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the discount resulting from the difference between our carrying basis and the $ 66.0 million face value of the new loan will be recorded as interest income on a level yield basis over the anticipated term of story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this report . this discussion contains forward-looking statements about our business . these statements are based on current expectations and assumptions that are subject to risks and uncertainties . actual results could differ materially because of factors discussed in `` special note about forward-looking statements '' and `` risk factors '' contained in this annual report on form 10-k an in our other reports that we file from time to time with the sec . overview diamondrock hospitality company is a lodging-focused maryland corporation operating as a real estate investment trust ( reit ) . we own a portfolio of 27 premium hotels and resorts that contain 11,590 guest rooms . we also hold the senior note on a - 38 - mortgage loan secured by an additional hotel and have the right to acquire , upon completion , a hotel under development . as an owner , rather than an operator , of lodging properties , we receive all of the operating profits or losses generated by the hotels after the payment of fees due to hotel managers , which are calculated based on the revenues and profitability of each hotel . our vision is to be the premier allocator of capital in the lodging industry . our mission is to deliver long-term stockholder returns through a combination of dividends and enduring capital appreciation . our strategy is to utilize disciplined capital allocation and focus on the acquisition , ownership and innovative asset management of high quality lodging properties in north american markets with superior growth prospects and high barriers to entry . we differentiate ourselves from our competitors by adhering to three basic principles in executing our strategy : focus on high-quality urban and destination resort hotels ; promote innovative approaches to asset management ; and maintain a conservative capital structure . our portfolio is concentrated in key gateway cities and destination resorts . each of our hotels is managed by a third party and most are operated under a brand owned by one of the leading global lodging brand companies ( marriott international , inc. ( “ marriott ” ) , starwood hotels & resorts worldwide , inc. ( “ starwood ” ) or hilton worldwide ( “ hilton ” ) ) . we critically evaluate each of our hotels to ensure that our portfolio conforms to our vision , supports our mission and corresponds with our strategy . on a regular basis , we analyze our portfolio to identify opportunities to invest capital in certain projects or market non-core assets for sale in order to recycle capital for additional acquisitions , renovation projects , or other capital requirements . we are committed to a conservative capital structure with prudent leverage . we regularly assess the availability and affordability of capital in order to maximize the company 's value and minimize enterprise risk . in addition , we are committed to being open and transparent in our communications with stockholders and adopting and following sound corporate governance practices . high quality urban- and destination resort-focused branded hotel real estate we own 27 premium hotels and resorts throughout north america and the u.s. virgin islands . our hotels and resorts are primarily categorized as upper upscale as defined by smith travel research and are generally located in high barrier-to-entry markets with multiple demand generators . our properties are concentrated in key gateway cities ( primarily new york city , chicago , boston and los angeles ) and in destination resort locations ( such as the u.s. virgin islands and vail , colorado ) . we consider lodging properties located in gateway cities and resort destinations to be the most capable of creating dynamic cash flow growth and achieving superior long-term capital appreciation . we also believe that these locations are better insulated from new supply due to relatively high barriers-to-entry , including expensive construction costs and limited development sites . a core tenet of our strategy is to leverage our relationships with the top internationally-recognized hotel brands . we strongly believe that the premier global hotel brands create significant value as a result of each brand 's ability to produce incremental revenue with the result being that branded hotels are able to generate greater profits than similar unbranded hotels . the dominant global hotel brands typically have very strong reservation and reward systems and sales organizations , and most of our hotels are operated under a brand owned by one of the top global lodging brand companies ( marriott , starwood or hilton ) . we are primarily interested in owning hotels that are currently operated under , or can be converted to , a globally-recognized brand . in addition to leveraging global brands , we are interested in creating relationships with select non-branded boutique hotels in urban markets . we would consider opportunities to acquire other non-branded hotels located in top-tier or unique markets as we believe that the returns on certain of these hotels may be higher than if the hotels were operated under a globally recognized brand . innovative asset management we believe that we create significant value in our portfolio by utilizing our management team 's extensive experience and encouraging innovative asset management strategies . our senior management team has established a broad network of hotel - 39 - industry contacts and relationships , including relationships with hotel owners , financiers , operators , project managers and contractors and other key industry participants . we use our broad network of hotel industry contacts and relationships to maximize the value of our hotels . story_separator_special_tag on november 9 , 2012 , we acquired the 94-room hotel rex located in san francisco , california for a purchase price of $ 29.5 million . we funded the acquisition with borrowings on under credit facility . hotel dispositions on march 23 , 2012 , we completed the sale of a three-hotel portfolio for a contractual sales price of $ 262.5 million . the portfolio consisted of the griffin gate marriott resort and spa , the renaissance waverly , and the renaissance austin . we received net cash proceeds of approximately $ 92 million and the buyer assumed $ 97 million of mortgage debt secured by the renaissance waverly and $ 83 million of mortgage debt secured by the renaissance austin . we recognized a gain on the sale of the portfolio of approximately $ 9.5 million , which is reported in discontinued operations . on october 3 , 2012 , we completed the sale of the atlanta westin north at perimeter for a contractual price of $ 39.6 million . prior to the sale , we recognized an impairment loss of approximately $ 14.7 million , which is included in discontinued operations . we used a portion of the net sales proceeds to reduce the amount outstanding on our senior unsecured credit facility . capital markets on march 9 , 2012 , we closed on a limited recourse $ 170.4 million loan secured by a mortgage on the lexington hotel new york . the loan has a term of three years and may be extended for two additional one-year terms subject to the satisfaction of certain terms and conditions and the payment of an extension fee . the loan bears interest at a floating rate of one-month libor plus 300 basis points . on july 11 , 2012 , we completed a secondary public offering of our common stock . we sold 20,000,000 shares of our common stock for net proceeds of approximately $ 199.8 million . the net proceeds from the offering were used to purchase the blackstone portfolio . on november 20 , 2012 , we amended our $ 200 million senior unsecured credit facility to , among other things , reduce the interest rate spread and extend the term to january 2017 , which may be extended by us for a one-year extension period upon the payment of applicable fees and the satisfaction of certain customary conditions . on december 20 , 2012 , we closed on a non-recourse $ 74 million loan secured by a mortgage on the westin washington d.c. city center . the loan has a term of ten years . the loan bears interest at a fixed rate of 3.99 % . we used the loan proceeds to reduce the amount outstanding on our senior unsecured credit facility . recent developments - 41 - allerton note restructuring . on january 18 , 201 3 , we closed on a settlement of the bankruptcy and related litigation involving our allerton loan . as a result of the settlement , we received a $ 5.0 million cash principal payment and entered into a $ 66.0 million mortgage loan with a four -year term ( plus an additional one -year extension option ) , bearing annual interest at 5.5 % . retirement of our president and chief operating officer . on february 6 , 2013 , we announced that john l. williams will be retiring from his position as president and chief operating officer of the company effective no later than may 1 , 2013. we may , in our discretion , accelerate the effective date of mr. williams ' retirement to an earlier date . in connection with mr. williams ' retirement , we currently expect to record a non-recurring charge of approximately $ 2.8 million during the first quarter of 2013 in connection with the company 's payment of the payments and benefits described in our current report on form 8-k filed on february 6 , 2013. outlook for 2013 we believe we are in the middle of a multi-year lodging recovery cycle . hotel supply growth has flattened in most markets . we expect increased travel demand in 2013 , leading to revpar gains due more from increases in room rates than from growth in occupancy . we anticipate the extent of revenue and profit growth in the industry to be particularly sensitive to fiscal policy developments over the federal debt ceiling and sequestration . revenue from the group customer segment may be especially volatile in 2013 in response to any macro economic volatility . the cost of capital remains low due primarily to the debt markets , creating a favorable environment for renovation projects and acquisition and disposition activity in the lodging industry . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > depreciation and amortization . depreciation and amortization is recorded on our hotel buildings over 40 years for the periods subsequent to acquisition . depreciable lives of hotel furniture , fixtures and equipment are estimated as the time period between the acquisition date and the date that the hotel furniture , fixtures and equipment will be replaced . our depreciation and amortization expense increased $ 14.8 million from the year ended december 31 , 2011 to the year ended december 31 , 2012 due primarily to our 2011 and 2012 acquisitions , as well as the extensive renovation which was completed at frenchman 's reef during 2011. impairment losses . during the year ended december 31 , 2012 , we recorded an impairment loss of $ 0.5 million on the favorable leasehold asset related to our option to develop a hotel on an undeveloped parcel of land adjacent to the westin boston waterfront hotel . we also recorded impairment losses of $ 30.4 million related to the oak brook hills marriott resort . no impairment loss was recorded during year ended december 31 , 2011 . corporate expenses . corporate expenses principally consist of employee-related costs , including base payroll , bonus and restricted stock .
| results of operations the following table sets forth certain operating information for each of our owned hotels for the year ended december 31 , 2012 . replace_table_token_14_th - 42 - ( 1 ) the hotel was acquired during 2011 . ( 2 ) the hotel was acquired during 2012 . ( 3 ) the percentage change from 2011 revpar for our 2011 and 2012 acquisitions reflect the comparable period in 2011 to our 2012 ownership period . comparison of the year ended december 31 , 2012 to the year ended december 31 , 2011 our net loss for the year ended december 31 , 2012 was $ 16.6 million compared to a net loss of $ 7.7 million for the year ended december 31 , 2011 . revenue . revenue consists primarily of the room , food and beverage and other operating revenues from our hotels . our revenues from continuing operations increased $ 127.4 million from $ 622.2 million for the year ended december 31 , 2011 to $ 749.6 million for the year ended december 31 , 2012 . this increase includes amounts that are not comparable year-over-year as follows : $ 6.7 million increase from the jw marriott denver , which was purchased on may 19 , 2011 . $ 19.9 million increase from the lexington hotel new york , which was purchased on june 1 , 2011 . $ 5.1 million increase from the courtyard denver downtown , which was purchased on july 22 , 2011 . $ 11.8 million increase from the hilton boston downtown , which was purchased on july 12 , 2012 . $ 11.7 million increase from the westin washington , d.c. city center , which was purchased on july 12 , 2012 . $ 12.4 million increase from the westin san diego , which was purchased on july 12 , 2012 . $ 7.6 million increase from the hilton burlington , which was purchased on july 12 , 2012 .
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the deferred portion of state and story_separator_special_tag n and results of operations the financial and business analysis below provides information which we believe is relevant to an assessment and understanding of our financial position , results of operations , and cash flows . this financial and business analysis should be read in conjunction with the financial statements and related notes . the following discussion and certain other sections of this report contain statements reflecting our views about our future performance . forward ‑looking statements can be identified by words such as “ anticipate , ” “ intend , ” “ plan , ” “ believe , ” “ estimate , ” “ expect , ” “ assume , ” “ seek , ” “ appear , ” “ may , ” “ should , ” “ will , ” “ forecast , ” and similar references to future periods . these views involve risks and uncertainties that are difficult to predict and , accordingly , our actual results may differ materially from the results discussed in such forward ‑looking statements . we caution you against relying on any of these forward ‑looking statements . in addition to the various factors included in the “ executive summary , ” “ competitive advantages , ” “ strategy , ” “ critical accounting policies and estimates , ” and “ material trends in our business ” sections , our future performance may be affected by our reliance on residential new construction , residential repair/remodel , and commercial construction ; our reliance on third ‑party suppliers and manufacturers ; our ability to attract , develop and retain talented personnel ; our ability to maintain consistent practices across our locations ; our ability to maintain our competitive position ; and our ability to realize the expected benefits of the separation . these and other factors are discussed in detail under the caption “ risk factors ” in item 1a of this report . any forward ‑looking statement made by us speaks only as of the date on which it was made . factors or events that could cause our actual results to differ may emerge from time to time , and it is not possible for us to predict all of them . unless required by law , we undertake no obligation to update publicly any forward ‑looking statements as a result of new information , future events , or otherwise . executive summary we are the leading installer and distributor of insulation products to the united states ( “ u.s. ” ) construction industry , based on revenue . demand for our products and services is driven primarily by residential new construction , residential repair/remodel , and commercial construction activity throughout the u.s . a number of local and national factors influence activity in each of our lines of business , including demographic trends , interest rates , employment levels , business investment , supply and demand for housing stock , availability of credit , foreclosure rates , consumer confidence , and general economic conditions . activity in the construction industry is seasonal , typically peaking in the summer months . because installation of insulation historically lags housing starts by several months , we generally see a corresponding benefit in our operating results during the third and fourth quarters . competitive advantages we believe we are well positioned to organically grow our business as a result of a number of competitive advantages including : national scale . our national scale enables us to drive supply chain efficiencies and provide the tools necessary for our branches and distribution centers to effectively compete locally . given the highly fragmented homebuilding industry , our leadership positions in installation , distribution , and building science services allow us to tailor our approach to each local market , which differs in characteristics such as customer mix , competitive activity , building codes , and labor availability . moreover , serving multiple lines of business provides additional revenue growth potential with which to leverage our fixed costs , and reduces our exposure to the cyclical swings in residential new construction . strong local presence . competition for the installation and sale of insulation and other building products to builders occurs in localized geographic markets across the country . builders in each local market have different options in terms of choosing among insulation installers and distributors for their projects and value local relationships , quality , and timeliness . our national footprint includes over 180 installation services branches which are locally branded businesses that are recognized within the communities in which they operate . we have over 70 distribution centers primarily servi ng local contractors , lumberyards , retails stores , and others who , in turn , service local homebuilders and other customers . 21 through both businesses we have developed local , long-tenured relationships with a reputation for quality , service , and timeliness . two avenues to reach the builder . being a leader in both installation and distribution allows us to more effectively reach a broader set of builder customers , regardless of their size or geographic location with the united states , and leverage housing growth wherever it occurs . strategy our long-term strategy is to grow net sales , income , and operating cash flows and remain the leading insulation installer and distributor by revenue . in order to achieve these goals we plan to : · c apitalize on the u.s. housing market recovery through focused organic growth and accretive aligned acquisitions · g ain share in commercial construction · c ontinue to leverage our expertise in building science to benefit from the increasing focus on energy efficiency and trends in building codes our operating results depend heavily on residential new construction activity and , to a lesser extent , on residential repair/remodel and commercial construction activity , all of which are cyclical . we are also dependent on third-party suppliers and manufacturers providing us with an adequate supply of high-quality products . story_separator_special_tag such expense may not be indicative of our interest expense in the future . income ( loss ) from continuing operations income ( loss ) from continuing operations was $ 79.1 million , $ 10.5 million , and $ ( 11.6 ) million in 2015 , 2014 , and 2013 , respectively . income tax benefit ( expense ) from continuing operations our effective tax rates for income ( loss ) from continuing operations were ( 7 ) percent , 63 percent , and 207 percent in 2015 , 2014 , and 2013 , respectively . compared to our normalized tax rate of 38 percent , the variance in the effective tax rates in 2015 , 2014 , and 2013 was primarily due to changes in the u.s. federal and certain state valuation allowances . material trends in our business we believe there are several meaningful trends that indicate u.s. housing demand will recover to levels consistent with the historical average of the past 50 years . these trends include low interest rates relative to historical averages , the aging of housing stock , population growth , and household formation . we expect these trends to also drive long ‑term growth in repair/remodel expenditures and commercial construction activity . we normally experience stronger sales during the third and fourth calendar quarters , corresponding with the peak season for residential new construction and residential repair/remodel activity . sales during the winter weather months are seasonally slower due to lower construction activity . historically , the installation of insulation lags housing starts by several months . 26 2015 , 2014 , and 2013 business segment results the following table sets forth our net sales and operating profit information by business segment , in thousands : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th ( a ) intercompany eliminations include the elimination of intercompany profit of $ 15.6 million , $ 14.1 million , and $ 11.2 million for the years ending december 31 , 2015 , 2014 , and 2013 , respectively . other adjustments primarily include differences between estimated and actual corporate costs allocated to the segments . during the years ended december 31 , 2015 , 2014 , and 2013 , other adjustments were $ 10.8 million , $ 0.5 million , and $ 4.8 million , respectively . 2015 , 2014 , and 2013 business segment results discussion changes in operating profit margins in the following b usiness s egment r esults discussion exclude general corporate expense , net in 2015 , 2014 , and 2013 , as applicable . the construction industry is expanding both in residential new home and commercial construction , and is subject to inflationary pressures on costs . we are seeing the impact of this growth with increases in the cost of building materials . we realized higher material costs , principally for insulation , in each of the three years ended december 31 , 2015 , 2014 , and 2013. insulation is the largest commodity we purchase in our business segments . we have been successful to date in achieving price increases to more than offset the increased commodity costs . installation sales s ales increased $ 94.2 million or 9.8 percent in 2015 compared to 2014 . such increases were primarily due to increased sales volume , which increased sales by 7.4 percent . increased sales volume is primarily related to a higher level of activity in residential new construction and commercial construction and changing building code requirements . s ales also increased by 2.3 percent due to increased selling prices . such increases were partially offset by a greater number of multi-family housing starts versus single-family housing starts , the former of which uses less insulation per unit . 27 s ales increased $ 58.8 million or 6.5 percent in 2014 compared to 2013 . such increases were primarily due to increased sales volume , which increased sales 3.8 percent . increased sales volume was primarily driven by a higher level of activity in residential new construction and commercial construction and changing building code requirements . s ales also increased by 3.4 percent due to increased selling prices . such increases were partially offset by a greater number of multi-family housing starts versus single-family housing starts , the former of which uses less insulation per unit . operating results operating profit increased $ 31 . 3 million in 2015 compared to 2014 , primarily due to increased sales volume and a more favorable relationship between selling prices and commodity costs . operating profit was also positively affected by cost savings initiatives including process improvements , sourcing savings , and an employee benefit policy change . these changes were partially offset by a less favorable product mix due to higher multi-family h ousing starts ( which use less insulation per unit ) than in the prior years , as well as higher insurance costs . operating profit increased $ 17.8 million in 2014 compared to 2013 , primarily due to increased sales volume and a more favorable relationship between selling prices and commodity costs . such increases were partially offset by a greater number of multi-family housing starts versus single-family housing starts , the former of which uses less insulation per unit . distribution sales net sales increased $ 17.6 million or 2.8 percent in 2015 compared to 2014. such increases were primarily due to increased sales volume , which increased sales by 1.6 percent . increased sales volume was driven by a higher level of activity in residential new construction and commercial construction , including metal building insulation . sales volume increases were partially offset in the first quarter of 2015 by an acceleration of sales in the fourth quarter of 2014 , following the announcement of a price increase for fiberglass insulation . we also saw lower roofing sales due to consolidation in the industry . s ales i ncreased by 1.3 % due to increased selling prices . net sales increased $ 50.7 million or 8.8 percent in 2014 compared to 2013. such increases were primarily due to increased sales volume , which increased sales by 7.6
| result of increased sales and improved supplier terms . the reduction in working capital as a percentage of net sales in 2014 , compared with 2013 , was the result of increased sales , improved management of accounts receivable and inventory , and improved terms with suppliers . cash provided by operating activities for the year ended december 31 , 2015 , decreased $ 15 . 9 million from the comparable period end ed december 31 , 2 014 , primarily due to changes in deferred income taxes , the recognition of a non-cash employee benefit policy change , reduced depreciation , the non-recurring impact of improved supplier terms received in 2014 , and amortization expense related to a software system which was fully depreciated in 2014 , partially offset by an increase in net income driven by increased sales volume of residential new construction and commercial construction activity . cash provided by operating activities for the year ended december 31 , 2014 , increased $ 47.2 million from the comparable period ended december 31 , 2013 , primarily due to an increase in net income of $ 22.1 million driven by increased sales volume of residential new construction and commercial construction activity . in addition , cash from operations in 2014 benefited from improved working capital of $ 20.3 million . net cash used for investing activities was $ 12.2 million for the year ended december 31 , 2015 , which was primarily comprised of $ 1 3 .6 million in purchases of property and equipment , partially offset by $ 0.8 million of proceeds from the sale of property and equipment . net cash used for investing activities was $ 11.3 million for the year ended december 31 , 201 4 , which was primarily comprised of $ 13.1 million in purchases of property and equipment partially offset by $ 1 . 0 million of proceeds from the sale of property and equipment .
