel partners regarding the use of our technologies and is recognized as the services are provided . revenue from professional services represented 5 % or less of revenue for each of the years ended december 31 , 2019 , 2018 , and 2017 . over the long term , we expect our revenue from professional services to continue to decrease as a percentage of our revenue . in addition , due to our โ land and expand โ business model , a large portion of our revenue in any given period is attributable to our existing customers compared to new customers . for a description of our revenue recognition policies , see the section titled โ critical accounting estimates โ within this management 's discussion and analysis of financial condition and result of operations . cost of revenue cost of revenue consists primarily of employee-related costs , including salaries and bonuses , stock-based compensation expense , and employee benefit costs associated with our customer support and professional services organizations . it also includes expenses related to hosting and operating our cloud infrastructure in a third-party data center , licenses of third-party syndicated data , amortization of intangible assets , and related overhead expenses . the majority of our cost of revenue does not fluctuate directly with increases in revenue . we allocate shared overhead costs such as information technology infrastructure , rent , and occupancy charges in each expense category based on headcount in that category . as such , certain general overhead expenses are reflected in cost of revenue . we intend to continue to invest additional resources in our cloud infrastructure . we expect that the cost of third-party data center hosting fees will increase over time as we continue to expand our cloud-based offering . gross profit and gross margin gross profit is revenue less cost of revenue . gross margin is gross profit expressed as a percentage of revenue . our gross margin has fluctuated and may fluctuate from period to period based on a number of factors , including the timing and mix of products and services we sell , the channel through which we sell our products and services , and , to a lesser degree , the utilization of customer support and professional services resources , as well as third-party hosting and syndicated data fees in any given period . our gross margin may fluctuate from period to period depending on the interplay of the factors discussed above . operating expenses our operating expenses are classified as research and development , sales and marketing , and general and administrative . for each of these categories , the largest component is employee-related costs , which include salaries and bonuses , stock-based compensation expense , and employee benefit costs . we allocate shared overhead costs such as information technology infrastructure , rent , and occupancy charges to each expense category based on headcount in that category . research and development . research and development expense consists primarily of employee-related costs , including salaries and bonuses , stock-based compensation expense , and employee benefit costs , for our research and development employees , depreciation of equipment used in research and development , third-party contractors , and related allocated overhead costs . we expect research and development expenses to continue to increase in absolute dollars for the foreseeable future as we continue to increase the functionality and otherwise enhance our platform and develop new products and services . however , we expect research and development expense to decrease as a percentage of revenue over the long term , although research and development expense may fluctuate as a percentage of revenue from period to period due to the seasonality of revenue and the timing and extent of these expenses . sales and marketing . sales and marketing expense consists primarily of employee-related costs , including salaries and bonuses , sales commissions , stock-based compensation expense , and employee benefit costs , for our sales and marketing employees , marketing programs , and related allocated overhead costs . our sales and marketing employees include quota-carrying headcount , sales operations , marketing , and management . marketing programs consist of advertising , promotional events , such as our u.s. , european , and asia-pacific inspire user conferences , corporate communications , brand building , and product marketing activities , such as online lead generation . we plan to continue to invest in sales and marketing by expanding our global promotional activities , building brand awareness , attracting new customers , and sponsoring additional marketing events . the timing of these events , such as our annual company kickoff and our annual u.s. , european , and asia-pacific inspire user conferences , will affect our sales and marketing expense in the period in which each occurs . we expect sales and marketing expense to continue to increase in absolute dollars for the foreseeable future as we expand our online and offline marketing efforts to increase demand for our platform and awareness of our brand and 51 as we continue to expand our direct sales team and indirect sales channels both in the united states and internationally , and to continue to be our largest operating expense category . however , we expect sales and marketing expense to decrease as a percentage of revenue over the long term , although sales and marketing expense may fluctuate as a percentage of revenue from period to period due to the seasonality of revenue and the timing and extent of these expenses . general and administrative .
| results of operations for the years ended december 31 , 2019 , 2018 and 2017 a discussion regarding our financial condition and results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 is included in part ii , item 7 , โ management 's discussion and analysis of financial condition and results of operationsโresults of operation , โ included in our annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on march 1 , 2019. revenue replace_table_token_7_th the increase in our revenue for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 was primarily from additional sales to existing customers as demonstrated by our net expansion rate at or over 130 % for all quarters 52 in 2019 and , to a lesser extent , the increase in our total number of customers as shown above . in addition , the average total transaction price from contracts with customers has increased , in part , due to an increase in the volume of multi-year deals . cost of revenue and gross margin replace_table_token_8_th cost of revenue increased for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 primarily due to an increase in employee-related costs , including stock-based compensation expense of $ 5.6 million and an increase of $ 5.0 million in royalties due to increased usage of third-party syndicated data and , to a lesser extent , higher royalty rates and new agreements with third-party syndicated data providers in the current year . the increase was also attributable to an increase in the amortization of intangible assets of $ 2.0 million partly attributable to the acquisition of clearstory data and an increase in consulting and outsourced labor of $ 1.5 million due to the increased utilization of third-party contractors .
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in june 2012 , the california public utility commission ( ยcpucย ) issued a decision authorizing implementation of a project to reroute the carmel river and remove the san clemente dam . the project includes the company 's california subsidiary , the california state conservancy and the national marine fisheries services . under the order 's terms , the cpuc has authorized recovery of all previous pre-construction costs incurred by the company 's subsidiary , and has authorized additional expenditures to be capped at $ 49,000 for the reroute and dam removal efforts and $ 2,500 for estimated interim dam safety measures . all pre-construction costs , totalling $ 24,303 , are to be recovered via a surcharge over a 20-year period beginning october 2012 ; surcharge collections in 2012 totaled $ 894 . costs deferred in addition to story_separator_special_tag the following discussion should be read together with the financial statements and the notes thereto included elsewhere in this form 10-k. this discussion contains forward-looking statements that are based on management 's current expectations , estimates and projections about our business , operations and financial performance . the cautionary statements made in this form 10-k should be read as applying to all related forward-looking statements whenever they appear in this form 10-k. our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under ยrisk factorsย and elsewhere in this form 10-k. you should read ยrisk factorsย and ยforward-looking statements.ย executive overview general american water works company , inc. ( herein referred to as ยamerican waterย or the ยcompanyย ) is the largest investor-owned united states water and wastewater utility company , as measured both by operating revenue and population served . our approximately 6,700 employees provide drinking water , wastewater and other water related services to an estimated 14 million people in more than 30 states and in two canadian provinces . our primary business involves the ownership of water and wastewater utilities that provide water and wastewater services to residential , commercial , industrial and other customers . our regulated businesses that provide these services are generally subject to economic regulation by state regulatory agencies in the states in which they operate . the federal government and the states also regulate environmental , health and safety and water quality matters . our regulated businesses provide services in 16 states and serves approximately 3.2 million customers based on the number of connections to our water and wastewater networks . we report the results of these businesses in our regulated businesses segment . we also provide services that are not subject to economic regulation by state regulatory agencies . we report the results of these businesses in our market-based operations segment . as noted under ยbusiness section , ย our financial condition and results of operations are influenced by a variety of industry-wide factors , including but not limited to ( i ) economic utility regulation ; ( ii ) economic environment ; ( iii ) the need for infrastructure investment ; ( iv ) an overall trend of declining water usage per customer ; ( v ) weather and seasonality ; and ( vi ) access to and quality of water supply . in 2012 , we continued the execution of our strategic goals . our commitment to operational excellence led to success in portfolio optimization , improved regulated operating efficiency , improved performance of our market-based operations , and enabled us to provide increased value to our customers and investors . during the year , we focused on executing our portfolio optimization , actively addressing regulatory lag and declining usage , continuing to make efficient use of capital and continuing to improve our regulated operation and maintenance ( ยo & mย ) efficiency ratio . also , in 2012 , we focused on the expansion of our market-based operations , particularly on the homeowner services group and military contract operations , and on optimizing our municipal contract operations business model that is designed to provide value creation for both american water and the municipality . 2012 financial results all financial information in this management 's discussion and analysis of financial condition and results of operations ( md & a ) , reflects only continuing operations . in 2011 , as part of our portfolio optimization initiative , we entered into agreements to sell our regulated subsidiaries in arizona , new mexico , ohio and our regulated water and wastewater systems in texas . the sale of our texas subsidiary 's assets was completed in june 2011 , while the sales of our regulated subsidiaries in arizona , new mexico and ohio were completed during 2012. additionally , on december 13 , 2011 , we completed the sale of applied water management , inc. which was part of our contract operations line of business within our market-based segment . therefore , the financial results of all of these entities have been presented as discontinued operations for all periods , unless 42 otherwise noted . see note 3 to consolidated financial statements for further details on our discontinued operations . for the year ended december 31 , 2012 , we continued to increase our net income , while making significant capital investment in our infrastructure and implementing operational efficiency improvements necessary to offset increases in production and employee benefit costs . story_separator_special_tag on january 1 , 2013 , additional annualized revenue of $ 6.5 million resulting from infrastructure charges in our pennsylvania subsidiary became effective . other regulatory activities occurring in 2012 that allow us to address regulatory lag include the passing of legislation by the general assembly in pennsylvania which expanded the use of infrastructure replacement programs to wastewater systems and the rules adopted by the new jersey board of public utilities in the second quarter of 2012 that allow the implementation of a distribution system improvement charge for specified water infrastructure investments . on july 20 , 2012 , our new jersey subsidiary submitted a foundational filing for this charge and our filing was approved on october 23 , 2012. as of february 21 , 2013 , we are awaiting final orders in two states requesting additional annualized revenue of approximately $ 36.9 million . continue improvement in o & m efficiency ratio for our regulated businesses our o & m efficiency ratio ( a non-gaap measure ) is defined as our regulated operation and maintenance expense divided by regulated operating revenues , where both o & m expense and operating revenues are adjusted to eliminate purchased water expense . we have modified , for all periods presented , our o & m efficiency ratio to exclude the allocable portion of non-o & m support services cost , mainly depreciation and general taxes , that are reflected in the regulated businesses segment as o & m costs but for consolidated financial reporting purposes are categorized within other lines in the statement of operations . management believes that this modified calculation better reflects the regulated businesses segment 's o & m efficiency ratio . our o & m efficiency ratio was 40.1 % for the year ended december 31 , 2012 compared to 42.4 % and 44.2 % for the years ended december 31 , 2011 and 2010 , respectively . we evaluate our operating performance using this measure , as it is the primary measure of the efficiency of our regulated operations . this information is intended to enhance an investor 's overall understanding of our operating performance . o & m efficiency ratio is not a measure defined under gaap and may not be comparable to other companies ' operating measures or deemed more useful than the gaap information provided elsewhere in this report . the following table provides a reconciliation between operation and maintenance expense and operating revenues , as determined in accordance with gaap , and to 44 those amounts utilized in the calculation of our o & m efficiency ratio for the years ended december 31 , 2012 , 2011 and 2010 : regulated o & m efficiency ratio ( a non-gaap measure ) replace_table_token_9_th * note calculation assumes purchased water revenues approximate purchased water expenses . growing our market-based operations in august 2012 , our homeowner services group ( ยhosย ) was selected by the new york city water board as the official service line protection provider to homeowners . hos will make services available to an estimated 650,000 homeowners throughout the city 's five boroughs . also , during the third quarter of 2012 , hos announced that it is expanding the number of communities in which it provides water and sewer line protection programs to homeowners in connecticut , indiana , michigan and ohio . other matters in september 2010 , we declared ยimpasseย in negotiations of our national benefits agreement with most of the labor unions representing employees in our regulated businesses . the prior agreement expired on july 31 , 2010 ; however , negotiations did not produce a new agreement . we implemented our ยlast , best and finalย offer on january 1 , 2011 in order to provide health care coverage for our employees in accordance with the terms of the offer . the unions have challenged our right to implement our last , best , and final offer . in this regard , following the filing by the utility workers union of america of an unfair labor practice charge , the nlrb issued a complaint against us in january 2012 , claiming that we implemented the last , best and final offer without providing sufficient notice of the existence of a dispute with the federal mediation and conciliation service , a state mediation agency , and several state departments of labor . we have asserted that we did , in fact , provide sufficient notice . on october 16 , 2012 , the nlrb administrative law judge hearing the matter ruled that , although we did provide sufficient notification to the federal mediation and conciliation service , we did not provide notice to 45 state agencies , in violation of the national labor relations act . the administrative law judge ordered , among other things , that we cease and desist from implementing the terms of our last , best and final offer and make whole all affected employees for losses suffered as a result of our implementation of our last , best and final offer . the ยmake wholeย order , if upheld on appeal , would require us to provide backpay plus interest , from january 1 , 2011 through the date of the final determination . based on current estimates and assumptions , we estimate the cash impact could be in the range of $ 2.5 to $ 3.5 million per year , with the total impact dependent on the length of time the issue remains unresolved . on november 2012 , we filed an exception to the decision of the administrative law judge in order to obtain a review by the full nlrb . 2013 and beyond our strategy for the future will continue to focus on customers , expansion through targeted growth , environmental sustainability , and regulatory and public policy . we will also continue to modernize our infrastructure and to focus on operational efficiencies , while bolstering a culture of continuous improvement . in 2013 , we will continue to focus on our customers by achieving established customer satisfaction and service quality targets .
| consolidated results of operations the following table sets forth our consolidated statement of operations data for the years ended december 31 , 2012 , 2011 and 2010 : replace_table_token_10_th ( a ) amounts may not sum due to rounding . comparison of consolidated results of operations for the years ended december 31 , 2012 and 2011 operating revenues . consolidated operating revenues for the year ended december 31 , 2012 increased $ 210.7 million , or 7.9 % , compared to the same period in 2011. this increase is the result of higher revenues in our regulated businesses of $ 195.5 million , which was mainly attributable to rate increases and increased sales volumes , primarily related to weather . for further information see the respective ยoperating revenuesย discussions within the ยsegment results.ย 47 operation and maintenance . consolidated operation and maintenance expense for the year ended december 31 , 2012 increased $ 48.2 million , or 3.7 % , compared to 2011. this change was mainly attributable to a $ 37.4 million increase in our regulated businesses costs primarily related to an increase in production costs of approximately $ 12.2 million to support higher customer demand as well as incremental contracted services costs attributable to various projects in support of improving processes and operating efficiency and effectiveness , including the support of the go-live of our enterprise resource planning system , and the use of temporary labor to backfill positions , including those positions vacated by employees assigned to our business transformation project . also , contributing to the increase was a $ 7.0 million contribution made in 2012 to the american water charitable foundation , a 501 ( c ) ( 3 ) organization . for further information see the respective ยoperation and maintenanceย discussions within the ยsegment results.ย depreciation and amortization .
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`` results of operations '' for all registrants includes a `` statement of income analysis , '' which discusses significant changes in principal line items on the statements of income , comparing 2017 with 2016 and 2016 with 2015. for ppl , `` results of operations '' also includes `` segment earnings '' and `` margins '' which provide a detailed analysis of earnings by reportable segment . these discussions include non-gaap financial measures , including `` earnings from ongoing operations '' and `` 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 `` 2018 outlook '' discussion identifies key factors expected to impact 2018 earnings . for ppl electric , lke , lg & e and ku , a summary of earnings and 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 ) following the june 1 , 2015 spinoff of ppl energy supply , ppl completed its strategic transformation to a fully regulated business model operating seven diverse , high-performing utilities . these utilities are located in the u.k. , pennsylvania and kentucky and each jurisdiction has different regulatory structures and customer classes . the company believes this diverse portfolio provides strong earnings and dividend growth potential that will create significant value for its shareowners and positions ppl well for continued growth and success . ppl 's businesses of wpd , ppl electric , lg & e and ku plan 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. , driven by planned significant capital expenditures to maintain existing assets and improve system reliability and , for lke , lg & e and 36 ku , to comply with federal and state environmental regulations related to coal-fired electricity generation facilities . additionally , significant transmission rate base growth is expected through at least 2020 at ppl electric . for the u.s. businesses , our strategy is to recover 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 outlay 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 . rate base growth in the domestic utilities is expected to result in earnings growth for the foreseeable future . in 2017 , earnings from the u.k. regulated segment declined mainly due to the unfavorable impact of lower gbp to u.s. dollar exchange rates . rav growth is expected in the u.k. regulated segment during the riio-ed1 price control period which ends on march 31 , 2023 and to result in earnings growth in 2018 through at least 2020 . see `` item 1. business - segment information - u.k. regulated segment '' for additional information on riio-ed1 . 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 . story_separator_special_tag u.k. membership in european union ( ppl ) on march 29 , 2017 , the u.k. formally notified the european council of the european union ( eu ) of its intent to withdraw from the eu , thereby commencing the two-year negotiation period to establish the terms of that withdrawal under article 50 of the lisbon treaty . article 50 specifies that if a member state decides to withdraw from the eu , it must notify the european 38 council of its intention to leave the eu , negotiate the terms of withdrawal and establish the legal grounds for its future relationship with the eu . article 50 provides two years from the date of the article 50 notification to conclude negotiations . failure to complete negotiations within two years , unless negotiations are extended , would result in the treaties governing the eu no longer being applicable to the u.k. with there being no agreement in place governing the u.k. 's relationship with the eu . under the terms of article 50 , negotiations can only be extended beyond two years if all of the 27 remaining eu states agree to an extension . any withdrawal agreement will need to be approved by both the european council and the european parliament . there remains significant uncertainty as to the ultimate outcome of the withdrawal negotiations and the related impact on the u.k. economy and the gbp to u.s. dollar exchange rate . ppl has executed hedges to mitigate the foreign exchange risk to the company 's u.k. earnings . as of february 20 , 2018 , ppl 's foreign exchange exposure related to budgeted earnings is 100 % hedged for the remainder of 2018 at an average rate of $ 1.34 per gbp , 100 % hedged for 2019 at an average rate of $ 1.39 per gbp and 35 % hedged for 2020 at an average rate of $ 1.46 per gbp . ppl can not predict either the short-term or long-term impact to foreign exchange rates or long-term impact on 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 significant . 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 . ( ppl ) riio-2 framework review in july 2017 , ofgem published an open letter commencing its riio-2 framework review , which covers all u.k. gas and electricity , transmission and distribution price controls . the purpose of this framework review is to build on lessons learned from the current price controls and to develop a framework that will be adaptable to meeting the needs of an evolving u.k. energy sector . the letter sets out the context for the development of the next price controls , riio-2 , and seeks views from stakeholders on the riio-2 framework . responses to the open letter were published in september 2017 and will be used to guide the full riio-2 framework consultation which is expected to be published in march of 2018. the promulgation of sector specific price controls will begin with the gas and electricity transmission networks , with electricity distribution price control work scheduled to begin in 2020 , at which time ofgem plans to publish its riio-ed2 strategy consultation document . the current electricity distribution price control , riio-ed1 , continues through march 31 , 2023 and will not be impacted by this riio-2 consultation process . ppl can not predict the outcome of this process or the long-term impact it or the final riio-ed2 regulations will have on its financial condition or results of operations . riio-ed1 mid-period review in december 2017 , ofgem initiated a consultation on a potential riio-ed1 mid-period review ( mpr ) . the riio framework allows for a mpr of outputs halfway through the price control . ofgem is consulting on three potential approaches : whether to implement a mpr as currently defined ; whether to implement a mpr with an extension for wpd rail electrification ; and whether to implement a mpr with a significant extension of scope to include financial parameters . ofgem 's initial assessment as set forth in its december 2017 consultation publication is that a mpr as currently defined under riio-ed1 is not required . in addition , ofgem recognized that the rail electrification is outside the scope of the mpr and that implementing a mpr to include financial parameters could undermine the stability of the regulatory regime . the consultation , however , requests interested party comments on those conclusions . the period for submission of comments to the consultation closed on february 2 , 2018. formal consultation responses have been submitted by ppl and wpd . a decision on whether to 39 proceed with a mpr is expected in spring 2018. if ofgem decides to launch a mpr , it will consult on detailed proposals in summer 2018 and any associated changes to dno licenses would be in place by april 1 , 2019. although , ppl can not predict the outcome of the consultation process , a mpr is not expected to have a significant impact on ppl 's financial condition or results of operations . ( ppl , lke , lg & e and ku ) the businesses of lke , lg & e and ku are subject to extensive federal , state and local environmental laws , rules and regulations , including those pertaining to ccrs , ghg , elgs and the clean power plan . see note 6 , note 13 and note 19 to the financial statements for a discussion of these significant environmental matters . these and other stringent environmental requirements led ppl , lke , lg & e and ku to retire approximately 800 mw of coal-fired generating plants in kentucky , primarily in 2015. additionally , ku anticipates retiring two older coal-fired units at the e.w . brown plant in 2019 with a combined summer rating capacity of 272 mw .
| 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 `` 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 `` margins , '' and provide explanations of the non-gaap financial measures and a reconciliation of those measures to the most comparable gaap measure . the `` 2018 outlook '' discussion identifies key factors expected to impact 2018 earnings . tables analyzing changes in amounts between periods within `` statement of income analysis , '' `` segment earnings '' and `` 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 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 `` margins '' discussion includes a reconciliation of non-gaap financial measures to `` operating income . '' ppl : statement of income analysis , segment earnings and margins statement of income analysis net income for the years ended december 31 includes the following results .
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you should read the โ risk factors โ section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview iqvia is a leading global provider of advanced analytics , technology solutions and contract research services to the life sciences industry . formed through the merger of ims health and quintiles , iqvia applies human data science โ leveraging the analytic rigor and clarity of data science to the ever-expanding scope of human science โ to enable companies to reimagine and develop new approaches to clinical development and commercialization , speed innovation , and accelerate improvements in healthcare outcomes . powered by the iqvia core , we deliver unique and actionable insights at the intersection of large scale analytics , transformative technology and extensive domain expertise , as well as execution capabilities to help biotech , medical device , and pharmaceutical companies , medical researchers , government agencies , payers and other healthcare stakeholders tap into a deeper understanding of diseases , human behaviors and scientific advances , in an effort to advance their path toward cures . with approximately 67,000 employees , we conduct operations in more than 100 countries . we are managed through three reportable segments , technology & analytics solutions , research & development solutions and contract sales & medical solutions . technology & analytics solutions provides critical information , technology solutions and real world solutions and services to our life science clients . research & development solutions , which primarily serves biopharmaceutical clients , is engaged in research and development and provides clinical research and clinical trial services . contract sales & medical solutions provides contract sales to both biopharmaceutical clients and the broader healthcare market . for a description of our service offerings within our segments , refer to part i , item 1 , โ business โ . industry outlook for information about the industry outlook and markets that we operate in , refer to part i , item i , โ our market outlook โ . business combinations we have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas , including various individually immaterial acquisitions during the years ended december 31 , 2019 and 2018. these transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date . see note 14 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for additional information with respect to these business combinations . sources of revenue total revenues are comprised of revenues from the provision of our services . we do not have any material product revenues . costs and expenses our costs and expenses are comprised primarily of our costs of revenue , reimbursed expenses and selling , general and administrative expenses . costs of revenue include compensation and benefits for billable employees and personnel involved in production , trial monitoring , data management and delivery , and the costs of acquiring and processing data for our information offerings ; costs of staff directly involved with delivering technology-related services offerings and engagements , related accommodations and the costs of data purchased specifically for technology services engagements ; and other expenses directly related to service contracts such as courier fees , laboratory supplies , professional services and travel expenses . as noted above , reimbursed expenses are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors and sales representatives . selling , general and administrative expenses include costs related to sales , marketing , and administrative functions ( including human resources , legal , finance , quality assurance , compliance and general management ) for compensation and benefits , travel , professional services , training and expenses for information technology , facilities and depreciation and amortization . 41 foreign currency translation in 2019 , approximately 40 % of our revenues were denominated in currencies other than the united states dollar , which represents approximately 55 currencies . because a large portion of our revenues and expenses are denominated in foreign currencies and our financial statements are reported in united states dollars , changes in foreign currency exchange rates can significantly affect our results of operations . the revenue and expenses of our foreign operations are generally denominated in local currencies and translated into united states dollars for financial reporting purposes . accordingly , exchange rate fluctuations will affect the translation of foreign results into united states dollars for purposes of reporting our condensed consolidated results . as a result , we believe that reporting results of operations that exclude the effects of foreign currency rate fluctuations on certain financial results can facilitate analysis of period to period comparisons . this constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results . consolidated results of operations for information regarding our results of operations for technology & analytics solutions , research & development solutions and contract sales & medical solutions , refer to โ segment results of operations โ later in this section . for a discussion of our results of operations comparison for 2018 and 2017 , refer to our annual report on form 10-k for the fiscal year ended december 31 , 2018 filed on february 19 , 2019. our reportable segment results of operations comparison for 2018 and 2017 included below within this annual report on form 10-k reflects the change in segment presentation that occurred during the first quarter of 2019. revenues replace_table_token_6_th 2019 compared to 2018 in 2019 , our revenues increased $ 676 million , or 6.5 % , as compared to 2018. this increase was comprised of constant currency revenue growth of approximately $ 835 million , or 8.0 % , and a negative impact of approximately $ 159 story_separator_special_tag 118 ( โ sab 118 โ ) to address situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax act . during the fourth quarter of 2017 , we recognized the tax impacts related to the transition tax on undistributed foreign earnings and the impact to deferred tax assets and liabilities and included these amounts in our consolidated financial statements on a provisional basis . during the fourth quarter of 2018 , we completed our accounting for sab 118 that resulted in a full year benefit of $ 35 million related to the transition tax . additionally , in 2018 as a result of the new provisions of the tax act , we recorded a benefit of $ 25 million related to fdii as well as a tax expense of $ 35 million related to gilti . our effective income tax rate was also favorably impacted by a tax benefit of $ 188 million related to purchase accounting amortization of approximately $ 813 million as a result of the merger . 44 for 2017 , we recorded a provisional deferred tax benefit of $ 966 million related to the revaluation of deferred taxes at the newly enacted 21 % rate and the reversal of the deferred tax liability on undistributed foreign earnings net of the newly enacted transition tax . we no longer consider any of our foreign earnings to be indefinitely reinvested . our effective income tax rate was also favorably impacted by a tax benefit of $ 261 million related to purchase accounting amortization of approximately $ 763 million as a story_separator_special_tag administrative expenses decreased $ 6 million , or 9.0 % , in 2019 as compared to 2018 , primarily related to cost saving initiatives . liquidity and capital resources overview we assess our liquidity in terms of our ability to generate cash to fund our operating , investing and financing activities . our principal source of liquidity is operating cash flows . in addition to operating cash flows , other significant factors that affect our overall management of liquidity include : capital expenditures , acquisitions , investments , debt service requirements , dividends , equity repurchases , adequacy of our revolving credit and receivables financing facilities , and access to the capital markets . we manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which those funds can be accessed on a cost-effective basis . the repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences ; however , those balances are generally available without legal restrictions to fund ordinary business operations . we have and expect to transfer cash from those subsidiaries to the united states and to other international subsidiaries when it is cost effective to do so . we had a cash balance of $ 837 million at december 31 , 2019 ( $ 293 million of which was in the united states ) , a decrease from $ 891 million at december 31 , 2018. based on our current operating plan , we believe that our available cash and cash equivalents , future cash flows from operations and our ability to access funds under our revolving credit and receivables financing facilities will enable us to fund our operating requirements and capital expenditures and meet debt obligations for at least the next 12 months . we regularly evaluate our debt arrangements , as well as market conditions , and from time to time we may explore opportunities to modify our existing debt arrangements or pursue additional financing arrangements that could result in the issuance of new debt securities by us or our affiliates . we may use our existing cash , cash generated from operations or dispositions of assets or businesses and or proceeds from any new financing arrangements or issuances of debt or equity securities to repay or reduce some of our outstanding obligations , to repurchase shares from our stockholders or for other purposes . as part of our ongoing business strategy , we also continually evaluate new acquisition , expansion and investment possibilities or other strategic growth opportunities , as well as potential dispositions of assets or businesses , as appropriate , including dispositions that may cause us to recognize a loss on certain assets . should we elect to pursue any such transaction , we may seek to obtain debt or equity financing to facilitate those activities . our ability to enter into any such potential transactions and our use of cash or proceeds is limited to varying degrees by the terms and restrictions contained in our existing debt arrangements . we can not provide assurances that we will be able to complete any such financing arrangements or other transactions on favorable terms or at all . 48 equity repurchase program on february 13 , 2019 , the board increased the stock repurchase authorization under the โ repurchase program by $ 2.0 billion , which increased the total amount that has been authorized under the repurchase program to $ 7.725 billion since the plan 's inception in october 2013. the repurchase program does not obligate the company to repurchase any particular amount of common stock , and it may be modified , extended , suspended or discontinued at any time . as of december 31 , 2019 , the company has remaining authorization to repurchase up to $ 1.3 billion of its common stock under the repurchase program . in addition , from time to time , the company has repurchased and may continue to repurchase common stock through private or other transactions outside of the repurchase program .
| result of the merger . equity in earnings ( losses ) of unconsolidated affiliates replace_table_token_16_th equity in earnings ( losses ) of unconsolidated affiliates decreased in 2019 compared to 2018 primarily as a result of earnings from our investment in novaquest pharma opportunities fund iii , l.p. that were recognized in 2018 that did not reoccur in 2019. see note 4 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for additional information . net income attributable to non-controlling interests replace_table_token_17_th net income attributable to non-controlling interests primarily included quest 's interest in q 2 solutions . segment results of operations revenues and profit by segment are as follows : replace_table_token_18_th certain costs are not allocated to our segments and are reported as general corporate and unallocated expenses . these costs primarily consist of stock-based compensation and expenses to integration activities and acquisitions . we also do not allocate depreciation and amortization or impairment charges to our segments . prior period segment results have been recast to conform to changes to management reporting in 2019. the recast impacts the allocation of selling , general and administrative expenses for 2018 and 2017 . 45 technology & analytics solutions replace_table_token_19_th revenues 2019 compared to 2018 technology & analytics solutions ' revenues were $ 4,486 million in 2019 , an increase of $ 349 million , or 8.4 % , over 2018. this increase was comprised of constant currency revenue growth of approximately $ 444 million , or 10.7 % , and a negative impact of approximately $ 95 million from the effects of foreign currency fluctuations . the constant currency growth resulted primarily from revenue growth in the americas region as well as the europe and africa region . the revenue growth in these regions was driven by higher real-world and analytical services as well as incremental revenue from acquisitions .
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'' eqm reported net income of $ 393.5 million in 2015 compared with $ 266.5 million in 2014 . the net income increase of $ 127.0 million was primarily related to higher operating income of $ 111.1 million . the increase in operating income was driven by production development in the marcellus shale by eqt and third parties as gathering revenues increased by $ 95.5 million and transmission and storage revenues increased by $ 42.1 million . these increases in revenues were partly offset by higher operating costs of $ 26.5 million . interest expense increased by $ 14.8 million primarily due to interest on long-term debt issued in august 2014 and the avc capital lease while income tax expense decreased by $ 25.0 million as a result of the changes in tax status associated with the nwv gathering and jupiter acquisitions in 2015 and 2014 , respectively . eqm reported net income of $ 266.5 million in 2014 compared with $ 189.8 million in 2013 . the increase of $ 76.7 million was primarily related to higher operating income of $ 81.9 million . the increase in operating income was driven by production development in the marcellus shale by third parties and eqt as transmission and storage revenues increased by $ 80.9 million and gathering revenues increased by $ 41.6 million . these increases in revenues were partly offset by higher operating costs of $ 40.6 million . interest expense increased by $ 29.2 million primarily due to interest on the avc capital lease and long-term debt while income tax expense decreased by $ 22.9 million as a result of the changes in tax status associated with the jupiter acquisition and sunrise merger in 2014 and 2013 , respectively . on january 21 , 2016 , eqm declared a cash distribution to unitholders of $ 0.71 per unit , which represented a 5 % increase over the previous distribution paid on november 13 , 2015 of $ 0.675 per unit and a 22 % increase over the distribution paid on february 13 , 2015 of $ 0.58 per unit related to the fourth quarter of 2014. total distributions related to 2015 were $ 2.635 per unit compared to $ 2.14 per unit total distributions related to 2014 , a 23 % increase . business segment results operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and is subject to evaluation by the chief operating decision maker in deciding how to allocate resources . interest , equity income and other income are managed on a consolidated basis . eqm has presented each segment 's operating income and various operational measures in the sections below . management believes that the presentation of this information provides useful information to management and investors regarding the financial condition , results of operations and trends of segments . eqm has reconciled each segment 's operating income to eqm 's consolidated operating income and net income in note 4 to the consolidated financial statements . operating revenues and operating expenses related to the avc facilities do not have an impact on adjusted ebitda or distributable cash flow as the excess of the avc revenues over operating and maintenance and selling , general and administrative expenses is paid to eqt as the current monthly lease payment . all revenues related to the avc facilities are from third parties . 50 transmission and storage story_separator_special_tag non-gaap financial measures eqm defines adjusted ebitda as net income plus interest expense , depreciation and amortization expense , income tax expense ( if applicable ) and non-cash long-term compensation expense less non-cash adjustments ( if applicable ) , equity income , other income , capital lease payments , jupiter adjusted ebitda prior to the jupiter acquisition and nwv gathering adjusted ebitda prior to the nwv gathering acquisition . eqm defines distributable cash flow as adjusted ebitda less interest expense , excluding capital lease interest and ongoing maintenance capital expenditures , net of reimbursements . adjusted ebitda and distributable cash flow are non-gaap supplemental financial measures that management and external users of eqm 's consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , use to assess : eqm 's operating performance as compared to other publicly traded partnerships in the midstream energy industry without regard to historical cost basis or , in the case of adjusted ebitda , financing methods ; the ability of eqm 's assets to generate sufficient cash flow to make distributions to eqm 's unitholders ; eqm 's ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . eqm believes that adjusted ebitda and distributable cash flow provide useful information to investors in assessing its financial condition and results of operations . adjusted ebitda and distributable cash flow should not be considered as alternatives to net income , operating income , net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . adjusted ebitda and distributable cash flow have important limitations as analytical tools because they exclude some , but not all , items that affect net income and net cash provided by operating activities . additionally , because adjusted ebitda and distributable cash flow may be defined differently by other companies in its industry , eqm 's adjusted ebitda and distributable cash flow may not be comparable to similarly titled measures of other companies , thereby diminishing the utility of the measures . distributable cash flow should not be viewed as indicative of the actual amount of cash that eqm has available for distributions from operating surplus or that it plans to distribute . 54 reconciliation of non-gaap measures the following table presents a reconciliation of the non-gaap measures adjusted ebitda and distributable cash flow with the most directly comparable gaap financial measures of net income and net cash provided by operating activities . story_separator_special_tag eqm plans to complete the project in two phases , with phase one expected to be in-service during the second half of 2016 and phase two during the first half of 2017. eqm expects to invest approximately $ 195 million to $ 205 million on the project in 2016. nwv gathering and jupiter development areas . eqm expects to invest a total of approximately $ 370 million , of which approximately $ 95 million to $ 105 million is expected to be spent during 2016 , related to expansion in the nwv gathering development area . these expenditures are part of a fully subscribed expansion project expected 56 to raise total firm gathering capacity in the nwv gathering development area to 640 mmcf per day by mid-year 2017. eqm also plans to invest approximately $ 20 million in the jupiter development area to install gathering pipeline that will extend the gathering system to include additional eqt production development areas in greene county , pennsylvania . transmission expansion projects . eqm is evaluating several multi-year transmission capacity expansion projects to support production growth in the marcellus and utica shales that could total an additional 1.5 bcf per day of capacity by year-end 2018. the projects may include additional compression , pipeline looping and new header pipelines . eqm expects to spend approximately $ 25 million on these expansion projects during 2016. mountain valley pipeline . the mvp joint venture is a joint venture with affiliates of each of nextera energy , inc. , coned , wgl holdings , inc. , vega energy partners , ltd. and rgc resources , inc. as of february 11 , 2016 , eqm owned a 45.5 % interest in the mvp joint venture and had assumed the role of operator of the mvp to be constructed by the joint venture . the estimated 300-mile mvp is currently targeted at 42 inches in diameter and a capacity of 2.0 bcf per day , and will extend from eqm 's existing transmission and storage system in wetzel county , west virginia to pittsylvania county , virginia . as currently designed , the mvp is estimated to cost a total of $ 3.0 billion to $ 3.5 billion , excluding afudc , with eqm funding its proportionate share through capital contributions made to the joint venture . in 2016 , eqm expects to provide capital contributions of approximately $ 150 million to the mvp joint venture , primarily in support of material orders , environmental and land assessments and engineering design work . expenditures are expected to increase substantially as construction commences , with the bulk of the expenditures expected to be made in 2017 and 2018. on january 21 , 2016 , affiliates of coned acquired a 12.5 % interest in the mvp joint venture and entered into 20-year firm capacity commitments for approximately 0.25 bcf per day on both the mvp and eqm 's transmission system . coned has the right to terminate its purchase of the interest in the mvp joint venture and be reimbursed for the purchase price and all capital contributions it makes to the mvp joint venture for a period ending no later than december 31 , 2016. the mvp joint venture has secured a total of 2.0 bcf per day of 20-year firm capacity commitments , including a 1.29 bcf per day firm capacity commitment by eqt , and is currently in negotiation with additional shippers who have expressed interest in the mvp project . the mvp joint venture submitted the mvp certificate application to the ferc in october 2015 and anticipates receiving the certificate in the fourth quarter of 2016. subject to ferc approval , construction is scheduled to begin shortly thereafter and the pipeline is expected to be in-service during the fourth quarter of 2018. see further discussion of capital expenditures in the โ capital requirements โ section below . commodity prices eqm 's business is dependent on the continued availability of natural gas production and reserves in its areas of operation . low prices for natural gas , including those resulting from regional basis differentials , could adversely affect development of additional reserves and production that is accessible by eqm 's pipeline and storage assets . for example , the average daily prices for nymex henry hub natural gas ranged from a high of $ 3.23 per mmbtu to a low of $ 1.76 per mmbtu from january 1 , 2015 through february 10 , 2016 , and the average daily prices for nymex west texas intermediate crude oil ranged from a high of $ 61.43 per barrel to a low of $ 26.55 per barrel during the same period . the markets will likely continue to be volatile in the future . in addition , lower natural gas prices could cause producers to determine in the future that drilling activities in areas outside of eqm 's current areas of operation are strategically more attractive to them . in response to recent commodity price decreases , a number of large natural gas producers have recently announced their intention to re-evaluate and or reduce their drilling programs in certain areas , including the appalachian basin . in december 2015 , eqt announced a 2016 capital expenditure forecast for well development of $ 820 million , which is 51 % lower than eqt 's 2015 capital expenditures for well development . eqt may further reduce its capital spending in the future based on commodity prices or other factors . unless eqm is successful in attracting significant unaffiliated third party customers , its ability to maintain or increase the capacity subscribed and volumes transported under service arrangements on its transmission and storage system as well as the volumes gathered on its gathering systems will be dependent on receiving consistent or increasing commitments from eqt .
| results of operations replace_table_token_6_th ( a ) includes commodity charges and fees on volumes transported in excess of firm contracted capacity . ( b ) includes volumes transported under interruptible contracts and volumes in excess of firm contracted capacity . year ended december 31 , 2015 compared to year ended december 31 , 2014 transmission and storage revenues increased by $ 42.1 million reflecting production development in the marcellus shale by affiliate and third party producers . the increase primarily resulted from higher firm reservation fees of $ 45.1 million partly offset by lower usage fees under interruptible contracts . the decrease in usage fees was primarily due to customers contracting for additional firm capacity . operating expenses increased by $ 22.2 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 . the increase in operating and maintenance expense resulted from higher repairs and maintenance expenses of $ 4.9 million associated with increased throughput , higher property taxes of $ 2.3 million and higher allocations , including personnel costs , from eqt . selling , general and administrative expenses increased primarily as a result of higher allocations and personnel costs from eqt . the increase in depreciation and amortization expense was primarily a result of higher depreciation on the increased investment in transmission infrastructure . 51 year ended december 31 , 2014 compared to year ended december 31 , 2013 transmission and storage revenues increased by $ 80.9 million reflecting production development in the marcellus shale by third party producers and affiliates . the increase primarily resulted from higher firm reservation fees of $ 75.1 million and increased usage fees under interruptible contracts . operating expenses increased $ 22.6 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 .
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the following table presents the details of the tangible and intangible assets acquired and liabilities assumed for this acquisition : site improvements $ 249 building and tenant improvements 5,862 in-place leases 343 above market ground lease intangibles 219 leasing costs 427 below market lease intangibles ( 229 ) total purchase price $ 6,871 fremont facility - on february 9 , 2018 , the company purchased a medical office building located in fremont , ohio for a purchase price of $ 8.5 million . upon the closing of this acquisition , the company entered into a new 12-year lease with northern story_separator_special_tag the following discussion should be read in conjunction with our financial statements , including the notes to those financial statements , included elsewhere in this report . some of the statements we make in this section are forward-looking statements within the meaning of the federal securities laws . for a complete discussion of forward-looking statements , see the section in this report entitled โ forward-looking statements. โ certain risk factors may cause actual results , performance or achievements to differ materially from those expressed or implied by the following discussion . for a discussion of such risk factors , see the section in this report entitled โ risk factors. โ unless otherwise indicated all dollar and share amounts in the following discussion are presented in thousands . overview global medical reit inc. ( the โ company , โ โ us , โ โ we , โ or โ our โ ) is an externally-managed , maryland corporation engaged primarily in the acquisition of purpose-built healthcare facilities and leasing of those properties to strong healthcare systems and physician groups with leading market share . the company is externally managed and advised by inter-american management , llc ( the โ advisor โ ) . we elected to be taxed as a reit for u.s. federal income tax purposes commencing with our taxable year ended december 31 , 2016. we conduct our business through an umbrella partnership real estate investment trust , or upreit , structure in which our properties are owned by wholly-owned subsidiaries of our operating partnership , global medical reit l.p. ( the โ operating partnership โ ) . our wholly-owned subsidiary , global medical reit gp , llc , is the sole general partner of our operating partnership and , as of december 31 , 2018 , we owned approximately 87.42 % of the outstanding operating partnership units ( โ op units โ ) of our operating partnership . our business objectives and investment strategy our principal business objective is to provide attractive , risk-adjusted returns to our stockholders through a combination of ( i ) reliable dividends and ( ii ) long-term capital appreciation . our primary strategies to achieve our business objective are to : ยท construct a property portfolio that consists substantially of medical office buildings ( mobs ) , specialty hospitals and ambulatory surgery centers ( ascs ) and in-patient rehabilitation facilities that are situated to take advantage of the aging of the u.s. population and the decentralization of healthcare ; ยท focus on practice types that will be utilized by an aging population and that are highly dependent on their purpose-built real estate to deliver core medical procedures , such as cardiovascular treatment , rehabilitation , eye surgery , gastroenterology , oncology treatment and orthopedics ; ยท set aside a portion of our property portfolio for opportunistic acquisitions of non-core assets , such as acute-care hospitals and long-term acute care facilities ( ltacs ) , that we believe provide premium , risk-adjusted returns ; ยท lease the facilities under long-term , triple-net leases with contractual rent escalations ; ยท lease each facility to medical providers with a track record of successfully managing excellent clinical and profitable practices ; and ยท receive credit protections from our tenants or their affiliates , including personal and corporate guaranties , rent reserves and rent coverage requirements . 2018 executive summary the following table summarizes the material changes in our business and operations during 2018 : replace_table_token_9_th ( 1 ) see โ โnon-gaap financial measures , โ for a description of our non-gaap financial measures and a reconciliation of our non-gaap financial measures . 38 replace_table_token_10_th during the years ended december 31 , 2018 and 2017 , we generated rental revenue of $ 49.6 and $ 28.5 million , respectively , from our portfolio of properties . reflecting the impact of our increasing investment balances during 2018 , as well as the gain from the sale of an investment property during 2018 , we generated net income attributable to common stockholders of $ 7.7 million in 2018 compared to a net loss attributable to common stockholders of $ 1.8 million in 2017. during 2018 we completed 14 acquisitions , encompassing an aggregate 811,707 square feet , for an aggregate purchase price of $ 196.3 million with annualized base rent of $ 15.8 million and a weighted average capitalization rate of 8.0 % . in addition to these acquisitions , in december 2018 , the company disposed of the great bend regional hospital , receiving gross proceeds of $ 32.5 million and resulting in a gain of $ 7.7 million . as of december 31 , 2018 , the company had gross investments in real estate of $ 647.6 million , a net increase of $ 176.1 million compared to $ 471.5 million at year end 2017. regarding our debt , in august 2018 we amended and restated our credit facility , increasing the overall capacity of the facility from $ 340 million to $ 350 million , consisting of a $ 250 million revolving credit facility and a $ 100 million five-year term loan , extending the term of the facility to august 2022 , with a one-year extension option , and implementing an improved pricing matrix . the facility includes an accordion feature to increase the capacity to an aggregate of $ 500 million . story_separator_special_tag due to our leverage limitations , if we are unable to raise equity capital in sufficient amounts or at all in order to pay down our indebtedness , we will be limited in the amount of properties we may acquire ; and ยท changes in third party reimbursement methods and policies โ as the price of healthcare services continues to increase , we believe third-party payors , such as medicare and commercial insurance companies , will continue to scrutinize and reduce the types of healthcare services eligible for , and the amounts of , reimbursement under their health insurance plans . additionally , many employer-based insurance plans have continued to increase the percentage of insurance premiums for which covered individuals are responsible . if these trends continue , our tenants may experience lower patient volumes as well as higher patient credit risks , which could negatively impact their business as well as their ability to pay rent to us . critical accounting policies the preparation of financial statements in conformity with gaap requires our management to use judgment in the application of accounting policies , including making estimates and assumptions . we base estimates on the best information available to us at the time , our experience and on various other assumptions believed to be reasonable under the circumstances . these estimates affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods . if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different , it is possible that different accounting would have been applied , resulting in a different presentation of our financial statements . from time-to-time , we re-evaluate our estimates and assumptions . in the event estimates or assumptions prove to be different from actual results , adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain . for a more detailed discussion of our significant accounting policies , see note 2 โ โ summary of significant accounting policies โ in the footnotes to the accompanying financial statements . below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain . 40 use of estimates the preparation of the financial statements in conformity with gaap requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . actual results could differ from those estimates . purchase of real estate effective january 1 , 2018 , we adopted the provisions of accounting standards update ( โ asu โ ) 2017-01 โ โ business combinations ( topic 805 ) : clarifying the definition of a business โ ( โ asu 2017-01 โ ) . 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 our 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 โ owner occupied โ ( 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 โ owner occupied , โ we will allocate the purchase price to tangible assets and any intangible assets acquired or liabilities assumed based on their relative fair values . fair value is determined based upon the guidance of accounting standard codification ( โ asc โ ) topic 820 , fair value measurements and disclosures , and generally are determined using level 2 inputs , such as rent comparables , sales comparables , and broker indications . although level 3 inputs are utilized , they are minor in comparison to the level 2 data used for the primary assumptions . the determination of fair value involves the use of significant judgment and estimates . we make estimates to determine the fair value of the tangible and intangible assets acquired and liabilities assumed using information obtained from multiple sources , including pre-acquisition due diligence , and we routinely utilize the assistance of a third-party appraiser . initial valuations are subject to change until the information is finalized , no later than 12 months from the acquisition date . we expense transaction costs associated with acquisitions accounted for as business combinations in the period incurred . valuation of tangible assets : the fair value of land is determined using the sales comparison approach whereby recent comparable land sales and listings are gathered and summarized . the available market data is analyzed and compared to the land being valued and adjustments are made for dissimilar characteristics such as market conditions , size , and location . we estimate the fair value of buildings acquired on an as-if-vacant basis and depreciate the building value over its estimated remaining life .
| consolidated results of operations the major factors that resulted in variances in our results of operations for each revenue and expense category for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 were the increase in the size of our property portfolio in 2018 and the disposition of our great bend property in december 2018. our total investments in real estate , net of accumulated depreciation and amortization , was $ 616.9 million and $ 457.9 million as of december 31 , 2018 and 2017 , respectively . similarly , for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , the major factor that resulted in variances in our results of operations for each revenue and expense category was the increase in the size of our property portfolio in 2017. our total investments in real estate , net of accumulated depreciation and amortization , was $ 457.9 million and $ 203.5 million as of december 31 , 2017 and 2016 , respectively . year ended december 31 , 2018 compared to year ended december 31 , 2017 replace_table_token_12_th 43 revenue total revenue total revenue for the year ended december 31 , 2018 was $ 53.2 million , compared to $ 30.3 million for the same period in 2017 , an increase of $ 22.9 million . the increase was primarily the result of rental revenue earned from the facilities we acquired during 2018 , as well as from the recognition of a full year of rental revenue in 2018 from acquisitions that were completed during 2017. additionally , total revenue for the years ended december 31 , 2018 and 2017 included $ 3.6 million and $ 1.7 million , respectively , in revenue that was recognized from expense recoveries . expense recoveries are related to tenant reimbursement of real estate taxes , insurance , and certain other operating expenses .
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the six months ended march 31 , 2010 , respectively : replace_table_token_8_th our retail propane volumes increased 22.4 million gallons during the six months ended march 31 , 2011 as compared to sales of 11.7 million gallons during the six months ended march 31 , 2010 due to the acquisition of hicksgas in october 2010. excluding the increase of 24.7 million gallons from the hicksgas operation , our volumes decreased 2.3 million gallons primarily due to a 4.8 % decrease in heating degree days in our kansas market area during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010 and the effects of conservation . in addition , our retail sales volumes in the kansas market area were negatively impacted by competition from a low cost marketer during the six months ended march 31 , 2011. our wholesale supply and marketing volumes decreased during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010 due to a substantial decrease in sales for crop drying purposes , the impact of the decrease in heating degree days in the midwest region and the shut down of certain pipeline terminals we use for marketing activities for a substantial portion of the winter months . 45 our midstream throughput volumes decreased primarily due to the warmer winter in the midwest and the lack of volumes used for crop drying purposes during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010. operating income by segment our operating income by segment is as follows : replace_table_token_9_th corporate general and administrative expense decreased $ 1.3 million during the six months ended march 31 , 2011 as compared to corporate general and administrative expense of $ 3.5 million for the six months ended march 31 , 2010. the decrease is due primarily to no executive bonus expense during the six months ended march 31 , 2011 , compared to bonus expense of $ 2.4 million during the six months ended march 31 , 2010. the reduced bonus expense was offset by an increase in expenses related to the acquisition of hicksgas . retail propane the following table compares the operating results of our retail propane segment for the periods indicated : replace_table_token_10_th revenues . propane sales for the six months ended march 31 , 2011 increased approximately $ 47.9 million as compared to propane sales of $ 19.3 million during the six months ended march 31 , 2010 , due primarily to the acquisition of hicksgas in october 2010. hicksgas had total propane sales of $ 48.7 million during the six months ended march 31 , 2011 , represented by 24.7 million gallons at an average sales price of $ 1.97 per gallon . excluding the impact of the hicksgas acquisition , propane sales from our pre-existing business decreased approximately $ 0.9 million during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010 , consisting of a decrease of $ 3.8 million due to a volume decrease of 2.3 million gallons , and an increase of $ 2.9 46 million resulting from an increase in average price during the period . the decreased volume is due primarily to a 4.8 % decrease in heating degree days in our kansas retail propane market during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010 and the effects of conservation . cost of sales . propane cost of sales for the six months ended march 31 , 2011 increased approximately $ 33.0 million as compared to propane cost of sales of $ 11.7 million during the six months ended march 31 , 2010 , due primarily to the acquisition of hicksgas in october 2010. hicksgas had total propane cost of sales of $ 32.2 million during the six months ended march 31 , 2011 , represented by 24.7 million gallons at an average cost of $ 1.31 per gallon . excluding the impact of the hicksgas acquisition , propane cost of sales from our pre-existing business increased approximately $ 0.8 million during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010 , consisting of a decrease of $ 2.3 million due to a decrease in volumes sold , and an increase of $ 3.1 million resulting from an increase in our average cost of propane . gross margin . gross margin of our retail propane operation increased $ 17.4 million during the six months ended march 31 , 2011 as compared to gross margin of $ 8.5 million during the six months ended march 31 , 2010. this increase is due primarily to the acquisition of hicksgas in october 2010 , which had a gross margin of approximately $ 19.1 million during the six months ended march 31 , 2011. excluding the gross margin from the hicksgas acquisition , the gross margin of our pre-existing business decreased approximately $ 1.8 million during the six months ended march 31 2011 as compared to the six months ended march 31 , 2010 , primarily related to a $ 1.6 million decrease in gross margin from our pre-existing propane sales operations . the decrease in gross margin of propane sales from our pre-existing business was due to a decrease of $ 1.5 million resulting from a decrease in volumes sold and a decrease of $ 0.1 million due to our inability to fully pass on the increase in the cost of our propane sales . operating expenses . story_separator_special_tag operating expenses of our retail propane segment increased $ 9.4 million during the six months ended march 31 , 2011 as compared to operating expenses of $ 4.1 million during the six months ended march 31 , 2010. this increase is due primarily to the acquisition of hicksgas in october 2010. hicksgas had total operating expenses of $ 9.9 million during the six months ended march 31 , 2011. excluding the impact of the hicksgas acquisition , the operating expenses of our pre-existing business decreased approximately $ 0.5 million during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010 , due primarily to a decrease of approximately $ 0.3 million in compensation costs resulting from a decrease in bonus expense , and a decrease of $ 0.3 million in insurance expenses . general and administrative expenses . general and administrative expenses of our retail propane segment increased approximately $ 1.5 million during the six months ended march 31 , 2011 as compared to general and administrative expenses of $ 0.6 million during the six months ended march 31 , 2010. this increase is due primarily to the acquisition of hicksgas in october 2010. depreciation and amortization . depreciation and amortization expense of our retail propane segment increased $ 2.0 million during the six months ended march 31 , 2011 as compared to depreciation and amortization expense of $ 0.9 million during the six months ended march 31 , 2010. the increase is due to the acquisition of hicksgas in october 2010. hicksgas had depreciation and amortization expense of $ 2.0 million during the six months ended march 31 , 2011. operating income . operating income of our retail propane segment increased $ 4.5 million during the six months ended march 31 , 2011 as compared to operating income of $ 2.9 million during the six months ended march 31 , 2010 , primarily as a result of the hicksgas acquisition in october 2010. hicksgas had operating income of $ 5.7 million during the six months ended march 31 , 2011. excluding the impact of the hicksgas acquisition , operating income of our pre-existing business decreased $ 1.3 million during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010. this decrease is due to a decrease of $ 1.8 million in the gross margin of our pre-existing business , offset by a decrease of $ 0.5 million in the operating expenses of our pre-existing business . wholesale supply and marketing the following table compares the operating results of our wholesale supply and marketing segment for the periods indicated : 47 replace_table_token_11_th revenues . wholesale sales increased $ 37.2 million during the six months ended march 31 , 2011 as compared to wholesale sales of $ 531.3 million during the six months ended march 31 , 2010. the wholesale sales volume decreased approximately 18.5 million gallons during the six months ended march 31 , 2011 as compared to sales of 440.4 million gallons during the six months ended march 31 , 2010 , as discussed above . the decrease in sales volume resulted in a decrease in sales revenue of $ 22.3 million during the six months ended march 31 , 2011. our average sales price during the six months ended march 31 , 2011 increased $ 0.14 per gallon as compared to $ 1.21 per gallon during the six months ended march 31 , 2010 , which resulted in an increase in sales revenues of $ 59.5 million during the six months ended march 31 , 2011. the increase in price is due to the overall increase in the spot propane price during the six months ended march 31 , 2011 as compared to the six months ended march 31 , 2010. cost of sales . wholesale cost of sales increased $ 36.0 million during the six months ended march 31 , 2011 as compared to wholesale cost of sales of $ 522.7 million during the six months ended march 31 , 2010. the increase is due primarily to the effect of an increase in our cost of propane during the six months ended march 31 2011. our average cost of propane during the six months ended march 31 , 2011 increased $ 0.14 per gallon as compared to our average cost of $ 1.19 per gallon during the six months ended march 31 , 2010. this increase in cost per gallon resulted in an increase of $ 57.9 million on cost of sales . this increase was offset by a reduction in cost of sales of $ 21.9 million as a result of the decrease in sales volume of 18.5 million gallons . gross margin . gross margin of our wholesale supply and marketing segment increased $ 1.2 million during the six months ended march 31 , 2011 as compared to gross margin of $ 9.8 million during the six months ended march 31 , 2010. the increase in gross margin is due primarily to our ability to fully pass on our increased cost of propane during the six months ended march 31 2011. operating expenses . operating expenses of our wholesale supply and marketing segment decreased $ 0.6 million during the six months ended march 31 , 2011 as compared to operating expenses of $ 2.9 million during the six months ended march 31 , 2010. this decrease is due primarily to a reduction in compensation expense as a result of no bonus payments in the six months ended march 31 2011 , compared to bonus payments of $ 1.4 million during the six months ended march 31 , 2010. the decrease resulting from the reduction in bonus payments was offset by an increase in compensation expense resulting from an increase in the number of employees . general and administrative expenses . general and administrative expenses of our wholesale supply and marketing segment increased $ 0.3 million during the
| consolidated results of operations the following table summarizes our historical consolidated statements of operations for the six months ended march 31 , 2011 , and ngl supply 's consolidated statements of operations for the six months ended september 30 , 2010 and the fiscal years ended march 31 , 2010 , and 2009. replace_table_token_4_th all information herein related to periods prior to october 2010 represents the results of operations of ngl supply . see the detailed discussion of revenues , cost of sales , gross margin , operating expenses , general and administrative expenses , depreciation and amortization and operating income by operating segment below . set forth below is a discussion of significant changes in the non-segment related corporate other income and expenses during the respective periods . interest expense our interest expense consists of interest on borrowings under a revolving credit facility , letter of credit fees and amortization of debt issuance costs . see note 9 to our consolidated financial statements as of march 31 , 2011 included elsewhere in this annual report for additional information on our long-term debt . the change in interest expense during the periods presented is due primarily to fluctuations of the average outstanding debt balance , the average interest rate and the amortization of debt issuance costs , as follows : 41 replace_table_token_5_th the increased levels of debt outstanding during the six months ended march 31 , 2011 and fiscal 2009 are due to borrowings to finance the acquisitions of retail propane businesses . interest and other income our non-operating other income consists of the following : replace_table_token_6_th the gain on sale of assets during the six months ended september 30 , 2010 and the year ended march 31 , 2009 represents the proceeds from sale of certain salvaged propane tanks , vehicles and other miscellaneous equipment . sales of assets in the other periods presented were not significant .
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story_separator_special_tag forward-looking statements please note that in this annual report on form 10-k we may use words such as โ appears , โ โ anticipates , โ โ believes , โ โ plans , โ โ expects , โ โ intends , โ โ future , โ 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 growth strategy ; the company 's ability to successfully integrate and grow acquisitions ; the company 's ability to maintain the strength and security of its information technology systems ; stability of the company 's manufacturing facilities and foreign suppliers ; the company 's ability to protect trademarks and other intellectual property rights ; fluctuations in the price , availability and quality of raw materials and contracted products ; 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.โrisk 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 for income tax take into account current tax laws , our interpretation of current tax laws and possible outcomes of current and future audits conductions by foreign and domestic tax authorities . changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of taxable income . actual operating results and the underlying amount and category of income in future years could cause our current assumptions , judgments and estimates of recoverable net deferred taxes to be inaccurate . changes in any of the assumptions , judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates , which could materially affect our financial position and results of operations . ยท compensation expense is recorded for all share-based awards granted based on the fair value of the award at the time of the grant and is recognized on a straight-line basis over the requisite service period of the award . we estimate stock-based compensation for stock-options granted using the black-scholes option pricing model , which requires various highly subjective assumptions , including volatility and expected option life . further , we estimate forfeitures for stock-based awards granted , which are not expected to vest . if any of these inputs or assumptions changes significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . ยท our depreciation policies for property and equipment reflect judgments on their estimated economic lives and residual value , if any . our amortization policies for intangible assets reflect judgments on the estimated amounts and duration of future cash flows expected to be generated by those assets . we review property and definite-lived intangible assets for possible impairment whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of an asset may not be fully recoverable . we test for possible impairment at the asset or asset group level , which is the lowest level for which there are identifiable cash flows . we measure recoverability of the carrying value of an asset or asset group by comparison with estimated undiscounted cash flows expected to be generated by the asset . if the total of undiscounted cash flows exceeds the carrying value of the asset , there is no impairment charge . if the undiscounted cash flows are less than the carrying value of the asset , we estimate the fair value of the asset based on the present value of its future cash flows and recognize an impairment charge for the excess of the asset 's carrying value over its fair value . 28 ยท indefiniteโlived intangible assets , consisting of trademarks , and goodwill are not subject to amortization . rather , we evaluate those assets for possible impairment on an annual basis or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset may exceed its fair value . fair value of an indefiniteโlived trademark intangible asset is based on an income approach using the reliefโfromโroyalty method . under this method , forecasted revenues for a trademark are assigned a royalty rate that would be charged to license the trademark ( in lieu of ownership ) from an independent party , and fair value is the present value of those forecasted royalties avoided by owning the trademark . story_separator_special_tag 30 cost of goods sold consolidated cost of goods sold increased $ 16,078 , or 21.9 % , to $ 89,423 during the year ended december 31 , 2011 compared to combined cost of goods sold of $ 73,345 during the year ended december 31 , 2010. the amount recorded during the year ended december 31 , 2010 included $ 4,997 of inventory sold due to the step-up in fair value in purchase accounting ; which all inventory acquired , and related step-up in fair value in purchase accounting , was sold in 2010. excluding the $ 4,997 impact of the acquisition-related fair value adjustment on inventory sold , combined cost of goods sold for the year ended december 31 , 2010 would have been $ 68,348 , which would have resulted in an increase in consolidated cost of goods sold of $ 21,075 , or 30.8 % , to $ 89,423 during the year ended december 31 , 2011. the increase in cost of goods sold was attributable to an increase in sales by bdel and from the inclusion of gmp 's sales in our financial results . gross profit consolidated gross profit increased $ 18,842 , or 50.2 % , to $ 56,352 during the year ended december 31 , 2011 compared to combined gross profit of $ 37,510 during the year ended december 31 , 2010. consolidated gross margin was 38.7 % during the year ended december 31 , 2011 compared to a combined gross margin of 33.8 % during the year ended december 31 , 2010. excluding the $ 4,997 impact of the acquisition-related fair value adjustment on sold inventory , gross margin for the year ended december 31 , 2010 would have been 38.3 % . the dollar increase in gross profit was primarily attributable to an increase in sales by bdel and from the inclusion of gmp 's sales in our financial results . the increase in gross margin percentage is primarily driven by not being impacted by any acquisition-related fair value adjustments during the year ended december 31 , 2011. the 2011 gross margin is consistent with the 2010 adjusted gross margin of 38.3 % . selling , general and administrative consolidated selling , general and administrative expenses increased $ 7,147 , or 16.5 % , to $ 50,493 during the year ended december 31 , 2011 compared to combined selling , general and administrative expenses of $ 43,346 during the year ended december 31 , 2010. the increase in selling , general and administrative expenses was primarily attributable to the increase in operations with the inclusion of gmp and the company 's investments in its strategic initiatives and infrastructure to support both current and anticipated future growth of $ 8,434 , an increase in depreciation and amortization of $ 1,106 , off-set by a decrease in non-cash equity compensation expense of $ 2,393. restructuring charge consolidated restructuring expenses decreased $ 1,849 , or 65.1 % , to $ 993 during the year ended december 31 , 2011 compared to combined restructuring expenses of $ 2,842 during the same period in 2010. all of the restructuring expense incurred in 2011 and 2010 were attributable to the acquisitions of bdel and gmp . during 2011 , such restructuring expenses comprised of : ( i ) $ 781 related to the relocation of gmp to the company 's headquarters in salt lake city , utah , and ( ii ) $ 212 related to the disposal of long-lived assets in conjunction with the relocation of the company 's u.s. distribution facilities in salt lake city , ut to a new location in salt lake city , ut as part of integrating gmp . during 2010 , such restructuring expenses comprised of : ( i ) a total of $ 1,295 relating to the release of the company from its lease obligations and indemnifications by kanders & company in connection with the relocation of our corporate office from stamford , connecticut to salt lake city , utah , ( ii ) a total of $ 596 relating to the write-off of fixed assets partially offset by $ 462 gain from the write-off of a deferred rent liability for the relocation of our corporate office from stamford , connecticut to salt lake city , utah , ( iii ) $ 352 related to severance and relocation benefits provided to gmp employees , and ( iv ) the complete amortization of the $ 1,061 paid for severance and transition service expenses pursuant to a transition services agreement between the company and kanders & company . merger and integration consolidated merger and integration expenses decreased 100.0 % to $ 0 during the year ended december 31 , 2011 compared to combined merger and integration expenses of $ 974 during the same period in 2010 , which was attributable to transaction bonuses and consulting fees paid in connection with the acquisition of bdel and gmp in 2010. transaction costs consolidated transaction expense decreased 100.0 % to $ 0 during the year ended december 31 , 2011 compared to combined transaction expenses of $ 5,075 during the same period in 2010 , which consisted primarily of professional fees and expenses related to due diligence , negotiation and documentation of acquisition , financing and related agreements in connection with the acquisition of bdel and gmp in 2010 . 31 interest expense consolidated interest expense increased $ 1,033 , or 54.7 % , to $ 2,921 during the year ended december 31 , 2011 compared to combined interest expense of $ 1,888 during the year ended december 31 , 2010. the increase in interest expense was primarily attributable to new debt outstanding related to financing of the acquisitions of bdel and gmp and higher average balances outstanding on the line of credit during the year ended december 31 , 2011 compared to the same period in 2010. income tax expense consolidated income tax benefit decreased $ 66,575 , or 96.1 % , to a benefit of $ 2,688 during the year ended december 31 , 2011 compared to combined income tax benefit of
| overview black diamond is a leader in designing , manufacturing and bringing to market innovative active outdoor performance products for climbing , mountaineering , backpacking , skiing and other active outdoor recreation activities for a wide range of year-round use . our principal brands include black diamondยฎ and gregory tm , through which we target the demanding requirements of core climbers and skiers , more general outdoor performance enthusiasts and consumers interested in outdoor-inspired gear for their urban activities . our black diamondยฎ and gregory tm brands are iconic in the active outdoor industry and are linked intrinsically with the modern history of the sports we serve . we believe our brands are synonymous with performance , innovation , durability and safety that the climbing , mountaineering , skiing and backpacking communities rely on and embrace in their active lifestyle . we offer a broad range of products including : rock-climbing equipment ( such as carabiners , protection devices , harnesses , belay devices , helmets and ice-climbing gear ) , technical backpacks and high-end day packs , travel luggage , lifestyle packs , tents , trekking poles , headlamps and lanterns , gloves and mittens , skis , ski poles , ski bindings , ski boots , ski skins and avalanche safety equipment . on may 28 , 2010 , we acquired black diamond equipment , ltd. ( which may be referred to as โ black diamond equipment โ or โ bdel โ ) and gregory ( which may be referred to as โ gregory โ or โ gmp โ ) ( the โ mergers โ ) . because the company had no operations at the time of our acquisition of black diamond equipment , black diamond equipment is considered to be our predecessor company ( the โ predecessor โ ) for financial reporting purposes ( see note 2 of our consolidated financial statements for a more detailed explanation of the acquisition ) . the predecessor does not include gregory .
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cash awards may be granted as an element of or a supplement to any other award under the 2016 plan or as a stand-alone cash award . the compensation committee will determine the terms and conditions of any such cash awards . material terms of the performance-based compensation awards that are paid to named executive officers ( as defined in the 2016 plan ) are potentially subject to the tax deduction limitations of section 162 ( m ) of the code . the limitations of section 162 ( m ) of the code do not apply , however , to performance-based compensation that meets certain requirements , including stockholder approval of the eligibility requirements , business criteria for performance goals and individual award limits of the 2016 plan pursuant to which such awards are made . eligibility . any of our employees or service providers , employees or service providers of our affiliates ( as defined in the 2016 plan ) , and nonemployee members of our board of directors or of any board of directors of our affiliates is eligible to receive an award under the 2016 plan . award limits . in any calendar year , no participant may be granted awards that relate to more than 175,439 shares of common stock . for these purposes , an option and its corresponding sar will be counted as a single award . for any award stated with reference to a specific dollar limit , the maximum amount payable with respect to any 12-month performance period to any one participant is $ 2,000,000 ( pro-rated up or down for performance periods greater or less than 12 months ) . for any cash awards that are intended to constitute annual incentive awards , the maximum amount payable to any one participant with respect to any 12-month period is $ 5,000,000 . award limits that are expressed as a number of shares are subject to the adjustment provisions of the 2016 plan as described below . 65 performance criteria . our compensation committee has the discretion to establish objectively determinable performance conditions for when awards will become vested , exercisable and payable . objectively determinable performance conditions generally are performance conditions ( a ) that are established in writing ( i ) at the time of the grant or ( ii ) no later than the earlier of ( x ) ninety ( 90 ) days after the beginning of the period of service to which they relate and ( y ) before the lapse of twenty-five percent of the period of service to which they relate ; ( b ) that are uncertain of achievement at the time they are established and ( c ) the achievement of which is determinable by a third party with knowledge of the relevant facts . these performance conditions may be based on one or any combination of metrics related to our financial , market or business performance . the form of the performance conditions also may be measured on a company , affiliate , division , business unit or geographic basis , individually , alternatively or in any combination , subset or component thereof . performance goals may reflect absolute entity performance or a relative comparison of entity performance to the performance of a peer group of entities or other external measure of the selected performance conditions . profits , earnings and revenues used for any performance condition measurement may exclude any extraordinary or nonrecurring items . the performance conditions may , but need not , be based upon an increase or positive result under the aforementioned business criteria and could include , for example and not by way of limitation , maintaining the status quo or limiting the economic losses ( measured , in each case , by reference to the specific business criteria ) . an award that is intended to become exercisable , vested or payable on the achievement of performance conditions means that the award will not become exercisable , vested or payable solely on mere continued employment or service . however , such an award , in addition to performance conditions , may be subject to continued employment or service by the participant . the performance conditions may include any or any combination of the following : ( a ) revenue , ( b ) earnings before interest , taxes , depreciation and amortization , or ebitda , ( c ) cash earnings ( earnings before amortization of intangibles ) , ( d ) operating income , story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled โ risk factors โ and elsewhere in this annual report on form 10-k. our historical results are not necessarily indicative of the results to be expected for any future period , and results for any interim period are not necessarily indicative of the results to be expected for the full year . overview we design , manufacture and sell direct current , or dc , power systems for applications primarily in the telecommunications market and , to a lesser extent , in other markets , including military , electric vehicle charging , cogeneration , distributed power and uninterruptable power supply . story_separator_special_tag we write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value-based upon assumptions about future demand , future pricing and market conditions . if actual future demand , future pricing or market conditions are less favorable than those projected by management , additional inventory write-downs may be required and the differences could be material . once established , write-downs are considered permanent adjustments to the cost basis of the obsolete or unmarketable inventories . income taxes . our estimate of income taxes payable , deferred income taxes and the effective tax rate is based on an analysis of many factors including interpretations of federal and state income tax laws , the difference between tax and financial reporting bases of assets and liabilities , estimates of amounts currently due or owed in various jurisdictions , and current accounting standards . we review and update our estimates on a quarterly basis as facts and circumstances change and actual results are known . we recognize income taxes for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in our financial statements or tax returns . a valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized . effects of inflation the impact of inflation and changing prices has not been significant on the financial condition or results of operations of our company . impact of recent accounting pronouncements see โ note 1 โ organization and summary of significant accounting policies โ recent accounting pronouncements โ of the notes to financial statements commencing on page f-11 of this annual report on form 10-k for management 's discussion as to the impact of recent accounting pronouncements . jumpstart our business startups act of 2012 on april 5 , 2012 , the jobs act was enacted . section 107 of the jobs act provides that an โ emerging growth company โ can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an โ emerging growth company โ can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have irrevocably elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , if as an โ emerging growth company โ we choose to rely on such exemptions , we may not be required to , among other things , ( i ) provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 , ( ii ) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the dodd-frank wall street reform and consumer protection act , ( iii ) comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) , and ( iv ) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer 's compensation to median employee compensation . these exemptions will apply until we no longer meet the requirements of being an โ emerging growth company. โ we will remain an โ emerging growth company โ until the earliest of ( i ) the last day of the fiscal year in which we have total annual gross revenues of $ 1 billion or more ; ( ii ) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering ; ( iii ) the date on which we have issued more than $ 1 billion in nonconvertible debt during the previous three years ; or ( iv ) the date on which we are deemed to be a large accelerated filer under the rules of the sec . 48 financial performance summary โ year ended december 31 , 2016 our revenues increased by $ 15,954,735 , or 233 % , to $ 22,801,494 for the year ended december 31 , 2016 , as compared to $ 6,846,759 for the year ended december 31 , 2015. we reported net income of $ 4,402,810 for 2016 , as compared to a net loss of $ 33,339 for 2015. the significant improvement in our financial performance during 2016 is a result of increased revenues combined with lower material and labor , administrative , sales and engineering costs as a percentage of net sales , as compared to 2015. the significant increase in revenues during 2016 is a direct result of an increase in the number of dc power systems sold to verizon wireless in the u.s. during this period , we focused a significant amount of effort on increasing production capacity through the addition of automated equipment , jigs and fixtures .
| results of operations the tables presented below , which compare our results of operations from one period to another , present the results for each period , the change in those results from one period to another in both dollars and percentage change , and the results for each period as a percentage of net revenues . the columns present the following : ยท the first two data columns in each table show the absolute results for each period presented . ยท the columns entitled โ dollar variance โ and โ percentage variance โ shows the change in results , both in dollars and percentages . these two columns show favorable changes as a positive and unfavorable changes as negative . for example , when our net revenues increase from one period to the next , that change is shown as a positive number in both columns . conversely , when expenses increase from one period to the next , that change is shown as a negative in both columns . ยท the last two columns in each table show the results for each period as a percentage of net revenues . 49 comparison of the years ended december 31 , 2016 and 2015 replace_table_token_0_th net sales . net sales increased by $ 15,954,735 , or 233 % , to $ 22,801,494 for 2016 , as compared to $ 6,846,759 for 2015. the increase in net sales was primarily due to an increase in the number of dc base power systems sold to verizon wireless . sales to verizon wireless accounted for 91 % of our total net sales during 2016 , as compared to 81 % of total net sales in 2015. in addition , in early 2016 , we expanded our production facilities to increase our production capacity which , in turn , allowed us to meet the increased demand for our products resulting in higher revenues . cost of sales .
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44 safehold inc. notes to consolidated financial statements ( continued ) the following table presents the carrying value and fair value for the company 's financial instruments ( $ in millions ) : replace_table_token_11_th _ ( 1 ) the company determined the carrying values of its net investment in sales-type leases ; ground lease receivables ; cash and cash equivalents and restricted cash approximated their fair values . the fair value of the company 's net investment in sales-type leases and ground lease receivables are classified as level 3 within the fair value hierarchy and the fair value of the company 's cash and cash equivalents and restricted cash are classified as level 1 within the fair value hierarchy . ( 2 ) the fair value of the company 's debt obligations is classified as level 3 within the fair value hierarchy . new accounting pronouncements โ in june 2016 , the fasb issued asu 2016-13 , financial instrumentsโcredit losses : measurement of credit losses on financial instruments ( `` asu 2016-13 `` ) which was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity . this amendment replaces the incurred loss impairment methodology in current gaap with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates . for public entities such as the company that qualified as smaller reporting companies prior to december 31 , 2019 , asu 2016-13 is effective for interim and annual reporting periods beginning after december 15 , 2022. early adoption is permitted . management is currently evaluating the impact of asu 2016-13 on the company 's consolidated financial statements . in may 2019 , the fasb issued asu 2019-04 , codification improvements to topic 326 , financial instrumentsโcredit losses , topic 815 , derivatives and hedging , and topic 825 , financial instruments ( `` asu 2019-04 `` ) to clarify certain accounting topics from previously issued asus , including asu 2016-13. asu 2019-04 addresses certain aspects of asu 2016-13 , including but not limited to , accrued interest receivable , loan recoveries , interest rate projections for variable-rate financial instruments and expected prepayments . asu 2019-04 provides alternatives that allow entities to measure credit losses on accrued interest separate from credit losses on the principal portion of a loan , clarifies that entities should include expected recoveries in the measurement of credit losses , allows entities to consider future interest rates when measuring credit losses and can elect to adjust effective interest rates used to discount expected cash flows for expected loan prepayments . asu 2019-04 is effective upon the adoption of asu 2016-13. management is currently evaluating the impact of asu 2019-04 on the company 's consolidated financial statements . in march 2020 , the fasb issued asu 2020-04 , reference rate reform : topic 848 ( `` asu 2020-04 `` ) to provide entities optional expedients for a limited time period to ease the potential burden in accounting for reference rate reform on financial reporting . the amendments in asu 2020-04 are elective for entities with contracts , including derivative contracts , that reference libor or some other reference rate that are expected to be discontinued . for the company 's cash flow hedges , asu 2020-04 allows : ( i ) an entity to change the reference rate without having to dedesignate the hedging relationship ; ( ii ) for cash flow hedges in which the designated hedged risk is libor , allows an entity to assert that it remains probable that the hedged forecasted transaction will occur ; and ( iii ) allows an entity to change the designated method used to assess hedge effectiveness and simplifies or temporarily suspends the assessment of hedge effectiveness for hedging relationships . asu 2020-04 must be applied prospectively and was effective beginning march 12 , 2020 upon issuance and remains effective through december 31 , 2022. during the first quarter 2020 , the company elected to apply the hedge accounting expedients described above . application of these expedients preserves the presentation of derivatives consistent with past presentation . the company will continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur . 45 safehold inc. notes to consolidated financial statements ( continued ) note 4โ real estate and real estate-related intangibles the company 's real estate assets consist of the following ( $ in thousands ) : replace_table_token_12_th real estate-related intangible assets , net consist of the following items ( $ in thousands ) : replace_table_token_13_th replace_table_token_14_th _ ( 1 ) above-market lease assets are recognized during business combinations and asset acquisitions story_separator_special_tag please read the following discussion of our consolidated operating results , financial condition and liquidity together with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. our discussion of 2018 results is included in part ii , item 7 of our 2019 annual report on form 10-k . these historical financial statements may not be indicative of our future performance . story_separator_special_tag properties and is subject to a single master lease . a majority of the land underlying one of these properties is owned by a third party and is ground leased to us through 2044 subject to changes in the cpi ; however , our tenant at the property pays this cost directly to the third party . story_separator_special_tag as of december 31 , 2020 , we had $ 57 million of unrestricted cash and $ 343 million of undrawn capacity under our revolver , with the ability to borrow $ 176 million of such capacity , subject to the conditions set forth in the applicable loan agreement ( refer to note 8 for more information on our revolver ) , without pledging any additional assets to the facility . we refer to this $ 233 million of unrestricted cash and portion of our revolver 's borrowing capacity as our `` equity '' liquidity which can be used for general corporate purposes or leveraged ( a maximum of 2:1 in the case of our revolver ) to acquire new ground lease assets . our primary sources of cash to date have been proceeds from equity offerings and private placements ( refer to note 11 ) , proceeds from our initial capitalization by istar and two institutional investors ( refer to note 11 ) and borrowings from our debt facilities . our primary uses of cash to date have been the acquisition/origination of ground leases , repayments on our debt facilities and distributions to our shareholders . as noted above , for the year ended december 31 , 2020 , percentage rents constituted approximately 2.5 % of our total revenues . in 2021 , we expect to experience a material decline in percentage rent revenues in respect of 2020 hotel operating performance . such a decline in percentage rents , as well as any disruptions in the payment of future rents by our hotel or other tenants , would adversely impact our cash flows from operations , and any such impact could be material . we expect our future liquidity requirements to include debt service , distributions to our shareholders , working capital , acquisitions and originations of ground lease investments ( including in respect of unfunded commitments ) , debt maturities and payments of fees under our management agreement to the extent we do not elect to pay the fees in common stock . our primary sources of liquidity going forward will generally consist of cash on hand and cash flows from operations , new financings , unused borrowing capacity under our revolver ( subject to the conditions set forth in the applicable loan agreement ) and common and or preferred equity issuances . we expect that we will be able to meet our liquidity requirements over the next 12 months and beyond . mortgages โmortgages consist of asset specific non-recourse borrowings that are secured by our ground leases . as of december 31 , 2020 , our mortgages are full term interest only , bear interest at a weighted average interest rate of 3.99 % ( our combined weighted average interest rate of our consolidated mortgage debt and the mortgage debt of our unconsolidated venture , applying our percentage interest in the venture , was 3.96 % ) and have maturities between april 2027 and november 2069. revolver โin june 2017 , we entered into a recourse senior secured revolving credit facility with an initial maximum aggregate principal amount of up to $ 300.0 million ( the `` revolver '' ) that has since been increased to $ 557.5 million as of december 31 , 2020. in january 2021 , we added a lender to our revolver bringing total capacity to $ 600.0 million . the revolver provides an accordion feature to increase , subject to certain conditions ( including the obtainment of additional lender commitments ) , the maximum availability up to $ 1.0 billion . the revolver has an initial maturity of november 2022 with two 12-month extension options exercisable by us , subject to certain conditions , and bears interest at an annual rate of applicable libor plus 1.30 % . an undrawn credit facility commitment fee ranges from 0.15 % to 0.25 % , based on utilization each quarter . the revolver allows us to leverage ground leases up to a maximum 67 % . as of december 31 , 2020 , there was $ 342.5 million of undrawn capacity on the revolver and we had the ability to draw $ 176.1 million of such capacity , subject to the conditions set forth in the applicable loan agreement , without pledging any additional assets to the facility . debt covenants โwe are subject to financial covenants under the revolver , including maintaining : ( i ) a limitation on total consolidated leverage of not more than 70 % , or 75 % for no more than 180 days , of our total consolidated assets ; ( ii ) a consolidated fixed charge coverage ratio of at least 1.40x ; ( iii ) a consolidated tangible net worth of at least $ 632.8 million plus 75 % of issuances of net equity after september 30 , 2019 ; ( iv ) a consolidated secured leverage ratio of not more than 70 % , or 75 % for no more than 180 days , of our total consolidated assets ; and ( v ) a secured recourse debt ratio of not more than 5.0 % of our total consolidated assets . in addition , we may make distributions without restriction as to amount so long as after giving effect to the dividend we remain in compliance with the financial covenants and no event of default has occurred and is continuing . our other debt obligations contain no significant maintenance or ongoing financial covenants . as of december 31 , 2020 , we were in compliance with all of our financial covenants .
| executive overview we acquire , manage and capitalize ground leases and report our business as a single reportable segment . we believe owning a portfolio of ground leases affords our investors the opportunity for safe , growing income and capital appreciation . safety is derived from a ground lease 's senior position in the commercial real estate capital structure . growth is realized through long-term leases with contractual periodic increases in base rent . capital appreciation is realized though appreciation in the value of the land over time and through our typical rights as landlord to take possession of the commercial buildings on our land at the end of a ground lease , which may yield substantial value to us . the diversification by geographic location , property type and sponsor in our portfolio further reduces risk and enhances potential upside . under our ground leases we are typically not responsible for any operating or capital expenses over the life of the lease , making the management of our portfolio relatively simple , with limited working capital needs . we also believe institutional owners of commercial real estate increasingly understand that the structure of our safehold tm ground lease allows owners of high quality properties to generate higher returns with less risk . our financial results for the year ended december 31 , 2020 were not adversely impacted by the covid-19 pandemic to a material degree . we received 100 % of the ground lease rent due under our ground leases through december 31 , 2020. this includes the payment of the annual percentage rent under the park hotels portfolio in respect of 2019 hotel operating performance , which we received in full in april in the amount of $ 3.6 million . we can not predict that we will continue to receive all rent owed to us when due in future periods .
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for periods of net income when the effects are not anti-dilutive , story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , which present our results of operations for the years ended december 31 , 2015 , 2014 and 2013 , as well as our financial positions at december 31 , 2015 and 2014 , contained elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should review the โ special note regarding forward looking statements โ and โ risk factors โ sections of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biodefense company engaged in developing two next generation anthrax vaccines . the next generation vaccines are intended to have more rapid time to protection , fewer doses for protection and less stringent requirements for temperature controlled storage and handling than the currently used vaccine . since 2006 , we have been engaged in legal proceedings with siga . on december 23 , 2015 , the delaware supreme court affirmed the delaware court of chancery 's judgment against siga which provides an estimated total award of approximately $ 205 million plus interest . additionally , if approved by the bankruptcy court , a reorganization plan filed by siga on december 15 , 2015 and as amended on february 9 , 2016 provides for siga to emerge from bankruptcy and provides for the final resolution of pharmathene 's litigation claim against siga during 2016 or early 2017. during the first half of 2015 we narrowed the scope of our product development programs , reduced our employee headcount and executed other cost reductions . these actions were intended to allow the company to have sufficient cash to recognize the benefit of the siga award and advance our anthrax vaccine programs without the need to raise additional capital . during the second half of 2015 we focused our efforts on creating alternatives for settling the siga litigation claim and developing business plans around possible outcomes . the company anticipates that eventual receipt of an award from siga could generate substantial taxable income to the company , a portion of which can potentially be offset by the company 's tax net operating loss carryforwards . at december 31 , 2015 we had available $ 156 million in accumulated losses available to offset income , subject to limitations imposed by the internal revenue code of 1986 ( the โ code โ ) . on november 25 , 2015 , the company adopted a shareholders rights plan to help ensure the net operating losses ( โ nols โ ) remain available to help maximize the value for our shareholders any amount received from the siga litigation . during 2016 we will continue to develop our plans to create shareholder value from the alternative siga litigation outcomes and will commence execution of those plans . siga litigation on december 15 , 2015 , siga filed a reorganization plan , amended on february 9 , 2016 ( the `` plan '' ) with the bankruptcy court that provides for among other things , the process by which siga may emerge from bankruptcy , which includes the process by which pharmathene 's judgment will be satisfied . the plan remains subject to the approval of the bankruptcy court and therefore remains subject to change , withdrawal or rejection by either siga or the bankruptcy court . the plan provides generally that pharmathene will receive , in full settlement and satisfaction of its claim , no later than 120 days plus another potential 90 days after the delaware supreme court affirms a final order , one of the following , determined in siga 's sole discretion : ( i ) payment in full in cash of the unpaid balance of the pharmathene claim plus interest which after plan approval shall accrue at a rate of 8.75 % ; ( ii ) delivery to pharmathene of 100 % of siga 's common stock ; or ( iii ) such other treatment as may be mutually agreed upon in writing by siga and pharmathene and approved by the bankruptcy court . on december 23 , 2015 , the delaware supreme court affirmed the delaware court of chancery 's decision as a result of which , with additional post-judgment interest , if calculated based on the original decision would provide for an estimated total award of approximately $ 205 million . however , pharmathene 's entitlement to interest from and after siga 's bankruptcy filing may be negatively impacted by the proceedings before the bankruptcy court . in the event that siga pays pharmathene cash in full and barring any unexpected material events , pharmathene currently expects that it will distribute at least 90 % of the after tax net cash proceeds to its shareholders . the timing and form of distribution will depend upon the company 's analysis of the company 's current situation , applicable corporate statutes relating to distributions and the economic consequences to the shareholders . after distribution of these cash proceeds , we intend to seek an m & a transaction to maximize the value of the company 's remaining assets and anthrax vaccine programs . 28 critical accounting policies a โ critical accounting policy โ is one that is both important to the portrayal of our financial condition and results of operations and that requires management 's most difficult , subjective or complex judgments . such judgments are often the result of a need to make estimates about the effect of matters that are inherently uncertain . story_separator_special_tag recoverability of goodwill is reviewed by comparing our market value ( as measured by our stock price multiplied by the number of outstanding shares as of the end of the year ) to the net book value of our equity . if our market value exceeds our net book value , no further analysis is required . financial instruments our financial instruments , and or embedded features contained in those instruments , often are classified as derivative liabilities and are recorded at their fair values . the determination of fair value of these instruments and features requires estimates and judgments . certain of our stock purchase warrants are considered to be derivative liabilities due to the presence of net settlement features and or non-standard anti-dilution provisions . generally the fair value of our warrants is determined based on the black-scholes option pricing model . use of the black-scholes option-pricing model requires the use of unobservable inputs such as the expected term , anticipated volatility and expected dividends . story_separator_special_tag style= '' width : 34 % ; text-align : center '' > 31 research and development expenses for the years ended december 31 , 2015 and 2014 were attributable to research programs as follows : replace_table_token_8_th for the year ended december 31 , 2015 , research and development expenses decreased $ 4.2 million from 2014 , primarily due to decreased costs related to our barda sponsored sparvax ยฎ program , as a result of barda 's de-scoping of the contract and the expiration of the period of performance under our rbche bioscavenger contract on september 8 , 2014. in accordance with the company 's realignment plan , labor and related indirect costs decreased . costs were incurred in 2015 to further the niaid ( lyophilized ) program . general and administrative expenses general and administrative functions include executive management , finance and administration , government affairs and regulations , corporate development , human resources , legal , and compliance . for each function , we may incur expenses such as salaries , supplies and third-party consulting and other external costs and non-cash expenditures such as expense related to stock option and restricted share awards . an allocation of indirect costs such as facilities , utilities and other administrative overhead is also included in general and administrative expenses . general and administrative expenses decreased by $ 4.7 million , or 43.0 % , to $ 6.2 million for the year ended december 31 , 2015 , from $ 10.9 million for 2014. the reduction in expenses is primarily due to a reduction in employee costs resulting from our implementation of the realignment plan and a reduction in legal expenses . other income ( expense ) other income ( expense ) primarily consists of the realization of cumulative translation on the substantial liquidation of our wholly-owned united kingdom subsidiary , pharmathene uk limited , changes in the fair value of our derivative financial instruments and interest expense on our debt and other financial obligations . other income was $ 0.02 million and $ 0.3 million for the years ended december 31 , 2015 and 2014 , respectively , resulting in a decrease in other income of approximately $ 0.3 million , or 92.0 % . in june 2015 , we substantially liquidated our united kingdom subsidiary , pharmathene uk limited , which we had acquired in 2008. prior to substantially liquidating the uk subsidiary , currency fluctuations were recorded as foreign currency translation adjustments , a component of other comprehensive income . as a result of the substantially completed liquidation , we realized an approximate loss of $ 0.2 million in our consolidated statement of operations , which represents the amount of previously recorded foreign currency translation adjustments related to our uk subsidiary . other income related to the change in the fair value of our derivative instruments was $ 0.3 million and $ 0.5 million for years ended december 31 , 2015 and 2014 , respectively . income taxes the provision for income taxes was $ 0.1 million during the years ended december 31 , 2015 and 2014. our provision for income taxes results from the difference between the treatment of goodwill for income tax purposes and for u.s. gaap purposes . year ended december 31 , 2014 compared to december 31 , 2013 revenue we recognized revenue of $ 10.2 million and $ 17.9 million during the years ended december 31 , 2014 and 2013 , respectively . 32 replace_table_token_9_th our revenue was derived primarily from contracts with the u.s. government for the development of sparvax ยฎ and our rbche bioscavenger . our revenue changed in 2014 from 2013 primarily due to the following : ยท under our contract for the development of sparvax ยฎ ( the liquid second generation rpa ) with barda , we recognized approximately $ 8.1 million and $ 15.5 million of revenue for years ended december 31 , 2014 and 2013 , respectively , a decrease of $ 7.4 million , or 47.7 % , from 2013. during 2014 , revenue was primarily attributable to completion of final drug product stability testing and a non-clinical animal study , and ongoing activities necessary to close out the barda contract . milestone revenue for 2014 was $ 0.3 million . during 2014 , we also received the payment of $ 2.1 million in fixed fee provided for under the sparvax ยฎ development contract as a result of the contract 's partial termination . during 2013 , revenue was primarily attributable to chemistry , manufacturing , and controls , or cmc , work , non-clinical animal studies , and limited clinical trial pre-study activities . milestone revenue for 2013 was $ 0.4 million . for more recent developments and trends relating to the sparvax ยฎ program , please refer to โ - year ended december 31 , 2015 compared to year ended december 31 , 2014 .
| results of operations year ended december 31 , 2015 compared to december 31 , 2014 revenue we recognized revenue of $ 10.6 million and $ 10.2 million during the years ended december 31 , 2015 and 2014 , respectively . replace_table_token_7_th 30 during 2015 , our revenue was derived from contracts with the u.s. government for the development of anthrax vaccine programs . during 2014 , our revenue was derived from contracts with the u.s. government for the development of anthrax vaccine programs , our rbche bioscavenger , and valortim ยฎ . our revenue changed in 2015 from 2014 primarily due to the following : ยท under our contract for the development of sparvax ยฎ ( the liquid second generation rpa ) with barda , we recognized $ 6.1 million and $ 8.1 million of revenue for the years ended december 31 , 2015 and 2014 , respectively . during 2015 , revenue was primarily attributable to the receipt of a one-time payment as a result of an audit completed by barda and contract wind-up activity . on april 4 , 2014 , we received notification from barda , advising us of its decision to de-scope the sparvax ยฎ anthrax vaccine contract through a partial termination for convenience . the contract formally expired on february 28 , 2015.we anticipate that revenue for this program will be mostly for rate variances and will be significantly less in 2016 than in 2015. in 2014 , barda audited indirect costs or rates charged by us on the sparvax ยฎ contract for the years 2008 through 2013. we billed and recognized revenue using the provisional rates as defined in the contract . as a result of the audit , we recognized revenue and received payment of $ 5.8 million in the first quarter of 2015 , representing the difference between actual rates ( i.e.
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if we do not expect to collect all principal and interest on the loan , the modified loan is classified as a nonaccrual tdr . all tdrs are accounted for as impaired loans and are included in our analysis of the allowance for loan and lease losses . a tdr that has been renewed for a borrower who is no longer experiencing financial difficulty and which yields a market rate of interest at the time of a renewal is no longer considered a tdr . allowance for loan and lease losses and reserve for unfunded commitments the company maintains an allowance for loan and lease losses at a level management believes is appropriate to reserve for credit losses inherent in our loan portfolio . the allowance for loan and lease losses is determined based on an ongoing evaluation , driven primarily by monitoring changes in loan risk grades , delinquencies , and other credit risk indicators , which are inherently subjective . the company considers the uncertainty related to certain industry sectors and the extent of credit exposure to specific borrowers within the portfolio . in addition , consideration is given to concentration risks associated with the various loan portfolios and current economic conditions that might impact the portfolio . the company also considers changes , if any , in underwriting activities , the loan portfolio composition ( including product mix and geographic , industry , or customer-specific concentrations ) , trends in loan performance , the level of allowance coverage relative to similar banking institutions and macroeconomic factors , such as changes in unemployment rates , gross domestic product , and consumer bankruptcy filings . all of these estimates are susceptible to significant change . changes to the allowance for loan and lease losses are made by charges to the provision for loan and lease losses , which is reflected on the consolidated statements of income . past due status is monitored as an indicator of credit deterioration . loans that are 90 days or more past due are put on nonaccrual status unless a repayment is eminent . loans deemed to be uncollectible are charged off against the allowance for loan and lease losses . recoveries of amounts previously charged-off are credited to the allowance for loan and lease losses . 99 great western bancorp , inc. notes to consolidated financial statements the allowance for loan and lease losses consist of reserves for probable losses that have been identified related to specific borrowing relationships that are individually evaluated for impairment ( `` specific reserve `` ) , as well as probable losses inherent in our loan portfolio that are not specifically identified ( `` collective reserve `` ) . the specific reserve relates to impaired loans . a loan is impaired when , based on current information and events , it is probable the company will be unable to collect all amounts due ( interest as well as principal ) according to the contractual terms of the loan agreement . specific reserves are determined on a loan-by-loan basis based on management 's best estimate of the company 's exposure , given the current payment status of the loan , the present value of expected payments , and the value of any underlying collateral . impaired loans also include loans modified in troubled debt restructurings . generally , the impairment related to troubled debt restructurings is measured based on the fair value of the collateral , less cost to sell , or the present value of expected payments relative to the unpaid principal balance . if the impaired loan is identified as collateral dependent , then the fair value of the collateral method of measuring the amount of the impairment is utilized . this method requires obtaining an independent appraisal of the collateral and reducing the appraised value by applying a discount factor to the appraised value , if necessary , and including costs to sell . management 's estimate for collective reserves reflects losses incurred in the loan portfolio as of the consolidated balance sheet reporting date . incurred loss estimates primarily are based on historical loss experience and portfolio mix . incurred loss estimates may be adjusted for qualitative factors such as current economic conditions and current portfolio trends story_separator_special_tag `` and `` note 1. nature of operations and summary of significant accounting policies . '' judgments and uncertainties . management makes a range of assumptions to determine what is believed to be the appropriate level of allowance for loan and lease losses . specific reserves for impaired loans rely on a present value of expected payments or the value of underlying collateral generally based on independent appraisals . collective reserves rely on historical loss experience based on the portfolio mix , qualitative factors such as current economic conditions and current portfolio trends including credit quality , concentrations , aging of the portfolio , and or significant policy and underwriting changes . all of these estimates are susceptible to significant change . effect if actual results differ from assumptions . the allowance represents our best estimate of estimated losses in the loan portfolio , but significant downturns in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance . likewise , an upturn in loan quality and improved economic conditions may allow a reduction in the required allowance . in either instance , unanticipated changes could have a significant impact on our financial position and results of operations . 84 goodwill impairment description . goodwill represents the excess purchase price over the fair value of identifiable net assets of acquired companies . goodwill often involves estimates based on third party valuations , such as appraisals , or internal valuations based on discounted cash flow analyses or other valuation techniques . story_separator_special_tag under asc topic 350 , goodwill and other intangible assets , we conduct a goodwill impairment test on the basis of one reporting unit at least annually , and more frequently if events occur or circumstances change that would more-likely-than-not reduce the fair value below its carrying amount . we assess qualitative factors to determine whether it is more-likely-than-not the fair value is less than its carrying amount . if we conclude based on the qualitative assessment that goodwill may be impaired , we would perform a quantitative one-step impairment test . an impairment loss would be recognized for any excess of carrying value over fair value of the goodwill , and any subsequent increases in goodwill would not be recognized on the consolidated financial statements . judgments and uncertainties . when performing the qualitative assessment to determine whether the fair value of the reporting unit is less than the carrying value , we assess relevant events and circumstances , including macroeconomic conditions , industry and market considerations , overall financial performance , changes in the composition or carrying amount of assets and liabilities , the market price of the company 's common stock , and other relevant factors . if a quantitative assessment is considered necessary , the fair value of the reporting unit is calculated with the assistance of a third party using management 's assumptions of future growth rates , future attrition of the customer base , discount rates , multiples of earnings and other relevant factors . effect if actual results differ from assumptions . changes in these qualitative and quantitative factors , as well as downturns in economic or business conditions , could have a significant adverse impact on the fair value of the reporting unit in relation to the carrying value of goodwill and could result in an impairment loss affecting our consolidated financial statements as a whole . core deposits and other intangibles description . intangible assets are non-physical assets generally recognized as part of an acquisition , where the acquirer is allowed to assign some portion of the purchase price to acquired intangible assets having a useful life of greater than one year . these assets often involve estimates based on third party valuations or internal valuations based on discounted cash flow analyses or other valuation techniques . our intangible assets include core deposits , brand intangibles , customer relationships , and other intangibles . in addition , the determination of the useful lives over which an intangible asset will be amortized is subjective . under asc topic 350 , goodwill and other intangible assets , intangible assets are evaluated for impairment if indicators of impairment are identified . judgments and uncertainties . the determination of fair values is based on a quantitative analysis using management 's assumptions of future growth rates , future attrition of the customer base , discount rates and other relevant factors . effect if actual results differ from assumptions . changes in these factors , as well as downturns in economic or business conditions , could have a significant adverse impact on the carrying value of core deposits and other intangibles and could result in an impairment loss affecting our consolidated financial statements as a whole . derivatives description . we maintain an overall interest rate risk management strategy that permits the use of derivative instruments to modify exposure to interest rate risk . we enter into interest rate swap contracts to offset the interest rate risk associated with borrowers who lock in long-term fixed rates ( greater than or equal to 5 years to maturity ) through a fixed rate loan . generally , under these swaps , we agree with various swap counterparties to exchange the difference between fixed-rate and floating-rate interest amounts based upon notional principal amounts . these contracts do not qualify for hedge accounting . these interest rate derivative instruments are recognized as assets and liabilities on the consolidated balance sheets and measured at fair value , with changes in fair value reported in net realized and unrealized gain ( loss ) on derivatives . since each fixed rate loan is paired with an offsetting derivative contract , the impact to net income is minimized . we also have back to back swaps with customers where we enter into an interest rate swap with loan customers to provide a facility to mitigate the interest rate risk associated with offering a fixed rate and simultaneously enters into a swap with an outside third party that is matched in exact offsetting terms . the back to back swaps are recorded at fair value and recognized as assets and liabilities , depending on the rights or obligations under the contract , in fair value of derivatives on the consolidated balance sheet , with changes in fair value reported in net realized and unrealized gain ( loss ) on derivatives . in 2017 we began a new program of selling interest swaps directly to customers . these interest rate swaps sales are used to enable customers to achieve a long-term fixed rate by selling the customer a long-term variable rate loan indexed to libor plus a credit spread whereby the bank enters into an interest rate swap with our customer where the customer pays a fixed rate of interest set at the time of origination on the interest rate swap and then the customer receives a floating rate equal to the rate paid on the loan , thus resulting in a fixed rate of interest over the life of the interest rate swap . we minimize the market and liquidity risks of the swaps entered into with the customer by entering into an offsetting position with a swap dealer . 85 in 2018 we entered into rpas with some of our derivative counterparties to assume the credit exposure related to interest rate derivative contracts . our loan customer enters into an interest rate swap directly with a derivative counterparty and we agree through an rpa to
| income taxes description . we are subject to the income tax laws of the u.s. , its states , and the municipalities in which we operate . these tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities . we review income tax expense and the carrying value of deferred tax assets quarterly , and as new information becomes available , the balances are adjusted as appropriate . we follow asc topic 740 , income taxes , which prescribes a recognition threshold of more-likely-than-not , and a measurement attribute for all tax positions taken or expected to be taken on a tax return , in order for those tax positions to be recognized on the consolidated financial statements . on december 22 , 2017 , the tax reform act was enacted into law . beginning in 2018 , the tax reform act reduced the federal tax rate for corporations from 35 % to 21 % and changed or limited certain tax deductions . the tax reform act required the company to revalue its net deferred tax assets in the period of enactment , which stranded certain effects of the tax rate change in accumulated other comprehensive income .
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unless otherwise specified , any reference to a โ year โ is to our fiscal year ended june 30. additionally , when used in this annual report , unless the context requires otherwise , the terms โ we , โ โ our โ and โ us โ refer to kennametal inc. and its subsidiaries . overview kennametal inc. was founded based on a tungsten carbide technology breakthrough in 1938. the company was incorporated in pennsylvania in 1943 as a manufacturer of tungsten carbide metal cutting tooling , and was listed on the new york stock exchange ( nyse ) in 1967. with more than 80 years of materials expertise , the company is a global industrial technology leader , helping customers across the aerospace , earthworks , energy , general engineering and transportation industries manufacture with precision and efficiency . this expertise includes the development and application of tungsten carbides , ceramics , super-hard materials and solutions used in metal cutting and extreme wear applications to keep customers up and running longer against conditions such as corrosion and high temperatures . our standard and custom product offering spans metalworking and wear applications including turning , milling , hole making , tooling systems and services , as well as specialized wear components and metallurgical powders . end users of the company 's metalworking products include manufacturers engaged in a diverse array of industries including : the manufacturers of transportation vehicles and components , machine tools and light and heavy machinery ; airframe and aerospace components ; and energy-related components for the oil and gas industry , as well as power generation . the company 's wear and metallurgical powders are used by producers and suppliers in equipment-intensive operations such as road construction , mining , quarrying , oil and gas exploration , refining , production and supply . throughout the md & a , we refer to measures used by management to evaluate performance . we also refer to a number of financial measures that are not defined under accounting principles generally accepted in the united states of america ( u.s. gaap ) , including organic sales growth , constant currency regional sales growth ( decline ) and constant currency end market sales growth ( decline ) . the explanation at the end of the md & a provides the definition of these non-gaap financial measures as well as details on their use and a reconciliation to the most directly comparable gaap financial measures . operational results in 2019 reflected increasing progress on our simplification/modernization initiatives with earnings per diluted share ( eps ) of $ 2.90 , a 20 percent improvement over the prior year results . a key milestone of those initiatives was the recent announcement of the intended closure of four of our facilities , which is expected to drive further structural benefits and improve operational efficiency . sales in 2019 of $ 2,375.2 million grew slightly compared to $ 2,367.9 million in 2018 , reflecting a 3 percent increase from organic sales growth offset by unfavorable currency exchange effect of 3 percent . we also continued to gain traction on our growth initiatives in general engineering and aerospace , with aerospace growing by double digits . against this backdrop of year-over-year progress , we saw increased softening in most of our end-markets late in the year . our expectation is that this challenging macro environment will continue into the first half of fiscal 2020. nevertheless , we expect to continue executing our plan to improve long-term profitability . operating income was $ 328.9 million compared to $ 290.3 million in the prior year . the increase was driven primarily by organic sales growth , incremental simplification/modernization benefits , favorable mix and lower compensation expense , partially offset by unfavorable volume-related labor and fixed cost absorption in certain facilities in part due to simplification/modernization efforts in progress , higher raw material costs , unfavorable currency exchange and greater restructuring and related charges . price realization exceeded raw material cost inflation in 2019 , and operating margin improved to 13.8 percent from 12.3 percent in the prior year . the industrial , infrastructure and widia segments had operating margins of 17.3 percent , 12.0 percent and 1.5 percent , respectively . as previously announced , the company initiated several restructuring actions associated with our ongoing simplification/modernization program . these proposed actions are expected to reduce structural costs , improve operational efficiency and position the company for long-term profitable growth . proposed facility closures and other actions in fiscal 2020 ( fy20 restructuring actions ) in total are expected to deliver estimated annualized savings of $ 35 million to $ 40 million , with total expected pre-tax charges of $ 55 million to $ 65 million . proposed facility closures in fiscal 2021 ( fy21 restructuring actions ) are expected to result in further structural cost reductions with estimated annualized savings of $ 25 million to $ 30 million . most of these savings would be achieved in fiscal 2021 with full run rate savings being realized in fiscal 2022. the company expects to incur pre-tax charges of $ 60 million to $ 75 million through fiscal 2020 and 2021 related to the restructuring . these charges are primarily cash with the majority expected to be spent in fiscal 2021 . 16 during 2019 we recorded $ 17.5 million of pre-tax restructuring and related charges during the year and pre-tax benefits from cost savings initiatives were approximately $ 12 million , with annualized run-rate pre-tax benefits of approximately $ 15 million achieved . we generated cash flow from operating activities of $ 300.5 million in 2019 compared to $ 277.3 million during the prior year . capital expenditures were $ 212.3 million and $ 171.0 million during 2019 and 2018 , respectively , with the increase due in part to higher spending in connection with our simplification/modernization efforts , and the company returned $ 65.7 million to shareholders through dividends . story_separator_special_tag corporate ( in thousands ) 2019 2018 corporate expense $ ( 3,208 ) $ ( 2,596 ) in 2019 , corporate expense increased $ 0.6 million from 2018 . liquidity and capital resources cash flow from operations is the primary source of funding for our capital expenditures . during the year ended june 30 , 2019 , cash flow provided by operating activities was $ 300.5 million . our five-year , multi-currency , revolving credit facility , as amended and restated in june 2018 ( credit agreement ) , is used to augment cash from operations and as an additional source of funds . the credit agreement provides for revolving credit loans of up to $ 700.0 million for working capital , capital expenditures and general corporate purposes . the credit agreement allows for borrowings in u.s. dollars , euros , canadian dollars , pounds sterling and japanese yen . interest payable under the credit agreement is based upon the type of borrowing under the facility and may be ( 1 ) libor plus an applicable margin , ( 2 ) the greater of the prime rate or the federal funds effective rate plus an applicable margin or ( 3 ) fixed as negotiated by us . the credit agreement matures in june 2023. we had no outstanding borrowings on our credit agreement as of june 30 , 2019 . the credit agreement requires us to comply with various restrictive and affirmative covenants , including two financial covenants : a maximum leverage ratio and a minimum consolidated interest coverage ratio ( as those terms are defined in the credit agreement ) . we were in compliance with all covenants as of june 30 , 2019 . for the year ended june 30 , 2019 , average daily borrowings outstanding under the credit agreement were approximately $ 12.1 million . we had no borrowings outstanding under the credit agreement as of june 30 , 2019 and 2018 . borrowings under the credit agreement are guaranteed by our significant domestic subsidiaries . 21 additionally , we obtain local financing through credit lines with commercial banks in the various countries in which we operate . at june 30 , 2019 , these borrowings were immaterial . we believe that cash flow from operations and the availability under our credit lines will be sufficient to meet our cash requirements over the next 12 months . based upon our debt structure at june 30 , 2019 and 2018 , less than 1 percent of our debt was exposed to variable rates of interest . based on regulations issued by the u.s. department of the treasury and the internal revenue service and other relevant guidance issued through june 30 , 2019 , we recorded a net benefit of $ 9.3 million during 2019 to finalize the toll tax . we did not make a cash payment associated with the toll tax . as a result of the tax cuts and jobs act of 2017 ( tcja ) , which among other provisions allows for a 100 percent dividends received deduction from controlled foreign subsidiaries , we re-evaluated our assertion with respect to permanent reinvestment in all jurisdictions during the current year and concluded that a portion of the unremitted earnings and profits of certain non-u.s. subsidiaries and affiliates will no longer be permanently reinvested . these changes in assertion required the recognition of a tax charge of $ 6.1 million recorded in the current year primarily for foreign withholding and u.s. state income taxes . the remaining amount of approximately $ 1.4 billion is substantially all of the unremitted earnings of our non-u.s. subsidiaries which continues to be indefinitely reinvested . the deferred tax liability associated with unremitted earnings of our non-u.s. subsidiaries not permanently reinvested is $ 3.9 million as of june 30 , 2019. determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested earnings is not practicable due to our legal entity structure and the complexity of u.s. and local tax laws . with regard to the unremitted earnings which remain indefinitely reinvested , we have not , nor do we anticipate the need to , repatriate funds to the u.s. to satisfy domestic liquidity needs arising in the ordinary course of business , including liquidity needs associated with our domestic debt service requirements . at june 30 , 2019 , we had cash and cash equivalents of $ 182.0 million . total kennametal shareholders ' equity was $ 1,335.2 million and total debt was $ 592.6 million . our current senior credit ratings are considered investment grade . we believe that our current financial position , liquidity and credit ratings provide us access to the capital markets . we continue to closely monitor our liquidity position and the condition of the capital markets , as well as the counterparty risk of our credit providers . the following is a summary of our contractual obligations and other commercial commitments as of june 30 , 2019 ( in thousands ) : replace_table_token_11_th ( 1 ) long-term debt includes interest obligations of $ 114.3 million and excludes debt issuance costs of $ 5.5 million . interest obligations were determined assuming interest rates as of june 30 , 2019 remain constant . ( 2 ) notes payable includes interest obligations of an immaterial amount . interest obligations were determined assuming interest rates as of june 30 , 2019 remain constant . ( 3 ) annual payments are expected to continue into the foreseeable future at the amounts noted in the table . ( 4 ) purchase obligations consist of purchase commitments for materials , supplies and machinery and equipment as part of the ordinary conduct of business . purchase obligations with variable price provisions were determined assuming market prices as of june 30 , 2019 remain constant . ( 5 ) unrecognized tax benefits are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities .
| results of continuing operations sales sales in 2019 were $ 2,375.2 million and were flat compared to $ 2,367.9 million in 2018 . organic sales growth of 3 percent from organic sales growth was offset by unfavorable currency exchange effect of 3 percent . replace_table_token_4_th gross profit gross profit increased $ 11.4 million to $ 831.5 million in 2019 from $ 820.1 million in 2018 . this increase was primarily due to organic sales growth , incremental simplification/modernization benefits and favorable mix , partially offset by higher raw material costs , unfavorable volume-related labor and fixed cost absorption in certain facilities in part due to simplification/modernization efforts in progress , higher raw material costs and unfavorable foreign currency exchange effect of approximately $ 29 million . the gross profit margin for 2019 was 35.0 percent compared to 34.6 percent in 2018 . operating expense operating expense in 2019 was $ 474.2 million , a decrease of $ 29.1 million , or 5.8 percent , from $ 503.2 million in 2018 . the decrease was primarily due to lower compensation expense , favorable currency exchange effect of approximately $ 13 million and incremental restructuring simplification/modernization benefits , partially offset by salary inflation . we invested further in technology and innovation to continue delivering high quality products to our customers . research and development expenses included in operating expense totaled $ 39.0 million and 38.9 million for 2019 and 2018 , respectively . restructuring and related charges and asset impairment charges fy19 restructuring actions in the june quarter of fiscal 2018 , we implemented and subsequently substantially completed restructuring activities to simplify the industrial segment 's cost structure by directing our resources to more profitable business and increasing sales force productivity .
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27 overview limbach holdings , inc. ( the โ company , โ โ we โ or โ our โ ) is an industry-leading commercial specialty contractor in the areas of heating , ventilation , air-conditioning ( โ hvac โ ) , plumbing , electrical and building controls through design and construction of new and renovated buildings , maintenance services , energy retrofits and equipment upgrades for private customers and federal , state , and local public agencies in florida , california , massachusetts , new jersey , pennsylvania , delaware , maryland , washington dc , virginia , west virginia , ohio and michigan . we operate in two segments , ( i ) construction , in which we generally manage large construction or renovation projects that involve primarily hvac , plumbing , or electrical services , and ( ii ) service , in which we provide maintenance or services primarily on hvac , plumbing or electrical systems . our market sectors primarily include the following : healthcare , including research , acute and outpatient not-for-profit , for-profit , and pharmaceutical and biotech facilities ; education , including colleges , universities , research centers and k-12 public and private facilities ; sports & entertainment , including sports arenas , related facilities , casinos and amusement rides ; transportation , including passenger terminals and maintenance facilities for rail and airports ; government , including federal , state and local agencies facilities ; hospitality , including hotels and resorts ; corporate and commercial office buildings , including new builds and interior fit-outs ; residential multifamily apartment buildings ( excluding condominiums ) ; mission critical facilities , including data centers ; and industrial manufacturing facilities . limbach was founded in 1901 , and maintains an established brand within the industry . we believe we are viewed as a value added and trusted partner by our customers , which include building owners , general contractors ( โ gcs โ ) and construction managers ( โ cms โ ) . we also construct new buildings , additions and provide renovations of existing buildings for owners , gcs and cms . in addition , we provide services to building owners that are centered on hvac , plumbing , and electrical building systems , which typically include ongoing maintenance , upgrades to existing building systems , energy retrofits and delivering general construction services . construction segment our construction offerings for owners , gcs , and cms include the following : competitive lump sum bidding ( including plan and specification bidding with select qualified competitors ) ; 28 design/assist services , for which we typically contract on a negotiated basis to maintain a project budget , and occasionally are contracted on a lump sum basis ; integrated project delivery ( โ ipd โ ) , for which we contract on a negotiated basis to collaborate with a team to establish a target budget and execute on a project within the target budget ; design/build , which services are provided on either a negotiated basis or through competitive bidding ; and performance contracting , for which we assess a building owner 's facilities and offer a proposal to reduce energy and operating costs , and when successful , we often perform ongoing maintenance of the building systems . our specialty contracting is provided through either our special projects division or our construction segment . special projects typically range in value from $ 5,000 to $ 1 million . construction projects typically range in value from $ 1 million to $ 100 million . actual contracts may be below or above these stated ranges depending upon the actual project requirements . we possess the ability to provide design services in-house through our design center located in orlando , florida . we sell the majority of our services by leading with our engineered solutions , which we believe are highly valued by our select customer base and drive higher margin outcomes . services segment our services primarily include the following categories : specialty contracting , including the design and construction of hvac , plumbing and or electrical systems within commercial and institutional buildings ; general contracting , including construction on projects that primarily involve hvac , plumbing and or electrical ; maintenance of hvac , plumbing and or electrical systems ; service projects for system and equipment upgrades , including energy retrofits ; emergency service work , which we refer to as โ spot work โ ; water treatment ; automatic temperature controls ( โ atc โ ) ; and performance contracting , including significant building energy retrofits . typical maintenance and water treatment agreements range in value from $ 2,500 to over $ 200,000. service projects typically range in value from $ 1,000 to $ 500,000. spot work varies in value and is typically billed at preapproved billing rates . atc projects vary in size from $ 10,000 to over $ 250,000. specialty contracting , general contracting and performance contracting can range from $ 100,000 to $ 100 million . the durations of our contracts generally range from six months to two years . while these ranges are typical for our services , certain projects may be below or above these stated ranges . 29 jobs act we are an โ emerging growth company โ ( โ egc โ ) pursuant to the jumpstart our business act ( โ jobs โ ) . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying companies . story_separator_special_tag under this method , deferred tax assets and liabilities and income or expense is recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases , using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse . changes in deferred tax assets and liabilities are recorded in the provision for income taxes . 31 operating segments we manage and measure the performance of our business in two operating segments : construction and service . these segments are reflective of how the company 's chief operating decision maker ( โ codm โ ) reviews operating results for the purposes of allocating resources and assessing performance . our codm is comprised of our chief executive officer , chief financial officer and chief operating officers . the codm evaluates performance and allocates resources based on operating income , which is profit or loss from operations before โ other โ corporate expenses , income tax provision ( benefit ) and dividends on redeemable convertible preferred stock , if any . the accounting policies of the segments are the same as those described in the summary of significant accounting policies below in note 2 โ significant accounting policies in the notes to consolidated financial statements . our codm evaluates performance based on income from operations of the respective branches after the allocation of corporate office operating expenses . in accordance with asc topic 280 โ segment reporting , the company has elected to aggregate all of the construction branches into one construction reportable segment and all of the service branches into one service reportable segment . all transactions between segments are eliminated in consolidation . our corporate departments provide general and administrative support services to our two operating segments . we allocate costs between segments for selling , general and administrative expenses and depreciation expense . some selling , general and administrative expenses such as executive and administrative salaries and payroll expenses , corporate marketing , corporate depreciation and amortization , and consulting , accounting and corporate legal fees are not allocated to segments because the allocation method would be arbitrary and would not provide an accurate presentation of operating results of segments ; instead these types of expenses are maintained as a corporate expense . see note 13 โ operating segments in the notes to consolidated financial statements . we do not identify capital expenditures and total assets , including goodwill , by segment in our internal financial reports due in part to the shared use of a centralized fleet of vehicles and specialized equipment . interest expense is not allocated to segments because of the corporate management of debt service . the company had a single construction segment customer that accounted for approximately 18 % of consolidated total revenues for the year ended december 31 , 2018 and another single construction segment customer that accounted for approximately 15 % of consolidated total revenues for the year ended december 31 , 2017 . 32 comparison of results of operations for the years ended december 31 , 2018 and december 31 , 2017 the following table presents operating results for the years ended december 31 , 2018 and december 31 , 2017 in absolute terms and expressed as a percentage of total revenue : replace_table_token_1_th ( 1 ) as a percentage of construction revenue . ( 2 ) as a percentage of service revenue . ( 3 ) as a percentage of total revenue . 33 revenue replace_table_token_2_th revenue was $ 546.5 million for the year ended december 31 , 2018 as compared to $ 485.7 million for the year ended december 31 , 2017. revenue increased $ 60.8 million , or 12.5 % , for the year ended december 31 , 2018 as compared to the same 2017 period . construction revenue increased by $ 46.9 million , or 12.0 % , and service revenue increased by $ 13.9 million , or 14.8 % . the increase in construction revenue was primarily driven by growth in the new england , florida , southern california and ohio regions and partially offset by a decline in the michigan and western pennsylvania regions . the $ 13.9 million increase in service revenue resulted primarily from the company 's continuing focus on developing longer term customer relationships and sales of larger service owner-direct projects and contracts and growth in the maintenance contract base . in addition , growth in the florida , mid-atlantic , michigan and eastern pennsylvania regions contributed to the overall increase in 2018 service revenue offset by a decline in the southern california region . 34 gross profit replace_table_token_3_th total gross profit was $ 59.4 million for the year ended december 31 , 2018 as compared to $ 65.6 million for the year ended december 31 , 2017. gross profit decreased $ 6.2 million , or 9.4 % , for the year ended december 31 , 2018 as compared to the same 2017 period . construction gross profit decreased $ 8.1 million , or 18.0 % while service gross profit increased $ 1.9 million , or 9.0 % . the total gross profit percentage decreased from 13.5 % for the year ended december 31 , 2017 to 10.9 % for the year ended december 31 , 2018 , mainly driven by the project write downs discussed below . the construction segment gross profit percentage decreased from 11.4 % for the year ended december 31 , 2017 to 8.4 % for the year ended december 31 , 2018 , due to the significant 2018 project write downs . the service segment gross profit percentage decreased from 22.1 % for the year ended december 31 , 2017 to 21.0 % for the year ended december 31 , 2018 , due to gross profit write downs on one mid-atlantic region service project . during the years ended december 31 , 2018 and 2017 , we recorded revisions in our contract estimates for certain construction and service projects .
| cash flow summary cash provided by operating activities for the year ended december 31 , 2018 was primarily driven by management 's heightened attention to its project billing procedures and favorable billing terms in certain new projects , which resulted in a $ 22.3 million increase in the company 's overbilled position , as well as a less significant but related decrease in its underbilled position , at december 31 , 2018. billing and collections on both construction and service projects improved significantly through fiscal year 2018. management expects operating cash flow will remain positive as our new projects mature , cash is collected , and profits increase . management further expects that increasing volumes of service work , which is less sensitive to the cash flow variability presented by large construction projects , will continue to positively impact our cash flow trends . 40 debt and related obligations credit agreement on july 20 , 2016 , in connection with the business combination , a subsidiary of the company , limbach facility services llc ( โ lfs โ ) entered into the credit agreement ( as amended , the โ credit agreement โ ) . the credit agreement provided for a $ 25.0 million line of credit ( the โ credit agreement revolver โ ) and a $ 24.0 million term loan ( the โ credit agreement term loan โ ) with a consortium of four commercial banks . the loans had a variable interest rate based on one-month libor and were set to expire in july 2021. the loans were subject to certain financial covenants . effective december 31 , 2017 , the company was required to remit an amount equal to 50 % of its excess cash flow ( as defined in the credit agreement ) , which percentage was subject to reduction based on the senior leverage ratio ( as defined therein ) .
| 4,856 |
the amount of msrs recognized during the years ended december 31 , 2015 and 2014 was as follows ( dollars in thousands ) : replace_table_token_19_th mortgage servicing rights do not actively trade in an open market with readily available observable prices ; therefore , fair value is determined based on certain assumptions story_separator_special_tag overview we are the world 's largest commercial real estate services and investment firm , based on 2015 revenue , with leading full-service operations in major metropolitan areas throughout the world . we offer a full range of services to occupiers , owners , lenders and investors in office , retail , industrial , multifamily and other types of commercial real estate . as of december 31 , 2015 , excluding independent affiliates , we operated in more than 400 offices worldwide with more than 70,000 employees providing commercial real estate services under the ยcbreย brand name , investment management services under the ยcbre global investorsย brand name and development services under the ยtrammell crow companyย brand name . our business is focused on several competencies , including commercial property , corporate facilities , project and transaction management , tenant/occupier and property/agency leasing , capital markets solutions ( property sales , commercial mortgage origination , sales and servicing , and structured finance ) real estate investment management , valuation , development services and proprietary research . we generate revenue from both management fees ( large multi-year portfolio and per-project contracts ) and from commissions on transactions . we have been included in the fortune 500 since 2008 and among the fortune most admired companies in the real estate sector for four consecutive years . in 2015 , we were ranked second among all companies on the barron 's 500 , which evaluates companies on growth and financial performance . additionally , the international association of outsourcing professionals ( iaop ) has ranked us among the top few outsourcing service providers across all industries for five consecutive years . critical accounting policies our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states , which require management to make estimates and assumptions that affect reported amounts . the estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable . actual results may differ from those estimates . we believe that the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements . revenue recognition in order for us to recognize revenue , four basic criteria must be met : existence of persuasive evidence that an arrangement exists ; delivery has occurred or services have been rendered ; the seller 's price to the buyer is fixed and determinable ; and collectability is reasonably assured . our revenue recognition policies are consistent with these criteria . the judgments involved in revenue recognition include understanding the complex terms of agreements and determining the appropriate time to recognize revenue for each transaction based on such terms . each transaction is evaluated to determine : ( i ) at what point in time revenue is earned ; ( ii ) whether contingencies exist that impact the timing of recognition of revenue ; and ( iii ) how and when such contingencies will be resolved . the timing of revenue recognition could vary if different judgments were made . our revenues subject to the most judgment are brokerage commission revenue and incentive-based management and development fees . for a detailed discussion of our revenue recognition policies , see the revenue recognition section within note 2 of the notes to consolidated financial statements set forth in item 8 of this annual report on form 10-k ( this annual report ) . in establishing the appropriate provisions for trade receivables , we make assumptions with respect to future collectability . our assumptions are based on an assessment of a customer 's credit quality as well as subjective factors and trends , including the aging of receivables balances . in addition to these assessments , in general , 29 outstanding trade accounts receivable amounts that are more than 180 days overdue are evaluated for collectability and fully provided for if deemed uncollectible . historically , our credit losses have generally been insignificant . however , estimating losses requires significant judgment , and conditions may change or new information may become known after any periodic evaluation . as a result , actual credit losses may differ from our estimates . goodwill and other intangible assets our acquisitions require the application of purchase accounting , which results in tangible and identifiable intangible assets and liabilities of the acquired entity being recorded at fair value . the difference between the purchase price and the fair value of net assets acquired is recorded as goodwill . in determining the fair values of assets and liabilities acquired in a business combination , we use a variety of valuation methods including present value , depreciated replacement cost , market values ( where available ) and selling prices less costs to dispose . we are responsible for determining the valuation of assets and liabilities and for the allocation of purchase price to assets acquired and liabilities assumed . assumptions must often be made in determining fair values , particularly where observable market values do not exist . assumptions may include discount rates , growth rates , cost of capital , royalty rates , tax rates and remaining useful lives . these assumptions can have a significant impact on the value of identifiable assets and accordingly can impact the value of goodwill recorded . different assumptions could result in different values being attributed to assets and liabilities . since these values impact the amount of annual depreciation and amortization expense , different assumptions could also impact our statement of operations and could impact the results of future asset impairment reviews . story_separator_special_tag see note 13 of the notes to consolidated financial statements set forth in item 8 of this annual report for further information regarding income taxes . new accounting pronouncements see new accounting pronouncements section within note 2 of the notes to consolidated financial statements set forth in item 8 of this annual report . items affecting comparability macroeconomic conditions economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly . these include : overall economic activity and employment growth ; interest rate levels and changes in interest rates ; the cost and availability of credit ; and the impact of tax and regulatory policies . periods of economic weakness or recession , significantly rising interest rates , fiscal uncertainty , declining 31 employment levels , decreasing demand for commercial real estate , falling real estate values , disruption to the global capital or credit markets , or the public perception that any of these events may occur , will negatively affect the performance of our business . compensation is our largest expense and the sales and leasing professionals in our advisory services business generally are paid on a commission and or bonus basis that correlates with their revenue production . as a result , the negative effect of difficult market conditions on our operating margins is partially mitigated by the inherent variability of our compensation cost structure . in addition , when negative economic conditions have been particularly severe , we have moved decisively to lower operating expenses to improve financial performance , and then have restored certain expenses as economic conditions improved . nevertheless , adverse global and regional economic trends could pose significant risks to the performance of our operations and our financial condition . commercial real estate markets have recovered over the past several years , along with the steady improvement in global economic activity , most particularly in the united states . since 2010 , increased u.s. property sales activity has been sustained by gradually improving market fundamentals , low-cost credit availability and increased global and domestic capital flows . during this time , u.s. leasing markets have been marked by increased demand for space , falling vacancies and higher rents . european economies began to emerge from recession in 2013 , with most countries returning to positive , albeit modest , economic growth . reflecting the macro environment , leasing markets in most of europe were slow to recover , but improved significantly in 2015. buoyed by low-cost credit and continued capital flows , europe saw increased property sales activity in 2015 , with higher volumes occurring across more markets , particularly on the continent . in asia pacific , the performance of real estate leasing and investment markets has varied from country to country amid slowing economic growth . strength in australia has generally compensated for slower activity elsewhere in the region . in addition , increasingly , local capital has been migrating to other parts of the world . real estate investment management and property development markets have been generally favorable with abundant debt and equity capital flows into commercial real estate . however , real estate equity securities markets were adversely affected in 2015 by investor concerns about rising interest rates . the performance of our global sales , leasing , investment management and development services operations depends on sustained economic growth and strong job creation ; stable , healthy global credit markets ; and continued positive business and investor sentiment . effects of acquisitions the company historically has made significant use of strategic acquisitions to add new service competencies , to increase our scale within existing competencies and to expand our presence in various geographic regions around the world . on september 1 , 2015 , cbre , inc. , our wholly-owned subsidiary , closed on a stock and asset purchase agreement ( the purchase agreement ) with johnson controls , inc. ( jci ) to acquire jci 's global workplace solutions ( gws ) business ( which we refer to as the gws acquisition ) . the acquired gws business is a market-leading provider of integrated facilities management solutions for major occupiers of commercial real estate and has significant operations around the world . the purchase price was $ 1.475 billion , paid in cash , with adjustments for working capital and other items . we completed the gws acquisition in order to advance our strategy of delivering globally integrated services to major occupiers in our americas , emea and asia pacific segments . we merged the acquired gws business with our existing occupier outsourcing business line , and the new combined business adopted the ยglobal workplace solutionsย name . strategic in-fill acquisitions have also played a key role in expanding our geographic coverage and broadening and strengthening our service offerings . the companies we acquired have generally been regional or 32 specialty firms that complement our existing platform within a region , or independent affiliates in which , in some cases , we held a small equity interest . during 2015 , we completed eight in-fill acquisitions , including a seattle-based leader in capital markets services for affordable housing , a texas-based commercial real estate firm specializing in retail services , an energy management specialist based in brookfield , wisconsin , a chicago-based location data analytics firm , one of the leading retail real estate services firms in the midwestern united states , an advisory , consulting and research firm specializing in the canadian hospitality and tourism industries and our former independent affiliate companies in columbia , south carolina , and memphis , tennessee .
| results of operations the following table sets forth items derived from our consolidated statements of operations for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_7_th ( 1 ) includes ebitda related to discontinued operations of $ 7.9 million for the year ended december 31 , 2013. ebitda represents earnings before net interest expense , write-off of financing costs on extinguished debt , income taxes , depreciation and amortization . amounts shown for ebitda , as adjusted ( which we also refer to as ยnormalized ebitdaย ) , further remove ( from ebitda ) the impact of certain cash and non-cash charges related to acquisitions , as well as certain carried interest incentive compensation expense . neither ebitda nor ebitda , as adjusted , is a recognized measurement under u.s. generally accepted accounting principles , or gaap , and when analyzing our operating performance , investors should use them in addition to , and not as an alternative for , net income as determined in accordance with gaap . because not all companies use identical calculations , our presentation of these measures may not be comparable to similarly titled measures of other companies . 36 we generally use these non-gaap financial measures to evaluate operating performance and for other discretionary purposes , and we believe that these measures provide a more complete understanding of ongoing operations , enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business . we further believe that investors may find these measures useful in evaluating our operating performance compared to that of other companies in our industry because their calculations generally eliminate the effects of acquisitions , which would include impairment charges of goodwill and intangibles created from acquisitions , the effects of financings and income taxes and the accounting effects of capital spending .