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overview of corporate developments on december 17 , 2015 , meta closed private placement transactions to accredited investors , issuing an aggregate of 266,430 shares of its common stock for consideration of approximately $ 11.7 million . meta is using the net proceeds from this stock issuance to support increased balance sheet growth and costs associated with agreements with multiple payment solutions providers . on may 10 , 2016 , metabank , through its mps division , entered into a new multi-year agreement with blackhawk network , inc. , a leading global prepaid and payments company . under the agreement , blackhawk will continue to provide marketing , servicing , and processing services for a broad range of consumer and corporate financial products issued by metabank . 73 on may 20 , 2016 , bank director named metabank the # 1 top growth bank among all banks and thrifts determined by top-line growth over a five quarter period ending march 31 , 2016. the ranking was established by the compound average growth rate in revenues over the five linked quarters . on august 15 , 2016 , the company announced that it had completed the public offering of $ 75 million of its 5.75 % fixed-to-floating rate subordinated debentures due august 15 , 2026. use of proceeds from the offering are for general purposes , acquisitions and investments in metabank as tier 1 capital to support growth . on october 26 , 2016 , metabank entered into an agreement with certain h & r block® entities to provide funding capacity for up to $ 1.45 billion and retain up to $ 750 million of interest-free refund advance loans for h & r block® tax preparation customers throughout the 2017 tax season . h & r block® is the world 's largest tax services provider with approximately 12,000 company-owned and franchise retail tax office locations . on november 1 , 2016 , metabank , completed the acquisition of substantially all of the assets and certain liabilities of eps financial , llc ( “ eps ” ) from privately-held drake enterprises , ltd. ( “ drake ” ) . the assets acquired by metabank in the eps acquisition include the eps trade name , operating platform , and other assets . the eps management team and other employees have been hired by metabank and eps operations will continue to be based out of easton , pa. the purchase price for the acquisition of approximately $ 42.5 million included the payment of approximately $ 21.3 million in cash and the issuance of 369,179 shares of meta financial common stock to drake . the cash portion of the purchase price was funded from the proceeds of the previously announced subordinated debt issuance . on november 9 , 2016 , meta financial and metabank entered into an agreement with specialty consumer services lp , ( ‘ scs ” ) to acquire substantially all of the assets , and assume specified liabilities , of scs . in exchange , meta financial has agreed to pay scs consideration of approximately $ 15,000,000 , subject to adjustment . if certain performance targets are met after the closing of the transaction , scs will be eligible to receive earnout payments consisting of up to an aggregate of $ 17,500,000 in cash and up to an aggregate of 264,431 shares of meta financial 's common stock . the transaction is expected to close in the fourth calendar quarter of 2016. on november 28 , 2016 , metabank and jackson hewitt finalized an agreement whereby metabank will be originating express refund advances to jackson hewitt customers . the company recorded net income of $ 33.2 million in fiscal 2016 compared to $ 18.1 million in fiscal 2015 . the primary reason for the increase in net income was a significant rise in non-interest income , bolstered by growth in net interest income . in fiscal 2016 , non-interest income increased to $ 100.8 million from $ 58.2 million in fiscal 2015 , due to tax product fee income and an increase in card fee income . the company 's net interest income grew to $ 77.3 million in fiscal 2016 , compared to $ 59.2 million in fiscal 2015 . the increase was driven by growth in both loan and investment volumes as well as the expansion in yields on these interest-earning assets . additionally , the continuous improvement in the overall asset mix also contributed to the increased net interest income , which was highlighted by loan growth and purchases of highly rated tax-exempt municipal securities at relatively high tax equivalent yields . partially offsetting the higher non-interest income and net interest income was non-interest expense , which rose $ 38.1 million , from $ 96.5 million in fiscal 2015 , to $ 134.6 million in fiscal 2016 and income tax expense which rose from $ 19.4 million to $ 38.8 million year over year . the company 's banking segment 2016 fiscal year income before tax was $ 16.1 million , compared to $ 14.8 million in fiscal 2015 . retail bank total loans increased $ 146.8 million during the fiscal year , or 25 % , to $ 737.4 million , from strong growth in residential real estate and commercial and multi-family real estate . retail bank checking balances continued to grow from $ 88.7 million at september 30 , 2015 , to $ 97.7 million , or 10 % , at september 30 , 2016 . the company 's payments segment 2016 fiscal year income before tax was $ 29.7 million , compared to $ 14.1 million in fiscal 2015 . this improvement was primarily the result of increases in card fee income from new and existing business partners along with tax product fee income . average mps deposits increased $ 398.9 million during fiscal 2016 , or 25 % , to $ 2.00 billion , compared to fiscal 2015 . overall , the cost of funds at metabank averaged 0.15 % during fiscal 2016 , compared to 0.11 % for 2015 . story_separator_special_tag deposits attributable to mps were up $ 706.7 million , or 50 % , at september 30 , 2016 , as compared to september 30 , 2015 . the increase is due to the addition of several new business partners during fiscal 2016 , along with natural growth in existing programs . the company 's total borrowings increased $ 624.1 million , or 111 % , from $ 563.5 million at september 30 , 2015 , to $ 1.19 billion at september 30 , 2016 , primarily due to the increase in federal funds purchased , which was done as part of a temporary repositioning of the balance sheet , as noted above . the company 's overnight federal funds purchased fluctuates on a daily basis due to the nature of a portion of its non-interest-bearing deposit base , primarily related to payroll processing timing with a higher volume of overnight federal funds purchased on monday and tuesday , which are typically paid down throughout the week . this predictable fluctuation may be augmented near a month-end by a prefunding of certain programs . in addition , the issuance of $ 75 million in subordinated debentures during the fourth quarter of fiscal 2016 was also reflected as part of the increased borrowings . 75 see notes 8 and 9 to the “ notes to consolidated financial statements , ” which are included in part ii , item 8 “ financial statements and supplementary data ” of this annual report on form 10-k. at september 30 , 2016 , the company 's stockholders ' equity totaled $ 335.0 million , an increase of $ 63.7 million from $ 271.3 million at september 30 , 2015 . stockholders ' equity increased primarily as a result of an increase in retained earnings and unrealized gains on securities , which increased due to several factors , including the timing of purchases , movement in the market rates , changes in the makeup of the securities portfolio , and as a result of the private placement of securities in december 2015. at september 30 , 2016 , the bank continued to meet regulatory requirements for classification as a well-capitalized institution . see note 13 to the “ notes to consolidated financial statements , ” which is included in part ii , item 8 “ financial statements and supplementary data ” of this annual report on form 10-k. story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; text-indent:48px ; font-size:10pt ; '' > management closely monitors economic developments , both regionally and nationwide , and considers these factors when assessing the appropriateness of its allowance for loan losses . while the current economic environment is still slightly strained , it has continued to show signs of improvement over the last several years in the company 's markets . the company 's average loss rates over the past three years have been relatively low for all loan segments , which is slightly offset by a current year charge off a significant loan relationship within the agricultural operating segment . notwithstanding these signs of improvement noted above , the company does not believe it is likely these low loss conditions will continue indefinitely . each loan segment is evaluated using both historical loss factors as well as other qualitative factors in order to determine the amount of risk the company believes exist within that pool of loans . the allowance for loan losses for the mps division , which constitute a small portion of the company 's loans , results from an estimation process that evaluates relevant characteristics of its credit portfolio ( s ) . mps also considers other internal and external environmental factors such as changes in operations or personnel and economic events that may affect the adequacy of the allowance for credit losses . adjustments to the allowance for loan losses are recorded periodically based on the result of this estimation process . the exact methodology to determine the allowance for loan losses for each program will not be identical . each program may have differing attributes including such factors as levels of risk , definitions of delinquency and loss , inclusion/exclusion of credit bureau criteria , roll rate migration dynamics and other factors . similarly , the additional capital required to offset the increased risk in subprime lending activities may vary by credit program . each program is evaluated separately . management believes that , based on a detailed review of the loan portfolio , historic loan losses , current economic conditions , the size of the loan portfolio and other factors , the current level of the allowance for loan losses at september 30 , 2016 , reflects an appropriate allowance against probable losses from the loan portfolio . although the company maintains its allowance for loan losses at a level that it considers to be adequate , investors and others are cautioned that there can be no assurance that future losses will not exceed estimated amounts , or that additional provisions for loan losses will not be required in future periods . in addition , the company 's determination of the allowance for loan losses is subject to review by its regulatory agencies , the occ and the federal reserve , which can require the establishment of additional general or specific allowances . non‑interest income . non-interest income increased by $ 42.6 million , or 73 % , to $ 100.8 million for fiscal 2016 from $ 58.2 million for 2015 primarily due to tax product fee income of $ 23.3 million related to the acquisition of refund advantage in september 2015 , an increase in fees earned on prepaid debit cards , credit products and other payment systems products of $ 16.0 million due to the addition of multiple new partners and growth in existing mps programs . loan fees also increased by $ 2.9 million from retail and premium finance loan growth . 79 non-interest expense .
| results of operations the company 's results of operations are dependent on net interest income , provision for loan losses , non-interest income , non-interest expense , income tax expense and other comprehensive income or loss . net interest income is the difference , or spread , between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities . the interest rate spread is affected by regulatory , economic and competitive factors that influence interest rates , loan demand and deposit flows . notwithstanding that a significant amount of the company 's deposits , primarily those attributable to mps , pay low rates of interest or none at all , the company , like other financial institutions , is subject to interest rate risk to the extent that its interest-earning assets mature or reprice at different times , or on a different basis , than its interest-bearing liabilities . the company 's non-interest income is derived primarily from tax product fees , prepaid cards , credit products , atm fees attributable to mps and fees charged on bank loans and transaction accounts . non-interest income is also derived from net gains on the sale of securities available for sale as well as the company 's holdings of bank-owned life insurance . this income is offset by expenses , such as compensation and occupancy expenses associated with additional personnel and office locations as well as card processing expenses attributable to mps . non-interest expense is also impacted by acquisition-related expenses , occupancy and equipment expenses , regulatory expenses , and legal and consulting expenses . 76 average balances , interest rates and yields the following table presents , for the periods indicated , the total dollar amount of interest income 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 . only the yield/rate have tax equivalent adjustments .
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we sell customized marketing programs that enable it vendors to reach corporate it decision makers who are actively researching specific it purchases . our integrated content platform consists of a network of over 130 websites that we complement with targeted in-person events . throughout the critical stages of the purchase decision process , our content offerings meet it professionals ' needs for expert , peer and it vendor information , and provide a platform on which it vendors can launch targeted marketing campaigns that generate measurable , high return on investment ( roi ) . as it professionals have become increasingly specialized , they have come to rely on our sector-specific websites for purchasing decision support . our content enables it professionals to navigate the complex and rapidly changing it landscape where purchasing decisions can have significant financial and operational consequences . based upon the logical clustering of our users ' respective job responsibilities and the marketing focus of the products that our customers are advertising , we currently categorize our content offerings across nine distinct media groups : application architecture and development ; channel ; cio/it strategy ; data center and virtualization technologies ; business applications and analytics ; networking ; security ; storage ; and technologyguide . on march 1 , 2010 , we acquired ebizq.net and certain other assets from it quadrant , inc. for $ 0.5 million in cash plus a potential future earnout valued at $ 0.6 million at the time of the acquisition . ebizq.net is a leading website for business and it decision makers focused on business process management ( bpm ) and service-oriented architecture ( soa ) . ebizq.net maintains an online community with more than 100,000 members that provides original editorial and independent content from leading industry analysts and experts via blogs , webinars , podcasts , white papers , and virtual events . the earnout was paid in the first quarter of 2012. on april 12 , 2010 , we acquired certain assets of powell media llc for $ 1.3 million in cash plus a potential future earnout valued at $ 0.9 million at the time of the acquisition . powell media llc operated the beyenetwork , a group of online technology sites that provide news , expert information and exclusive resources on the business information management lifecycle , including business intelligence ( bi ) best practices , business analytics , data integration , and data governance . all of the sites ' content is written by industry experts who share their experiences and research in a collection of articles , podcasts , and blogs focused on specific vertical industries . the earnout was paid in the first quarter of 2012. as of october 1 , 2010 , through our wholly-owned subsidiary , techtarget ( hk ) limited ( ttgt hk ) , we obtained effective control of a variable interest entity ( vie ) , keji wangtuo information technology co. , ltd , ( kwit ) , which was incorporated under the laws of the people 's republic of china ( prc ) on november 27 , 2007 , for $ 3.2 million in cash . kwit was an existing techtarget partner which operated and continues to operate chinese-language versions of some of our websites . prc laws and regulations prohibit or restrict foreign ownership of internet-related services and advertising businesses . to comply with these foreign ownership restrictions , we operate our websites and provide online advertising services in the prc through this vie . initially , we entered into certain exclusive agreements with kwit and its shareholders through ttgt hk , which obligated ttgt hk to absorb all of the risk of loss from kwit 's activities and entitled ttgt hk to receive all of their residual returns . in addition , we initially entered into certain agreements with authorized parties through ttgt hk , including management and consulting services , voting proxy , equity pledge and option agreements ( the vie agreements ) . on december 31 , 2011 , ttgt hk assigned all of its rights and obligations under the vie agreements to a newly formed wholly foreign-owned enterprise ( wfoe ) , techtarget ( beijing ) information technology consulting co. , ltd. the wfoe is established and existing under the laws of the prc , and is a wholly owned subsidiary of ttgt hk . 32 based on these contractual arrangements , we consolidate the financial results of kwit as required by accounting standards codification ( asc ) subtopic 810-10 ( asc 810-10 ) , consolidation : overall ( pre-codification : financial accounting standards board ( fasb ) interpretation no . 46r , consolidation of variable interest entities , an interpretation of arb no . 51 ) , because we hold all the variable interests of kwit through ttgt hk and the wfoe , the latter of which is the primary beneficiary of the financial results of kwit . despite the lack of technical majority ownership , there exists a parent-subsidiary relationship between us and kwit through certain of the vie agreements , whereby the shareholders of kwit assigned all of their voting rights underlying their equity interest in kwit to the wfoe . in addition , through the other aforementioned agreements , we demonstrate our ability and intention to continue to exercise the ability to obtain substantially all of the profits and absorb all of the expected losses of kwit . on april 26 , 2011 we announced that we had completed the acquisition of the websites , product offerings , and events associated with computer weekly and its sister channel-targeted brand , microscope , from reed business information limited for $ 2.0 million in cash . computer weekly , through its websites and events ( and print properties , which were not continued ) , has served united kingdom-based managers , directors and cios monitoring the technology landscape , and the advertisers looking to reach them . computer weekly and microscope also serve united kingdom it decision makers by bringing technology news and it management focused content . story_separator_special_tag it launched with more than 500 original spanish-language articles , numerous spanish-language e-books , and a resource library for spanish-language white papers and webcasts and will help better serve the 400,000 registered members that we already serve in the region . sources of revenues we sell advertising programs to it vendors targeting a specific audience within a particular it sector or sub-sector . we maintain multiple points of contact with our customers to provide support throughout their organizations and the sales cycle . as a result , our customers often run multiple advertising programs with us in order to reach discrete portions of our targeted audience . there are multiple factors that can impact our customers ' advertising objectives and spending with us , including but not limited to , product launches , increases or decreases to their advertising budgets , the timing of key industry marketing events , responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or generating sales leads . our services are generally delivered under short-term contracts that run for the length of a given advertising program , typically less than six months . the majority of our revenue is derived from the delivery of our online offerings from our media groups . online revenue represented 88 % , 87 % and 87 % of total revenues for the years ended december 31 , 2012 , 2011 and 2010 , respectively . we use both online and event offerings to provide it vendors with numerous touch points to reach key it decision makers and to provide it professionals with highly specialized content across multiple forms of media . we are experienced in assisting advertisers to develop custom advertising programs that maximize branding and roi . the following is a description of the services we offer : online . our network of websites forms the core of our content platform . our websites provide it professionals with comprehensive decision support information tailored to their specific areas of responsibility and purchasing decisions . through our websites , we offer a variety of online media offerings to connect it vendors to it professionals . our lead generation offerings allow 34 it vendors to maximize roi by capturing qualified sales leads from the distribution and promotion of content to our audience of it professionals . in august of 2011 , we released a major upgrade to our activity intelligence platform . beginning in 2012 , all of our lead generation campaigns offer the activity intelligence dashboard . our lead generation offerings include the activity intelligence dashboard , a new technology platform that gives techtarget 's customer 's marketers and sales representatives a real-time view of their prospects , which includes insights on the research activities of technology buying teams , including at an account level . lead generation offerings may also include an additional service , nurture & notify , which helps both technology marketers and their sales teams to identify highly active prospects , detect emerging projects , retarget interested buying teams , and accelerate engagement with specific accounts . our lead generation offerings may also include the syndication of the following : white papers . white papers are technical documents created by it vendors to describe business or technical problems which are addressed by the vendors ' products or services . as part of a lead generation campaign , we post white papers on our relevant websites and our users receive targeted promotions about these content assets . prior to viewing white papers , our registered members and visitors supply their corporate contact information and agree to receive further information from the vendor . the corporate contact and other qualification information for these leads are supplied to the vendor in real time through our proprietary lead management software . webcasts , podcasts , videocasts and virtual trade shows . webcasts , podcasts , videocasts , virtual trade shows and similar content bring informational sessions directly to attendees ' desktops and , in the case of podcasts , directly to their mobile devices . as is the case with white papers , our users supply their corporate contact and qualification information to the webcast , podcast , virtual trade show or videocast sponsor when they view or download the content . sponsorship includes access to the registrant information and visibility before , during and after the event . our branding offerings provide it vendors exposure to targeted audiences of it professionals actively researching information related to their products and services and include display advertising and custom offerings . display advertising can be purchased on specific websites within our network and against specific technology segments . these offerings give it vendors the ability to increase their brand awareness to highly specialized it sectors . our other offerings include the following : custom content creation . in support of our advertisers lead generation programs , we will sometimes create white papers , case studies , webcasts , or videos to our customers ' specifications through our custom media team . these content assets are then promoted to our audience in the context of the advertisers ' lead generation programs . our custom offerings allow customers to have content or entire microsites created that focus on topics related to their marketing objectives and include promotion of these vehicles to our users . content sponsorships . it vendors pay us to sponsor editorially created content vehicles on specific technology topics , such as e-zines , e-books , and e-guides. in some cases , these vehicles are supported by multiple sponsors in a single segment , with the registrant information provided to all participating sponsors . because these offerings are editorially driven , advertisers get the benefit of association with independently created content , and access to qualified sales leads that are researching the topic . list rentals . we also offer it vendors the ability to message relevant registered members on topics related to their interests .
| results of operations the following table sets forth our results of operations for the periods indicated : replace_table_token_10_th 40 comparison of fiscal years ended december 31 , 2012 and 2011 revenues replace_table_token_11_th online . the decrease in online revenue in fiscal 2012 from the fiscal year ended december 31 , 2011 ( fiscal 2011 ) was primarily attributable to a $ 4.7 million decrease in branding revenues , primarily due to decreases in banner sales volume , as well as a $ 0.6 million decrease in third party revenues . the decrease was offset in part by a $ 1.2 million increase in lead generation offerings . the decrease is primarily in north american sales , caused by delays in it purchases due to uncertainty in the macro environment , offset in part by an increase in international revenues . events . the decrease in events revenue is primarily due to a reduction in seminars and custom events . cost of revenues and gross profit replace_table_token_12_th cost of online revenue . the increase in cost of online revenues in fiscal 2012 compared to fiscal 2011 was primarily attributable to a $ 1.8 million increase in payroll-related expenses due primarily to international expansion and a $ 0.1 million increase in member acquisition costs . these increases are offset in part by a $ 0.8 million reduction in variable direct and third party costs due to the decrease in online revenues year over year . cost of events revenue .
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6. property , plant and equipment , net replace_table_token_27_th 70 notes to consolidated financial statements ( amounts in thousands except share data and where otherwise indicated story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand our results of operations and financial condition for the three years ended december 31 , 2013 . the md & a should be read in conjunction with our consolidated financial statements and notes included in item 8 of this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed elsewhere in this form 10-k , particularly in item 1a . “ risk factors ” and in the “ special note regarding forward-looking statements ” preceding part i of this form 10-k. overview and outlook dover is a diversified global manufacturer focusing on innovative equipment and components , specialty systems , and support services provided through its four major operating segments : energy , engineered systems , printing & identification , and communication technologies . the company 's entrepreneurial business model encourages , promotes , and fosters deep customer engagement , which has led to dover 's well-established and valued reputation for providing superior customer service and industry-leading product innovation . unless the context indicates otherwise , references herein to “ dover , ” “ the company , ” and words such as “ we , ” “ us , ” and “ our ” include dover corporation and its subsidiaries . our energy segment provides highly-engineered solutions for the safe and efficient extraction and handling of oil and gas in the production , downstream and drilling markets . our engineered systems segment is comprised of two platforms , refrigeration & industrial and fluid solutions , which are industry leaders in the refrigeration and food equipment , certain other industrial markets and fluids systems . our printing & identification segment provides integrated printing , coding , and dispensing solutions for the fast moving consumer goods and industrial markets . our communication technologies segment is engaged in the design and manufacture of innovative products and components in the consumer electronics , aerospace/defense , medical technology and telecommunication/other markets . we delivered solid growth during 2013 , as our consolidated revenue increased 7.7 % , representing organic growth of 2.9 % and acquisition-related growth of 4.8 % . the impact from foreign currency translation was negligible . gross profit increased $ 232.7 million , or 7.5 % , to $ 3.3 billion . we saw momentum in the second half of the year , as broad-based order and shipment activity was particularly strong at our businesses serving the refrigeration and food equipment , fast moving consumer goods , fluids , drilling and downstream energy markets . in the consumer electronics market , revenue growth was due to increased microelectronic mechanical ( “ mems ” ) microphone volumes resulting from new oem product introductions and overall smartphone market growth . this growth was offset in part by the continued market decline of two oem customers , principally affecting our speaker and receiver volumes . overall , productivity initiatives and the leveraging of higher volumes , more than offset normal pricing concessions . for further discussion related to our consolidated and segment results , see `` consolidated results of operations '' and `` segment results of operations '' , respectively , within management 's discussion and analysis of financial condition and results of operations . bookings increased 8.2 % over the prior year to $ 8.7 billion , representing growth across all segments , with strong growth of 12.7 % in engineered systems , and increases of 5.9 % in communications technologies , 5.5 % in energy and 2.4 % in printing & identification . overall , the book-to-bill of 1.00 slightly improved over the prior year . backlog increased 4.6 % to $ 1.6 billion . from a geographic perspective for the year , our north american markets were solid . our european markets continued to show improvement throughout the year with incremental growth , driven by our short cycle business activity , complemented by project shipments . china and the rest of the world markets were strong . on may 23 , 2013 , dover announced its board of directors approved a preliminary plan to spin-off certain of its communication technologies businesses into a stand-alone , publicly-traded company known as knowles corporation ( `` knowles '' ) . on february 6 , 2014 , dover announced that its board of directors approved the separation of knowles from dover through the pro rata distribution by dover of 100 % of the common stock of knowles to dover 's stockholders on february 28 , 2014. in addition , on february 10 , 2014 , the u.s. securities and exchange commission declared knowles ' registration statement on form 10 effective . as a result , the following is expected to occur : ( 1 ) the distribution of knowles ' shares would be made on february 28 , 2014 to dover stockholders of record as of the close of business on february 19 , 2014 , the record date for the distribution , ( 2 ) on the distribution date , dover stockholders will receive one share of knowles common stock for every two shares of dover 26 common stock held as of the record date , and ( 3 ) following the distribution , knowles will be an independent , publicly traded company on the new york stock exchange ( utilizing ticker symbol `` kn '' ) and dover will retain no ownership interest in knowles . the distribution has been structured to be tax-free to dover and its shareholders for u.s. federal income tax purposes . story_separator_special_tag approximately 3.0 % of our growth was generated by new products , particularly in our communication technologies segment , and geographic market expansion in our energy segment . pricing had a negligible impact to 2012 revenue , as price increases implemented to offset higher commodity costs , were partly offset by lower strategic pricing initiatives . revenues generated outside of the u.s. increased by 9.0 % compared with 2011 , with growth in canada and asia offsetting weakness in europe . over 80.0 % of the 2012 revenue growth from acquisitions was generated by sound solutions , maag pump systems , and production control services , three of our more significant recent acquisitions made in the second half of 2011 and first half of 2012. gross profit our gross profit increased $ 232.7 million , or 7.5 % , in 2013 compared with 2012 , reflecting the benefit of increased sales volumes , favorable net material costs , and benefits from productivity initiatives . the benefit from these factors were partly offset with higher depreciation and amortization expense of $ 52.2 million and higher restructuring costs of $ 8.2 million . gross profit margin as a percentage of revenue remained at 38.3 % year over year , with the operating leverage achieved by the higher volumes being offset by the impact of normal pricing concessions , business mix and higher labor costs across all segments . our gross profit increased $ 262.3 million or 9.2 % in 2012 compared with 2011 , reflecting the benefit of increased sales volumes , favorable net material costs , and benefits from productivity initiatives . gross profit margin as a percentage of revenue contracted 30 basis points in 2012 to 38.3 % from 38.6 % in 2011 with the reduction in large part due to the integration of sound solutions , which generated lower than anticipated revenue in 2012 , more than offsetting the operating leverage achieved by our other businesses . selling and administrative expenses selling and administrative expenses increased $ 144.2 million , or 7.8 % , in 2013 compared with 2012 primarily due to general increases across the segments in support of higher volumes . the current year expense also included $ 30.1 million in one-time transaction costs related to the spin-off of knowles and higher depreciation and amortization expense of $ 11.8 million . these expenses were partially offset by a $ 6.8 million gain associated with the sale of land in switzerland in the first quarter of 2013 and a one-time pension curtailment gain of $ 4.4 million recognized in the third quarter of 2013 as a result of the company 's announcement to freeze future service benefits for the u.s. benefit plans after january 1 , 2024. as a percentage of revenue , selling and administrative expenses remained constant at 22.7 % , as the higher acquisition-related depreciation and amortization was more than offset by the leveraging of higher revenue volumes . 29 selling and administrative expenses increased $ 120.7 million or 7.0 % in 2012 compared with 2011 due primarily to general increases across the segments in support of higher volumes . as a percentage of revenue , selling and administrative expenses decreased to 22.7 % in 2012 compared with 23.4 % in 2011 . this 70 basis point improvement is largely a result of leverage from the higher revenue levels , which more than offset higher acquisition-related amortization and increased restructuring charges . non-operating items interest expense , net , decreased $ 0.4 million , or 0.3 % , to $ 120.7 million in 2013 primarily due to lower average levels of cash on hand at reduced interest rates , which offset higher interest expense related to the euro-denominated debt issued in the fourth quarter of 2013. in 2012 , our interest expense , net , increased 4.9 % to $ 121.1 million due primarily to lower average levels of cash on hand at reduced interest rates , leading to $ 4.4 million less of interest income in 2012 as compared with 2011. other expense ( income ) , net in 2013 , 2012 , and 2011 includes $ 6.1 million , $ 9.5 million , and $ 7.5 million , respectively , of net foreign exchange losses resulting from the remeasurement and settlement of foreign currency denominated balances . the 2013 net foreign exchange losses are more than offset by other nonrecurring items , including approximately $ 7.4 million related to insurance settlements for property damage , as well as several other miscellaneous items , none of which were individually significant . other expense ( income ) , net in 2012 and 2011 included royalty income and other miscellaneous non-operating gains and losses , none of which are individually significant . income taxes we operate globally , and 37.3 % , 38.4 % , and 42.9 % of our pre-tax earnings in 2013 , 2012 , and 2011 , respectively , were generated in foreign jurisdictions , where such earnings are generally subject to local country tax rates that are well below the 35.0 % u.s. statutory rate . we also benefit from tax holidays and incentives in a number of the foreign jurisdictions in which we operate . as a result , our blended effective foreign or non-u.s. tax rate is typically significantly lower than the u.s. statutory rate . the 2013 effective tax rate on continuing operations was 21.9 % compared to the 2012 rate of 26.8 % . the 2013 rate was impacted by $ 77.0 million of favorable net discrete items , principally related to the conclusion of certain u.s. federal , state and international tax audits , a favorable court interpretation of tax law , certain cross-border tax consequences and the effect of the american tax relief act of 2012 signed into law on january 2 , 2013. the 2012 effective tax rate was impacted by other favorable net discrete items totaling $ 16.1 million , principally related to settlements with u.s. federal and state taxing authorities .
| segment results of operations this summary that follows provides a discussion of the results of operations of each of our four reportable operating segments ( energy , engineered systems , printing & identification , and communication technologies ) . each of these segments is comprised of various product and service offerings that serve multiple end markets . see note 17. segment information in the consolidated financial statements in item 8 of this form 10-k for a reconciliation of segment revenue , earnings , and operating margin to our consolidated revenue , earnings from continuing operations , and operating margin . segment ebitda and segment ebitda margin , which are presented in the segment discussion that follows , are non-gaap measures and do not purport to be alternatives to operating income as a measure of operating performance . we believe that these measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years , as well as in evaluating operating performance in relation to our competitors . for further information , see the non-gaap disclosures at the end of this item 7. energy our energy segment serves the oil , gas and power generation industries , with products that promote the efficient and cost-effective drilling , extraction , storage and movement of oil and gas products , or constitute critical components for power generation equipment . the energy segment operates through the following business lines : production , which comprises products and components facilitating the extraction and movement of fuel from the ground ; downstream , which comprises systems and products that support the efficient , safe , and environmentally-sensitive handling of fuel , hazardous liquids , and dry-bulk commodities ; and drilling , which comprises products supporting the cost-effective drilling of oil and gas wells .