| 4,857 |
in accordance with the scaled disclosure requirements , this discussion covers the two year period ended december 31 , 2017. the national security group , inc. operates in ten states with 47.5 % of total premium revenue generated in the states of alabama and mississippi . the company is made up of the following two segments : the property and casualty ( p & c ) segment is the most significant segment , accounting for 90.8 % of gross earned premium in 2017. the p & c segment has insurance in-force in the states of alabama , arkansas , georgia , louisiana , mississippi , oklahoma , south carolina , and tennessee . the life segment accounted for 9.2 % of gross premium revenue in 2017. the life segment is licensed to underwrite life and accident and health insurance in alabama , florida , georgia , mississippi , south carolina , tennessee and texas . the company 's p & c segment is conducted through national security fire & casualty company ( nsfc ) , a wholly owned subsidiary of the company organized in 1959 , and omega one insurance company ( omega ) , a wholly owned subsidiary of national security fire & casualty company organized in 1992. there is no material differentiation between the products underwritten by nsfc and omega as both underwrite primarily dwelling personal lines coverage . due to omega producing no direct written premium and the fact that omega is a wholly owned subsidiary of nsfc authorized to underwrite similar lines of business , all references to nsfc or p & c segment in the remainder of this management discussion and analysis will include the insurance operations of both nsfc and omega . life segment business is conducted through national security insurance company ( nsic ) , a wholly owned subsidiary of the company organized in 1947. all references to nsic or life segment in the remainder of this management discussion and analysis will refer to the combined life , accident and health insurance operations . our income is principally derived from net underwriting profits and investment income . net underwriting profit is principally derived from earned premiums received less claims paid , sales commissions to agents , costs of underwriting 20 and insurance taxes and fees . investment income includes interest and dividend income and gains and losses on investment holdings . all of the insurance subsidiaries are alabama domiciled insurance companies ; therefore , the alabama department of insurance is the primary insurance regulator . however , each subsidiary is subject to regulation by the respective insurance regulators of each state in which it is licensed to transact business . insurance rates charged by each of the insurance subsidiaries are typically reviewed and approved by each insurance department for the respective state in which the rates will apply . the property and casualty segment can be impacted by severe storm activity resulting in incurred losses and loss adjustment expenses primarily from tornado , wind and hail related damage . these storm systems or other natural disasters are classified as catastrophes ( referred to as `` cat events '' or `` catastrophe events '' throughout the remainder of this document ) by property claim service ( pcs ) when these events cause $ 25 million or more in industry wide direct insured losses and affect a significant number of policyholders and insurers . all of our insurance companies have been assigned ratings by a.m. best co ( best ) . on march 7 , 2017 , best affirmed the financial strength rating ( fsr ) of b++ ( good ) and the issuer credit rating ( icr ) of `` bbb '' of nsfc . in addition , best affirmed the fsr of b+ ( good ) and icr of `` bbb- '' of omega and nsic . the outlook for all of these ratings is stable . best also affirmed the icr of `` bb '' of the parent holding company , nsec , with a stable outlook . the property and casualty subsidiaries have been assigned ratings by demotech , inc. on november 14 , 2017 , demotech affirmed a financial stability rating of a ( exceptional ) for both nsfc and omega . this discussion and analysis of the consolidated results of operations and financial condition of the company should be read in conjunction with the selected financial data and consolidated financial statements and related notes included in this form 10-k. please refer to our note regarding forward-looking statements on pages 4-5 of this report . information in this discussion is presented in whole dollars rounded to the nearest thousand . tabular amounts are presented in thousands . overview-year ended december 31 , 2017 compared to year ended december 31 , 2016 story_separator_special_tag the remaining accumulated balance of the account as of december 31 , 2017 to be paid over eight years beginning in 2018. due to enactment of the tcja the company established a deferred tax liability at december 31 , 2017 on the pre-1984 surplus account in the amount of $ 529,000. deferred tax assets and liabilities are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of the enacted tax laws . due to the enactment of the tcja , the company revalued its deferred tax assets and liabilities at december 31 , 2017. as a result , the company recognized $ 857,000 in income tax expense due to the repeal of a special provision on pre-1984 surplus and a $ 54,000 income tax benefit due to the change in corporate tax rate from 34 % to 21 % . story_separator_special_tag premium revenues and operating income for the p & c segment for the year ended december 31 , 2017 and 2016 are summarized below : replace_table_token_16_th year ended december 31 , 2017 compared to year ended december 31 , 2016 : premium revenue in the p & c segment is primarily driven by our dwelling fire and homeowner lines of business . the following table provides premiums earned by line of business : replace_table_token_17_th property and casualty segment net premium earned for 2017 was $ 55,044,000 compared to $ 55,164,000 for the same period in 2016. the primary reason for the moderate decline in 2017 compared to 2016 was a 3.2 % decrease in gross premium revenue in our homeowners program . an increase in catastrophe reinsurance cost ( ceded premium ) of 7.6 % also contributed to our 0.2 % decrease in net premium earned . 26 the primary source of premium revenue growth in the p & c segment was in our non-coastal states ; primarily the states of georgia and oklahoma . premium revenue in georgia increased 16.2 % in 2017 with policy counts up 7.1 % compared to december 31 , 2016. increased rates were implemented in georgia , along with growth in policy count , which lead to the year over year increase in premium revenue in the state . in addition , oklahoma premium revenue increased 4.0 % in 2017 , with policy counts up 3.5 % . an increase in new business production coupled with the implementation of increased rates were the primary reasons for the increase in premium revenue in oklahoma in 2017 compared to the same period last year . we expect to continue to look for opportunities to increase premium revenue in non-coastal and less hurricane prone regions of the states in which we operate in order to create more geographic diversification and seek appropriate risk adjusted rates in coastal areas . the company maintains catastrophe reinsurance coverage to mitigate loss exposure from catastrophic events . our catastrophe retention remained unchanged at $ 4 million in 2017 and we maintain catastrophe reinsurance coverage with an upper limit of $ 72.5 million . our catastrophe reinsurance also covers the cost of a second event up to the same $ 72.5 million upper limit , again with a $ 4 million retention . under the catastrophe reinsurance program in 2017 , the company retained the first $ 4,000,000 in losses from each event . reinsurance coverage for 2017 was maintained in three layers as follows : layer reinsurers ' limits of liability first layer 100 % of $ 13,500,000 in excess of $ 4,000,000 retention second layer 100 % of $ 25,000,000 in excess of $ 17,500,000 third layer 100 % of $ 30,000,000 in excess of $ 42,500,000 in our reinsurance structure , management attempts to limit the impact on pretax earnings of a single modeled 100 year cat event to no more than $ 4 million and the primary models utilized indicate that the company 's upper limit of reinsurance is adequate to cover up to approximately a 250 year event ( a single event with an estimated probability of exceedance of 0.4 % in a given year ) . it is noted , however , that hurricane models are subject to significant risks and uncertainties and are continuously evolving . catastrophe models are only a tool to estimate the impact of catastrophe events and actual results can differ materially from model estimates . we use the results of the risk management solutions ( rms ) and air worldwide ( air ) models in our review of exposure to hurricane risk . each of these third party vendors provides two views of the modeled results as follows : ( i ) a long-term view that closely relates modeled event frequency to historical hurricane activity ; and ( ii ) a shorter-term view that adjusts historical frequencies to reflect expectations of elevated hurricane activity in the near future . we believe that modeled estimates provide a range of potential outcomes and we review multiple estimates for purposes of understanding our catastrophic risk and variability . however , due to regulatory and competitive limitations , we generally utilize long-term model output in the development of our product pricing . the following table provides severe thunderstorm and hurricane single event model estimates for a range of return periods based on a blended view of the rms and air long-term models utilizing our actual in-force p & c segment policy data as of august 31 , 2017 : replace_table_token_18_th 1 - net losses are net of reinsurance and after a 21 % federal income tax benefit . 2 - equity as of december 31 , 2017 in addition to the risk of single large catastrophe events , we also have risk associated with multiple smaller catastrophe events that individually may not exceed our $ 4 million retention . we experienced such a year in 2017 with incurred losses from 26 catastrophe events totaling $ 14,280,000 with none exceeding our reinsurance retention . this lead to a record year for retained catastrophe losses for the company and adversely impacted our underwriting results . while 27 we have sought reinsurance coverage to reduce the impact of smaller serial events , it has been challenging to obtain cost effective coverage and structure . however , through improvement in our rate structure and implementation of more adequate risk adjusted rates over the past four years , we were able to limit the adverse impact of the record year for retained catastrophe losses in 2017 on our capital position and expect to achieve higher margins in future years with reduced storm activity . additional details regarding the structure of our 2017 catastrophe reinsurance program can be found in note 10 to the consolidated financial statements .
| summary : for the year ended december 31 , 2017 , net loss for the company totaled $ 1,203,000 or $ 0.48 loss per share , compared to net income of $ 3,063,000 , $ 1.22 income per share , for the year ended december 31 , 2016 , a year over year decrease of $ 4,266,000 . results for 2017 were negatively impacted by hurricane irma coupled with an active spring storm season . during september 2017 , hurricane irma made landfall in the florida keys as a category 4 storm . after moving through the florida peninsula , hurricane irma impacted our policyholders in alabama , georgia , south carolina and tennessee . georgia was the primary state in our coverage area impacted by hurricane irma . also adversely impacting 2017 year to date earnings was a fourth quarter charge to income tax expense of $ 803,000 from the net impact of recognition and revaluation of deferred tax assets and liabilities due to enactment of the tax cuts and jobs act ( tcja ) . results for 2016 were negatively impacted by hurricane matthew which made landfall on the coast of south carolina during early october 2016. net of tax , hurricane matthew reduced 2016 net income by $ 2,640,000 . 21 financial results for the year ended december 31 , 2017 and 2016 were as follows : replace_table_token_12_th premium revenue : for the year ended december 31 , 2017 , net premiums earned were down $ 235,000 at $ 61,163,000 compared to $ 61,398,000 in 2016. the decrease in premium revenue is primarily attributable to a 5.5 % increase in catastrophe reinsurance cost . net income : for the year ended december 31 , 2017 , the company had a net loss of $ 1,203,000 , $ 0.48 loss per share , compared to net income of $ 3,063,000 , $ 1.22 income per share , for the same period in 2016 , a decrease of $ 4,266,000.
| 4,858 |
55 the unsecured revolving loan facility and the amended master note purchase agreement contain covenants that require polaris to maintain certain financial ratios , including minimum interest coverage and maximum leverage ratios . polaris was in compliance with all such covenants as of december 31 , 2013 . the company entered into and settled an story_separator_special_tag the following discussion pertains to the results of operations and financial position of the company for each of the three years in the period ended december 31 , 2013 , and should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report . overview in 2013 , we had record sales and net income from continuing operations , with our fourth straight year of sales growth exceeding 15 percent and net income growth exceeding 20 percent . this growth is fueled by award-winning innovative new products leading to continued market share leadership in side-by-side vehicles and atv 's . in 2013 , we also experienced growth in our motorcycles , international and adjacent market businesses . the overall north american powersports industry continued its positive trend with mid-single digit percentage growth in 2013. our north america retail sales to consumers increased 10 percent in 2013 , helping to drive total full year company sales up 18 percent to a record $ 3.78 billion . despite the global economy remaining difficult , our international sales increased 29 percent due to continued market share growth in all product categories and strong results by our recent european acquisitions . full year earnings reflect the success of our margin expansion efforts , as we delivered a 40 basis point increase in net income margin from continuing operations to a record 10.1 percent of sales . the combination of increased sales growth and the expansion of gross margins by 90 basis points drove net income from continuing operations up 22 percent to $ 381.1 million , with diluted earnings per share from continuing operations increasing 23 percent to a record $ 5.40 per share . these increases came while we continued to invest in numerous longer-term diversification and growth opportunities . in 2013 , we received a benefit from prior investments while continuing to invest in both product development and strategic initiatives . in august 2013 , we re-launched the iconic indian motorcycle brand , headlined by three all-new models : chief classic , chief vintage and chieftain . additionally , in 2013 we introduced 11 new orv products and eight new snowmobile models . our late 2012 acquisition of klim , a market leader in the design , development and distribution of premium technical riding gear for the snowmobile and motorcycle divisions , performed exceptionally well in 2013. meanwhile , in the second quarter of 2013 , we acquired aixam , a leader in the european on-road quadricycles market . our footprint expanded with the doubling of our wyoming , minnesota research and development facility being completed in 2013 , and we broke ground on a new manufacturing plant in poland and a new manufacturing plant for our joint venture with eicher motors limited , which intends to design , develop and manufacture a full range of new vehicles in india and other emerging markets . in november 2013 , we repurchased 3.96 million shares held by fuji heavy industries ltd. ( `` fuji '' ) for $ 497.5 million . the repurchase was funded from cash on hand and borrowings under our revolving credit facility and master note purchases agreement . the repurchase is expected to decrease our 2014 diluted share count while leaving available borrowing capacity to fund future growth . on january 30 , 2014 , we announced that our board of directors approved a 14 percent increase in the regular quarterly cash dividend to $ 0.48 per share for the first quarter of 2014 , representing the 19th consecutive year of increased dividends to shareholders . this increase reflects the continued momentum and potential of our business and the strength of our balance sheet . 25 story_separator_special_tag increase in 2013 was driven by double digit percent increases in all product lines and categories , which was primarily driven by the addition of over 300 new model year 2014 accessories , including additions to the family of lock and rideยฎ attachments that add comfort , style and utility to orvs and motorcycles . pg & a sales also increased over the prior year periods due to the inclusion of klim in our consolidated financial statements since it was acquired in december 2012 , and aixam related pg & a since it was acquired in april 2013 . 27 pg & a sales increased 13 percent to $ 460.8 million for 2012 compared to 2011. sales of pg & a to customers outside of north america increased 16 percent during 2012 compared to 2011. the sales increase in 2012 was driven by increased sales in all product lines and product categories driven by the addition of over 250 model year 2013 accessories , and higher pg & a related sales to owners of the company 's large installed base of vehicles . the acquisition of klim late in the 2012 fourth quarter did not have a significant impact on the 2012 pg & a sales results . sales by geographic region were as follows : replace_table_token_8_th significant regional trends were as follows : united states : sales in the united states for 2013 increased 18 percent compared to 2012 , primarily resulting from higher shipments in all product lines and related pg & a , improved pricing and more sales of higher priced side-by-side vehicles . the united states represented 72 percent , 72 percent and 70 percent of total company sales in 2013 , 2012 and 2011 , respectively . sales in the united states for 2012 increased 24 percent compared to 2011 , primarily resulting from higher shipments in all product lines due to market share gains driven by innovative products . story_separator_special_tag income from financial services increased 41 percent to $ 33.9 million in 2012 compared to $ 24.1 million in 2011. the increase was primarily due to increased profitability generated from retail credit arrangements with sheffield , ge , and capital one , an 11 percent increase in the retail credit volume , and higher income from dealer inventory financing through the securitization facility . interest expense : interest expense increased to $ 6.2 million in 2013 compared to $ 5.9 million in 2012 . in the 2013 fourth quarter , we increased debt levels through borrowings on our existing revolving credit facility and additional borrowings of $ 100.0 million through our amended master note purchases agreement used to partially fund the $ 497.5 million buyback of outstanding polaris shares held by fuji . the additional debt resulted in an increase to interest expense in 2013. interest 30 expense increased to $ 5.9 million in 2012 compared to $ 4.0 million in 2011. this increase was due to both sustained increased levels of capital lease obligations and interest bearing long-term senior notes being outstanding throughout all of 2012. other ( income ) , net : non-operating other income was $ 5.1 million , $ 7.5 million and $ 0.7 million for 2013 , 2012 and 2011 . the change in income primarily relates to foreign currency exchange rate movements and the resulting effects on foreign currency transactions and balance sheet positions related to our foreign subsidiaries from period to period . additionally , in 2013 , we recorded a $ 5.0 million charge due to an other-than-temporary impairment of our brammo , inc. cost-based investment . provision for income taxes : the income tax provision was similar for 2013 , 2012 and 2011 and reflected a rate of 33.7 percent , 34.9 percent and 34.3 percent of pretax income . the lower income tax rate for 2013 , and higher rate in 2012 , was primarily due to the timing of the extension of the research and development income tax credit in the first quarter 2013. the credit was recorded in 2013 but applied retroactively to 2012 resulting in a lower tax rate in 2013. in addition , in 2013 we also had a favorable impact from the release of certain income tax reserves due to favorable conclusions of federal income tax audits . the favorable impact from these items totaled $ 8.2 million and was recorded as a reduction to income tax expense in the first quarter of 2013. net income from continuing operations : the following table reflects our reported net income from continuing operations : replace_table_token_13_th net income , including loss from discontinued operations : the following table reflects our reported net income : replace_table_token_14_th net income , including the loss from discontinued operations , increased 21 percent in 2013 compared to 2012. the 2013 loss from discontinued operations is a result of a 2013 unfavorable jury verdict in a previously disclosed lawsuit involving a collision between a 2001 polaris virage personal watercraft and a boat . the jury awarded approximately $ 21.0 million in damages of which our liability was $ 10.0 million . we reported a loss from discontinued operations , net of tax , of $ 3.8 million in 2013 for an additional provision for our portion of the jury award and legal fees . the liability was fully paid by the end of 2013. there was no income or loss from discontinued operations in 2012 or 2011. in september 2004 , we announced our decision to cease manufacturing marine products . since then , any material financial results of that division have been recorded in discontinued operations . no additional charges are expected from this lawsuit . weighted average shares outstanding : the weighted average diluted shares outstanding for 2013 , 2012 and 2011 were 70.5 million , 71.0 million , and 71.1 million shares , respectively . in november 2013 , polaris entered into and executed a share repurchase agreement with fuji pursuant to which polaris purchased 3.96 million shares of polaris stock held by fuji . this buyback more than offset the issuance of shares under employee compensation plans and resulted in a decrease to the 2013 weighted average diluted shares outstanding ; however , as a result of the timing of the buyback , it will have a more significant impact on our 2014 weighted average diluted shares outstanding . in 2012 , the issuance of shares under employee compensation plans offset market share repurchases under our stock repurchase program , resulting in flat weighted average shares outstanding compared to 2011 . 31 critical accounting policies the significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following : revenue recognition , sales promotions and incentives , dealer holdback programs , product warranties , share-based employee compensation and product liability . revenue recognition . revenues are recognized at the time of shipment to the dealer , distributor or other customers . historically , product returns , whether in the normal course of business or resulting from repurchases made under the floorplan financing program , have not been material . however , we have agreed to repurchase products repossessed by the finance companies up to certain limits . our financial exposure is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product . no material losses have been incurred under these agreements . we have not historically recorded any significant sales return allowances because we have not been required to repurchase a significant number of units . however , an adverse change in retail sales could cause this situation to change . polaris sponsors certain sales incentive programs and accrues liabilities for estimated sales promotion expenses and estimated holdback amounts that are recognized as reductions to sales when products are sold to the dealer or distributor customer . sales promotions and incentives .
| results of operations sales : sales were $ 3,777.1 million in 2013 , an 18 percent increase from $ 3,209.8 million for the same period in 2012 . the following table is an analysis of the percentage change in total company sales for 2013 compared to 2012 and 2012 compared to 2011 : replace_table_token_6_th volume for 2013 and 2012 increased 12 percent and 18 percent , respectively , compared to 2012 and 2011 . the volume increase in 2013 and 2012 is primarily the result of shipping more orvs , snowmobiles , motorcycles and related pg & a items to dealers given increased consumer retail demand for our products worldwide , along with the inclusion of aixam in our consolidated financial statements since it was acquired on april 10 , 2013. product mix and price contributed seven percent and four percent to the growth for 2013 and 2012 , respectively , primarily due to the positive benefit of a greater number of higher priced orvs sold to dealers relative to our other businesses . the impact from currency rates on our canadian and other foreign subsidiaries ' sales , when translated to u.s. dollars decreased sales by one percent in both 2013 and 2012 compared to the respective prior years . our sales by product line were as follows : replace_table_token_7_th orv sales of $ 2,521.5 million in 2013 , which include core atv and ranger and rzr side-by-side vehicles , increased 13 percent from 2012 . this increase reflects continued market share gains for both atvs and side-by-side vehicles driven by strong consumer enthusiasm for our orv offerings , including an expanded line-up of innovative new atvs and side-by-side vehicles introduced in the 2013 third and fourth quarters .
| 4,859 |
reimbursement of research and development expenses received in connection with these agreements is recorded as a reduction of such expenses . comprehensive loss f - 13 comprehensive loss represents net loss adjusted for the change during the periods attributed to unrealized gains and losses on available-for-sale securities . comprehensive loss equals net loss for the year ended december 31 story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with our selected consolidated financial data and the consolidated financial statements and related notes included elsewhere herein . this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth under the section entitled `` risk factors '' , `` forward-looking statements '' and elsewhere herein , our actual results may differ materially from those anticipated in these forward-looking statements . overview we are a biopharmaceutical company focused on discovering and developing innovative antibody-based therapeutics for the treatment of cancer as well as various autoimmune disorders and infectious diseases . we currently have a pipeline of product candidates in human clinical testing , primarily against different types of cancers , which have been created using our proprietary technology platforms . we believe our programs have the potential to have a meaningful effect on treating patients ' unmet medical needs as monotherapy or , in some cases , in combination with other therapeutic agents . we commenced active operations in 2000 , and have since devoted substantially all of our resources to staffing our company , developing our technology platforms , identifying potential product candidates , undertaking preclinical studies , conducting clinical trials , developing collaborations , business planning and raising capital . we have not generated any revenues from the sale of any products to date . we have financed our operations primarily through the public and private offerings of our securities , collaborations with other biopharmaceutical companies , and government grants and contracts . although it is difficult to predict our funding requirements , based upon our current operating plan , we anticipate that our cash , cash equivalents and marketable securities as of december 31 , 2016 , combined with collaboration payments we anticipate receiving , will enable us to fund our operations through late 2018 based on our current business plan . through december 31 , 2016 , we had an accumulated deficit of $ 292.7 million . we expect that over the next several years this deficit will increase as we increase our expenditures in research and development in connection with our ongoing activities with several clinical trials . strategic collaborations we pursue a balanced approach between product candidates that we develop ourselves and those that we develop with our collaborators . under our strategic collaborations to date , we have received significant non-dilutive funding and continue to have rights to additional funding upon completion of certain research , achievement of key product development milestones , or royalties and other payments upon the commercial sale of products . currently , our most significant strategic collaborations include the following : janssen . in december 2014 , we entered into a collaboration and license agreement with janssen for the development and commercialization of duvortuxizumab , a product candidate that incorporates our proprietary dart technology to simultaneously target cd19 and cd3 for the potential treatment of b-cell hematological malignancies . we contemporaneously entered into an agreement with jjdc , an affiliate of janssen , under which jjdc agreed to purchase 1,923,077 new shares of our common stock for proceeds of $ 75.0 million . upon closing , we received a $ 50.0 million upfront payment from janssen as well as the $ 75.0 million investment in our common stock . janssen is leading the development of this product candidate , subject to our options to co-promote the product in the united states and canada and to invest in later-stage development in exchange for a united states and canada profit-share . janssen initiated a human clinical trial in 2015 for a variety of b-cell hematological malignancies , including diffuse-large b cell lymphoma , follicular lymphoma , mantle-cell lymphoma , chronic lymphocytic leukemia and acute lymphoblastic leukemia . the initiation of this trial triggered a $ 10.0 million milestone payment to us . assuming successful development and commercialization , we could receive up to an additional $ 565.0 million in clinical , regulatory and commercialization milestone payments . if commercialized , we would be eligible to receive low double-digit royalties on any global net sales . in may 2016 , we entered into a separate collaboration and license agreement with janssen for the development and commercialization of mgd015 , a product candidate that incorporates our proprietary dart technology to simultaneously target cd3 and an undisclosed tumor target for the potential treatment of various hematological malignancies and solid tumors . the transaction closed in june 2016 , and we received the $ 75.0 million upfront payment from janssen in july 2016. under the collaboration and license agreement , we granted an exclusive license to janssen to develop and commercialize mgd015 . janssen will complete the ind-enabling activities and will be fully responsible for the future clinical development and commercialization of mgd015 . assuming successful development and commercialization , the agreement entitles us to receive up to $ 665.0 million in 43 development , regulatory and sales milestone payments . if commercialized , we would be eligible to receive low double-digit royalties on any global net sales and have the option to co-promote the molecule with janssen in the united states . servier . in september 2012 , we entered into an agreement with servier to develop and commercialize three dart molecules in all countries other than the united states , canada , mexico , japan , south korea and india . we received a $ 20.0 million upfront option fee . story_separator_special_tag the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including the uncertainties of future clinical trials and preclinical studies , uncertainties in clinical trial enrollment rate and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . general and administrative expense general and administrative expenses consist of salaries and related benefit costs for employees in our executive , finance , legal and intellectual property , business development , human resources and other support functions , travel expenses and other legal and professional fees . other income ( expense ) other income ( expense ) consists of interest income earned on our cash , cash equivalents and marketable securities , offset by other expenses . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial conditions and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheets and the reported amount of the revenue and expenses recorded during the reporting period . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable . we review and evaluate these estimates on an on-going basis . these assumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities and amounts that have been recorded as revenues and expenses . actual results and experiences may differ from these estimates . the results of any material revisions would be reflected in the consolidated financial statements prospectively from the date of the change in estimate . while a summary of significant accounting policies is described fully in note 2 in our consolidated financial statements , we believe that the following accounting policies are the most critical to assist you in fully understanding and evaluating our financial results and any affect the estimates and judgments we used in preparing our consolidated financial statements . 45 revenue recognition we enter into collaboration and license agreements with collaborators for the development of monoclonal antibody-based therapeutics to treat cancer and other complex diseases . the terms of these agreements contain multiple deliverables which may include ( i ) licenses , or options to obtain licenses , to our technological platforms , such as our fc engineering and dart technologies , ( ii ) rights to future technological improvements , ( iii ) research and development activities to be performed on behalf of the collaborator or as part of the collaboration , and ( iv ) the manufacture of preclinical or clinical materials for the collaborator . payments to us under these agreements may include nonrefundable license fees , option fees , exercise fees , payments for research and development activities , payments for the manufacture of preclinical or clinical materials , license maintenance payments , payments based upon the achievement of certain milestones and royalties on product sales . other benefits to us from these agreements include the right to sell products resulting from the collaborative efforts of the parties in specific geographic territories . we follow the provisions of the financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 605-25 , revenue recognitionโmultiple-element arrangements , and asc topic 605-28 , revenue recognitionโmilestone method , in accounting for these agreements . in order to account for these agreements , we must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on the achievement of certain criteria , including whether the delivered element has stand-alone value to the collaborator . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . as of december 31 , 2016 , we had two types of agreements : 1 ) exclusive development and commercialization licenses to use our technology and or certain other intellectual property to develop compounds against specified targets , which we refer to as exclusive licenses ; and 2 ) option/research agreements to secure on established terms development and commercialization licenses to therapeutic product candidates to collaborator-selected targets developed by us during an option period , which we refer to as right-to-develop agreements . exclusive licenses the deliverables under an exclusive license agreement generally include the exclusive license to our technology with respect to a specified antigen target , and may also include deliverables related to rights to future technological improvements , research and preclinical development activities to be performed on behalf of the collaborator . in some cases we may have an option to participate in the co-development of product candidates that result from such agreements . generally , exclusive license agreements contain nonrefundable terms for payments and , depending on the terms of the agreement , provide that we will ( i ) at the collaborator 's request , provide research and preclinical development services at negotiated prices which are generally consistent with what other third parties would charge , ( ii ) earn payments upon the achievement of certain milestones , ( iii ) earn royalty payments , and ( iv ) in some cases grant us an option to participate in the development and commercialization of products that result from such agreements .
| results of operations for the years ended december 31 , 2016 and 2015 revenue the following represents a comparison of our research and development revenue for the years ended december 31 , 2016 and 2015 : replace_table_token_3_th 49 the decrease in collaboration revenue of $ 12.8 million for the year ended december 31 , 2016 compared to 2015 is primarily due to the decrease in revenue recognition related to the boehringer and takeda pharmaceutical company limited ( takeda ) agreements . revenue under the boehringer agreement decreased because the development period , and therefore the related revenue recognition period , was completed in september 2015. revenue under the takeda mgd010 agreement decreased primarily due to a $ 3.0 million milestone being recognized during the year ended december 31 , 2015 . these decreases were partially offset by the $ 75.0 million in revenue recognized during the year ended december 31 , 2016 under the janssen mgd015 agreement compared to $ 72.3 million recognized during the year ended december 31 , 2015 under the janssen duvortuxizumab agreement . revenue from government agreements increased for the year ended december 31 , 2016 compared to 2015 due to revenue from the niaid contract which began in september 2015. research and development expense the following represents a comparison of our research and development expense for the years ended december 31 , 2016 and 2015 : replace_table_token_4_th ( a ) - expenses are shown net of reimbursements from collaborator . during the year ended december 31 , 2016 our research and development expense increased by $ 23.8 million compared to 2015 .
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no single customer accounted for more than 3 % of total net sales in 2018 , 2017 , and 2016. while no single agency of the federal government comprised more than 3 % of total sales , aggregate sales to the federal government as a percentage of total net sales were 5.4 % , 7.8 % , and 7.5 % in 2018 , 2017 , and 2016 , respectively . product purchases from ingram micro , inc. ( โ ingram โ ) , our largest supplier , accounted for approximately 22 % of our total product purchases in both 2018 and 2017 and 21 % in 2016. purchases from synnex corporation ( โ synnex โ ) comprised 12 % , 12 % , and 13 % , of our total product purchases in 2018 , 2017 , and 2016 , respectively . purchases from tech data comprised of 10 % , 11 % and 8 % in 2018 , 2017 , and 2016 , respectively . purchases from hewlett-packard company , story_separator_special_tag our management 's discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated . see โ item 1a . risk factors. โ overview we are a national solutions provider of a wide range of information technology , or it , solutions . we help our customers design , enable , manage , and service their it environments . we provide it products , including computer systems , data center solutions , software and peripheral equipment , networking communications , and other products and accessories that we purchase from manufacturers , distributors , and other suppliers . we also offer services involving design , configuration , and implementation of it solutions . these services are performed by our personnel and by third-party providers . we operate through three sales segments , which serve primarily : ( a ) small- to medium-sized businesses , or in our business solutions segment , through our pc connection sales subsidiary , ( b ) large enterprise customers , in our enterprise solutions segment , through our moredirect subsidiary , and ( c ) federal , state , and local government and educational institutions , in our public sector solutions segment , through our govconnection subsidiary . we generate sales primarily through outbound telemarketing and field sales contacts by account managers focused on the business , education , and government markets , our websites , and direct responses from customers responding to our advertising media . we seek to recruit , retain , and increase the productivity of our sales personnel through training , mentoring , financial incentives based on performance , and updating and streamlining our information systems to make our operations more efficient . as a value added reseller in the it supply chain , we do not manufacture it hardware or software . we are dependent on our suppliersโmanufacturers and distributors that historically have sold only to resellers rather than directly to end users . however , certain manufacturers have , on multiple occasions , attempted to sell directly to our customers , and in some cases , have restricted our ability to sell their products directly to certain customers , thereby attempting to eliminate our role . we believe that the success of these direct sales efforts by suppliers will depend on their ability to meet our customers ' ongoing demands and provide objective , unbiased solutions to meet their needs . we believe more of our customers are seeking comprehensive it solutions , rather than simply the acquisition of specific it products . our advantage is our ability to be product-neutral and provide a broader combination of products , services , and advice tailored to customer needs . by providing customers with customized solutions from a variety of manufacturers , we believe we can mitigate the negative impact of continued direct sales initiatives from individual manufacturers . through the formation of our technical solutions group , we are able to provide customers complete it solutions , from identifying their needs , to designing , developing , and managing the integration of products and services to implement their it projects . such service offerings carry higher margins than traditional product sales . additionally , the technical certifications of our service engineers permit us to offer higher-end , more complex products that generally carry higher gross margins . we expect these service offerings and technical certifications to continue to play a role in sales generation and improve gross margins in this competitive environment . the primary challenges we continue to face in effectively managing our business are ( 1 ) increasing our revenues while at the same time improving our gross margin in all three segments , ( 2 ) recruiting , retaining , and improving the productivity of our sales and technical support personnel , and ( 3 ) effectively controlling our selling , general , and administrative , or sg & a , expenses while making major investments in our it systems and solution selling personnel , especially in relation to changing revenue levels . to support future growth , we are expanding our it solutions business , which requires the addition of highly-skilled service engineers . although we expect to realize the ultimate benefit of higher-margin service revenues under this multi-year initiative , we believe that our cost of services will increase as we add service engineers . if our service revenues do not grow enough to offset the cost of these headcount additions , our operating results may decline . 21 market conditions and technology advances significantly affect the demand for our products and services . virtual delivery of software products and advanced internet technology providing customers enhanced functionality have substantially increased customer expectations , requiring us to invest on an ongoing basis in our own it development to meet these new demands . story_separator_special_tag the year-over-year increase in sg & a dollars was primarily driven by a $ 7.7 million increase in usage of headquarter services related to our investments in technical and engineering support provided to this segment , and a $ 1.6 million increase in advertising expenses driven by increased vendor funding for marketing , advertising , and training campaigns directed towards driving sales . these increases were partially offset by a net $ 1.1 million decrease in personnel-related expenses , which was driven by a decrease of approximately $ 3.8 million related to the reallocation of certain personnel-related expenses in 2018 to the headquarters/other group and partially offset by increases in variable compensation associated with higher gross profits . sg & a expenses as a percentage of net sales was 14.1 % for the business solutions segment , which reflects an increase of 26 basis points resulting from the factors described above and an increase of 201 basis points related to the adoption of asc 606 . ยท sg & a expenses for the enterprise solutions segment increased in dollars and as a percentage of net sales . the increase in sg & a dollars was primarily due to increased personnel-related expenses of $ 7.9 million , resulting from investments in solutions sales personnel and incremental variable compensation associated with higher gross profits , a $ 3.3 million increase in usage of headquarter services , and a $ 0.3 million increase in credit card fees . sg & a expenses as a percentage of net sales was 8.6 % for the enterprise solutions segment , which reflects a decrease of 30 basis points resulting from the factors described above , but offset by an increase of 109 basis points related to the adoption of asc 606 . 26 ยท sg & a expenses for the public sector solutions segment increased in dollars and as a percentage of net sales . the dollar increase resulted primarily from greater usage of headquarter services of $ 3.0 million , which was partially offset by decreases in personnel-related expenses of $ 0.3 million primarily due to the reallocation of certain personnel-related expenses in 2018 to the headquarters/other group and lower credit card fee expenses of $ 0.1 million . sg & a expenses as a percentage of net sales was 13.2 % for the public sector solutions segment , which reflects an increase of 143 basis points resulting from the factors described above and an increase of 145 basis points related to the adoption of asc 606 . ยท sg & a expenses for the headquarters/other group increased year-over-year , which was driven primarily by the reallocation of certain personnel-related expenses to the headquarters/other group from the business solutions and public sector solutions segments . the headquarters/other group provides services to the three segments in areas such as finance , human resources , it , marketing , and product management . most of the operating costs associated with such corporate headquarters services are charged to the operating segments based on their estimated usage of the underlying services . the amounts shown in the table above represent the remaining unallocated costs . income from operations increased by $ 8.2 million to $ 85.7 million in 2018 compared to 2017. income from operations as a percentage of net sales was 3.2 % in 2018 compared to 2.7 % in 2017. the increase in operating income resulted primarily from gross profits increasing at a higher rate than sg & a costs . the increase in operating income as a percentage of net sales resulted primarily from the increase in gross margin . restructuring and other charges . during 2018 , we began presenting restructuring and other charges separately from sg & a expenses . these costs incurred in 2018 , 2017 , and 2016 were as follows : replace_table_token_11_th the net restructuring charges recorded in 2018 were related to a reduction in workforce at our business solutions , public sector solutions , and headquarter segments and included cash severance payments and other related benefits . the net restructuring and other charges recorded in 2017 were primarily driven by a reduction in workforce at our headquarters segment , along with costs related to the softmart business , which was acquired in 2016 , including expenses to retain certain key personnel brought over in the acquisition . also in 2017 , we incurred additional expense of $ 2.7 million related to a one-time cash bonus paid to all non-executive employees at the end of the year . the net restructuring and other charges recorded in 2016 were primarily driven by a reduction in workforce after the softmart acquisition and other employee severance expenses incurred throughout the business . we also incurred costs associated with the acquisitions and it transitions of softmart and globalserve , along with other costs associated with a company-wide rebranding campaign . income taxes . our effective tax rate was 27.1 % for the year-ended december 31 , 2018 , compared to 29.3 % for the year-ended december 31 , 2017. in december 2017 , the u.s. tax cuts and jobs act was enacted , which among other changes , reduced the federal corporate income tax rate . this rate reduction , which took effect on january 1 , 2018 , required the revaluation of our net deferred tax liability . the revaluation resulted in the recording of an income tax benefit of $ 7.7 million for the fourth quarter of 2017 . we expect our corporate income tax rate for 2019 to range from 27 % to 29 % . 27 net income increased by $ 9.7 million to $ 64.6 million in 2018 , from $ 54.9 million in 2017 , which resulted from the increase in operating income combined with a lower effective tax rate in the current year .
| results of operations the following table sets forth information derived from our statements of income expressed as a percentage of net sales for the periods indicated : replace_table_token_5_th ( 1 ) certain prior year amounts have been reclassified to conform to 2018 presentation . these changes had no impact on previously reported results of operations or shareholders ' equity . net sales of $ 2,699.5 million in 2018 reflected a decrease of $ 212.4 million compared to 2017 , primarily as a result of the adoption of new revenue recognition guidance under asc 606 , which was not applied to net sales reported in prior years . the primary impact of the new guidance was an increase in certain revenue transactions reported on a net basis . had the year been reported under previous revenue recognition guidance , net sales would have been $ 3,104.2 million , reflecting an increase of 6.6 % compared to the prior year . gross profit dollars increased year-over-year by $ 29.0 million due to higher invoice selling margins realized on increased sales of software and higher margin advanced solution sales . the increase in sg & a expenses , both in dollars and as a percentage of net sales , was primarily related to incremental personnel costs , including variable compensation associated with higher gross profits and increased investments in solution selling . sg & a expenses as a percentage of net sales was 12.0 % for the year-ended december 31 , 2018 , which reflects an increase of 12 basis points resulting from the factors previously noted , and an increase of 156 basis points related to the adoption of new revenue guidance under asc 606. operating income in 2018 increased year-over-year , both in dollars and as a percentage of net sales , by $ 8.2 million and 50 basis points , respectively , primarily as a result of the gross profits increasing at a higher rate than the sg & a expenses .
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for a detailed discussion of these risks and uncertainties , see item 1a , โ risk factors โ of this annual report . we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this annual report . we undertake no obligation to update forward-looking statements which reflect events or circumstances occurring after the date of this annual report , unless required by applicable securities laws . 66 introduction this management 's discussion and analysis , or md & a , is presented in order to provide the reader with an overview of the financial results and changes to our financial position as at march 31 , 2020 and for the three and twelve-month periods then ended . this md & a explains the material variations in our financial statements of operations , financial position and cash flows for the three and twelve-month periods ended march 31 , 2020 , and 2019. market data and certain industry data and forecasts included in this md & a were obtained from internal corporation surveys , market research , and publicly available information , reports of governmental agencies and industry publications and surveys . we have relied upon industry publications as our primary sources for third-party industry data and forecasts . industry surveys , publications and forecasts generally state that the information they contain has been obtained from sources believed to be reliable , but that the accuracy and completeness of that information is not guaranteed . we have not independently verified any of the data from third-party sources or the underlying economic assumptions they made . similarly , internal surveys , industry forecasts and market research , which we believe to be reliable based upon our management 's knowledge of our industry , have not been independently verified . our estimates involve risks and uncertainties , including assumptions that may prove not to be accurate , and these estimates and certain industry data are subject to change based on various factors , including those discussed under item 1.a โ risk factors โ in this annual report . while we believe our internal business research is reliable and the market definitions we use in this md & a are appropriate , neither our business research nor the definitions we use have been verified by any independent source . this md & a may only be used for the purpose for which it has been published . this md & a , approved by the board of directors on june 29 , 2020 , should be read in conjunction with our audited consolidated financial statements for the year ended march 31 , 2020 and 2019. our audited financial statements were prepared in accordance with generally accepted accounting principles issued by the financial accounting standards board in the united states , or gaap . up to and including the third quarter ended december 31 , 2019 , we prepared our consolidated financial statements in accordance with international financial reporting standards , or ifrs , as issued by the international accounting standards board . the comparative information in our financial statements for the year ended march 31 , 2020 has been adjusted , as necessary , to be compliant with our accounting policies under gaap . our financial results are now published in united states dollars . effective march 31 , 2020 , the reporting currency used in the consolidated financial statements has changed from canadian dollars to u.s. dollars . this change in reporting currency has been applied in the financial statements retrospectively such that all amounts expressed in our consolidated financial statements and the accompanying notes thereto are in u.s. dollars . all amounts appearing in this md & a for the period by period discussions are in thousands of u.s. dollars , except share and per share amounts or unless otherwise indicated . covid-19 update to date , the ongoing covid-19 pandemic has not caused significant disruptions to our business operations and research and development activities . in january 2020 , before the covid-19 pandemic started to have a widespread impact in north america , the last patients completed their final visits to our trilogy phase 3 trials . however , in light of our plan to raise additional capital ( dilutive or non-dilutive ) to fully execute our business plan , a continuation of the covid-19 pandemic and any resulting volatility generally in the capital markets could adversely impact our ability to access capital on terms acceptable to us or at all . in addition , a continuation of the covid-19 pandemic in north america could negatively affect our ability to conduct additional clinical work , if we require any . see โ item 1a , risk factors โ general risks related to the company โ our business and operations may be materially and adversely affected by the recent covid-19 pandemic . โ 67 caution regarding non-gaap financial measures we use multiple financial measures for the review of our operating performance . these measures are generally gaap financial measures , but one adjusted financial measure , non-gaap operating loss , is also used to assess our operating performance . this non-gaap financial measure is directly derived from our financial statements and is presented in a consistent manner . we use this measure , in addition to the gaap financial measures , for the purposes of evaluating our historical and prospective financial performance , as well as our performance relative to competitors and to plan and forecast future periods as well as to make operational and strategic decisions . we believe that providing this non-gaap information to investors , in addition to gaap measures , allows them to see our results through the eyes of management , and to better understand our historical and future financial performance . earnings and other measures adjusted to a basis other than gaap do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies . accordingly , they should not be considered in isolation . story_separator_special_tag stock-based compensation expense increased by $ 338 as result of 6.1 million stock options granted to existing and new employees and directors during year ended march 31 , 2020 , partially offset by stock options exercised , forfeited and expired . the weighted average fair value of the options granted to employees and directors during the year ended march 31 , 2020 was cad $ 0.85 compared to cad $ 0.51 for the year ended march 31 , 2019 grants . _ 1 the non-gaap operating loss is not a standard measure endorsed by gaap requirements . a reconciliation to our net loss is presented in this md & a . 2 working capital is calculated by subtracting current liabilities from current assets . because there is no standard method endorsed by gaap requirements , the results may not be comparable to similar measurements presented by other public companies . 70 years ended march 31 , 2020 , and 2019 the net loss of $ 25,513 or ( $ 0.30 ) per share for the year march 31 , 2020 decreased by $ 13,853 from the net loss for the year ended march 31 , 2019 of $ 39,366 or ( $ 0.73 ) per share . the per share loss decreased in line with the lower net loss and with the issuance of shares in relation mainly to the public financings that occurred in may and october 2018 , the exercise of warrants during july and august 2019 and the sale of shares under the at-the-market program during the second half of fiscal year 2020. the decreased net loss was primarily due to a reduction of research and development expenses of $ 13,399 , as the trilogy phase 3 clinical program for capre moved closer to completion . in addition , the decrease in net loss resulted from lower net financial expenses of $ 1,075 for the year ended march 31 , 2020 , as compared to net financial expenses of $ 4,960 for the year ended march 31 , 2019 , due mostly to the change in fair value of the warrant derivative liability , partially offset by a decrease in the number of warrants . in contrast , sales and marketing expenses increased by $ 2,171 due to the increase in headcount to support expanded business and market development activities , and additional administrative fees were incurred in connection with the implementation of a new enterprise resources planning system , and increased insurance cost , as well as increased accounting and legal fees associated with the conversion from ifrs to gaap . furthermore , stock-based compensation expense increased by $ 1,176 as result of 6.1 million stock options granted to existing and new employees and directors during the year ended march 31 , 2020 , partially offset by stock options exercised , forfeited and expired . the weighted average fair value of the options granted to employees and directors during the year ended march 31 , 2020 was cad $ 0.85 compared to cad $ 0.51 for the year ended march 31 , 2019 . 71 breakdown of major components of the statement of loss and comprehensive loss replace_table_token_3_th replace_table_token_4_th replace_table_token_5_th 72 three months ended march 31 , 2020 compared to the three months ended march 31 , 2019 during the three months ended march 31 , 2020 , we continued our advancement of the two-study trilogy phase 3 clinical program for capre , in partnership with one of the world 's largest providers of biopharmaceutical development and clinical outsourcing services . research and development expenses before depreciation , amortization and stock-based compensation expense for the three months ended march 31 , 2020 totaled $ 1,228 compared to $ 7,517 for the three months ended march 31 , 2019. this $ 6,289 net decrease was mainly attributable to a $ 6,106 decrease in research contracts , and $ 244 decrease in professional fees . the lower research contract expense is attributed primarily to the advancement of the phase 3 clinical trial program , as it moved closer to completion . general and administrative expenses totaled $ 1,291 before stock-based compensation expense for the three months ended march 31 , 2020 and decreased by $ 43 from $ 1,334 for the three months ended march 31 , 2019. the decrease is mainly attributable to the timing of recognition of bonus expense , partially offset by increased professional accounting and legal fees in connection with the conversion from ifrs to u.s. gaap . sales and marketing expenses were $ 469 before stock-based compensation expense for the three months ended march 31 , 2020 compared to $ 243 for the three months ended march 31 , 2019. the increase is in line with a higher headcount in the commercial team to support expanded business and market development activities . the increase was partially offset by a reduction in professional fees as a result of a slowdown in pre-launch marketing activities until the results of the trilogy phase 3 clinical studies are obtained . the stock-based compensation expense increased by $ 339 to $ 445 for the three months ended march 31 , 2020 from $ 106 for the three months ended march 31 , 2019. the increase is mainly due to 6.1 million stock options granted to existing and new employees and directors during the year ended march 31 , 2020 , partially offset by stock options exercised , forfeited and expired . the weighted average fair value of the options granted to employees and directors during the year ended march 31 , 2020 was cad $ 0.85 , compared to cad $ 0.51 for the year ended march 31 , 2019. the depreciation and amortization expense remained relatively constant .
| summary as at march 31 , 2020 , cash and cash equivalents totaled $ 14,240 , a net decrease of $ 2,631 compared to cash and cash equivalents totaling $ 16,871 at march 31 , 2019. operating activities during the years ended march 31 , 2020 and march 31 , 2019 , our operating activities used cash of $ 22,944 and $ 24,787 , respectively . the decrease of $ 1,843 during the year ended march 31 , 2020 , was due to the reduction of spend as the trilogy phase 3 clinical trials were nearing completion , partly offset by the timing of payment of invoices . we expect that additional time and capital will be required by us to file an nda to obtain fda approval for capre in the united states , to further scale-up our manufacturing capabilities , and to complete marketing and other pre-commercialization activities , if our trilogy phase 3 program is successful and we can proceed to file an nda . consequently , we expect to require additional capital to fund our daily operating needs beyond the next fiscal year-end . based on a conservative estimate , we believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the first calendar quarter of 2021. to fully execute our business plan , we plan to raise the necessary capital primarily through additional securities offerings and multiple sources of non-dilutive capital such as grants or loans and strategic alliances . if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us , we may have to significantly delay the commercial launch of capre . negative or inconclusive results in our trilogy phase 3 clinical program for capre may adversely affect our ability to raise additional capital and or to complete strategic commercialization partnerships to support the commercial launch of capre .
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a rollforward of the amounts included in comprehensive ( loss ) income related to the fair value of financial derivative instruments that qualify for hedge accounting , net of deferred taxes , for the years ended december 31 is as follows ( in thousands ) : replace_table_token_31_th derivatives and hedging activities as more fully discussed in note 10 , the company utilizes derivative financial instruments to reduce interest rate risks related to its variable rate debt and to manage risk exposure to changes in the value of portions of its fixed rate debt , as well as changes in the prices at which the company purchases natural gas . the company records derivatives in the statement of financial position and measures derivatives at fair value . changes in the fair value of those instruments are reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting . financial exposures are managed as an integral part of the company 's risk management program , which seeks to reduce the potentially adverse effect that the volatility of the interest rate and natural gas commodity markets may have on operating results . the company does not engage in speculative transactions , nor does story_separator_special_tag overall outlook our concentration in the hospitality industry , and in particular the large group meetings sector of the hospitality industry , exposes us to certain risks outside of our control . recessionary conditions in the national economy have resulted in economic pressures on the hospitality industry generally , and on our company 's operations and expansion plans . in portions of 2008 and the first half of 2009 , we experienced declines in hotel occupancy , weakness in future bookings by our core large group customers , lower spending levels by groups and increased cancellation and attrition levels . we believe that corporate customers in particular delayed meetings and events and sought to minimize spending during these periods . in recent quarters , we have begun to see stabilization in our industry and specifically in our business . we have seen increases in group travel , as well as growth in outside-the-room revenue , indicating that not only are group customers beginning to travel again , they are spending more on food and beverage and entertainment when they reach our properties . our attrition and cancellation levels have also decreased compared to 2009 levels . as a result of the higher levels of group business , we have experienced an increase in occupancy in recent quarters . in 2010 , we have experienced improved bookings in future years , as well as improvements in pricing for those bookings . in conjunction with the improvements in our business , as well as our improved outlook on the hospitality industry generally , we are revisiting our future plans for growth . while we continue to focus our marketing efforts on booking rooms in 2011 , in addition to later years , there can be no assurance that we can continue to achieve further improvements in occupancy and revenue levels . we can not predict when or if hospitality demand and spending will return to historical levels , but we anticipate that our future financial results and growth will be harmed if the economy does not continue to improve or becomes worse . see ยforward-looking statementsย and ยrisk factorsย under part i of this report for important information regarding forward-looking statements made in this report and risks and uncertainties the company faces . nashville flood as more fully described in note 2 to our consolidated financial statements included herein , on may 3 , 2010 , gaylord opryland , the grand ole opry , certain of our nashville-based attractions , and certain of our corporate offices experienced significant flood damage as a result of the historic flooding of the cumberland river ( collectively , the ยnashville floodย ) . gaylord opryland , the grand ole opry , and certain of our corporate offices were protected by levees accredited by the federal emergency management agency ( ยfemaย ) ( which , according to fema , was based on information provided by us ) , and built to sustain a 100-year flood ; however , the river rose to levels that over-topped the levees . we have segregated all costs and insurance proceeds related to the nashville flood from normal operations and reported those amounts as casualty loss or preopening costs in the accompanying consolidated statements of operations . during 2010 , we recorded $ 42.3 million in casualty losses related to the flood , which includes $ 92.3 million in expenses , partially offset by $ 50.0 million in insurance proceeds . these amounts do not include lost profits from the interruption of the various businesses . during 2010 , we also recorded $ 55.3 million in preopening costs related to reopening the properties damaged by the flood . gaylord opryland reopened november 15 , 2010. while the grand ole opry continued its schedule at alternative venues , including our ryman auditorium , the grand ole opry house reopened september 28 , 2010. certain of our nashville-based attractions were closed for a period of time , but reopened in june and july , and the majority of the affected corporate offices reopened during november 2010. gross total remediation and rebuilding costs came in at the low end of the projected $ 215- $ 225 million range , including approximately $ 23- $ 28 million in pre-flood planned enhancement projects at gaylord opryland . in addition , preopening costs came in under the projected $ 57- $ 62 million range . these costs included the initial eight-week carrying period for all labor at the hotel as well as the labor for security , engineering , horticulture , reservations , sales , accounting and management during the restoration , as well as the labor associated with re-launching the assets and the restocking of operating supplies prior to re-opening . story_separator_special_tag attrition fees , which are charged to groups when they do not fulfill the minimum number of room nights or minimum food and beverage spending requirements originally contracted for , as well as cancellation fees , are recognized as revenue in the period they are collected . almost all of our hospitality segment revenues are either cash-based or , for meeting and convention groups meeting our credit criteria , billed and collected on a short-term receivables basis . our industry is capital intensive , and we rely on the ability of our hotels to generate operating cash flow to repay debt financing , fund maintenance capital expenditures and provide excess cash flow for future development . the results of operations of our hospitality segment are affected by the number and type of group meetings and conventions scheduled to attend our hotels in a given period . we attempt to offset any identified shortfalls in occupancy by creating special events at our hotels or offering incentives to groups in order to attract increased business during this period . a variety of factors can affect the results of any interim period , including the nature and quality of the group meetings and conventions attending our hotels during such period , which meetings and conventions have often been contracted for several years in advance , the level of attrition we experience , and the level of transient business at our hotels during such period . summary financial results the following table summarizes our financial results for the years ended december 31 , 2010 , 2009 and 2008 ( in thousands , except percentages and per share data ) : replace_table_token_5_th 2010 results as compared to 2009 results the decrease in our total revenues during 2010 , as compared to 2009 , is attributable to a decrease in our hospitality segment revenues of $ 91.2 million and a decrease in our opry and attractions segment revenue of $ 11.7 million , as discussed more fully below . the 26 decrease in revenues in our hospitality segment is attributable to a $ 133.7 million decrease in revenues at gaylord opryland as a result of being closed due to the nashville flood , partially offset by a $ 42.5 million increase at our other hotel properties . total hospitality revenues in 2010 include $ 9.4 million in attrition and cancellation fee collections , an $ 18.4 million decrease from 2009. the increase in total operating expenses during 2010 , as compared to 2009 , was due primarily to $ 55.3 million and $ 42.3 million in preopening costs and net casualty loss , respectively , during 2010 as a result of the nashville flood , partially offset by decreased operating expenses at gaylord opryland , as well as decreased depreciation expenses , as more fully described below . the above factors resulted in an operating loss of $ 66.0 million for 2010 , as compared to operating income of $ 56.8 million in 2009. our net loss was $ 89.1 million in 2010 , as compared to a net loss of $ 0.02 million in 2009 , due to our operating loss described above and the following factors , each as described more fully below : a benefit for income taxes of $ 40.7 million during 2010 , as compared to a provision for income taxes of $ 9.7 million during 2009 , described more fully below . a $ 17.4 million decrease in the net gain on the extinguishment of debt for 2010 , as compared to 2009 , relating to the repurchase of a portion of our senior notes , described more fully below . a $ 10.2 million increase in our income from discontinued operations for 2010 , as compared to 2009 , due primarily to 2009 including the impairment of goodwill associated with our corporate magic business , as well as 2010 including the gain on sale , and the related income tax benefit , of our corporate magic business , described more fully below . a $ 4.8 million increase in our interest expense , net of amounts capitalized , for 2010 , as compared to 2009 , due primarily to interest incurred on our convertible senior notes , partially offset by decreased interest incurred on our 8 % senior notes and 6.75 % senior notes as a result of the repurchase of portions of those notes , as described more fully below . a $ 3.4 million decrease in other gains and losses for 2010 , as compared to 2009 , due primarily to the receipt of $ 3.6 million during 2009 under a tax increment financing arrangement related to the ryman auditorium , described below . 2009 results as compared to 2008 results the decrease in our total revenues and total operating expenses during 2009 , as compared to 2008 , was due primarily to decreased hospitality segment revenues and operating expenses , as more fully described below . the decrease in hospitality revenues in the 2009 period were partially offset by $ 27.7 million in attrition and cancellation fee collections , a $ 13.2 million increase from the 2008 period . these decreased hospitality segment revenues and operating expenses were offset by a $ 19.3 million decrease in impairment charges and a $ 19.2 million decrease in preopening costs , which resulted in operating income increasing to $ 56.8 million for 2009 , as compared to operating income of $ 36.7 million in 2008. our net loss was $ 0.02 million in 2009 , as compared to net income of $ 4.4 million in 2008 , due to our operating income described above and the following factors , each as described more fully below : a $ 12.5 million increase in interest expense , net of amounts capitalized , for 2009 , as compared to 2008 , primarily due to a $ 15.6 million decrease in capitalized interest as a result of the completion of construction of gaylord national in 2008 , described more fully below .
| operating results ย casualty loss as a result of the nashville flood discussed above , during 2010 , we recorded $ 92.3 million of expense and $ 50.0 million of insurance proceeds related to the nashville flood as casualty loss as follows ( in thousands ) : replace_table_token_15_th lost profits from the interruption of the various businesses are not reflected in the above table . see note 2 to our consolidated financial statements included herein for a further discussion of the components of these costs . insurance proceeds at may 3 , 2010 , we had in effect a policy of insurance with a per occurrence flood limit of $ 50.0 million at the affected properties . during 2010 , we received $ 50.0 million in insurance proceeds and have recorded these insurance proceeds as an offset to the net casualty loss in the accompanying consolidated statement of operations . effective july 1 , 2010 , we increased this per occurrence flood insurance to $ 100.0 million , and effective august 19 , 2010 , we increased this per occurrence flood insurance to $ 150.0 million . operating results ย preopening costs we expense the costs associated with start-up activities and organization costs associated with our development of hotels and significant attractions as incurred . as a result of the extensive damage to gaylord opryland and the grand ole opry house and the extended period in which these properties were closed , we have incurred costs associated with the reopening of these facilities through the date of reopening . we have included all costs directly related to redeveloping and reopening the affected properties , as well as all continuing operating costs not directly related to remediating the flooded properties , other than depreciation and amortization , incurred since june 10 , 2010 ( the date at which we determined that the remediation was substantially complete ) , as preopening costs . during 2010 , we incurred $ 55.3 million in preopening costs .
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this โ management 's discussion and analysis of financial condition and results of operations โ section contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. for a discussion of indicators of forward-looking statements and specific important factors that could cause actual results to differ materially from those contained in forward-looking statements , see โ risk factors โ under part i โ item 1a of this annual report . this โ management 's discussion and analysis of financial condition and results of operations โ section should be read and interpreted in light of such factors . our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those discussed below and elsewhere in this annual report . you may have difficulty evaluating our business , because we completed a partial spin off of rxi on april 26 , 2012. since the partial spin-off , our financial statements no longer reflected the consolidated financial condition and results of operations of rxi , and we have accounted for our partial ownership of rxi based on the cost method of accounting . in addition , during the quarter ended september 30 , 2015 the company completed a strategic review of the company 's commercial business including the ongoing sale , distribution and marketing of our two commercial products , abstral ยฎ ( fentanyl ) sublingual tablets and zuplenz ยฎ ( ondansetron ) oral soluble film ( our โ commercial business โ asset group ) . as a result of the review , we made a determination to sell or otherwise dispose of our commercial business , which was completed during the quarter ended december 31 , 2015. these actions caused the company to meet the relevant criteria for reporting the company 's commercial business as held for sale and in discontinued operations . for these reasons , the historical consolidated financial information included in this annual report does not necessarily reflect the financial condition , results of operations or cash flows that we will achieve in the future . 47 overview galena biopharma , inc. ( โ we , โ โ us , โ โ our , โ โ galena โ or the โ company โ ) is a biopharmaceutical company developing hematology and oncology therapeutics that address unmet medical needs . the company 's pipeline consists of multiple mid- to late-stage clinical assets , including our hematology asset , gale-401 , and our novel cancer immunotherapy programs including neuvax ( nelipepimut-s ) , gale-301 and gale-302 . gale-401 is a controlled release version of the approved drug anagrelide for the treatment of elevated platelets in patients with myeloproliferative neoplasms . gale- 401 has completed a phase 2 clinical trial and the asset is ready to advance into a pivotal trial in patients with essential thrombocythemia ( et ) . neuvax is currently in multiple investigator-sponsored phase 2 clinical trials in breast cancer . gale-301 and gale-302 have completed early stage trials in ovarian , endometrial and breast cancers . we are seeking to build value for shareholders through pursuit of the following objectives : develop hematology and oncology assets through clinical development with a focus in areas of unmet medical need . our hematology asset is targeting the treatment of patients with et to reduce elevated platelet counts . our immunotherapy programs are currently targeting two key areas : secondary prevention intended to significantly decrease the risk of disease recurrence in breast , gastric , and ovarian cancers ; and primary prevention intended to prevent ductal carcinoma in situ ( dcis ) from becoming invasive breast cancer . evaluating strategic alternatives that may include continuing to advance the clinical programs as a stand-alone entity , a sale of the company , a business combination , merger or reverse merger , and a license or other disposition of corporate assets of the company . leverage partnerships and collaborations , as well as investigator-sponsored trial arrangements , to maximize the scope of potential clinical opportunities in a cost effective and efficient manner . 48 critical accounting policies and estimates use of estimates the preparation of our financial statements requires management to make estimates , allocations and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to impairment of goodwill and long-lived assets , accrued liabilities , net revenue , and certain expenses . our estimates about the carrying values of assets and liabilities that are not readily apparent from other sources are based on historical experience and on other assumptions believed to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . additionally , the financial information included here may not necessarily reflect the financial position , operating results , changes in our invested equity and cash flows in the future . our significant accounting policies are summarized in the notes to our consolidated financial statements . we believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financial statements . research and development expenses research and development costs are expensed as incurred . included in research and development costs are wages , benefits and other operating costs , facilities , supplies , external services and overhead related to our research and development departments , and clinical trial expenses . clinical trial expenses include direct costs associated with contract research organizations ( `` cros '' ) , as well as patient-related costs at sites at which our trials are being conducted . direct costs associated with our cros are generally payable on a time and materials basis , or when certain enrollment and monitoring milestones are achieved . story_separator_special_tag factors the company considers important that could trigger an interim review for impairment include , but are not limited to , the following : significant changes in the manner of its use of acquired assets or the strategy for its overall business ; significant negative industry or economic trends ; significant decline in stock price for a sustained period ; and significant decline in market capitalization relative to net book value . goodwill and other intangible assets with indefinite lives are evaluated for impairment first by a qualitative assessment to determine the likelihood of impairment . if it is determined that impairment is more likely than not , the company will then proceed to the two step impairment test . the first step is to compare the fair value of the reporting unit to the carrying amount of the reporting unit ( the โ first step โ ) . if the carrying amount exceeds the fair value , a second step must be followed to calculate impairment ( the โ second step โ ) . otherwise , if the fair value of the reporting unit exceeds the carrying amount , the goodwill is not considered to be impaired as of the measurement date . in its review of the carrying value of the goodwill for its single reporting unit and its indefinite-lived intangible assets , the company determines fair values of its goodwill using the market approach , and its indefinite-lived intangible assets using the income approach . intangible assets not considered indefinite-lived are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable . the company 's policy is to identify and record impairment losses , if necessary , on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets . the company performed its review for impairment using the qualitative assessment for both goodwill and indefinite-lived intangible assets , and has determined that there has been no impairment to these assets as of december 31 , 2016 . acquisitions and in-licensing โ for all in-licensed products and technologies , we perform an analysis to determine whether we hold a variable interest or a controlling financial interest in a variable interest entity . on the basis of our interpretations and conclusions , we determine whether the acquisition falls under the purview of variable interest entity accounting and if so , consider the necessity to consolidate the acquisition . as of december 31 , 2016 , we determined there were no variable interest entities required to be consolidated . the company met the relevant criteria for reporting the commercial operations as held for sale as of september 30 , 2015 , and as a result , assessed the commercial asset group for impairment pursuant to asc topic 360 , property , plant , and equipment . the net carrying value of the commercial asset group was compared to its fair value as of september 30 , 2015. the company determined that the fair value using a risk adjusted net present value of deal consideration received from bids from potential acquirers . the company determined that the carrying value exceeded its fair value and as a result recorded an $ 8.1 million impairment charge on assets classified as held for sale in the quarterly period ended september 30 , 2015 . 51 refer to note 12 of the notes to the consolidated financial statements for further information regarding the acquisition of abstral u.s. rights and note 15 as to our reporting the commercial operations as held for sale and in discontinued operations . valuation of contingent purchase price consideration acquisitions may include contingent consideration payments based on the achievement of certain future financial performance measures of the acquired company ( earnout ) . contingent consideration is required to be recognized at fair value as of the acquisition date . we estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement . we believe our estimates and assumptions are reasonable ; however , there is significant judgment involved . we evaluate , on a routine , periodic basis , the estimated fair value of the contingent consideration and changes in estimated fair value , subsequent to the initial fair value estimate at the time of the acquisition , are reflected in income or expense in the consolidated statements of comprehensive loss . changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates , changes in the timing of development milestones achieved and changes in probability assumptions with respect to the likelihood of achieving the various earnout criteria . any changes in the estimated fair value of contingent consideration may have a material impact on our operating results . legal fees and insurance recoveries there can be a significant time lag between the time that legal fees are incurred and the insurance reimbursement available to offset the related costs . the legal costs are recorded in the period they are incurred , and the insurance recoveries for those costs are recorded in the period when the insurance reimbursement is deemed probable . discontinued operations we met the relevant criteria for reporting our commercial business as held for sale and in discontinued operations in the accompanying financial statements as of december 31 , 2016 and 2015 and for the three years ended december 31 , 2016 , pursuant to fasb asc topic 205-20 , presentation of financial statements - discontinued operations , and fasb asc topic 360 , property , plant , and equipment . 52 story_separator_special_tag neuvax in combination with trastuzumab for the prevention of recurrence of breast cancer and our phase 2 clinical trial of neuvax in patients with ductal carcinoma in situ .
| results of operations for the years ended december 31 , 2016 , 2015 and 2014 for the year ended december 31 , 2016 , our net loss was $ 23.5 million compared with net losses of $ 63.9 million and $ 36.6 million for the years ended december 31 , 2015 and 2014 , respectively . the $ 40.4 million decrease in net loss from 2015 to 2016 was primarily driven by a $ 25.4 million increase in non-operating income and $ 12.5 million decrease in loss from discontinued operations . the loss from discontinued operations for the year ended december 31 , 2015 includes an $ 8.1 million impairment charge recognized in the third quarter of 2015 and $ 4.5 million in the loss on the sale of the commercial assets . the $ 27.3 million increase in net loss from 2014 to 2015 was primarily driven by a $ 16.6 million increase in loss from discontinued operations , which includes the one time impairment charge and loss on the sale of commercial assets in 2015. in addition , 2015 had an increase of $ 20.0 million in non-operating expense and a $ 9.7 million decrease in operating loss compared to 2014. replace_table_token_5_th further analysis of the changes and trends in our operating results are discussed below . research and development expense research and development expense consists primarily of clinical trial expenses and compensation-related costs for our employees dedicated to research and development activities , compensation paid to our scientific advisory board ( โ sab โ ) members , and licensing fees and patent prosecution costs .
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๏ปฟ all amounts in this disclosure are in thousands ( except share , unit , per share , and per unit data ) except where otherwise noted . ๏ปฟ overview ๏ปฟ we are a financial services company specializing in fixed income markets and , more recently , the spac markets . we were founded in 1999 as an investment firm focused on small-cap banking institutions but have grown to provide an expanding range of capital markets and asset management services . we are organized into three business segments : capital markets , asset management , and principal investing . ๏ปฟ capital markets : our capital markets business segment consists primarily of fixed income sales , trading , matched book repo financing , new issue placements in corporate and securitized products , and advisory services . our fixed income sales and trading group provides trade execution to corporate investors , institutional investors , mortgage originators , and other smaller broker-dealers . we specialize in a variety of products , including but not limited to : corporate bonds , abs , mbs , rmbs , cdos , clos , cbos , cmos , municipal securities , tbas and other forward agency mbs contracts , sba loans , u.s. government bonds , u.s. government agency securities , brokered deposits and cds for small banks , and hybrid capital of financial institutions including trups , whole loans , and other structured financial instruments . we also offer execution and brokerage services for equity products . we carry out our capital markets activities primarily through our subsidiaries : jvb in the u.s. and ccfel in europe . asset management : our asset management business segment manages assets within cdos , managed accounts , joint ventures , and investment funds ( collectively , โ investment vehicles โ ) . a cdo is a form of secured borrowing . the borrowing is secured by different types of fixed income assets such as corporate or mortgage loans or bonds . the borrowing is in the form of a securitization , which means that the lenders are actually investing in notes backed by the assets . in the event of default , the lenders will have recourse only to the assets securing the loan . our asset management business segment includes our fee-based asset management operations , which include on-going base and incentive management fees . as of december 31 , 2020 , we had approximately $ 2.77 billion in aum , $ 2.06 billion of which was in cdos . a substantial portion of our asset management revenue is earned from the management of cdos . we have not completed a new securitization since 2008. as a result , our asset management revenue has declined from its historical highs as the assets of the cdos decline due to maturities , repayments , auction call redemptions , and defaults . our ability to complete securitizations in the future will depend upon , among other things , our asset origination capacity and success , our ability to arrange warehouse financing to originate assets , our willingness and capacity to fund required amounts to obtain warehouse financing and securitized financings , and the demand in the markets for such securitizations . the remaining portion of our aum is from a diversified mix of other investment vehicles that were more recently formed . principal investing : our principal investing business segment is comprised of investments that we hold related to our spac franchise and other investments we have made for the purpose of earning an investment return rather than investments made to support our trading , matched book repo , or other capital markets business segment activities . these investments are included in other investments , at fair value and investments in equity method affiliates in our consolidated balance sheets . ๏ปฟ we generate our revenue by business segment primarily through the following activities . ๏ปฟ capital markets : ๏ปฟ our trading activities , which include execution and brokerage services , securities lending activities , riskless trading activities , as well as gains and losses ( unrealized and realized ) and income and expense earned on securities classified as trading ; net interest income on our matched book repo financing activities ; and new issue and advisory revenue comprised of ( a ) new issue revenue associated with originating , arranging , or placing newly created financial instruments ; and ( b ) revenue from advisory services . ๏ปฟ asset management : ๏ปฟ asset management fees for our on-going asset management services provided to certain investment vehicles , which may include fees both senior and subordinate to the securities issued by the investment vehicle ; and incentive management fees earned based on the performance of the certain investment vehicles . ๏ปฟ principal investing : ๏ปฟ gains and losses ( unrealized and realized ) and income and expense earned on securities classified as other investments , at fair value ; and income and loss earned on equity method investments . ๏ปฟ 38 business environment our business in general and our capital markets business segment in particular , do not produce predictable earnings . our results can vary dramatically from year to year and quarter to quarter . our business is materially affected by economic conditions in the financial markets , political conditions , broad trends in business and finance , the housing and mortgage markets , changes in volume and price levels of securities transactions , and changes in interest rates , including overnight funding rates , all of which can affect our profitability and are unpredictable and beyond our control . these factors may affect the financial decisions made by investors and companies , including their level of participation in the financial markets and their willingness to participate in corporate transactions . severe market fluctuations or weak economic conditions could reduce our trading volume and revenues , negatively affect our ability to generate new issue and advisory revenue , and adversely affect our profitability . as a general rule , our trading business benefits from increased market volatility . story_separator_special_tag all of our business activity related to spacs is highly sensitive to the volume of activity in the spac market . volumes could be negatively impacted if target companies no longer see spacs as an attractive alternative thereby reducing the number of suitable potential business combination targets . also , investor demand for spacs would be negatively impacted if the stock of spacs that successfully complete a business combination underperform the market . if volumes of spac activity decline , our results of operations will likely be significantly negatively impacted . 39 margin pressures in fixed income brokerage business performance in the financial services industry in which we operate is highly correlated to the overall strength of the economy and financial market activity . overall market conditions are a product of many factors beyond our control and can be unpredictable . these factors may affect the financial decisions made by investors , including their level of participation in the financial markets . in turn , these decisions may affect our business results . with respect to financial market activity , our profitability is sensitive to a variety of factors including the volatility of the equity and fixed income markets , the level and shape of the various yield curves , and the volume and value of trading in securities . margins and volumes in certain products and markets within the fixed income brokerage business continue to decrease materially as competition has increased and general market activity has declined . further , we continue to expect that competition will increase over time , resulting in continued margin pressure . our response to this margin compression has included : ( i ) building a diversified fixed income trading platform ; ( ii ) acquiring or building out new product lines and expanding existing product lines , including the most recent hiring of several investment banking professionals within jvb , who are seeking to generate new issue revenue in the fintech and spac spaces , further expanding our enterprise-wide spac capabilities ; ( iii ) building a hedging execution and funding operation to service mortgage originators ; ( iv ) becoming a full netting member of the ficc enabling us to expand our matched book repo business , and ( v ) monitoring our fixed costs . our cost management initiatives are ongoing . however , there can be no certainty that these efforts will be sufficient . if insufficient , we will likely see a decline in profitability . u.s. housing market in recent years , our mortgage group has grown in significance to our capital markets segment and our company overall . the mortgage group primarily earns revenue by providing hedging execution , securities financing , and trade execution services to mortgage originators and other investors in mortgage backed securities . therefore , this group 's revenue is highly dependent on the volume of mortgage originations in the u.s. origination activity is highly sensitive to interest rates , the u.s. job market , housing starts , sale activity of existing housing stock , as well as the general health of the u.s. economy . in addition , any new regulation that impacts u.s. government agency mortgage backed security issuance activity , residential mortgage underwriting standards , or otherwise impacts mortgage originators will impact our business . we have no control over these external factors and there is no effective way for us to hedge against these risks . our mortgage group 's volumes and profitability will be highly impacted by these external factors . covid-19 / impairment of goodwill in march 2020 , the world health organization declared the outbreak of a novel coronavirus ( covid-19 ) as a pandemic , which continues to spread throughout the united states and worldwide . the spread of covid-19 has caused significant volatility in domestic and international markets . there is on-going uncertainty around the breadth and duration of business disruptions related to covid-19 , as well as its impact on the u.s. and international economies . while we can not fully assess the impact covid-19 will have on all of our operations at this time , there are certain impacts that we have identified : โ the unprecedented volatility of the financial markets experienced since march 2020 , has caused us to operate jvb at a lower level of leverage than prior to the pandemic . specifically , jvb has reduced the size of its gcf repo operations and the volume of its tba trading . we have determined that at our pre-pandemic levels in these businesses , we were exposed to a higher level of counterparty credit risk and were experiencing too much volatility in our available liquidity to conservatively meet capital requirements and margin calls in these businesses . we expect jvb to operate at lower volumes in both these businesses for an indefinite period of time . โ the financial market volatility , as well as the reduction in volumes in the gcf repo and tba businesses , that resulted from covid-19 required us to reassess the goodwill we had recorded related to jvb under the guidance of asc 350. we determined that the fair value of jvb was less than the carrying value ( including the goodwill ) . as a result , we recorded an impairment loss of $ 7,883 in 2020. see note 13 to our consolidated financial statements included in this annual report on form 10-k. โ jvb 's mortgage group 's operations are centered on serving the financial needs of mortgage originators and institutions that invest in mortgage backed securities . prolonged high unemployment could eventually impact mortgage originations and demand for and supply of mortgage backed securities , which may have a significant unfavorable impact on the revenue earned by jvb 's mortgage group . in 2021 , medical professionals developed covid-19 vaccines and governments began to distribute them globally , which is expected to reduce virus spread and further aid economic recovery . despite broad improvements , we will likely be impacted by the pandemic in other ways which we can not reliably determine .
| summary cash flow information ( dollars in thousands ) replace_table_token_25_th ๏ปฟ see the statements of cash flows in our consolidated financial statements . we believe our available cash and cash equivalents , as well as our investment in our trading portfolio and related borrowing capacity , will provide sufficient liquidity to meet the cash needs of our ongoing operations in the near term . ๏ปฟ 2020 cash flows ๏ปฟ as of december 31 , 2020 , our cash and cash equivalents were $ 41,996 , representing an increase of $ 33,692 from december 31 , 2019 . the increase was attributable to the cash provided by operating activities of $ 41,435 , the cash used in investing activities of $ 11,948 , the cash provided in financing activities of $ 3,789 , and the increase in cash resulting from a change in exchange rates of $ 416 . ๏ปฟ the cash provided by operating activities of $ 41,435 was comprised of ( a ) net cash inflows of $ 79,555 related to working capital fluctuations ; ( b ) net cash outflows of $ 47,557 from trading activities comprised of our investments-trading , trading securities sold , not yet purchased , securities sold under agreement to repurchase , receivables under resale agreements , and receivables and payables from brokers , dealers , and clearing agencies , as well as the changes in unrealized gains and losses on the investments-trading and trading securities sold , not yet purchased ; and ( c ) net cash inflows from other earnings items of $ 9,437 ( which represents net income or loss adjusted for the following non-cash operating items : deferred taxes , other income / ( expense ) , realized and unrealized gains and losses on other investments at fair value , other investments sold , not yet purchased , income / ( loss ) from equity method affiliates , equity-based compensation , depreciation , impairment of goodwill , and amortization ) .
| 4,865 |
unless otherwise specified , the meanings of all defined terms in ยmanagement 's discussion and analysis of financial condition and results of operationsย are consistent with the meanings of such terms as defined in the notes to consolidated financial statements . this discussion contains statements that are , or may be deemed to be , ยforward-looking statementsย within the meaning of section 27a of the securities act and section 21e of the exchange act . these forward-looking statements can be identified by the use of forward-looking terminology , including the terms ยbelieves , ย ยestimates , ย ยanticipates , ย ยexpects , ย ยintends , ย ยmay , ย ยwillย or ยshouldย or , in each case , their negative or other variations or comparable terminology . these forward-looking statements include all matters that are not historical facts . they appear in a number of places throughout this report and include statements regarding our intentions , beliefs or current expectations concerning , among other things , our results of operations , financial condition , liquidity , prospects , growth , strategies and the industry in which we operate . by their nature , forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future . forward-looking statements are not guarantees of future performance and our actual results of operations , financial condition and liquidity , and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this annual report as a result of various factors , including those set forth in item 1a ยrisk factorsย . in addition , even if our results of operations , financial condition and liquidity , and the development of the industry in which we operate are consistent with the forward-looking statements contained in this report , those results or developments may not be indicative of results or developments in subsequent periods . general we are a leading owner and operator of high-volume venues in north america that combine dining and entertainment for both adults and families under the name ยdave & buster'sย . founded in 1982 , the core of our concept is to offer our customers the opportunity to ยeat drink play and watchย all in one location . eat and drink are offered through a full menu of ยfun american new gourmetย entrรฉes and appetizers and a full selection of non-alcoholic and alcoholic beverages . our play and watch offerings provide an extensive assortment of entertainment attractions centered around playing games and watching live sports and other televised events . our customer mix skews moderately to males , primarily between the ages of 21 and 39 , and we believe we also serve as an attractive venue for families with children and teenagers . we believe we appeal to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting . our stores average 43,000 square feet , range in size between 16,000 and 66,000 square feet and are open seven days a week , with hours of operation typically from 11:30 a.m. to midnight on sunday through thursday and 11:30 a.m. to 2:00 a.m. on friday and saturday . 31 our growth strategies and outlook our growth is based primarily on the following strategies : pursue disciplined new store growth ; grow our comparable stores sales ; and expand the dave & buster 's brand internationally . for further information about our growth strategies and outlook , see item 1 ยbusinessยour growth strategiesย . key measures of our performance we monitor and analyze a number of key performance measures to manage our business and evaluate financial and operating performance . these measures include : comparable store sales . comparable store sales are a year-over-year comparison of sales at stores open at the end of the period which have been open for at least 18 months as of the beginning of each of the fiscal years . it is a key performance indicator used within the industry and is indicative of acceptance of our initiatives as well as local economic and consumer trends . our comparable stores consisted of 66 , 59 and 57 stores as of the end of fiscal 2016 , fiscal 2015 and fiscal 2014 , respectively . fiscal 2015 comparable store sales exclude sales from our williamsville ( buffalo ) , new york location , which closed and relocated in the third quarter of fiscal 2015 , and our farmingdale location , which closed on february 8 , 2015. fiscal 2014 comparable store sales exclude sales from our kensington/bethesda , maryland ( ยbethesdaย ) location , which closed on august 12 , 2014. new store openings . our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets . the success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models . during fiscal 2016 , we opened eleven new stores . non-gaap financial measures in addition to the results provided in accordance with generally accepted accounting principles ( ยgaapย ) , we provide non-gaap measures which present operating results on an adjusted basis . these are supplemental measures of performance that are not required by or presented in accordance with gaap and include adjusted ebitda , adjusted ebitda margin , store operating income before depreciation and amortization and store operating income before depreciation and amortization margin ( defined below ) . these non-gaap measures do not represent and should not be considered as an alternative to net income or cash flows from operations , as determined in accordance with gaap , and our calculations thereof may not be comparable to similarly entitled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . story_separator_special_tag our unique venue allows us to provide our customers with value driven food and amusement combination offerings including our eat & play combo ( a promotion that provides a discounted power card in combination with select entrรฉes ) , super charge power card offerings ( when purchasing or adding value to a power card , the customer is given the opportunity to add more chips to the power card at a lower cost per chip amount ) , half-price game play ( every wednesday , from open to close , we reduce the price of every game in the midway by one-half ) , and everyone 's a winner ( a limited-time offer providing a prize to every customer that purchases or adds value to a power card in the amount of ten dollars or more ) . we also offer various food and beverage discounts during key sports viewing times . in addition , from time to time we have limited time offers which allow our customers to play certain new games for free as a way to introduce those new games . our d & b sports concept , currently incorporated in approximately 80 % of our store base , provides an attractive opportunity to market our broader platform to new and existing customers through a year-round calendar of programming and promotions tied to popular sporting events and sport-related activities . large television screens , comfortable seating , a full menu of food and beverages and artwork often featuring images of local sports teams and sports icons help create an exciting environment for watching sports programming . the special events portion of our business represented 10.3 % of our total revenues in the year ended january 29 , 2017. we believe our special events business is an important sampling and promotional opportunity for our customers because many customers are experiencing dave & buster 's for the first time . accordingly , a considerable emphasis is placed on the special events portion of our business . cost of products . cost of products includes the cost of food , beverages and the amusement redemption items . the cost of products is driven by product mix and pricing movements from third-party suppliers . the cost of products as a percentage of the related revenues is impacted by the underlying product cost as well as menu pricing . we continually strive to gain efficiencies in both the acquisition and use of products while maintaining high standards of product quality . operating payroll and benefits . operating payroll and benefits consist of wages , employer taxes and benefits for store personnel . we continually review the opportunity for labor efficiencies , principally through scheduling refinements . other store operating expenses . other store operating expenses consist primarily of store-related occupancy , supply and outside service expenses , utilities , repair and maintenance and marketing and promotional costs . general and administrative expenses . general and administrative expenses consist primarily of personnel , facilities and professional expenses for the various departments of our corporate headquarters as well as share-based compensation expense . 34 depreciation and amortization expense . depreciation and amortization expense includes the depreciation of property and equipment and the amortization of trademarks with finite lives . pre-opening costs . pre-opening costs include costs associated with the opening and organizing of new stores , including pre-opening rent ( rent expense recognized during the period between date of possession and the store 's opening date ) , staff training and recruiting , and travel costs for employees engaged in such pre-opening activities . interest expense , net . interest expense , net includes the cost of our debt obligations including the amortization of loan fees , net of any interest income earned or interest expense capitalized and the change in the fair value of the interest rate cap . loss on debt retirement . loss on debt retirement consists of the write-off of unamortized loan costs and other fees associated with the refinancing of our debt . it also includes losses associated with the early prepayment of debt with proceeds from our ipo in fiscal 2014. provision for income taxes . provision for income taxes represents current and deferred income taxes in federal , state , and foreign jurisdictions . liquidity and cash flows the primary source of cash flow is from our operating activities and availability under the revolving credit facility . store-level variability , quarterly fluctuations , seasonality and inflation we have historically operated stores varying in size and have experienced significant variability among stores in volumes , operating results and net investment costs . our new locations typically open with sales volumes in excess of their expected long term run-rate levels , which we refer to as a ยhoneymoonย effect . we expect our new store sales volumes in year two to be 10 % to 20 % lower than our year one targets , and to grow in line with the rest of our comparable store base thereafter . as a result of the substantial revenues associated with each new store , the number and timing of new store openings will result in significant fluctuations in quarterly results . in the first year of operation new store operating margins ( excluding pre-opening expenses ) typically benefit from honeymoon sales leverage on occupancy , management labor and other fixed costs . this benefit is partially offset by normal inefficiencies in hourly labor and other costs associated with establishing a new location . in year two , operating margins may decline due to the loss of honeymoon sales leverage on fixed costs which is partially offset by improvements in store operating efficiency . furthermore , rents in our new stores are typically higher than our comparable store base .
| results of operations . the following table sets forth selected data , in thousands of dollars and as a percentage of total revenues ( unless otherwise noted ) for the periods indicated . all information is derived from the accompanying consolidated statements of comprehensive income . replace_table_token_6_th ( 1 ) ยcomparable store salesย ( year-over-year comparison of stores operating at the end of the fiscal period and open at least 18 months as of the beginning of each of the fiscal years ) is a key performance indicator used within the industry and is indicative of acceptance of our initiatives as well as local economic and consumer trends . 36 ( 2 ) our new store openings during the last two fiscal years were as follows : replace_table_token_7_th reconciliations of non-gaap financial measures adjusted ebitda the following table reconciles net income to adjusted ebitda for the periods indicated : replace_table_token_8_th ( 1 ) primarily represents costs related to currency transaction ( gains ) or losses , capital market transactions and store closure costs . ( 2 ) beginning in the fourth quarter of 2016 we revised our calculation of adjusted ebitda to exclude adjustments for changes in deferred amusement revenue and ticket liabilities . this change has been applied retrospectively to all periods presented . 37 store operating income before depreciation and amortization the following table reconciles operating income to store operating income before depreciation and amortization for the periods indicated : replace_table_token_9_th capital additions the following table represents total accrual-based additions to property and equipment . total capital additions do not include any reductions for accrual-based tenant improvement allowances or proceeds from sale-leaseback transactions ( collectively , ยpayments from landlordsย ) .
| 4,866 |
the amendments in this update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence , an investor must adjust the investment , results of operations , and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods story_separator_special_tag overview at september 30 , 2016 , we had total assets of $ 559.5 million , including net loans of $ 344.9 million and $ 178.7 million of investment and mortgage-backed securities , total deposits of $ 389.2 million and total stockholders ' equity of $ 114.0 million . the company conducts community banking activities by accepting deposits and making loans in our market area . our lending products consist of residential mortgage loans , including loans for sale in the secondary market , along with commercial real estate and multi-family and to a lesser extent construction loans . the company also originates commercial business and consumer loans in an effort to maintain strong customer relationships . despite the challenging current market and economic conditions , the company continues to maintain capital substantially in excess of regulatory requirements . this management 's discussion and analysis section is intended to assist in understanding the financial condition and results of operations of prudential bancorp . the results of operations of prudential bancorp are primarily dependent on the results of the bank . the information contained in this section should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements contained in item 8 of this annual report on form 10-k. critical accounting policies in reviewing and understanding financial information for prudential bancorp , you are encouraged to read and understand the significant accounting policies used in preparing our financial statements . these policies are described in note 2 of the notes to our consolidated financial statements included in item 8 hereof . the accounting and financial reporting policies of prudential bancorp conform to accounting principles generally accepted in the united states of america ( โ u.s . gaap โ ) and to general practices within the banking industry . accordingly , the financial statements require certain estimates , judgments and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for loan losses is established through a provision for loan losses charged to expense . losses are charged against the allowance for loan losses when management believes that the collectability in full of the principal of a loan is unlikely . subsequent recoveries are added to the allowance . the allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both probable and reasonable to estimate . loan impairment is evaluated based on the fair value of collateral or estimated net realizable value . it is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and classified loans . 59 management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate . the quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends . in this context , a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan portfolio . included in these qualitative factors are : ยท levels of past due , classified , criticized and non-accrual loans , troubled debt restructurings and loan modifications ; ยท nature and volume of loans ; ยท changes in lending policies and procedures , underwriting standards , collections , charge-offs and recoveries and for commercial loans , the level of loans being approved with exceptions to lending policy ; ยท experience , ability and depth of management and staff ; ยท national and local economic and business conditions , including various market segments ; ยท quality of the company 's loan review system and degree of board oversight ; ยท concentrations of credit and changes in levels of such concentrations ; and ยท effect of external factors on the level of estimated credit losses in the current portfolio . in determining the allowance for loan losses , management has established both specific and general pooled allowances . values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans ( general pooled allowance ) and for criticized and classified loans . the amount of the specific allowance is determined through a loan-by-loan analysis of certain large dollar commercial real estate loans . loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above . in determining the appropriate level of the general pooled allowance , management makes estimates based on internal risk ratings , which take into account such factors as debt service coverage , loan-to-value ratios and external factors . estimates are periodically measured against actual loss experience . story_separator_special_tag derivative financial instruments include futures , forwards , interest rate swaps , option contracts , and other financial instruments with similar characteristics . to remain competitive in our local lending area and to support the company 's asset/liability positioning , on occasion the bank enters into interest rate swaps contract to control it 's funding costs . in addition , these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition . commitments to extend credit generally have fixed expiration dates and may require additional collateral from the borrower if deemed necessary . commitments to extend credit are not recorded as an asset or liability by us until the instrument is exercised . commitments the following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit , lines of credit and undisbursed construction loans at september 30 , 2016. replace_table_token_26_th ( 1 ) the majority of available lines of credit consist of home equity lines of credit . 62 contractual cash obligations the following table summarizes our contractual cash obligations at september 30 , 2016. replace_table_token_27_th 63 average balances , net interest income , and yields earned and rates paid . the following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates , and the net interest margin . tax-exempt income and yields have not been adjusted to a tax-equivalent basis . all average balances are based on monthly balances . management does not believe that the monthly averages differ significantly from what the daily averages would be . replace_table_token_28_th _ ( 1 ) includes nonaccrual loans during the respective periods . calculated net of deferred fees and discounts , loans in process and allowance for loan losses . ( 2 ) equals net interest income divided by average interest-earning assets . 64 rate/volume analysis . the following table shows the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( 1 ) changes in rate , which is the change in rate multiplied by prior year volume , and ( 2 ) changes in volume , which is the change in volume multiplied by prior year rate . the combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume . replace_table_token_29_th comparison of financial condition at september 30 , 2016 and september 30 , 2015 at september 30 , 2016 , the company had total assets of $ 559.5 million , as compared to $ 487.2 million at september 30 , 2015 , an increase of 14.8 % . at september 30 , 2016 , net loans receivable increased to $ 344.9 million from $ 312.6 million at september 30 , 2015. the increase in net loans receivable was primarily due to a $ 60.3 million increase in commercial and multi-family real estate , the purchase of short-term small equipment leases aggregating $ 3.3 million , partially offset by a $ 25.6 million reduction in the balance of one-to-four family loans combined with a $ 5.4 million reduction related to construction and land development loans . during fiscal 2016 , the company increased its available-for-sale investment securities portfolio by $ 61.2 million , while experiencing a $ 26.4 million reduction in investment securities held-to-maturity , primarily due to securities being called , the proceeds of which were primarily reinvested in available-for-sale securities . total liabilities increased by $ 75.3 million to $ 445.5 million at september 30 , 2016 , from $ 370.2 million at september 30 , 2015. total deposits increased $ 24.1 million , consisting primarily of short-term certificates of deposit . at september 30 , 2016 , the company had fhlb advances outstanding of $ 50.6 million with variable maturities of which $ 35.0 million was used to fund the company 's investment leverage strategy and the remaining $ 15.6 million was used for loan growth and purchase of investment securities . 65 total stockholders ' equity decreased by $ 3.0 million to $ 114.0 million at september 30 , 2016 from $ 117.0 million at september 30 , 2015. the decrease was primarily due to the $ 7.0 million expended in the acquisition of treasury stock in connection with the company 's previously announced stock repurchase program . during fiscal year 2016 , the company repurchased 445,881 shares under its current program with 214,574 shares remaining ; however , only very limited repurchases have been effected since early march 2016 due to the pending merger with polonia . also contributing to the decrease was payment of cash dividends aggregating $ 895,000. these decreases were partially offset by $ 2.7 million in net income earned during fiscal 2016 combined with a $ 780,000 after-tax increase in the unrealized gain on the available-for-sale securities portfolio and the fair value of interest rate swaps . story_separator_special_tag 2015 , non-interest income amounted to $ 3.0 million compared with $ 1.1 million for fiscal 2014. the primary reason for the difference in non-interest income between fiscal 2015 as compared to fiscal 2014 was in fiscal 2015 the company recorded an aggregate gain of $ 2.1 million from the sale of three former branch locations . during fiscal 2014 , the company recorded a $ 416,000 gain from the sale of mortgage-back securities classified afs while there were no securities gains recognized during fiscal 2015 . 67 non-interest expense .
| general . 2016 vs. 2015. for the fiscal year ended september 30 , 2016 , the company recognized net income of $ 2.7 million , or $ 0.36 per diluted share , as compared to net income of $ 2.2 million , or $ 0.27 per diluted share for the fiscal year ended september 30 , 2015. increased profitability for the year ended september 30 , 2016 was primarily attributable to an increase in net interest income , gains recognized on the sale of mortgage-backed securities and a reduction in the provision for loan losses recorded during the fiscal 2016. in addition , the company reduced its non-interest expenses by approximately $ 1.9 million ( including the effect of expenses related to the merger with polonia ) resulting from a comprehensive expense reduction program which began at the beginning of the fiscal 2016. profitability for the year ended september 30 , 2015 primarily reflected the $ 2.1 million aggregate gain realized on the sale of three branch offices as well as a $ 138,000 gain on the sale of a sba loan , partially offset by a provision for loan losses of $ 735,000 and increased non-interest expense primarily related to salaries and benefits expense . 2015 vs 2014 . for the fiscal year ended september 30 , 2015 , the company recognized net income of $ 2.2 million , or $ 0.27 per diluted share , as compared to net income of $ 1.8 million , or $ 0.19 per diluted share for the fiscal year ended september 30 , 2014. profitability for the year ended september 30 , 2015 primarily reflected the $ 2.1 million aggregate gain from the sale of three branch offices as well as a $ 138,000 gain on the sale of a sba loan , partially offset by a provision for loan losses of $ 735,000 and increased non-interest expense primarily related to salaries and benefits expense . net interest income .
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using biofene as a first commercial building block molecule , we are developing a wide range of renewable products for our target markets . in 2014 , we began manufacturing additional molecules for the flavors and fragrance ( f & f ) industry , in 2015 we began investing to expand our capabilities to other small molecule chemical classes beyond terpenes via our collaboration with the defense advanced research project agency ( darpa ) , as discussed below , and in 2016 we expanded into proteins . 72 while our platform is able to utilize a wide variety of feedstocks , we are focusing our large-scale production plans primarily on the use of brazilian sugarcane as our feedstock because of its renewability , low cost and relative price stability . we have also been able to produce our ingredients through the use of other feedstocks such as sugar beets , corn dextrose , sweet sorghum and cellulosic sugars . our first purpose-built , large-scale production plant commenced operations in southeastern brazil in december 2012. this plant is located in brotas , in the state of sรฃo paulo , brazil , and is adjacent to an existing sugar and ethanol mill . in february 2017 , we broke ground on a second purpose-built , large-scale production facility adjacent to our current brotas facility . our business strategy is to generally focus our direct commercialization efforts on specialty products while moving commodity products , including our fuels and base oil lubricants products , into joint venture arrangements with established industry leaders . we believe this approach will permit access to the capital and resources necessary to support large-scale production and global distribution for our products . our initial renewable products efforts have been focused on the health and nutrition , personal care and performance materials markets , including pharmaceutical products , nutraceuticals , food ingredients , f & f ingredients , skin care ingredients , cosmetic actives , polymers , lubricants , solvents and transportation fuels . sales and revenues our revenues are comprised of product revenues and grants and collaborations ( including license fees for intellectual property and value share ) revenues . our business model has been a key enabler for short and long-term revenue growth . the three components of our business model are : first , collaborations . our partners fund the development of key ingredients to support their business strategy which allows us to maintain strong performance levels in our collaboration revenue . the second component , we produce and sell the products we develop to our partners . the third component , we have a value share mechanism where our partners share a portion of the value created from our products . we have entered into research and development collaboration arrangements pursuant to which we receive payments from our collaborators , which include total , manufacture francaise de pnematiques michelin , darpa , doe , firmenich , givaudan and cosan . some of such collaboration arrangements include advance payments in consideration for grants of exclusivity or research efforts to be performed by us . once a collaboration agreement has been signed , receipt of payments may depend on our achievement of milestones . see note 8 , โ significant agreements โ in โ notes to consolidated financial statements โ included in this annual report on form 10-k for more details regarding certain of these agreements and arrangements . 73 financing in 2016 and 2015 , we completed multiple financings involving loans , convertible debt , non-convertible debt , mezzanine equity and equity offerings . in january 2015 , we closed a second installment of the $ 21.7 million in convertible notes from total under the total fuel agreements , as described in more detail in note 5 , `` debt '' in โ notes to consolidated financial statements โ included in this annual report on form 10-k , in the amount of $ 10.85 million . in july 2015 , we sold to certain purchasers 16,025,642 shares of our common stock at a price per share of $ 1.56 , for aggregate proceeds to us of $ 25 million . we also granted to the purchasers warrants exercisable at an exercise price of $ 0.01 per share for the purchase of an aggregate of 1,602,562 shares of our common stock . the exercisability of these warrants was subject to stockholder approval , which was obtained on september 17 , 2015. as of december 31 , 2016 , 160,255 of such warrants had been exercised . in october 2015 , we issued $ 57.6 million aggregate principal amount of 9.50 % convertible senior notes due 2019 to certain qualified institutional buyers , as described in more detail in note 5 , โ debt โ in โ notes to consolidated financial statements โ included in this annual report on form 10-k. in february 2016 , we issued to certain purchasers an aggregate of $ 20.0 million of unsecured promissory notes and warrants for the purchase , at an exercise price of $ 0.01 per share , of an aggregate of 2,857,142 shares of our common stock , as described in more detail in note 5 , โ debt โ in โ notes to consolidated financial statements โ included in this annual report on form 10-k. the exercisability of these warrants was subject to stockholder approval , which was obtained on may 17 , 2016. as of december 31 , 2016 , all of such warrants remained outstanding and unexercised . story_separator_special_tag multiplied by ( b ) a fraction equal to 13.3 % divided by 86.7 % ( or the โ temasek funding warrant โ ) . a warrant exercisable for that number of shares of our common stock equal to 880,339 multiplied by a fraction equal to the number of shares for which total exercises the total r & d warrant divided by 2,000,000 ( or the โ temasek r & d warrant โ ) . if total is entitled to , and does , exercise the total r & d warrant in full , the temasek r & d warrant would be exercisable for 880,339 shares . the temasek exchange warrant , the temasek funding warrant and the temasek r & d warrant each have ten-year terms and are referred to herein as the โ temasek warrants โ and , the temasek warrants and total warrants are hereinafter collectively referred to as the โ exchange warrants โ . all of the exchange warrants have an exercise price of $ 0.01 per share . in addition to the grant of the exchange warrants , a warrant issued by the company to temasek in october 2013 in conjunction with a prior convertible debt financing ( or the โ 2013 warrant โ ) became exercisable in full upon the completion of the exchange . there were 1,000,000 shares underlying the 2013 warrant , which was exercised in full at the exercise price of $ 0.01 per share . the exercisability of all of the exchange warrants was subject to stockholder approval , which was obtained on september 17 , 2015. in february and may 2016 , as a result of adjustments to the conversion price of our senior convertible notes issued in october 2013 ( or the โ tranche i notes โ ) and january 2014 ( or the โ tranche ii notes โ ) discussed in note 5 , โ debt โ in โ notes to consolidated financial statements โ included in this annual report on form 10-k , the temasek funding warrant became exercisable for an additional 127,194 and 2,335,342 shares of common stock , respectively . as of december 31 , 2016 , the total funding warrant , the temasek exchange warrant and the 2013 warrant had been fully exercised , and temasek had exercised the temasek funding warrant with respect to 12,700,244 shares of our common stock . neither the total r & d warrant nor the temasek r & d warrant were exercisable as of december 31 , 2016. see note 16 , โ subsequent events โ in โ notes to consolidated financial statements โ included in this annual report on form 10-k for additional details regarding the total r & d warrant and temasek r & d warrant . warrants to purchase 2,462,536 shares of common stock under the temasek funding warrant were unexercised as of december 31 , 2016 . 76 maturity treatment agreement at the closing of the exchange , we , total and temasek also entered into a maturity treatment agreement , dated as of july 29 , 2015 , pursuant to which total and temasek agreed to convert any tranche i notes , tranche ii notes or 2014 144a notes held by them that were not cancelled in the exchange ( or the โ remaining notes โ ) into shares of our common stock in accordance with the terms of such remaining notes upon maturity , provided that certain events of default had not occurred with respect to the applicable remaining notes prior to such maturity . as of immediately following the closing of the exchange and december 31 , 2016 , temasek held $ 10.0 million in aggregate principal amount of remaining notes and total held approximately $ 27.0 million and $ 29.5 million , respectively , in aggregate principal amount of remaining notes . liquidity we have incurred significant losses since our inception and we believe that we will continue to incur losses and may have negative cash flow from operations through at least 2017. as of december 31 , 2016 , we had negative working capital of $ 50.7 , an accumulated deficit of $ 1,134.4 million and had cash , cash equivalents and short term investments of $ 28.5 million . we have significant outstanding debt , working capital deficit and contractual obligations related to capital and operating leases , as well as purchase commitments . we will likely need additional financing as early as the second quarter of 2017 to support our liquidity needs . our audited consolidated financial statements have been prepared on the basis that the company will continue as a going concern . if we are unable to raise additional financing , our ability to continue as a going concern would be jeopardized and we may be unable to meet our obligations under our existing debt facilities , which could result in an acceleration of our obligations to repay all amounts outstanding under those facilities , and may be forced to liquidate our assets or we may be forced to delay , scale back or eliminate some of our activities to provide sufficient funds to continue our operations . in such a liquidation scenario , the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statement . the financial statements do not include any adjustments that might result from the outcome of this uncertainty , which could have a material adverse effect on our financial condition . refer to `` liquidity and capital resources '' for further details . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures .
| results of operations comparison of year ended december 31 , 2016 to year ended december 31 , 2015 revenues replace_table_token_5_th nm= not meaningful our total revenues increased by $ 33.0 million to $ 67.2 million in 2016 as compared to the prior year , primarily due to significant growth in product sales and grants , collaborations and license fee revenues . 82 product sales increased by $ 11.5 million to $ 26.3 million in 2016 as compared to the prior year primarily due to increases in the personal care and health and nutrition segments . grants , collaborations and license fee revenue increased by $ 21.6 million to $ 40.8 million in 2016 compared to the prior year . this increase was due to new contracts with darpa and givaudan and license fee revenues resulting from the transfer of intellectual property to ginkgo bioworks for $ 15 million . cost and operating expenses replace_table_token_6_th cost of products sold our cost of products sold includes the cost of raw materials , labor and overhead , amounts paid to contract manufacturers , period costs related to inventory write-downs resulting from applying lower of cost or market inventory valuations , and costs related to scale-up in production of such products . our cost of products sold increased by $ 19.3 million to $ 56.7 million in 2016 as compared to the prior year , primarily driven by product mix , higher volumes of products sold and production scale-up costs . loss on purchase commitments and impairment of property , plant and equipment and other asset allowances the loss on purchase commitments and impairment of property , plant and equipment and other asset allowances decreased by $ 26.9 million to $ 7.3 million in 2016 as compared to the prior year . this decline was primarily as a result of lower asset impairment charges .
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time of debt and equity securities . for more information on the company 's net capital expenditures , see liquidity and capital commitments . the key strategies for each of the company 's business segments and certain related business challenges are summarized below . for a summary of the company 's business segments , see item 8 - note 15. key strategies and challenges electric and natural gas distribution strategy provide competitively priced energy and related services to customers . the electric and natural gas distribution segments continually seek opportunities to retain , grow and expand their customer base through extensions of existing operations , including building and upgrading electric generation and transmission and natural gas systems , and through selected acquisitions of companies and properties at prices that will provide stable cash flows and an opportunity for the company to earn a competitive return on investment . challenges both segments are subject to extensive regulation in the state jurisdictions where they conduct operations with respect to costs and permitted returns on investment as well as subject to certain operational , system integrity and environmental regulations . these regulations can require substantial investment to upgrade facilities . the ability of these segments to grow through acquisitions is subject to significant competition . in addition , the ability of both segments to grow service territory and customer base is affected by the economic environment of the markets served and competition from other energy providers and fuels . the construction of any new electric generating facilities , transmission lines and other service facilities are subject to increasing cost and lead time , extensive permitting procedures , and federal and state legislative and regulatory initiatives , which will necessitate increases in electric energy prices . legislative and regulatory initiatives to increase renewable energy resources and reduce ghg emissions could impact the price and demand for electricity and natural gas . pipeline and energy services strategy utilize the segment 's existing expertise in energy infrastructure and related services to increase market share and profitability through optimization of existing operations , internal growth , and acquisitions of energy-related assets and companies . incremental and new growth opportunities include : access to new energy sources for storage , gathering and transportation services ; expansion of existing gathering , transmission and storage facilities ; incremental expansion of pipeline capacity ; expansion of midstream business to include liquid pipelines and processing activities ; and expansion of related energy services . challenges challenges for this segment include : energy price volatility ; natural gas basis differentials ; environmental and regulatory requirements ; recruitment and retention of a skilled workforce ; and competition from other pipeline and energy services companies . exploration and production strategy apply technology and utilize existing exploration and production expertise , with a focus on operated properties , to increase production and reserves from existing leaseholds , and to seek additional reserves and production opportunities both in new and existing areas to further expand the segment 's asset base . by optimizing existing operations and taking advantage of new and incremental growth opportunities , this segment is focused on balancing the oil and natural gas commodity mix to maximize profitability with its goal to add value by increasing both reserves and production over the long term so as to generate competitive returns on investment . 35 challenges volatility in natural gas and oil prices ; timely receipt of necessary permits and approvals ; environmental and regulatory requirements ; recruitment and retention of a skilled workforce ; availability of drilling rigs , materials , auxiliary equipment and industry-related field services ; inflationary pressure on development and operating costs ; and competition from other exploration and production companies are ongoing challenges for this segment . construction materials and contracting strategy focus on high-growth strategic markets located near major transportation corridors and desirable mid-sized metropolitan areas ; strengthen long-term , strategic aggregate reserve position through purchase and or lease opportunities ; enhance profitability through cost containment , margin discipline and vertical integration of the segment 's operations ; and continue growth through organic and acquisition opportunities . ongoing efforts to increase margin are being pursued through the implementation of a variety of continuous improvement programs , including corporate purchasing of equipment , parts and commodities ( liquid asphalt , diesel fuel , cement and other materials ) , and negotiation of contract price escalation provisions . vertical integration allows the segment to manage operations from aggregate mining to final lay-down of concrete and asphalt , with control of and access to permitted aggregate reserves being significant . a key element of the company 's long-term strategy for this business is to further expand its market presence in the higher-margin materials business ( rock , sand , gravel , liquid asphalt , asphalt concrete , ready-mixed concrete and related products ) , complementing and expanding on the company 's expertise . challenges volatility in the cost of raw materials such as diesel , gasoline , liquid asphalt , cement and steel , continue to be a concern . this business unit expects to continue cost containment efforts , positioning its operations for the resurgence in the private market , while continuing the emphasis on industrial , energy and public works projects . construction services strategy provide a competitive return on investment while operating in a competitive industry by : building new and strengthening existing customer relationships ; effectively controlling costs ; retaining , developing and recruiting talented employees ; focusing our efforts on projects that will permit higher margins while properly managing risk . challenges this segment operates in highly competitive markets with many jobs subject to competitive bidding . maintenance of effective operational and cost controls , retention of key personnel , managing through downturns in the economy and effective management of working capital are ongoing challenges . for more information on the risks and challenges the company faces as it pursues its growth strategies and other factors that should be considered for a better understanding of the company 's financial condition , see item 1a - risk factors . story_separator_special_tag gas distribution years ended december 31 , 2012 2011 2010 ( dollars in millions , where applicable ) operating revenues $ 754.8 $ 907.4 $ 892.7 operating expenses : purchased natural gas sold 457.4 594.6 589.3 operation and maintenance 139.4 137.3 137.4 depreciation , depletion and amortization 45.7 44.6 43.0 taxes , other than income 44.7 48.0 47.3 687.2 824.5 817.0 operating income 67.6 82.9 75.7 earnings $ 29.4 $ 38.4 $ 37.0 volumes ( mmdk ) : sales 93.8 103.3 95.5 transportation 132.0 124.2 135.8 total throughput 225.8 227.5 231.3 degree days ( % of normal ) * montana-dakota/great plains 84 % 101 % 98 % cascade 96 % 103 % 96 % intermountain 91 % 107 % 100 % average cost of natural gas , including transportation , per dk $ 4.88 $ 5.76 $ 6.17 * degree days are a measure of the daily temperature-related demand for energy for heating . 2012 compared to 2011 the natural gas distribution business experienced a decrease in earnings of $ 9.0 million ( 23 percent ) compared to the prior year due to : lower earnings of $ 7.6 million ( after tax ) related to decreased retail sales volumes , largely resulting from warmer weather than last year , partially offset by weather normalization in certain jurisdictions higher taxes other than income of $ 1.3 million ( after tax ) , primarily related to higher property taxes . this increase was more than offset by lower taxes other than income resulting from lower natural gas revenues . higher income taxes of $ 1.2 million , primarily related to the absence of a reduction of deferred income taxes associated with benefits in 2011 increased operation and maintenance expense of $ 700,000 ( after tax ) , including increased contract services these decreases were partially offset by higher other income of $ 1.1 million ( after tax ) , primarily related to allowance for funds used during construction . 2011 compared to 2010 the natural gas distribution business experienced an increase in earnings of $ 1.4 million ( 4 percent ) compared to the prior year due to increased retail sales volumes and margins , largely resulting from colder weather than the prior year . partially offsetting this increase were : higher regulated operation and maintenance expense of $ 3.5 million ( after tax ) , primarily higher benefit-related costs higher income taxes of $ 2.1 million , primarily related to the absence of a 2010 income tax benefit of $ 4.8 million related to a reduction in deferred income taxes associated with property , plant and equipment , partially offset by a reduction of income taxes associated with benefits lower nonregulated energy-related services of $ 1.3 million ( after tax ) , largely related to lower pipeline project activity increased depreciation , depletion and amortization expense of $ 1.0 million ( after tax ) , primarily resulting from higher property , plant and equipment balances 39 the previous table also reflects lower revenue and lower operation and maintenance expense related to pipeline project activity . pipeline and energy services years ended december 31 , 2012 2011 2010 ( dollars in millions ) operating revenues $ 193.1 $ 278.3 $ 329.8 operating expenses : purchased natural gas sold 50.5 125.3 153.9 operation and maintenance 52.2 * 68.9 90.6 * * depreciation , depletion and amortization 27.7 25.5 26.0 taxes , other than income 13.6 13.2 13.0 144.0 232.9 283.5 operating income 49.1 45.4 46.3 earnings $ 26.6 * $ 23.1 $ 23.2 * * transportation volumes ( mmdk ) 137.7 113.2 140.5 natural gas gathering volumes ( mmdk ) 47.1 66.5 77.2 customer natural gas storage balance ( mmdk ) : beginning of period 36.0 58.8 61.5 net injection ( withdrawal ) 7.7 ( 22.8 ) ( 2.7 ) end of period 43.7 36.0 58.8 * results reflect a net benefit of $ 24.1 million ( $ 15.0 million after tax ) related to the natural gas gathering operations litigation , largely reflected in operation and maintenance expense , as discussed in item 8 - note 19 . * * reflects a natural gas gathering arbitration charge of $ 26.6 million ( $ 16.5 million after tax ) , as discussed in item 8 - note 19 . 2012 compared to 2011 pipeline and energy services earnings increased $ 3.5 million ( 15 percent ) largely due to : lower operation and maintenance expense from existing operations largely related to a $ 15.0 million ( after tax ) net benefit related to the natural gas gathering operations litigation , as discussed in item 8 - note 19 , which was partially offset by an impairment of certain natural gas gathering assets of $ 1.7 million ( after tax ) due largely to low natural gas prices higher oil and natural gas gathering and processing volumes from a recent acquisition , as discussed in item 8 - note 2 partially offsetting the earnings increase were : lower earnings of $ 10.4 million ( after tax ) due to lower natural gas gathering volumes from existing operations , largely resulting from customers experiencing normal declines , production curtailments , deferral of certain natural gas development activity and the company 's divestments lower storage services revenue of $ 600,000 ( after tax ) , largely lower average storage balances , as well as lower withdrawal volumes results also reflect lower operating revenues and lower purchased natural gas sold , both related to lower natural gas prices and lower natural gas volumes .
| following are recent well results : replace_table_token_12_th paradox basin , utah โฆ the company has increased its holding to approximately 83,000 net acres and also has an option to lease another 20,000 acres . โฆ production grew more than 1,400 percent in the fourth quarter of 2012 compared to last year . โฆ the company has experienced strong well results with the paradox 12-1 consistently producing 1,500 bopd since mid-september with consistently high-flowing pressures above 2,000 psi . โฆ the company is continuing to proceed systematically in this play , and anticipates spending $ 70 million of capital expenditures in 2013. as the play is fully understood , the opportunity to ramp up to full-scale development could increase the planned investment . at this point , the potential appears very significant . โฆ approximately 50 to 75 future net locations have been identified . estimated gross ultimate recovery rates per well range from 250,000 to 1 million bbls . texas โฆ the company is targeting areas that have the potential for higher liquids content with approximately $ 40 million of capital planned for 2013. other opportunities โฆ the company plans to drill one horizontal well during 2013 in sioux county , nebraska . upon evaluation of this well , the company may exercise an option to purchase a 65 percent working interest in approximately 79,000 gross acres . โฆ the remaining forecasted 2013 capital has been allocated to other operated and non-operated opportunities . earnings guidance reflects estimated average nymex index prices for february through december in the ranges of $ 85.00 to $ 95.00 per bbl of crude oil , and $ 3.25 to $ 3.75 per mcf of natural gas . estimated prices for ngl are in the range of $ 30.00 to $ 45.00 per bbl .
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overview our company is an it channel company , primarily selling software and other third-party it products and services through two reportable operating segments . through our โ lifeboat distribution โ segment we sell products and services to corporate resellers , value added resellers ( vars ) , consultants and systems integrators worldwide , who in turn sell these products to end users . through our โ techxtend segment โ we act as a value-added reseller , selling computer software and hardware developed by others and provide technical services directly to end user customers in the usa and canada . we offer an extensive line of products from leading publishers of software and tools for virtualization/cloud computing , security , networking , storage and infrastructure management , application lifecycle management and other technically sophisticated domains as well as computer hardware . we market these products through creative marketing communications , including our web sites , local and on-line seminars , webinars , social media , direct e-mail , and printed materials . we have subsidiaries in the united states , canada and the netherlands , through which its sales are made . 15 story_separator_special_tag liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . revenues from the sales of hardware products , software products , licenses , maintenance and subscription agreements are recognized on a gross basis upon delivery or fulfillment , with the selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales . on an on-going basis , the company evaluates its estimates , including those related to product returns , bad debts , inventories , investments , intangible assets , income taxes , stock-based compensation , contingencies and litigation . the company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the company believes the following critical accounting policies used in the preparation of its consolidated financial statements affect its more significant judgments and estimates . revenue the company adopted asc 606 using the full retrospective method effective january 1 , 2018. see note 3 to the accompanying financial statements for further information . the company utilizes judgement regarding performance obligations inherent in the products for services it sells including , whether ongoing maintenance obligations performed by third party vendors are distinct from the related software licenses , and allocation of sales prices among distinct performance obligations . these estimates require significant judgment to determine whether the software 's functionality is dependent on ongoing maintenance or if substantially all functionality is available in the original software download . we also use judgment in the allocation of sales proceeds among performance obligations , utilizing observable data such as stand-alone selling prices , or market pricing for similar products and services . allowance for accounts receivable the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . management determines the estimate of the allowance for uncollectible accounts receivable by considering a number of factors , including historical experience , aging of the accounts receivable , and specific information obtained by the company on the financial condition and the current creditworthiness of its customers . if the financial condition of the company 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . at the time of sale , we record an estimate for sales returns based on historical experience . if actual sales returns are greater than estimated by management , additional expense may be incurred . 17 accounts receivable โ long term the company 's accounts receivable long-term are discounted to their present value at prevailing market rates at the time of sale . in doing so , the company considers competitive market rates and other relevant factors . inventory allowances the company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory write-offs may be required . income taxes the company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance related to deferred tax assets . in the event the company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in the period such determination was made . share-based payments under the fair value recognition provision , stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period . we make certain assumptions in order to value and expense our various share-based payment awards . in connection with our restricted stock programs we record the forfeitures when they occur . we review our valuation assumptions periodically and , as a result , we may change our valuation assumptions used to value stock-based awards granted in future periods . such changes may lead to a significant change in the expense we recognize in connection with share-based payments . recently issued accounting pronouncements in may 2014 , the financial accounting standards board ( โ fasb โ ) issued asu 2014-09 , revenue from contracts with customers , superseding the previous revenue recognition requirements , along with most existing industry-specific guidance . in march , april , may and december 2016 , the fasb issued additional updates to the new accounting standard which provide supplemental adoption guidance and clarifications . story_separator_special_tag in march 2018 , the fasb issued asu 2018-05 , โ amendments to sec paragraphs pursuant to sec staff accounting bulletin no . 118 ( sec update ) , income taxes ( topic 740 ) โ ( โ asu 2018-05 โ ) . asu 2018-05 provides guidance regarding the recording of tax impacts where uncertainty exists , in the period of adoption of the tcja , which allowed companies to reflect provisional amounts for those specific income tax effects of the tcja for which the accounting under asc topic 740 is incomplete but for which a reasonable estimate could be determined . the company completed its federal and state income tax filings for 2017 with no material change to amounts previously reported . in june 2018 , the fasb issued accounting standards update ( โ asu โ ) no . 2018-07 , โ compensation โ stock compensation ( topic 718 ) , improvements to nonemployee share-based payment accounting , โ which aligns the measurement and classification guidance for share-based payments to nonemployees with that for employees , with certain exceptions . it expands the scope of asc 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in the entity 's own operations and supersedes the guidance in asc 505-50. the asu retains the existing cost attribution guidance , which requires entities to recognize compensation cost for nonemployee awards in the same period and in the same manner ( i.e. , capitalize or expense ) they would if they paid cash for the goods or services , but it moves the guidance to asc 718. the guidance also allows nonpublic entities to account for nonemployee awards using certain practical expedients that are already available for employee awards , but the same accounting policies must be used for awards to both employees and nonemployees . asu 2018-07 is effective for fiscal years beginning after 19 december 15 , 2018 , and interim periods within those fiscal years . the company is currently evaluating the impact of adopting this guidance . in july 2018 , the fasb issued asu 2018-09 โ codification improvements ( โ asu 2018-09 โ ) , which facilitates amendments to a variety of topics to clarify , correct errors in , or make minor improvements to the accounting standards codification . the effective date of the standard is dependent on the facts and circumstances of each amendment . some amendments do not require transition guidance and will be effective upon the issuance of this standard . most of the amendments in asu 2018-09 will be effective in annual periods beginning after december 15 , 2018. this new guidance is effective for the company beginning on january 1 , 2019 and is not expected to have a material impact on the company 's consolidated financial statements and related disclosures . results of operations the following table sets forth for the years indicated the percentage of net sales represented by selected items reflected in the company 's consolidated statements of earnings . the year-to-year comparison of financial results is not necessarily indicative of future results : replace_table_token_4_th non-gaap financial measures our management monitors several financial and non-financial measures and ratios on a regular basis in order to track the progress of our business . we believe that the most important of these measures and ratios include net sales , gross margin , adjusted gross billings , gross profit as a percentage of gross billings , net income as a percentage of net sales , net income as a percentage of gross billings , and net income excluding separation expenses , net of taxes . we use a variety of operating and other information to evaluate the operating performance of our business , develop financial forecasts , make strategic decisions , and prepare and approve annual budgets . these key indicators include financial information that is prepared in accordance with us gaap and presented in our consolidated financial statements as well as non-us gaap performance measurement tools . replace_table_token_5_th we define adjusted gross billings as net sales in accordance with us gaap , adjusted for the cost of sales related to software โ security or highly interdependent with support and maintenance , support or other services . we provided a reconciliation of adjusted gross billings to net sales , which is the most directly comparable us gaap measure . we use adjusted gross billings of product and services as a supplemental measure of our performance to gain 20 insight into the volume of business generated by our business , and to analyze the changes to our accounts receivable and accounts payable . our use of adjusted gross billings of product and services as analytical tools has limitations , and you should not consider it in isolation or as substitutes for analysis of our financial results as reported under us gaap . in addition , other companies , including companies in our industry , might calculate adjusted gross billings of product and services or similarly titled measures differently , which may reduce their usefulness as comparative measures . replace_table_token_6_th we use net income excluding separation expenses as a supplemental measure of our performance to gain insight into comparison of our businesses profitability when compared to the prior year . our use of net income excluding separation expenses , net of tax has limitations , and you should not consider it in isolation or as substitutes for analysis of our financial results as reported under us gaap . in addition , other companies , including companies in our industry , might calculate separation expenses net of tax , or similarly titled measures differently , which may reduce their usefulness as comparative measures .
| factors influencing our financial results we derive most of our net sales though the sale of third-party software licenses , maintenance and service agreements . in our lifeboat distribution segment , sales are impacted by the number of product lines we distribute , and sales penetration of those products into the reseller channel , product lifecycle competitive , and demand characteristics of the products which we are authorized to distribute . in our techxtend segment sales are generally driven by sales force effectiveness and success in providing superior customer service , competitive pricing , and flexible payment solutions to our customers . our sales are also impacted by external factors such as levels of it spending and customer demand for products we distribute . we sell in a competitive environment where gross product margins have historically declined due to competition and changes in product mix towards products where no delivery of a physical product is required . to date , we have been able to implement cost efficiencies such as the use of drop shipments , electronic ordering ( โ edi โ ) and other capabilities to be able to operate our business profitably as gross margins have declined . selling general and administrative expenses are comprised mainly of employee salaries , commissions and other employee related expenses , facility costs , costs to maintain our it infrastructure , public company compliance costs and professional fees . we monitor our level of accounts payable , inventory turnover and accounts receivable turnover which are measures of how efficiently we utilize capital in our business .
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derivatives designated and qualifying as a hedge of the exposure story_separator_special_tag the purpose of this discussion and analysis is to focus on significant changes and events in the financial condition and results of operations of hancock whitney corporation and subsidiaries during the year ended december 31 , 2019 and selected prior periods . this discussion and analysis is intended to highlight and supplement financial and operating data and information presented elsewhere in this report , including the consolidated financial statements and related notes . the discussion contains forward-looking statements , which are subject to risks and uncertainties . should one or more of these risks or uncertainties materialize , our actual results may differ from those expressed or implied by the forward-looking statements . see forward-looking statements in part i of this annual report . non-gaap financial measures management 's discussion and analysis of financial condition and results of operations include non-gaap measures used to describe our performance . a reconciliation of those measures to gaap measures are provided in item 6 . โ selected financial data. โ the following is an overview of the non-gaap measures used and the reasons why management believes they are useful and important in understanding the company 's financial condition and results of operations are included below . consistent with securities and exchange commission industry guide 3 , we present net interest income , net interest margin and efficiency ratios on a fully taxable equivalent ( โ te โ ) basis . the te basis adjusts for the tax-favored status of net interest income from certain loans and investments using the statutory federal tax rate ( 21 % for 2019 and 2018 and 35 % for all other periods presented ) to increase tax-exempt interest income to a taxable-equivalent basis . we believe this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources . we present certain additional non-gaap financial measures to assist the reader with a better understanding of the company 's performance period over period , as well as to provide investors with assistance in understanding the success management has experienced in executing its strategic initiatives . we use the term โ operating โ to describe a financial measure that excludes income or expense considered to be nonoperating in nature . items identified as nonoperating are those that , when excluded from a reported financial measure , provide management or the reader with a measure that may be more indicative of forward-looking trends in the company 's business . however , these non-gaap financial measures have inherent limitations and should not be considered in isolation or as a substitute for analysis of results or capital position under u.s. gaap . we define operating revenue as net interest income ( te ) and noninterest income less nonoperating revenue . we define operating pre-provision net revenue as operating revenue ( te ) less noninterest expense , excluding nonoperating items . management believes that operating pre-provision net revenue is a useful financial measure because it enables investors and others to assess the company 's ability to generate capital to cover credit losses through a credit cycle . we define operating earnings as reported net income excluding nonoperating items net of income tax . we define operating earnings per share as operating earnings expressed as an amount available to each common shareholder on a diluted basis . executive overview our 2019 results reflect another year of growth and strong performance as year-over-year earnings increased , assets exceeded $ 30 billion , and both commercial criticized and total nonperforming loans declined . capital remains strong with our tangible common equity ratio up 43 bps for the year to 8.45 % . loans at december 31 , 2019 totaled $ 21.2 billion , up $ 1.2 billion or 6 % , in line with guidance and net of a strategic reduction in energy lending . deposits totaled $ 23.8 billion , up $ 653.4 million or 3 % for the year . our net interest margin for 2019 was up 6 bps to 3.44 % , as management focused on improving loan yields and reducing deposit costs . we have invested in technology that enhanced digital platforms for both online and mobile banking , aimed at improving client retention and sales efficiencies . we remain focused on building upon the positive momentum from 2019 while also looking to capitalize on opportunities in our markets . acquisitions and divestiture on september 21 , 2019 , we completed the acquisition of midsouth bancorp , inc. ( โ midsouth โ ) ( nyse : msl ) , parent company of midsouth bank , n.a , with simultaneous operational conversion . we acquired net assets of approximately $ 130 million , including loans totaling $ 788 million , net of a $ 42 million discount ; cash , short-term investments and securities available for sale totaling $ 581 million ; and deposits of $ 1.3 billion , which includes $ 390 million of noninterest-bearing deposits . in consideration for the net assets acquired , each outstanding share of midsouth common stock converted to 0.2952 shares of our common stock . as such , we issued approximately 5.0 million shares resulting in a transaction value of approximately $ 194 million . 37 the transaction resulted in goodwill of $ 63 million . upon acquisition , we closed or consolidated 20 midsouth branches . the company incurred acquisition-related expenses of $ 33 million , or $ 0.2 9 per diluted share . the transaction was accretive to income b eginning in the fourth quarter of 2019 . the transaction provides the opportunity for both enhanced growth in several of our current markets , such as midsouth 's home market of lafayette , louisiana , as well as opportunities for expansion into new markets in louisiana and texas . on july 13 , 2018 , we completed the acquisition of the trust and asset management business from capital one , national association ( โ capital one โ ) . story_separator_special_tag net interest income ( te ) for 2019 totaled $ 910 million , a $ 45 million , or 5 % , increase from 2018. the increase in 2019 net interest income was largely volume driven , with a $ 0.9 billion , or 3 % , increase in average earning assets partially offset by a $ 0.7 billion , or 4 % , increase in interest-bearing liabilities , and also reflects an improved net interest margin . the net interest margin is the ratio of net interest income ( te ) to average earning assets . the net interest margin increased 6 basis points ( bps ) to 3.44 % in 2019 from 3.38 % in 2018 , primarily due to an improving mix in average earning assets , with a higher level of loans to earnings assets and a proactive strategy to remix our loan book towards more granular higher-yielding production , as well as the late 2018 sale of lower-yielding securities available for sale as part of an investment portfolio restructure . the improving margin also reflects our efforts to control deposit costs . further , net interest recoveries increased $ 2.2 million in 2019 , improving the net interest margin by 1 bp . the discussions of asset/liability management and net interest income at risk in this item provide additional information regarding our management of interest rate risk and the potential impact from changes in interest rates , respectively the overall yield on earning assets was 4.31 % in 2019 , up 23 bps from 2018 , driven primarily by a 23 bps increase in loan yield to 4.81 % in 2019. the tax-equivalent yield on the investment securities portfolio increased 9 bps from 2018 to 2.62 % . the securities yield reflects a continued shift in the mix of the portfolio to a higher concentration of higher-yielding commercial mortgage-backed securities . average commercial mortgage-backed securities totaled approximately $ 1.6 billion for the year ended december 31 , 2019 compared to $ 1.1 billion in 2018. the cost of funding earning assets increased 17 bps to 0.87 % in 2019 from 0.70 % in 2018 due largely to the federal reserve interest rate increases during 2018 , and to a lesser extent , promotional pricing campaigns aimed at attracting and retaining deposits . however , the cost of funding earning assets began to decrease during the second half of 2019 as the federal reserve lowered rates three times during that period . total borrowing costs decreased 2 bps to 1.96 % in 2019 with increased use of promotional rate federal home loan bank borrowings . interest-free funding sources , including noninterest-bearing deposits , funded 35 % of average earning assets in 2019 , down from 36 % in 2018 . 39 table 1. summary of average balances , interest and rates ( te ) ( a ) replace_table_token_7_th ( a ) taxable equivalent ( te ) amounts are calculated using federal income tax rate of 21 % for 2019 and 2018 and 35 % for 2017 . ( b ) includes nonaccrual loans . ( c ) average securities do not include unrealized holding gains or losses on available for sale securities . ( d ) included in interest income is net purchase accounting accretion of $ 23.2 million , $ 23.1 million and $ 28.3 million for the years december 31 , 2019 , 2018 , and 2017 , respectively . 40 table 2. summary of changes in net interest income ( te ) ( a ) ( b ) replace_table_token_8_th ( a ) taxable equivalent ( te ) amounts are calculated using a federal income tax rate of 21 % for 2019 and 2018 and 35 % for 2017 . ( b ) amounts shown as due to changes in either volume or rate includes an allocation of the amount that reflects the interaction of volume and rate changes . this allocation is based on the absolute dollar amounts of change due solely to changes in volume or rate . ( c ) includes nonaccrual loans . ( d ) average securities do not include unrealized holding gains or losses on available for sale securities . provision for credit losses the provision for credit losses was $ 48 million in 2019 compared to $ 36 million in 2018. the 2019 provision includes net charge-offs of $ 47 million , or 0.23 % of average loans outstanding , and a build of a $ 4 million reserve for unfunded lending commitments , partially offset by a $ 3 million release of the allowance for funded loan losses . the provision in 2018 was comprised of net charge-offs of $ 52 million , or 0.27 % of average loans outstanding , partially offset by a reduction in the allowance for loan losses , primarily related to the reserve for energy-related loans . the $ 5 million year over year decrease in net charge-offs is primarily attributable to an $ 8 million decrease in energy net charge-offs . non-energy net charge-offs increased $ 3 million from the prior period , including a $ 9 million fraud-related net charge-off of a lease financing facility in 2019. item 7 . โ management 's discussion and analysis of financial condition and results of operationsโbalance sheet analysisโallowance for credit losses โ provides additional information on changes in the allowance for credit losses and general credit quality . 41 noninterest income noninterest income for 2019 totaled $ 316 million , a $ 31 million , or 11 % , increase from 2018. nearly all noninterest income categories experienced increases in 2019 , with significant increases in income from derivatives , bank card fees , trust fees , and secondary mortgage fees .
| fourth quarter results net income for the fourth quarter of 2019 was $ 92.1 million , or $ 1.03 per diluted common share , compared to $ 67.8 million , or $ 0.77 , in the third quarter of 2019 and $ 96.2 million , or $ 1.10 , in the fourth quarter of 2018. the fourth quarter of 2019 included $ 3.9 million ( $ .03 per share after-tax impact ) of nonoperating expenses related to the midsouth acquisition . the third quarter of 2019 included $ 28.8 million ( $ .26 per share impact ) of nonoperating merger related costs and the fourth quarter of 2018 included $ 1.9 million ( $ .02 per share impact ) of nonoperating items . highlights of our fourth quarter of 2019 results ( compared to third quarter 2019 ) : net income increased $ 24.3 million , or $ 0.26 per share excluding nonoperating merger costs of $ 3.9 million and $ 28.8 million in the fourth and third quarters of 2019 , respectively , earnings per share were up $ .03 to $ 1.06 per share pre-tax pre-provision net revenue increased $ 0.6 million , with revenue up $ 9.8 million and operating expense up $ 9.2 million energy loans decreased $ 71 million to $ 963 million , or 4.5 % of total loans criticized commercial loans declined $ 79 million , or 12 % , with energy down $ 21 million and nonenergy down $ 58 million net interest margin ( te ) improved by 2 bps to 3.43 % tangible common equity ratio was down 37 bps to 8.45 % , with the decrease related to the accelerated share repurchase agreement announced october 21 , 2019 total loans at december 31 , 2019 were $ 21.2 billion , an increase of $ 177 million , or 1 % , from september 30 , 2019. included in net growth was a reduction of $ 71 million in energy credits .