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aeti 's actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth in the section entitled “ risk factors ” in this form 10-k. overview our corporate structure currently consists of american electric technologies , inc. , which owns 100 % of m & i electric industries , inc. , its wholly-owned subsidiary , south coast electric systems , llc and m & i electric brazil sistemas e servicios em energia ltda ( “ m & i brazil ” ) . as a result of the sale of south coast electric systems operations in 2016 and m & i electric ( “ m & i ” ) operations in 2018 , results from continuing operations include the operations of our brazilian subsidiary , our interest in a chinese joint venture and our corporate operations in houston , texas . our foreign joint venture is accounted for by the equity method . the principal markets that we serve include : oil and gas – the company provides “ turn-key ” power delivery solutions for the upstream , midstream and downstream oil and natural gas sectors . upstream oil and gas refers to the exploration and production of oil and natural gas . the company serves customers in the land drilling , offshore drilling , land-based production , and offshore production segments of the market . midstream oil and gas is primarily related to oil and gas transportation , including oil and gas pipelines and compression and pumping stations . the company also has a limited customer base in natural gas fractionation ( separation ) , cryo , natural gas to liquids , and other natural gas related-plants . downstream oil and gas includes oil refining and petrochemical plants , as well as lng plants , export facilities , and storage facilities . marine and industrial marine applications includes blue water vessels such as platform supply vessels ( psv ) , offshore supply vessels ( osv ) , tankers and other various work boats , typically up to 300 ft. in length . the company also provides solutions to brown water vessels such as barges , dredges and other river and inland water vessels . industrial , including non-oil & gas industrial markets such as steel , paper , heavy commercial , and other non-oil & gas applications . business sectors disclosures our financial results are primarily from sales to the oil and gas industry . this information is supplemental and provided to allow investors to follow our future trends in marketing to the oil and gas industry . year ended december 31 , 2018 and 2017 oil & gas industry 2018 net sales as a % of total sales 64 % oil & gas industry 2017 net sales as a % of total sales 78 % 12 foreign joint venture : summary financial information of bomay in u.s. dollars was as follows at december 31 , 2018 and 2017 : replace_table_token_2_th the company 's investments in and advances to its foreign joint venture 's operations were as follows as of december 31 , 2018 and 2017 in u.s. dollars : replace_table_token_3_th * accumulated statutory reserves in equity method investments of $ 2.8 million at both december 31 , 2018 and 2017 , respectively , are included in aeti 's consolidated retained earnings . in accordance with the people 's republic of china , ( “ prc ” ) , regulations on enterprises with foreign ownership , an enterprise established in the prc with foreign ownership is required to provide for certain statutory reserves , namely ( i ) general reserve fund , ( ii ) enterprise expansion fund and ( iii ) staff welfare and bonus fund , which are appropriated from net profit as reported in the enterprise 's prc statutory accounts . a non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors . the aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends . the company accounts for its investments in foreign joint venture operations using the equity method of accounting . under the equity method , the company 's share of the joint venture operations earnings or loss is recognized in the consolidated statements of operations as equity income ( loss ) from foreign joint venture operations . joint venture income increases the carrying value of the joint ventures and joint venture losses reduce the carrying value . dividends received from the joint ventures reduce the carrying value . 13 the equity income for the company 's interest in the bomay joint venture for 201 8 and 201 7 was $ 0 . 95 million vs. $ 0 . 43 million . historically , the operating results of bomay have appeared almost seasonal as budgets were established for new years in march and the company worked to complete production to meet targets . most of bomay 's production is for bomco for the chinese national petroleum corporation , ( “ cnpc ” ) , for land drilling in china and in other international markets where bomco or cnpc have relationships . at december 31 , 2018 , there were inventories and work in progress at bomay of approximately $ 25.58 million compared to approximately $ 17.88 million at december 31 , 2017. we expect much of this will be invoiced in 2019 after new budgets are established and products accepted . additionally , new international orders will be completed and recognized . bomay has addressed the recent downturn in the chinese market with reduced staff and other cost cutting measures . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:6pt ; text-indent:6.67 % ; color : # 000000 ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > on march 23 , 2017 the company entered into a $ 7.00 million senior secured term note ( “ the note ” ) with a third-party lender . story_separator_special_tag amounts are billed upon completion of service or transfer of a product and are generally due within 30 days . service revenue is generated from time and material projects and consulting services . the company generally establishes a master services agreement with each customer and provides associated services on a work order basis , generally by the hour for services performed . the majority of the company 's contracts with customers are short-term in nature and are recognized as the services are performed , as the transfer of control to the customer and the company 's right to payment corresponds directly to the services performed to date , at all times throughout completion of the contract . product revenue is generated from the resell of electrical and instrumentation equipment . product contracts are established by agreeing on a sales price or transaction price for the related item . revenue is recognized when the customer has taken control of the product . payment terms for product contracts are generally thirty days from the receipt of the invoice . product revenue is recognized upon delivery of the related item to the customer , at which point the customer controls the product and the company has an unconditional right to payment . foreign currency gains and losses – foreign currency translations are included as a separate component of comprehensive income . the company has determined the local currency of its foreign subsidiary and its foreign joint venture to be the functional currency . in accordance with accounting standards codification “ asc ” 830 , the assets and liabilities of the foreign equity investees and m & i brazil , denominated in foreign currency , are translated into united states dollars at exchange rates in effect at the consolidated balance sheet date and net sales and expenses are translated at the average exchange rate for the period . related translation adjustments are reported as comprehensive income , net of deferred income taxes , which is a separate component of stockholders ' equity , whereas gains and losses resulting from foreign currency transactions are included in results of operations . federal income taxes – the liability method is used in accounting for federal income taxes . under this method , deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . the realizability of deferred tax assets are evaluated annually and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits in the company 's tax returns . as of december 31 , 2018 and 2017 , management believed there was uncertainty regarding the future realizability of deferred tax assets and a valuation allowance was established for the entire deferred tax asset balance . 17 contingencies – the company records an estimated loss from a loss contingency when information indicates that it is probable that an asset has been impaired , or a liability has been incurred and the amount of loss can be reasonably estimated . contingencies are often resolved over long time periods , are based on unique facts and circumstances , and are inherent ly uncertain . the company regularly evaluates the current information that is available to determine whether such accruals should be adjusted , or other disclosures related to contingencies are required . the company is a party to a number of legal proceedin gs in the normal course of business for which appropriate provisions have been made if it is believed an ultimate loss is probable . the ultimate resolution of these matters , individually or in the aggregate , is not likely to have a material impact on the c ompany 's consolidated financial position or results of operations . equity income from foreign joint venture operations – the company accounts for its investment in the foreign joint venture using the equity method . under the equity method , the company records its pro-rata share of the foreign joint venture income or losses and adjusts the basis of its investment accordingly . dividends received from the joint venture , if any , are recorded as reductions to the investment balance . carrying value of joint venture investment – the company evaluates the carrying value of its equity method investment to determine whether an impairment adjustment may be necessary . in making this evaluation , a variety of quantitative and qualitative factors are considered including international , national and local economic , political and market conditions , industry trends and prospects , liquidity and capital resources and other pertinent factors . based on the most recent review at december 31 , 2018 and december 31 , 2017 , management believes the carrying value of its investment in foreign joint venture is recoverable . recently issued accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers , which supersedes nearly all existing revenue recognition guidance under u.s. gaap . the core principle of asu no . 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services . asu no . 2014-09 defines a five-step process to achieve this core principle and , in doing so , more judgment and estimates may be required under existing u.s. gaap . the standard is effective for annual periods beginning after december 15 , 2016 , and interim periods therein , using either of the following transition methods : ( i ) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients , or ( ii ) a retrospective approach with the cumulative effect of initially adopting asu no .
| results of operations the table below summarizes our consolidated operations for the years ended december 31 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_4_th 14 year ended december 31 , 201 8 compared to year ended december 31 , 201 7 revenue and gross profit brazil revenue increased 33 % , or $ 1.9 million , to $ 7.6 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. this growth was driven by the company 's brazil 's sales progress in downstream oil and gas market . gross profit increased 66 % , or $ 0.8 million , to $ 1.9 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. gross profit as a percentage of revenues increased to 25 % for the year ended december 31 , 2018 , compared to 20 % for the year ended december 31 , 2017. this increase was primarily attributable to the corresponding increase in revenue for the period . selling and marketing expenses selling and marketing expenses decreased 16 % , or less than $ 0.1 million , to $ 0.4 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. selling and marketing expenses , as a percentage of revenues , decreased 5 % for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. general and administrative expenses general and administrative expenses decreased by 20 % , or $ 0.9 million , to $ 3.3 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , primarily due to lower payroll and related expenses totaling $ 0.6million compared to the prior period .
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the following discussion and analysis contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 , including , without limitation , statements regarding our expectations , beliefs , intentions or future strategies that are signified by the words “ expect , ” “ anticipate , ” “ intend , ” “ believe , ” or similar language . all forward-looking statements included in this document are based on information available to us on the date hereof , and we assume no obligation to update any such forward-looking statements . our business and financial performance are subject to substantial risks and uncertainties . actual results could differ materially from those projected in the forward-looking statements . in evaluating our business , you should carefully consider the information set forth under the heading “ risk factors ” and elsewhere in this form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements . story_separator_special_tag shanghai borongdingsi is 51 % owned by beijing cnet online . beijing cnet online and shanghai borongdingsi entered into a cooperation agreement in june 2008 , followed up with a supplementary agreement in december 2008 , to conduct a bank kiosk advertisement business . the business is based on a bank kiosk cooperation agreement between shanghai borongdingsi and henan provincial branch of china construction bank which allows shanghai borongdingsi or its designated party to conduct in-door advertisement business within the business outlets throughout henan province . the bank kiosk cooperation agreement has a term of eight years beginning in august 2008. however , shanghai borongdingsi was not able to conduct the advertisement business as a stand-alone business due to the lack of an advertisement business license and supporting financial resources . pursuant to the aforementioned cooperation agreements , beijing cnet online committed to purchase equipment and to provide working capital , technical and other related support to shanghai borongdingsi . beijing cnet online owns the equipment used in the kiosk business , is entitled to sign contracts in its name on behalf of the business , and holds the right to collect the advertisement revenue generated from the bank kiosk business exclusively until it recovers the cost of purchasing the equipment . thereafter , beijing cnet online has agreed to distribute 49 % of the net profit generated from the bank kiosk advertising business , if any , to the minority shareholders of shanghai borongdingsi . on june 24 , 2010 , one of our vies , business opportunity online , together with three other individuals , who were not affiliated with us , formed a new company , shenzhen city mingshan network technology co. , ltd. ( “ shenzhen mingshan ” ) . shenzhen mingshan is 51 % owned by business opportunity online and 49 % owned collectively by the other three individuals . shenzhen mingshan is primarily engaged in developing and designing internet based software , online games and the related operating websites and providing related internet and information technology services necessary to operate such games and websites . on january 6 , 2011 , as approved by the shareholders of shenzhen mingshan , an unaffiliated third party invested rmb15,000,000 ( approximately us $ 2,453,386 ) into shenzhen mingshan in exchange for a 60 % equity interest in shenzhen mingshan . as a result of this transaction , our share of the equity interest in shenzhen mingshan decreased from 51 % to 20.4 % and we ceased to have a controlling financial interest in shenzhen mingshan , but still retained an investment in , and significant influence over , shenzhen mingshan . on december 19 , 2012 , as approved by the shareholders of shenzhen mingshan , shenzhen mingshan reduced its registered and paid-in capital from rmb25,000,000 ( approximately us $ 4,088,976 ) to rmb22,000,000 ( approximately us $ 3,598,299 ) , resulted from a decrease of paid-in capital from three other noncontrolling shareholders , except business opportunity online . as a result , our share of the equity interest in shenzhen mingshan increased from 20.4 % to 23.18 % and we continued to retain significant influence over shenzhen mingshan . therefore , as of december 31 , 2013 , shenzhen mingshan was an equity investment affiliate of ours . on december 6 , 2010 , through our wholly-owned subsidiary , rise king wfoe , we entered into a series of exclusive contractual arrangements , which were similar to the contractual agreements discussed above , with rise king ( shanghai ) advertisement media co. , ltd. ( “ shanghai jing yang ” ) , a company incorporated under prc laws in december 2009. the contractual arrangements that we entered into with shanghai jing yang allow us , through rise king wfoe , to , among other things , secure significant rights to influence shanghai jing yang 's business operations , policies and management , approve all matters requiring shareholder approval , and receive 100 % of the income earned by shanghai jing yang . from the date of incorporation until december 6 , 2010 , shanghai jing yang did not conduct any business activities . therefore , shanghai jing yang 's accounts were included in our consolidated financial statements with no goodwill recognized in accordance with asc topic 810 “ consolidation ” . we , through one of our vies , beijing cnet online , acquired a 100 % equity interest in quanzhou zhi yuan marketing planning co. , ltd. ( “ quanzhou zhi yuan ” ) and a 51 % equity interest in quanzhou tian xi shun he advertisement co. , ltd. ( “ quanzhou tian xi shun he ” ) on january 4 , 2011 and february 23 , 2011 , respectively . in june 2011 , beijing cnet online acquired the remaining 49 % equity interest in quanzhou tian xi shun he . quanzhou tian xi shun he became a wholly owned subsidiary of beijing cnet online . story_separator_special_tag ( “ sooe.cn ” ) , chinanet tv as our tv production and advertising unit and the bank kiosk advertising unit . we provide varieties of marketing campaigns through this platform by the combination of the internet , mobile , television , bank kiosks and printed-medias to maximize market exposure and effectiveness for our clients . our band management and sales channel building platform consists of our brand consulting and management service and offline sales channel expansion service , which is to physically help small businesses to recruit dealers , wholesalers , partners or franchisees based on their business needs . management tools platform consists of a mobile-based sales and administrative management tools specifically designed for small business in china to match their simplicity . 45 basis of presentation , critical accounting policies and management estimates our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( “ u.s . gaap ” ) and include the accounts of our company , and all of our subsidiaries and vies . we prepare financial statements in conformity with u.s. gaap , which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period . we continually evaluate these estimates and assumptions based on the most recently available information , our own historical experience and various other assumptions that we believe to be reasonable under the circumstances . since the use of estimates is an integral component of the financial reporting process , actual results could differ from those estimates . some of our accounting policies require higher degrees of judgment than others in their application . we consider the policies discussed below to be critical to an understanding of our financial statements . foreign currency translation and transactions our functional currency is united states dollars ( “ us $ ” ) , and the functional currency of china net hk is hong kong dollars ( “ hk $ ” ) . the functional currency of our prc operating subsidiary and vies is renminbi ( “ rmb ' ) , and prc is the primary economic environment in which we operate . for financial reporting purposes , the financial statements of our prc operating subsidiary and vies , which are prepared using the rmb , are translated into our reporting currency , the united states dollar ( “ u.s . dollar ” ) . assets and liabilities are translated using the exchange rate at each balance sheet date . revenue and expenses are translated using average rates prevailing during each reporting period , and stockholders ' equity is translated at historical exchange rates . adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in stockholders ' equity . transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions . the resulting exchange differences are included in the determination of net income of the consolidated financial statements for the respective periods . the exchange rates used to translate amounts in rmb into us $ for the purposes of preparing the consolidated financial statements are as follows : replace_table_token_3_th replace_table_token_4_th no representation is made that the rmb amounts could have been , or could be converted into us $ at the above rates . goodwill goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of acquisitions of interests in our subsidiaries . 46 goodwill is not depreciated or amortized but is tested for impairment at the reporting unit level at least on an annual basis , and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired . the test consists of two steps . first , identify potential impairment by comparing the fair value of the reporting unit to its carrying amount , including goodwill . if the fair value of the reporting unit is greater than its carrying amount , goodwill is not considered impaired . second , if there is impairment identified in the first step , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation , in accordance with asc topic 805 , “ business combinations. ” application of a goodwill impairment test requires significant management judgment , including the identification of reporting units , assigning assets and liabilities to reporting units , assigning goodwill to reporting units , and determining the fair value of each reporting unit . the judgment in estimating the fair value of reporting units includes estimating future cash flows , determining appropriate discount rates and making other assumptions . changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit . transaction between entities under common control we accounted for transaction between entities under common control in accordance with asc 805-50 , which provided guidance on measuring assets and liabilities transferred between entities under common control . in accordance with asc 805-50 , transferring assets between entities under common control , the entity that receives the net assets should initially measure the recognized assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer . deconsolidation the company accounts for deconsolidation of subsidiaries in accordance with asc topic 810 “ consolidation ” . in accordance with asc topic 810-10-40-5 , the parent shall account for the deconsolidation of a subsidiary by recognizing a gain or loss in net income attributable to the parent , measured as the difference between : a. the aggregate of all of the following : 1.
| overview our company ( formerly known as emazing interactive , inc. ) was incorporated in the state of texas in april 2006 and re-domiciled to become a nevada corporation in october 2006. from the date of our company 's incorporation until june 26 , 2009 , when our company consummated the share exchange ( as defined below ) , our company 's activities were primarily concentrated in web server access and company branding in hosting web based e-games . 42 on june 26 , 2009 , our company entered into a share exchange agreement ( the “ exchange agreement ” ) , with ( i ) china net online media group limited , a company organized under the laws of british virgin islands ( “ china net bvi ” ) , ( ii ) china net bvi 's shareholders , allglad limited , a british virgin islands company ( “ allglad ” ) , growgain limited , a british virgin islands company ( “ growgain ” ) , rise king investments limited , a british virgin islands company ( “ rise king bvi ” ) , star ( china ) holdings limited , a british virgin islands company ( “ star ” ) , surplus elegant investment limited , a british virgin islands company ( “ surplus ” ) , clear jolly holdings limited , a british virgin islands company ( “ clear ” and together with allglad , growgain , rise king bvi , star and surplus , the “ china net bvi shareholders ” ) , who together owned shares constituting 100 % of the issued and outstanding ordinary shares of china net bvi ( the “ china net bvi shares ” ) and ( iii ) g. edward hancock , our principal stockholder at such time . pursuant to the terms of the exchange agreement , the china net bvi shareholders transferred to us all of the china net bvi shares in exchange for the issuance of 13,790,800 shares ( the “ exchange shares ” ) in the aggregate of our common stock ( the “ share exchange ” ) .