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other commercial real estate - other commercial real estate consists of loans secured by farmland ( including residential farms and other improvements ) and multifamily ( story_separator_special_tag management 's discussion and analysis ( md & a ) of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of first citizens bancshares , inc. ( bancshares ) and its banking subsidiary , first-citizens bank & trust company ( fcb ) . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes presented within this report . intercompany accounts and transactions have been eliminated . see note a in the notes to the consolidated financial statements included in part ii , item 8 , of this report for more detail . although certain amounts for prior years have been reclassified to conform to statement presentations for 2018 , the reclassifications had no effect on shareholders ' equity or net income as previously reported . unless otherwise noted , the terms `` we , '' `` us , '' โ our , โ and `` bancshares '' refer to the consolidated financial position and consolidated results of operations for bancshares . forward-looking statements statements in this report and exhibits relating to plans , strategies , economic performance and trends , projections of results of specific activities or investments , expectations or beliefs about future events or results and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the private securities litigation reform act of 1995 , section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. forward-looking information is inherently subject to risks and uncertainties , and actual results could differ materially from those currently anticipated due to a number of factors that include , but are not limited to , factors discussed in our annual report on form 10-k and in other documents filed by us from time to time with the securities and exchange commission . forward-looking statements may be identified by terms such as โ may , โ โ will , โ โ should , โ โ could , โ โ expects , โ โ plans , โ โ intends , โ โ anticipates , โ โ believes , โ โ estimates , โ โ predicts , โ โ forecasts , โ โ projects , โ โ potential โ or โ continue , โ or similar terms or the negative of these terms , or other statements concerning opinions or judgments of bancshares ' management about future events . factors that could influence the accuracy of those forward-looking statements include , but are not limited to , the financial success or changing strategies of our customers , customer acceptance of our services , products and fee structure , the competitive nature of the financial services industry , our ability to compete effectively against other financial institutions in our banking markets , actions of government regulators , the level of market interest rates and our ability to manage our interest rate risk , changes in general economic conditions that affect our loan and lease portfolio , the abilities of our borrowers to repay their loans and leases , the values of real estate and other collateral , the impact of the fdic-assisted transactions and or the risks discussed in item 1a . risk factors above and other developments or changes in our business that we do not expect . actual results may differ materially from those expressed in or implied by any forward-looking statements . except to the extent required by applicable law or regulation , bancshares undertakes no obligation to revise or update publicly any forward-looking statements for any reason . critical accounting estimates the accounting and reporting policies of bancshares are in accordance with accounting principles generally accepted in the united states ( gaap ) and are described in note a of the notes to the consolidated financial statements . the preparation of financial statements in conformity with gaap requires us to exercise judgment in determining many of the estimates and assumptions utilized to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses . our financial position and results of operations could be materially affected by changes to these estimates and assumptions . the following is a summary of some of the more significant areas in which we apply critical assumptions and estimates : allowance for loan and lease losses . the allowance for loan and lease losses ( alll ) represents the best estimate of inherent credit losses within the loan and lease portfolio as of the balance sheet date . estimating credit losses requires judgment in determining the amount and timing of expected cash flows , the value of the underlying collateral and loan specific attributes that impact the borrower 's ability to repay contractual obligations . other factors such as economic conditions , historical loan losses , migration of loans through delinquency stages and changes in the size , composition and risks within the loan portfolio are also considered . loan balances considered uncollectible are charged off against the alll . if it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement and a loss is probable , a specific valuation allowance is determined . recoveries of amounts previously charged-off are generally credited to the alll . 20 purchased credit impaired ( pci ) loans are initially recorded at fair value and are generally pooled based upon common risk characteristics . at each balance sheet date , we evaluate whether the estimated cash flows have decreased and if so , recognizes an additional allowance . subsequent improvements in expected cash flows results first in the recovery of any allowance established and then in the recognition of additional interest income over the remaining lives of the loans . story_separator_special_tag under this method , deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the amount of assets and liabilities reported in the consolidated financial statements and their respective tax bases . in estimating the liabilities and corresponding expense related to income taxes , management assesses the relative merits and risks of various tax positions considering statutory , judicial and regulatory guidance . because of the complexity of tax laws and regulations , interpretation is difficult and subject to differing judgments . accrued income taxes payable represents an estimate of the net amounts due to or from taxing jurisdictions based upon various estimates , interpretations and judgments . we evaluate our effective tax rate on a quarterly basis based upon the current estimate of net income , the favorable impact of various credits , statutory tax rates expected for the year and the amount of tax liability in each jurisdiction in which we operate . annually , we file tax returns with each jurisdiction where we have tax nexus and settle our return liabilities . changes in estimated income tax liabilities occur periodically due to changes in actual or estimated future tax rates and projections of taxable income , interpretations of tax laws , the complexities of multi-state income tax reporting , the status of examinations conducted by various taxing authorities and the impact of newly enacted legislation or guidance as well as income tax accounting pronouncements . see note p in the notes to consolidated financial statements for additional disclosures . current accounting pronouncements recently adopted accounting pronouncements financial accounting standards board ( fasb ) accounting standards update ( asu ) 2018-02 , income statement - reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income this asu requires a reclassification from accumulated other comprehensive income ( aoci ) to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate in the tax act , which was enacted on december 22 , 2017. the tax act included a reduction to the corporate income tax rate from 35 percent to 21 percent effective january 1 , 2018. the amount of the reclassification is the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate . the amendments in this asu are effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early adoption is permitted . we adopted the guidance effective in the first quarter of 2018. the change in accounting principle was accounted for as a cumulative-effect adjustment to the balance sheet resulting in a $ 31.3 million increase to retained earnings and a corresponding decrease to aoci on january 1 , 2018. fasb asu 2017-07 , compensation - retirement benefits ( topic 715 ) : improving the presentation of net periodic pension cost and net periodic postretirement benefit cost this asu requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period . employers will present the other components separately from the line item that includes the service cost . in addition , only the service cost component of net benefit cost is eligible for capitalization . the amendments in this asu are effective for public business entities for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . we adopted the guidance effective in the first quarter of 2018. the adoption did not have a material impact on our consolidated financial position or consolidated results of operations . 22 fasb asu 2016-01 , financial instruments-overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities this asu addresses certain aspects of recognition , measurement , presentation and disclosure of certain financial instruments . the amendments in this asu ( i ) require most equity investments to be measured at fair value with changes in fair value recognized in net income ; ( ii ) simplify the impairment assessment of equity investments without a readily determinable fair value ; ( iii ) eliminate the requirement to disclose the method ( s ) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet ; ( iv ) require public business entities to use exit price notion , rather than entry prices , when measuring fair value of financial instruments for disclosure purposes ; ( v ) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements ; ( vi ) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments ; and ( vii ) state that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets . the amendments in this asu are effective for public business entities for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . we adopted the guidance effective in the first quarter of 2018. the change in accounting principle was accounted for as a cumulative-effect adjustment to the balance sheet resulting in an $ 18.7 million increase to retained earnings and a decrease to aoci on january 1 , 2018. with the adoption of this asu , equity securities can no longer be classified as available for sale ; as such , marketable equity securities are disclosed as a separate line item on the balance sheet with changes in the fair value of equity securities reflected in net income .
| financial performance summary for the year ended december 31 , 2018 , net income was $ 400.3 million , or $ 33.53 per share , compared to $ 323.8 million , or $ 26.96 per share , during 2017 . the return on average assets was 1.15 percent during 2018 , compared to 0.94 percent during 2017 . the return on average shareholders ' equity was 11.69 percent and 10.10 percent for the respective periods . the $ 76.6 million , or 23.6 percent increase in net income was primarily the result of the following : income statement highlights net interest income for the year ended 2018 increased $ 149.0 million , or by 14.1 percent , compared to the year ended 2017. the taxable-equivalent net interest margin was 3.69 percent for the year ended 2018 , an increase of 39 basis points from the year ended 2017. these increases were driven by loan growth , increases in both loan and investment yields , and lower debt balances . bancshares recorded net provision expense for loan and lease losses of $ 28.5 million in 2018 , compared to $ 25.7 million in 2017 . the net provision expense on non-pci loans was $ 29.2 million for 2018 , compared to $ 29.1 million net provision expense in 2017 . provision expense remained relatively stable due to strong credit quality , offset by loan growth . the net charge-off to average non-pci loans was 0.11 % for the year , up 1 basis point from 2017. noninterest income for the year ended 2018 totaled $ 400.1 million , a decrease of $ 121.8 million , or 23.34 % , from the prior year .
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the sec defines critical accounting policies as those that are both most important to the portrayal of a company 's financial condition and results , and that require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain and may change materially in subsequent periods . the preparation of our consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes . significant estimates made by us include valuation of loans , equity investments , and investments in subsidiaries , evaluation of the recoverability of accounts receivable and income tax assets , and the assessment of litigation and other contingencies . the matters that give rise to such provisions are inherently uncertain and may require complex and subjective judgments . although we believe that estimates and assumptions used in determining the recorded amounts of net assets and liabilities at december 31 , 2014 are reasonable , actual results could differ materially from the estimated amounts recorded in our financial statements . general we are a specialty finance company that has a leading position in originating , acquiring , and servicing loans that finance taxicab medallions and various types of commercial businesses . a wholly-owned portfolio company of ours , medallion bank , also originates consumer loans for the purchase of recreational vehicles , boats , motorcycles , and trailers , and to finance small-scale home improvements . since 1996 , the year in which we became a public company , we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 5 % , and our commercial loan portfolio at a compound annual growth rate of 3 % ( 9 % and 6 % on a managed basis when combined with medallion bank ) . since medallion bank acquired a consumer loan portfolio and began originating consumer loans in 2004 , it has increased its consumer loan portfolio at a compound annual growth rate of 17 % . total assets under our management and the management of our unconsolidated wholly-owned subsidiaries , which includes our managed net investment portfolio , as well as assets serviced for third party investors , were $ 1,497,000,000 as of december 31 , 2014 and $ 1,330,000,000 as of december 31 , 2013 , and have grown at a compound annual growth rate of 11 % from $ 215,000,000 at the end of 1996. our loan-related earnings depend primarily on our level of net interest income . net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds . we fund our operations through a wide variety of interest-bearing sources , such as revolving bank facilities , bank certificates of deposit issued to customers , debentures issued to and guaranteed by the sba , and bank term debt . net interest income fluctuates with changes in the yield on our loan portfolio and changes in the cost of borrowed funds , as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by us . net interest income is also affected by economic , regulatory , and competitive factors that influence interest rates , loan demand , and the availability of funding to finance our lending activities . we , like other financial institutions , are subject to interest rate risk to the degree that our interest-earning assets reprice on a different basis than our interest-bearing liabilities . we also provide debt , mezzanine , and equity investment capital to companies in a variety of industries , consistent with our investment objectives . these investments may be venture capital style investments which may not be fully collateralized . medallion capital 's investments are typically in the form of secured debt instruments with fixed interest rates accompanied by warrants to purchase an equity interest for a nominal exercise price ( such warrants are included in equity investments on the consolidated balance sheets ) . interest income is earned on the debt instruments . we are a closed-end , management investment company under the 1940 act . we have elected to be treated as a bdc under the 1940 act . we have also elected to be treated for federal income tax purposes as a ric under subchapter m of the code . as a ric , we generally do not have to pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to our shareholders as distributions if we meet certain source-of-income and asset diversification requirements . medallion bank is not a ric and must pay corporate-level us federal and state income taxes . our wholly-owned portfolio company , medallion bank , is a bank regulated by the fdic and the utah department of financial institutions which originates taxicab medallion , commercial , and consumer loans , raises deposits , and conducts other banking activities . medallion bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers . to take advantage of this low cost of funds , we refer a portion of our taxicab medallion and commercial loans to medallion bank , which then originates these loans . however , the fdic restricts the amount of taxicab medallion loans that medallion bank may finance to three times tier 1 capital , or $ 445,530,000 as of december 31 , 2014. we earn referral fees for these activities . all of these servicing activities have been assigned to msc . as a non-investment company , medallion bank is not consolidated with the company . realized gains or losses on investments are recognized when the investments are sold or written off . the realized gains or losses represent the difference between the proceeds received from the disposition of portfolio assets , if any , and the cost of such portfolio assets . story_separator_special_tag total medallion loans serviced for third parties were $ 27,658,000 , $ 24,875,000 , and $ 57,676,000 at december 31 , 2014 , 2013 , and 2012. the weighted average yield of the medallion loan portfolio at december 31 , 2014 was 4.03 % , an increase of 1 basis point from 4.02 % at december 31 , 2013 , which was a decrease of 44 basis points from 4.46 % at december 31 , 2012. the weighted average yield of the managed medallion loan portfolio at december 31 , 2014 was 3.93 % , an increase of 4 basis points from 3.89 % at december 31 , 2013 , which was a decrease of 42 basis points from 4.31 % at december 31 , 2012. the slight changes in 2014 reflected changes in the portfolio mix . at december 31 , 2014 , 32 % of the medallion loan portfolio represented loans outside new york , compared to 32 % and 29 % at year-end 2013 and 2012. at december 31 , 2014 , 26 % of the managed medallion loan portfolio represented loans outside new york , compared to 26 % and 22 % at year-end 2013 and 2012. we continue to focus our efforts on originating higher yielding medallion loans outside the new york market . commercial loan portfolio our commercial loans represented 14 % of the net investment portfolio as of december 31 , 2014 , compared to 13 % and 12 % at december 31 , 2013 and 2012 , and were 9 % , 10 % , and 12 % on a managed basis . commercial loans increased by $ 10,981,000 or 18 % during 2014 ( increased by $ 2,298,000 or 2 % on a managed basis ) , primarily reflecting growth in the other secured commercial and high-yield mezzanine loan portfolios , partially offset by decreases in the asset-based portfolio . net commercial loans serviced by third parties were $ 118,000 , $ 255,000 , and $ 12,575,000 at december 31 , 2014 , 2013 , and 2012. the weighted average yield of the commercial loan portfolio at december 31 , 2014 was 11.91 % , an increase of 131 basis points from 10.60 % at december 31 , 2013 , which was down 99 basis points from 11.59 % at december 31 , 2012. the weighted average yield of the managed commercial loan portfolio at december 31 , 2014 was 9.20 % , an increase of 113 basis points from 8.07 % at december 31 , 2013 , which was down 6 basis points from 8.13 % at december 31 , 2012. the increases primarily represented the greater proportion of higher yielding mezzanine loans in the portfolio . we continue to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate our interest rate risk in a rising interest rate environment . at december 31 , 2014 , variable-rate loans represented 6 % of the commercial portfolio , compared to 12 % and 13 % at december 31 , 2013 and 2012 , and were 38 % , 49 % , and 56 % on a managed basis . although this strategy initially produces a lower yield , we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources . consumer loan portfolio our managed consumer loans , all of which are held in the portfolio managed by medallion bank , represented 36 % of the managed net investment portfolio as of december 31 , 2014 , compared to 31 % and 25 % at december 31 , 2013 and 2012. medallion bank originates adjustable rate consumer loans secured by recreational vehicles , boats , motorcycles , trailers and home improvements located in all 50 states . the portfolio is serviced by a third party subsidiary of a major commercial bank . 42 the weighted average gross yield of the managed consumer loan portfolio was 14.71 % at december 31 , 2014 , compared to 15.67 % and 16.81 % at december 31 , 2013 and 2012. adjustable rate loans represented 37 % of the managed consumer portfolio at december 31 , 2014 , compared to 68 % and 76 % at december 31 , 2013 and 2012. delinquency and loan loss experience we generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to payments for a period of 90 days or more . we deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances . a loan is considered to be delinquent if the borrower fails to make a payment on time ; however , during the course of discussion on delinquent status , we may agree to modify the payment terms of the loan with a borrower that can not make payments in accordance with the original loan agreement . for loan modifications , the loan will only be returned to accrual status if all past due interest and principal payments are brought fully current . for credit that is collateral based , we evaluate the anticipated net residual value we would receive upon foreclosure of such loans , if necessary . there can be no assurance , however , that the collateral securing these loans will be adequate in the event of foreclosure . for credit that is cash flow-based , we assess our collateral position , and evaluate most of these relationships as ongoing businesses , expecting to locate and install a new operator to run the business and reduce the debt . for the consumer loan portfolio , the process to repossess the collateral is started at 60 days past due . if the collateral is not located and the account reaches 120 days delinquent , the account is charged off to realized losses .
| consolidated results of operations for the years ended december 31 , 2014 and 2013 net increase in net assets resulting from operations was $ 28,692,000 or $ 1.14 per diluted common share in 2014 , up $ 2,916,000 or 11 % from $ 25,776,000 or $ 1.16 per share in 2013 , primarily reflecting higher net interest income , partially offset by higher operating expenses and lower noninterest income and net realized/unrealized gains . net investment income after income taxes was $ 15,145,000 or $ 0.60 per share in 2014 , up $ 2,956,000 or 24 % from $ 12,189,000 or $ 0.55 in 2013. investment income was $ 41,068,000 in 2014 , up $ 6,139,000 or 18 % from $ 34,929,000 a year ago , and included $ 4,160,000 from interest recoveries and bonuses on certain investments in 2014 , compared to $ 2,326,000 in 2013. also included in 2014 and 2013 were $ 15,000,000 and $ 12,000,000 in dividends from medallion bank . excluding those items , investment income increased $ 1,305,000 or 6 % , primarily reflecting portfolio growth , partially offset by the repricing of the portfolios to lower current market interest rates , and the sourcing of loans to medallion bank . the yield on the investment portfolio was 8.25 % in 2014 , up 9 % from 7.60 % in 2013. excluding the extra interest and dividends , the 2014 yield was down 2 % to 4.40 % from 4.49 % in 2013 , reflecting the general decrease in market interest rates and changes in the portfolio mix . average investments outstanding were $ 497,536,000 in 2014 , up 8 % from $ 459,374,000 a year ago , primarily reflecting portfolio growth , partially offset by loan payments received . medallion loans were $ 311,894,000 at year end , up $ 14,033,000 or 5 % from $ 297,861,000 a year ago , representing 59 % of the investment portfolio , compared to 63 % a year ago , and were yielding 4.03 % compared to 4.02
| 4,873 |
fnf also provides industry-leading mortgage technology solutions and transaction services , including mspยฎ , the leading residential mortgage servicing technology platform in the u.s. , through its majority-owned subsidiaries , black knight financial services , llc ( `` bkfs '' ) and servicelink holdings , llc ( `` servicelink '' ) . in addition , in our fnfv group , we own majority and minority equity investment stakes in a number of entities , including american blue ribbon holdings , llc ( `` abrh '' ) , j. alexander 's , llc ( `` j. alexander 's '' ) , ceridian hcm , inc. and fleetcor technologies inc. ( collectively `` ceridian '' ) and digital insurance , inc. ( `` digital insurance '' ) . as of december 31 , 2014 , we had the following reporting segments : fnf core operations title . this segment consists of the operations of our title insurance underwriters and related businesses . this segment provides core title insurance and escrow and other title related services including collection and trust activities , trustee sales guarantees , recordings and reconveyances , and home warranty insurance . this segment also includes the transaction services business acquired from lender processing services ( `` lps '' ) , now combined with our servicelink business . transaction services include other title related services used in production and management of mortgage loans , including mortgage loans that go into default . bkfs . this segment consists of the operations of bkfs . this segment provides core technology and data and analytics services through leading software systems and information solutions that facilitate and automate many of the business processes across the life cycle of a mortgage . fnf core corporate and other . this segment consists of the operations of the parent holding company , certain other unallocated corporate overhead expenses , and other smaller real estate and insurance related operations . fnfv restaurant group . this segment consists of the operations of abrh , in which we have a 55 % ownership interest . abrh is the owner and operator of the o'charley 's , ninety nine restaurants , max & erma 's , village inn and bakers square concepts . this segment also includes j. alexander 's , which includes the stoney river steakhouse and grill concepts . fnfv corporate and other . this segment primarily consists of our share in the operations of certain equity investments , including ceridian , as well as digital insurance in which we own 96 % and other smaller operations which are not title related . recent developments on february 23 , 2015 , we announced a tender offer to purchase up to $ 185 million of shares of our fnfv group common stock at a purchase price of no greater than $ 15.40 per share , nor less than $ 14.30 per share in cash . we are conducting this offer through a procedure commonly called a โ modified dutch auction. โ this procedure allows shareholders to select the price within a price range specified by us at which the shareholders are willing to sell their shares . the offer is set to expire at 12:00 midnight , new york city time , at the end of friday , march 20 , 2015 , unless we extend the offer . on february 19 , 2015 , we announced our intention to pursue a tax-free spin-off of j. alexander 's to fnfv shareholders . on january 16 , 2015 , we closed the sale of cascade timberlands , llc , which grows and sells timber and in which we owned a 70.2 % interest , for $ 85 million less a replanting allowance of $ 1 million and an indemnity holdback of $ 1 million . we received cash of $ 63 million upon the closing . on february 12 , 2015 , we announced the closing of our purchase of bpg holdings , llc ( `` bpg '' ) , a recognized leader in home warranty , home inspection services and commercial inspections for $ 46 million . on december 31 , 2014 , we closed the previously announced distribution ( the `` spin-off '' ) of all of the outstanding shares of common stock of new remy corp. ( `` new remy '' ) to fnfv shareholders . as part of the spin-off , fnfv combined all of the 35 16,342,508 shares of remy common stock that fnfv owned and a small company called fidelity national technology imaging , llc ( `` imaging '' ) into new remy . immediately following the spin-off , new remy and remy international , inc. ( `` old remy '' ) engaged in a series of stock-for-stock transactions ending with a new publicly-traded holding company , new remy holdco corp. ( `` new remy holdco '' ) . in the spin-off , fnfv shareholders ultimately received a total of approximately 16.6 million shares of new remy holdco common stock , or approximately 0.17879 shares of new remy holdco common stock for each share of fnfv that they owned . as a result of the spin-off , the operations of remy are now presented in discontinued operations for all periods presented . this spin-off is expected to be tax free to fnfv shareholders . on december 23 , 2014 , we filed a draft registration statement with the securities and exchange commission ( โ sec โ ) relating to a proposed initial public offering of black knight financial services , inc. ( `` bkfsi '' ) common stock ( the `` offering '' ) . after the offering bkfsi is expected to be the holding company of bkfs . on november 17 , 2014 , ceridian completed the exchange of its subsidiary comdata inc. ( `` comdata '' ) with fleetcor technologies inc. ( `` fleetcor '' ) in a transaction valued at approximately $ 3.5 billion . fnfv owns approximately 32 % of ceridian and through this ownership has indirectly received approximately 2.4 million shares of fleetcor common stock . story_separator_special_tag total revenues included in discontinued operations were $ 2 million for the year ending december 31 , 2014. pre-tax earnings included in discontinued operations are $ 1 million for the year ending december 31 , 2014. the results from two closed j. alexander 's locations in the second quarter of 2013 are reflected in the consolidated statements of earnings as discontinued operations for all periods presented . total net revenue included in discontinued operations was $ 3 million for the year ended december 31 , 2013. pre-tax loss included in discontinued operations was $ 3 million for the year ended december 31 , 2013. the results from a settlement services company closed in the second quarter of 2013 are reflected in the consolidated statements of earnings as discontinued operations for all periods presented . total revenues included in discontinued operations were $ 9 million and $ 36 million for the years ended december 31 , 2013 and 2012 , respectively . pre-tax earnings included in discontinued operations were $ 2 million and $ 9 million for the year ended december 31 , 2013 and 2012 , respectively . on may 1 , 2012 , we completed the sale of an 85 % interest in our remaining subsidiaries that write personal lines insurance to wt holdings , inc. for $ 120 million . accordingly , the results of this business through the date of sale ( which we refer to as our `` at-risk '' insurance business ) for all periods presented are reflected in the consolidated statements of earnings as discontinued operations . related party transactions our financial statements for the years ended december 31 , 2013 and 2012 reflect transactions with fidelity national information services ( `` fis '' ) , which was considered a related party until december 31 , 2013. see note a of the notes to consolidated financial statements . business trends and conditions fnf core operations our core revenue is closely related to the level of real estate activity which includes sales , mortgage financing and mortgage refinancing . the levels of real estate activity are primarily affected by the average price of real estate sales , the availability of funds to finance purchases and mortgage interest rates . declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues . we have found that residential real estate activity is generally dependent on the following : mortgage interest rates ; the mortgage funding supply ; and the strength of the united states economy , including employment levels . since december 2008 , the federal reserve has held the federal funds rate at 0.0 % -0.25 % , and has recently indicated that it will be `` patient '' in determining when to raise rates , although there is no assurance as to how long that will be . mortgage interest rates were at historically low levels through the beginning of 2013. during the last half of 2013 , however , interest rates rose to their highest level since 2011. through the first nine months of 2014 , mortgage interest rates have declined moderately . in early october , however , interest rates dropped below 4 % , and have remained in the range of 3.75 % and 4.00 % through the end of 2014. as of february 20 , 2015 , the mortgage banker 's association ( `` mba '' ) estimated the size of the u.s. mortgage originations market as shown in the following table for 2013 - 2016 in its `` mortgage finance forecast '' ( in trillions ) : replace_table_token_13_th as shown above , originations in 2013 were driven primarily by refinance transactions , which coincides with the historically low interest rates experienced during those years . in 2014 originations declined by $ 700 million , or 39 % , driven primarily by a 37 $ 600 million , or 33 % decline in refinance transactions . in 2015 and 2016 , the mba predicts the market will be relatively consistent with 2014 , with a slight increase in purchase transactions . because commercial real estate transactions tend to be driven more by supply and demand for commercial space and occupancy rates in a particular area rather than by macroeconomic events , we believe that our commercial real estate title insurance business is less dependent on the industry cycles discussed above than our residential real estate title business . commercial real estate transaction volume is also often linked to the availability of financing . for the past several years , including 2014 , we have experienced an increase in volume and fee per file of commercial transactions from the previous years , indicating strong commercial markets . in 2014 , we experienced the highest level of commercial transactions in our title segment in our company 's history . several pieces of legislation were enacted to address the struggling mortgage market and the current economic and financial environment . on october 24 , 2011 , the federal housing finance agency ( `` fhfa '' ) announced a series of changes to the home affordable refinance program ( `` harp '' ) that would make it easier for certain borrowers who owe more than their home is worth and who are current on their mortgage payments to refinance their mortgages at lower interest rates . the program reduces or eliminates the risk-based fees fannie mae and freddie mac charge on many loans , raises the loan-to-home value ratio requirement for refinancing , and streamlines the underwriting process . according to the federal housing authority ( `` fha '' ) , lenders began taking refinancing applications on december 1 , 2011 under the modified harp . on april 11 , 2013 , the fhfa announced that the modified harp program had been extended through december 2015. we believe the modified harp program had a positive effect on our results during 2013 and 2012 , but are uncertain to what degree the program has impacted our results in 2014 or may impact our results in the future .
| segment results of operations fnf core operations title beginning january 2 , 2014 , the title segment includes the results of the transaction services business acquired with lps . the following table presents certain financial data for the years indicated : replace_table_token_22_th total revenues in 2014 decreased $ 242 million or 4.1 % compared to 2013 . total revenues in 2013 in creased $ 308 million or 5.5 % compared to 2012 . during the year ended december 31 , 2014 , the results of title contained $ 35 million of transaction expenses related to the lps acquisition and $ 1 million for merger related litigation , which were included in other operating expenses . included within personnel costs in the year ended december 31 , 2014 were $ 20 million in severance expenses related to the lps acquisition and $ 30 million expense to accrue for bonuses under our synergy bonus program . depreciation and amortization for the year ended december 31 , 2014 included $ 88 million related to assets acquired with lps and marked to fair value in purchase accounting . the following table presents the percentages of title insurance premiums generated by our direct and agency operations : replace_table_token_23_th 50 title premiums decreased 12 % in the year ended december 31 , 2014 as compared to the 2013 period . the decrease was made up of a decrease in premiums from direct operations of $ 73 million , or 4 % and a decrease in premiums from agency operations of $ 408 million , or 17 % in the year ended december 31 , 2014. title premiums increased 8 % in the year ended december 31 , 2013 as compared to the 2012 period .
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sab 118 allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date to address ongoing guidance and tax interpretations that story_separator_special_tag financial condition and results of oper ations forward-looking statements some of the statements under in this โ management 's discussion and analysis of financial condition and results of operations โ are forward-looking statements . these forward-looking statements are based on management 's beliefs and assumptions and on information currently available to our management and involve significant elements of subjective judgment and analysis . words such as โ may , โ โ will , โ โ should , โ โ could , โ โ would , โ โ expect , โ โ plan , โ โ anticipate , โ โ believe , โ โ estimate , โ โ project , โ โ potential , โ โ seek , โ โ target , โ โ goal , โ โ intend , โ variations of such words , and similar expressions are intended to identify forward-looking statements . our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements . factors that might cause such a difference include those discussed under the caption โ special note regarding forward looking statements โ and in โ risk factors โ and elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this annual report . overview cymabay therapeutics , inc. is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need . our lead product candidate , seladelpar , is a potent and selective agonist of pparฮด , a nuclear receptor that regulates genes involved in bile acid/sterol , lipid and glucose metabolism and inflammation . we are currently developing seladelpar for the treatment of primary biliary cholangitis ( pbc ) , an autoimmune disease that causes progressive destruction of the bile ducts in the liver . we are also planning to develop seladelpar for the treatment of nonalcoholic steatohepatitis ( nash ) , a prevalent and serious chronic liver disease caused by excessive fat accumulation in the liver that results in inflammation and cellular injury that can progress to fibrosis and cirrhosis , and potentially liver failure and death . data from two phase 2 studies of seladelpar in patients with pbc have established seladelpar 's anti-cholestatic and anti-inflammatory effects . in july 2017 , we announced positive interim results from an ongoing low-dose phase 2 study of seladelpar in patients with pbc . in the first part of the study , patients with an inadequate response to ursodeoxycholic acid ( udca ) , as characterized by a persistent elevation in alkaline phosphatase ( ap ) , or who were intolerant to udca , received either 5 mg or 10 mg of seladelpar once-daily . a planned interim analysis of these two dose groups demonstrated after 12 weeks of treatment a significant ap reduction from baseline of 39 % and 45 % for the 5 mg and 10 mg groups , respectively . on seladelpar treatment , 45 % of patients in the 5 mg and 82 % of patients in the 10 mg dose groups , had ap values < 1.67 times the upper limit of normal ( uln ) . ap is a recognized biomarker of cholestasis , and reaching a level of < 1.67 uln after one year of treatment is the key component in the composite endpoint used for regulatory approval . in addition to the reduction in ap , patients in both dose groups experienced decreases in other liver markers of cholestasis including gamma glutamyl transferase and total bilirubin . seladelpar also improved metabolic and inflammatory markers with patients experiencing decreases in low-density lipoprotein-c and high sensitivity c-reactive protein . there were no serious adverse events and no safety transaminase signal was observed at either dose . instead , mean transaminase levels decreased over the course of treatment , further supporting seladelpar 's anti-inflammatory activity . consistent with prior studies , there was no signal for drug-induced pruritus . in 2017 , the study was amended to expand the number of patients in the 5 and 10 mg dose groups and to extend dosing to 52-weeks . in addition , a 2 mg dose group was added in order to identify a minimally effective dose . we expect to report data on a subset of patients in the study through 26-weeks of dosing in the first half of 2018 and a subset through 52-weeks of dosing in the second half of 2018. in the first half of 2018 , we also plan to conclude end of phase 2 and scientific advice discussions with the fda and european medicines agency ( ema ) , respectively , in order to finalize the design of our phase 3 study of seladelpar in patients with pbc which we intend to initiate in the second half of 2018. in november 2016 , the fda granted orphan drug designation to seladelpar for the treatment of pbc , and in september 2017 , the ema 's committee for orphan medicinal products ( comp ) similarly granted orphan drug 53 designation to seladelpar for the treatment of pbc . in october 2016 , seladelpar received ema priority medicines ( prime ) designation for the treatment of pbc . we believe that seladelpar could also have utility in the treatment of nash . seladelpar was found to reverse nash pathology , decrease fibrosis , inflammation , hepatic lipids and reverse insulin resistance in the foz/foz mouse which is a diabetic obese model of nash . story_separator_special_tag critical accounting policies and use of estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . we base our estimates on historical experience and on various other factors that we believe to be materially reasonable under the circumstances , the results of which form our basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources , and evaluate our estimates on an ongoing basis . actual results may materially differ from those estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 2 of our financial statements included in this annual report , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation and understanding of our financial statements . revenue recognition we recognize revenue when all four of the following criteria have been met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the fee is fixed or determinable and ( iv ) collectability is reasonably assured . revenue under collaboration and license arrangements is recognized based on the performance requirements of the contract . determinations of whether persuasive evidence of an arrangement exists and whether delivery has occurred or services have been rendered are based on management 's judgments regarding the fixed nature of the fees charged for deliverables and the collectability of those fees . we generate revenue from collaboration and license agreements for the development and commercialization of products . collaboration and license agreements may include non-refundable upfront license fees , contingent consideration payments based on the achievement of defined collaboration objectives and royalties on sales of commercialized products . our performance obligations under the collaboration and license agreement may include the license or transfer of intellectual property rights , obligations to provide research and development services , delivery of related materials and obligations to participate on certain development and or commercialization committees with the collaborators . if we determine that multiple deliverables in an arrangement exist , the consideration is allocated to one or more units of accounting based upon the relative-selling-price of each element in an arrangement . the relative-selling-price used for each deliverable will be based on vendor-specific objective evidence , if available , third-party 55 evidence if vendor-specific objective evidence is not available , or estimated selling price if neither vendor-specific or third-p arty evidence is available . we identify deliverables at the inception of the arrangement . each deliverable is accounted for as a separate unit of accounting if both of the following criteria are met : ( 1 ) the delivered item or items have value to the custom er on a standalone basis and ( 2 ) for an arrangement that includes a general right of return relative to the delivered items , delivery or performance of the undelivered items is considered probable and substantially in our control . non-refundable upfront pa yments received and allocated to separate units of accounting are recognized as revenue when the four basic revenue recognition criteria , mentioned above , are met for each unit of accounting . we recognize payments that are contingent upon achievement of a substantive milestone in their entirety in the period in which the milestone is achieved . milestones are defined as events that can only be achieved based on our performance and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement . events that are contingent only on the passage of time or only on counterparty performance are not considered milestones subject to this guidance . further , the amounts received must relate solely to prior performance , be reasonable relative to all of the deliverables and payment terms within the agreement and commensurate with our performance to achieve the milestone after commencement of the agreement . any contingent payment that becomes payable upon achievement of events that are not considered substantive milestones are allocated to the units of accounting previously identified at the inception of an arrangement when the contingent payment is received and revenue is recognized based on the revenue recognition criteria for each unit of accounting . research and development expenses and related prepayments and accruals as part of the process of preparing our financial statements , we are required to estimate certain research and development expenses . this process involves reviewing contracts , reviewing the terms of our license agreements , communicating with our vendors and applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service either when we have prepaid or when we have not yet been invoiced or otherwise notified of actual cost . although certain of our vendors require us to prepay in advance of services rendered , the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of prepayments to amortize or expenses to be accrued as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . examples of estimated amortized or accrued research and development expenses include fees to : contract research organizations and other service providers in connection with clinical studies ; contract manufacturers in connection with the production of clinical trial materials ; and vendors in connection with preclinical development activities .
| results of operations general to date , we have not generated any income from operations . as of december 31 , 2017 , we have an accumulated deficit of $ 450.5 million , primarily as a result of expenditures for research and development and general and administrative expenses . while we will generate revenue from our license arrangement with kowa and may in the future generate revenue from a variety of other sources , including additional milestone payments from kowa and license fees and milestone payments in connection with other strategic partnerships , arhalofenate and seladelpar are at a mid-level stage of development and our other product candidates are at the early stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever 57 generate sufficient revenue to achieve and sustain profitability . our results of operations for 2017 and 2016 are presented below : replace_table_token_2_th collaboration revenue collaboration revenue for the year ended december 31 , 2017 and 2016 was $ 10.0 million and none , respectively . collaboration revenue was recognized in 2017 upon the fulfillment of certain obligations and deliverables under our collaboration agreement with kowa . specifically , collaboration revenue of $ 4.8 million was recognized in the first quarter of 2017 primarily upon transfer of the license and related technical knowhow . additional collaboration revenue of $ 5.2 million was recognized in the fourth quarter of 2017 primarily due to the achievement of a collaboration milestone upon kowa 's initiation of a study to evaluate the pharmacokinetics of arhalofenate in subjects with renal impairment and upon transfer of certain arhalofenate product to kowa . research & development expenses conducting research and development is central to our business model .
| 4,875 |
76 during fiscal 2020 , the company 's effective tax rate was lower than the federal statutory rate primarily due to an increased valuation allowance on tax credits that are not expected to be able to be utilized before they expire . deferred tax assets ( liabilities ) are comprised of the following : โ replace_table_token_31_th โ as of september 30 , 2020 , the company had state tax net operating loss carryforwards of $ 12,836 , tax credits of $ 4,246 and foreign net operating loss carryforwards of $ 2,353 . these tax attributes begin to expire in 2026 , 2025 , and 2021 , respectively . the company has recorded a valuation allowance against the foreign net operating loss carryforwards of $ 600 and federal and state tax credits of $ 2,876 because management does not believe that it is more likely than not that the amounts will be realized . undistributed earnings of certain of the company 's foreign subsidiaries amounted to approximately $ 76,479 at september 30 , 2020. the company considers those earnings reinvested indefinitely and , accordingly , aside from the one-time transition tax associated with the act , no additional provision for u.s. income taxes has been provided . determination of the amount of unrecognized deferred u.s. income tax liability is not practicable because of the complexities associated with its hypothetical calculation . as of september 30 , 2020 , the company is open to examination in the u.s. for the 2016 through 2020 tax years and in various foreign jurisdictions from 2017 through 2020. the company is also open to examination in various states in the u.s. , none of which were individually material . as of september 30 , 2019 and 2020 , the company had no uncertain tax positions . โ โ note 8. debt u.s. revolving credit facility on october 19 , 2020 , the company and jpmorgan chase bank , n.a . entered into a credit agreement ( the โ credit agreement โ ) and related pledge and security agreement with certain other lenders ( the โ security agreement โ , and , together with the credit agreement , the โ credit documents โ ) . the credit documents , which have a three-year term expiring in october 2023 , replaced the third amended and restated loan and security agreement and related agreements , dated as of july 14 , 2011 , as amended , previously entered into between the company and wells fargo capital finance , llc with certain other lenders ( the โ previous facility โ ) . as of september 30 , 2020 , the previous facility had a zero 77 balance . the credit agreement provides for revolving loans in the maximum amount of $ 100.0 million , subject to a borrowing base and certain reserves . the credit agreement permits an increase in the maximum revolving loan amount from $ 100.0 million up to an aggregate amount of $ 170.0 million at the request of the borrower if certain conditions are met . borrowings under the credit agreement bear interest , at the company 's option , at either jpmorgan 's โ prime rate โ , plus 1.25 % - 1.75 % per annum , or the adjusted eurodollar rate used by the lender , plus 2.25 % - 2.75 % per annum ( with a libor floor of 0.5 % ) . the company must pay monthly , in arrears , a commitment fee of 0.425 % per annum on the unused amount of the u.s. revolving credit facility total commitment . for letters of credit , the company must pay a fronting fee of 0.125 % per annum as well as customary fees for issuance , amendments and processing . the company is subject to certain covenants as to fixed charge coverage ratios and other customary covenants , including covenants restricting the incurrence of indebtedness , the granting of liens and the sale of assets . the covenant pertaining to fixed charge coverage ratios is only effective in the event the amount of excess availability under the revolver is less than the greater of ( i ) 12.5 % of the maximum credit revolving loan amount and ( ii ) $ 12.5 million . the company is permitted to pay dividends and repurchase common stock if certain financial metrics are met . the company may pay quarterly cash dividends up to $ 3.5 million per fiscal quarter so long as the company is not in default story_separator_special_tag in our 2019 form 10-k , filed with the united states securities and exchange commission on november 14 , 2019 . โ year ended september 30 , 2020 compared to year ended september 30 , 2019 ( $ in thousands , except per share figures ) replace_table_token_13_th โ 49 the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . by market replace_table_token_14_th โ net revenues . net revenues were $ 380.5 million in fiscal 2020 , a decrease of 22.4 % from $ 490.2 million in fiscal 2019 , due to a decrease in volume , partially offset by an increase in average selling price per pound . volume was 14.7 million pounds in fiscal 2020 , a decrease of 26.8 % from 20.0 million pounds in fiscal 2019 , with decreases in each of the major markets . the decrease in volume is primarily attributable to a significant slowdown in demand caused by the covid-19 pandemic in addition to the impact caused by the grounding of the boeing 737 max . story_separator_special_tag however , despite these cost reduction measures , fixed costs did not decline in line with production volumes , which required directly expensing a portion of these fixed costs in the amount of approximately $ 11.4 million in fiscal 2020. gross profit . as a result of the above factors , gross margin was $ 44.6 million for fiscal 2020 , a decrease of $ 20.9 million from $ 65.5 million in fiscal 2019. gross margin as a percentage of net revenue decreased to 11.7 % in fiscal 2020 as compared to 13.4 % in fiscal 2019. this percentage decrease was primarily due to the above-mentioned $ 11.4 million direct charge to cost of goods sold and other period costs spread over lower volumes . selling , general and administrative expense . selling , general and administrative expense was $ 40.3 million for fiscal 2020 , a decrease of $ 3.9 million , or 8.8 % , from $ 44.2 million in fiscal 2019. this decrease is primarily attributable to lower management incentive expenses of $ 1.9 million along with cost saving measures taken in response to covid-19 , including salary reductions , temporary layoffs , and workforce reductions , partially offset by severance expenses of $ 0.2 million . selling , general and administrative expense as a percentage of net revenues increased to 10.6 % for fiscal 2020 compared to 9.0 % for the same period of fiscal 2019 due to lower revenue . research and technical expense . research and technical expense was $ 3.7 million , or 1.0 % of revenue , for fiscal 2020 , compared to $ 3.6 million , or 0.7 % of net revenue , in fiscal 2019 . 51 operating income/ ( loss ) . as a result of the above factors , operating income in fiscal 2020 was $ 0.6 million , compared to operating income of $ 17.7 million in fiscal 2019. nonoperating retirement benefit expense . nonoperating retirement benefit expense was $ 6.8 million in fiscal 2020 , compared to $ 3.4 million in the same period of fiscal 2019. the increase in expense was primarily driven by lower discount rates in the september 30 , 2019 valuation which resulted in higher retirement liabilities and ultimately higher expense for fiscal 2020 . โ income taxes . income tax benefit was $ 1.0 million during fiscal 2020 , a difference of $ 4.6 million from an expense of $ 3.6 million in the same period of fiscal 2019 , driven by a decrease in income before taxes of $ 20.9 million as well as a valuation allowance recorded during fiscal 2020 of $ 1.0 million on tax credits that are not expected to be realized prior to expiration . net income/ ( loss ) . as a result of the above factors , net loss for fiscal 2020 was $ ( 6.5 ) million , a decrease of $ 16.2 million from net income $ 9.7 million in fiscal 2019. liquidity and capital resources comparative cash flow analysis ( 2019 to 2020 ) the company had cash and cash equivalents of $ 47.2 million at september 30 , 2020 , inclusive of $ 11.0 million that was held by foreign subsidiaries in various currencies , compared to $ 31.0 million at september 30 , 2019. additionally , there were zero borrowings against the line of credit outstanding as of september 30 , 2020. during fiscal 2020 , the company 's primary sources of cash were cash on-hand and the revolving credit facility which was drawn against during the first six months of fiscal 2020 but repaid in full by september 30 , 2020. net cash provided by operating activities was $ 36.2 million in fiscal 2020 compared to net cash provided by operating activities of $ 43.0 million in fiscal 2019 , a decrease of $ 6.8 million . the decrease was primarily driven by a net loss of $ 6.5 million during fiscal 2020 compared to net income of $ 9.7 million during fiscal 2019 , partially offset by changes in working capital . during fiscal 2019 , changes in accounts receivable and accounts payable resulted in a net cash outflow of $ 5.2 million . during fiscal 2020 , changes in accounts receivable and accounts payable resulted in a net cash inflow of $ 5.5 million . net cash used in investing activities was $ 9.4 million in fiscal 2020 , which was lower than cash used in investing activities during the same period of fiscal 2019 of $ 10.0 million , driven by lower additions to property , plant and equipment . net cash used in financing activities was $ 11.1 million in fiscal 2020 , which was slightly lower than cash used in financing activities during fiscal 2019 of $ 11.3 million , as a result of , among other factors , higher proceeds received from the exercise of stock options during fiscal 2020 as compared to fiscal 2019. dividends paid of $ 11.1 million in fiscal 2020 , were comparable to the prior year . additionally , during fiscal 2020 , the company borrowed $ 30.0 million from the revolving credit facility , which was fully repaid by the end of the fiscal year . future sources of liquidity the company 's sources of liquidity for fiscal 2021 are expected to consist primarily of cash generated from operations ( including reduction of inventory ) , cash on-hand and , if needed , borrowings under our new u.s. revolving credit facility .
| overview management 's discussion and analysis of financial condition and results of operations discusses the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an ongoing basis , management evaluates its estimates and judgments , including those related to bad debts , inventories , income taxes , asset impairments , retirement benefits , matters related to product liability and other 54 lawsuits and environmental matters . the process of determining significant estimates is fact specific and takes into account factors such as historical experience , current and expected economic conditions , product mix , pension asset mix and , in some cases , actuarial techniques and various other factors that are believed to be reasonable under the circumstances . the results of this process form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . the company routinely reevaluates these significant factors and makes adjustments where facts and circumstances dictate . actual results may differ from these estimates under different assumptions or conditions . the company 's accounting policies are more fully described in note 2 in the notes to the consolidated financial statements included in item 8 of this annual report on form 10-k. the company has identified certain critical accounting policies , which are described below . the following listing of policies is not intended to be a comprehensive list of all of the company 's accounting policies .
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the revolving line of credit facility has a maturity date of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with โ selected consolidated financial and other data โ and our audited consolidated financial statements and related notes included elsewhere in this annual report . this discussion contains forward-looking statements based upon current plans , expectations and beliefs involving risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under โ risk factors โ and in other parts of this annual report . overview sprout social is a powerful , centralized platform that provides the critical business layer to unlock the massive commercial value of social media . currently , more than 23,000 customers across 100 countries rely on our platform to reach larger audiences , create stronger relationships with their customers and make better business decisions . introduced in 2011 , our cloud software brings together social messaging , data and workflows in a unified system of record , intelligence and action . operating across major social media networks , including twitter , facebook , instagram , pinterest , linkedin , google and youtube , we provide organizations with a centralized platform to effectively manage their social media efforts across stakeholders and business functions . virtually every aspect of business has been impacted by social media , from marketing , sales and public relations to customer service , product and strategy , creating a need for an entirely new category of software . we offer our customers a centralized , secure and powerful platform to manage this broad , complex channel effectively across their organization . since our founding , we have achieved several key milestones : 2010 โ founded company , launched v1 beta and lightbank became an investor ; 2011 โ launched our sprout platform , surpassed 1,000 customers and nea became an investor ; 2013 โ reached 100 employees ; 2015 โ surpassed 15,000 customers ; 2016 โ reached 250 employees and goldman sachs became an investor ; 2017 โ completed first business acquisition and awarded glassdoor 's โ top places to work โ and โ highest rated ceo โ ; 2018 โ surpassed 20,000 customers , opened emea office , reached 500 employees , launched first add-on module ( listening ) , future fund became an investor and awarded glassdoor 's โ top places to work โ and โ highest rated ceo โ ; and 2019 โ completed our ipo resulting in $ 134.3 million of net proceeds , surpassed $ 100 million in total arr and awarded glassdoor 's โ highest rated ceo โ . we generate revenue primarily from subscriptions to our social media management platform under a software-as-a-service model . our subscriptions can range from monthly to one-year or multi-year arrangements and are generally non-cancellable during the contractual subscription term . subscription revenue is recognized ratably over the contract terms beginning on the date the product is made available to customers , which typically begins on the commencement date of each contract . we also generate revenue from professional services related to our platform provided to certain customers , which is 60 recognized at the time these services are provided to the customer . this revenue has historically represented less than 1 % of our revenue and is expected to be immaterial for the foreseeable future . our tiered subscription-based model allows our customers to choose among three core plans to meet their needs . each plan is licensed on a per user per month basis at prices dependent on the level of features offered . additional product modules , which offer increased functionality depending on a customer 's needs , can be purchased by the customer on a per user per month basis . we generated revenue of $ 102.7 million and $ 78.8 million during the years ended december 31 , 2019 and 2018 , respectively , representing growth of 30 % . excluding the impact of the 2017 acquisition of simply measured , inc. , or simply measured , our organic growth rate in 2019 was 44 % . this organic growth rate excludes the impact of revenue generated from legacy simply measured products as well as revenue from the transition of legacy customers to our platform up to an amount equal to such customers ' prior spend on legacy simply measured products . this organic growth rate includes all incremental revenue generated above such prior spend from the sale of additional or higher-priced products and users and profiles to legacy customers of simply measured . in 2019 , software subscriptions contributed 99 % of our revenue . we generated net losses of $ 46.8 million and $ 20.9 million during the years ended december 31 , 2019 and 2018 , respectively , which included stock-based compensation expense of $ 25.3 million during the year ended december 31 , 2019 , primarily as a result of the vesting of rsus in connection with our ipo in december 2019. we expect to continue investing in the growth of our business and , as a result , generate net losses for the foreseeable future . key factors affecting our performance acquiring new customers we are focused on continuing to organically grow our customer base by increasing demand for our platform and penetrating our addressable market . we have invested , and expect to continue to invest , heavily in expanding our sales force and marketing efforts to acquire new customers . currently , we have more than 23,000 customers . we calculate the lifetime value of our customers and associated customer acquisition costs for a particular year by comparing ( i ) gross profit from net new organic arr for the year divided by one minus the estimated subscription renewal rate to ( ii ) total sales and marketing expense incurred in the preceding year . story_separator_special_tag as of december 31 , 2019 2018 ( in thousands ) organic arr $ 115,185 $ 82,841 number of customers contributing more than $ 10,000 in arr we view the number of customers that contribute more than $ 10,000 in arr as a measure of our ability to scale with our customers and attract larger organizations . we believe this represents potential for future growth , including expanding within our current customer base . over time , larger customers have constituted a greater share of our revenue . we define customers contributing more than $ 10,000 in arr as those on a paid subscription plan that had more than $ 10,000 in arr as of a period end . replace_table_token_6_th components of our results of operations revenue subscription we generate revenue primarily from subscriptions to our social media management platform under a software-as-a-service model . our subscriptions can range from monthly to one-year or multi-year arrangements and are generally non-cancellable during the contractual subscription term . subscription revenue is recognized ratably over the contract terms beginning on the date our product is made available to customers , which typically begins on the commencement date of each contract . our 63 customers do not have the right to take possession of the online software solution . we also generate a small portion of our subscription revenue from third-party resellers . professional services we sell professional services consisting of , but not limited to , implementation fees , specialized training , one-time reporting services and recurring periodic reporting services . professional services revenue is recognized at the time these services are provided to the customer . this revenue has historically represented less than 1 % of our revenue and is expected to be immaterial for the foreseeable future . cost of revenue subscription cost of revenue primarily consists of expenses related to hosting our platform and providing support to our customers . these expenses are comprised of fees paid to data providers , hosted data center costs and personnel costs directly associated with cloud infrastructure , customer success and customer support , including salaries , benefits , bonuses and allocated overhead . these costs also include depreciation expense and amortization expense related to acquired developed technologies . overhead associated with facilities and information technology is allocated to cost of revenue and operating expenses based on headcount . although we expect our cost of revenue to increase in absolute dollars as our business and revenue grows , we expect our cost of revenue to decrease as a percentage of our revenue over time . professional services and other cost of professional services primarily consists of expenses related to our professional services organization and are comprised of personnel costs , including salaries , benefits , bonuses and allocated overhead . gross profit and gross margin gross margin is calculated as gross profit as a percentage of total revenue . our gross margin may fluctuate from period to period based on revenue earned , the timing and amount of investments made to expand our hosting capacity , our customer support and professional services teams and in hiring additional personnel , and the impact of acquisitions . we expect our gross profit and gross margin to increase as our business grows over time . operating expenses research and development research and development expenses primarily consist of personnel costs , including salaries , benefits and allocated overhead . research and development expenses also include depreciation expense and other expenses associated with product development . we plan to increase the dollar amount of our investment in research and development for the foreseeable future as we focus on developing new features and enhancements to our plan offerings . however , we expect our research and development expenses to decrease as a percentage of our revenue over time . sales and marketing sales and marketing expenses primarily consist of personnel costs directly associated with our sales and marketing department , online advertising expenses , as well as allocated overhead , including depreciation expense and amortization related to acquired developed technologies . sales force commissions and bonuses are considered incremental costs of obtaining a contract with a customer . 64 sales commissions are earned and recorded at contract commencement for both new customer contracts and expansion of contracts with existing customers . sales commissions are deferred and amortized on a straight-line basis over a period of benefit of three years . we plan to increase the dollar amount of our investment in sales and marketing for the foreseeable future , primarily for increased headcount for our sales department . general and administrative general and administrative expenses primarily consist of personnel expenses associated with our finance , legal , human resources and other administrative employees . our general and administrative expenses also include professional fees for external legal , accounting and other consulting services , depreciation and amortization expense , as well as allocated overhead . we expect to increase the size of our general and administrative functions to support the growth of our business . we also recognized certain non-recurring professional fees and other expenses as part of our transition to becoming a public company and expect to continue to incur additional expenses as a result of operating as a public company , including costs to comply with rules and regulations applicable to companies listed on a u.s. securities exchange , costs related to compliance and reporting obligations pursuant to the rules and regulations of the sec , investor relations and professional services . we expect the dollar amount of our general and administrative expenses to increase for the foreseeable future . however , we expect our general and administrative expenses to decrease as a percentage of revenue over time . interest income ( expense ) , net interest income ( expense ) , net consists primarily of interest expenses on outstanding line of credit balances and is offset by interest income earned on our cash balances . other income other income consists of sublease rental income from our seattle , washington and san francisco , california offices .
| results of operations the following tables set forth information comparing the components of our results of operations in dollars and as a percentage of total revenue for the periods presented . replace_table_token_7_th _ ( 1 ) includes stock-based compensation expense as follows : replace_table_token_8_th 66 replace_table_token_9_th year ended december 31 , 2019 compared to year ended december 31 , 2018 revenue replace_table_token_10_th the increase in subscription revenue was primarily driven by revenue from new customers and expansion within existing customers . the total number of customers grew from 21,135 as of december 31 , 2018 to 23,693 as of december 31 , 2019 . the increase in new customers was primarily 67 driven by our growing sales force capacity to meet market demand . expansion within existing customers was driven by our ability to increase the number of users , social profiles and products purchased by customers . this is in part attributable to the expansion of use-cases across various functions within our existing customers ' organizations . cost of revenue and gross margin replace_table_token_11_th the increase in cost of subscription revenue for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was primarily due to the following : change ( in thousands ) data provider fees $ 2,989 personnel costs 2,913 stock-based compensation expense 1,117 other 117 subscription cost of revenue $ 7,136 fees paid to our data providers increased due to revenue growth . personnel costs increased primarily as a result of a 63 % increase in headcount as we continue to grow our customer support and customer success teams to support our customer growth .
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as of november 30 , 2016 , we had accumulated losses of $ 28,298,613 ( november 30 , 2015 - $ 26,374,503 ) . our ability to generate significant revenue and conduct business operations is dependent , in large part , upon our raising additional equity financing . as described in greater detail below , the corporation 's major financial endeavor over the years has been its effort to raise additional capital . ii . assets total assets as of november 30 , 2016 , includes cash of $ 192,826 , accounts receivable of $ 32,534 , prepaid expenses and other receivables of $ 50,037 , inventory of $ 7,323 , deferred financing costs ( current and non-current ) for $ 72,643 and plant and equipment for $ 50,496 net of depreciation . total assets as of november 30 , 2015 includes cash of $ 1,851,021 , accounts receivable of $ 39,676 , prepaid expenses and other receivables of $ 27,283 , inventory of $ 44,319 , deferred financing costs ( current and non-current ) for $ 88,970 and plant and equipment for $ 97,011 net of depreciation . total assets decreased from $ 2,148,280 on november 30 , 2015 to $ 405,859 on november 30 , 2016. this decrease is primarily the result of expenses incurred in normal course of business without any additional raise of funds . iii . revenues revenue from operations during the year ended november 30 , 2016 was $ 154,015 as compared to $ 151,005 during the year ended november 30 , 2015. iv . net loss the company 's expenses are reflected in the statements of operation under the category of operating expenses . the significant components of expense that have contributed to the total operating expense are discussed as follows : ( a ) general and administration expense general and administration expense represents professional , consulting , office and general , stock based compensation and other miscellaneous costs incurred during the years covered by this report . general and administration expense for the year ended november 30 , 2016 was $ 1,723,310 , as compared with $ 2,306,940 for the year ended november 30 , 2015. general and administration expense decreased by $ 583,630 in the current year , as compared to the prior year . the primary reasons for the change in general and administrative costs is as follows : the company expensed stock based compensation expense ( included in general and administrative expenses ) for issue of options and modification of warrants for $ 639,143 during the year ended november 30 , 2015. in 2016 , the company expensed stock based compensation expense ( included in general and administrative expenses ) for issue of options and modification of warrants for $ 77,936. stock based compensation expense does not require the use of cash ( non-cash expenses ) , associated with the issuance of options and modification of warrants . 11 v. quarterly results the net loss and comprehensive loss ( unaudited ) of the corporation for the quarter ended november 30 , 2016 as well as the seven quarterly periods completed immediately prior thereto are set out below : for the three for the for the for the for the three for the for the for the months three three three months three three three ended months months months ended months months months november30 , ended ended ended november30 ended ended ended 2016 august may 31 , february , 2015 august may 31 , february ( $ ) 31 , 2016 2016 28 , 2016 ( $ ) 31 , 2015 2015 28 , 2015 ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) story_separator_special_tag company agreed to grant 25,000 stock options for every 5,000 rounds sold to a maximum of an additional 175,000 options . either party may terminate the consulting agreement by giving 30 days ' written notice . subsequent to the year this agreement was terminated ( refer to note 18 ) effective september 1 , 2016 , the company executed an agreement with a non-related consultant to pay compensation of $ 12,500 per month . the consultant is to assist with sales initiatives , licensing , dot testing , distributorship set-up and forecast . the agreement expires december 31 , 2016 , after which the same may continue at company discretion on a month to month basis . b ) the company has commitments for leasing office premises in oakville , ontario , canada to april 30 , 2018 at a monthly rent of $ 4,800 ( cad $ 6,399 ) . 15 exclusive supply agreement the company entered a development , supply and manufacturing agreement with the bip manufacturer on july 25 , 2012. this agreement provides the company to order and purchase only from the bip manufacturer certain 40mm assemblies and components for use by the company to produce less-lethal and training projectiles as described in the agreement . the agreement is for a term of five years with an automatic extension for an additional year if neither party has given written notice of termination prior to the end of the five-year period . the company and a division of abrams airborne manufacturing inc. ( aami ) , namely milkor usa ( musa ) , agreed to partner for a joint cross-selling / marketing initiative . this arrangement allows both companies to leverage existing and future sales channels by offering a comprehensive , full-package of milkor usa 's 40mm multi-shot grenade launchers in conjunction with sdi 's 40mm less-lethal ammunition product-line to end-users globally . story_separator_special_tag the effective date and transition requirements for the amendments in this update is for annual reporting period beginning after december 15 , 2017. the company is evaluating the effect that asu 2016-08 will have on its financial statements and related disclosures . in march 2016 , the fasb issued asu 2016-09 , compensationยstock compensation ( topic 718 ) : improvements to employee share-based payment accounting ( asu 2016-09 ) . the fasb issued the amendment to simplify several aspects of the accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , and classification on the statement of cash flows . some of the areas for simplification apply only to nonpublic entities . asu 2016-09 is effective for the company for annual periods beginning after december 15 , 2016 , with early adoption permitted . the adoption of asu 2016-09 is not expected to have a material impact on the financial statements of the company . in april 2016 , the fasb issued asu 2016-10 , revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing ( asu 2016-10 ) . the fasb issued the amendment to clarify the following two aspects of topic 606 : identifying performance obligations and the licensing implementation guidance , while retaining the related principles for those areas . the effective date and transition requirements for the amendments in this update is for annual reporting periods beginning after december 15 , 2017. the company is evaluating the effect that asu 2016-10 will have on its financial statements and related disclosures . in may 2016 , the fasb issued asu 2016-12 , revenue from contracts with customers ( topic 606 ) : narrow-scope improvements and practical expedients ( asu 2016-12 ) . the fasb issued the amendment to improve topic 606 by reducing the potential for diversity in practice at initial application and reducing the cost and complexity of applying topic 606 both at transition and on an ongoing basis . the effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of asu 2014-09. the company is evaluating the effect that asu 2016-12 will have on its financial statements and related disclosures . in june 2016 , the fasb issued asu 2016-13 , financial instruments-credit losses ( topic 326 ) : measurement of credit losses on financial instruments ( asu 2016-13 ) . the fasb issued the amendment to require a financial asset ( or a group of financial assets ) measured at amortized cost basis to be presented at the net amount expected to be collected . the updates will be effective for the company for fiscal years beginning after december 15 , 2019. the company is evaluating the effect that asu 2016-13 will have on its financial statements and related disclosures . in august 2016 , the fasb issued asu 2016-15 , `` statement of cash flows ( topic 230 ) classification of certain cash receipts and cash payments '' ( asu 2016-15. the new guidance clarifies eight cash flow classification issues where current gaap was either unclear or has no specific guidance . the new standard is effective for annual reporting periods beginning after december 15 , 2017 and interim periods within those fiscal years . all entities may elect to early adopt asu 2016-15 in any interim period . if an entity early adopts it must adopt all eight of the amendments in the same period and if early adopted in an interim period any adjustments should be reflected as of the beginning of the year . the amendments in asu 2016-15 will be applied using the modified retrospective transition method for each period presented . the company is evaluating the impact the adoption of this guidance will have on the classification of certain items on its consolidated statements of cash flows . in january 2017 , the fasb issued asu no . 2017-01 business combinations ( topic 805 ) - clarifying the definition of a business . this update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions ( or disposals ) of assets or businesses . the amendments provide a screen to determine when a set of assets and activities is not a business . if the screen is not met , the amendments require further consideration of inputs , substantive processes and outputs to determine whether the transaction is an acquisition of a business . the new update is effective for annual periods beginning after december 15 , 2017. the amendments in asu 2017-01 will be implemented on a prospective basis . 17 risk factors senior and subordinate secured convertible debentures on december 7 , 2016 , the company entered a securities purchase agreement with several accredited investors to sell $ 1,500,000 of 10 % senior secured convertible notes , convertible into shares of the company 's common stock , in a private placement pursuant to regulation d under the securities act of 1933. concurrent with the sale of the secured notes , cad $ 1,364,000 of the company 's outstanding unsecured debentures , were exchanged for an equal principal amount of the subordinate secured debentures and an additional cad $ 37,000 of subordinated secured debentures were issued in satisfaction of a portion of the accrued interest on the unsecured debentures . both senior and subordinated secured debentures mature on june 6 , 2019 unless converted or extended and are fully secured against the undertaking , property and assets of the company including its patents . inability to repay the secured debt on maturity , if the debt is neither converted nor extended , will result in the financial condition of the company to be materially adversely affected . additional financing the corporation does not have adequate revenue to fund all of its operational needs and may require additional financing to continue its operations if it is unable to generate substantial revenue growth .
| revenues nil nil nil nil nil nil nil nil net loss ( 580,156 ) ( 491,928 ) ( 472,224 ) ( 379,802 ) ( 1,108,472 ) ( 403,621 ) ( 473,151 ) ( 385,657 ) loss per weighted average number of shares outstanding ยbasic and fully diluted ( 0.01 ) ( 0.01 ) ( 0.01 ) ( 0.01 ) ( 0.02 ) ( 0.01 ) ( 0.01 ) ( 0.01 ) quarterly activities and financial performance are impacted by the company 's ability to raise capital for its activities . 12 vi . liquidity and capital resources the following table summarizes the company 's cash flows and cash in hand : replace_table_token_5_th as of november 30 , 2016 , the company had working capital deficit of $ ( 1,080,962 ) as compared to working capital surplus of $ 1,841,916 as of november 30 , 2015. working capital decreased primarily as a result of expenses incurred in the normal course of business without raising any funds and re-class of convertible debentures from non-current liabilities in 2015 to current liabilities in 2016. also , refer to the subsequent events note wherein the terms of the convertible debentures were modified . net cash used in operations for the year ended november 30 , 2016 , was $ 1,660,139 as compared to $ 1,738,824 used for the year ended november 30 , 2015. the major components of change relate to : 1 ) items not affecting cash : stock based compensation of $ 77,936 in 2016 , as compared to $ 639,143 in 2015. november 30 , 2016 on june 9 , 2016 , the board of directors extended the expiry dates of 400,000 warrants issued in 2012 to a director at exercise price of $ 0.20 , from original expiry date of august 9 , 2016 to august 7 , 2020. the change in the terms of the warrants was determined to be a modification and not a cancellation and issuance of a new warrant .
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as a result of many factors , such as those referenced or set forth under โ cautionary note regarding forward-looking statements โ and โ risk factors โ in item 1a of this annual report on form 10โk , our actual results may differ materially from those anticipated in these forwardโlooking statements . overview we are a clinical-stage biopharmaceutical company on a mission to develop treatments for serious cns diseases through the discovery , development and commercialization of innovative medicines . our lead asset , cy6463 ( previously known as iw-6463 ) , is a pioneering , cns-penetrant , soluble guanylate cyclase ( sgc ) stimulator that is currently in clinical development for mitochondrial encephalomyopathy , lactic acidosis and stroke-like episodes ( melas ) and alzheimer 's disease with vascular pathology ( adv ) . sgc stimulators are small molecules that act synergistically with nitric oxide ( no ) as positive allosteric modulators on sgc to boost production of cyclic guanosine monophosphate , or cgmp . cgmp is a key second messenger that , when produced by sgc , regulates diverse and critical biological functions in the cns including neuronal function , neuroinflammation , cellular bioenergetics , and blood flow and vascular dynamics . we operate in one reportable business segmentโhuman therapeutics . separation from ironwood pharmaceuticals on april 1 , 2019 , ironwood pharmaceuticals inc. , or ironwood , completed the separation of its sgc business , and certain other assets and liabilities , into us as a separate , independent publicly traded company by way of a pro-rata distribution of our common stock through a dividend distribution of one share of our common stock , with no par value per share , for every 10 shares of ironwood common stock held by ironwood stockholders as of the close of business on march 19 , 2019 , the record date for the distribution , which we refer to herein as the separation . as a result of the separation , we became an independent public company and commenced trading under the symbol โ cycn โ on the nasdaq global select market on april 2 , 2019. in connection with the separation , on march 30 , 2019 , we entered into certain agreements with ironwood to provide a framework for our relationship with ironwood following the separation , including , among others , a separation agreement , a tax matters agreement , and an employee matters agreement . in addition , in connection with the separation , on april 1 , 2019 , we entered into a development agreement , an ironwood transition services agreement , a cyclerion transition services agreement and an intellectual property license agreement with ironwood . all services provided to and from the company under the transition services agreements were completed as of march 31 , 2020 and the agreements were terminated . ironwood and the company have agreed that the development agreement will not be renewed beyond its initial term which ends on march 31 , 2021. on april 2 , 2019 , we issued 11,817,165 shares of our common stock , in the 2019 equity private placement , to accredited investors for gross proceeds of $ 175 million ( net proceeds of approximately $ 165 million ) . our historical consolidated and combined financial statements for the periods prior to the separation have been derived from ironwood 's combined financial statements and accounting records and are presented in conformity with united states generally accepted accounting principles , or u.s. gaap . 51 our historical financial statements may not be indicative of our future performance and do not necessarily reflect what our results of operations , financial condition and cash flows would have been had we operated as a separate , publicly traded company for the periods presented prior to the separation . the consolidated and combined financial statements prior to the separation included herein do not reflect any changes that occurred in our financing or operations as a result of the separation from ironwood . financial overview research and development expense . research and development expenses are incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of the following costs : compensation , benefits and other employee-related expenses , research and development related facilities , third-party contracts relating to nonclinical study and clinical trial activities . all research and development expenses are charged to operations as incurred . cns programs . the core of our portfolio is cy6463 , an orally administered cns-penetrant sgc stimulator that is being developed as a symptomatic and potentially disease-modifying therapy for serious cns diseases . nitric oxide-sgc-cgmp is a fundamental cns signaling network , but it has not yet been leveraged for its full therapeutic potential . cy6463 enhances the brain 's natural ability to produce cgmp , an important second messenger in the cns , by stimulating sgc , a key node in the no-sgc-cgmp pathway . this pathway is critical to basic cns functions , and deficient no-sgc-cgmp signaling is believed to play an important role in the pathogenesis of neurodegenerative diseases . agents that stimulate sgc to produce cgmp may compensate for deficient no signaling . in january 2020 , we announced positive phase 1 study results that provided the foundation for continued development of cy6463 . the phase 1 healthy participant study results indicate that cy6463 was well tolerated . pharmacokinetic ( pk ) data , obtained from both blood and cerebral spinal fluid ( csf ) , support once-daily dosing with or without food and demonstrated cy6463 penetration of the blood-brain-barrier with csf concentrations expected to be pharmacologically active . in october 2020 , we announced positive topline results from our cy6463 phase 1 translational pharmacology study in healthy elderly participants . treatment with cy6463 for 15 days in this 24-subject study confirmed and extended results seen in the earlier first-in-human phase 1 study : once-daily oral treatment demonstrated blood-brain-barrier penetration with expected cns exposure and target engagement . story_separator_special_tag we anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the data from the studies of each product candidate , the competitive landscape and ongoing assessments of such product candidate 's commercial potential . general and administrative expense . general and administrative expense consists primarily of compensation , benefits and other employee-related expenses for personnel in our administrative , finance , legal , information technology , business development , and human resource functions . other costs include the legal costs of pursuing patent protection of our intellectual property , general and administrative related facility costs , insurance costs and professional fees for accounting and legal services . certain costs associated with our separation from ironwood are included in these expenses . we record all general and administrative expenses as incurred . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon our consolidated and combined financial statements prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements , and the amounts of expenses during the reported periods . significant estimates and assumptions in our consolidated and combined financial statements include those related to allocation of expenses , assets and liabilities from ironwood 's historical financial statements for the periods prior to the separation , impairment of long-lived assets ; income taxes , including the valuation allowance for deferred tax assets ; research and development expenses ; contingencies and share-based compensation . we base our estimates on our historical experience and on various other assumptions that are believed to be reasonable , the results of which form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ materially from our estimates under different assumptions or conditions . changes in estimates are reflected in reported results in the period in which they become known . we believe that our application of accounting policies requires significant judgments and estimates on the part of management and is the most critical to aid in fully understanding and evaluating our reported financial results . our significant accounting policies are more fully described in note 2 , summary of significant accounting policies , of the consolidated and combined financial statements elsewhere in this annual report on form 10-k. all research and development expenses are expensed as incurred . we defer and capitalize nonrefundable advance payments we make for research and development activities until the related goods are received or the related services are performed . see note 2 , summary of significant accounting policies , of the consolidated and combined financial statements appearing elsewhere in this annual report on form 10-k. story_separator_special_tag style= '' margin-top:12pt ; margin-bottom:0pt ; text-indent:0 % ; font-weight : bold ; font-size:10pt ; font-family : times new roman ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > liquidity and capital resources prior to the separation , the primary source of liquidity for our business was cash flow allocated to cyclerion from ironwood . post separation , transfers of cash to and from ironwood related to the transition service agreements , development agreement and provisions of the separation agreement , have been reflected in the consolidated and combined statement of cash flows . after the separation on april 1 , 2019 , we raised approximately $ 165 million net of direct financing expenses with the closing of the 2019 equity private placement on april 2 , 2019. on july 29 , 2020 , we closed on a private placement of 6,062,500 shares of our common stock , pursuant to a common stock purchase agreement , for total gross proceeds of approximately $ 24.3 million . there were no material fees or commissions related to the transaction . on september 3 , 2020 , the company entered into the sales agreement with jefferies with respect to an at-the-market offering , or atm offering , under the shelf registration statement . under the atm offering , the company may offer and sell , from time to time at its sole discretion , shares of its common stock , having an aggregate offering price of up to $ 50.0 million through jefferies as its sales agent . the company will pay to jefferies cash commissions of 3.0 percent of the gross proceeds of sales of common stock under the sales agreement . as of december 31 , 2020 , no shares have been issued or sold under the atm offering . our ability to continue to fund our operations and meet capital needs will depend on our ability to generate cash from operations and access to capital markets and other sources of capital , as further described below . we anticipate that our principal uses of cash in the future will be primarily to fund our operations , working capital needs , capital expenditures and other general corporate purposes . on december 31 , 2020 , we had approximately $ 54.4 million of unrestricted cash and cash equivalents . our cash equivalents include amounts held in u.s. government money market funds . we invest cash in excess of immediate requirements in accordance with our investment policy , which requires all investments held by us to be at least โ aaa โ rated or equivalent , with a remaining final maturity when purchased of less than twelve months , so as to primarily achieve liquidity and capital preservation .
| results of operations for the period prior to the separation , our consolidated and combined financial statements include an allocation of expenses related to certain ironwood corporate functions , including senior management , legal , human resources , finance , information technology and quality assurance . these expenses were allocated to cyclerion based on direct usage or benefit where identifiable , with the remainder allocated pro-rata based on project related costs , headcount or other measures . we considered the allocation methodologies used to be a reasonable and appropriate reflection of the historical ironwood expenses attributable to us . the expenses reflected in the consolidated and 54 combined financial statements may not be indicative of expenses that will be incurred by us in the future . after the separation , we began performing these corporate functions using internal resources or purchased services , certain of which were provided by ironwood under the t ransition s ervices a greement . the following discussion summarizes the key factors we believe are necessary for an understanding of our consolidated financial statements . replace_table_token_2_th revenue from related party . the decrease in revenue from related party for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 is due to a decrease in services provided in the current year as compared to the prior year , partially offset by the company providing services to ironwood for the full year 2020 compared to only three quarters post-separation in 2019. ironwood and the company have agreed that the development agreement will not be renewed beyond its initial term which ends on march 31 , 2021. research and development expenses .
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overview innovative solutions and support , inc. ( the ยcompany , ย ยis & s , ยweย or ยusย ) was incorporated in pennsylvania on february 12 , 1988. the company operates in one business segment as a systems integrator that designs , develops , manufactures , sells , and services , air data equipment , engine display systems , standby equipment , primary flight guidance , autothrottles and cockpit display systems for retrofit applications and original equipment manufacturers ( ยoemsย ) . the company supplies integrated flight management systems ( ยfmsย ) , flat panel display systems ( ยfpdsย ) , fpds with autothrottle , air data equipment , integrated standby units ( ยisuย ) , isus with autothrottle and advanced global positioning system ( ยgpsย ) receivers that enable reduced carbon footprint navigation . the company has continued to position itself as a system integrator , which capability provides the company with the potential to generate more substantive orders over a broader product base . the strategy , as both a manufacturer and integrator , is designed to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation , commercial air transport , united states department of defense ( ยdodย ) /governmental , and foreign military markets . this approach , combined with the company 's industry experience , is designed to enable is & s to develop high quality products and systems , to reduce product time to market and to achieve cost advantages over products offered by its competitors . the company sells to both the oem and the retrofit markets . customers include various oems , commercial air transport carriers and corporate/general aviation companies , dod and its commercial contractors , aircraft operators , aircraft modification centers and foreign militaries . occasionally , is & s sells its products directly to dod ; however , the company sells its products primarily to commercial customers for end use in dod programs . sales to defense contractors are generally made on commercial terms , although some of the termination and other provisions of government contracts are applicable to these contracts . cost of sales related to product sales is comprised of material , components and third party avionics purchased from suppliers , direct labor , and overhead costs . many of the components are standard , although certain parts are manufactured to meet is & s specifications . the overhead portion of cost of sales is comprised primarily of salaries and benefits , building occupancy costs , supplies , and outside service costs related to production , purchasing , material control , and quality control . cost of sales includes warranty costs . cost of sales related to engineering development contracts ( ยedcย ) sales is comprised of engineering labor , consulting services , and other costs associated with specific design and development projects . these costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within cost of sales with the reimbursement accounted for as a sale in accordance with the percentage-of-completion method of accounting . company funded research and development ( ยr & dย ) expenditures relate to internally-funded efforts towards the development of new products and the improvement of existing products . these costs are expensed as incurred and reported as r & d expenses . the company intends to continue investing in the development of new products that complement current product offerings and to expense associated r & d costs as they are incurred . selling , general and administrative expenses consist of sales , marketing , business development , professional services , salaries and benefits for executive and administrative personnel , facility costs , recruiting , legal , accounting , bad debt expense and other general corporate expenses . is & s sells its products to agencies of the united states and foreign governments , aircraft operators , aircraft modification centers , and original equipment manufacturers . the company 's c ustomers have been and may continue to be affected by the uncertain economic conditions that currently exist both in the united states and abroad . such conditions may cause customers to curtail or delay their spending on both new and existing aircraft . factors that can impact general economic conditions and the level of spending by customers include , but are not limited to , general levels of consumer spending , increases in fuel and energy costs , conditions in the real estate and mortgage markets , labor and healthcare costs , access to credit , consumer confidence , and other macroeconomic factors that affect spending behavior . furthermore , spending by government agencies may be reduced in the future if tax revenues decline , including as a result of currently proposed tax reform legislation in the united states . if customers curtail or delay their spending or are forced to declare bankruptcy or liquidate their operations because of adverse economic conditions , the company 's revenues and results of operations would be affected adversely . however , the company believes that , in an uncertain economic environment , customers that may have otherwise elected to purchase newly manufactured aircraft may be interested instead in retrofitting existing aircraft as a cost-effective alternative , thereby creating a market opportunity for is & s . 22 story_separator_special_tag 2016. the decrease in edc sales was primarily the result of less revenue being recognized from edc projects awarded in prior years as they have been completed and they have not been replaced by new edc programs . cost of sales . cost of sales was $ 8.7 million or 51.6 % of net sales , for fiscal 2017 compared to $ 11.5 million , or 41.1 % of net sales , in fiscal 2016. the decrease in cost of sales was primarily the result of decreased product sales volume . story_separator_special_tag investing activities cash used in investing activities was $ 2.5 million for fiscal 2018 and consisted primarily of the purchase of our hawker beechcraft b200gt aircraft for $ 2.4 million . this aircraft will serve as a test bed for the company 's new products and also as a sales/marketing tool for demonstrating its products to its aviation customers . cash used in investing activities was $ 0.2 million for fiscal 2017 , and consisted of spending for production equipment and laboratory test equipment . the company plans to continue investing in capital equipment to support engineering development efforts and operations . 26 financing activities cash used by financing activities was none for fiscal years 2018 and 2017. summary future capital requirements depend upon numerous factors , including market acceptance of the company 's products , the timing and rate of expansion of business , acquisitions , joint ventures , and other factors . is & s has experienced increases in expenditures since its inception and anticipates that expenditures , excluding the purchase of the hawker beechcraft b200gt , will remain relatively constant with the levels experienced in fiscal 2018 and fiscal 2017. the company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months . further , is & s may need to develop and introduce new or enhanced products , to respond to competitive pressures , to invest in or acquire businesses or technologies , or to respond to unanticipated requirements or developments . if insufficient funds are available , the company may not be able to introduce new products or to compete effectively . contractual obligations the company 's contractual obligations as of september 30 , 2018 mature as follows : replace_table_token_8_th ( 1 ) a ยpurchase obligationย is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms , including fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . these amounts are primarily comprised of open purchase order commitments entered in the ordinary course of business with vendors and subcontractors pertaining to fulfillment of the company 's current order backlog . off-balance sheet arrangements the company has no off-balance sheet arrangements . inflation is & s does not believe inflation had a material effect on its financial position or results of operations during the past three years ; however , it can not predict future effects of inflation . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( ยgaapย ) requires management to make estimates and assumptions that affect 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 reporting period . the company 's most critical accounting policies are revenue recognition , income taxes , inventory valuation , share based compensation and warranty reserves . 27 revenue recognition the company enters into sales arrangements with customers that , in general , provide for the company to design , develop , manufacture and deliver large flat-panel display systems , flight information computers and advanced monitoring systems that measure and display critical flight information , including data relative to aircraft separation , airspeed , altitude , and engine and fuel data measurements . the company 's sales arrangements may include multiple deliverables as defined in fasb asc topic 605-25 ย multiple-element arrangements ย ( ยasc topic 605-25ย ) , which typically include design and engineering services and the production and delivery of the flat panel display and related components . the company includes any design and engineering development services elements in edc sales and any functional upgrade and product elements in product sales on the accompanying consolidated statements of operations . to the extent that an arrangement contains software elements that are essential to the functionality of tangible products sold in the arrangement , the company recognizes revenue for the deliverables in accordance with the guidance included in fasb accounting standards update 2009-14 , ย revenue arrangements that include software elements ย ( ยasu 2009-14ย ) ; and fasb accounting standards update 2009-13 , ย multiple-deliverable revenue arrangements-a consensus of the fasb emerging issues task force ย ( ยasu 2009-13ย ) ; and fasb asc topic 605 , ย revenue recognition ย ( ยasc topic 605ย ) . to the extent that an arrangement contains software components , which include functional upgrades that the company sells on a standalone basis and which the company has deemed outside the scope of the exception defined by asu 2009-14 , the company recognizes software revenue in accordance with asc topic 985 , ย software ย ( ยasc topic 985ย ) . multiple element arrangements the company identifies all goods and or services that are to be delivered separately under a sales arrangement and allocates sales to each deliverable ( if more than one ) based on that deliverable 's fair value . the company then considers the appropriate recognition method for each deliverable . the company 's multiple element arrangements can include defined design and development activities , and or functional upgrades , and product sales . the company had no multiple element arrangements for all periods presented . the company utilizes the selling price hierarchy that has been established by asu 2009-13 , which requires that the selling price for each deliverable be based on vendor-specific objective evidence if available , third-party evidence if vendor-specific objective evidence is not available , or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available . to the extent that an arrangement includes a deliverable for which estimated selling price is used , the company determines the best estimate of selling price by applying the same pricing policies and methodologies that it would use to determine the price to sell the deliverable on a standalone basis .
| results of operations the following table sets forth statements of operations data expressed as a percentage of total net sales for the fiscal years indicated : replace_table_token_5_th amounts may not add due to rounding . 23 fiscal year ended september 30 , 2018 compared to fiscal year ended september 30 , 2017 net sales . net sales for fiscal 2018 decreased $ 2.9 million , or 17.5 % , to $ 13.9 million from $ 16.8 million for fiscal 2017. for fiscal 2018 , product sales decreased $ 2.7 million and edc sales decreased $ 0.3 million , in each case , compared to fiscal 2017. this decrease primarily reflects decreased shipments of displays for retrofit programs to military transport customers reflecting reduced demand compared to fiscal 2017. the decrease in edc sales was primarily the result of less revenue being recognized from edc projects awarded in prior years as they have been completed and they have not been replaced by new edc programs . cost of sales . cost of sales was $ 7.3 million or 52.8 % of net sales , for fiscal 2018 compared to $ 8.7 million , or 51.6 % of net sales , in fiscal 2017. the decrease in cost of sales was primarily the result of decreased product sales volume . the company 's overall gross margin in fiscal 2018 was 47.2 % compared to 48.4 % in fiscal 2017. the fiscal 2018 gross margin decrease reflects lower product gross margin primarily the result of reduced coverage of fixed costs due to reduced product sales volume . the overall gross margin decrease was also impacted by an increase in gross margin on edc programs , from 43 % in fiscal 2017 to 52 % in fiscal 2018. research and development ( ย r & dย ) .
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overview we design , develop , produce , support and operate a technologically-advanced portfolio of products . we supply unmanned aircraft systems , or uas , and services primarily to organizations within the u.s. department of defense , or dod . we also supply charging systems and services for electric vehicles and power cycling and test systems to commercial , consumer and government customers . we derive the majority of our revenue from these business areas and we believe that the markets for these solutions have significant growth potential . additionally , we believe that some of the innovative potential products in our research and development pipeline will emerge as new growth platforms in the future , creating additional market opportunities . the success we have achieved with our current products stems from our investment in research and development and our ability to invent and deliver advanced solutions , utilizing our proprietary technologies , to help our government , commercial and consumer customers operate more effectively and efficiently . our core technological capabilities , developed through 40 years of innovation , include lightweight aerostructures , power electronics , electric propulsion systems , efficient electric energy generation and storage systems , high-density energy packaging , miniaturization , controls integration and systems engineering optimization . 49 our uas business segment focuses primarily on the design , development , production , support and operation of innovative uas that provide situational awareness and other mission effects to increase the security and effectiveness of our customers ' operations . our efficient energy systems , or ees , business segment focuses primarily on the design , development , production , support and operation of innovative efficient electric energy systems that address the growing demand for electric transportation solutions . revenue we generate our revenue primarily from the sale , support and operation of our small uas , electric vehicle charging systems and power cycling and test systems solutions . support for our small uas customers includes training , spare parts , product repair , product replacement , and the customer-contracted operation of our small uas by our personnel . we refer to these support activities collectively as our services operation . we derive most of our small uas revenue from fixed-price and cost-plus-fee contracts with the u.s. government , and most of our electric vehicle charging systems and power cycling and test systems revenue from sales and service to commercial customers . cost of sales cost of sales consists of direct costs and allocated indirect costs . direct costs include labor , materials , travel , subcontracts and other costs directly related to the execution of a specific contract . indirect costs include overhead expenses , fringe benefits and other costs that are not directly charged to a specific contract . gross margin gross margin is equal to revenue minus cost of sales . we use gross margin as a financial metric to help us understand trends in our direct costs and allocated indirect costs when compared to the revenue we generate . research and development expense research and development , or r & d , is an integral part of our business model . we conduct significant internally funded research and development and anticipate that research and development expense will continue to increase in absolute dollars for the foreseeable future . our research and development activities focus specifically on creating capabilities that support our existing product portfolio as well as new solutions . these activities are funded both externally by customers and internally . selling , general and administrative our selling , general and administrative expenses , or sg & a , include salaries and other expenses related to selling , marketing and proposal activities , and other administrative costs . sg & a is an important financial metric that we analyze to help us evaluate the contribution of our selling , marketing and proposal activities to revenue generation . other income and expenses other income and expenses includes interest income and interest expense . income tax expense our effective tax rates are substantially lower than the statutory rates primarily due to research and development tax credits . 50 critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . when we prepare these consolidated financial statements , we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . some of our accounting policies require that we make subjective judgments , including estimates that involve matters that are inherently uncertain . our most critical estimates include those related to revenue recognition , inventories and reserves for excess and obsolescence , self-insured liabilities , accounting for stock-based awards , and income taxes . we base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting estimates affect our more significant judgments and estimates used in preparing our consolidated financial statements . see note 1 of the notes to consolidated financial statements for our organization and significant accounting policies . there have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements . revenue recognition significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period . story_separator_special_tag inventories and reserve for excess and obsolescence our policy for valuation of inventory , including the determination of obsolete or excess inventory , requires us to perform a detailed assessment of inventory at each balance sheet date , which includes a review of , among other factors , an estimate of future demand for products within specific time horizons , valuation of existing inventory , as well as product lifecycle and product development plans . inventory reserves are also provided to cover risks arising from slow-moving items . we write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based on assumptions about future demand and market conditions . we may be required to record additional inventory write-downs if actual market conditions are less favorable than those projected by our management . 52 self-insured liability we are self-insured for employee medical claims , subject to individual and aggregate stop-loss policies . we estimate a liability for claims filed and incurred but not reported based upon recent claims experience and an analysis of the average period of time between the occurrence of a claim and the time it is reported to and paid by us . we perform an annual evaluation of this policy and have determined that for all prior years during which this policy has been in effect there have been cost advantages to this policy , as compared to obtaining commercially available employee medical insurance . however , actual results may differ materially from those estimated and could have a material impact on our consolidated financial statements . impairment of long-lived assets we review the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . the estimated future cash flows are based upon , among other things , assumptions about expected future operating performance , and may differ from actual cash flows . if the sum of the projected undiscounted cash flows ( excluding interest ) is less than the carrying value of the assets , the assets will be written down to the estimated fair value in the period in which the determination is made . long-term incentive awards we grant long-term incentive awards and we establish a target payout at the beginning of each performance period . the actual payout at the end of the performance period is calculated based upon our achievement of revenue and operating profit growth targets . payouts are made in cash and restricted stock units . upon vesting of the restricted stock units , we have the discretion to settle the restricted stock units in cash or stock . the cash component of the award is accounted for as a liability . the equity component is accounted for as a stock-based liability as the restricted stock units may be settled in cash or stock . at each reporting period , we reassess the probability of achieving the performance targets . the estimation of whether the performance targets will be achieved requires judgment , and to the extent actual results or updated estimates differ from our current estimates , the cumulative effect on current and prior periods of those changes will be recorded in the period estimates are revised . income taxes we are required to estimate our income taxes , which includes estimating our current income taxes as well as measuring the temporary differences resulting from different treatment of items for tax and accounting purposes . we currently have significant deferred assets , which are subject to periodic recoverability assessments . realizing our deferred tax assets principally depends on our achieving projected future taxable income . we may change our judgments regarding future profitability due to future market conditions and other factors , which may result in recording a valuation allowance against those deferred tax assets . fiscal periods our fiscal year ends on april 30. due to our fixed year end date of april 30 , our first and fourth quarters each consist of approximately 13 weeks . the second and third quarters each consist of 13 weeks . our first three quarters end on a saturday . 53 story_separator_special_tag gross margin for the fiscal year ended april 30 , 2011 was $ 117.2 million , as compared to $ 96.8 million for the fiscal year ended april 30 , 2010 , representing an increase of $ 20.4 million , or 21 % . as a percentage of revenue , gross margin increased from 39 % to 40 % . uas gross margin increased $ 14.4 million , or 17 % , to $ 99.5 million for the fiscal year ended april 30 , 2011 , primarily due to increased sales volume . as a percentage of revenue , gross margin for uas increased from 38 % to 40 % , primarily due to a higher amount of fixed-price contract revenue compared to cost-reimbursable contract revenue . ees gross margin increased $ 6.0 million , or 51 % , to $ 17.6 million for the fiscal year ended april 30 , 2011 , primarily due to increased sales volume . as a percentage of revenue , ees gross margin decreased from 46 % to 41 % , primarily due to higher manufacturing and engineering support overhead costs . selling , general and administrative . sg & a expense for the fiscal year ended april 30 , 2011 was $ 47.4 million , or 16 % of revenue , compared to sg & a expense of $ 42.4 million , or 17 % of revenue , for the fiscal year ended april 30 , 2010. sg & a expense increased primarily due to higher bid and proposal costs , selling and marketing expenses and administrative costs . research and development .
| results of operations the following table sets forth certain historical consolidated income statement data expressed in dollars ( in thousands ) and as a percentage of revenue for the periods indicated . certain amounts may not sum due to rounding . replace_table_token_6_th the following table sets forth our revenue and gross margin generated by each operating segment for the periods indicated : replace_table_token_7_th fiscal year ended april 30 , 2012 compared to fiscal year ended april 30 , 2011 revenue . revenue for the fiscal year ended april 30 , 2012 was $ 325.0 million , as compared to $ 292.5 million for the fiscal year ended april 30 , 2011 , representing an increase of $ 32.5 million , or 11 % . uas revenue increased $ 24.0 million , or 10 % , to $ 273.7 million for the fiscal year ended april 30 , 2012 , primarily due to an increase in product deliveries of $ 33.9 million , partially offset by decreased customer-funded r & d work of $ 5.9 million and lower service revenue of $ 4.1 million . the increase in product deliveries was primarily due to increased deliveries of our digital puma ae systems . the decrease in service revenue was primarily due to a decrease in ddl retrofits . the decrease in customer-funded r & d was primarily due to decreased activity on the global observer program . ees revenue increased $ 8.5 million , or 20 % , to $ 51.3 million for the fiscal year ended april 30 , 2012 , primarily due to increased product deliveries of our electric vehicle charging systems and power cycling and test systems . 54 cost of sales . cost of sales for the fiscal year ended april 30 , 2012 was $ 195.7 million , as compared to $ 175.4 million for the fiscal year ended april 30 , 2011 , representing an increase of $ 20.3 million , or 12 % . as a percentage of revenue , cost of sales remained at 60 % .
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this section also includes a discussion of forecasted sources and uses of cash and rating agency actions . ยท `` financial condition - risk management '' provides an explanation of the registrants ' risk management programs relating to market and credit risk . ยท `` 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 except ppl energy supply ) the strategy for the regulated businesses of wpd , ppl electric , lke , lg & e and ku is to provide efficient , reliable and safe operations and strong customer service , maintain constructive regulatory relationships and achieve timely recovery of costs . these regulated businesses also focus on providing competitively priced energy to customers and achieving stable , long-term growth in earnings and rate base , or rav , as applicable . both rate base and rav are expected to grow for the foreseeable future as a result of significant capital expenditure programs to maintain existing assets and improving system reliability and , for lke , lg & e and ku , to comply with federal and state environmental regulations related to electricity generation facilities . future rav for wpd will also be affected by riio-ed1 , effective april 1 , 2015 , as the recovery period for assets placed in service after that date will be extended from 20 to 45 years . 38 recovery of capital project costs is attained through various rate-making mechanisms , including periodic base rate case proceedings , ferc formula rate mechanisms , and other regulatory agency-approved recovery mechanisms . in kentucky , the kpsc has adopted a series of regulatory mechanisms ( ecr , dsm , glt , fuel adjustment clause , gas supply clause and recovery on certain construction work-in-progress ) that reduce regulatory lag and provide for timely recovery of prudently incurred costs . in pennsylvania , the recently approved dsic mechanism will help ppl electric reduce regulatory lag and provide for timely recovery of distribution reliability-related capital investment . in addition , pennsylvania has several other cost recovery mechanisms in place to reduce regulatory lag and provide for timely recovery of prudently incurred costs . see `` financial and operational developments - distribution system improvement charge '' below for additional information on the implementation of the dsic mechanism in 2013 and `` item 1. business - segment information - u.k. regulated segment - revenues and regulation '' for changes to the regulatory framework in the u.k. applicable to wpd beginning in 2015 . ( ppl and ppl energy supply ) the strategy for ppl energy supply is to optimize the value from its competitive generation asset and marketing portfolios while mitigating near-term volatility in both cash flows and earnings . ppl energy supply endeavors to do this by matching energy supply with load , or customer demand , under contracts of varying durations with creditworthy counterparties to capture profits while effectively managing exposure to energy and fuel price volatility , counterparty credit risk and operational risk . ppl energy supply is focused on maintaining profitability during the current and projected period of low energy and capacity prices . see `` financial and operational developments - economic and market conditions '' below for additional information . ( ppl ) as a result of the acquisition of wpd midlands in april 2011 , ppl increased the proportion of its overall earnings that is subject to foreign currency translation risk . the u.k. subsidiaries also have currency exposure to the u.s. dollar to the extent they have 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 . ( all registrants ) to manage financing costs and access to credit markets , and to fund capital expenditures , a key objective of the registrants is to maintain targeted credit profiles and 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 related to , as applicable , changes in energy and fuel prices , interest rates , counterparty credit quality and the operating performance of generating units . to manage these risks , ppl generally uses contracts such as forwards , options and swaps . financial and operational developments earnings ( ppl ) ppl 's earnings by reportable segment were as follows . replace_table_token_17_th ( a ) 2013 and 2012 include a full year of wpd midlands ' results , while 2011 , the year wpd midlands was acquired , includes eight months of its results and was also impacted by certain acquisition related costs . see notes 7 and 10 to the financial statements for additional information on the acquisition and related financing . ( b ) 2013 includes a charge of $ 697 million ( $ 413 million after-tax ) for the termination of the operating lease of the colstrip coal-fired electricity generating facility and an impairment charge of $ 65 million ( $ 39 million after-tax ) for the corette coal-fired plant and related emission allowances . see notes 8 and 18 to the financial statements for additional information . ( c ) primarily represents financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments , which are presented to reconcile segment information to ppl 's consolidated results . for 2012 and 2011 , there were no significant amounts in this category . ( d ) see `` equity units '' below for information on the equity units ' impact on the calculation of 2013 diluted eps . story_separator_special_tag see `` changes in non-gaap financial measures - unregulated gross energy margins in statement of income analysis '' below for additional information on energy margins for 2011 through 2013. as has been ppl energy supply 's practice in periods of changing business conditions , ppl energy supply continues to review its future business and operational plans , including capital and operation and maintenance expenditures , its hedging strategies and potential plant modifications to burn lower cost fuels . ( all registrants except ppl electric ) the businesses of ppl energy supply , lke , lg & e and ku are subject to extensive federal , state and local environmental laws , rules and regulations , including those pertaining to coal combustion residuals , ghg , effluent limitation guidelines and mats . see `` financial condition - environmental matters '' below for additional information on these requirements . these and other stringent environmental requirements , combined with low energy margins for competitive generation , have led several energy companies , including ppl , ppl energy supply , lke , lg & e and ku , to announce plans to either temporarily or permanently close , or place in long-term reserve status , certain of their coal-fired generating plants . ( ppl and ppl energy supply ) in the third quarter of 2012 , ppl energy supply announced its intention , beginning in april 2015 , to place its corette plant in long-term reserve status , suspending the plant 's operation due to expected market conditions and the costs to comply with mats . during the fourth quarter of 2013 , ppl energy supply determined its corette plant was impaired and ppl energy supply recorded a charge of $ 65 million , or $ 39 million after-tax . see `` application of critical accounting policies - asset impairment ( excluding investments ) '' for additional information . 41 in september 2013 , ppl montana executed a definitive agreement to sell to northwestern 633 mw of hydroelectric generation facilities located in montana for $ 900 million in cash , subject to certain adjustments . the sale is subject to closing conditions , including receipt of regulatory approvals by the ferc and the montana public service commission and certain third-party consents . the sale is not expected to close before the second half of 2014. to facilitate the sale , on december 20 , 2013 , ppl montana terminated its operating lease arrangement related to partial interests in units 1 , 2 and 3 of the colstrip coal-fired electricity generating facility and acquired those interests , collectively , for $ 271 million . as a result , ppl energy supply recorded a charge of $ 697 million , or $ 413 million after-tax , for the lease termination . see note 8 to the financial statements for additional information . ppl energy supply believes its remaining competitive coal-fired generation assets in pennsylvania are well positioned to meet the current environmental requirements described above based on prior and planned investments . the current depressed levels of energy and capacity prices in pjm , as well as management 's forward view of these prices using its fundamental pricing models recently updated in conjunction with the annual business planning process , continue to put pressure on the recoverability of ppl energy supply 's investment in its pennsylvania coal-fired generation assets . in the fourth quarter of 2013 , management tested the brunner island and montour plants for impairment and concluded neither plant was impaired as of december 31 , 2013. the recoverability test is very sensitive to forward energy and capacity price assumptions , as well as forecasted operation and maintenance and capital spending . therefore , a further decline in forecasted long-term energy or capacity prices or changes in environmental laws requiring additional capital or operation and maintenance expenditures , could negatively impact ppl energy supply 's operations of these facilities and potentially result in future impairment charges for some or all of the carrying value of these plants . the carrying value of the pennsylvania coal-fired generation assets tested was $ 2.7 billion as of december 31 , 2013 ( $ 1.4 billion for brunner island and $ 1.3 billion for montour ) . ( ppl , lke , lg & e and ku ) as a result of the environmental requirements discussed above , lke projects $ 2.2 billion ( $ 1.1 billion each at lg & e and ku ) in capital investment over the next five years and the anticipated retirement by 2015 of five coal-fired units ( three at lg & e and two at ku ) with a combined summer capacity rating of 724 mw ( 563 mw at lg & e and 161 mw at ku ) . ku retired the 71 mw unit at the tyrone plant in february 2013 and a 12 mw unit at the haefling plant in december 2013. the retirement of these coal-fired units is not expected to have a material impact on the financial condition or results of operations of ppl , lke , lg & e and ku . see note 8 to the financial statements for additional information regarding the anticipated retirement of these units as well as plans to build two combined-cycle natural gas facilities in kentucky . the kpsc has adopted a series of regulatory mechanisms ( ecr , dsm , glt , fuel adjustment clause , gas supply clause and recovery on certain construction work-in-progress ) that provide for timely recovery of prudently incurred costs ( including costs associated with environmental requirements ) . the kentucky utility businesses are impacted by changes in customer usage levels , which can be driven by a number of factors including weather conditions and economic factors that impact the load utilized by customers . ( all registrants ) the registrants can not predict the impact that future economic and market conditions and regulatory requirements may have on their financial condition or results of operations .
| results of operations ( ppl ) the discussion for ppl provides a review of results by reportable segment . the `` margins '' discussion provides explanations of non-gaap financial measures ( kentucky gross margins , pennsylvania gross delivery margins and unregulated gross energy margins ) and a reconciliation of non-gaap financial measures to `` operating income . '' the `` statement of income analysis '' discussion addresses significant changes in principal line items on ppl 's statements of income , comparing year-to-year changes . `` segment earnings , margins and statement of income analysis '' is presented separately for ppl . 44 on april 1 , 2011 , ppl completed its acquisition of wpd midlands . wpd midlands ' results are included within `` segment results - u.k. regulated segment . '' as ppl is consolidating wpd midlands on a one-month lag , consistent with its accounting policy on consolidation of foreign subsidiaries , a full year of wpd midlands ' results of operations are included in ppl 's results for 2013 and 2012 , and eight months of wpd midlands ' results of operations are included in ppl 's results for 2011. when discussing ppl 's results of operations for 2013 compared with 2012 , the results of wpd midlands are comparable and have not been isolated for purposes of comparability . for 2012 compared with 2011 , wpd midlands results have been isolated for purposes of comparability . see note 10 to the financial statements for additional information regarding the acquisition . tables analyzing changes in amounts between periods within `` segment earnings '' and `` statement of income analysis '' are presented on a constant u.k. foreign currency 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 u.k. foreign currency exchange rate basis are calculated by translating current year results at the prior year weighted-average u.k. foreign currency exchange rate .
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recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted net cash flows expected to be generated by the asset . if such assets are story_separator_special_tag you should read the following discussion and analysis together with `` item 6. selected financial data '' and our financial statements and related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption `` item 1a . risk factors . '' overview we are a clinical-stage biopharmaceutical company focused on discovering and developing engineered monoclonal antibodies to treat severe and life-threatening diseases with unmet medical needs . we use our proprietary xmab technology platform to create next-generation antibody product candidates designed to treat autoimmune and allergic diseases , cancer and other conditions . in contrast to conventional approaches to antibody design , which focus on the portion of antibodies that interact with target antigens , we focus on the portion of the antibody that interacts with multiple segments of the immune system . this portion , referred to as the fc domain , is constant and interchangeable among antibodies . our engineered fc domains , the xmab technology , can be readily substituted for natural fc domains . we believe our fc domains enhance antibody performance by , for example , increasing immune inhibitory activity , improving cytotoxicity or extending circulating half-life , while maintaining 99.5 % identity in structure and sequence to natural antibodies . by improving over natural antibody function , we believe that our xmab-engineered antibodies offer innovative approaches to treating disease and potential clinical advantages over other treatments . our business strategy is based on the plug-and-play nature of the xmab technology platform to modify features of natural antibodies and create numerous differentiated antibody product candidates . we have internally generated a pipeline that has allowed us to selectively partner certain development programs while maintaining full ownership of other programs . we also have a number of technology licenses under which we have licensed the xmab technology platform to pharmaceutical and biotechnology companies for use in a limited number of programs , providing multiple revenue streams that require no further resources from xencor . there are currently five antibody product candidates in clinical trials that have been engineered with xmab technology , including four candidates being advanced by licensees and development partners . at present , our xmab technology platform is protected by 22 issued u.s. patents and 56 u.s. patent applications , in addition to foreign counterparts . we were founded in 1997 based on protein engineering technology developed by our co-founders bassil dahiyat , ph.d. and stephen mayo , ph.d. at the california institute of technology . we began our first therapeutic monoclonal antibody engineering and discovery programs in 2002 and entered into our first xmab technology license in 2004. we have no products approved for commercial sale and have not generated any revenues from product sales , and we continue to incur significant research and development expenses and other expenses related to our ongoing operations . to date , we have funded our operations primarily through the sale of our convertible preferred stock , sale of convertible promissory notes and through payments generated from our product development partnership and licensing arrangements . we have incurred losses in each year since our inception . our net losses were $ 60.3 million , $ 8.6 million and $ 11.2 million for years ended december 31 , 2013 , 2012 and 2011 , respectively . as of december 31 , 2013 , we had an accumulated deficit of $ 227.6 million . substantially all of our operating losses resulted from expenses incurred in connection with our product candidate development programs , our research activities and general and administrative costs associated with our operations , as well , as a $ 48.6 million loss in 2013 related to the settlement of notes . 68 we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . in the near term , we anticipate that our expenses will increase as we : continue clinical development of our xmab5871 program pursuant to our collaboration and option agreement with amgen , inc. ( amgen ) , which will require additional expenditures for clinical trials and toxicology studies to support the clinical trials , including the manufacture of additional supply of the product candidate ; continue development of our xmab7195 program , which will require expenditures for clinical trials and toxicology studies to support the clinical trials , including the manufacture of additional supply of the product candidate ; continue research expenditures in developing and advancing our pre-clinical programs and investing in improving our antibody discovery platform and technologies ; and provide general and administrative support for our operations . key company milestones xmab5871 . in december 2010 , we entered into a collaboration and option agreement with amgen for an option for the acquisition by amgen of exclusive rights to our xmab5871 product candidate and received an $ 11.0 million upfront payment . for more information on our agreement with amgen , see the section entitled `` product development partnerships , other commercial agreements and technology licenses '' beginning on page 15 of this annual report . in january 2013 , we initiated a phase 1b/2a clinical trial for xmab5871 and received a $ 2.0 million milestone payment . story_separator_special_tag subsequent to approval of the financing by our board of directors , the requisite stockholders and holders of the notes also approved this series of transactions . under the terms of the note conversion agreement , the total outstanding principal due on the notes as of june 13 , 2013 was exchanged for 45,902,321 shares of series a-1 convertible preferred stock , 5,303,597 of which were subsequently converted into 1,766,097 shares of series a-2 convertible preferred stock . we determined that the per share fair value of the shares of series a-1 convertible preferred stock issued under the note conversion agreement was $ 1.54 and the total fair value of the shares of series a-1 convertible preferred stock was $ 70.7 million and we recognized a loss on the exchange of $ 48.6 million for the difference in the fair value of the shares of series a-1 convertible 70 preferred stock and the carrying value of the notes as of june 13 , 2013. the $ 48.6 million loss is reported on our statement of operations as a loss on settlement of notes as an other expense for the twelve months ended december 31 , 2013. associated transaction costs of $ 41,000 related to the exchange were expensed . after the exchange of the notes , the outstanding shares of preferred series a - e were exchanged for 1,977,137 shares of series a-1 convertible preferred stock , 257,409 of which were subsequently converted into 85,717 shares of series a-2 convertible preferred stock . we determined the fair value of the shares of series a-1 convertible preferred stock issued to be $ 3.0 million and we recorded a deemed contribution to equity of $ 140.6 million ( net of original issuance costs of $ 3.0 million ) equal to the difference in the fair value of the shares issued and the carrying value of the existing shares of preferred series a - e. on june 26 , 2013 we sold 5,586,510 additional shares of series a-1 convertible preferred stock to existing stockholders for gross proceeds of $ 7.6 million at a purchase price of $ 1.36 per share . we determined that the fair value of the shares sold to be $ 8.6 million and we recorded a deemed dividend of $ 1.0 million for the difference in the sales price of the series a-1 convertible preferred stock and the fair value of the shares . the $ 40,000 of transaction costs related to the sale was recorded against additional paid-in capital and the shares of series a-1 convertible preferred stock issued were recorded at their fair value on our balance sheet as of december 31 , 2013. we determined that the fair value of the series a-1 and series a-2 convertible preferred stock as of june 26 , 2013 was $ 1.54 and $ 0.58 , respectively . we used the probability-weighted expected return method ( pwerm ) to determine the fair value of the shares of the series a-1 and series a-2 convertible preferred stock . pwerm is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns , considering each of the possible outcomes available to us , as well as the economic and control rights of each share class . on september 23 , 2013 we sold 1,766,430 additional shares of series a-1 convertible preferred stock for gross proceeds of $ 2.4 million at a purchase price of $ 1.36 per share . we determined the fair value of the shares of series a-1 convertible preferred stock sold to be $ 4.7 million , based on a per share fair value of $ 2.69 , and we recorded a deemed dividend of $ 2.3 million for the difference in the sales price of the series a-1 convertible preferred stock and the fair value of the shares . we determined the fair value of the series a-1 convertible preferred stock as of september 23 , 2013 by estimating the enterprise value of the company based on a projected offering price in an initial public offering . the company filed a confidential registration on september 11 , 2013 and estimated a per share price as of september 23 , 2013 of $ 2.69 per share . transaction costs of $ 34,000 related to the sale were recorded against additional paid-in capital and the shares of series a-1 convertible preferred stock were recorded at their fair value on our balance sheet . the outstanding shares of series a-1 convertible preferred stock and series a-2 convertible preferred stock had an aggregate liquidation preference of $ 150.0 million that increased at 6 % per annum and was payable to the holders of series a-1 convertible preferred stock and series a-2 convertible preferred stock upon a sale or other liquidation of the company . the series a-1 convertible preferred stock and series a-2 convertible preferred stock were convertible into shares of common stock on a 3.1 for 1 basis , subject to adjustment if we issue additional equity at a price per share that is less than the per share price of the series a-1 convertible preferred stock and series a-2 convertible preferred stock , as applicable . all of the outstanding series a-1 convertible preferred stock and series a-2 convertible preferred stock automatically converted into common stock effective as of the effectiveness of the registration statement . 71 because a deemed liquidation event and payment of the preferred stock liquidation preferences could occur outside the control of our management , we have classified all convertible preferred stock outside of stockholders ' equity ( deficit ) for periods the shares remained outstanding at year-end . on november 1 , 2013 , our board of directors and the requisite holders of our voting stock authorized the filing of a certificate of amendment to our amended and restated certificate of incorporation for the purposes of effecting a 3.1-for-1 reverse split of the common stock .
| results of operations comparison of the year ended december 31 , 2013 and 2012 the following table summarizes our results of operations for the year ended december 31 , 2013 and 2012 ( in millions ) : replace_table_token_6_th research collaboration revenues research collaboration revenues were $ 2.3 million in 2013 , compared to $ 3.8 million in 2012 , a decrease of $ 1.5 million . the decrease in collaboration revenue in 2013 compared to 2012 is due primarily to lower revenue earned under our collaboration agreement with morphosys ag in 2013. licensing revenues licensing revenues were $ 2.3 million in 2013 compared to $ 2.1 million in 2012 , an increase of $ 0.2 million . the increase is primarily due to a new licensing agreement with merck , sharp & dohme that provided a $ 1.0 million payment offset by a decrease in licensing revenue recognized under the medimmune transaction in 2012. milestone revenues milestone and contingent payments were $ 5.6 million in 2013 compared to $ 3.6 million in 2012 , an increase of $ 2.0 million . the increase is primarily due to receiving a contractual milestone from morphosys ag of $ 3.0 million payment offset by a decrease in contractual milestone payments received from bi of $ 1.2 million in 2012 with no corresponding milestone payment in 2013 . 82 research and development expenses the following table summarizes our research and development expenses for the years ended december 31 , 2013 and 2012 , ( in millions ) : replace_table_token_7_th research and development expenses were $ 17.0 million for the year ended december 31 , 2013 compared to $ 12.7 million for the same period in 2012 , an increase of $ 4.3 million .
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๏ปฟ 48 general and administrative expenses ๏ปฟ general and administrative expenses increased $ 1 .3 million in 2016 compared with 2015 , primarily due to administrative costs incurred as a publicly traded entity . year ended december 31 , 2015 , compared with the year ended december 31 , 2014 ๏ปฟ revenues ๏ปฟ revenues generated from our storage and throughput agreement and rail transportation services agreement with green plains trade , executed in connection with our ipo and effective beginning july 1 , 2015 , were $ 36.9 million in 2015 . ๏ปฟ revenues generated by terminal services and other increased $ 1.2 million in 2015 compared with 2014 , due to an increase in the number of trucks in service and locations where we do business . ๏ปฟ operations and maintenance expenses operations and maintenance e xpenses increased $ 3.2 million in 2015 compared with 2014 , primarily due to increased railcar lease expenses , wages and fuel costs associated with our trucking operations . this was partially offset by a decrease in railcar unloading fees at our fuel terminals . ๏ปฟ general and administrative expenses ๏ปฟ general and administrative expenses increased $ 1.7 million in 2015 compared with 2014 , primarily due to transaction costs related to the formation of the partnership and the acquisition of hereford , texas and hopewell , virginia ethanol storage and transportation assets , additional expenses attributable to being a public company , unit-based compensation and board fees . ๏ปฟ liquidity and capital resources ๏ปฟ our principal sources of liquidity include cash generated from operating activities and borrowings under our revolving credit facility . we consider opportunities to repay , redeem , repurchase or refinance our debt , depending on market conditions , as part of our normal course of doing business . our ability to meet our debt service obligations and other capital requirements depends on our future operating performance , which is subject to general economic , financial , business , competitive , legislative , regulatory and other conditions , many of which are beyond our control . we plan to fund future expansion capital expenditures primarily from external sources , including borrowings under our revolving credit facility and issuances of debt and equity securities . we expect these sources will be adequate for both our short-term and long-term liquidity needs . ๏ปฟ on july 1 , 2015 , upon completion of the ipo , we received net proceeds of $ 157.5 million from the sale of 11,500,000 common units , after deducting underwriting discounts of $ 10.3 million , structuring fees of $ 0.9 million and other ipo expenses of approximately $ 3.8 million . we used the net proceeds to make a cash distribution of $ 155.3 million to green plains , in part , as reimbursement of certain capital expenditures incurred and to pay $ 0.9 million in origination fees under our new revolving credit facility . we retained the remaining $ 1.3 million for general partnership purposes . ๏ปฟ on january 1 , 2016 , we purchased the ethanol storage and leased railcar assets related to the hereford and hopewell produc tion facilities from our s ponsor by drawing $ 48.0 million on our revolving credit facility and using $ 14.3 million of cash on hand . ๏ปฟ on august 25 , 2016 , the partnership filed a universal shelf registration statement with the sec , registering an indeterminate number of equity and debt securities with a total offering price not to exceed $ 500,000,250 that was declared effective september 2 , 2016. the partnership also registered 13,513,500 common units , consisting of 4,389,642 common units and 9,123,858 common units that may be issued upon conversion of subordinated units , in each case , currently held by green plains . ๏ปฟ on september 16 , 2016 , green plains operating company increased its revolving credit facility agreement from $ 100.0 million to $ 155.0 million , which it used to fund the $ 90.0 million purchase of ethanol storage assets associated with the madison , illinois ; mount vernon , indiana and york , nebraska production facilities on september 23 , 2016 . ๏ปฟ on december 31 , 2016 , we ha d $ 0.6 million of cas h and cash equivale nts and $ 26.0 million available u nder our revolving credit facility . 49 ๏ปฟ net cash provided by operating activities was $ 62.2 million in 2016 compared with net cash provided by operating activities of $ 15.7 million in 2015. cash flows from operating activities were driven primarily by increases in operating profits an d decreases in working capital . net cash used by investing activities was $ 152.8 million in 2016 , primarily due to acquisitions of ethanol storage and leased railcar assets on january 1 , 2016 , and september 23 , 2016. net cash provided by financing activities was $ 74.9 million in 2016 , primarily due to net borrowings on the revolving credit facility related to the acquisitions of ethanol storage and leased railcar assets on january 1 , 2016 , and september 23 , 2016 , partially offset by quarterly cash distributions . ๏ปฟ we incurred capital expenditures of $ 0.5 million in 2016 for various projects , inclu ding $ 0.3 million rel ated to maintenance capital expenditures . capital spending for 2017 is expected to be a pproximately $ 4.6 million . this includes an estimated $ 3.25 million related to our investment in the little rock , arkansas area unit t rain joint venture a nd approximately $ 1.35 million related to the purchase of additional trucks and tankers , which we expect to finance wit h our revolving credit f acility . ๏ปฟ revolving credit facility ๏ปฟ green plains operating company has a $ 155.0 million secured revolving credit facility to fund working capital , acquisitions , distribu tions , capital expenditures and other general partnership purposes . this credit facility was amended on september story_separator_special_tag ๏ปฟ 48 general and administrative expenses ๏ปฟ general and administrative expenses increased $ 1 .3 million in 2016 compared with 2015 , primarily due to administrative costs incurred as a publicly traded entity . year ended december 31 , 2015 , compared with the year ended december 31 , 2014 ๏ปฟ revenues ๏ปฟ revenues generated from our storage and throughput agreement and rail transportation services agreement with green plains trade , executed in connection with our ipo and effective beginning july 1 , 2015 , were $ 36.9 million in 2015 . ๏ปฟ revenues generated by terminal services and other increased $ 1.2 million in 2015 compared with 2014 , due to an increase in the number of trucks in service and locations where we do business . ๏ปฟ operations and maintenance expenses operations and maintenance e xpenses increased $ 3.2 million in 2015 compared with 2014 , primarily due to increased railcar lease expenses , wages and fuel costs associated with our trucking operations . this was partially offset by a decrease in railcar unloading fees at our fuel terminals . ๏ปฟ general and administrative expenses ๏ปฟ general and administrative expenses increased $ 1.7 million in 2015 compared with 2014 , primarily due to transaction costs related to the formation of the partnership and the acquisition of hereford , texas and hopewell , virginia ethanol storage and transportation assets , additional expenses attributable to being a public company , unit-based compensation and board fees . ๏ปฟ liquidity and capital resources ๏ปฟ our principal sources of liquidity include cash generated from operating activities and borrowings under our revolving credit facility . we consider opportunities to repay , redeem , repurchase or refinance our debt , depending on market conditions , as part of our normal course of doing business . our ability to meet our debt service obligations and other capital requirements depends on our future operating performance , which is subject to general economic , financial , business , competitive , legislative , regulatory and other conditions , many of which are beyond our control . we plan to fund future expansion capital expenditures primarily from external sources , including borrowings under our revolving credit facility and issuances of debt and equity securities . we expect these sources will be adequate for both our short-term and long-term liquidity needs . ๏ปฟ on july 1 , 2015 , upon completion of the ipo , we received net proceeds of $ 157.5 million from the sale of 11,500,000 common units , after deducting underwriting discounts of $ 10.3 million , structuring fees of $ 0.9 million and other ipo expenses of approximately $ 3.8 million . we used the net proceeds to make a cash distribution of $ 155.3 million to green plains , in part , as reimbursement of certain capital expenditures incurred and to pay $ 0.9 million in origination fees under our new revolving credit facility . we retained the remaining $ 1.3 million for general partnership purposes . ๏ปฟ on january 1 , 2016 , we purchased the ethanol storage and leased railcar assets related to the hereford and hopewell produc tion facilities from our s ponsor by drawing $ 48.0 million on our revolving credit facility and using $ 14.3 million of cash on hand . ๏ปฟ on august 25 , 2016 , the partnership filed a universal shelf registration statement with the sec , registering an indeterminate number of equity and debt securities with a total offering price not to exceed $ 500,000,250 that was declared effective september 2 , 2016. the partnership also registered 13,513,500 common units , consisting of 4,389,642 common units and 9,123,858 common units that may be issued upon conversion of subordinated units , in each case , currently held by green plains . ๏ปฟ on september 16 , 2016 , green plains operating company increased its revolving credit facility agreement from $ 100.0 million to $ 155.0 million , which it used to fund the $ 90.0 million purchase of ethanol storage assets associated with the madison , illinois ; mount vernon , indiana and york , nebraska production facilities on september 23 , 2016 . ๏ปฟ on december 31 , 2016 , we ha d $ 0.6 million of cas h and cash equivale nts and $ 26.0 million available u nder our revolving credit facility . 49 ๏ปฟ net cash provided by operating activities was $ 62.2 million in 2016 compared with net cash provided by operating activities of $ 15.7 million in 2015. cash flows from operating activities were driven primarily by increases in operating profits an d decreases in working capital . net cash used by investing activities was $ 152.8 million in 2016 , primarily due to acquisitions of ethanol storage and leased railcar assets on january 1 , 2016 , and september 23 , 2016. net cash provided by financing activities was $ 74.9 million in 2016 , primarily due to net borrowings on the revolving credit facility related to the acquisitions of ethanol storage and leased railcar assets on january 1 , 2016 , and september 23 , 2016 , partially offset by quarterly cash distributions . ๏ปฟ we incurred capital expenditures of $ 0.5 million in 2016 for various projects , inclu ding $ 0.3 million rel ated to maintenance capital expenditures . capital spending for 2017 is expected to be a pproximately $ 4.6 million . this includes an estimated $ 3.25 million related to our investment in the little rock , arkansas area unit t rain joint venture a nd approximately $ 1.35 million related to the purchase of additional trucks and tankers , which we expect to finance wit h our revolving credit f acility . ๏ปฟ revolving credit facility ๏ปฟ green plains operating company has a $ 155.0 million secured revolving credit facility to fund working capital , acquisitions , distribu tions , capital expenditures and other general partnership purposes . this credit facility was amended on september
| industry factors affecting our results of operations ๏ปฟ u.s. ethanol supply and demand ๏ปฟ domestic ethanol productio n increased to an es timated 15.3 billion gallons in 2016 from 14.8 billion gallons in 2015 , according to the eia . production capacity grew predominantly through plant optimization and expansions versus new construction projects . t here were 213 ethanol plants with production capacity o f 15.8 bgy as of december 1 , 2016 , compared with 216 ethanol plants with production capacity of 15.7 bgy one year ago according to the renewable fuels association . ๏ปฟ ethanol consumption is correlated with consumer gasoline demand , which reached a ten-year high in 2016 in the u.s. of 143 . 2 billion gallons . ethanol accounted for approximately 10 % of the u.s. gasoline market in 2016 , or 14.2 billion gallons , up from 13.9 billion gallons in 2015. ethanol is used by oil refiners , integrated oil companies and gasoline retailers to reduce vehicle emissions and increase octane levels . despite trading at a premium to gasoline for most of the year , ethanol continued to be the most economical oxygenate over gulf coast alkylate and reformate substitutes , and the most affordable source of octane over gulf coast 93 and toluene substitutes . ๏ปฟ increased automaker approval , consumer acceptance and availability of higher ethanol blends such as e15 also helped to support domestic demand . automakers have explicitly approved the use of e15 in more than 70 % of 2016 models sold in the united states . in 2014 , a broad u.s. ethanol industry group formed prime the pump , a nonprofit organization , to invest private funds into retail gasoline infrastructure to increase the number of retail outlets offering higher blends of ethanol . in 2015 , the usda provided funding through the biofuel infrastructure partnership , adding to the private funds provided by ethanol industry participa nts .
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we conduct our european clinical development operations from our offices in geneva , switzerland and lausanne , switzerland , and have recently opened our japanese office in tokyo . jakafi ( ruxolitinib ) is our first product to be approved for sale in the united states . it is an oral jak1 and jak2 inhibitor and was approved by the u.s. food and drug administration ( fda ) in november 2011 for the treatment of patients with intermediate or highโrisk myelofibrosis and in december 2014 for the treatment of patients with polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea . myelofibrosis and polycythemia vera are both rare blood cancers . under our collaboration agreement with novartis international pharmaceutical ltd. , novartis received exclusive development and commercialization rights to ruxolitinib outside of the united states for all hematologic and oncologic indications and sells ruxolitinib outside of the united states under the name jakavi . in april 2016 , we amended this agreement to provide that novartis has exclusive research , development and commercialization rights outside of the united states to ruxolitinib ( excluding topical formulations ) in the graft-versus-host-disease field . we have a second oral jak1 and jak2 inhibitor , baricitinib , which is subject to a collaboration agreement with eli lilly and company in which lilly received exclusive worldwide development and commercialization rights for the compound for inflammatory and autoimmune diseases . in january 2016 , lilly submitted a new drug application ( nda ) to the fda and a marketing authorization application ( maa ) to the european medicines agency for baricitinib as treatment for rheumatoid arthritis . in march 2016 , we entered into an amendment to the agreement with lilly that amended the non-compete provision of the agreement to allow us to engage in the development and commercialization of ruxolitinib in the graft-versus-host-disease field . in february 2017 , we and lilly announced that the european commission approved baricitinib as olumiant for the treatment of moderate-to-severe rheumatoid arthritis in adult patients who have responded inadequately to , or who are intolerant to , one or more disease-modifying antirheumatic drugs ( dmards ) . in july 2017 , japan 's ministry of health , labor and welfare ( mhlw ) granted marketing approval for olumiant for the treatment of rheumatoid arthritis ( including the prevention of structural injury of joints ) in patients with inadequate response to standard-of-care therapies . in april 2017 , we and lilly announced that the fda had issued a complete response letter for the new drug application of baricitinib as a once-daily oral medication for the treatment of moderate-to-severe rheumatoid arthritis . the letter indicated that the fda was unable to approve the application in its current form . specifically , the fda indicated that additional clinical data are needed to determine the most appropriate doses . the fda also stated that additional data are necessary to further characterize safety concerns across treatment arms . in december 2017 , lilly announced that the nda for baricitinib had been resubmitted and included new safety and efficacy data . the fda classified the application as a class ii resubmission , which started a new six-month review cycle . 53 in june 2016 , we acquired ( the โ acquisition โ ) from ariad pharmaceuticals , inc. all of the outstanding shares of ariad pharmaceuticals ( luxembourg ) s.ร .r.l. , the parent company of ariad 's european subsidiaries responsible for the development and commercialization of iclusig in the european union and other countries , including switzerland , norway , turkey , israel and russia . we obtained an exclusive license to develop and commercialize iclusig in those countries . iclusig is approved in the european union for the treatment of patients with chronic myeloid leukemia and philadelphia-positive acute lymphoblastic leukemia who are resistant to or intolerant of certain second-generation bcr-abl inhibitors and all patients who have the t3151 mutation . since we began our drug-discovery and development activities in early 2002 , we have filed investigational new drug ( ind ) applications and progressed multiple internally developed proprietary compounds into clinical development . as of february 15 , 2018 , our development portfolio , including ruxolitinib , was comprised of 17 candidates against 14 molecular targets . license agreements and business relationships as part of our business strategy , we establish business relationships , including collaborative arrangements with other companies and medical research institutions to assist in the clinical development and or commercialization of certain of our drugs and drug candidates and to provide support for our research programs . we also evaluate opportunities for acquiring products or rights to products and technologies that are complementary to our business from other companies and medical research institutions . below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies . novartis in november 2009 , we entered into a collaboration and license agreement with novartis . under the terms of the agreement , novartis received exclusive development and commercialization rights outside of the united states to ruxolitinib and certain backโup compounds for hematologic and oncology indications , including all hematological malignancies , solid tumors and myeloproliferative diseases . we retained exclusive development and commercialization rights to jakafi ( ruxolitinib ) in the united states and in certain other indications . novartis also received worldwide exclusive development and commercialization rights to our met inhibitor compound capmatinib and certain backโup compounds in all indications . we retained options to coโdevelop and to coโpromote capmatinib in the united states . under this agreement , we received an upfront payment and immediate milestone payment totaling $ 210.0 million and were initially eligible to receive additional payments of up to approximately $ 1.2 billion if defined development and commercialization milestones are achieved . story_separator_special_tag royalties are payable by lilly on a productโbyโproduct and countryโbyโcountry basis until the latest to occur of ( i ) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country , ( ii ) the expiration of regulatory exclusivity for the licensed product in such country and ( iii ) a specified period from first commercial sale in such country of the licensed product by lilly or its affiliates or sublicensees . the agreement may be terminated by lilly for convenience , and may also be terminated under certain other circumstances , including material breach . 55 agenus in january 2015 , we entered into a license , development and commercialization agreement with agenus inc. and its wholly-owned subsidiary , 4-antibody ag ( now known as agenus switzerland inc. ) , which we collectively refer to as agenus . under this agreement , the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using agenus ' antibody discovery platforms . in february 2017 , we and agenus amended this agreement . under the terms of this agreement , as amended , we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against gitr , ox40 , lag-3 and tim-3 . in addition to the initial four program targets , we and agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration , and in november 2015 , three more targets were added . targets may be designated profit-share programs , where all costs and profits are shared equally by us and agenus , or royalty-bearing programs , where we are responsible for all costs associated with discovery , preclinical , clinical development and commercialization activities . the programs relating to gitr and ox40 and two of the undisclosed targets were profit-share programs until february 2017 , while the other targets currently under collaboration are royalty-bearing programs . the february 2017 amendment converted the programs relating to gitr and ox40 to royalty-bearing programs and removed from the collaboration the profit-share programs relating to the two undisclosed targets , with one reverting to us and one reverting to agenus . should any of those removed programs be successfully developed by a party , the other party will be eligible to receive the same milestone payments as the royalty-bearing programs and royalties at a 15 % rate on global net sales . there are currently no profit-share programs . for each royalty-bearing product other than gitr and ox40 , agenus will be eligible to receive tiered royalties on global net sales ranging from 6 % to 12 % . for gitr and ox40 , agenus will be eligible to receive 15 % royalties on global net sales . under the february 2017 amendment , we paid agenus $ 20.0 million in accelerated milestones relating to the clinical development of the gitr and ox40 programs . agenus is eligible to receive up to an additional $ 510.0 million in future contingent development , regulatory and commercialization milestones across all programs in the collaboration . the agreement may be terminated by us for convenience upon 12 months ' notice and may also be terminated under certain other circumstances , including material breach . hengrui in september 2015 , we entered into a license and collaboration agreement with hengrui . under the terms of this agreement , we received exclusive development and commercialization rights worldwide , with the exception of mainland china , hong kong , macau and taiwan , to incshr1210 , an investigational pd-1 monoclonal antibody , and certain back-up compounds . in february 2018 , incyte and hengrui agreed to terminate the collaboration , pursuant to the terms of the license and collaboration agreement . ariad pharmaceuticals ( luxembourg ) s.ร .r.l . acquisition in june 2016 , we completed the acquisition . ariad will be eligible to receive from us tiered royalties on net sales of iclusig in our territory and up to $ 135.0 million in potential future oncology development and regulatory approval milestone payments , together with additional milestone payments for non-oncology indications , if approved , in our territory . merus in december 2016 , we entered into a collaboration and license agreement with merus n.v. under this agreement , which became effective in january 2017 , the parties have agreed to collaborate with respect to the research , discovery and development of bispecific antibodies utilizing merus ' technology platform . the collaboration encompasses up to eleven independent programs , including two of merus ' current preclinical immuno-oncology discovery programs . we received exclusive development and commercialization rights outside of the united states to products and product candidates resulting from one of merus ' current preclinical discovery programs , referred to as โ program 1. โ we also received worldwide exclusive development and commercialization rights to products and product candidates resulting from the other current merus preclinical discovery program that is subject to the collaboration and to up to nine additional programs . merus retained exclusive development and commercialization rights in the united states to products and product candidates resulting from program 1 and options , subject to certain conditions , to co-fund development of products resulting from two other programs in exchange for a share of profits in the united states . merus will also have the right to 56 participate in a specified proportion of detailing activities in the united states for one of those co-developed programs . should program 1 fail to successfully complete ind-enabling toxicology studies , merus would be granted an additional option to co-fund development of a program in exchange for a share of profits in the united states . all costs related to the collaboration are subject to joint research and development plans . each party will share equally the costs of mutually agreed global development activities for program 1 , and fund itself any independent development activities in its territory .
| results of operations years ended december 31 , 2017 and 2016 we recorded a net loss for the year ended december 31 , 2017 of $ 313.1 million and net income for the year ended december 31 , 2016 of $ 104.2 million . on a per share basis , basic and diluted net loss was $ 1.53 for the year ended december 31 , 2017. on a per share basis , basic net income was $ 0.55 and diluted net income was $ 0.54 for the year ended december 31 , 2016. revenues replace_table_token_4_th our product revenues , net for the years ended december 31 , 2017 and 2016 , were $ 1.2 billion and $ 882.4 million , respectively . the increase in jakafi product revenues was comprised of a volume increase of $ 204.6 million and a price increase of $ 76.0 million . iclusig product revenues commenced in june 2016 following the acquisition . product revenues are recorded net of estimated product returns , pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks , prompt pay discounts and distribution fees and co-pay assistance . our revenue recognition policies require estimates of the aforementioned sales allowances each period . 66 the following table provides a summary of activity with respect to our sales allowances and accruals for the year ended december 31 , 2017 : replace_table_token_5_th government rebates and chargebacks are the most significant component of our sales allowances . increases in certain government reimbursement rates are limited to a measure of inflation , and when the price of a drug increases faster than this measure of inflation it will result in a penalty adjustment factor that causes a larger sales allowance to those government related entities .