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federal jurisdiction and various states and foreign jurisdictions . the company , with few exceptions , is story_separator_special_tag introduction papa john 's international , inc. ( referred to as the company , papa john's or in the first person notations of we , us and our ) began operations in 1984. at december 28 , 2014 , there were 4,663 papa john 's restaurants in operation , consisting of 735 company-owned and 3,928 franchised restaurants . our revenues are principally derived from retail sales of pizza and other food and beverage products to the general public by company-owned restaurants , franchise royalties , sales of franchise and development rights , sales to franchisees of food and paper products , printing and promotional items , risk management services , and information systems and related services used in their operations . new unit openings in 2014 were 388 as compared to 386 in 2013 and 368 in 2012 and unit closings in 2014 were 153 as compared to 121 in 2013 and 88 in 2012. we expect net unit growth of approximately 220 to 250 units during 2015 of which approximately 75 % will be international locations . our expansion strategy is to cluster restaurants in targeted markets , thereby increasing consumer awareness and enabling us to take advantage of operational , distribution and advertising efficiencies . we continue to generate strong sales in our north america company-owned restaurants in a very competitive environment . average annual company-owned sales for our most recent domestic comparable restaurant base were $ 1.06 million for 2014 ( 52-week year ) , compared to $ 988,000 for 2013 ( 52-week year ) and $ 953,000 for 2012 ( 53-week year ) . average sales volumes in new markets are generally lower than in those markets in which we have established a significant market position . the comparable sales for domestic company-owned restaurants increased 8.2 % in 2014 , 6.6 % in 2013 and 5.6 % in 2012 . comparable sales represents sales generated by restaurants open for the entire twelve-month period reported . we are pleased with the ongoing growth in both our north america and international franchise restaurant sales . the comparable sales for north america franchised units increased 6.2 % in 2014 , 3.1 % in 2013 and 2.9 % in 2012. the comparable sales for international franchised units increased 7.8 % in 2014 , 7.5 % in 2013 and 7.1 % in 2012. we strive to obtain high-quality restaurant sites with good access and visibility , and to enhance the appearance and quality of our restaurants . we believe these factors improve our image and brand awareness . the average cash investment for the 11 domestic traditional company-owned restaurants opened during 2014 was approximately $ 283,000 , compared to the $ 280,000 investment for the 13 domestic traditional units opened in 2013 , exclusive of land and any tenant improvement allowances we received . we also opened two company-owned restaurants in china , with an average investment cost of approximately $ 290,000 which compares to $ 225,000 for the 11 restaurants opened in 2013. approximately 43 % to 46 % of our domestic revenues in each of the last three years were derived from sales to franchisees of various items including food and paper products , printing and promotional items , risk 25 management services and information systems equipment , including the focus point of sales system , and software and related services . we believe that in addition to supporting both company and franchised profitability and growth , these activities contribute to product quality and consistency throughout the papa john 's system . critical accounting policies and estimates the results of operations are based on our consolidated financial statements , which were prepared in conformity with accounting principles generally accepted in the united states ( gaap ) . the preparation of consolidated financial statements requires management to select accounting policies for critical accounting areas as well as estimates and assumptions that affect the amounts reported in the consolidated financial statements . the company 's significant accounting policies are more fully described in note 2 of notes to consolidated financial statements. significant changes in assumptions and or conditions in our critical accounting policies could materially impact the operating results . we have identified the following accounting policies and related judgments as critical to understanding the results of our operations : allowance for doubtful accounts and notes receivable we establish reserves for uncollectible accounts and notes receivable based on overall receivable aging levels and a specific evaluation of accounts and notes for franchisees and other customers with known financial difficulties . balances are charged off against the allowance after recovery efforts have ceased . noncontrolling interests the company has the following four joint ventures in which there are noncontrolling interests as of december 28 , 2014 : joint venture redemption feature location within the consolidated balance sheet recorded value star papa , lp redeemable temporary equity carrying value pj denver , llc redeemable temporary equity redemption value colonel 's limited , llc no redemption feature permanent equity carrying value pj minnesota , llc no redemption feature permanent equity carrying value consolidated net income is required to be reported separately at amounts attributable to both the parent and the noncontrolling interest . disclosures are required to clearly identify and distinguish between the interests of the parent company and the interests of the noncontrolling owners , including a disclosure on the face of the consolidated statements of income attributable to the noncontrolling interest holder . see note 6 of notes to consolidated financial statements for additional information . stock based compensation compensation expense for equity grants is estimated on the grant date , net of projected forfeitures and is recognized over the vesting period ( generally in equal installments over three years ) . restricted stock is valued based on the market price of the company 's shares on the date of grant . stock options are valued using a black-scholes option pricing model . story_separator_special_tag as of december 28 , 2014 , we had installed focus in almost 75 % of our domestic restaurants , including all company-owned restaurants and almost 1,600 franchised restaurants . substantial completion is expected to occur by the end of the first quarter of 2015 . 28 the costs related to implementing focus decreased income before income taxes by approximately $ 3.7 million in 2014 , or a $ 0.06 negative impact on diluted earnings per share , as compared to 2013. focus had the following impact on our consolidated statement of income for the fiscal year ended december 28 , 2014 ( in thousands ) : replace_table_token_8_th ( a ) incentive program tied to franchisee rollout of focus . ( b ) represents revenues for equipment installed at domestic franchised restaurants . ( c ) includes cost of sales associated with equipment installed at franchised restaurants and other costs to support the rollout of the program . ( d ) includes depreciation expense for both the capitalized software and for equipment installed at company-owned restaurants which are being depreciated over five to seven years . as part of the rollout , we have partnered with a third party to offer a financing option for this system to our franchisees . the arrangement with the third party requires us to offer a guarantee for the loans . the term of these loans will be five years or less and will require us to perform under the guarantee when a franchisee has a late payment in excess of 60 days . the guarantee is limited to the greater of 10 % of all loans or 100 % of all loans that have higher risk profiles . higher risk profiles are determined based on pre-established criteria including length of time in business , credit rating , and other factors . we have the ability to decline funding on higher risk loans . 29 items impacting comparability ; non-gaap measures the following table reconciles our financial results as reported under gaap to certain non-gaap measures . we present these non-gaap measures to adjust for certain items which we believe impact the comparability of our results of operations . replace_table_token_9_th ( a ) the company follows a fiscal year ending on the last sunday of december , generally consisting of 52 weeks made up of four 13-week quarters . in 2012 , the company 's fiscal year consisted of 53 weeks , with the additional week added to the fourth quarter ( 14 weeks ) results . the 2012 impact of the 53 rd week on income before income taxes was an increase of $ 4.1 million , or $ 0.05 earnings per diluted common share . ( b ) in connection with a new multi-year supplier agreement , the company received a $ 5.0 million supplier marketing payment in 2012. the company is recognizing the supplier marketing payment evenly as income over the five-year term of the agreement ( $ 1.0 million per year ) . in 2012 , the company contributed the supplier marketing payment to the papa john 's marketing fund ( pjmf ) , an unconsolidated nonstock corporation designed to operate at break even for the purpose of designing and administering advertising and promotional programs for all participating domestic restaurants . the company 's contribution to pjmf was fully expensed in 2012. pjmf elected to distribute the $ 5.0 million supplier marketing payment to the domestic system as advertising credits in 2012. our domestic company-owned restaurants ' portion of the advertising credits resulted in an increase in income before income taxes of approximately $ 1.0 million in 2012 . 30 the overall impact of these transactions described above , which are collectively defined as the incentive contribution , was an increase in income before income taxes of approximately $ 1.0 million in each of 2014 and 2013 ( or an increase in diluted earnings per common share of approximately $ 0.02 in each year ) and a reduction in income before income taxes of approximately $ 3.0 million in 2012 ( or a reduction to diluted earnings per share of approximately $ 0.04 ) . the non-gaap results shown above , which exclude the items impacting comparability , should not be construed as a substitute for or a better indicator of the company 's performance than the company 's gaap results . management believes presenting the financial information without these items is important for purposes of comparison to prior year results and analyzing each segment 's operating results . in addition , management uses these non-gaap measures to allocate resources , and analyze trends and underlying operating performance . annual cash bonuses , and certain long-term incentive programs for various levels of management , were based on financial measures that excluded the incentive contribution . see results of operations for further analysis regarding the impact of these items . in addition , we present free cash flow in this report , which is a non-gaap measure . we define free cash flow as net cash provided by operating activities ( from the consolidated statements of cash flows ) less the purchases of property and equipment . we view free cash flow as an important measure because it is one factor that management uses in determining the amount of cash available for discretionary investment . free cash flow is not a term defined by gaap , and as a result , our measure of free cash flow might not be comparable to similarly titled measures used by other companies . free cash flow should not be construed as a substitute for or a better indicator of our performance than the company 's gaap measures . see liquidity and capital resources for a reconciliation of free cash flow to the most directly comparable gaap measure . the presentation of the non-gaap measures in this report is made alongside the most directly comparable gaap measures .
| discussion of operating results our income before income taxes totaled $ 114.3 million in 2014 , as compared to $ 106.1 million in 2013 , an increase of approximately $ 8.1 million . income before income taxes is summarized in the following table on a reporting segment basis : replace_table_token_13_th ( a ) includes focus system rollout costs of approximately $ 3.7 million in 2014. see the focus system section above for additional information . changes in income before income taxes for 2014 in comparison to 2013 are summarized on a segment basis as follows : · domestic company-owned restaurant segment . domestic company-owned restaurants ' income before income taxes increased $ 6.4 million due to the 8.2 % increase in comparable sales , partially offset by higher commodities and higher automobile insurance claims costs of approximately $ 3.5 million . additionally , 2014 includes depreciation expense of approximately $ 1.2 million associated with focus equipment costs . · domestic commissaries segment . domestic commissaries ' income before income taxes increased $ 1.5 million primarily due to higher margins and higher sales volumes , which were somewhat offset by higher workers ' compensation and automobile insurance claims costs of approximately $ 2.6 million and higher costs associated with various ongoing commissary initiatives . · north america franchising segment . north america f ranchising income before income taxes increased approximately $ 6.8 million in 2014 due to the previously mentioned royalty revenue increase . · international segment . the international segment reported income before income taxes of approximately $ 7.3 million in 2014 compared to $ 2.8 million in 2013. the increase of $ 4.4 million was primarily due to an increase in units and comparable sales of 7.4 % , which resulted in both higher royalties and contributed to an improvement of $ 3.1 million in the united kingdom results .
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if fair value is determined to be lower , the company records a gain or loss included in impairment of assets in the statements of net loss and comprehensive loss . fair value measurements the carrying value of the company 's accounts receivable , accounts payable , accrued expenses and other current liabilities approximate their fair value due to their short-term nature . debt securities classified as available-for-sale are recorded at fair value based on publicly available market information or other estimates determined by management . equity investments ( excluding equity method investments ) are recorded at fair value using quoted market prices or broker or dealer quotations , or using the measurement alternative for equity investments without readily determinable fair values . the fair value for equity investments measured using the measurement alternative story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the financial information and the notes thereto included in part ii , item 8 of this form 10-k in this annual report for the fiscal year ended december 31 , 2020 ( “ annual report ” ) . 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 and related financing , includes “ 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 , or “ forward -looking information ” within the meaning of canadian securities laws . these statements are often identified by the use of words such as “ anticipate , ” “ believe , ” “ continue , ” “ could , ” “ estimate , ” “ expect , ” “ intend , ” “ may , ” “ plan , ” “ project , ” “ will , ” “ would ” or the negative or plural of these words or similar expressions or variations . such forward-looking statements and forward-looking information are subject to a number of risks , uncertainties , assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements or forward-looking information . factors that could cause or contribute to such differences include , but are not limited to , those identified in this annual report on form 10-k and those discussed in the section titled “ risk factors ” set forth in part i , item 1a of this annual report on form 10-k and in our other sec and canadian public filings . in addition , statements that “ we believe ” and similar statements reflect our beliefs and opinions on the relevant subject . these statements are based on information available to us as of the date of this annual report on form 10-k and while we believe that information provides a reasonable basis for these statements , that information may be limited or incomplete . our statements should not be read to indicate that we have conducted an exhaustive inquiry into , or review of , all relevant information . these statements are inherently uncertain , and investors are cautioned not to unduly rely on these statements . you should not rely upon forward-looking statements or forward-looking information as predictions of future events . furthermore , such forward-looking statements or forward-looking information speak only as of the date of this report . except as required by law , we undertake no obligation to update any forward-looking statements or forward-looking information to reflect events or circumstances after the date of such statements . amounts are presented in thousands of united states dollars , except for shares , warrants , per share data and per warrant data or as otherwise noted . the canadian dollar ( “ c $ ” ) equivalents presented are derived using the average exchange rate during the reporting period . amounts are individually converted by multiplying the united states dollar to canadian dollar rate to determine the canadian dollar amount . overview our vision is to build the world 's most trusted and valuable cannabis and hemp company . we are pioneering the future of medical , wellness and adult-use cannabis and hemp research , cultivation , processing and distribution , globally . we are one of the leading suppliers of adult-use cannabis in canada , medicinal cannabis in germany , and a leading supplier of hemp products in north america . we have supplied high-quality medical cannabis products to tens of thousands of patients in fifteen countries spanning five continents through our subsidiaries in australia , canada , germany , latin america and portugal , and through agreements with established pharmaceutical distributors . we cultivate medical and adult-use cannabis in canada and medical cannabis in portugal . we only operate in countries where cannabis or hemp-derived cannabinoids are legal , and are permitted under all applicable federal , state , provincial and local laws . we are witnessing a global paradigm shift regarding regulatory and consumer sentiment about cannabis and hemp . this shift is transforming a multibillion-dollar industry from a state of prohibition to one of legalization . medical cannabis is now authorized at the national or federal level in forty-two countries . the legal market for medical cannabis is still in its early stages and we believe the number of countries with legalized regimes will continue to increase over time . as this transformation occurs , we believe trusted global brands with multinational supply chains will become market leaders by earning the confidence of patients , doctors , governments , and adult consumers around the world . we are a leader in the canadian adult-use market . we have agreements to supply certain provinces and territories with our adult-use products for sale through their established retail distribution systems . story_separator_special_tag on december , 16 2020 , when the company reclassified the assets of the high park gardens facility to held and used , the company recognized additional impairment charges of $ 2.9 million relating to land and buildings ( refer to part ii , item 8 of this form 10-k in the notes to consolidated financial statements in note 3 , “ assets reclassified from held for sale to held and used ” ) recorded to impairment of assets within the statements of net loss and comprehensive loss to adjust to the fair values of the respective assets . 54 on november 24 , 2020 , we entered into privately negotiated exchange agreements ( the “ exchange agreements ” ) with certain holders of our 5.00 % convertible senior notes due 2023 ( the “ notes ” ) . under the terms of the exchange agreements , the holders agreed to exchange an aggregate principal amount of approximately $ 124.3 million of notes plus accrued interest held by them in exchange for an aggregate of 10,932,222 shares of our class 2 common stock . effectively , we agreed to repurchase a portion of the outstanding notes at a 36 % discount to their face value using shares issued at our most recent closing market price on november 20 , 2020 ( $ 7.36 per share ) . on november 25 , 2020 , we entered into additional exchange agreements with certain holders of the notes . under the terms of the exchange agreements , the holders agreed to exchange an aggregate principal amount of approximately $ 72.9 million of notes plus accrued interest held by them in exchange for an aggregate of 6,407,355 shares . effectively , we agreed to repurchase a portion of the outstanding notes at a 42 % discount to their face value , using shares issued at our most recent closing market price on november 23 , 2020 ( $ 6.68 per share ) . on december 15 , 2020 , we entered into an arrangement agreement ( the “ arrangement agreement ” with aphria inc. ( “ aphria ” ) , pursuant to which tilray will acquire all of the issued and outstanding common shares of aphria pursuant to a plan of arrangement ( the “ plan of arrangement ” ) under the business corporations act ( the “ arrangement ” ) . subject to the terms and conditions set forth in the arrangement agreement and the plan of arrangement , each outstanding common share of aphria outstanding immediately prior to the effective time of the arrangement will be transferred to tilray in exchange for 0.8381 of a share ( of tilray class 2 common stock ) . the obligations of tilray and aphria to consummate the arrangement are subject to customary conditions , including , but not limited to , ( a ) obtaining the required approvals of tilray 's and aphria 's shareholders , ( b ) obtaining an interim order and final order from the ontario superior court of justice approving the arrangement , ( c ) the absence of any injunction or similar restraint prohibiting or making illegal the consummation of the arrangement or any of the other transactions contemplated by the arrangement agreement , ( d ) the required regulatory approvals having been obtained , ( e ) no material adverse effect having occurred , ( f ) subject to certain materiality exceptions , the accuracy of the representations and warranties of each party and ( g ) the performance in all material respects by each party of its obligations under the arrangement agreement . the arrangement is expected to close in the second quarter of calendar year 2021 following the receipt of such regulatory approvals , as well as court approval of the arrangement . covid-19 the public health crisis caused by covid-19 and the measures taken and continuing to be taken by governments , businesses and the public have , and we expect will continue to have , certain negative impacts on our business operations , and could have a material adverse effect on our business , results of operations and financial condition . due to covid-19 , governments have imposed restrictions on travel and business operations , temporarily closed businesses , and implemented quarantines and shelter-in-place orders . consequently , the covid-19 pandemic has negatively impacted global economic activity , caused significant volatility and disruption in global financial markets , and generally introduced significant uncertainty and unpredictability throughout the world . we believe the restrictions on , or temporary closure of , retail cannabis outlets in response to covid-19 negatively impacted sales of adult-use cannabis products in 2020. however , this was likely offset by the increase in retail outlets in canada and our introduction of new products which resulted in a net increase in annual revenue for this product channel in 2020. as a result of ongoing covid-19 related restrictions on retail cannabis stores we may experience declining demand for adult-use products and may not be able to offset the impact in other ways . due to the covid-19 related challenges faced by patients accessing clinics and doctors for prescriptions for our medical products , we experienced a drop in new registrations for medical cannabis products in canada . declining demand for medical cannabis products may continue to impact our medical cannabis business in canada and internationally . we continue to operate our manufacturing facilities at normal production levels while the administrative offices remain largely closed , with staff working remotely . we have taken all recommended actions to protect public health and the health and safety of employees and will re-open our administrative offices subject to , and in accordance with , local rules and regulations . during the year ended december 31 , 2020 , we did not apply nor receive any covid-19 related government funding or incur charges that are clearly relatable to covid-19 . due to the ongoing developments and uncertainty related to covid-19 , we are unable to predict the continuing impacts on our operational and financial performance .
| results of operations financial data is expressed in thousands of united states dollars . consolidated statements of net loss data ( in thousands of united states dollars ) replace_table_token_5_th ( 1 ) adjusted ebitda is a non-gaap financial measure . for information on how we define and calculate adjusted ebitda , and a reconciliation of net loss to adjusted ebitda , refer to “ non-gaap financial measures ” . 64 replace_table_token_6_th ( 1 ) adjusted ebitda is a non-gaap financial measure . for information on how we define and calculate adjusted ebitda , and a reconciliation of net loss to adjusted ebitda , refer to “ non-gaap financial measures ” . revenue we evaluate revenue by product channel and category . revenue by product channel ( in thousands of united states dollars ) replace_table_token_7_th n/a : not a meaningful percentage . revenue . revenue increased 26 % to $ 210.5 million during 2020 from $ 167.0 million in 2019. the increase was driven by $ 26.5 million or 25 % growth in the cannabis segment , and $ 17.0 million or 28 % growth in the hemp segment . the hemp segment increase was partially due to the timing of the acquisition of fresh hemp foods in 2019 that resulted in the inclusion of 10 months of sales in 2019 compared to 12 months in 2020 . 65 2019 revenue increased to $ 167.0 million from $ 43.1 million in 2018. the increase was driven by $ 64 million in the cannabis segment and the addition of the hemp segment resulting from the acquisition of manitoba harvest in 2019 which provided $ 59.8 million in revenues during 2019. cannabis .
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these include quoted prices for similar story_separator_special_tag overview our management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) includes the following : a business overview that provides a high level summary of our operating results and bookings trends that affect our business ; a more detailed analysis of our results of operations ; our liquidity and capital resources , which discusses key aspects of our statements of cash flows , changes in our balance sheets and our financial commitments ; and a summary of our critical accounting policies and estimates we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . our md & a should be read in conjunction with item 8 , financial statements and supplementary data , of this annual report on form 10-k. the following discussion contains forward-looking statements that are subject to risks and uncertainties . actual results may differ from those referred to herein due to a number of factors , including but not limited to risks described in the item 1a , risk factors , in this annual report on form 10-k. business overview total revenues for fiscal 2014 were $ 789.0 million , an increase of 6 % from $ 743.4 million in fiscal 2013 . revenue in each of our segments increased , with applications , scores and tools increasing by 6 % , 3 % and 14 % in fiscal 2014 compared to fiscal 2013 , respectively . our revenues derived from clients outside the u.s. have generally grown , and may in the future grow more rapidly than our revenues from domestic clients . international revenues totaled $ 331.7 million for fiscal 2014 , an increase of 13 % from $ 294.0 million in fiscal 2013 , representing 42 % and 40 % of total consolidated revenues in each of these years . a significant portion of our revenues are derived from the sale of products and services within the banking ( including consumer credit ) industry , and 74 % and 73 % of our revenues were derived from within this industry during fiscal 2014 and 2013 , respectively . in addition , we derive a significant share of revenue from transactional or unit-based software license fees , transactional fees derived under scoring , network service or internal hosted software arrangements , annual software maintenance fees and annual license fees under long-term software license arrangements . arrangements with transactional or unit-based pricing accounted for approximately 67 % and 69 % of our revenues during fiscal 2014 and 2013 , respectively . operating income for fiscal 2014 was 161.9 million , an increase of $ 0.3 million from $ 161.6 million in fiscal 2013 . operating margin decreased to 21 % from 22 % primarily attributable to our continued investment in the areas of cloud computing and saas , partially offset by a higher percentage of revenues derived from our higher-margin software products . net income for fiscal 2014 was $ 94.9 million , an increase of 5 % from $ 90.1 million in fiscal 2013 . diluted earnings per share for fiscal 2014 was $ 2.72 , an increase of 10 % from $ 2.48 in fiscal 2013 . we generate significant free cash flow used to enhance shareholder value through investments in long-term growth initiatives ; acquisitions of relevant technologies and products that strengthen our portfolio and competitive position ; and our share repurchase program . during fiscal 2014 , we continued to invest in our growth initiatives that expand our addressable markets . we introduced a full suite of applications for the fico ® analytic cloud , expanding product offerings in our applications and tools segments to accommodate small-to-midsize companies that benefit from the affordability and simplicity of cloud-based solutions . for our scores segment , we introduced the fico ® score open access program which allows our participating clients to provide their customers with a free fico ® score along with materials to help them understand what affects their score . we have more than 30 million consumers with access to their free score through the fico ® score open access program and with the addition of new participants we expect this to grow to more than 60 million in early 2015. in addition , we introduced the fico ® custom credit education program where lenders can license enhanced credit education tools to include in their consumer financial education programs . we continued to make acquisitions that deliver solutions to the financial services industry and adjacent vertical industries ; our recent acquisitions of infocentricity and karmasphere are expected to benefit customers of all sizes and across all industries by leveraging cloud-based analytics modeling technology along with the big data analytics for hadoop technology capabilities . we also returned significant cash to shareholders through our stock repurchase program . during fiscal 2014 , we repurchased approximately 3.7 million shares for a total cost of $ 214.9 million . as of september 30 , 2014 , we had $ 250.0 million remaining under our current stock repurchase program . 26 bookings management uses bookings as an indicator of our business performance . bookings represent contracts signed in the current reporting period that generate current and future revenue streams . we consider contract terms , knowledge of the marketplace and experience with our customers , among other factors , when determining the estimated value of contract bookings . bookings calculations have varying degrees of certainty depending on the revenue type and individual contract terms . our revenue types are transactional and maintenance , professional services and license . our estimate of bookings is as of the end of the period in which a contract is signed , and we do not update initial booking estimates in future periods for changes between estimated and actual results . actual revenue and the timing thereof could differ materially from our initial estimates . story_separator_special_tag the increase in allocated facilities cost was primarily attributable to leased office space assumed from our acquisitions of cr software and infoglide in fiscal 2013 , and infocentricity in fiscal 2014. the decrease in direct materials was primarily attributable to a decrease in software license sales that incur royalties cost . cost of revenues as a percentage of revenues was 31 % , consistent with those incurred during fiscal 2013. cost of revenues as a percentage of revenues increased to 31 % during fiscal 2013 from 29 % during fiscal 2012. the $ 31.5 million increase was primarily due to a $ 14.9 million increase in third-party software and data costs , an $ 11.2 million increase in personnel and labor costs , a $ 2.3 million increase in travel cost and a $ 1.8 million increase in outside services cost . the increase in third-party software and data costs was mainly related to integration of lower-margin products from our adeptra and cr software acquisitions in september and november 2012 , respectively , as well as an increase in sales of our other products that require data acquisition . the increase in personnel and labor costs was primarily attributable to the increased headcount as a result of our recent acquisitions . the increase in travel cost was primarily attributable to an increase in services revenue requiring travel to client locations . the increase in outside services cost was due to an increase in use of external contractors as a result of increased services revenue . in fiscal 2015 , we expect cost of revenues as a percentage of revenues will be consistent with those incurred during fiscal 2014 . research and development research and development expenses include the personnel and related overhead costs incurred in the development of new products and services , including the research of mathematical and statistical models and the development of new versions of our products . research and development expenses as a percentage of revenues increased to 11 % during fiscal 2014 from 9 % during fiscal 2013. the $ 16.5 million increase was attributable to an $ 11.5 million increase in personnel and labor costs , a $ 3.0 million increase in outside services cost , and a $ 2.0 million increase in allocated facilities cost , all driven by our continued investment in the areas of cloud computing and saas . the fiscal year 2013 over 2012 increase of $ 7.4 million in research and development expenses was primarily attributable to an $ 8.5 million increase in personnel and labor costs , attributable to the increased headcount as a result of our recent acquisitions . research and development expenses as a percentage of revenues was 9 % during the year ended september 30 , 2013 , consistent with those incurred during the year ended september 30 , 2012. in fiscal 2015 , we expect that research and development expenditures as a percentage of revenues will be consistent with those incurred during fiscal 2014 as we continue to invest in the areas of cloud computing and saas . selling , general and administrative selling , general and administrative expenses consist principally of employee salaries and benefits ; travel costs ; overhead costs ; advertising and other promotional expenses ; corporate facilities expenses ; legal expenses ; business development expenses and the cost of operating computer systems . the fiscal year 2014 over 2013 increase of $ 9.8 million in selling , general and administrative expenses was primarily attributable to a $ 7.9 million increase in labor and personnel costs and a $ 2.3 million increase in marketing cost . the increase in labor and personnel costs was primarily due to an increase in stock-based compensation cost driven by the increase in our stock price , as well as an increase in incentive cost . the increase in marketing cost was primarily attributable to several new marketing programs implemented in fiscal 2014. selling , general and administrative expenses as a percentage of revenues decreased to 35 % for the year ended september 30 , 2014 from 36 % for the year ended september 30 , 2013 primarily attributable to fico shifting resources to research and development efforts in the areas of cloud computing and saas . 32 selling , general and administrative expenses as a percentage of revenues was 36 % for the year ended september 30 , 2013 as compared to 35 % for the year ended september 30 , 2012. the $ 29.9 million increase was primarily attributable to a $ 15.7 million increase in labor and personnel costs , a $ 4.4 million increase in equipment and software depreciation cost , a $ 3.3 million increase in travel cost and a $ 2.9 million increase in allocated facilities and infrastructure costs . the increase in labor and personnel costs was primarily due to the increased headcount as a result of our recent acquisitions . the increase in equipment and software depreciation cost was due to timing of fixed assets placed in service . the increase in travel cost was primarily due to increased non-revenue producing travel activities as a result of our recent acquisitions . the increase in allocated facilities and infrastructure costs was primarily due to increased resource requirement as a result of our recent acquisitions . in fiscal 2015 , we expect that selling , general and administrative expenses as a percentage of revenues will be consistent with those incurred during fiscal 2014 . amortization of intangible assets amortization of intangible assets consists of amortization expense related to intangible assets recorded in connection with our acquisitions . our finite-lived intangible assets consist primarily of completed technology and customer contracts and relationships , which are being amortized using the straight-line method over periods ranging from five to fifteen years .
| results of operations revenues the following tables set forth certain summary information on a segment basis related to our revenues for fiscal 2014 , 2013 and 2012 : replace_table_token_5_th replace_table_token_6_th 28 applications replace_table_token_7_th applications segment revenues increased $ 28.2 million in fiscal 2014 from fiscal 2013 primarily due to a $ 17.3 million increase in our fraud solutions , a $ 9.6 million increase in our customer communication solutions , a $ 5.0 million increase in our originations solutions , and a $ 4.8 million increase in our collections & recovery solutions . the increase was partially offset by a $ 5.3 million decrease in our marketing solutions and a $ 3.2 million decrease in our customer management solutions . the increase in fraud solutions was primarily attributable to two large multi-year license transactions during fiscal 2014. the increase in customer communication solutions was primarily attributable to an increase in transactional revenues as a result of our growth in the mobile communication market . the increase in originations solutions was primarily attributable to an increase in license and services revenues . the increase in collections & recovery solutions was primarily attributable to an increase in services revenues . the decrease in marketing solutions was primarily attributable to the early termination of a large customer in fiscal 2013 , partially offset by a large deal entered into in fiscal 2014 to develop customized software solutions for a new customer . the decrease in customer management solutions was primarily attributable to a decrease in license revenue .
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forward-looking statements , which are based on certain assumptions and describe future plans , strategies and expectations of the company , are generally identified by the use of the words “ plan , ” “ believe , ” “ expect , ” “ intend , ” “ anticipate , ” “ estimate , ” “ project , ” “ may , ” “ will , ” “ should , ” “ could , ” “ predicts , ” “ forecasts , ” “ potential , ” or “ continue ” or similar terms or the negative of these terms . the company 's ability to predict results or the actual effects of its plans or strategies is inherently uncertain . accordingly , actual results may differ mater ially from anticipated results . factors that could have a material adverse effect on the operations of the company and its subsidiaries include , but are not limited to , changes in market interest rates , general economic conditions , legislation , and regulation ; changes in monetary and fiscal policies of the united states government , including policies of the united states treasury and federal reserve board ; changes in the quality or composition of the loan or investment portfolios ; changes in deposit flows , competition , and demand for financial services , loans , deposits and investment products in the company 's local markets ; changes in accounting principles and guidelines ; war or terrorist activities ; and other economic , competitive , governmental , regulatory , geopolitical and technological factors affecting the company 's operations , pricing and services . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date of this discussion . although the company believes that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activity , performance or achievements . except as required by applicable law or regulation , the company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made . 32 critical accounting policies critical accounting policies are those accounting policies that can have a significant impact on the company 's financial position and results of operations that require the use of complex and subjective estimates based upon past experiences and management 's judgment . because of the uncertainty inherent in such estimates , actual results may differ from these estimates . below are those policies applied in preparing the company 's consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions . for additional accounting policies , see note 2 of “ notes to consolidated financial statements. ” allowance for loan losses loans receivable are presented net of an allowance for loan losses and net deferred loan fees . in determining the appropriate level of the allowance , management considers a combination of factors , such as economic and industry trends , real estate market conditions , size and type of loans in portfolio , nature and value of collateral held , borrowers ' financial strength and credit ratings , and prepayment and default history . the calculation of the appropriate allowance for loan losses requires a substantial amount of judgment regarding the impact of the aforementioned factors , as well as other factors , on the ultimate realization of loans receivable . in addition , our determination of the amount of the allowance for loan losses is subject to review by the new jersey department of banking and insurance and the fdic , as part of their examination process . after a review of the information available , our regulators might require the establishment of an additional allowance . any increase in the loan loss allowance required by regulators would have a negative impact on our earnings . other-than-temporary impairment of securities if the fair value of a security is less than its amortized cost , the security is deemed to be impaired . management evaluates all securities with unrealized losses quarterly to determine if such impairments are “ temporary ” or “ other-than-temporary ” in accordance with accounting standards codification ( “ asc ” ) topic 320 , investments – debt and equity securities . accordingly , temporary impairments are accounted for based upon the classification of the related securities as either available for sale or held to maturity . temporary impairments on available for sale securities are recognized , on a tax-effected basis , through other comprehensive income ( “ oci ” ) with offsetting entries adjusting the carrying value of the securities and the balance of deferred taxes . conversely , the carrying values of held to maturity securities are not adjusted for temporary impairments . information concerning the amount and duration of temporary impairments on both available for sale and held to maturity securities is generally disclosed in the notes to the con solidated financial statements . other-than-temporary impairments are accounted for based upon several considerations . first , other-than-temporary impairments on debt securities that the company has decided to sell as of the close of a fiscal period , or will , more likely than not , be required to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost , are recognized in earnings . if neither of these conditions regarding the likelihood of the sale of debt securities are applicable , then the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components . a credit-related impairment represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost . the noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related . credit-related other-than-temporary impairments are recognized in earnings and noncredit-related other-than-temporary impairments are recognized in oci . story_separator_special_tag recognizing this shift in the mix of our deposits , the attraction and retention of non-interest bearing commercial deposits , and longer dated maturity deposits remains a focus of our retail deposit gathering philosophy . during 2016 , the federal open market committee ( fomc ) has continued its accommodative monetary policy . this extended environment of historically low short term market rates has resulted in continuing parallel low retail deposit account yields , directly decreasing interest expense . short -term borrowings increased to $ 20.0 million at december 31 , 2016 from $ 0 at december 31 , 2015. long-term borrowings decreased by $ 45.0 million , or 22.5 % , to $ 155.0 million at december 31 , 2016 from $ 200.0 million at december 31 , 2015. the purpose of the borrowings reflected the use of long term and short term fhlb advances to augment deposits as the company 's funding source for originating loans and investing in gse investment securities . stockholders ' equity decreased $ 2.4 million , or 1.8 % , to $ 131.1 million at december 31 , 2016 from $ 133.5 at december 31 , 2015. stockholders ' equity decreased primarily as a result of cash dividends paid on common stock and preferred stock , the redemption of series a preferred stock , and an increase in other comprehensive loss , partially offset by net income during the year ended december 31 , 2016 . 34 analysis of net interest income net interest income is the difference between interest income on interest-earning assets and interest expense o n interest-bearing liabilities . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them , respectively . the following tables set forth balance sheets , average yields and costs , and certain other information for the years indicated . all average balances are daily average balances . the yields set forth below include the effect of deferred fees , discounts and premiums , which are included in interest income . replace_table_token_21_th _ ( 1 ) excludes allowance for loan losses . ( 2 ) includes federal home loan bank of new york stock . ( 3 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . 35 analysis of net interest income ( continued ) replace_table_token_22_th _ ( 1 ) excludes allowance for loan losses . ( 2 ) includes federal home loan bank of new york stock . ( 3 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . 36 rate/volume analysis the table below sets forth certain information regarding changes in our interest income and interest exp ense for the years indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( i ) changes in average volume ( changes in average volume multiplied by old rate ) ; ( ii ) changes in rate ( change in rate multiplied by old average volume ) ; ( iii ) changes due to combined changes in rate and volume ; and ( iv ) the net change . replace_table_token_23_th 37 results of operations for the years ended december 31 , 201 6 and 201 5 net income was $ 8.0 million for the year ended december 31 , 2016 , compared with $ 7.0 million for the year ended december 31 , 2015. net income increased due to higher interest income on interest earning assets , lower interest expense on borrowings , and a lower provision for loan loss , partially offset by increases in interest expense on deposits , lower non-interest income , and higher non-interest expense for the year ended december 31 , 2016 , as compared with the year ended december 31 , 2015 . net interest income increased by $ 1.5 million , or 2.9 % , to $ 55.1 million for the year ended december 31 , 2016 from $ 53.6 million for the year ended december 31 , 2015. the increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $ 219.3 million , or 15.3 % , to $ 1.658 billion for the year ended december 31 , 2016 from $ 1.439 billion for year ended december 31 , 2015 , partly offset by a decrease in the average yield on interest-earning assets of 38 basis points to 4.30 % for the year ended december 31 , 2016 from 4.68 % for the year ended december 31 , 2015. the average balance of interest-bearing liabilities increased by $ 189.9 million , or 15.6 % , to $ 1.405 billion for the year ended december 31 , 2016 from $ 1.215 billion for the year ended december 31 , 2015 , and the average cost of interest bearing liabilities increased by 2 basis points to 1.16 % for year ended december 31 , 2016 from 1.14 % for the year ended december 31 , 2015. net interest margin was 3.32 % for the year ended december 31 , 2016 , and 3.72 % for the year ended december 31 , 2015 .
| results of operations for the years ended december 31 , 2015 and 20 14 net income was $ 7.0 million for the year ended december 31 , 2015 , compared with $ 7.6 million for the year ended december 31 , 2014. net income decreased due to higher non-interest expense , partially offset by increases in net interest income and non-interest income for the year ended december 31 , 2015 , as compared with the year ended december 31 , 2014 . net interest income increased by $ 3.6 million , or 7.3 % , to $ 53.5 million for the year ended december 31 , 2015 from $ 49.9 million for the year ended december 31 , 2014. the increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $ 223.7 million , or 18.4 % , to $ 1.439 billion for the year ended december 31 , 2015 from $ 1.215 billion for year ended december 31 , 2014 , partly offset by a decrease in the average yield on interest-earning assets of 28 basis points to 4.68 % for the year ended december 31 , 2015 from 4.96 % for the year ended december 31 , 2014. the average balance of interest-bearing liabilities increased by $ 200.3 million , or 19.8 % , to $ 1.215 billion for the year ended december 31 , 2015 from $ 1.014 billion for the year ended december 31 , 2014 , and the average cost of interest bearing liabilities increased by 12 basis points to 1.14 % for year ended december 31 , 2015 from 1.02 % for the year ended december 31 , 2014. net interest margin was 3.72 % for the year ended december 31 , 2015 , and 4.11 % for the year ended december 31 , 2014 .
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please refer to note 6 for more information relating to the sale of boqi zhengji . f- 9 the pharmacy group engages in the retail sale of medicine and other healthcare products in the prc . the pharmacy group sells its medicine and other healthcare products to customers through its directly-owned stores . the pharmacy group offers a wide range of products , including prescription and over-the-counter ( “ otc ” ) drugs , nutritional supplements , traditional chinese medicines , personal and family care products and medical devices , as well as miscellaneous story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report on form 10-k. the discussion in this section of this report on form 10-k contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed herein . factors that could cause or contribute to such differences include , but are not limited to , those discussed in this section , those discussed in “ risk factors ” and those discussed elsewhere in this report on form 10-k. overview from 2007 until october 2019 , we , through the nf group , were engaged in the energy efficiency enhancement business . with the decline in the constructions of power generation plants and municipal water , gas , heat and energy pipelines in china due to a policy change by the prc government , the demand for our products and services declined markedly . as a result , our energy efficiency enhancement business , incurred operating losses in each of the last seven years , especially in 2018 , when the prc government adopted a series of policies to favor more environmentally friendly projects and products . our net loss from the operation of the energy efficiency enhancement business was $ 16.79 million in 2018 and $ 2.18 million in 2019. we explored many different alternatives in an effort to revive this business , including attempts to expand into international markets , before we determined this business was not sustainable for us . in late 2019 , we committed to a plan to dispose of the nf group and on march 31 , 2020 , we entered into an agreement for the sale of the nf group . the sale closed on june 23 , 2020 when the $ 10 million sales price was paid to us in full . our current operations are focused on the healthcare industry in the prc . on october 14 , 2019 , we acquired boqi zhengji , an operator of a pharmacy chain business in the prc . this was the first step of our shift of focus from the energy sector to the healthcare business . boqi zhengji , however , suffered significant setbacks during 2020. the covid-19 pandemic caused the pharmacy stores to record almost no sales for several months due to the national shutdown order and other government orders specifically targeting otc drugs . while we offered support to boqi zhengji with the implementation of the boqi guanzan healthy future pharmacy plan and other programs aimed to offer guanzan 's and other company resources to the pharmacy chain , such efforts failed to help improve boqi zhengji 's poor performance . to avoid exposing our other business to further risks and potential joint liabilities , we decided to divest the pharmacy chain . on december 11 , 2020 we entered into an agreement to sell boqi zhengji for $ 1,700,000 in cash . on december 18 , 2020 , we received the full consideration from the buyer and the control of the boqi zhengji business was transferred . due to the chinese government 's alternative working schedule and other delays caused by covid-19 , the government record reflecting the transfer of ownership was not updated until february 2 , 2021. the disposal of nf group and boqi zhengji and the actions taken to fulfill the plans resulted in our classifying the businesses of nf group and boqi zhengji as discontinued operations according to asc 205-20 presentation of financial statements – discontinued operation . as a result , all of the assets and liabilities of the nf group and boqi zhengji were reclassified as assets and liabilities of a discontinued operation in the statement of position as of december 31 , 2020 and 2019 , and the results of the operation are presented under the line item net loss from discontinued operations for the years ended december 31 , 2020 and 2019 . 32 on march 18 , 2020 , we completed the guanzan acquisition . the rationale for the acquisition was for us to further expand our healthcare operation by acquiring a medical devices and pharmaceuticals distribution business . we believed that guanzan has strong sales capabilities and procurement resources in the local area of chongqing , the largest city in southwest region of the prc . the acquisition was is in line with our expansion strategy , which focuses on deeper penetration of the healthcare market in the southwest region of china and gaining a wider footprint in the prc . on february 2 , 2021 , we acquired guoyitang , the owner and operator of a private general hospital in chongqing with 50 hospital beds and 98 employees , including 14 doctors , 28 nurses , 43 other medical staff and 13 non-medical staff . the guoyitang acquisition will enable us to serve more individuals with medical needs and is the first step in our efforts to building a hospital chain specializing in obstetrics and gynecology . on february 8 , 2021 , we acquired zhongshan , a private hospital in the southeast region of china with 160 hospital beds ( of which 110 beds are currently in use ) and 95 employees , including 20 doctors , 48 nurses , 10 other medical staff and 17 non-medical staff . zhongshan is a general hospital known for its complex minimally invasive surgeries and equipped with high-end diagnostics equipment and surgical instruments for gynecology and obstetrics use . story_separator_special_tag for the receivables that are past due or not being paid according to payment terms , the appropriate actions are taken to exhaust all means of collection , including seeking legal resolution in a court of law . account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote . we do not have any off-balance-sheet credit exposure related to its customers . inventories inventories are stated at the lower of cost or market value ( net realizable value ) , cost being determined on a weighted average method . costs include material , labor and manufacturing overhead costs . we review historical sales activity quarterly to determine excess , slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand . we provide inventory allowances based on excess and obsolete inventories determined principally by customer demand . 34 equipment and vehicles equipment and vehicles are stated at cost less accumulated depreciation and impairment , if any . depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values : replace_table_token_1_th expenditures for repairs and maintenance are expensed as incurred . when assets have been retired or sold , the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations . leases on january 1 , 2020 , we adopted accounting standards update ( “ asu ” ) 2016-02. for all leases that were entered into prior to the effective date of asc 842 , we elected to apply the package of practical expedients . based on this guidance , we did not reassess the following : ( 1 ) whether any expired or existing contracts are or contain leases ; ( 2 ) the lease classification for any expired or existing leases ; and ( 3 ) initial direct costs for any existing leases . we determine if an arrangement is a lease at inception . operating leases are included in operating lease right-of-use ( “ rou ” ) assets , current portion of obligations under operating leases , and obligations under operating leases , non-current on our consolidated balance sheets . finance leases are included in property and equipment , net , current portion of obligations under capital leases , and obligations under capital leases , non-current on our consolidated balance sheets . operating lease rou assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date , adjusted by the deferred rent liabilities at the adoption date . as most of our leases do not provide an implicit rate , we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments . the operating lease rou asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred . the terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option . operating lease expense is recognized on a straight-line basis over the lease term . goodwill goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business . in accordance with asc 350 , goodwill and other intangible assets , recorded goodwill amounts are not amortized , but rather are tested for impairment annually or more frequently if there are indicators of impairment present . 35 goodwill is tested for impairment at the reporting unit level on at least an annual basis or when an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value . these events or circumstances include a significant change in stock prices , business environment , legal factors , financial performances , competition , or events affecting the reporting unit . application of the goodwill impairment test requires judgment , including the identification of reporting units , assignment of assets and liabilities to reporting units , assignment of goodwill to reporting units , and determination of the fair value of each reporting unit . the estimation of fair value of reporting unit using a discounted cash flow methodology also requires significant judgments , including estimation of future cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for our business , estimation of the useful life over which cash flows will occur , and determination of our weighted average cost of capital . the estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions . changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for the reporting unit . management evaluated the recoverability of goodwill by performing a qualitative assessment before using a two-step impairment test approach at the reporting unit level . if we reorganize our reporting structure in a manner that changes the composition of one or more of our reporting units , goodwill will be reassigned based on the relative fair value of each of the affected reporting units . convertible promissory notes we record debt net of debt discount for beneficial conversion features and warrants , on a relative fair value basis . beneficial conversion features are recorded pursuant to the beneficial conversion and debt topics of the fasb accounting standards codification . the amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital . debt discount is amortized to interest expense over the life of the debt . derivative instruments we enter into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features .
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_2_th revenues revenues for the years ended december 31 , 2020 and 2019 were $ 12,844,902 and $ 0 , respectively . the revenues for the year ended december 31 , 2020 were attributable to the revenues of the guanzan group and to a limited degree , the revenues of the pharmacy group 's directly-owned stores . the increase of $ 12,844,902 is due to the acquisition of the guanzan group in 2020. wholesale sales of medical devices and pharmaceuticals generated revenues of $ 3,059,462 and $ 9,701,353 , respectively , in the year ended december 31 , 2020. revenues from the retail pharmacy segment for the year ended december 31 , 2020 were $ 84,087 compared to no revenues in the year ended december 31 , 2019. during the last quarter of 2020 , we entered into the release agreement with the four individuals from whom we purchased boqi zhengji . in the agreement , we and the sellers confirmed that the performance targets relating to the cash consideration would not be met and as a consequence they would not be eligible to receive any further consideration with respect to the sale of boqi zhengji to us . subsequently , on december 11 , 2020 , we entered into an agreement to sell boqi zhengji in consideration of $ 1.7 million , which was paid to us on december 18 , 2020 . 38 cost of revenues cost of revenues consists of primarily of the cost of the medical devices , pharmaceuticals and other products sold to customers . cost of revenues for the year ended december 31 , 2020 was $ 10,402,085 compared with $ 0 for the year ended december 31 , 2019. the increase reflected the costs associated with operations of the guanzan group .