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general and administrative expense general and administrative ( g & a ) expenses consist primarily of employee-related expenses for our executive , legal , intellectual property , information technology , finance and human resources functions . other g & a expenses include facility and information technology expenses not otherwise allocated to r & d or s & sc expenses , professional fees for auditing , tax and legal services , expenses associated with maintaining patents , consulting costs and other costs of our information systems . we expect growth in our g & a cash expenses to moderate going forward as we believe we have the necessary foundation to grow and scale up our business . results of operations for year ended december 31 , 2019 compared to the year ended december 31 , 2018 following the commercialization of our high oleic soybean products in the first quarter of 2019 , we achieved record revenues in the year ended december 31 , 2019. we crushed all the grain harvested from the crop years of 2016 to 2018 and sold the resulting soybean oil and soybean meal . our inventory at the end of 2019 consists primarily of grain delivered to us at harvest in 2019. we expect to crush this grain and convert it to cash through product sales in the first half of 2020. we will purchase the remainder of the 2019 harvest between january 1 , 2020 and august 31 , 2020. we expect to crush and sell that grain by december 31 , 2020. our cost of goods sold and gross margins for 2019 do not include $ 3.3 million of grain costs we expensed as r & d in 2018. our 2019 cost of goods sold also include $ 869,000 of inventory reserves we recorded to reflect expected margins in 2020 at this early stage of commercialization of our high oleic soybean products . 36 we are currently exploring product opportunities in alfalfa , can ola , hemp , oats , peanuts , peas , potato , soybeans , wheat , and other crops . as of december 31 , 2019 , w e had a total of 15 products or product candidates , comprised of one commercial product , three product candidates in phase 2 , and eleven product candidates in phase i or discovery . we continue to evaluate additional product concepts as part of our development process and innovation efforts . as of december 31 , 2018 , we had six product candidates in our development funnel . we identify product concepts from our own research and inbound interest from potential collaborators . we expect to launch at least six product candidates from now through 2024 , including our hemp product candidate in 2020 , our alfalfa product in 2021 through our collaboration with s & w , our hig h fiber wheat product candidate as early as 2022 , and three additional product candidates either via our integrated business model or in collaboration with third parties . we separated our functional support activities from cellectis in the year ended december 31 , 2019 , reducing the amount of management fees we incur . we continued to invest in our information technology infrastructure and other elements of our laboratory infrastructure to support increased product development activity going forward . we also transitioned our corporate leadership team to enable the launch of our high oleic soybean products and the development of collaborations and other revenue streams . a summary of our results of operations for the years ended december 31 , 2019 and 2018 follows : replace_table_token_2_th revenue revenue increased $ 7.1 million entirely from increased sales volumes of our high oleic soybean oil and soybean meal following the commercialization of these products in early 2019. during 2019 , we generated $ 1.7 million of high oleic soybean oil revenue . we sold all our high oleic soybean meal production in the year , totaling $ 5.6 million in revenue . costs of goods sold cost of goods sold increased $ 9.3 million reflecting the cost of product sold in the period and an $ 869,000 valuation reserve against our inventories . gross margin gross margin as reported decreased $ 2.2 million reflecting the higher costs we have experienced at this early stage of commercialization of our high oleic soybean products . gross margin , as adjusted , a non-gaap measure , was negative $ 4.5 million , or 61 percent , as compared to negative $ 2.0 million , or 27 percent , as reported under gaap . see below under the heading โ use of non-gaap financial information โ for a discussion of gross margin , as adjusted , and a reconciliation of gross margin , the most comparable gaap measure , to gross margin , as adjusted . research and development expense r & d expenses increased $ 1.9 million driven by $ 1.6 million of higher non-cash stock compensation expenses , $ 1.4 million of additional personnel costs , $ 689,000 of incremental lab supplies and outsourcing costs and $ 588,000 from the reversal of payroll tax benefits that are no longer realizable . these increases were partially offset by a $ 3.3 million decrease in grain costs expensed as r & d in 2018 . 37 selling and supply chain expense s & sc expenses increased $ 2.8 million driven by $ 1.2 million of additional personnel costs , $ 879,000 incremental allocated expenses for facilities and information technology expenses , and $ 359,000 of higher non-cash stock compensation expenses , all the result of our commercialization and acreage expansion in 2019 and 2020. general and administrative expense g & a expenses increased $ 5.6 million driven by $ 2.9 million of higher non-cash stock compensation expenses , $ 2.6 million of additional personnel costs , and $ 1.0 million of incremental professional services expenses . the increases in personnel costs and professional services expenses are partially offset by the benefit of internalizing certain services previously provided by cellectis . story_separator_special_tag net cash used by operating activities increased by $ 7.5 million in 2018 driven by a $ 7.7 million reduction in non-cash stock compensation expenses . the increase in our net loss was offset by $ 1.6 million of cash payments made in 2019 to suppliers for services provided to us in 2018. we expect future changes in operating cash flows to be driven primarily by changes in our net losses and working capital as result of the commercialization of our high oleic soybean products and additional products . cash flows from investing activities replace_table_token_5_th 40 net ca sh used by investing activities increased by $ 1 . 2 million in 2019 driven by purchases of laboratory equipment following the build out of our new headquarters facility that was completed in 2018 as well as for equipment to support the expansion of our r & d p ipeline . net cash used by investing activities increased by $ 1.0 million in 2018 driven by an increase in purchases of fixtures and equipment , site improvements and architect fees for our new headquarters facility . we expect future capital expenditures to be focused on further building out our laboratory facilities and to invest in projects to optimize our supply chain . we expect these expenditures to remain relatively constant over time . cash flows from financing activities replace_table_token_6_th net cash provided by financing activities decreased by $ 61.0 million in 2019 reflecting the proceeds from our follow-on offering in 2018 , as well as lower proceeds from stock option exercises of $ 2.3 million . we also had $ 826,000 less proceeds from the sale and leaseback of equipment and we also made $ 583,000 more payments to satisfy statutory income tax withholding requirements relating to the net share settlement upon the vesting of restricted stock units in 2019. net cash provided by financing activities decreased by $ 4.5 million in 2018 due to lower net proceeds from sale and leaseback activity of $ 5.7 million . we also had $ 1.0 million less capital raising activity in 2018. these decreases were partially offset by higher proceeds from the exercise of stock options of $ 2.4 million . we expect to continue to finance our purchases of capital equipment and will also seek other sources of financing to support our business activities . capital resources considering our anticipated cash burn rate , we believe our cash , cash equivalents and restricted cash as of december 31 , 2019 will be enough to fund our operations for at least the next twelve months and into mid-2021 . the period through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties , and actual results could vary as a result of several factors , including those described in item 1a of this annual report on form 10-k. operating capital requirements for the year ended december 31 , 2019 , we had generated $ 7.3 million in revenues from product sales . we anticipate that we will continue to generate losses for the next several years before revenue is enough to support our operating capital requirements . until we can generate substantial cash flow , we expect to finance a portion of future cash needs through cash on hand and public or private equity or debt financings , government or other third-party funding and licensing arrangements . however , additional capital may not be available on reasonable terms , if at all . if we are unable to raise additional capital in enough amounts or on terms acceptable to us , we may have to significantly delay , scale back or discontinue the development or commercialization of one or more of our products . failure to receive additional funding could cause us to cease operations , in part or in full . if we raise additional funds through the issuance of additional debt or equity securities , it could result in dilution to our existing stockholders and increased fixed payment obligations , and these securities may have rights senior to those of our common shares . any of these events could significantly harm our business , financial condition and prospects . 41 contractual obligations , commitments and contingencies forward purchase contracts we enter into seed and grain production agreements ( forward purchase contracts ) with seed producers and growers . the seed contracts often require us to pay prices for the seed produced at commodity futures market prices plus a premium . the grower contracts are also linked to commodity futures market prices plus a premium . the grower has the option to fix their price with us throughout the term of the agreement . the grower contracts allow for delivery of grain to us at harvest if so specified when the agreement is executed , otherwise delivery occurs on a date that we elect through august 31 of the following year . in all periods prior to january 1 , 2019 , we considered forward purchase contracts to be derivatives and recorded the contracts at fair market value with changes in value reflected in earnings as r & d expense . effective january 1 , 2019 , we designated all forward purchase contracts as normal purchases and as a result no longer consider these agreements to be derivatives . as of that date any mark-to-market gains or losses associated with those contracts were fixed and were reflected in inventory upon our purchase of the underlying grain . as of december 31 , 2019 , we had purchased all the underlying grain and all previously recorded gains and losses had been reflected in inventory . sale-leaseback of headquarters and lab facility in september 2017 we consummated a sale-leaseback transaction with a third party for our corporate headquarters and lab facility . our headquarters facility is composed of a 40,000 square-foot office and lab building , with greenhouses and outdoor research plots . we are deemed the owner for accounting purposes .
| f financial condition and results of operations executive overview we are a technology company focused on delivering plant-based solutions that are healthy and sustainable . we intend to bring these products to market one of two ways . first , through an integrated business model where we leverage third party assets in the agricultural supply chain to process grains and sell the resulting products . second , through collaboration arrangements or license agreements with third parties to jointly develop products . in a collaboration arrangement we expect to receive payments for the use of our innovations , upon the achievement of development milestones , and from royalties upon commercial sale of products . we also have an option to monetize our technology platform by strategically licensing our innovations to others . we expect to use the integrated business model in soybeans and wheat and collaborate or license in all other crops . we may also choose to collaborate in wheat and soybeans to increase margins and reduce our need for working capital . we are currently exploring product opportunities in alfalfa , canola , hemp , oats , peanuts , peas , potato , soybeans , wheat , and other crops . we are an early-stage company and have incurred net losses since our inception . as of december 31 , 2019 , we had an accumulated deficit of $ 122.1 million . our net loss was $ 39.6 million for the year ended december 31 , 2019. we expect to continue to incur operating losses for the next several years . those losses may fluctuate significantly from quarter-to-quarter and year-to-year .
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prior to this guidance , disclosures about fair values of financial instruments were only required to be disclosed annually . the new guidance requires disclosures about fair value of financial instruments in interim and annual financial statements . adoption of the new guidance did not affect the company 's financial position or results of operations . in may 2009 ( amended february 2010 ) , the fasb issued guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued . it sets forth the period after the balance sheet date during which management shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements , the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date . the new guidance is effective for interim and annual periods ended after june 15 , 2009. in june 2009 , the fasb issued additional guidance that amended the existing accounting and disclosure guidance for the consolidation of variable interest entities . the amended story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should review the ยrisk factorsย section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we develop and are commercializing proprietary systems that generate electricity by harnessing the renewable energy of ocean waves . our powerbuoy ยฎ systems use proprietary technologies to convert the mechanical energy created by the rising and falling of ocean waves into electricity . we currently market two powerbuoy products , which consist of our utility powerbuoy system and our autonomous powerbuoy system . we also market operations and maintenance services for our powerbuoy systems to our customers , which are expected to provide a source of recurring revenues . in addition , we expect to market our undersea substation pod and undersea power connection infrastructure services to other companies in the marine energy sector . we market our utility powerbuoy system , which is designed to supply electricity to a local or regional power grid , to utilities and other electrical power producers seeking to add electricity generated by wave energy to their existing electricity supply . we market our autonomous powerbuoy system , which is designed to generate power for use independent of the power grid , to customers that require electricity in remote locations . we believe there are a variety of potential applications for our autonomous powerbuoy system , including sonar and radar surveillance , tsunami warning , oceanographic data collection , offshore platforms and offshore aquaculture . we were incorporated in new jersey in april 1984 , began commercial operations in 1994 , and were re-incorporated in delaware in 2007. we currently have three wholly-owned subsidiaries , which include ocean power technologies ltd. , reedsport opt wave park llc , and oregon wave energy partners i , llc , and we own approximately 88 % of the ordinary shares of ocean power technologies ( australasia ) pty ltd. the development of our technology has been funded by capital we raised and by development engineering contracts we received starting in fiscal 1995. in fiscal 1996 , we received the first of several research contracts with 44 the us navy to study the feasibility of wave energy . as a result of those research contracts , we entered into our first development and construction contract with the us navy in fiscal 2002 under a still on-going project for the development and testing of our wave power systems at the us marine corps base in oahu , hawaii . we generated our first revenue relating to our autonomous powerbuoy system from contracts with lockheed martin corporation in fiscal 2003 , and we entered into our first development and construction contract with lockheed martin in fiscal 2004 for the development and construction of a prototype demonstration autonomous powerbuoy system . as of april 30 , 2010 , our backlog was $ 5.7 million , a decrease of $ 1.8 million from april 30 , 2009. our fiscal year ends on april 30. for fiscal 2010 , we generated revenues of $ 5.1 million and incurred a net loss attributable to ocean power technologies , inc. of $ 19.2 million , and for fiscal 2009 , we generated revenues of $ 4.0 million and incurred a net loss attributable to ocean power technologies , inc. of $ 18.3 million . as of april 30 , 2010 , our accumulated deficit was $ 90.4 million . we have not been profitable since inception , and we do not know whether or when we will become profitable because of the significant uncertainties with respect to our ability to successfully commercialize our powerbuoy systems in the emerging renewable energy market . since fiscal 2002 , the us navy has accounted for a significant portion of our revenues . we expect that over time , revenues derived from utilities and other non-government commercial customers will increase more rapidly than sales to government customers and may , over time , represent the majority of our revenues . the marine energy industry , including wave , tidal and ocean current energy technologies , is expected to benefit from various legislative initiatives that have been undertaken or are planned by state and federal agencies . story_separator_special_tag the increased revenue was partially offset by a decrease in revenue from our construction project in spain and our hawaii project for the us navy . the revenue decrease for fiscal 2009 primarily reflected a lower level of billable activity in connection with our construction contracts in spain and at the european marine energy centre ( emec ) at orkney , scotland . in 2009 , we also reduced the total expected contract value related to the spain contract by approximately $ 0.5 million , reflecting an expected reduction in scope of the then-current phase of this project . these decreases in revenue during fiscal 2009 were partially offset by an increase in revenue from the department of energy ( doe ) related to our project off the coast of reedsport , oregon . the us navy has been our largest customer since fiscal 2002. the us navy accounted for 80 % of our revenues in fiscal 2010 , 67 % of our revenues in fiscal 2009 and 58 % of our revenues in fiscal 2008. we anticipate that , if our 46 commercialization efforts are successful , the relative contribution of the us navy to our revenue may decline in the future . we currently focus our sales and marketing efforts on north america , the west coast of europe , australia and the east coast of japan . the following table provides information regarding the breakdown of our revenues by geographical location of our customers for fiscal years 2010 , 2009 and 2008 : replace_table_token_5_th cost of revenues our cost of revenues consists primarily of incurred material , labor and manufacturing overhead expenses , such as engineering expense , equipment depreciation and maintenance and facility related expenses , and includes the cost of powerbuoy parts and services supplied by third-party suppliers . cost of revenues also includes powerbuoy system delivery and deployment expenses and anticipated losses at completion on some contracts . we operated at a gross profit of $ 0.8 million in fiscal 2010 and a gross loss of $ 0.8 million in fiscal 2009 and $ 3.2 million in fiscal 2008. our ability to generate a gross profit will depend on the nature of future contracts , our success at increasing sales of our powerbuoy systems and on our ability to manage costs incurred on fixed price commercial contracts . additionally , approximately $ 0.4 million of costs related to revenue activity during fiscal 2009 had been previously anticipated and accrued as contract loss reserves as of april 30 , 2009. these loss reserves were no longer necessary and , accordingly , reversed in fiscal year 2010 , contributing to the increase in gross profit . product development costs our product development costs consist of salaries and other personnel-related costs and the costs of products , materials and outside services used in our product development and unfunded research activities . our product development costs primarily relate to our efforts to increase the output and reliability of our utility powerbuoy system , including the 150kw powerbuoy system and to our research and development of new products , product applications and complementary technologies . we expense all of our product development costs as incurred , except for external patent costs , which we capitalize and amortize over a 17-year period commencing with the issuance date of each patent . patents are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the patent may not be recoverable . from october 2005 to december 2009 , we operated , at intervals , a 40kw system off the coast of new jersey . the system was periodically removed from the ocean for maintenance during that time . other 40kw systems were deployed and tested in hawaii for the us navy project during the months of june 2007 and october 2008 , and in late 2009. work is currently in progress on the design , construction and installation of two 150kw powerbuoy systems in connection with projects off the coasts of scotland and oregon . we completed the successful in-ocean trials of our usp in october 2009. selling , general and administrative costs our selling , general and administrative costs consist primarily of professional fees , salaries and other personnel-related costs for employees and consultants engaged in sales and marketing and support of our powerbuoy systems and costs for executive , accounting and administrative personnel , professional fees and other general corporate expenses . 47 interest income , net interest income consists of interest received on cash and cash equivalents , investments in commercial bank-issued certificates of deposit and us treasury bills and notes . total cash , cash equivalents , restricted cash , and marketable securities were $ 66.8 million as of april 30 , 2010 , $ 82.7 million as of april 30 , 2009 and $ 102.2 million as of april 30 , 2008. interest income decreased due to a decline in interest rates and a decline in cash , cash equivalents and marketable securities . foreign exchange gain ( loss ) we transact business in various countries and have exposure to fluctuations in foreign currency exchange rates . foreign exchange gains and losses arise in the translation of foreign-denominated assets and liabilities , which may result in realized and unrealized gains or losses from exchange rate fluctuations . since we conduct our business in us dollars and our functional currency is the us dollar , our main foreign exchange exposure , if any , results from changes in the exchange rate between the us dollar and the british pounds sterling , the euro and the australian dollar . we invest in certificates of deposit and maintain cash accounts that are denominated in british pounds sterling , euros and australian dollars .
| results of operations fiscal years ended april 30 , 2010 and 2009 the following table contains statement of operations information , which serves as the basis of the discussion of our results of operations for the years ended april 30 , 2010 and 2009 : replace_table_token_6_th ( 1 ) certain subtotals may not add due to rounding . revenues revenues increased by $ 1.1 million in fiscal 2010 , or 26 % , to $ 5.1 million as compared to $ 4.0 million in fiscal 2009. the change in revenues was primarily attributable to the following factors : revenues relating to our autonomous powerbuoy system increased by $ 1.8 million as a result of work on projects with the us navy to provide our powerbuoy technology to the us navy 's deep water active detection system and littoral expeditionary autonomous powerbuoy program . revenues relating to our utility powerbuoy system decreased by $ 0.7 million due primarily to a decrease in billable work on our wave power station off the coast of spain , as work under this phase of the project neared 49 completion , coupled with a reduction in the expected contract value of this project in late fiscal 2009. also , a decrease in revenue related to our hawaii project for the us navy , partially offset by an increase in revenue related to our project off the coast of reedsport , oregon . cost of revenues cost of revenues decreased by $ 0.5 million , or 11 % , to $ 4.3 million in fiscal 2010 , as compared to $ 4.8 million in fiscal 2009. this decrease in cost of revenues reflected the lower level of activity on our project off the coast of spain , offset by increased activity related to our autonomous powerbuoy projects for the us navy .
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specializes in the production and distribution of online digital content . in partnership with us youth soccer and united way worldwide , we also seek to develop online kids clubs . as previously discussed , as a result of the merger , on march 7 , 2016 , we acquired dolphin films , which is a content producer in the motion picture industry . as consideration for the merger , we issued 2,300,000 shares of series b convetible preferred stock and 1,000,000 shares of series c convertible preferred stock to its parent , dolphin entertainment . mr. o'dowd , our president , chairman and chief executive officer is the founder , president and sole shareholder of dolphin entertainment . revenues during 2015 , we derived revenue through ( 1 ) the online distribution of web series produced and distributed by dolphin digital studios , our digital entertainment division and ( 2 ) a portion of fees obtained from the sale of memberships to online kids clubs . during 2014 , we also provided production management and back office services to dolphin films , an affiliated entity , and the table below sets forth the components of revenue for the years ended december 31 , 2015 and 2014 : replace_table_token_2_th 17 dolphin digital studios as demonstrated in the table above , during the year ended december 31 , 2014 , our primary sources of revenue were from i ) production management and back office services provided to dolphin films , an entity at the time , indirectly owned by our ceo , ( ii ) the online distribution of web series produced and distributed by dolphin digital studios and ( iii ) revenues from the sale of memberships to online kids clubs . the provision of production management and back office services to dophin films was pursuant to an agreement which ended on december 31 , 2014 ans was not renewed for 2015 as the specific projects for which our services were engaged were completed . consequently , we did not generate any revenues for those services in 2015. as discussed earlier , on march 7 , 2016 , as a result of the merger , we acquired dolphin films . by comparison during the year ended december 31 , 2015 , we generated revenue primarily from the online distribution of web series produced and distributed by dolphin digital studios and some revenues from our membership activities . we expect that a significant portion of our revenues for 2016 will be derived through dolphin digital studios with the production and release of additional web series on online platforms . โ producer 's fees : we earn fees for producing each web series , as included in the production budget for each project . we either recognize producer 's fees on a percentage of completion or a completed contract basis depending on the terms of the producer agreements , which we negotiate on a project by project basis . during the year ended december 31 , 2015 , we completed production and released our web series titled โ south beach-fever โ . producer 's fees are initially funded with funds received from investors . we received $ 500,000 as an advance for our producer 's fee which had been recorded in deferred revenue and upon delivery and exploitation of the web series in july 2015 , we recorded the revenues during the year ended december 31 , 2015. during the year ended december 31 , 2014 , we did not produce any digital content and instead , concentrated our efforts in identifying and acquiring the rights to certain properties that we intend to produce for online distribution . some of our current agreements with financing sources permit us to earn up to a $ 250,000 producer 's fee for each web series . โ initial distribution/ advertising revenue : we earn revenues from the distribution of online content on advertising based video on demand ( โ avod โ ) platforms . distribution agreements contain revenue sharing provisions which permit the producer to retain a percentage of all domestic and international advertising revenue generated from the online distribution of a particular web series . typically , these rates range from 30 % to 45 % of such revenue . we have previously distributed our productions on various online platforms including yahoo ! and facebook and currently have an agreement to distribute our web series โ south beach - fever โ through hulu and ancillary content through aol . pursuant to our agreements with the online platforms , we have recorded revenues from advertising for the year ended december 31 2015 of $ 2.9 million of which $ 2.4 million has been received . โ secondary distribution revenue : once our contractual obligation with the initial online distribution platform expires , we have the ability to derive revenues from distributions of the web series in ancillary markets such as dvd , television and subscription video on demand ( โ svod โ ) . for the year ended december 31 , 2014 , we derived $ 0.05 million of revenues in ancillary markets from the distribution of projects that were completed in 2012. no revenues from this source have been derived during the year ended december 31 2015 , as our project is contractually obligated to remain in the initial distribution window for a period of at least six months . as a producer , we also have the ability to generate sponsorship revenues . we would generally be eligible to retain between 70 % and 100 % of any product integration fees or sponsorship revenues , associated with any of our web series . during the years ended december 31 , 2015 and 2014 , we did not earn any revenues from product integration . story_separator_special_tag in addition we received $ 2.8 million from a related party as advances for working capital and repaid $ 3.2 million to the same related party . during the year ended december 31 , 2014 , we received $ 2.9 million in loan and security agreements that were offset by a repayment of approximately $ 2.1 million to a related party . as of december 31 , 2015 and 2014 , we had cash of approximately $ 2.2 million and approximately $ 0.2 million , respectively , and a working capital deficit of approximately $ 5.2 million and approximately $ 9.6 million , respectively . as discussed earlier , we entered into an agreement with dolphin films , inc. , entity directly owned by our ceo to provide management team and back office services for the period april 1 , 2013 through december 31 , 2014 for an annual fee of $ 2.0 million . for the year ended december 31 , 2014 , we recorded revenues in the amount of $ 2.0 million related to this agreement . the agreement ended on december 31 , 2014 and was not renewed for 2015 as the specific projects for which our services were engaged had been completed . during 2015 , we received $ 0.5 million in producer 's fees and $ 1.9 million of advertsing revenues from our web series . we received approximately $ 0.5 million of additional advertising revenue and borrowed approximately $ 0.3 million from our ceo during the first quarter of 2016. we expect to begin to generate cash flows from our other sources of revenue , including the production and distribution of at least one web series and intend to borrow funds from our ceo and raise additional capital through the sale of shares of our common stock for working capital . financing arrangements during 2011 and 2012 , we secured financing for a slate of projects through equity finance agreements in the amount of $ 1.0 million that were entered into during 2011 and 2012. pursuant to the terms of the agreements , we were permitted to invest in projects through december 31 , 2012. these funds were allocated across eleven projects . lenders are entitled to receive , from the producers ' gross receipts generated by each of the eleven projects , ( i ) first , a return of their principal , ( ii ) second , a preferential return of 15 % of their principal and ( iii ) third , a 50 % split of any additional producers ' gross receipts ( with the company receiving the other 50 % ) . the agreement defines โ producers ' gross receipts โ as the net profit of the production after all costs have been paid and after the actors and others have been paid their pro rata share of any subsequent revenue . each of the agreements provides that the company is entitled to earn a producer 's fee of up to $ 250,000 per production which is considered part of the expenses of the project and paid prior to calculation of the producers ' gross receipts . 21 based on the gross producers ' revenues through december 31 , 2015 , we are not required to pay the lenders any amount in excess of the existing liability already recorded as of december 31 , 2015. two of the productions were completed as of december 31 , 2015 and there was immaterial producer gross receipts generated as defined in the equity finance agreements as of december 31 , 2015. to the extent that we generate additional gross producer revenues subsequent to year end , the lenders would be entitled to receive their pro rata share of such revenue . during the years ended december 31 , 2015 and 2014 , we entered into various loan and security agreements with individual investors totaling $ 4.0 million to finance the production of our new web series โ south beach โ fever โ . in connection with the execution of each of the loan and security agreements , the company granted each individual lender the right to participate in the future profit generated by the series ( defined as the gross revenues of such series less the aggregate amount of principal and interest paid for the financing of such series ) in proportion to their loan commitment over the aggregated loan commitment received to the finance the series . the loans earn interest of up to 12 % annually which was initially payable monthly through august 31 , 2015 , except for one agreement which was through february 29 , 2015. during the year ended december 31 , 2015 and pursuant to the terms of the agreements , we exercised our option to extend the maturity date of the loan and security agreements to august 31 , 2016 and began accruing interest at 1.25 % over the stated rate . subsequent to year end , we have signed agreements with ten of the loan and security agreement debtholders to issue shares of common stock at $ 0.25 per share in payment in full of their principal and interest outsanding under their agreements . on december 7 , 2015 , we entered into a subscription agreement with an investor to sell up to $ 7,000,000 in convertible promissory notes . the promissory note , bears interest on the unpaid balance at a rate of 10 % per annum , becomes due and payable on december 7 , 2016 and may be prepaid , without penalty , at any time . pursuant to the subscripton agreement , we issued a convertible note to the investor in the amount of $ 3,164,000. at any time prior to the maturity date , the investor has the right , at its option , to convert some or all of the convertible note into common shares . the convertible note has a conversion price of $ 0.25 per share .
| results of operations year ended december 31 , 2015 as compared to year ended december 31 , 2014 revenues for the year ended december 31 2015 , we generated substantially all of our revenue from the distribution of our digital web series . we also generated revenues from a portion of fees obtained from the sale of memberships to online kids clubs . we have earned $ 2.4 million from advertising commitments for the year ended december 31 , 2015. in addition , we have earned a net producer 's fee of $ 0.5 million related to our digital web series , โ south beach-fever โ . during 2015 , substantially all of our time and resources were spent on the production and post-production of our web series , โ south beach-fever โ . by comparison , during the year ended december 31 , 2014 , we generated revenue from ( 1 ) the production and distribution of online digital content and ( 2 ) the provision of production management and back office services to dolphin films , inc , an affiliated entity . as stated above , the agreement to provide production management and back office services ended on december 31 , 2014 and was not renewed for 2015 as the specific projects for which our services were engaged were completed . as discussed earlier , on march 7 , 2016 , as a result of the merger , we acquired dolphin films . 19 replace_table_token_3_th revenues from production and distribution increased by $ 2.8 million for the year ended december 31 , 2015 as compared to the prior year due to the release of our digital web series .
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23 the company has continued to position itself as a system integrator , which capability provides the company with the potential to generate more substantive orders over a broader product base . the strategy , as both a manufacturer and integrator , is designed to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation , commercial air transport , united states department of defense ( ยdodย ) /governmental , and foreign military markets . this approach , combined with the company 's industry experience , is designed to enable is & s to develop high quality products and systems , to reduce product time to market and to achieve cost advantages over products offered by its competitors . the company sells to both the oem and the retrofit markets . customers include various oems , commercial air transport carriers and corporate/general aviation companies , dod and its commercial contractors , aircraft operators , aircraft modification centers and foreign militaries . occasionally , is & s sells its products directly to dod ; however , the company sells its products primarily to commercial customers for end use in dod programs . sales to defense contractors are generally made on commercial terms , although some of the termination and other provisions of government contracts are applicable to these contracts . cost of sales related to product sales is comprised of material , components and third party avionics purchased from suppliers , direct labor , and overhead costs . many of the components are standard , although certain parts are manufactured to meet is & s specifications . the overhead portion of cost of sales is comprised primarily of salaries and benefits , building occupancy costs , supplies , and outside service costs related to production , purchasing , material control , and quality control . cost of sales includes warranty costs . cost of sales related to engineering development contracts ( ยedcย ) sales is comprised of engineering labor , consulting services , and other costs associated with specific design and development projects . these costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within cost of sales with the reimbursement accounted for as a sale in accordance with the percentage-of-completion method of accounting . company funded research and development ( ยr & dย ) expenditures relate to internally-funded efforts towards the development of new products and the improvement of existing products . these costs are expensed as incurred and reported as r & d expenses . the company intends to continue investing in the development of new products that complement current product offerings and to expense associated r & d costs as they are incurred . selling , general and administrative expenses consist of sales , marketing , business development , professional services , salaries and benefits for executive and administrative personnel , facility costs , recruiting , legal , accounting , bad debt expense and other general corporate expenses . is & s sells its products to agencies of the united states and foreign governments , aircraft operators , aircraft modification centers , and original equipment manufacturers . the company 's c ustomers have been and may continue to be affected by the uncertain economic conditions that currently exist both in the united states and abroad . such conditions may cause customers to curtail or delay their spending on both new and existing aircraft . factors that can impact general economic conditions and the level of spending by customers include , but are not limited to , general levels of consumer spending , increases in fuel and energy costs , conditions in the real estate and mortgage markets , labor and healthcare costs , access to credit , consumer confidence , and other macroeconomic factors that affect spending behavior . furthermore , spending by government agencies may be reduced in the future if tax revenues decline , including as a result of currently proposed tax reform legislation in the united states . if customers curtail or delay their spending or are forced to declare bankruptcy or liquidate their operations because of adverse economic conditions , the company 's revenues and results of operations would be affected adversely . however , the company believes that , in an uncertain economic environment , customers that may have otherwise elected to purchase newly manufactured aircraft may be interested instead in retrofitting existing aircraft as a cost-effective alternative , thereby creating a market opportunity for is & s . story_separator_special_tag net sales . net sales increased $ 8.0 million , or 39.4 % , to $ 28.0 million for fiscal 2016 from $ 20.1 million for fiscal 2015. for fiscal 2016 , product sales increased $ 12.4 million and edc sales decreased $ 4.5 million , in each case , compared to fiscal 2015. the increase in product sales was primarily the result of increased shipments of displays for retrofit programs to commercial transport customers , the dod , and commercial subcontractors as a result of increased demand compared to fiscal 2015. the decrease in edc sales was primarily the result of less revenue being recognized from edc projects awarded in prior years as they are nearing completion and they have not been replaced by new edc projects . cost of sales . cost of sales was $ 11.5 million , or 41.1 % of net sales , for fiscal 2016 compared to $ 13.1 million , or 65.5 % of net sales , in fiscal 2015. the decrease in cost of sales was primarily the result of decreased sales volume in the company 's edc programs , partially offset by increased manufacturing costs reflecting increased product sales . the company 's overall gross margin in fiscal 2016 was 58.9 % compared to 34.5 % in fiscal 2015. the overall margin increase primarily reflects the effect of increased product sales , the recognition of deferred revenue and increased production volume relative to fixed costs . story_separator_special_tag further , is & s may need to develop and introduce new or enhanced products , to respond to competitive pressures , to invest in or acquire businesses or technologies , or to respond to unanticipated requirements or developments . if insufficient funds are available , the company may not be able to introduce new products or to compete effectively . contractual obligations the company 's contractual obligations as of september 30 , 2017 mature as follows : replace_table_token_9_th ( 1 ) a ยpurchase obligationย is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms , including fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . these amounts are primarily comprised of open purchase order commitments entered in the ordinary course of business with vendors and subcontractors pertaining to fulfillment of the company 's current order backlog . off-balance sheet arrangements the company has no off-balance sheet arrangements . 28 inflation is & s does not believe inflation had a material effect on its financial position or results of operations during the past three years ; however , it can not predict future effects of inflation . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( ยgaapย ) requires management to make estimates and assumptions that affect 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 reporting period . the company 's most critical accounting policies are revenue recognition , income taxes , inventory valuation , share based compensation and warranty reserves . revenue recognition the company enters into sales arrangements with customers that , in general , provide for the company to design , develop , manufacture and deliver air data equipment , large flat-panel display systems , and advanced monitoring systems that measure and display critical flight information , including data relative to aircraft separation , airspeed , altitude , and engine and fuel data measurements . the company 's sales arrangements may include multiple deliverables as defined in fasb asc topic 605-25 ย multiple-element arrangements ย ( ยasc topic 605-25ย ) , which typically include design and engineering services and the production and delivery of the flat panel display and related components . the company includes any design and engineering services elements in edc sales and any functional upgrade and product elements in product sales on the accompanying consolidated statements of operations . to the extent that an arrangement contains software elements that are essential to the functionality of tangible products sold in the arrangement , the company recognizes revenue for the deliverables in accordance with the guidance included in fasb accounting update 2009-14 , ย revenue arrangements that include software elements ย ( ยasu 2009-14ย ) ; and fasb accounting standards update 2009-13 , ยmultiple-deliverable revenue arrangements-a consensus of the fasb emerging issues task forceย ( ยasu 2009-13ย ) ; and fasb asc topic 605 , ยrevenue recognitionย ( ยasc topic 605ย ) . to the extent that an arrangement contains software components , which include functional upgrades that are sold on a standalone basis and which the company has deemed outside the scope of the exception defined by asu 2009-14 , the company recognizes software revenue in accordance with asc topic 985 , ย software ย ( ยasc topic 985ย ) . multiple element arrangements the company identifies all goods and or services that are to be delivered separately under such a sales arrangement and allocates sales to each deliverable ( if more than one ) based on that deliverable 's selling price . the company considers the appropriate recognition method for each deliverable . the company 's multiple element arrangements can include defined design and development activities , functional upgrades , and product sales . the company utilizes the selling price hierarchy that has been established by fasb asu 2009-13 , which requires that the selling price for each deliverable be based on vendor-specific objective evidence if available , third-party evidence if vendor-specific objective evidence is not available , or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available . to the extent that an arrangement includes a deliverable for which estimated selling price is used , the company determines the best estimate of selling price by applying the same pricing policies and methodologies that would be used to determine the price to sell the deliverable on a standalone basis . to the extent that an arrangement contains defined design and edc activities as an identified deliverable in addition to products ( resulting in a multiple element arrangement ) , the company recognizes as edc sales amounts earned during the design and development phase of the contract following the guidance included in fasb asc topic 605-35 , ยconstruction-type and production-type contractsย ( ยasc topic 605-35ย ) . to the extent that multiple element arrangements include product sales , sales are generally recognized once revenue recognition criteria for the product deliverables have been met based on the provisions of asc topic 605. the company includes any design and engineering services elements in edc sales and any functional upgrade and product elements in product sales on the accompanying consolidated statements of operations . 29 single element arrangements products to the extent that a single element arrangement provides for product sales and repairs , the company recognizes revenue when revenue recognition criteria for the product deliverable have been met based on the provisions of asc topic 605. in addition , the company receives orders for equipment and parts , and in general , recognizes revenue upon shipment to the customer . the company offers its customers extended warranties for additional fees , which it records as deferred revenue and recognizes as sales on a straight-line basis over the warranty periods .
| results of operations the following table sets forth statements of operations data expressed as a percentage of total net sales for the fiscal years indicated ( some items may not add due to rounding ) : 24 replace_table_token_6_th fiscal year ended september 30 , 2017 compared to fiscal year ended september 30 , 2016 net sales . net sales decreased $ 11.2 million , or 40 % , to $ 16.8 million from $ 28.0 million for fiscal 2016. for fiscal 2017 , product sales decreased $ 10.9 million and edc sales decreased $ 0.3 million , in each case , compared to fiscal 2016. this decrease primarily reflects decreased shipments of displays for retrofit programs to commercial transport customers and general aviation customers reflecting reduced demand compared to fiscal 2016. the decrease in edc sales was primarily the result of less revenue being recognized from edc projects awarded in prior years as they have been completed and they have not been replaced by new edc programs . cost of sales . cost of sales was $ 8.7 million or 51.6 % of net sales , for fiscal 2017 compared to $ 11.5 million , or 41.1 % of net sales , in fiscal 2016. the decrease in cost of sales was primarily the result of decreased product sales volume . the company 's overall gross margin in fiscal 2017 was 48.4 % compared to 58.9 % in fiscal 2016. the fiscal 2017 gross margin decrease reflects lower product gross margin primarily the result of reduced coverage of fixed costs due to reduced product sales volume . the edc gross margin in fiscal 2016 reflects a reversal of a loss accrual in the amount of $ 0.5 million as the company had negotiated changes in january 2016 to its arrangement with a certain customer whereby the company 's obligation with respect to certain product deliverables were cancelled . research and development ( ย r & dย ) . r & d expense was $ 4.5
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pursuant to the settlement agreement , nrm dismissed the allegation with prejudice upon receipt of a cash payment of $ 2.0 million , which was paid to nrm by our insurance carrier in november 2016. the settlement agreement contains mutual releases covering all claims that we or our affiliates , or nrm or its affiliates , have or may have against the other party or such other party 's affiliates in connection with the allegation or otherwise as of the date of the settlement agreement . upon the automatic conversion of nrm 's shares of our series b convertible preferred stock into shares of our common stock on april 8 , 2016 , we became obligated to pay nrm accrued dividends in the amount of approximately $ 914,000 . the accrued dividends obligation to nrm was reflected in current liabilities on our consolidated balance sheet at september 30 , 2016. upon nrm 's receipt of the $ 2.0 million settlement payment described above , our accrued dividends payment obligation to nrm was extinguished . we have agreed to repay our insurance carrier an aggregate amount equal to the accrued dividends , or $ 914,000 , of which $ 100,000 was paid in december 2016 , and the remainder of the balance of $ 803,000 , net of imputed interest , was included in the consolidated balance sheet as of december 31 , 2016 as note payable , and would be paid as follows : approximately $ 205,000 in january 2017 , approximately $ 305,000 in april 2017 and a final payment of $ 305,000 in july 2017. in march 2017 , the payment terms of the last two installments of $ 305,000 each were modified to be payable in july 2017 and october 2017 , respectively . 9. collaborative and other agreements in june 2013 , the company entered into a collaborative research and development agreement with the united states army medical research and materiel command and the walter reed army institute of research . the collaborative research and development agreement is focused on developing and commercializing bacteriophage therapeutics to treat s. aureus infections . during the years ended december 31 , 2016 and 2015 , the company recorded no payments to walter reed army institute of research under the collaborative research and development agreement . in march 2013 , the company entered into an exclusive channel collaboration agreement with intrexon corporation ( the โ ecc agreement โ ) . this agreement allowed the company to utilize intrexon 's synthetic biology platform for the identification , development and production of bacteriophage-containing human therapeutics . the company paid a one-time technology story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes contained elsewhere in this annual report . some of the information contained in this discussion and analysis are 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 . see โ special note regarding forward-looking statements. โ our actual results may differ substantially from those referred to herein due to a number of factors , including but not limited to risks described in the section entitled โ risk factors โ and elsewhere in this annual report . overview we are a biotechnology company focused on the discovery , development and commercialization of novel phage therapeutics . phage therapeutics use bacteriophages , a family of viruses , to kill pathogenic bacteria . phages have powerful and highly selective mechanisms of action that permit them to target and kill specific bacteria . we believe that phages represent a promising means to treat bacterial infections , especially those that have developed resistance to current therapies including the so-called multi-drug-resistant or โ superbug โ strains of bacteria . our goal is to be the leading developer of phage therapeutics . we are combining our expertise in the manufacture of drug-quality bacteriophages and our proprietary approach and expertise in identifying , characterizing and developing naturally occurring bacteriophages with that of collaboration partners in bacteriophage biology , synthetic biology and manufacturing , to develop state-of-the-art bacteriophage products . we have generally incurred net losses since our inception and our operations to date have been primarily limited to research and development and raising capital . since the shift in our focus to novel therapeutics in february 2011 through december 31 , 2016 , we have received approximately $ 51.2 million in net proceeds from the issuance of our equity securities and convertible debt securities . as of december 31 , 2016 , we had an accumulated deficit of $ 381.4 million , $ 65.8 million of which has been accumulated since january of 2011 , when our company began its focus on bacteriophage development . we anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval of our product candidates . we currently expect to use our existing cash and cash equivalents for the continued research and development of our product candidates and for working capital and other general corporate purposes . we expect our research and development expenses to increase for the foreseeable future as we continue development of our product candidates . we also expect to incur additional expenses associated with operating as a public company . as a result , we expect to continue to incur significant and increasing operating losses at least for the next several years . we do not expect to generate product revenue unless and until we successfully complete development and obtain marketing approval for at least one of our product candidates . story_separator_special_tag patents and other intellectual property rights ; and ยท the costs of lawsuits involving us or our product candidates . we may seek to raise capital through a variety of sources , including : ยท the public equity market ; ยท private equity financings ; ยท collaborative arrangements ; ยท licensing arrangements ; and or ยท public or private debt . our ability to raise additional funds will depend in part on the success of our preclinical studies and clinical trials and other product development activities , regulatory events , our ability to identify and enter into in-licensing or other strategic arrangements , and other events or conditions that may affect our value or prospects , as well as , factors related to financial , economic and market conditions , many of which are beyond our control . we can not be certain that sufficient funds will be available to us when required or on acceptable terms . if we are unable to secure additional funds on a timely basis or on acceptable terms we may be required to defer , reduce or eliminate significant planned expenditures , restructure , curtail or eliminate some or all of our development programs or other operations , dispose of technology or assets , pursue an acquisition of our company by a third party at a price that may result in a loss on investment for our stockholders , enter into arrangements that may require us to relinquish rights to certain of our product candidates , technologies or potential markets , file for bankruptcy or cease operations altogether . any of these events could have a material adverse effect on our business , financial condition and results of operations . moreover , if we are unable to obtain additional funds on a timely basis , there will be substantial doubt about our ability to continue as a going concern and increased risk of insolvency and loss of investment by our stockholders . to the extent that additional capital is raised through the sale of equity or convertible debt securities , the issuance of such securities could result in dilution to our existing stockholders . 40 critical accounting policies and use of estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . goodwill the company accounts for goodwill in accordance with provisions in asc 350 , goodwill and other intangible assets , which require that goodwill be tested for impairment at least annually . goodwill is not amortized , but is reviewed for impairment annually or more frequently if indicators of impairment are present . we determine whether goodwill may be impaired by comparing the carrying value of our single reporting unit , including goodwill , to the fair value of the reporting unit . if the fair value is less than the carrying amount , a more detailed analysis is performed to determine whether goodwill is impaired . the impairment loss , if any , is measured as the excess of the carrying value of the goodwill over the implied fair value of the goodwill and is recorded in our consolidated statements of operations . the company estimated the fair value in step one of the goodwill impairment test based on the income approach which included discounted cash flows . the fair value measurements utilized to perform the impairment analysis are categorized within level 3 of the fair value hierarchy . significant management judgment is required in the forecast of future operating results that are used in the company 's impairment analysis . the estimates the company used are consistent with the plans and estimates that it uses to manage its business . significant assumptions utilized in the company 's income approach model included the probability of success of our research and development programs , timing of commercialization of these programs , as well as anticipated growth rates . the company 's discounted cash flows required management judgment with respect to forecasted sales , launch of new products , gross margins , selling , general and administrative expenses , and capital expenditures and the selection and use of an appropriate discount rate . for purposes of calculating the discounted cash flows , the company estimated future revenue based on projected commercialization time , market penetration rate and probabilities of success for each of the research and development programs . future cash flows were then discounted to present value at a discount rate of 16.8 % . terminal value is not incorporated in the analysis due to the nature of the pharmaceutical and bioscience products . the company 's market capitalization was also considered in assessing the reasonableness of the company 's fair value as determined in step one of the goodwill impairment test .
| results of operations comparison of the years ended december 31 , 2016 and 2015 revenue for the years ended december 31 , 2016 and 2015 , we recognized revenues related to sub-licensing agreements from our former gene therapy program of $ 0.3 million and $ 0.5 million , respectively . we do not expect to recognize significant sub-license revenue from this program in future periods . research and development research and development expenses for the year ended december 31 , 2016 totaled $ 5.7 million compared to $ 4.0 million for the year ended december 31 , 2015. the increase of $ 1.7 million was primarily related to increased personnel costs of approximately $ 0.7 million , acquisition of novolytics assets of approximately $ 0.4 million , as well as increased clinical expenses . research and development expenses were offset by the receipt in 2016 of $ 0.9 million in tax rebates from the australian government for qualified research and development expenditures , as compared to $ 0.5 million received in 2015. general and administrative general and administrative expenses for the year ended december 31 , 2016 were $ 8.4 million compared to $ 6.7 million for the year ended december 31 , 2015. the $ 1.7 million increase was primarily attributable to $ 1.8 million in compensation expenses , including $ 1.5 million of non-cash stock-based compensation , offset by a reduction of $ 0.4 million of professional and consulting expenses . impairment charges we performed an impairment review of our goodwill and in process research & development ( ipr & d ) assets , which are indefinite lived intangible assets , as of december 31 , 2016. based on the impairment review , we concluded that our goodwill , with a book value of $ 7.6 million , was fully impaired .
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avnet , like story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in part iv , item 15 ( a ) , the risk factors included in part i , item 1a , and the โ forward-looking statements โ and other risks described herein and elsewhere in this annual report . overview we are a global company with manufacturing facilities in the united states , the philippines and thailand , and sales offices and design centers throughout the world . we design , develop , manufacture and market linear and mixed-signal integrated circuits , commonly referred to as analog circuits , for a large number of customers in diverse geographical locations . the analog market is fragmented and characterized by diverse applications , a great number of product variations and , with respect to many circuit types , relatively long product life cycles . the major end-markets in which we sell our products are the automotive , communications and data center , computing , consumer and industrial markets . we are incorporated in the state of delaware . critical accounting policies the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements . the securities and exchange commission ( โ sec โ ) has defined the most critical accounting policies as the ones that are most important to the presentation of our financial condition and results of operations , and that require us to make our most difficult and subjective accounting judgments , often as a result of the need to make estimates of matters that are inherently uncertain . based on this definition , our most critical accounting policies include revenue recognition , which impacts the recording of net revenues ; valuation of inventories , which impacts costs of goods sold and gross margins ; the assessment of recoverability of long-lived assets , which impacts impairment of long-lived assets ; assessment of recoverability of intangible assets and goodwill , which impacts impairment of goodwill and intangible assets ; accounting for income taxes , which impacts the income tax provision ; and assessment of litigation and contingencies , which impacts charges recorded in cost of goods sold , selling , general and administrative expenses and income taxes . these policies and the estimates and judgments involved are discussed further below . we have other significant accounting policies that either do not generally require estimates and judgments that are as difficult or subjective , or it is less likely that such accounting policies would have a material impact on our reported results of operations for a given period . our significant accounting policies are described in note 2 to the consolidated financial statements included in this annual report . revenue recognition we recognize revenue for sales to direct customers and sales to distributors when a customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services . the transaction price is calculated as selling price net of variable considerations , such as distributor price adjustments . in determining the transaction price , we evaluate whether the price is subject to refund or adjustment to determine the net consideration that is expected to be realized . the transaction price does not include amounts collected on behalf of another party , such as sales taxes or value added tax . we elected the practical expedient to not disclose the value of unsatisfied performance obligations for ( i ) contracts with an original expected length of one year or less and ( ii ) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed . we estimate returns for sales to direct customers and distributors based on historical return rates applied against current period gross revenue . specific customer returns and allowances are considered within this estimate . accounts receivable from direct customers and distributors are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment , at which point we have a legally enforceable right to collection under normal terms . accounts receivable related to consigned inventory is recognized when the customer takes title to such inventory from its consigned location , at which point inventory is relieved , title transfers , and we have a legally enforceable right to collection under the terms of the agreement with the related customers . customers are generally required to pay for products and services within our standard terms , which is net 30 days from the date of invoice . we estimate potential future returns and sales allowances related to current period product revenue . management analyzes historical returns , changes in customer demand and acceptance of products when evaluating the adequacy of returns and sales allowances . estimates made may differ from actual returns and sales allowances . these differences may materially impact reported revenue and amounts ultimately collected on accounts receivable . historically , such differences have not been material . 23 distributor price adjustments are estimated based on our historical experience rates and also considering economic conditions and contractual terms . to date , actual distributor claims activity has been materially consistent with the estimates we have made based on our historical rates . our revenue arrangements do not contain significant financing components . revenue is recognized over a period of time when it is assessed that performance obligations are satisfied over a period rather than at a point in time . when any of the following criteria is fulfilled , revenue is recognized over a period of time : ( a ) the customer simultaneously receives and consumes the benefits provided by the performance completed . ( b ) performance creates or enhances an asset ( for example , work in process ) that the customer controls as the asset is created or enhanced . story_separator_special_tag the calculation of our income tax expense and income tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations . asc no . 740-10 , income taxes ( โ asc 740-10 โ ) , prescribes a recognition threshold and measurement framework for financial statement reporting and disclosure of tax positions taken or expected to be taken on a tax return . under asc 740-10 , a tax position is recognized in the financial statements when it is more likely than not , based on the technical merits , that the position will be sustained upon examination , including resolution of any related appeals or litigation processes . a tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50 % likelihood of being realized upon settlement . although we believe that our computation of tax benefits to be recognized and realized are reasonable , no assurance can be given that the final outcome will not be different from what was reflected in our income tax provisions and accruals . such differences could have a material impact on our net income and operating results in the period in which such determination is made . see note 15 : โ income taxes โ in the notes to consolidated financial statements included in part iv , item 15 ( a ) of this annual report for further information related to asc 740-10. we evaluate our deferred tax asset balance and record a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized . in the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount , an adjustment to the deferred tax asset valuation allowance would be recorded . this adjustment would increase income in the period such determination was made . likewise , should it be determined that all or part of the net deferred tax asset would not be realized in the future , an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such determination is made . in assessing the need for a valuation allowance , historical levels of income , expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered . realization of our deferred tax asset is dependent primarily upon future taxable income in the u.s. and certain foreign jurisdictions . our judgments regarding future profitability may change due to future market conditions , changes in u.s. or international tax laws and other factors . these changes , if any , may require material adjustments to the net deferred tax asset and an accompanying reduction or increase in net income in the period in which such determinations are made . litigation and contingencies from time to time , we receive notices that our products or manufacturing processes may be infringing the patent or other intellectual property rights of others , notices of stockholder litigation or other lawsuits or claims against us . we periodically assess each matter in order to determine if a contingent liability in accordance with asc no . 450 , contingencies ( โ asc 450 โ ) , should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . we expense legal fees associated with consultations and defense of lawsuits as incurred . based on the information obtained , combined with management 's judgment regarding all of the facts and circumstances of each matter , we determine whether a contingent loss is probable and whether the amount of such loss can be estimated . should a loss be probable and estimable , we record a contingent loss in accordance with asc 450. in determining the amount of a contingent loss , we take into consideration advice received from experts in the specific matter , the current status of legal proceedings , settlement negotiations which may be ongoing , prior case history and other factors . should the judgments and estimates made by management be incorrect , we may need to record additional contingent losses that could materially adversely impact our results of operations . alternatively , if the judgments and estimates made by management are incorrect and a particular contingent loss does not occur , the contingent loss recorded would be reversed thereby favorably impacting our results of operations . 25 story_separator_special_tag period expense . in fiscal year 2019 , the company reversed $ 221.5 million of uncertain tax position reserves and $ 30.1 million of related interest reserves , net of federal and state benefits , primarily due to the fiscal fourth quarter settlement of an audit of the company 's fiscal year 2009 through fiscal year 2011 federal corporate income tax returns , which also settled intercompany buy-in license payment issues for fiscal years 2012 through fiscal year 2019 . $ 140.7 million of fiscal year 2009 through fiscal year 2018 advance tax payments made in june 2018 were applied to additional federal tax liabilities generated by the settlement . the reversal of uncertain tax position reserves for intercompany transfer pricing issues increased accumulated unremitted foreign earnings , which resulted in an additional transition tax charge of $ 47.7 million in the fiscal fourth quarter . our fiscal year 2019 effective tax rate was lower than the statutory tax rate primarily due to the $ 251.6 million reversal of uncertain tax position and related interest reserves , and earnings of foreign subsidiaries , generated primarily by our international operations managed in ireland , that were taxed at lower rates . these impacts were partially offset by tax generated by gilti provisions and a $ 68.7 million transition tax charge .
| results of operations the following table sets forth certain consolidated statements of income data expressed as a percentage of net revenues for the periods indicated : replace_table_token_3_th the following table shows pre-tax stock-based compensation included in the components of the consolidated statements of income reported above as a percentage of net revenues for the periods indicated : replace_table_token_4_th a review of our fiscal year 2019 performance compared to fiscal year 2018 performance appears below . a review of our fiscal year 2018 performance compared to fiscal year 2017 performance is set forth in part ii , item 7 of the form 10-k for the fiscal year ended june 30 , 2018 under the caption `` results of operations '' . net revenues we reported net revenues of $ 2.3 billion and $ 2.5 billion in fiscal years 2019 and 2018 , respectively . our net revenues in fiscal year 2019 decreased by 7 % compared to our net revenues in fiscal year 2018 . revenue from industrial products was down 11 % due to lower demand for control and automation , automatic test equipment and security products , partially offset by higher demand for usb extension products . revenue from communications and data center products was down 15 % due to lower demand for network and datacom and server products . revenue from consumer products was down 6 % due to lower demand in smartphones and home entertainment products , partially offset by higher demand in handheld computers and wearable products . revenue from automotive products was up 6 % , driven by increased demand for powertrain and safety and security products . the decrease in revenue was also partially driven by the 52-week fiscal year 2019 compared to the 53-week fiscal year 2018 .
| 4,891 |
in addition , the following discussion of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report . business overview we are a national provider of infusion solutions . we work with physicians , hospital systems , skilled nursing facilities , and healthcare payors to provide patients access to post-acute care services . we operate with a commitment to bring customer-focused healthcare infusion therapy services into the home or alternate site setting . by collaborating with the full spectrum of healthcare professionals and the patient , we aim to provide cost-effective care that is driven by clinical excellence , customer service and values that promote positive outcomes and an enhanced quality of life for those whom we serve . as of december 31 , 2017 , we had a total of 66 service locations in 27 states . our platform provides nationwide service capabilities and the ability to deliver clinical management services that offer patients a high-touch , community-based and home-based care environment . our core services are provided in coordination with , and under the direction of , the patient 's physician . our multidisciplinary team of clinicians , including pharmacists , nurses , dietitians and respiratory therapists , work with the physician to develop a plan of care suited to our patient 's specific needs . whether in the home , physician office , ambulatory infusion center , skilled nursing facility or other alternate sites of care , we provide products , services and condition-specific clinical management programs tailored to improve the care of individuals with complex health conditions such as gastrointestinal abnormalities , infectious diseases , cancer , multiple sclerosis , organ and blood cell transplants , bleeding disorders , immune deficiencies and heart failure . segments following the sale of our pbm business on august 27 , 2015 ( as further discussed below ) , infusion services is the only remaining operating segment . on an ongoing basis we will no longer report operating segments unless a change in the business necessitates the need to do so . strategic assessment and transactions we continually perform strategic assessments of our business and operations . the assessments examine our market strengths and opportunities and compare our position to that of our competitors . as a result of these ongoing assessments , we have focused our growth on investments in the infusion services business , which remains the primary driver of our growth strategy . recent transactions which represent execution of the strategic assessments include : on august 27 , 2015 , we completed the sale of substantially all of our pharmacy benefit management services segment ( the โ pbm business โ ) pursuant to an asset purchase agreement dated as of august 9 , 2015 ( the โ pbm asset purchase agreement โ ) , by and among the company , bioscrip pbm services , llc and procare pharmacy benefit manager inc. ( the โ pbm buyer โ ) . under the pbm asset purchase agreement , the pbm buyer agreed to acquire substantially all of the assets used solely in connection with the pbm business and to assume certain pbm business liabilities ( the โ pbm sale โ ) . on the closing date , pursuant to the terms of the pbm asset purchase agreement , we received total cash consideration of approximately $ 24.6 million , including an adjustment for estimated closing date net working capital . 34 on october 20 , 2015 , we finalized working capital adjustment negotiations in relation to the pbm sale whereby we agreed to repay approximately $ 1.0 million to the pbm buyer . we used the net proceeds from the pbm sale to pay down a portion of our outstanding debt . on september 9 , 2016 , we acquired substantially all of the assets and assumed certain liabilities of home solutions and its subsidiaries ( the โ home solutions transaction โ ) pursuant to an asset purchase agreement dated june 11 , 2016 ( as amended , the โ home solutions agreement โ ) , by and among home solutions , a delaware corporation , certain subsidiaries of home solutions , the company and homechoice partners , inc. , a delaware corporation . home solutions , a privately held company , provides home infusion and home nursing products and services to patients suffering from chronic and acute medical conditions . the aggregate consideration paid by the company in the transaction was equal to ( i ) $ 67.5 million in cash ( the โ cash consideration ) ; plus ( ii ) ( a ) 3,750,000 shares of company common stock ( the โ transaction closing equity consideration โ ) and ( b ) the right to receive contingent equity securities of the company , in the form of restricted shares of company common stock ( the โ rsus โ ) , issuable in two tranches , tranche a and tranche b , with different vesting conditions ( collectively , the โ contingent shares โ ) . regulatory matters update approximately 16 % of revenue for the year ended december 31 , 2017 was derived directly from medicare , state medicaid programs and other government payors . we also provide services to beneficiaries of medicare , medicaid and other government-sponsored healthcare programs through managed care entities . medicare part d , for example , is administered through managed care entities . in the normal course of business , we and our customers are subject to legislative and regulatory changes impacting the level of reimbursement received from the medicare and state medicaid programs . state medicaid programs over the last several years , increased medicaid spending , combined with slow state revenue growth , led many states to institute measures aimed at controlling spending growth . spending cuts have taken many forms including reducing eligibility and benefits , eliminating certain types of services , and provider reimbursement reductions . story_separator_special_tag judgment is also used to assess trends in collections and the effects of systems and business process changes on our expected collection rates . we review the estimation process quarterly and make changes to the estimates as necessary . when it is determined that a customer account is uncollectible , that balance is written off against the existing allowance . 36 the following table shows the aging of our net accounts receivable ( net of allowance for contractual adjustments and prior to allowance for doubtful accounts ) , aged based on date of service and categorized based on the three primary overall types of accounts receivable characteristics ( in thousands ) : replace_table_token_5_th at december 31 , 2017 , our allowance for doubtful accounts was $ 37.9 million , or 30.7 % of gross accounts receivable , as compared to $ 44.7 million , or 29.1 % of gross accounts receivable , at december 31 , 2016 . the allowance for doubtful accounts decreased by approximately $ 3.0 million during 2017 due to a change in estimate resulting from stabilized collections including more predictable cash receipts from our payors . allowance for contractual discounts we are reimbursed by payors for products and services we provide . payments for medications and services covered by payors average less than billed charges . we monitor revenue and receivables from payors for each of our branches and record an estimated contractual allowance for certain revenue and receivable balances as of the revenue recognition date to properly account for anticipated differences between amounts estimated in our billing system and amounts ultimately reimbursed by payors . accordingly , the total revenue and receivables reported in our financial statements are recorded at the amounts expected to be received from these payors . for the significant portion of our infusion services revenue , the contractual allowance is estimated based on several criteria , including unbilled claims , historical trends based on actual claims paid , current contract and reimbursement terms and changes in customer base and payor/product mix . contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled . we do not believe these changes in estimates are material . the billing functions for the remaining portion of our revenue are largely computerized , which enables on-line adjudication ( i.e. , submitting charges to third-party payors electronically , with simultaneous feedback of the amount the primary insurance plan expects to pay ) at the time of sale to record net revenue , exposure to estimating contractual allowance adjustments is limited to this portion of the business . goodwill and intangible assets goodwill and indefinite-lived intangible assets are not subject to amortization and , in accordance with asc topic 350 , intangibles โ goodwill and other , we evaluate goodwill and indefinite lived intangible assets for impairment on an annual basis and whenever events or circumstances exist that indicate that the carrying value of goodwill or indefinite-lived intangible assets may no longer be recoverable . management may choose to undertake a qualitative assessment in order to assess whether a quantitative analysis is required . in determining whether management will utilize the qualitative assessment in any one year , management will consider overall economic factors as well as the passage of time since last quantitative assessment . in january 2017 , the fasb issued authoritative guidance that simplifies the measurement of goodwill impairment to a single-step test . the guidance eliminates step two of the goodwill impairment test ; the measurement of goodwill impairment will now be the amount by which a reporting unit 's carrying value exceeds its fair value , not to exceed the carrying amount of goodwill . under the revised guidance , failing step one will result in goodwill impairment . the company adopted the new guidance on january 1 , 2017 on a prospective basis . 2017 warrants the 2017 warrants are reflected as a liability in other non-current liabilities on the balance sheet and are adjusted to fair value at the end of each reporting period through earnings . the 2017 warrants entitle the purchasers of the warrants to purchase shares of common stock , representing at the time of any exercise an equivalent number of shares equal to 4.99 % of the common stock of the company on a fully diluted basis . the exercise price and the number of shares that may be acquired upon exercise of the 37 2017 warrants is subject to adjustment in certain situations , including price based anti-dilution protection and standard anti-dilution protections if the company effects a stock split , subdivision , reclassification or combination of its common stock or fixes a record date for the making of a dividend or distribution to stockholders of cash or certain assets . off-balance sheet arrangements as of december 31 , 2017 , we did not have any material off-balance sheet arrangements , as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 165.3 million for the year ended december 31 , 2015 , reflecting the impact of the home solutions acquisition and increased wage , benefit , and other field office costs . bad debt expenses . bad debt expense for the year ended december 31 , 2017 decreased by approximately $ 2.9 million , or 11 % , to $ 23.7 million , compared to $ 26.6 million for the year ended december 31 , 2016 . bad debt expense decreased primarily due to a change in estimate resulting from stabilized collections , including more predictable cash receipts from our payors . the decrease in bad debt expense of $ 15.8 million , or 37 % , in 2016 as compared to expense of $ 42.4 million for the year ended december 31 , 2015 was the result of continued focus on improvement of billing and collection efforts to ensure timely cash receipts , as well as a change in estimate associated with the allowance for doubtful accounts .
| results of operations the following consolidated statements have been derived from our audited consolidated financial statements included in this annual report on form 10-k. the discussion set forth below compares our annual results of operations with the results of prior years . certain amounts below have been revised to reflect immaterial corrections , see note 1 - nature of business . replace_table_token_6_th revenue . revenue for the year ended december 31 , 2017 decreased approximately $ 118.4 million , or 13 % , to $ 817.2 million , compared to revenue of $ 935.6 million for the year ended december 31 , 2016 . the decrease in net revenue primarily reflects the company 's shift in strategy to focus on growing its core revenue mix , including the impact of unitedhealthcare contract transition effective september 30 , 2017 , the impact of the cures act , and the impact of the company 's exit from the hepatitis c market in 2016 , partially offset by additional revenues resulting from the acquisition of home solutions . revenue for the year ended december 31 , 2016 decreased approximately $ 46.6 million , or 5 % , to approximately $ 935.6 million , compared to revenue of $ 982.2 million for the year ended december 31 , 2015 . the decrease in revenue in 2016 as compared to 2015 is the result of decreases in patient service volumes , specifically in our lower margin chronic business , the divestiture of our hepatitis c business , partially offset by additional revenues resulting from the home solutions acquisition , and an increase in patient service volume primarily in our core nutrition therapies and chronic infused therapies . gross profit . gross profit consists of revenue less cost of revenue ( excluding depreciation expense ) . the cost of revenue primarily includes the costs of prescription medications , supplies , nursing services , shipping and other direct and indirect costs .
| 4,892 |
as of december 27 , 2019 , estimated amortization expense for other intangible assets for each of the next five fiscal years and thereafter is as follows : replace_table_token_31_th 61 note 9 โ debt obligations debt obligations as of december 27 , 2019 and december 28 , 2018 consisted of the following : replace_table_token_32_th maturities of the company 's debt , excluding finance leases , for each of the next five years and thereafter at december 27 , 2019 are as follows : replace_table_token_33_th senior secured term loan credit facility on june 22 , 2016 , the company story_separator_special_tag the following discussion should be read in conjunction with information included in item 8 of this report . unless otherwise indicated , the terms โ company โ , โ chefs ' warehouse โ , โ we โ , โ us โ , and โ our โ refer to the chefs ' warehouse , inc. and its subsidiaries . overview and recent developments overview we are a premier distributor of specialty foods in nine of the leading culinary markets in the united states . we offer more than 55,000 skus , ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins . we serve more than 34,000 customer locations , primarily located in our sixteen geographic markets across the united states and canada , and the majority of our customers are independent restaurants and fine dining establishments . our allen brothers subsidiary sells 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 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 ; the expansion of our existing distribution centers ; our entry into new distribution centers , including the construction of new distribution centers in chicago , san francisco , toronto and dallas ; 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 $ 1.30 billion in fiscal 2017 to $ 1.59 billion in fiscal 2019 . recent significant acquisitions on february 3 , 2020 , we entered into an asset purchase agreement to acquire substantially all of the assets of cambridge packing co , inc. , a specialty center-of-plate producer and distributor in new england . the purchase price was approximately $ 17.0 million paid in cash at closing and is subject to a customary working capital true-up . we are required to pay additional contingent consideration , if earned , of up to $ 3.0 million over a two -year period upon successful attainment of certain gross profit targets . on january 27 , 2020 , we entered into an asset purchase agreement to acquire substantially all of the assets , including certain real-estate assets , of sid wainer & son , a specialty food and produce distributor in new england . the purchase price was approximately $ 46.5 million paid in cash at closing and is subject to a customary working capital true-up . we are required to pay additional contingent consideration , if earned , of up to $ 4.0 million over a two -year period upon successful attainment of certain gross profit targets . on february 25 , 2019 , pursuant to an asset purchase agreement , we acquired substantially all of the assets of bassian , a specialty center-of-the-plate distributor based in northern california . the aggregate purchase price for the transaction was approximately $ 31.8 million , consisting of $ 28.0 million in cash paid at closing and the issuance of a $ 4.0 million unsecured convertible note , partially offset by the settlement of a net working capital true-up . we will also pay additional contingent consideration , if earned , which could total $ 9.0 million over a four -year period . the payment of the earn-out liability is subject to the successful achievement of certain gross profit targets . on august 25 , 2017 , we entered into an asset purchase agreement to acquire substantially all of the assets of fells point , a specialty center-of-the-plate manufacturer and distributor based in the metro baltimore and washington dc area . the final purchase price for the transaction was approximately $ 34.1 million , including $ 29.7 million paid in cash at closing , $ 3.3 million consisting of 185,442 shares of our common stock and $ 1.1 million paid upon settlement of a net working capital true-up . we are also required to pay additional contingent consideration , if earned , in the form of an earn-out amount which could total approximately $ 12.0 million . the payment of the earn-out liability is subject to the successful achievement of annual 33 adjusted ebitda targets for the fells point business over a period of four years following closing . we paid $ 3.0 million during both fiscal 2018 and fiscal 2019 to the former owners of fells point related to the successful attainment of the targeted ebitda in the first two years of their earn-out agreement . story_separator_special_tag our cost of sales may not be comparable to other similar companies within our industry . operating expenses . our operating expenses include warehousing , protein 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 , share-based compensation expense and changes in the fair value of our contingent earn-out liabilities ) . interest and other expense . interest and other expense expense consists primarily of interest on our outstanding indebtedness and , as applicable , the amortization or write-off of deferred financing fees . 35 story_separator_special_tag style= '' padding-left:0px ; text-indent:0px ; line-height : normal ; padding-top:10px ; '' > replace_table_token_10_th gross profit increased primarily due to increased sales volumes . gross profit margin increased approximately 10 basis points . this increase in gross profit margin related to the approximately 71 basis points increase in the company 's center-of-the plate category margin , partially offset by an approximate 50 basis points decrease in the company 's specialty category margin compared to margins in the fifty-two weeks ended december 29 , 2017. operating expenses replace_table_token_11_th the increase in operating expenses relates primarily to the increased sales volumes and includes a $ 1.4 million non-cash charge for the change in the fair value of the company 's earn-out liabilities . the decrease in our operating expense as a percentage of sales is attributable to our continuing operating expense leverage , partially offset by the impact of changes in the fair value of the company 's earn-out liabilities which were $ 1.4 million in fiscal 2018 versus a credit of $ 0.6 million in fiscal 2017. interest and other expense 2018 2017 $ change % change interest and other expense 20,914 22,719 $ ( 1,805 ) ( 7.9 ) % interest and other expense decreased primarily due to lower effective interest rates charged on the company 's outstanding debt and the conversion of the convertible subordinated notes on july 25 , 2018 , partially offset by a $ 1.1 million write-off of deferred financing fees in fiscal 2018 . 37 provision for income taxes replace_table_token_12_th the lower effective tax rate in fiscal 2017 is due primarily to the enactment of h.r . 1 , originally known as the tax cuts and jobs act ( the โ tax act โ ) which created a one-time income tax benefit of $ 3.6 million from the remeasurement of the company 's deferred tax assets and liabilities in the fourth quarter of fiscal 2017. among other changes to the u.s. internal revenue code , the tax act reduced the u.s. federal corporate top tax rate from 35.0 % to 21.0 % . liquidity and capital resources we finance our day-to-day operations and growth primarily with cash flows from operations , borrowings under our senior secured credit facilities and other indebtedness , operating leases , trade payables and equity financing . indebtedness the following table presents selected financial information on our indebtedness ( in thousands ) : replace_table_token_13_th as of december 27 , 2019 , we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $ 392.1 million . see note 9 โ debt obligations โ to our consolidated financial statements for a full description of our debt instruments . on november 22 , 2019 , we issued $ 150.0 million aggregate principal amount of 1.875 % convertible senior notes ( the โ senior notes โ ) . approximately $ 43.2 million of the net proceeds were used to repay all outstanding borrowings then outstanding under our abl and we intend to use the remainder for working capital and general corporate purposes , which may include future acquisitions . on july 25 , 2018 , the holders of the $ 36.8 million principal amount of convertible subordinated notes that were issued in connection with our acquisition of del monte converted these notes and related accrued interest of $ 0.3 million into 1,246,272 shares of the company 's common stock . on june 29 , 2018 , we entered into an asset-based loan facility ( โ abl โ ) that increased our borrowing capacity from $ 75.0 million to $ 150.0 million . additionally , we reduced the fixed-rate portion of interest charged on our senior secured term loan ( โ term loan โ ) from 475 basis points to 350 basis points over adjusted libor as a result of repricings executed on december 14 , 2017 and november 16 , 2018. a portion of the interest rate charged on our term loan is currently based on libor and , at our option , a component of the interest charged on the borrowings outstanding on our abl , if any , may bear interest rates based on libor . libor has been the subject of reform and is expected to phase out by the end of fiscal 2021. the consequences of the discontinuation of libor can not be entirely predicted but could impact the interest expense we incur on these debt instruments . we will negotiate alternatives to libor with our lenders before libor ceases to be a widely available reference rate . equity offering on december 19 , 2017 , we completed a public offering of 1,900,000 shares of our common stock which resulted in net proceeds of approximately $ 34,020 after deducting underwriters ' fees , commissions and transaction expenses . the net proceeds were used for acquisitions , working capital and general corporate purposes . 38 liquidity the following table presents selected financial information on liquidity ( in thousands ) : replace_table_token_14_th ( 1 ) we define working capital as current assets less current liabilities .
| results of operations replace_table_token_6_th fiscal year ended december 27 , 2019 compared to fiscal year ended december 28 , 2018 net sales 2019 2018 $ change % change net sales $ 1,591,834 $ 1,444,609 $ 147,225 10.2 % organic growth contributed $ 65.0 million , or 4.5 % , to sales growth in the year . the remaining sales growth of $ 82.2 million , or 5.7 % , resulted from acquisitions . organic case count grew approximately 5.2 % in our specialty category . in addition , growth in specialty unique customers and placements grew 4.5 % and 3.0 % , respectively , compared to the prior year . pounds sold in our center-of-the-plate category increased 0.7 % compared to the prior year . estimated inflation was 2.4 % in our specialty category and 2.6 % in our center-of-the-plate category compared to fiscal 2018 . gross profit replace_table_token_7_th gross profit increased primarily due to increased sales volumes . gross profit margin increased approximately 12 basis points . gross profit margins increased 19 basis points in the company 's specialty category and increased 18 basis points in the company 's center-of-the-plate category compared to the prior year period operating expenses replace_table_token_8_th the increase in operating expenses relates primarily to increased sales volumes and non-cash charges for the change in the fair value of the our earn-out liabilities of $ 5.9 million and $ 1.4 million for fiscal 2019 and 2018 , respectively . operating expenses as a percentage of net sales increased 30 basis points .