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f-11 layaway and deferred revenue - interim payments from customers on layaway sales are credited to deferred revenue and subsequently recorded as income during the period in which final payment is received or when the previous payments are forfeited to the company . inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the general public . story_separator_special_tag general the company is a leading operator of retail-based pawn stores in the united states and latin america . the company 's pawn stores generate significant retail sales primarily from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers . the company 's pawn stores are also a convenient source for small consumer loans to help customers meet their short-term cash needs . personal property such as consumer electronics , jewelry , power tools , household appliances , sporting goods and musical instruments are pledged as collateral for the loans . in addition , some of the company 's pawn stores offer consumer loans or credit services products . the company 's strategy is to focus on growing its retail-based pawn operations in the united states and latin america through new store openings and strategic acquisition opportunities as they arise . pawn operations accounted for approximately 96 % of the company 's consolidated revenue during fiscal 2015 compared to 95 % during fiscal 2014 . the company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn loan for all pawn loans that the company deems collection to be probable based on historical redemption statistics . if a pawn loan is not repaid prior to the expiration of the loan term , including any automatic extension period , if applicable , the property is forfeited to the company and transferred to inventory at a value equal to the principal amount of the loan , exclusive of accrued interest . the company records merchandise sales revenue at the time of the sale . the company presents merchandise sales net of any sales or value-added taxes collected . the company does not provide direct financing to customers for the purchase of its merchandise , but does permit its customers to purchase merchandise on an interest-free layaway plan . should the customer fail to make a required payment pursuant to a layaway plan , the previous payments are typically forfeited to the company . interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as income during the period in which final payment is received or when previous payments are forfeited to the company . some jewelry is melted at a third-party facility and the precious metal content is sold at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer . the company records revenue from these transactions when a price has been agreed upon and the company ships the jewelry to the buyer . the company operates a small number of stand-alone consumer finance stores in texas and mexico . these stores provide consumer financial services products including credit services , consumer loans and check cashing . certain of the company 's pawn stores also offer credit services and or consumer loans as an ancillary product . consumer loan and credit services revenue accounted for approximately 4 % of consolidated revenue for fiscal 2015 compared to 5 % during fiscal 2014 . the company recognizes service fee income on consumer loans and credit services transactions on a constant-yield basis over the life of the loan or credit extension , which is generally 180 days or less . the net defaults on consumer loans and credit services transactions and changes in the valuation reserve are charged to the consumer loan credit loss provision . the credit loss provision associated with the company 's cso program and consumer loans are based primarily upon historical credit loss experience , with consideration given to recent credit loss trends , delinquency rates , economic conditions and management 's expectations of future credit losses . for an additional discussion of the credit loss provision and related allowances and accruals , see “ —results of continuing operations. ” stores included in the same-store calculations presented in this annual report are those stores that were opened prior to the beginning of the prior-year comparative fiscal period and remained open through the end of the measurement period . also included are stores that were relocated during the year within a specified distance serving the same market where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store . operating expenses consist of all items directly related to the operation of the company 's stores , including salaries and related payroll costs , rent , utilities , facilities maintenance , advertising , property taxes , licenses , supplies and security . administrative expenses consist of items relating to the operation of the corporate offices , including the compensation and benefit costs of corporate management , area supervisors and other operations management personnel , collection operations and personnel , accounting and administrative costs , information technology costs , liability and casualty insurance , outside legal and accounting fees and stockholder-related expenses . 35 replace_table_token_8_th ( 1 ) store operating profit is an amount equal to net revenues less store operating expenses less depreciation expense . discontinued operations during fiscal 2014 , the company discontinued cash & go , ltd. , which owned and operated 37 check cashing and financial services kiosks located inside convenience stores in the state of texas . cash & go , ltd. was a joint venture in which the company owned a 50 % interest . the company recorded an after-tax loss upon the liquidation of cash & go , ltd. of $ 272,000 , or $ 0.01 per share , in fiscal 2014 , which was reported as a loss from discontinued operations . story_separator_special_tag the company considers consumer loans to be in default if they are not repaid on the due date and writes off the principal amount and service fees receivable as of the default date , leaving only active advances in the reported balance . net defaults and changes in the consumer loan allowance are charged to the consumer loan loss provision . 37 inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the general public . the company also retails limited quantities of new or refurbished merchandise obtained directly from wholesalers and manufacturers . inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods , exclusive of accrued interest . inventories purchased directly from customers , wholesalers and manufacturers are recorded at cost . the cost of inventories is determined on the specific identification method . inventories are stated at the lower of cost or market value ; accordingly , inventory valuation allowances are established , if necessary , when inventory carrying values are in excess of estimated selling prices , net of direct costs of disposal . management has evaluated inventories and determined that a valuation allowance is not necessary . goodwill - goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination . the company performs its goodwill impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company 's reporting units , which are tested for impairment , are u.s. pawn operations , u.s. consumer loan operations and latin america operations . the company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors , including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for the company 's products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel , and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the company proceeds to the two-step impairment testing methodology . as described in “ —results of continuing operations—goodwill impairment—u.s . consumer loan operations ” below , the company recorded a goodwill impairment charge of $ 7,913,000 during 2015. foreign currency transactions - the company has significant operations in mexico , and guatemala to a lesser extent , where the functional currency is the mexican peso and guatemalan quetzal , respectively . accordingly , the assets and liabilities of these subsidiaries are translated into u.s. dollars at the exchange rate in effect at each balance sheet date , and the resulting adjustments are accumulated in other comprehensive income ( loss ) as a separate component of stockholders ' equity . revenue and expenses are translated at the average exchange rates occurring during the year-to-date period . prior to translation , any u.s. dollar-denominated transactions of the foreign subsidiaries are remeasured into their functional currency using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities . gains and losses from remeasurement of dollar-denominated monetary assets and liabilities in mexico and guatemala are included in store operating expenses . the company 's management reviews and analyzes certain operating results in latin america on a constant currency basis because the company believes this better represents the company 's underlying business trends . amounts presented on a constant currency basis are denoted as such . see “ —non-gaap financial information ” for additional discussion of constant currency operating results . the average value of the mexican peso to the u.s. dollar exchange rate for fiscal 2015 was 15.8 to 1 , compared to 13.3 to 1 in fiscal 2014 and 12.8 to 1 in fiscal 2013. in fiscal 2016 , through february 12 , 2016 , the average exchange rate was 18.1 to 1 , which equates to a 15 % decline as compared to the average value for fiscal 2015 of 15.8 to 1 . 38 story_separator_special_tag ( inventory held for more than one year ) is primarily a result of recent acquisition activity . excluding stores acquired during fiscal 2015 , aged inventories represented 5 % of total inventories at december 31 , 2015 . pawn lending operations pawn loan fees decreased 2 % ( increased 8 % on a constant currency basis ) totaling $ 195,448,000 during fiscal 2015 compared to $ 199,357,000 for fiscal 2014 . consolidated pawn receivables as of december 31 , 2015 decreased 1 % ( increased 6 % on a constant currency basis ) compared to december 31 , 2014 . the increase in constant currency pawn fees and receivables was primarily due to store additions . latin america same-store pawn receivables increased 5 % on a constant currency basis while u.s. same-store 41 receivables declined 6 % as of december 31 , 2015 compared to december 31 , 2014 . the consolidated annualized yield on pawn loans was 162 % in fiscal 2015 compared to 164 % in the prior year . consumer lending operations service fees from consumer loans and credit services transactions ( collectively also known as payday loans ) decreased 24 % ( 23 % on a constant currency basis ) to $ 27,803,000 during fiscal 2015 compared to $ 36,749,000 for fiscal 2014 . the company attributes the decrease in part to increased competition , additional regulatory restrictions in many markets where the company 's payday lending operations are focused as well as the company 's ongoing strategic downsizing of these operations with the closure of 23 stand-alone consumer finance stores in texas during fiscal 2015 .
| results of continuing operations twelve months ended december 31 , 2015 compared to twelve months ended december 31 , 2014 . the following table details the components of the company 's revenue for the fiscal year ended december 31 , 2015 as compared to the fiscal year ended december 31 , 2014 ( in thousands ) . constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates . the average value of the mexican peso to the u.s. dollar decreased 19 % from 13.3 to 1 during fiscal 2014 to 15.8 to 1 during fiscal 2015 . the end-of-period value of the mexican peso to the u.s. dollar decreased 17 % , from 14.7 to 1 at december 31 , 2014 to 17.2 to 1 at december 31 , 2015 . as a result of these currency exchange movements , revenue from mexican operations translated into fewer u.s. dollars relative to the prior year , and net assets of mexican operations as of year end translated into fewer u.s. dollars relative to the prior year end . while the strength of the u.s. dollar compared to the mexican peso decreased the translated dollar-value of revenue generated in mexico , the cost of sales and operating expenses decreased as well . the scrap jewelry generated in mexico was exported and sold in u.s. dollars , which did not contribute to the company 's peso-denominated revenue stream . for the year ended december 31 , 2015 , the company 's latin american revenues and net income would have been approximately $ 68,106,000 and $ 9,500,000 higher , respectively , had foreign currency exchange rates remained consistent with those for the year ended december 31 , 2014 .
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333-200638 ) that was declared effective by the sec on december 23 , 2014. oxford and hercules debt financing warrant issuance in connection with the lsa with oxford , on june 19 , 2015 , the company issued to oxford a seven year warrant , expiring on june 19 , 2022 , to purchase 74,309 shares of common stock at an exercise price of $ 8.51 per story_separator_special_tag this discussion , which refers to the historical results of adma , should be read in conjunction with the other sections of this annual report , including “ risk factors , ” “ business ” and the consolidated financial statements and other consolidated financial information included in this report . the various sections of this discussion contain a number of forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report . see “ special note regarding forward-looking statements. ” our actual results may differ materially . financial operations overview revenues revenue for the year ended december 31 , 2015 , of $ 7,177,633 is primarily comprised of $ 7,050,283 from the sale of normal source human plasma through our fda-licensed , gha and mfda certified plasma collection centers segment and $ 127,350 of license revenue and other revenue which are recorded as deferred revenue and amortized into income over the terms of the respective agreements . in exchange for the out-licensing of ri-002 to market and sell in europe and selected countries in north africa and the middle east , biotest pharmaceuticals corporation , or biotest , a subsidiary of biotest ag , has provided us with certain services and a financial payment received in accordance with the related license agreement and is obligated to pay us certain amounts in the future if certain milestones are achieved . our revenue is substantially attributable to a single customer . depending on the agreement with the customer , revenues from the sale of human plasma collected at our fda licensed plasma collection centers are recognized at the time of transfer of title and risk of loss to the customer , which occurs at the time of shipment . revenue is recognized at the time of delivery if we retain the risk of loss during shipment . revenue from license fees and research and development services rendered are recognized as revenue when the performance obligations under the terms of the license agreement have been completed . 39 during the third quarter 2015 , we recorded deferred revenue of $ 1,500,000 for a milestone payment provided to us from biotest upon filing the bla for ri-002 with the fda , in accordance with the terms of the license agreement . deferred revenue of $ 1,700,000 was recorded in 2013 as a result of certain research and development services provided in accordance with the same license agreement . deferred revenue is recognized over the term of the license . deferred revenue is amortized into income for a period of approximately 20 years , the term of the license agreement . research and development expense research and development , or r & d , expense consists of clinical research organization and clinical trial costs related to our clinical trial , consulting expenses relating to regulatory affairs , quality control and manufacturing , assay development and ongoing testing costs , drug product manufacturing including the cost of plasma , plasma storage and transportation costs , testing , validation , as well as wages , stock-based compensation and benefits for employees directly related to the research and development of ri-002 . all r & d costs are expensed as incurred . the process of conducting pre-clinical studies , clinical trials and regulatory activities necessary to obtain fda approval is costly and time consuming . the probability of success for each product candidate and clinical trial may be affected by a variety of factors , including , among others , the quality of the product candidate 's early clinical data , investment in the program , competition , regulatory , manufacturing capabilities and commercial viability . as a result of the uncertainties discussed above , the uncertainty associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when , or to what extent , we will generate revenues from the commercialization and sale of any of our product candidates . development timelines , probability of success and development costs vary widely . r & d expenses for the year ended december 31 , 2015 decreased compared to the year ended december 31 , 2014 , due to the completion of our phase iii clinical trial during 2014. r & d expenses for the year ended december 31 , 2015 were primarily comprised of regulatory consulting fees and other costs incurred from the filing of our bla for ri-002 with the fda , testing and validation expenses and close out study costs from our phase iii clinical study along with wages and benefits for employees , including stock-based compensation . general and administrative expense general and administrative , or g & a expense , consists of wages , stock-based compensation and benefits for senior management and staff unrelated to r & d , consulting fees for commercialization planning and infrastructure costs , market research , legal fees , accounting and auditing fees , information technology , rent , maintenance and utilities , insurance , travel and other expenses related to the general operations of the business . other income and expense interest income consists of interest earned on our cash and cash equivalents and short-term investments . story_separator_special_tag net cash used in investing activities was $ 4,040,743 for the year ended december 31 , 2014 , which pertained to purchases of property and equipment primarily related to the expansion and construction of our existing and new plasma centers of $ 2,323,251 , and short term investments of $ 1,717,492. net cash provided by financing activities net cash provided by financing activities totaled $ 10,401,907 for the year ended december 31 , 2015 , which primarily consisted of $ 16,000,000 received from the loan from oxford during the second quarter of 2015 , and $ 10,306,606 received from the issuance of common stock during the first quarter of 2015 , offset by the $ 15,300,781 related to the repayment of a pre-existing loan with hercules , prepayment premium to hercules of $ 229,512 , debt issue costs to oxford of $ 172,363 and an end of term fee payment of $ 132,500 to hercules in addition to amortization of our leasehold improvement loan for our adma biocenters wholly-owned subsidiary . net cash provided by financing activities totaled $ 9,795,206 for the year ended december 31 , 2014 , which primarily consisted of proceeds from our debt financings with hercules offset by debt issuance costs . liquidity and capital resources overview as of december 31 , 2015 , we had working capital of $ 17.0 million , consisting primarily of $ 10.4 million of cash and cash equivalents , $ 6.4 million of short term investments , $ 3.4 million of inventories , $ 0.9 million of accounts receivable and $ 0.1 million of prepaid expenses , offset by $ 4.2 million of current liabilities , which are mainly comprised of accounts payable and accrued expenses . 43 we have had limited revenue from operations and we have incurred cumulative losses of $ 87.4 million since inception . we have funded our operations to date primarily from equity investments , loans from venture debt lenders and loans from our primary stockholders . we received net cash proceeds of approximately $ 10.2 million from the sales of our common stock in march 2015 , $ 26.6 million in october 2013 from our initial public offering , or ipo , a total of $ 16.0 million from venture debt lenders in various financings since 2012 ; and $ 15.3 million in the 2012 financing . our funds are being used and have been used to conduct clinical trials , manufacture drug product , collect and procure plasma , test plasma donors for rsv titers , file our bla for ri-002 , pre-launch activities , commercialization and marketing activities , the buildout and expansion of our first plasma center and the buildout of our second plasma center and the remainder for payment of existing accounts payable , general and administrative , research and development expenses as well as other business activities and general corporate purposes . we expect to continue to spend substantial amounts on product development , including commercialization activities , procuring raw material plasma , manufacturing , conducting potential future clinical trials for our product candidates and purchasing clinical trial materials from our suppliers . we anticipate that , based upon our projected revenue and expenditures , our current cash and cash equivalents , short term investments will be sufficient to fund our operations , as currently conducted , into the second half of 2016. in order to have sufficient cash to fund our operations thereafter , we will need to raise additional equity or debt capital by the end of the second half of 2016 in order to continue as a going concern , and we can not provide any assurance that we will be successful in doing so . this time frame may change based upon the timing of our commercial manufacturing scale up activities , how aggressively we execute on our commercial initiatives and when the fda approves our bla . we currently do not have arrangements to obtain additional financing . any such financing could be difficult to obtain or only available on unattractive terms and could result in significant dilution of stockholders ' interests . failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our business plan and financial performance and we could delay , discontinue or prevent product development , clinical trial or commercialization activities , delay or discontinue the approval of any of our potential products , curtail our activities and potentially significantly reduce , or potentially cease operations . in addition , we could be forced to reduce or forego sales and marketing efforts and forego attractive business opportunities . we believe that we will incur net losses and negative net cash flows from operating activities for the foreseeable future , as such these conditions raise substantial doubt about our ability to continue as a going concern . as there are numerous risks and uncertainties associated with the research , development and future commercialization of our product candidate , we are unable to estimate with certainty the amounts of increased capital outlays and operating expenditures associated with our anticipated development and commercialization activities . our current estimates may be subject to change as circumstances and requirements further develop . we may decide to raise capital through public or private equity offerings , debt financings , grants or corporate collaboration and licensing arrangements . the sale of additional equity or debt securities , if convertible , could result in dilution to our stockholders . the incurrence of indebtedness would result in increased fixed obligations and could also result in covenants that would restrict our operations or other financing alternatives . during december 2014 , we received $ 0.6 million from the sale of our state of new jersey net operating losses through the new jersey economic development authority program . we can not make assurances that funding will be available for us in the future under this program .
| summary table the following table presents a summary of our results of operations for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. replace_table_token_4_th revenue we recorded revenue of $ 7,177,633 during the year ended december 31 , 2015 compared to $ 5,915,545 during the year ended december 31 , 2014. product revenue was $ 7,050,283 for the year ended december 31 , 2015 , which is attributable to our adma biocenters plasma collection centers segment and derived from the sale of human source plasma collected in our fda-licensed , gha and mfds-certified norcross and marietta , georgia-based plasma collection centers , compared to product revenue of $ 5,839,989 for the year ended december 31 , 2014. product revenue for the year ended december 31 , 2015 was primarily attributed to sales made pursuant to our plasma supply agreement with biotest under which biotest purchases normal source plasma from adma biocenters to be used in their manufacturing . the increase in product revenue of $ 1,210,294 was primarily attributable to revenue generated from the sale of normal source plasma collected at our marietta , georgia , plasma collection center , which received approval from the fda during the third quarter 2015. we sold a majority of the normal source plasma collected from our plasma centers throughout the year . the normal source plasma and high-titer rsv plasma we did not sell was allocated to inventory in anticipation of commercial manufacturing . for the years ended december 31 , 2015 and 2014 , license and other revenue was $ 127,350 and $ 75,556 , respectively , which primarily relates to services and a financial payment by biotest in accordance with our license agreement and other third parties . we have not generated any revenue from our therapeutics , research and development business segment .
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our revenues are derived primarily from : ( i ) the sale of new vehicles to individual retail customers ( “ new vehicle retail ” ) and commercial customers ( “ fleet ” ) ( the terms “ new vehicle retail ” and “ fleet ” being together referred to as “ new ” ) ; ( ii ) the sale of used vehicles to individual retail customers ( “ used retail ” ) and to other dealers at auction ( “ wholesale ” ) ( the terms “ used retail ” and “ wholesale ” being together referred to as “ used ” ) ; ( iii ) maintenance and collision repair services and the sale of automotive parts ( together referred to as “ parts and service ” ) ; and ( iv ) the arrangement of vehicle financing and the sale of a number of aftermarket products , such as insurance and service contracts ( collectively referred to as “ f & i ” ) . we evaluate the results of our new and used vehicle sales based on unit volumes and gross profit per vehicle sold , our parts and service operations based on aggregate gross profit , and f & i based on dealership generated f & i gross profit per vehicle sold . we assess the organic growth of our revenue and gross profit by comparing the year-to-year results of stores that we have operated for at least twelve full months ( “ same store ” ) . our organic growth is dependent upon the execution of our balanced automotive retailing and service business strategy , the continued strength of our brand mix and the production of desirable vehicles by automobile manufacturers whose brands we sell . our vehicle sales have historically fluctuated with product availability as well as local and national economic conditions , including consumer confidence , availability of consumer credit , fuel prices and employment levels . we believe that the impact on our business of any future negative trends in new vehicle sales would be partially mitigated by ( i ) the expected relative stability of our parts and service operations over the long-term , ( ii ) the variable nature of significant components of our cost structure and ( iii ) our brand mix . historically , our brand mix has been less affected by market volatility than the u.s. automobile industry as a whole . we believe that our new vehicle revenue brand mix , which included approximately 49 % of revenue from mid-line import brands and 37 % of revenue from luxury brands for 2012 , is well positioned for growth over the long term . our operating results are generally subject to changes in the economic environment as well as seasonal variations . we tend to generate more revenue and operating income in the second and third quarters than in the first and fourth quarters of the calendar year . generally , the seasonal variations in our operations are caused by factors related to weather conditions , changes in manufacturer incentive programs , model changeovers and consumer buying patterns , among other things . our gross profit margin varies with our revenue mix . the sale of new vehicles generally results in lower gross profit margin than used vehicle sales and sales of parts and service . as a result , when used vehicle and parts and service revenue increase as a percentage of total revenue , we expect our overall gross profit margin to increase . selling , general and administrative ( “ sg & a ” ) expenses consist primarily of fixed and incentive-based compensation , advertising , rent , insurance , utilities and other customary operating expenses . a significant portion of our cost structure is variable ( such as sales commissions ) , or controllable ( such as advertising ) , generally allowing us to adapt to changes in the retail environment over the long-term . we evaluate commissions paid to salespeople as a percentage of retail vehicle gross 30 profit and all other sg & a expenses in the aggregate as a percentage of total gross profit , with the exception of advertising expense , which we evaluate on a per vehicle retailed ( `` pvr '' ) basis . the united states automotive retail market showed continued improvement in 2012 , with new vehicle saar increasing to 14.5 million as compared to 12.8 million in 2011. we benefited from improving economic conditions throughout 2012 , which we attribute to increasing consumer confidence and the availability of credit at terms favorable to consumers . we also believe that pent up demand for new vehicles favorably impacted us during 2012. we believe that the overall economic recovery will continue to be fragile , and may be subject to further changes based on consumer confidence , unemployment levels and other macro-economic factors as the long-term prospects for , and the timing of , a return to a stronger economy continue to be difficult to predict . we had total available liquidity of $ 232.7 million as of december 31 , 2012 , which consisted of cash and cash equivalents of $ 6.2 million , borrowing availability of $ 213.9 million under our revolving credit facilities and $ 12.6 million of availability under our floor plan offset account . for further discussion of our liquidity , please refer to “ liquidity and capital resources ” below . we have no long-term debt maturities until october 2015 , at which time two of our mortgage notes payable associated with certain of our properties in st. louis , missouri , will mature . as of december 31 , 2012 , the aggregate principal amount outstanding under these two mortgage notes payable was $ 19.7 million . 31 results of operations the year ended december 31 , 2012 compared to the year ended december 31 , 2011 replace_table_token_7_th 32 replace_table_token_8_th net income and income from continuing operations increased by $ 14.3 million and $ 36.8 million , respectively , during 2012 as compared to 2011 . story_separator_special_tag the 6 % increase in same store used vehicle retail unit sales reflects the ongoing impact of our `` asbury 1-2-1 '' program , a volume-driven initiative with a goal of retailing one used vehicle for every new vehicle retailed . this program is designed to drive not only used retail volume , but to increase revenues from associated parts and service reconditioning and f & i as well . the $ 3.6 million ( 4 % ) increase in used vehicle gross profit was primarily the result of a $ 2.9 million ( 3 % ) increase in used vehicle retail gross profit . the increase in used vehicle retail gross profit was driven primarily by higher unit volumes , partially offset by a 50 basis point decrease in our same store used vehicle retail gross margin . the decrease in our same store used vehicle gross margin can partially be attributed to the increased availability of competitively priced new models that , until mid-2012 , were in short supply as a result of the 2011 natural disaster and related events in japan . we believe that our used vehicle inventory continues to be well-aligned with current consumer demand , with approximately 34 days of supply in our inventory as of december 31 , 2012 . 36 parts and service— replace_table_token_13_th ( 1 ) same store amounts consist of information from dealerships for the identical months of each period presented in the comparison , commencing with the first full month in which the dealership was owned by us . the $ 9.7 million ( 2 % ) increase in parts and service revenue was primarily due to a $ 14.0 million ( 4 % ) increase in same store customer pay revenue , partially offset by a $ 6.4 million ( 7 % ) decrease in same store warranty revenue . the 200 basis point increase in our same store parts and service gross margin was primarily the result of increases in our higher margin parts and service businesses , including a 19 % increase in gross profit from reconditioning and preparation of vehicles and a 5 % increase in our customer pay parts and service gross profit . the $ 10.7 million increase in reconditioning and preparation gross profit was primarily driven by a 16 % increase in our same store new vehicle retail unit sales and a 6 % increase in our same store used vehicle retail unit sales . gross profit associated with warranty work decreased by $ 4.0 million ( 9 % ) , partially due to certain manufacturer recalls that occurred during 2011 that drove increased warranty work . we continue to focus on increasing our parts and service revenue , and specifically our customer pay business , over the long-term by ( i ) continuing to invest in additional service capacity , where appropriate , ( ii ) upgrading equipment , ( iii ) focusing on improving customer retention and customer satisfaction and ( iv ) capitalizing on our dealer training programs . finance and insurance , net— replace_table_token_14_th ( 1 ) same store amounts consist of information from dealerships for the identical months of each period presented in the comparison , commencing with the first full month in which the dealership was owned by us . 37 f & i increased by $ 29.6 million ( 22 % ) during 2012 as compared to 2011 , primarily due to ( i ) a 12 % increase in retail unit sales and ( ii ) a 9 % increase in f & i per vehicle sold . the increase in f & i per vehicle sold was primarily attributable to improvement in the number of f & i contracts sold as a percentage of retail unit sales ( also known as our f & i penetration rate ) , which was driven by ( i ) the improving availability of consumer credit , which allowed more of our customers to take advantage of a broader array of f & i products , ( ii ) the addition of key personnel to our f & i management team and ( iii ) our continued focus on improving the f & i results at our lower-performing stores through our f & i training programs , which include implementing a certification process and certain best practices initiatives . selling , general and administrative expense— replace_table_token_15_th ( 1 ) same store amounts consist of information from dealerships for the identical months of each period presented in the comparison , commencing with the first full month in which the dealership was owned by us . same store sg & a expense as a percentage of gross profit was 72.8 % for 2012 as compared to 76.1 % for 2011 . the 330 basis point decrease was primarily attributable to ( i ) a 160 basis point decrease in personnel costs as a result of further leveraging our fixed cost structure , ( ii ) a 60 basis point decrease in outside service costs as a result of completing the process of converting all of our dealerships to the adp dealer management system in the first quarter of 2012 and ( iii ) a 50 basis point decrease in rent expense primarily as a result of our purchase of certain previously leased real estate during 2011 and 2012. we also benefited in 2012 from a telecommunications expense management initiative implemented during 2011 , which helped drive a 30 basis point decrease in our utilities expense . we continue to be engaged in numerous productivity initiatives designed to further reduce our fixed cost structure and improve our profitability and are currently focused on fully leveraging adp with our other technology platforms . other operating ( income ) expense , net — other operating ( income ) expense , net includes gains and losses from the sale of property and equipment , income derived from lease arrangements and other non-core operating items . during the year ended december 31 , 2012 , we recognized approximately $ 1.4 million of other operating income related to insurance proceeds .
| results of operations the year ended december 31 , 2011 compared to the year ended december 31 , 2010 replace_table_token_16_th 40 replace_table_token_17_th net income and income from continuing operations increased by $ 29.8 million and $ 11.1 million , respectively , during 2011 as compared to 2010 , primarily as a result of a $ 72.0 million ( 11 % ) increase in gross profit , partially offset by ( i ) a $ 47.5 million ( 10 % ) increase in sg & a expenses , ( ii ) a $ 13.8 million increase in other operating expense and ( iii ) a $ 4.2 million ( 12 % ) increas e in other interest expense . the increase in net income was primarily the result of the sale of our heavy truck business , two additional franchises ( two dealership locations ) and one ancillary business in 2011 , which resulted in $ 22.3 million in net-of-tax gains , which are included in discontinued operations , net . net income and income from continuing operations for 2011 were reduced by ( i ) $ 5.5 million , net of tax , due to legal claims related to operations from 2000 to 2006 , ( ii ) $ 4.2 million , net of tax , due to expenses related to executive separation benefits and ( iii ) $ 1.1 million , net of tax , due to real estate related charges . net income and income from continuing operations for 2010 were reduced by $ 8.3 million , net of tax , from losses on the extinguishment of long-term debt . gross profit increased across all four of our business lines and was driven by a $ 25.8 million ( 23 % ) increase in f & i gross profit and a $ 21.6 million ( 7 % ) increase in parts and service gross profit .
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story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto 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 and related financing , includes forward-looking statements that involve risks , uncertainties and assumptions . you should read the “ special note regarding forward-looking statements ” and `` risk factors '' 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 vertically integrated medical device company focused on developing and commercializing innovative medical devices to treat people with obesity . our current product offering is the obalon balloon system , the first and only u.s. food and drug administration , or fda , approved swallowable , gas-filled intragastric balloon designed to provide progressive and sustained weight loss in patients with obesity . we believe the obalon balloon system offers patients and physicians benefits over prior weight loss devices including , but not limited to , clinically meaningful weight loss , a favorable safety profile , improved patient tolerability and comfort , progressive weight loss with durable results , simple and convenient placement , and potentially attractive economics . the obalon balloon system is fda approved for temporary use to facilitate weight loss in adults with obesity having a body mass index , or bmi , of 30 to 40 , or approximately 30 to 100 pounds overweight , who have failed to lose weight through diet and exercise . the system is intended to be used as an adjunct to a moderate intensity diet and behavior modification program . all balloons must be removed six months after the first balloon is placed . we believe the obalon balloon system provides a cost-effective , non-surgical and reversible treatment for weight loss solution in an outpatient setting . the obalon balloon system consists of a swallowable capsule that contains an inflatable balloon attached to a microcatheter ; the obalon navigation system console , which is a combination of hardware and software used to track and display the location of the balloon during placement without x-ray ; the obalon touch inflation dispenser , which is a semi-automated , hand-held inflation device used to inflate the balloon once it is placed ; and a disposable canister filled with our proprietary mixture of gas . placement of a balloon typically occurs in less than 15 minutes and can be accomplished in an outpatient setting without the need for anesthesia or sedation . patients receive a total of three balloons over the course of eight to 12 weeks and all balloons are removed six months after the first balloon is placed . in clinical studies , the obalon balloon system has demonstrated clinically meaningful weight loss with durable results . in our published pivotal smart trial , patients in the obalon treatment group lost , on average , approximately twice as much body weight as patients in the sham-control group , with an average of 15.1 pounds of weight loss , resulting in an average 6.9 % reduction in total body weight and an average 2.4 point decrease in bmi . in the study , 66.7 % of patients lost at least 5 % of their total body weight and the study showed statistically significant improvements in cardiometabolic risk factors , including fasting glucose , systolic blood pressure , cholesterol and triglycerides . patients in the treatment group were followed for 48 weeks and showed , on average , that 89.5 % of the weight loss achieved during the initial 24-week balloon treatment period was maintained at 48 weeks , or 24 weeks after the balloons were removed . in addition , data published and presented from our commercial registry demonstrates greater weight loss in the commercial setting as compared to our pivotal clinical study used to support fda approval . in may 2019 , we updated data from our commercial registry to include 1,411 total patients from 143 treatment sites in the united states . in this data set , for those patients receiving three balloons and at least 20 weeks of therapy , the average weight loss was 21.7 pounds , resulting in a 10.2 % reduction in total body weight . of note , 50.7 % of patients lost 10 % or more total body weight and 77.9 % lost 5 % or more total body weight . 73 we commenced u.s. commercialization of our prior generation obalon balloon system in january 2017. in march 2020 , we announced that the overall economic uncertainty , the restriction on elective procedures and the specific directives issued by the governor of california as a result of the covid-19 pandemic had a significant impact on our business . as a result , we halted sales to new patients in our obalon-branded retail treatment centers , terminated expansion plans for additional retail centers , subsequently closed the two retail treatment centers we had opened and halted manufacturing . additionally , since august 2020 , we have only had two full-time employees : andy rasdal , our president and chief executive officer , and nooshin hussainy , our chief financial officer . although we scaled back operations , we continued to strive to execute on our corporate and strategic objectives . for example , we continue to pursue third-party reimbursement of the obalon balloon system , explore strategic alternatives , tend to our obligations to care for patients who had been treated at our obalon-branded retail treatment centers , follow-up on and support product-related issues involving customers that have used obalon products , and review and comply with our regulatory obligations , including fda and sec requirements . story_separator_special_tag currently , a significant portion of our cost of revenue consists of manufacturing overhead , which is mostly fixed in nature . these overhead costs include the costs of compensation for operations management , engineering support , material procurement and inventory control personnel , outside consultants , production related supplies , allocated quality assurance and facilities costs , and depreciation on production equipment . in the foreseeable future , our costs of revenue may be greater than our revenue as we focus on the merger with reshape and in the alternative , reimbursement activities rather than commercial sales . we calculate gross margin as gross profit divided by revenue . our gross margin has been and will continue to be affected by a variety of factors , primarily production volumes , geographic mix , product mix , manufacturing costs , product yields , headcount and cost-reduction strategies . we expect gross margin to fluctuate from quarter to quarter due to variability of our recognized revenue , our adoption of new manufacturing processes and technologies , changes in our manufacturing capacity , and discontinuation of obsolete products . we have experienced challenges in our ability to produce finished goods , which may impact our ability to meet the demands for future commercial and clinical trials . in march 2020 , we suspended manufacturing of the obalon balloon system due to the ongoing covid-19 pandemic . we restarted manufacturing on a limited basis in june 2020 to convert a small amount of work-in-progress inventory to finished goods , in order to have units available for clinical trials and unexpected physician sales , but did not continue manufacturing past july 30 , 2020. as of december 31 , 2020 , our manufacturing operations have been suspended with no future plans for restarting . research and development expenses research and development , or r & d , expenses consist of the cost of engineering , clinical affairs , regulatory affairs and quality assurance associated with developing our obalon balloon system . r & d expenses consist primarily of : ● employee-related expenses , including salaries , benefits , travel expense and stock-based compensation expense ; 75 ● cost of outside consultants who assist with technology development , regulatory affairs , clinical affairs and quality assurance ; ● cost of clinical trial activities performed by third-party medical partners ; and ● cost of facilities , depreciation on r & d equipment and supplies used for internal research and development and clinical activities . we expense r & d costs as incurred . we expect r & d expenses as a percentage of total revenue to vary over time depending on the level of revenue , the timing of our new product development efforts , as well as our clinical development , clinical trial , fda required post approval studies and other related activities . selling , general and administrative expenses selling , general and administrative , or sg & a , expenses consist of employee-related expenses , including salaries , commissions , benefits , travel expense and stock-based compensation expense . other sg & a expenses include promotional and advertising activities , marketing , conferences and trade shows , professional services fees , including legal fees , accounting fees , insurance costs , general corporate expenses , and allocated facilities-related expenses . sg & a expenses decreased significantly starting in the second quarter of 2020 due to suspension of business operations and the reduction of employee personnel to only certain key employees . sg & a expenses are expected to remain significantly lower than historical averages until such time when business operations may resume . impairment expense in light of recent events associated with the global spread of covid-19 and other factors , we recognized an impairment expense for impairment of inventory and long-lived assets pertaining our retail operations during the second quarter of 2020. critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets , liabilities , revenue , expenses and related disclosures . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions and any such differences may be material . while our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this annual report on form 10-k , we believe the following discussion addresses our most critical accounting policies , which are those that are most important to our financial condition and results of operations and require our most difficult , subjective and complex judgments . revenue recognition we recognize revenue , in accordance with asc 606 , when control of our products is transferred to our customers in an amount that reflects the consideration we expect to receive in exchange for those products . our revenue recognition process involves identifying the contract with a customer , determining the performance obligations in the contract , determining the transaction price , allocating the transaction price to the distinct performance obligations in the contract , and recognizing revenue as performance obligations are satisfied . a performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract . we consider a performance obligation satisfied once it has transferred control of a good or service to the customer , meaning the 76 customer has the ability to use and obtain the benefit of the good or service .
| results of operations replace_table_token_6_th comparison of years ended december 31 , 2020 and 2019 revenue . revenue decreased $ 1.7 million to $ 1.6 million during the year ended december 31 , 2020 , compared to $ 3.3 million during the year ended december 31 , 2019. during the second quarter of 2020 , we fundamentally changed our commercialization efforts and restructured operations , eliminating the field sales force and transitioned to a centralized customer support model to support our existing physician customers . we launched the first obalon branded retail center during september 2019 , as part of our strategy of shifting towards a retail treatment center business model , which we subsequently closed in the second quarter of 2020. as a result , revenue from u.s sales decreased $ 1.1 million stemming from selling fewer balloons in the u.s. furthermore , sales to our middle east distributors in 2020 declined $ 0.6 million over 2019 sales outside the u.s. cost of revenue and gross profit . cost of revenue decreased $ 1.9 million to $ 1.0 million during the year ended december 31 , 2020 , compared to $ 3.0 million during the year ended december 31 , 2019. the decrease was primarily attributable to a decrease in production of products as we suspended operations and abandoned the retail treatment model in the second quarter of 2020. gross margin decreased to 36.8 % during the year ended december 31 , 2020 , compared to 10.1 % during the year ended december 31 , 2019. research and development expenses .
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shipping and handling costs the company does not charge its customers for shipping and handling costs associated with shipping its product to its customers . these shipping and handling costs are included in general and administrative expenses . concentration of credit risk financial instruments that subject the company to credit risk primarily consist of cash and cash equivalents . the company maintains the majority of its cash with two accredited financial institutions . although revenue is recognized from shipments directly to patients or third-party distributors , the majority of shipments are billed to third-party insurance payors , and government agencies . there were no third-party payors or government agencies that accounted for more than 10 % of gross accounts receivable at december 31 , 2011 or 2010. research and development expenses the company 's research and development expenses consist of engineering , product development , quality assurance , clinical function and regulatory expenses . these expenses are primarily related to employee compensation , including salary , benefits and stock-based compensation . the company also incurs expense related to consulting fees , materials and supplies , story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report on form 10-k , particularly under the heading risk factors. overview we are a medical device company that develops , manufactures and markets an insulin infusion system for people with insulin-dependent diabetes . our proprietary omnipod insulin management system ( the omnipod system ) consists of our omnipod disposable insulin infusion device and our handheld , wireless personal diabetes manager ( pdm ) . the us food and drug administration ( fda ) , approved the omnipod system in january 2005. in october 2005 , we shipped our first commercial omnipod system . we have progressively expanded our marketing efforts from an initial focus in the eastern united states to having availability of the omnipod system in the entire united states . in january 2010 , we entered into a five-year exclusive distribution agreement with ypsomed distribution ag ( ypsomed ) , which intends to distribute and sell our omnipod system in eleven countries , subject to approved reimbursement . through our partnership with ypsomed , the omnipod system is now available in germany , the united kingdom , the netherlands , and switzerland . in february 2011 , we entered into a distribution agreement with glaxosmithkline inc. ( gsk ) pursuant to which gsk became the exclusive distributor of the omnipod system in canada . gsk began distributing the omnipod system in the third quarter of 2011. on june 1 , 2011 , we completed the acquisition of neighborhood holdings , inc. and its wholly-owned subsidiaries ( collectively , neighborhood diabetes ) , a leading durable medical equipment distributor , specializing in direct to consumer sales of diabetes supplies . neighborhood diabetes is based in woburn , massachusetts with additional facilities in brooklyn , new york and orlando , florida . neighborhood diabetes serves more than 60,000 customers with type 1 and type 2 diabetes primarily in the northeast and southeast regions of the united states . neighborhood diabetes supplies these customers with blood glucose testing supplies , insulin pumps , pump supplies , pharmaceuticals , and other products for the management and treatment of diabetes . 42 we focus our sales efforts towards key diabetes practitioners , academic centers and clinics specializing in the treatment of diabetes patients , as well as individual diabetes patients . our total revenue was $ 152.3 million , $ 97.0 million and $ 66.0 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . we currently produce the omnipod system on a partially automated manufacturing line at a facility in china operated by a subsidiary of flextronics international ltd. ( flextronics ) . we purchase complete omnipods pursuant to our agreement with flextronics . under the agreement , flextronics has agreed to supply us , as a non-exclusive supplier , with omnipods at agreed upon prices per unit pursuant to a rolling 12-month forecast that we provide . the agreement may be terminated at any time by either party upon prior written notice given no less than a specified number of days prior to the date of termination . the specified number of days is intended to provide the parties with sufficient time to make alternative arrangements in the event of termination . by purchasing omnipods manufactured by flextronics in china , we have been able to substantially increase production volumes for the omnipod and reduce our per unit production cost . to achieve profitability , we continue to seek to increase manufacturing volume and reduce the per unit production cost for the omnipod . by increasing production volumes of the omnipod , we have been able to reduce our per-unit raw material costs and improve absorption of manufacturing overhead costs . this , as well as the introduction of our next generation omnipod , are important as we strive to achieve profitability . we believe our current manufacturing capacity is sufficient to meet our expected 2012 demand for omnipods . neighborhood diabetes is a distributor of blood glucose testing supplies , insulin pumps , pump supplies , pharmaceuticals and other products for the management and treatment of diabetes . neighborhood diabetes purchases products from manufacturers at contracted rates and supplies these products to its customers . based on market penetration , payor plans and other factors , certain manufacturers provide rebates based on product sold . neighborhood diabetes records these rebates as a reduction to cost of goods sold as they are earned . story_separator_special_tag of the $ 37.9 million of cash , $ 6.6 million is being held in an escrow account to reimburse us and our affiliates for certain claims for which we are entitled to be indemnified pursuant to the terms of the agreement and plan of merger with neighborhood diabetes . we have accounted for the acquisition of neighborhood diabetes as a business combination . under business combination accounting , the assets and liabilities of neighborhood diabetes were recorded as of the acquisition date , at their respective fair values , and consolidated with our results . the excess of the purchase price over the fair value of net assets acquired was recorded as goodwill . the operating results of neighborhood diabetes have been included in the consolidated financial statements since june 1 , 2011 , the date the acquisition was completed . for the year ended december 31 , 2011 , we included approximately $ 35.3 million of revenue related to pharmacy , testing supplies , insulin pumps and pump supplies serviced by neighborhood diabetes . if the acquisition had occurred as of january 1 , 2010 , consolidated revenue would have been approximately $ 177.3 44 million and $ 156.7 million for the years ended december 31 , 2011 and 2010 , respectively , and consolidated net loss would have been approximately $ 58.3 million and $ 59.0 million for the years ended december 31 , 2011 and 2010 , respectively . the purchase price allocation , including an independent appraisal for intangible assets , has been prepared based on the information that was available to management at the time the consolidated financial statements were prepared . the purchase price has been allocated as follows ( in thousands ) : replace_table_token_4_th for the year ended december 31 , 2011 we recorded certain adjustments to the initial purchase price accounting . the adjustments to goodwill are as follows ( in thousands ) : purchase accounting adjustments offset to goodwill collection of fully reserved receivable $ ( 510 ) deferred tax liabilities 450 other ( 20 ) total $ ( 80 ) in connection with the acquisition of neighborhood diabetes , we incurred transaction costs of approximately $ 3.2 million , which consisted primarily of banking , legal , accounting and other administrative fees . these costs have been recorded as general and administrative expense in the year ended december 31 , 2011. financial operations overview revenue . prior to the acquisition of neighborhood diabetes , we derived nearly all of our revenue from the sale of the omnipod system to customers and third-party distributors who resell the product to customers . the omnipod system is comprised of two devices : the omnipod , a disposable insulin infusion device that the patient wears for up to three days and then replaces ; and the pdm , a handheld device much like a personal digital assistant that wirelessly programs the omnipod with insulin delivery instructions , assists the patient with diabetes management and incorporates a blood glucose meter . we received fda approval for the omnipod system in january 2005 and began commercial sale in the u.s. in october 2005. we are currently selling our omnipod system through our partnership with ypsomed in germany , the united kingdom , the netherlands , and 45 switzerland . in february 2011 , we entered into a distribution agreement with gsk to become the exclusive distributor of the omnipod system in canada . gsk began distributing the omnipod system in the third quarter of 2011. neighborhood diabetes is a durable medical equipment distributor that sells other diabetes related products including blood glucose testing supplies , insulin pumps , pump supplies and pharmaceuticals to customers . in connection with our june 1 , 2011 acquisition of neighborhood diabetes , we also provide more than 60,000 type 1 and type 2 diabetes patients with blood glucose testing supplies , insulin pumps , pump supplies and pharmaceuticals . in march 2008 , we received a cash payment from abbott diabetes care , inc. ( abbott ) for an agreement fee in connection with execution of the first amendment to the development and license agreement with abbott . we are recognizing the payment as revenue over the five year term of the agreement . in addition , abbott agreed to pay us certain amounts for services performed in connection with each sale of a pdm that includes an abbott discrete blood glucose monitor to customers in certain territories . we recognize the revenue related to this portion of the abbott agreement at the time we meet the criteria for revenue recognition , typically at the time of the sale of the pdm to a new patient . in june 2011 , we entered into a development agreement with a u.s. based pharmaceutical company ( the development agreement ) . under the development agreement , we are required to perform design , development , regulatory , and other services to support the pharmaceutical company as it works to obtain regulatory approval to use our drug delivery technology as a delivery method for its pharmaceutical . over the estimated two year term of the development agreement , we have and expect to continue to invoice amounts as we meet certain defined deliverable milestones . revenue on the development agreement is recognized using a proportional performance methodology based on efforts incurred and total payments under the agreement . as of december 31 , 2011 and 2010 , we had deferred revenue of $ 2.7 million and $ 4.8 million , respectively . these amounts include product-related revenue , unrecognized amounts related to the development agreement , as well as the unrecognized portion of the agreement fee related to the abbott agreement . for the year ending december 31 , 2012 , we expect our revenue to continue to increase as we leverage our neighborhood diabetes business , gain new customers in the united states and continue expansion in europe , canada , and certain other international markets .
| general and administrative general and administrative expense increased $ 17.4 million , or 65.3 % , to $ 44.1 million for the year ended december 31 , 2011 , as compared to $ 26.7 million for the year ended december 31 , 2010 , which was largely due to an increase of $ 6.6 million of employee related expenses including stock-based compensation . of the $ 6.6 million of increased employee related expenses , $ 2.8 million relates to neighborhood diabetes . additionally , we incurred $ 3.9 million of amortization expense related to the customer relationship and tradename assets acquired from neighborhood diabetes , $ 3.2 million of transaction costs related to the acquisition of neighborhood diabetes , $ 1.7 million of additional legal fees mainly related to the bd patent infringement lawsuit , $ 0.9 million of additional bad debt expense related to neighborhood diabetes ' receivables , and an additional $ 0.9 million for other administrative and consulting services related to the neighborhood diabetes business . sales and marketing sales and marketing expense increased $ 8.5 million , or 24.6 % , to $ 43.2 million for the year ended december 31 , 2011 , as compared to $ 34.7 million for the year ended december 31 , 2010 , which was largely due to an increase of $ 5.9 million in employee related expenses including stock-based compensation expenses . of the $ 5.9 million of increased employee related expenses , $ 4.5 million relates to neighborhood diabetes . additionally we incurred $ 1.1 million of additional outside services costs primarily for customer support functions , $ 0.9 million of additional postage and freight , of which $ 0.8 million is related to the neighborhood diabetes business , and $ 0.4 million of additional employee travel . restructuring and impairment of assets for the year ended december 31 , 2010 , we recorded a total of $ 4.4 million of impairment charges on certain assets .