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the change in accounting for forfeitures was applied on a modified retrospective basis by means of a cumulative-effect adjustment to equity . as of january 1 , 2017 story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes as of december 31 , 2017 and 2016 and for the years ended december 31 , 2017 , 2016 and 2015 included in this form 10-k. overview we are an alternative asset management firm offering yield solutions to retail and institutional investors . we focus on credit-related investment strategies , primarily originating senior secured loans to private middle market companies in the u.s. that have revenues between $ 50 million and $ 1 billion . we generally hold these loans to maturity . our national direct origination franchise provides capital to the middle market in the u.s. over the past 16 years , we have provided capital to over 400 companies across 35 industries in north america . we manage three permanent capital vehicles , two of which are bdcs and one interval fund , as well as long-dated private funds and smas , focusing on senior secured credit . permanent capital vehicles : mcc , sic and strf , have a total aum of $ 2.3 billion as of december 31 , 2017 . long-dated private funds and smas : mof ii , mof iii , mof iii offshore , tac ops , mcof , aspect and smas , have a total aum of $ 2.9 billion as of december 31 , 2017 . as of december 31 , 2017 , we had $ 5.2 billion of aum , $ 2.3 billion in permanent capital vehicles and $ 2.9 billion in long-dated private funds and smas . our year over year aum decline as of december 31 , 2017 was 3 % and was driven in large part by income and return of capital distributions , offset in part by the growth of our long-dated private funds and smas . our compounded annual aum growth rate from december 31 , 2010 through december 31 , 2017 was 26 % and our compounded annual fee earning aum growth rate was 19 % , both of which have been driven in large part by the growth in our permanent capital vehicles . as of december 31 , 2017 , we had $ 3.2 billion of fee earning aum , $ 2.1 billion in permanent capital vehicles and $ 1.1 billion in long-dated private funds and smas . typically the investment periods of our institutional commitments range from 18 to 24 months and we expect our fee earning aum to increase as capital commitments included in aum are invested . in general , our institutional investors do not have the right to withdraw capital commitments and , to date , we have not experienced any withdrawals of capital commitments . for a description of the risk factor associated with capital commitments , see โ risk factors โ third-party investors in our private funds may not satisfy their contractual obligation to fund capital calls when requested , which could adversely affect a fund 's operations and performance โ included in this annual report on form 10-k. direct origination , careful structuring and active monitoring of the loan portfolios we manage are important success factors in our business , which can be adversely affected by difficult market and political conditions , such as the turmoil in the global capital markets from 2007 to 2009. since our inception in 2006 , we have adhered to a disciplined investment process that employs these principles with the goal of delivering strong risk-adjusted investment returns while protecting investor capital . we believe that our ability to directly originate , structure and lead deals enables us to achieve these goals . in addition , the loans we manage generally have a contractual maturity of between three and seven years and are typically floating rate , which we believe positions our business well for rising interest rates . the significant majority of our revenue is derived from management fees , which include base management fees earned on all of our investment products as well as part i incentive fees earned from our permanent capital vehicles and certain of our long-dated private funds . our base management fees are generally calculated based upon fee earning assets and paid quarterly in cash . our part i incentive fees are typically calculated based upon net investment income , subject to a hurdle rate , and are also paid quarterly in cash . we also may earn performance fees from our long-dated private funds and smas . typically , these performance fees are 15.0 % to 20.0 % of the total return above a hurdle rate . these performance fees are accrued quarterly and paid after the return of all invested capital and an amount sufficient to achieve the hurdle rate of return . we also may receive incentive fees related to realized capital gains in our permanent capital vehicles and certain of our long-dated private funds that we refer to as part ii incentive fees . part ii incentive fees are payable annually and are calculated at the end of each applicable year by subtracting ( i ) the sum of cumulative realized capital losses and unrealized capital depreciation from ( ii ) cumulative aggregate realized capital gains . if the amount calculated is positive , then the part ii incentive fee for such year is equal to 20 % of such amount , less the aggregate amount of part ii incentive fees paid in all prior years . if such amount is negative , then no part ii incentive fee will be payable for such year . as our investment strategy is focused on generating yield from senior secured credit , historically we have not generated part ii incentive fees . story_separator_special_tag from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will entitle medley group llc , without regard to the number of shares of class b common stock held by it , to a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and 42 entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to the number of llc units held by such holder . at the completion of our ipo , our pre-ipo owners were comprised of all of the non-managing members of medley llc . however , medley llc may in the future admit additional non-managing members that would not constitute pre-ipo owners . if at any time the ratio at which llc units are exchangeable for shares of our class a common stock changes from one-for-one as set forth in the exchange agreement , the number of votes to which class b common stockholders are entitled will be adjusted accordingly . holders of shares of our class b common stock will vote together with holders of our class a common stock as a single class on all matters on which stockholders are entitled to vote generally , except as otherwise required by law . other than medley management inc. , holders of llc units , including our pre-ipo owners , are , subject to limited exceptions , prohibited from transferring any llc units held by them upon consummation of our ipo , or any shares of class a common stock received upon exchange of such llc units , until the third anniversary of our ipo without our consent . thereafter and prior to the fourth and fifth anniversaries of our ipo , such holders may not transfer more than 33 1/3 % and 66 2/3 % , respectively , of the number of llc units held by them upon consummation of our ipo , together with the number of any shares of class a common stock received by them upon exchange therefor , without our consent . while this agreement could be amended or waived by us , our pre-ipo owners have advised us that they do not intend to seek any waivers of these restrictions . 43 the diagram below depicts our organizational structure ( excluding those operating subsidiaries with no material operations or assets ) as of march 7 , 2018 : ( 1 ) the class b common stock provides medley group llc with a number of votes that is equal to 10 times the aggregate number of llc units held by all non-managing members of medley llc . from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will provide medley group llc with a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock . ( 2 ) if our pre-ipo owners exchanged all of their vested llc units for shares of class a common stock , they would hold 81.32 % of the outstanding shares of class a common stock , entitling them to an equivalent percentage of economic interests and voting power in medley management inc. , medley group llc would hold no voting power or economic interests in medley management inc. and medley management inc. would hold 100 % of outstanding llc units and 100 % of the voting power in medley llc . ( 3 ) strategic capital advisory services , llc owns 20 % of sic advisors llc and is entitled to receive distributions of up to 20 % of the gross cash proceeds received by sic advisors llc from the management and incentive fees payable by sierra income corporation to sic advisors llc , net of certain expenses , as well as 20 % of the returns of the investments held at sic advisors llc . ( 4 ) medley llc holds 96.5 % of the class b economic interests in medley ( aspect ) management llc . ( 5 ) medley llc holds 100 % of the outstanding common interest , and db med investor i llc holds 100 % of the outstanding preferred interest in each of medley seed funding i llc and medley seed funding ii llc . 44 ( 6 ) medley seed funding iii llc holds 100 % of the senior preferred interest , strategic capital advisory services , llc holds 100 % of the junior preferred interest and medley llc holds 100 % of the common interest in strf advisors llc . ( 7 ) medley llc holds 95.5 % of the class b economic interests in mcof management llc . ( 8 ) medley llc holds 100 % of the outstanding common interest , and db med investor ii llc holds 100 % of the outstanding preferred interest in medley seed funding iii llc . ( 9 ) medley gp holdings llc holds 95.5 % of the class b economic interests in each of mcof gp llc . ( 10 ) certain employees , former employees and former members of medley llc hold approximately 40 % of the limited liability company interests in mof ii gp llc , the entity that serves as general partner of mof ii , entitling the holders to share the performance fees earned from mof ii . ( 11 ) medley llc holds 96.5 % of the class b economic interests in medley ( aspect ) gp llc .
| results of operations the following table and discussion sets forth information regarding our consolidated results of operations for the years ended december 31 , 2017 , 2016 and 2015. the audited consolidated financial statements of medley have been prepared on substantially the same basis for all historical periods presented . replace_table_token_14_th year ended december 31 , 2017 compared to year ended december 31 , 2016 revenues management fees . total management fees decreased by $ 7.4 million , or 11 % , to $ 58.1 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . our management fees from permanent capital vehicles decreased by $ 9.4 million during the year ended december 31 , 2017 compared to 2016 . the decrease was due primarily to a decline in part i incentive fees of $ 4.6 million from sic and $ 4.9 million from mcc , offset in part , by an increase in base management fees from sic . our management fees from long-dated private funds and smas increased by $ 2.0 million for the year ended december 31 , 2017 , compared to 2016 . the increase was due primarily to an increase in base management fees from our smas . 55 performance fees . there was a reversal of performance fees of $ 1.7 million during the year ended december 31 , 2017 compared to an accrual of performance fees revenue of $ 2.4 million in 2016 . the variance was attributed primarily to reversals of previously recognized performance fees as a result of declines in the underlying fund values of our smas . other revenues and fees . other revenues and fees increased by $ 1.1 million , or 13 % , to $ 9.2 million for the year ended december 31 , 2017 compared to 2016 .
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this guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011 , with early adoption permitted . the company adopted this standard effective march 31 , 2012. f-14 netscout systems , inc. notes to consolidated financial statementsย ( continued ) note 3 ย cash , cash equivalents and marketable securities cash and cash equivalents consisted of money market instruments and cash maintained with various financial institutions story_separator_special_tag the following information should be read in conjunction with the audited consolidated financial information and the notes thereto included in this annual report on form 10-k. in addition to historical information , the following discussion and other parts of this annual report contain forward-looking statements that involve risks and uncertainties . you should not place undue reliance on these forward-looking statements . actual events or results may differ materially due to competitive factors and other factors discussed in item 1a . ยrisk factors ย and elsewhere in this annual report . these factors may cause our actual results to differ materially from any forward-looking statement . overview netscout was founded in 1984 and is headquartered in westford , massachusetts . we design , develop , manufacture , market , sell and support market leading unified service delivery management , service assurance and application performance management solutions focused on assuring service delivery for the world 's largest , most demanding and complex ip based service delivery environments . we manufacture and market these products in integrated hardware and software solutions that are used by commercial enterprises , large governmental agencies and telecommunication service providers worldwide . we have a single operating segment and substantially all of our identifiable assets are located in the united states . our operating results are influenced by a number of factors , including , but not limited to , the mix and quantity of products and services sold , pricing , costs of materials used in our products , growth in employee related costs , including commissions , and the expansion of our operations . factors that affect our ability to maximize our operating results include , but are not limited to , our ability to introduce and enhance existing products , the marketplace acceptance of those new or enhanced products , continued expansion into international markets , development of strategic partnerships , competition , successful acquisition integration efforts , our ability to achieve significant expense reductions and make structural improvements and current economic conditions . on april 1 , 2011 , we completed the acquisition of psytechnics , ltd ( psytechnics ) , a provider of ip voice , video and telepresence technologies that proactively assures the user experience for unified communications services . psytechnics ' technology strengthens netscout 's unified service delivery management strategy by providing more comprehensive management of the quality of ip voice , video and telepresence service delivery along with all other application and data services . netscout paid $ 17.0 million for the acquisition of psytechnics . on october 3 , 2011 , we completed the acquisition of fox replay bv ( replay ) , a leading provider of user session reconstruction and replay technology that enables organizations to perform forensic analysis of end-user actions in support of cyberintelligence activities , information assurance , lawful intercept and general security 31 practices . replay adds critical technology and expertise that we expect will provide an important element of our unified service delivery management product strategy to address growing cybersecurity concerns in our target markets . netscout paid $ 20.2 million for the acquisition of replay . on november 18 , 2011 , we completed the acquisition of simena , llc ( simena ) , an established provider of high performance , low-latency ip packet flow-based network monitoring switching technology that enables it organizations and service providers to aggregate , filter and control network traffic for data , voice , and video monitoring and cybersecurity deployments . we expect that simena 's technology will further strengthen netscout 's unified service delivery management strategy by extending visibility capabilities . the technology should enable fine-grained packet-flow control for monitoring environments to better leverage critical network monitoring points . netscout paid $ 10.1 million in cash for the acquisition of simena and an estimated fair value at the time of acquisition for additional contingent consideration of $ 8.0 million to be paid in the future . at march 31 , 2012 , the fair value of the contingent consideration was $ 8.2 million . the three acquisitions described above have brought key new technologies and capabilities to our solution offering that greatly enhance our unified service delivery management ( usdm ) strategy , enabling further market differentiation of our solution offerings and will accelerate our customers ' time to value . each of these acquisitions complement our focused packet-flow strategy and will enable us to continue to build a leading solution set that meets customer requirements in streamlining their network monitoring architecture , enhances the usefulness of our solution in cybersecurity implementations and addresses the growing need to support unified communications ( uc ) services along with business data applications . all three of these acquisitions have been completed and are fully integrated into the organization . we made significant enhancements to our service provider solution during our fiscal year ended march 31 , 2012 and won new business as a result . our patent-pending adaptive session intelligence ( asi ) technology is giving us an edge over competition providing superior real-time analytics , scalability and price performance . the large service provider carriers and an increasing number of mid-size carriers are directing their capital spending dollars toward our solution because we help them better manage their overall capital spending and deal with the ongoing hyper-growth of data traffic . we expect to continue to gain market share in ip-based service assurance for wireless carriers globally . story_separator_special_tag we consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents and those with maturities greater than three months are considered to be marketable securities . cash and cash equivalents typically consist of money market instruments , commercial paper with a maturity of three months or less and cash maintained with various financial institutions . marketable securities generally consist of u.s. treasury bills , commercial paper with an original maturity of greater than three months , u.s. government bonds , certificates of deposit , agency bonds , corporate bonds , auction rate securities and municipal bonds . long-term marketable securities consist of auction rate securities , u.s. treasury bills , corporate bonds and certificates of deposit . the auction rate securities we hold are all collateralized by student loans with underlying support by the federal government through the federal family education loan program ( ffelp ) and by monoline insurance companies . auction rate securities typically were stated at par value prior to february 2008 due to liquidity provided through the auction process . while we continue to earn interest on auction rate securities , the failure of these auctions has created illiquidity . as a result , par value no longer approximates the estimated fair value of auction rate securities . a discounted cash flow model was used to determine the estimated fair value of our investments in auction rate securities as of march 31 , 2012 and 2011. the assumptions used in preparing the discounted cash flow model include estimates for interest rates , timing and amount of cash flows , a 34 liquidity risk premium and expected holding periods of the investments . based on this assessment of fair value , as of march 31 , 2012 we have recorded a cumulative decline in the fair value of auction rate securities of $ 190 thousand ( $ 117 thousand net of tax ) which was deemed temporary . assumptions used to value these securities and in determining the temporary nature of this impairment require significant judgment by management . changes in the assumptions could result in materially different estimates of fair values and the failure of these securities to return to par value or a decision by management to sell these securities at a loss could have a material adverse impact on earnings . revenue recognition in october 2009 , the fasb amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product 's essential functionality from the scope of industry-specific software revenue recognition guidance . in october 2009 , the fasb also amended the accounting standards for multiple deliverable revenue arrangements to : ( i ) provide updated guidance on how the deliverables in a multiple deliverable arrangement should be separated , and how the consideration should be allocated ; ( ii ) require an entity to allocate arrangement consideration using its best estimate selling price of deliverables if a vendor does not have vendor-specific objective evidence ( vsoe ) of selling price or third-party evidence ( tpe ) of selling price ; and ( iii ) eliminate the use of the residual method and require an entity to allocate arrangement consideration using the relative selling price method . we elected to early adopt this accounting guidance at the beginning of our first quarter of fiscal year 2011 on a prospective basis for applicable transactions originating or materially modified after april 1 , 2010. the adoption of this guidance did not have a material impact on our financial position or results of operations for the fiscal year ended march 31 , 2011. the following reflects our policy for revenue recognition . product revenue consists of sales of our hardware products ( which include required embedded software that works together with the hardware to deliver the hardware 's essential functionality ) , licensing of our software products , and sale of hardware bundled with a software license . product revenue is recognized upon shipment , provided that evidence of an arrangement exists , title and risk of loss have passed to the customer , fees are fixed or determinable and collection of the related receivable is probable . because many of our solutions are comprised of both hardware and more than incidental software components , we recognize revenue in accordance with authoritative guidance on both hardware and software revenue recognition . service revenue consists primarily of fees from customer support agreements , consulting and training . we generally provide software and hardware support as part of product sales . revenue related to the initial bundled software and hardware support is recognized ratably over the support period . in addition , customers can elect to purchase extended support agreements for periods after the initial software warranty expiration , typically for 12-month periods . support services generally include rights to unspecified upgrades ( when and if available ) , telephone and internet-based support , updates and bug fixes . revenue from customer support agreements is recognized ratably over the support period . reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in services revenue , with the offsetting expense recorded in cost of service revenue . training services include on-site and classroom training . training revenues are recognized as the related training services are provided . generally , our contracts are accounted for individually . however , when contracts are closely interrelated and dependent on each other , it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts . 35 multi-element arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time . for multi-element arrangements comprised only of hardware products and related services , we allocate the total arrangement consideration to the multiple elements based on each element 's selling price compared to the total relative selling price of all the elements .
| results of operations comparison of years ended march 31 , 2012 and 2011 revenue product revenue consists of sales of our hardware products and licensing of our software products . service revenue consists of customer support agreements , consulting and training . no one direct customer or indirect channel partner accounted for more than 10 % of our total revenue during fiscal years ended march 31 , 2012 and 2011. replace_table_token_7_th product . the 5 % , or $ 8.2 million , increase in product revenue was due to a $ 9.1 million increase in revenue from our service provider sector and a $ 400 thousand increase in revenue from our enterprise sector . these increases were offset by a $ 1.3 million decrease in our government sector . compared to the same period in the prior year , we realized an 11 % decrease in units shipped , while the average selling price per unit of our products increased approximately 17 % . the increase in average selling price per unit is due to a shift in product mix from our lower priced probes and software to our higher priced infinistream products . product revenue related to our acquisitions was $ 4.1 million during the year ended march 31 , 2012. we expect revenue growth to continue to accelerate within the service provider sector as we anticipate further gains due to acceptance of our lte solution within our large service provider carriers . service . the 8 % , or $ 9.9 million , increase in service revenue was due to a $ 10.6 million increase in revenue from maintenance contracts due to increased new maintenance and renewals from a growing support base and an $ 834 thousand increase in premium support contracts .
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company overview compass minerals is a leading provider of essential minerals focused on safely delivering where and when it matters to help solve nature 's challenges for customers and communities . our salt products help keep roadways safe during winter weather and are used in numerous other consumer , industrial and agricultural applications . our plant nutrition business manufactures an innovative and diverse portfolio of products that improve the quality and yield of crops , while supporting sustainable agriculture . additionally , our specialty chemical business serves the water treatment industry and other industrial processes . as of december 31 , 2020 , we operate 21 production and packaging facilities with more than 3,000 personnel throughout the u.s. , canada , brazil and the u.k , including : the largest rock salt mine in the world in goderich , ontario , canada ; the largest dedicated rock salt mine in the u.k. in winsford , cheshire ; a solar evaporation facility located near ogden , utah , which is both the largest sop specialty fertilizer production site and the largest solar salt production site in the western hemisphere ; several mechanical evaporation facilities producing consumer and industrial salt ; and multiple facilities producing essential agricultural nutrients and specialty chemicals in brazil . our salt segment provides highway deicing salt to customers in north america and the u.k. as well as consumer deicing and water conditioning products , ingredients used in consumer and commercial food preparation , and other salt-based products for consumer , agricultural and industrial applications in north america . in the u.k. , we operate a records management business utilizing excavated areas of our winsford salt mine with one other surface location in london , england . our plant nutrition businesses produce and market specialty plant nutrition products worldwide to distributors and retailers of crop inputs , as well as growers . our principal plant nutrition product in our plant nutrition north america segment is sop , which we market under the trade name protassium+ . we also sell various premium micronutrient products under our wolf trax and other brands . our plant nutrition south america segment operates two primary businesses in brazilโagricultural productivity , which manufactures and distributes a broad offering of specialty plant nutrition solution-based products , and chemical solutions , which manufactures and markets specialty chemicals , primarily for the water treatment industry and for use in other industrial processes . we focus on building intrinsic value by growing our earnings before interest , taxes , depreciation and amortization ( โ ebitda โ ) and by improving our asset quality . we can employ our operating cash flow and other sources of liquidity to pay dividends , re-invest in our business , pay down debt and make acquisitions . covid-19 pandemic the ongoing covid-19 pandemic has negatively impacted the global economy , disrupted global supply chains and created significant volatility and disruption of financial markets . as an essential business , we have continued producing and delivering products that support critical industries such as transportation , agriculture , chemical , food , pharmaceutical and animal nutrition . however , we have instituted several measures in response to the covid-19 pandemic and the covid-19 pandemic has negatively affected our business in a number of ways . employee welfare : our management team has taken multiple actions to limit the exposure of employees to the spread of covid-19 , including instituting remote working where possible , adjusting shift schedules and crew sizes , restricting visitation to operational sites , curtailing all business-related commercial air travel , and increasing sanitation of offices and common areas within our facilities . operations and sales : the covid-19 pandemic has not interrupted the operations of our mining and manufacturing facilities in north america and brazil . operations at our u.k. salt mine were idled near the end of march 2020 through mid-may 2020 due to the very mild winter weather experienced in that market , along with u.k. government guidance on covid-19 preventative measures . during 2020 , we also experienced an impact to some of our sales channels due to manufacturing outages and retail disruptions related to covid-19 , primarily for our non-deicing salt products . in total , we estimate that the combined impact of lost sales and incremental operating costs related to the covid-19 pandemic totaled approximately $ 10 million on a year-to-date basis . 39 2020 form 10-k compass minerals international , inc. supply chain and logistics : to date , we have e xperienced no material supply chain or logistics issues related to covid-19 . we continue to evaluate potential supply chain and logistics impacts , proactively increase inventory levels of critical sourced inputs and identify secondary suppliers where possible . both our operations and our logistics partners are deemed โ essential โ under current governmental guidance , and we have worked to ensure we understand and comply with their safety precautions to limit potential disruptions . the ultimate impact that covid-19 will have on our future results is unknown at this time . for more information , see โ part i , item 1a , risk factors. โ consolidated results of operations * refer to โ โreconciliation of net earnings to ebitda and adjusted ebitda โ for a reconciliation to the most directly comparable gaap financial measure and the reasons we use this non-gaap measure . consolidated results commentary : 2019 โ 2020 total sales decreased $ 117.0 million , due to a decrease in the salt and plant nutrition south america segments , partially offset by an increase in the plant nutrition north america segment . operating earnings decreased 14 % , or $ 23.1 million , due to lower operating earnings in our salt and plant nutrition north america segments and higher corporate expenses . diluted earnings per share decreased 5 % , or $ 0.09. ebitda * adjusted for items management believes are not indicative of our ongoing operating performance ( โ adjusted ebitda โ ) * decreased 8 % , or $ 24.4 million . story_separator_special_tag other income , net : decreased $ 1.3 million from income of $ 3.0 million to income of $ 1.7 million the decrease was primarily due to lower interest income and debt refinance fees in 2019. income tax expense : increased $ 13.3 million to $ 22.1 million income tax expense and our income tax rate increased in 2019 due to the release of valuation allowances related to plant nutrition south america in 2018 and discrete tax expense items in 2019 compared to benefits in 2018. our effective tax rate increased from 11 % in 2018 to 26 % in 2019. our effective tax rate in 2018 was impacted by the release of valuation allowances related to plant nutrition south america . our income tax provision in both periods differs from the u.s. statutory rate primarily due to u.s. statutory depletion , state income taxes , foreign income , mining and withholding taxes and interest expense recognition differences for tax and financial reporting purposes . operating segment performance the following financial results represent consolidated financial information with respect to sales from our salt , plant nutrition north america and plant nutrition south america segments for the years ended december 31 , 2020 , 2019 and 2018. sales primarily include revenue from the sales of our products , or โ product sales , โ and the impact of shipping and handling costs incurred to deliver our salt and plant nutrition products to our customers . the results of operations of the consolidated records management business and other incidental revenues include sales of $ 10.1 million , $ 9.7 million and $ 10.5 million for 2020 , 2019 and 2018 , respectively . these sales are not material to our consolidated financial results and are not included in the following operating segment financial data . 42 2020 form 10-k compass minerals international , inc. salt segment results replace_table_token_2_th salt segment results commentary : 2019 โ 2020 salt sales decreased 12 % , or $ 110.1 million , due to lower salt sales volumes , which was partially offset by higher average sales prices . salt sales volumes decreased 14 % , or 1,483,000 tons , and contributed approximately $ 118 million to the decrease in sales . highway deicing sales volumes decreased 14 % as a result of mild weather in north america and the u.k. when compared to 2019 , which was partially offset by higher sales volumes to our chemical customers . consumer and industrial sales volumes decreased 12 % due to lower sales of deicing products due to the mild weather in 2020 and lower non-deicing sales volumes primarily due to covid-19 . salt average sales price increased 1 % and partially offset the decrease in sales by approximately $ 8 million due to slightly higher average sales prices . highway deicing average sales prices increased 1 % , reflecting higher prices realized in the first half of the year from higher north american highway deicing contract prices for the 2019-2020 winter season , and higher chemical customer prices , partially offset by lower north american highway deicing contract prices for the 2020-2021 winter season . consumer and industrial average sales prices increased 1 % due to non-deicing price increases in 2020. salt operating earnings decreased 4 % , or $ 6.2 million , due to lower sales volumes and higher per-unit product costs in 2020 , which was partially offset by lower per-unit logistics costs . per-unit product costs were higher in 2020 due to higher per-unit costs in the u.k. and at our consumer and industrial plants largely due to lower production volumes . salt segment results commentary : 2018 โ 2019 salt sales increased 4 % , or $ 31.4 million , due to higher highway deicing average sales prices and higher consumer and industrial sales volumes , which was partially offset by lower highway deicing sales volumes . salt sales volumes decreased 6 % , or 704,000 tons , which offset the increase in salt segment sales by approximately $ 24 million . highway deicing sales volumes decreased 9 % as a result of mild weather in the u.k. when compared to the significantly above average u.k. winter weather in the first quarter of 2018 and lower north american contract volumes in the 2018-2019 bid season due primarily to lower production volumes at our goderich mine in 2018. consumer and industrial sales volumes increased 7 % due to higher sales volumes of deicing and non-deicing products . salt average sales price increased 10 % and contributed approximately $ 55 million to the increase in salt segment sales due to higher highway deicing prices and product sales mix , as consumer and industrial products , which have a higher average sales price than highway deicing products , were a higher proportion of total sales in the current period . highway deicing average sales prices increased 12 % , primarily as a result of the realization of higher north american highway deicing bid prices for the 2019-2020 winter season . consumer and industrial average sales prices decreased 2 % due to sales mix . salt operating earnings increased 45 % , or $ 52.3 million , due to higher highway deicing prices in 2019. per-unit product costs were higher in 2019 due to a higher mix of consumer and industrial sales which have a higher per-unit cost . per-unit production costs and volumes at our north american mines have improved from 2018 which was unfavorably impacted by the labor strike at the goderich mine . 43 2020 form 10-k compass minerals international , inc. story_separator_special_tag style= '' padding-left:36pt ; text-align : justify ; text-indent : -18pt '' > we shifted all of our goderich mine production to continuous mining in the fourth quarter of 2017 following significant investments in this technology . our continuous mining and haulage system at the goderich mine is expected to provide a safer , more sustainable production environment and enhance our ability to ramp up and down to meet demand fluctuations .
| plant nutrition north america results replace_table_token_3_th plant nutrition north america results commentary : 2019 โ 2020 plant nutrition north america sales increased 16 % , or $ 33.4 million , primarily due to higher sales volumes , which was partially offset by lower sales prices . plant nutrition north america sales volumes increased 21 % , or 66,000 tons , and increased sales by approximately $ 43 million . the volume increase was primarily the result of suppressed demand in the first half of 2019 due to the cold and wet weather conditions in key north american markets and an upturn in the agriculture market during 2020. plant nutrition north america average sales prices decreased 4 % which partially offset the increase in sales by approximately $ 10 million . plant nutrition north america operating earnings decreased 46 % , or $ 10.4 million , due to higher per-unit product costs and lower average sales prices , which was partially offset by higher sales volumes and lower sg & a expenses . the higher per-unit product cost in 2020 was due to an inventory adjustment of $ 7.4 million related to an overstatement of bulk sop stockpiles , unplanned downtime and feedstock inconsistency at our ogden facility . plant nutrition north america results commentary : 2018 โ 2019 plant nutrition north america sales decreased 12 % , or $ 27.0 million , primarily due to lower sales volumes . plant nutrition north america sales volumes decreased 12 % , or 45,000 tons , and reduced sales by approximately $ 29 million . the volume decrease was primarily the result of lower demand due to the wet weather conditions in key north american markets in the first half of 2019. plant nutrition north america average sales prices increased 1 % which partially offset the decrease in sales by approximately $ 2 million .
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the number of shares of our common stock that may be story_separator_special_tag for purposes of this management 's discussion and analysis of financial condition and results of operation , references to โ we , โ โ our , โ โ us โ or similar terms when used in a historical context refer to lgi homes , inc. and its subsidiaries . key results key financial results as of and for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 , were as follows : home sales revenues increased 33.0 % to $ 838.3 million from $ 630.2 million . homes closed increased 22.3 % to 4,163 homes from 3,404 homes . average sales price of our homes increased $ 16,228 to $ 201,374 from $ 185,146 . gross margin as a percentage of home sales revenues decreased slightly to 26.4 % from 26.5 % . adjusted gross margin ( non-gaap ) as a percentage of home sales revenues remained at 27.8 % . net income before income taxes increased 41.6 % to $ 113.7 million from $ 80.3 million . active communities at the end of 2016 increased to 63 from 52 . eleven active communities added during 2016 are outside of our texas markets , contributing to the further geographic diversification of our business to markets outside of texas . total owned and controlled lots increased 23.2 % to 29,460 lots at december 31 , 2016 from 23,915 lots at december 31 , 2015 . please see โ non-gaap measures-adjusted gross margin โ for a reconciliation of adjusted gross margin ( non-gaap ) to gross margin , which is the gaap financial measure that our management believes to be most directly comparable . recent developments at december 31 , 2016 , the convertible notes became convertible because the closing sale price of our common stock was greater than 130 % of the $ 21.52 conversion price on at least 20 trading days during the 30 trading day period ending on december 31 , 2016. as a result , the holders of the convertible notes may elect to convert some or all of their convertible notes in accordance with the terms and provisions of the indenture governing the convertible notes during the conversion period of january 1 , 2017 through march 31 , 2017 ( inclusive ) . as of the date of the filing of this annual report on form 10-k , none of the holders of the convertible notes have elected to convert their convertible notes . on february 28 , 2017 , borrowing commitments of our lender group under the a & r credit agreement were increased by $ 15.0 million to $ 400.0 million in accordance with the accordion feature of the a & r credit agreement . 31 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > is primarily attributable to additional employees added and expenses incurred to support the increased number of active communities and the higher number of home closings . other income . other income , net of other expenses was $ 2.2 million for the year ended december 31 , 2016 , an increase of $ 1.6 million from $ 0.6 million for the year ended december 31 , 2015 . other income includes $ 1.0 million and $ 0.2 million from the sales of lots in 2016 and 2015 , respectively . operating income and net income . operating income for the year ended december 31 , 2016 was $ 111.5 million , an increase of $ 31.8 million , or 39.9 % , from $ 79.7 million for the year ended december 31 , 2015 . net income for the year ended december 31 , 2016 was $ 75.0 million , an increase of $ 22.2 million , or 42.0 % , from $ 52.8 million for the year ended december 31 , 2015 . the 33 increases are primarily attributed to a 22.3 % increase in homes closed , a higher average sales price and improved leverage realized during 2016 as compared to 2015 . year ended december 31 , 2015 compared to the year ended december 31 , 2014 homes sales . our home sales revenues and closings by division for the years ended december 31 , 2015 and 2014 were as follows ( dollars in thousands ) : replace_table_token_8_th home sales revenues for the year ended december 31 , 2015 were $ 630.2 million , an increase of $ 247.0 million , or 64.4 % , from $ 383.3 million for the year ended december 31 , 2014. the increase in home sales revenues is primarily due to a 44.5 % increase in homes closed and an increase in the average selling price per home during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. we closed 3,404 homes during 2015 , as compared to 2,356 homes closed during 2014. this increase in home closings was largely due to the increase in the number of active communities in 2015 as well as 269 home closings in 2015 attributed to the assets acquired in connection with the oakmont acquisition . the average selling price per home closed during the year ended december 31 , 2015 was $ 185,146 , an increase of $ 22,469 , or 13.8 % , from the average selling price per home of $ 162,677 for the year ended december 31 , 2014. this increase in the average selling price per home was primarily due to changes in product mix , higher price points in certain new markets and a favorable pricing environment . cost of sales and gross margin ( home sales revenues less cost of sales ) . story_separator_special_tag backlog we sell our homes under standard purchase contracts , which generally require a homebuyer to pay a deposit at the time of signing the purchase contract . the amount of the required deposit is minimal ( generally $ 1,000 or less ) . the deposits are refundable if the homebuyer is unable to obtain mortgage financing . we permit our homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing can not be obtained within a certain period of time , as specified in their purchase contract . typically our homebuyers provide documentation regarding their ability to obtain mortgage financing within 14 days after the purchase contract is signed . if we determine that the homebuyer is not qualified to obtain mortgage financing or is not otherwise financially able to purchase the home , we will terminate the purchase contract . if a purchase contract has not been cancelled or terminated within 14 days after the purchase contract has been signed , then the homebuyer has met the preliminary criteria to obtain mortgage financing . only purchase contracts that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing are included in new ( gross ) orders . our โ backlog โ consists of homes that are under a purchase contract that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed . since our business model is generally based on building move-in ready homes before a purchase contract is signed , the majority of our homes in backlog are currently under construction or complete . ending backlog represents the number of homes in backlog from the previous period plus the number of net orders ( new orders for homes less cancellations ) generated during the current period minus the number of homes closed during the current period . our backlog at any given time will be affected by cancellations , the number of our active communities , and the timing of 35 home closings . homes in backlog are generally closed within one to two months , although we may experience cancellations of purchase contracts at any time prior to closing . it is important to note that net orders , backlog and cancellation metrics are operational , rather than accounting data , and should be used only as a general gauge to evaluate performance . backlog may be impacted by customer cancellations for various reasons that are beyond our control , and in light of our minimal required deposit , there is little negative impact to the potential homebuyer from the cancellation of the purchase contract . as of the dates set forth below , our net orders , cancellation rate , and ending backlog homes and value were as follows ( dollars in thousands ) : replace_table_token_10_th ( 1 ) net orders are new ( gross ) orders for the purchase of homes during the period , less cancellations of existing purchase contracts during the period . new orders for 2014 include home sale contracts acquired in the oakmont acquisition . ( 2 ) cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new ( gross ) orders for the purchase of homes during the period . ( 3 ) ending backlog consists of homes at the end of the period that are under a purchase contract that have met our preliminary financing criteria but have not yet closed . ending backlog is valued at the contract amount . ( 4 ) effective december 2016 , we have entered into a bulk sales agreement ( โ bsa โ ) to provide 156 homes to a third-party during 2017 through the first quarter of 2018. all associated units and values related to the bsa are not included in the table above . land acquisition policies and development see discussion included in โ business โ land acquisition policies and development. โ homes in inventory see discussion included in โ business โ homes in inventory. โ raw materials see discussion included in โ business โ raw materials. โ seasonality in all of our regions , we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry . we generally close more homes in our second , third and fourth quarters . thus , our revenue may fluctuate on a quarterly basis and we may have higher capital requirements in our second , third and fourth quarters in order to maintain our inventory levels . our revenue and capital requirements are generally similar across our second , third and fourth quarters . as a result of seasonal activity , our quarterly results of operation and financial position at the end of a particular quarter , especially the first quarter , are not necessarily representative of the results we expect at year end . we expect this seasonal pattern to continue in the long term . liquidity and capital resources overview as of december 31 , 2016 , we had $ 49.5 million of cash and cash equivalents . cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings . early stages of development or expansion require significant cash outlays for land acquisitions , land development , plats , vertical development , construction of information centers , general landscaping and other amenities . because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes , we incur significant cash outflows prior to recognition of home sales revenues . in the later stages of an active community , cash inflows may significantly exceed home sales revenues reported for financial statement purposes , as the costs associated with home and land construction were previously incurred .
| results of operations the following table sets forth our results of operations for the periods indicated : replace_table_token_6_th ( 1 ) gross margin is home sales revenues less cost of sales . ( 2 ) calculated as a percentage of home sales revenues . ( 3 ) adjusted gross margin is a non-gaap financial measure used by management as a supplemental measure in evaluating operating performance . we define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales . our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin . however , because adjusted gross margin information excludes capitalized interest and purchase accounting adjustment , which have real economic effects and could impact our results , the utility of adjusted gross margin information as a measure of our operating performance may be limited . in addition , other companies may not calculate adjusted gross margin information in the same manner that we do . accordingly , adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance . please see โ โnon-gaap measuresโadjusted gross margin โ for a reconciliation of adjusted gross margin to gross margin , which is the gaap financial measure that our management believes to be most directly comparable . 32 year ended december 31 , 2016 compared to year ended december 31 , 2015 homes sales . our home sales revenues and closings by division for the years ended december 31 , 2016 and 2015 were as follows ( dollars in thousands ) : replace_table_token_7_th home sales revenues for the year ended december 31 , 2016 were $ 838.3 million , an increase of $ 208.1 million , or 33.0 % , from $ 630.2 million for the year ended december 31 , 2015 .
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the company story_separator_special_tag financial condition and results of operations you should read the following discussion and analysis of financial condition and results of operations together with item 6 โ selected consolidated financial data โ and our consolidated 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 regarding our plans , objectives , expectations , intentions and projections . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in item 1a . risk factors . overview we are a microbiome therapeutics platform company developing a novel class of biological drugs , which are designed to treat disease by restoring the function of a dysbiotic microbiome . ser-287 is being developed to treat ulcerative colitis , or uc . our lead product candidate , ser-109 , is designed to reduce recurrences of clostridium difficile , or c. difficile infection , or cdi , a debilitating infection of the colon , in patients who have received antibiotic therapy for recurrent cdi by treating the dysbiosis of the colonic microbiome and , if approved by the u.s. food and drug administration , or fda , could be a first-in-field oral microbiome drug . in addition , using our microbiome therapeutics platform , we are developing product candidates to treat diseases where the microbiome is implicated , including ser-301 , a rationally designed , fermented inflammatory bowel disease , or ibd , candidate , and ser-401 , a microbiome therapeutic candidate for use with checkpoint inhibitors , or cpis , in patients with metastatic melanoma . we continue to evaluate microbiome pharmacokinetic and pharmacodynamic data from the ser-262 phase 1b study and other completed clinical trials , in addition to insights gained from research efforts with our other rationally designed ecobiotic microbiome therapeutic candidates , in order to determine next steps in the development of both ser-262 to treat an initial recurrence of cdi , and ser-155 to modulate the microbiome and dysbioses in patients following allogeneic hematopoietic stem cell transplants . we are also using our microbiome therapeutics platform to conduct research on various indications , including : infectious diseases , metabolic diseases , and inflammatory and immune diseases , including immuno-oncology . since our inception in october 2010 , we have devoted substantially all of our resources to developing our programs , building our intellectual property portfolio , developing our supply chain , business planning , raising capital and providing general and administrative support for these operations . all of our product candidates other than ser-287 , ser-109 , ser-262 and ser-401 are still in preclinical development or early stage discovery . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates . since our inception , we have incurred significant operating losses . our net loss was $ 98.9 million for the twelve months ended december 31 , 2018. as of december 31 , 2018 , we had an accumulated deficit of $ 389.4 million and cash and cash equivalents totaling $ 85.8 million . based on our current plans and forecasted expenses , we believe that our existing cash and cash equivalents as of december 31 , 2018 , will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2019 , raising a substantial doubt regarding our ability to continue as a going concern . we have based this estimate on assumptions that may prove to be wrong , and we could use our capital resources sooner than we currently expect . as further discussed in โ โliquidity and capital resources โ below , these factors raise substantial doubt about our ability to continue as a going concern . on october 2 , 2017 , we announced positive topline results from our phase 1b clinical trial of ser-287 in patients with uc who were failing current therapies . the ser-287 phase 1b study , a randomized , double-blinded , placebo-controlled , multiple-dose , induction study enrolled 58 patients at 20 sites across the united states with active mild-to-moderate uc , with total modified mayo scores of 4 to 10. study subjects exhibited pre-study disease activity despite use of current therapies in a majority of subjects , which included 5-amino-salacylic acid , low dose corticosteroids , or immunomodulatory therapy . evaluation of ser-287 safety and tolerability was a primary study endpoint and study results showed no drug-related serious adverse events and no imbalance in adverse events in ser-287-treated patients as compared to patients treated with placebo . analyses of study patients ' microbiome data , a co-primary study endpoint of the trial , demonstrated that ser-287 induced dose-dependent engraftment of ser-287-derived bacterial species into the colonic microbiome of the patients treated with ser-287 . patients administered vancomycin pre-treatment followed by daily administration of ser-287 had the highest level of ser-287 engraftment , which was statistically significant . this patient cohort corresponded with the study arm where the most significant clinical benefits were observed , including clinical remission and endoscopic improvement . differences in the composition of the microbiome post treatment were also associated with clinical remission . bacterial engraftment signatures were durable throughout the dosing period of the trial and were also observed at four weeks post administration of the final ser-287 dose . the pharmacologic impact of the ser-287 engraftment was supported by metabolomic and transcriptomic data . analysis of metabolites and gene expression signatures associated with inflammation and immune modulation , were observed to be correlated with remission in ser-287 treated subjects . 72 in december 20 18 , we initiated our phase 2b trial , eco-reset , evaluating ser-287 in patients with active mild-to-moderate ulcerative colitis . story_separator_special_tag if we are unable to raise sufficient capital to fund our current operating plans in the next twelve months , we may need to reduce our expenditures , potentially requiring us , among other things , to delay , scale back , or eliminate some or all of our planned clinical trials and other research and development programs . in january 2016 , we entered into a collaboration and license agreement , or the license agreement , with nhs , for the development and commercialization of certain of our product candidates in development for the treatment and management of cdi and ibd , including uc and crohn 's disease . the license agreement supports the development of our portfolio of products for cdi and ibd in markets outside of the united states and canada , or the licensed territory , and is expected to provide financial support for our ongoing research and development . we have retained full commercial rights to our entire portfolio of product candidates with respect to the united states and canada , where we plan to build our own commercial organization . under the license agreement , we granted to nhs an exclusive , royalty-bearing license to develop and commercialize , in the licensed territory , certain products based on our microbiome technology that are being developed for the treatment of cdi and ibd , including ser-109 , ser-262 , ser-287 and ser-301 , or , collectively , the nhs collaboration products . we also granted to nhs a non-exclusive license to export , develop and make nhs collaboration products in the licensed fields worldwide solely for commercialization in the licensed fields and in the licensed territory . in exchange for the license , nhs made an upfront cash payment of $ 120.0 million to us in february 2016. nhs has also agreed to pay us tiered royalties , at percentages ranging from the high single digits to high teens , of net sales of nhs collaboration products in the licensed territory . additionally , nhs has agreed to pay us up to $ 285.0 million in development milestone payments , $ 375.0 million in regulatory payments and up to an aggregate of $ 1.125 billion for the achievement of certain commercial milestones related to the sales of nhs collaboration products . we received a $ 10.0 million milestone payment in 2016 associated with the initiation of a phase 1b study for ser-262 in cdi . in june 2017 , we initiated a phase 3 clinical study of ser-109 ( ecospor iii ) in patients with multiply recurrent cdi . in july 2017 , we recorded revenue of $ 20.0 million based on the achievement of this milestone under the license agreement . in november 2018 , we executed a letter agreement with nhs , or the letter agreement , modifying certain terms of the license agreement . under the letter agreement , nhs agreed to pay us the $ 20.0 million phase 3 milestone payment upon commencement of the phase 2b study for ser-287 . in december 2018 , we received $ 40.0 million in milestone payments in connection with the commencement of the phase 2b study for ser-287 . the full potential value of the upfront payment and milestone payments payable by nhs is over $ 1.9 billion , assuming all products receive regulatory approval and are successfully commercialized . nhs is also obligated to pay some of the costs related to our clinical trials . see โ โliquidity and capital resources. โ financial operations overview revenue to date we have not generated any revenues from the sale of products . our revenues have primarily been derived from the license agreement with nhs . operating expenses our operating expenses since inception have consisted primarily of research and development activities and general and administrative costs . 74 research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , which include : expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct research , preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations that manufacture drug products for use in our preclinical and clinical trials ; salaries , benefits and other related costs , including stock-based compensation expense , for personnel in our research and development functions ; costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; the cost of laboratory supplies and acquiring , developing and manufacturing preclinical study and clinical trial materials ; costs related to compliance with regulatory requirements ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development costs as incurred . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued research and development expenses . costs incurred under our license agreement with nhs are included in the costs listed above . all costs associated with the license agreement are recorded in research and development expense in the consolidated statements of operations and comprehensive loss . our primary focus of research and development since inception has been on our microbiome therapeutics platform and the subsequent development of our programs . our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs , such as fees paid to investigators , consultants , cros in connection with our preclinical studies and clinical trials , lab supplies and consumables , and regulatory fees .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_7_th revenue total revenue was $ 28.3 million and $ 32.1 million for the years ended december 31 , 2018 and 2017 , respectively . the revenue for both periods principally relates to the recognition of amounts received under the license agreement . the decrease is mainly due to the adoption of asc 606 , described in detail in note 9. additionally , we recognized a $ 20.0 million substantive milestone under the license agreement during the twelve months ended december 31 , 2017. research and development expenses replace_table_token_8_th 81 research and development expenses were $ 96.0 million for the year ended december 31 , 2018 , compared to $ 89.5 million for the year ended december 31 , 2017 . the increase of $ 6.5 million was due primarily to the following : a decrease of $ 0.9 million in research expenses related to our microbiome therapeutics platform , due primarily to a decrease in research consulting expenses of $ 2.0 million and it expenses of $ 0.4 million and is partially offset by an increase in salary and consulting costs of $ 1.4 million and facilities and supplies costs of $ 0.1 million ; an increase of $ 2.2 million in expenses related to our ser-109 program , due primarily to an increase in contract manufacturing costs of $ 2.7 million , an increase in clinical trial consulting expenses of $ 0.6 million and an increase of $ 0.2 million in sequencing costs .
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forward-looking statements generally will be accompanied by words such as `` anticipate , '' `` believe , '' `` could , '' `` estimate , '' `` expect , '' `` forecast , '' `` intend , '' `` may , '' `` possible , '' `` potential , '' `` predict , '' `` project , '' or other similar words , phrases or expressions . this includes , without limitation , our statements and expectations regarding any current or future recovery in our industry and publicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals , and our expectations with respect to leverage . although we believe these forward-looking statements are reasonable , they are based upon a number of assumptions concerning future conditions , any or all of which may ultimately prove to be inaccurate . important factors that could cause actual results to differ materially from the forward-looking statements include , without limitation : the risks described in item 1a and in item 7a of this annual report on form 10-k ; changes in the financial stability of our clients or the overall economic environment , resulting in decreased corporate spending and service sector employment ; changes in relationships with clients ; the mix of products sold and of clients purchasing our products ; the success of new technology initiatives ; changes in business strategies and decisions ; competition from our competitors ; our ability to recruit and retain an experienced management team ; changes in raw material prices and availability ; restrictions on government spending resulting in fewer sales to the u.s. government , one of our largest customers ; our debt restrictions on spending ; our ability to protect our patents , copyrights and trademarks ; our reliance on furniture dealers to produce sales ; lawsuits arising from patents , copyrights and trademark infringements ; violations of environmental laws and regulations ; potential labor disruptions ; adequacy of our insurance policies ; the availability of future capital and the cost of borrowing ; the overall strength and stability of our dealers , suppliers , and customers ; access to necessary capital ; our ability to successfully integrate acquired businesses ; the success of our design and implementation of a new enterprise resource planning system ; and currency rate fluctuations . the factors identified above are believed to be important factors ( but not necessarily all of the important factors ) that could cause actual results to differ materially from those expressed in any forward-looking statement . unpredictable or unknown factors could also have material adverse effects on us . all forward-looking statements included in this form 10-k are expressly qualified in their entirety by the foregoing cautionary statements . except as required under the federal securities laws and the rules and regulations of the sec , we undertake no obligation to update , amend , or clarify forward-looking statements , whether as a result of new information , future events , or otherwise . overview we design , manufacture , market and sell furnishings and accessories , textiles , fine leathers , and felt , for the workplace and home . our commitment to innovation and modern design has yielded a comprehensive portfolio of products and a brand recognized for high quality and a sophisticated image . our products are targeted at the middle to upper end of the market and are sold primarily in north america and europe through a direct sales force and a broad network of independent dealers , showrooms , and retailers . during the past decade , we have diversified our sources of revenue among our various operating segments . in february , 2014 , we furthered our strategic ambition to expand our position in the high design , high margin residential space with the acquisition of holly hunt enterprises . this acquisition while immediately financially accretive also provides us considerable scale to build upon in the residential market and will be a platform for future growth . our efforts to diversify our sources of revenue among our operating segments have not distracted us from our continued efforts to grow and improve the operating performance of our office segment . our office sales and marketing teams introduced our perspective on moving the workplace forward . r/evolution workplace tm is our platform that acknowledges that there is no one office of the future and that the twenty-first century workplace poses only one constant : change . r/evolution workplace tm illustrates the freedom and opportunity commercial , healthcare , education and government organizations have to reimagine the workplace by exploring distinct planning approaches that address real estate , technology and people 's needs . we supported this sales and marketing initiative with the introduction of 2014 best of neocon award-winning designs , including the technologically advanced remix chair collection by formway design and the antenna ยฎ telescope height-adjustable desks . these initiatives coupled with investments in our supply chain resulted in office segment sales growth of almost 10 % in 2014 with 110 basis point improvement in operating margin . 29 on a consolidated basis , during 2014 , we generated operating profit of $ 76.8 million , or 7.3 % of net sales , compared to operating profit of $ 41.4 million , or 4.8 % of net sales , during 2013. operating profit for 2014 includes a pension settlement and opeb curtailment charge of $ 6.5 million and restructuring charges of $ 1.5 million . operating profit for 2013 includes restructuring charges of $ 5.1 million and an $ 8.9 million intangible asset impairment charge . for further information regarding the pension settlement and opeb curtailment , see note 17. restructuring charges and the intangible asset impairment are further described in notes 21 and 22 , respectively . during 2014 , we generated net income of $ 46.6 million , or diluted earnings per share of $ 0.97 , compared to $ 23.2 million , or diluted earnings per share of $ 0.49 in 2013. we continued to aggressively manage our balance sheet during 2014. story_separator_special_tag in 2014 , office systems and storage provided significant growth . geographically , sales in europe and sales for north america studio also contributed to sales improvement year-over-year . also , within the studio segment , holly hunt , acquired in february 2014 , bolstered our sales growth . spinneybeck and filzfelt provided for sales improvement in the coverings segment . sales to governmental entities and agencies continued to represent a large portion of our overall sales in 2014 . however , these sales declined on a year-over-year basis during 2014 . approximately 11.3 % of our 2014 sales were to federal , state and local governmental entities and related agencies as compared to 13.0 % in 2013 . gross profit and operating profit gross profit for 2014 was $ 371.7 million , an increase of $ 91.4 million , or 32.6 % , from gross profit of $ 280.3 million in 2013 . operating profit for 2014 was $ 76.8 million , a increase of $ 35.4 million , or 85.6 % , from operating profit of $ 41.4 million for 2013 . as a percentage of sales , gross profit increased from 32.5 % for 2013 to 35.4 % for 2014 . the increase in gross profit as a percent of sales during the year was driven by the richer mix of business due to the addition of holly hunt , foreign exchange benefits on the weakening canadian dollar , and improved fixed cost absorption on the higher volume . operating profit as a percentage of sales increased from 4.8 % in 2013 to 7.3 % in 2014 . operating profit for 2014 includes a pension settlement and opeb curtailment of $ 6.5 million and restructuring charges of $ 1.5 million . operating profit for 2013 includes $ 5.1 million of restructuring charges and an $ 8.9 million intangible asset impairment charge related to the write-down of the edelman tradename . 32 selling , general , and administrative expenses for 2014 were $ 286.8 million , or 27.3 % of sales , compared to $ 224.9 million , or 26.1 % of sales , for 2013 . the increase in operating expenses during 2014 was due to the acquisition of holly hunt , costs associated with a multi-day training event that occurred during the first quarter of 2014 in conjunction with our 75th anniversary , higher product development costs as well as commission and incentive compensation accruals incurred as a result of higher sales and profits . interest expense interest expense for 2014 was $ 7.4 million , an increase of $ 1.5 million from interest expense of $ 5.9 million for 2013 . the increase in interest expense for the periods noted above is mainly due to debt incurred to fund the acquisition of holly hunt in the first quarter of 2014. our interest rates were approximately 2.3 % and 2.4 % for 2014 and 2013 , respectively . other ( income ) expense , net other ( income ) expense in 2014 primarily consisted of income related to $ 5.8 million of foreign exchange gains and $ 0.6 million associated with the sale of our equity product line . other ( income ) expense in 2013 consisted of income related to $ 3.5 million of foreign exchange gains . income tax expense the effective tax rate was 38.5 % for the year , as compared to 40.4 % for 2013. our effective tax rate is dependent upon the mix of pretax income in the countries in which we operate . business segment analysis replace_table_token_11_th _ ( 1 ) during 2014 , pension settlement and opeb curtailment charges were incurred by all segments in the following amounts : office ( $ 5.3 million ) , studio ( $ 0.8 million ) , and coverings ( $ 0.4 million ) . ( 2 ) during 2014 , restructuring charges of $ 2.1 million and $ 0.3 million were incurred by the office and coverings segments , respectively . these charges were offset by an adjustment of $ 0.9 million to the studio segment 's restructuring accrual . during 2013 , restructuring charges of $ 2.1 million and $ 3.0 million were incurred by office and studio segments , respectively . ( 3 ) the company does not allocate interest expense or other ( income ) expense , net to the reportable segments . ( 4 ) as explained previously in this annual report , and described in more detail in note 2 to the audited consolidated financial statements included herein , the amounts reported above have been restated to correct certain immaterial errors reported in prior periods related to income tax liabilities and recognition of certain sales and cost of sales in the incorrect fiscal period . net sales for the office segment in 2014 were $ 656.2 million , an increase of $ 57.1 million , or 9.5 % , when compared with 2013 . this increase in the office segment for the year was mainly the result of growth of office systems and storage sales . office segment sales in 2014 were negatively impacted by $ 2.2 million due to changes in foreign exchange rates when compared to 2013 . excluding the impact of $ 5.3 million of pension settlement and opeb curtailment and restructuring charges of $ 2.1 million , adjusted operating profit for the office segment was $ 29.4 million in 2014 , an increase of $ 13.3 million , or 82.6 % , when compared with 2013 . operating 33 profit in 2013 excludes the $ 2.1 million restructuring charge for the office segment . as a percent of net sales , excluding the pension settlement and opeb curtailment as well as restructuring charges , office segment adjusted operating profit was 4.5 % for the year ended december 31 , 2014 and 2.7 % for the year ended december 31 , 2013 . net sales for the studio segment in 2014 were $ 279.2 million , an increase of $ 125.1 million , or 81.2 % , when compared with 2013 .
| results of operations business segment analysis replace_table_token_13_th _ ( 1 ) during 2013 , restructuring charges of $ 2.1 million and $ 3.0 million were incurred by office and studio segments , respectively . ( 2 ) the company does not allocate interest expense or other ( income ) expense , net to the reportable segments . ( 3 ) as explained previously in this annual report , and described in more detail in note 2 to the audited consolidated financial statements included herein , the amounts reported above have been restated to correct certain immaterial errors reported in prior periods related to income tax liabilities and recognition of certain sales and cost of sales in the incorrect fiscal period . net sales for the office segment in 2013 were $ 599.1 million , a decrease of $ 45.2 million , or 7.0 % , when compared with 2012 . this decrease in the office segment for the year was the result of lower sales to government agencies . sales to commercial clients grew during 2013 ; however , this growth was not enough to offset the decline in sales to government agencies . office segment sales in 2013 were also negatively impacted by $ 1.1 million due to changes in foreign exchange rates when compared to 2012. excluding the impact of $ 2.7 million of restructuring charges , adjusted operating profit for the office segment was $ 16.1 million in 2013 , an decrease of $ 36.1 million , or ( 69.1 ) % , when compared with 2012 . as a percent of net sales , excluding restructuring charges , office segment adjusted operating profit was 2.7 % for the year ended december 31 , 2013 and 8.1 % for the year ended december 31 , 2012 . net sales for the studio segment in 2013 were $ 154.1 million , an increase of $ 6.5 million , or 4.4 % , when compared with 2012 .
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