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million , and $ 12.2 million , respectively . as of december 31 , 2012 and 2011 , approximately $ 3.3 million and $ 4.8 million of capitalized costs remained in finished goods inventory . stock options we had two equity compensation plans in effect at december 31 , 2012 : the 2009 stock incentive plan ( 2009 plan ) and the story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and the corresponding notes included elsewhere in this form 10-k. certain percentages presented in this discussion and analysis are calculated from the underlying whole-dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes . certain amounts in the 2011 and 2010 consolidated financial statements have been reclassified to conform to the 2012 presentation . executive level overview story_separator_special_tag zimmer holdings , inc. 2012 form 10-k annual report the following table presents net sales by product category by region ( dollars in millions ) : replace_table_token_7_th 20 zimmer holdings , inc. 2012 form 10-k annual report demand ( volume and mix ) trends increased volume and changes in the mix of product sales contributed 4 percentage points of 2012 sales growth , which is the same rate of growth from 2011 compared to 2010. consistent with our expectations , procedure volumes in the broader musculoskeletal market remained stable in 2012 relative to 2011 at low to mid-single digit growth rates . we believe long-term indicators point toward sustained growth driven by an aging global population , growth in emerging markets , obesity , proven clinical benefits , new material technologies , advances in surgical techniques and more active lifestyles , among other factors . in addition , the ongoing shift in demand to premium products and the introduction of patient specific devices is expected to continue to positively affect sales growth . pricing trends global average selling prices declined by 2 percent in 2012 compared to 2011. in all reporting segments , we continued to see pricing pressure from governmental healthcare cost containment efforts and from local hospitals and health systems . for example , in japan a biennial price adjustment went into effect in april 2012 which lowered pricing . the japan downward price adjustment was greater than we had anticipated coming into the year . for 2013 , we estimate that selling prices will have a negative effect of approximately 2 percent . foreign currency exchange rates for 2012 , foreign currency exchange rates resulted in a 2 percent decline in sales . this was most notable in europe due to the strengthening of the u.s. dollar versus the euro year-over-year . if foreign currency exchange rates remain consistent with 2012 year end rates , we estimate that a stronger u.s. dollar versus foreign currency exchange rates will have a negative effect in 2013 of approximately 0.5 percent on sales . we address currency risk through regular operating and financing activities and through the use of forward contracts and options solely to manage foreign currency volatility and risk . changes to foreign currency exchange rates affect sales growth , but due to gains/losses on hedge contracts and options , which are recorded in cost of products sold , the effect on net earnings in the near term is expected to be minimal . knees knee sales experienced a 1 percent decline in 2012 compared to a 2 percent increase in 2011. however , most of that change was caused by the impact of fluctuations in foreign currency exchange rates . in europe , changes in foreign currency exchange rates affected knee sales in 2012 and 2011 by negative 6 percent and positive 4 percent , respectively . in asia pacific , changes in foreign currency exchange rates had a minimal effect on knee sales in 2012 and had a positive 9 percent effect in 2011. we estimate that industry procedure volumes were slightly positive on a global basis in 2012 , while pricing was negative . we also believe our europe and asia pacific reporting segments grew above the market , but in the americas we were lower than the market due to underperformance in some areas . we are cautiously optimistic that volume/mix trends will continue to remain stable in 2013. the nexgen complete knee solution product line , including gender solutions ® knee femoral implants , the nexgen lps-flex knee and the nexgen cr-flex knee , led knee sales in 2012. in addition , sales of our knee revision systems , the zimmer unicompartmental high flex knee and zimmer patient specific instruments exhibited growth . hips hip sales declined by 1 percent in 2012 compared to an increase of 7 percent in 2011. a significant portion of that change was caused by the impact of fluctuations in foreign currency exchange rates . in europe , changes in foreign currency exchange rates affected hip sales in 2012 and 2011 by negative 6 percent and positive 6 percent , respectively . in asia pacific , changes in foreign currency exchange rates positively affected hip sales in 2012 and 2011 by 1 percent and 10 percent , respectively . also , we experienced some specific positive growth drivers in 2011 , such as new product introductions and product specific issues at competitors . without these factors in 2012 , our results were more reflective of market growth . we estimate that industry procedure volumes were slightly positive on a global basis in 2012 , while pricing was negative . sales in 2012 were driven primarily by the zimmer m/l taper hip prosthesis and the zimmer m/l taper hip prosthesis with kinectiv technology , fitmore hip stems , and our continuum acetabular system , trilogy it acetabular system and allofit it alloclassic acetabular system . other leading products in our hips portfolio were the cls spotorno stem from the cls hip system and the alloclassic zweymüller hip stem . story_separator_special_tag absent the effects of foreign currency exchange rates , selling and distribution expenses were higher due to higher sales . other unfavorable items included increased intangible amortization from business combinations , higher employee recruiting and relocation costs , increased legal costs and higher bad debt expense . these were offset by favorable product liability claims , lower instrument excess and obsolescence charges and lower advertising spend . sg & a as a percent of sales decreased 80 basis points compared to the prior year , reflecting disciplined discretionary spending and the effect of our operational excellence initiatives , which has lowered expenses such as salaries , wages and benefits . in 2011 , sg & a increased in dollar terms , but decreased as a percent of sales from 2010. the increase in dollars was primarily due to variable selling and distribution expenses from higher sales , increased intangible asset amortization from acquisitions completed in december 2010 and higher bad debt expenses primarily from our europe operating segment . these were partially offset by lower product liability charges recorded in sg & a related to the durom cup . for more information regarding durom cup claims , see note 19 to the consolidated financial statements . sg & a as a percent of sales in 2011 decreased by 40 basis points from 2010 reflecting disciplined spending and the effect of our operational excellence initiatives . certain claims expense is a provision for estimated liabilities to durom cup patients undergoing revision surgeries . provisions of $ 157.8 million , $ 75.0 million , $ 35.0 million and $ 69.0 million were originally recorded during 2011 , 2010 , 2009 and 2008 , respectively , with an additional $ 15.0 million recorded during 2012 , bringing the total provision to $ 351.8 million for these claims , excluding a subset of durom cup claims that were recorded in sg & a . the additional expense in 2012 was primarily for more estimated claims outside the u.s. than were previously expected , as well as higher estimated legal costs . for more information regarding these claims , see note 19 to the consolidated financial statements . in connection with our annual goodwill impairment tests performed in the fourth quarters of 2012 and 2010 , we noted that the carrying values of the net assets of our u.s. spine reporting unit were in excess of the reporting unit 's estimated fair value . as a result , we recorded goodwill impairment charges of $ 96.0 million and $ 204.0 million in 2012 and 2010 , respectively . for more information regarding goodwill impairment and the factors that led to the impairment , see note 9 to the consolidated financial statements . special items expenses for the years ended december 31 , 2012 , 2011 and 2010 were $ 155.4 million , $ 75.2 million , and $ 34.7 million , respectively . special items in 2012 included significant expenses incurred for consulting and professional fees and dedicated project personnel for our operational excellence initiatives . these initiatives are intended to improve our future operating results and include centralizing or outsourcing certain functions , improving quality , distribution , sourcing , manufacturing and our information technology systems . other significant expenses in 2012 were from impairments from intangible assets acquired in business combinations , settlement of various legal matters , including royalty disputes , and severance expenses related to various organizational changes as well as facility closures . special items in 2011 resulted from a continued reduction in management layers and restructuring in certain areas , resulting in $ 23.1 million of severance and termination-related expenses . in 2011 , we also incurred $ 26.0 million in consulting and professional fees associated with acquisitions and our operational excellence initiatives . as a result of our acquisitions and operational excellence initiatives , we also incurred asset impairments , facility and employee relocation costs , contract termination expenses and other costs . special items in 2010 included expenses related to restructuring of our information technology infrastructure as well as our management structure . this resulted in $ 7.7 million of asset impairment charges and $ 6.7 million of employee severance and termination-related expenses . in 2010 , we also incurred consulting and professional fees , facility and employee relocation costs , contract termination expenses and other various expenses resulting from acquisitions . special items also included the impairment of an available-for-sale security that was acquired as part of a business acquisition and certain litigation related matters . see note 2 to the consolidated financial statements for more information regarding special items charges . interest income , interest expense , income taxes and net earnings interest expense increased in 2012 compared to 2011 primarily due to the $ 550 million offering of senior notes we completed in november 2011. interest expense decreased in 2011 compared to 2010 as the result of interest rate swap agreements we entered into in late 2010 and early 2011 to convert a portion of our fixed-rate debt into variable-rate debt . interest income has increased the last two years due to higher balances of cash and cash equivalents and short-term and long-term investments upon which interest income is being earned . our effective tax rate ( etr ) on earnings before income taxes for the years ended december 31 , 2012 , 2011 and 2010 was 24.0 percent , 22.4 percent and 30.6 percent , respectively . the variation of our etr has largely been affected by certain claims , goodwill impairment charges and a $ 34.3 million benefit from the recognition of deferred tax assets related to a 23 zimmer holdings , inc. 2012 form 10-k annual report legal entity restructuring . certain claims expense favorably affects our etr because it lowers the income within our u.s. operations relative to our foreign operations . goodwill impairment charges negatively affect our etr because no tax benefit is recorded on such charges . additionally , in 2011 and 2010 our etr was favorably impacted by the resolution of certain tax contingencies .
| 2012 results our 2012 results reflect what we believe was above market sales growth in our europe and asia pacific reporting segments and below market growth in our americas reporting segment in the musculoskeletal markets in which we compete . as a result , 2012 net sales were flat when compared to 2011. we believe 2012 net sales reflected strong commercial execution in the europe and asia pacific reporting segments and under-performance in some areas of the americas reporting segment . we are focusing on improving those areas . during 2012 , we made substantial investments in a series of operational excellence initiatives . we began implementing these initiatives on a company-wide basis in 2010. they are intended to improve our future operating results and include centralizing or outsourcing certain functions , improving quality , distribution , sourcing , manufacturing and our information technology systems . we began realizing savings from these operational initiatives in 2012 as indicated in the 80 basis point decline in our selling , general and administrative ( sg & a ) expense as a percent of sales . additionally , research and development ( r & d ) spending was lower in 2012 as we completed certain significant projects and realized some operational savings from these initiatives . we also recognized unanticipated expenses in 2012 for goodwill impairment related to our u.s. spine operations and certain claims . however , this was partially offset by a favorable effective tax rate . we recorded a $ 34.3 million net tax benefit related to restructuring of certain international operations that resulted in the lower tax rate . in total , our 2012 net earnings were slightly lower than 2011 primarily due to the significant investments in our operational excellence initiatives and were lower than we expected primarily due to the goodwill impairment .
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there are various disagreements between framatome and lightbridge regarding these disputed framatome invoices . it is expected that these disputes will be resolved through either further negotiations by the joint venture partners or in arbitration ( see note 11. subsequent events ) . the company had not separately guaranteed any obligations of enfission at december 31 , 2019 and is not obligated under the joint venture operating agreement to fund its deficit capital account balance in enfission . 66 note 4. patents patents represent legal fees and filing costs that are capitalized and will be amortized over their estimated useful lives of 17 to 20 years or their remaining legal lives , whichever is shorter , after they are placed in service . for the years ended december 31 , 2019 and 2018 , the company capitalized approximately $ 0.2 million each year , for patent filing costs . the total investment in patents was approximately $ 1.8 million and $ 1.6 million as of december 31 , 2019 and 2018 , respectively . no amortization expense of patents was recorded in either of the years ended december 31 , 2019 and 2018. these patents were not placed in service for the years ended december 31 , 2019 and 2018 , or in prior years . note 5. accounts payable and accrued liabilities accounts payable and accrued liabilities consisted of the following ( rounded in millions ) : replace_table_token_15_th note 6. commitments and contingencies commitments operating leases the company leases office space for a 12-month term with a monthly payment of approximately $ 15,000 per month for office rent . the term of the lease was renewed on january 1 , 2020 and extends through december 31 , 2020. the future minimum lease payments required under the non-cancellable operating leases for 2020 total approximately $ 180,000 . contingency litigation a former chief financial officer of the company filed a complaint against the company with the us occupational safety and health administration ( “ osha ” ) on march 9 , 2015. this complaint was dismissed by osha in january 2018 without any findings against the company . on march 14 , 2018 an appeal was filed . the company has and will continue to vigorously defend this appeal and believes that this appeal hearing will not result in any findings against the company . on september 6 , 2019 , the company filed a motion for summary decision seeking a decision in its favor as a matter of law . there has been no decision on this motion as of the date of these consolidated financial statements . as of december 31 , 2019 , and 2018 , legal fees of approximately $ 6,000 and $ 4,000 were owed , respectively , and are expected to be paid in full by the company 's insurance carriers . 67 note 7. research and development costs lightbridge total corporate research and development costs , included in the caption research and development expenses in the accompanying consolidated statement of operations amounted to approximately $ 2.7 million and $ 3.5 million for the years ended december 31 , 2019 and 2018 , respectively . see note 10. related party transactions regarding consulting fees charged to enfission for research and development expenses incurred by lightbridge on behalf of enfission . on december 19 , 2019 the company was awarded a voucher from the u.s. department of energy 's ( doe ) gateway for accelerated innovation in nuclear ( gain ) program to support development of lightbridge fuel in collaboration with idaho national laboratory ( inl ) . the scope of the project includes experiment design for irradiation of lightbridge metallic fuel material samples in the advanced test reactor ( atr ) at inl . the project is anticipated to story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations , or md & a , is intended to help the reader understand lightbridge corporation , our operations , and our present business environment . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes thereto , which are contained in part ii . item 8. financial statements and supplementary data , of this report . this discussion contains forward-looking statements that are based on our management 's current expectations , estimates , and projections for our business , which are subject to a number of risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under “ forward-looking statements ” and part i. item 1a . risk factors . this md & a consists of the following sections : overview of our business and recent developments — a general overview of our business and updates ; critical accounting policies and estimates — a discussion of accounting policies that require critical judgments and estimates ; operations review — an analysis of our consolidated results of operations for the two years presented in our consolidated financial statements . except to the extent that differences among our operating segments are material to an understanding of our business as a whole , we present the discussion in the md & a on a consolidated basis ; and liquidity , capital resources , and financial position — an analysis of our cash flows , and an overview of our financial position . 34 overview of our business and recent developments our business financial information is included in part ii . story_separator_special_tag we have no debt or debt credit lines and we have financed our operations to date through our prior years ' consulting revenue margins and the sale of our preferred stock and common stock . management believes that public or private equity investments will be available in the future , however adverse market conditions in our common stock price and trading volume , as well as other factors could substantially impair our ability to raise capital in the future . short-term and long-term liquidity sources as discussed above , we will seek new financing bringing us additional sources of capital , depending on the capital market conditions of our common stock , over the next 12 months . there can be no assurance that these additional sources of capital will be made available to us . the primary potential sources of cash that may be available to us are as follows : equity or debt investment from third party investors in lightbridge ; and strategic investment to support the remaining research and development activities required to further enhance and complete the development of our fuel products to a commercial stage . in support of our long-term business with respect to our fuel technology business , we endeavor to create strategic alliances with other parties during the next three years , to support the remaining research and development activities that is required to further enhance and complete the development of our fuel products to a commercial stage . we may be unable to form such strategic alliances on terms acceptable to us or at all . see note 9. stockholders ' equity and stock-based compensation of the notes to our consolidated financial statements included in part ii . item 8. financial statements and supplementary data , of this annual report on form 10-k for information regarding our prior financings . the following table provides detailed information about our net cash flows for the years ended december 31 , 2019 and 2018 . 39 cash flow replace_table_token_6_th operating activities the decrease in our cash used in operating activities in 2019 of approximately $ 0.7 million was primarily due to a decrease in our operating expenses and net loss and the change in working capital items as explained below . cash used in operating activities in the year ended december 31 , 2019 consisted of net loss adjusted for non-cash ( income ) expense items such as stock-based compensation , amortization of deferred financing costs and equity in loss from the enfission joint venture , as well as the effect of changes in working capital . cash used in operating activities in the year ended december 31 , 2019 consisted of a net loss of approximately $ 10.6 million and net adjustments to net loss for non-cash income items or a negative cash flow offset ( decrease to cash flow used in operating activities ) totaling approximately $ 4.1 million , consisting of non-cash adjustments for stock-based compensation of approximately $ 0.8 million and equity in loss from the enfission joint venture of approximately $ 3.3 million . total cash used in operating working capital totaled approximately $ 0.3 million , which was primarily due to an increase in other receivables from the enfission joint venture . investing activities net cash used in our investing activities for the year ended december 31 , 2019 , as compared to net cash used in our investing activities in 2018 , decreased by approximately $ 2.0 million . the decrease was due primarily to reduced spending for investment in the enfission joint venture of approximately $ 2.0 million . the spending for patent application costs were approximately the same for the year ended december 31 , 2019. these applications are filed for new developments resulting from our research and development activities . we anticipate these patent costs to increase in the future periods due to the continuing research and development work we plan to perform on our all-metal fuel design , unless our planned research and development work is affected by the enfission arbitration . financing activities net cash provided by our financing activities for the year ended december 31 , 2019 , as compared to net cash provided by our financing activities for the year ended december 31 , 2018 decreased by approximately $ 29.5 million . the decrease was primarily due to a decrease in the net proceeds from the issuance of our common stock of approximately $ 25.6 million in 2019 as compared to 2018 and a decrease in the proceeds from the issuance of our series a preferred stock of approximately $ 3.9 million . 40 critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with us generally accepted accounting principles ( “ gaap ” ) and the company 's discussion and analysis of its financial condition and operating results require the company 's management to make judgments , assumptions , and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes . note 1. basis of presentation , summary of significant accounting policies , and nature of operations of the notes to our consolidated financial statements in part ii . item 8. financial statements and supplementary data , of this form 10-k describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . our management expects to make judgments and estimates about the effect of matters that are inherently uncertain . as the number of variables and assumptions affecting the future resolution of the uncertainties increase , these judgments become even more subjective and complex . although we believe that our estimates and assumptions are reasonable , actual results may differ significantly from these estimates .
| consolidated results of operations the following table presents our historical operating results as a percentage of revenues for the years indicated : replace_table_token_5_th revenue the market for nuclear industry consulting services is competitive , fragmented , and subject to rapid change . our main business is developing our nuclear fuel . we may pursue some consulting services opportunities in the future , but we have further increased the focus and resources of the company to the fuel division and away from consulting . there was no revenue for the years ended december 31 , 2019 and 2018 . 36 general and administrative expenses general and administrative expenses consist mostly of compensation and related costs for personnel and facilities , stock-based compensation , finance , human resources , information technology , and fees for consulting and other professional services . professional services are principally comprised of legal , audit , strategic advisory services , and outsourcing services . total general and administrative expenses decreased by approximately $ 1.0 million for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018. there was a decrease in stock-based compensation of approximately $ 1.0 million due to the decrease in stock option expense for prior stock option awards , and a decrease in professional fees of approximately $ 0.2 million due to decrease in legal fees , accounting fees and other professional fees , which was offset by an increase in employee compensation and employee benefits of approximately $ 0.2 million due to an increase in the number of employees . total stock-based compensation included in general and administrative expenses was approximately $ 0.4 million and $ 1.4 million for the year ended december 31 , 2019 and 2018 , respectively . see note 9. stockholders ' equity and stock-based compensation of the notes to our consolidated financial statements included in part ii .
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this md & a should be read in conjunction with our consolidated financial statements and accompanying notes included in this form 10-k. when reviewing the discussion , you should keep in mind the substantial risks and uncertainties that characterize our business . in particular , we encourage you to review the risk and uncertainties described under item 1a. , “ risk factors , ” of this form 10-k. these risks and uncertainties could cause actual results to differ materially from those forecasted in forward-looking statements or implied by past results and trends . forward-looking statements are statements that attempt to project or anticipate future developments in our business ; we encourage you to review the discussion of forward-looking statements under “ cautionary statement for purposes of the “ safe harbor ” provisions of the private securities litigation reform act of 1995 , ” at the beginning of this report . these statements , like all statements in this report , speak only as of the date of this report ( unless another date is indicated ) , and we undertake no obligation to update or revise the statements in light of future developments . unless otherwise specified , any reference to a “ year ” is to the year ended december 31. business overview we manufacture and market semi-finished and finished specialty steel products , including stainless steel , nickel alloys , tool steel and certain other alloyed steels . our manufacturing process involves melting , remelting , heat treating , hot and cold rolling , forging , machining and cold drawing of semi-finished and finished specialty steels . our products are sold to service centers , forgers , rerollers , original equipment manufacturers and wire redrawers . our customers further process our products for use in a variety of industries , including the aerospace , power generation , oil and gas and general industrial markets . we also perform conversion services on materials supplied by customers . throughout 2014 , we saw an increased demand for our products in the majority of our targeted end markets , as our revenues increased to $ 205.6 million , an increase of $ 24.8 million , or 14 % , compared to full year 2013. the growth in 2014 net sales was achieved despite the loss of one of our largest customers that announced in late 2013 that it would in-source work that we previously performed for it . in our primary market , aerospace , which approximates 59 % of our total net sales , our net sales grew to $ 120.9 million in 2014 from $ 102.3 million in 2013 , an increase of $ 18.6 million , or 18.2 % . in addition , net revenues in our power generation and oil and gas markets increased by 8 % and 3 % in 2014 , respectively . these increases were slightly offset by an 8 % reduction in sales to the heavy equipment market . for the full year of 2014 , our premium alloy products , which we define as all vacuum induction melt ( “ vim ” ) , sales increased by 30 % over 2013 levels , and represented $ 13.8 million , or 6.7 % , of our total net sales compared to $ 10.6 million , or 5.9 % , of total net sales in 2013. our premium alloy products are primarily sold to the aerospace end market . our backlog at the end of 2014 , before surcharges , was approximately $ 61.1 million , an increase of almost 31 % compared to a backlog of $ 46.5 million at the end of 2013. one of our top priorities over the last 24 months has been to earn customer certifications . in 2014 , we earned an additional two certifications that are critical to our focus on the aerospace business , the pratt and whitney lcs approval in march 2014 and the s-400 and s-1000 approvals from ge aviation in july 2014. we added 13 more new products in 2014 on top of the 11 added in 2013 , as new product introductions are also essential to move to a higher value product mix . thus far into 2015 , we have added 5 new products to our portfolio . we continue to work on gaining other customer approvals for our higher value added nickel alloy products to expand our revenue base as we move into future periods . during 2014 , our overall manufacturing activity levels increased significantly compared to 2013 , and thus we were better able to absorb costs due to more consistent levels of demand and production . in addition , we continued to focus our attention on reducing scrap rates and improving yields , while controlling spending at each of plants . as a result of these efforts and improved business conditions , our gross margins for 2014 more than doubled to 15.6 % as a percentage of net sales compared to 7.7 % posted for the full year in 2013 . as we move into 2015 , with declining nickel prices and lower surcharges that began later in 2014 and have continued into 2015 , we may see a negative impact to our gross margin , especially in the first quarter , as some of our older inventory at higher material prices is shipped to our customers . we intend to continue our effort to improve our gross margin throughout the year . our selling , general and administrative expenses increased $ 3.2 million in 2014 compared to 2013 primarily as a result of incurring additional expense of $ 2.2 million under our variable incentive compensation plan due to our improved profitability in 2014 compared to 2013 , as well as recording administrative related costs of $ 960,000 associated with switching our health care plans from a full premium based plan to a self-insurance based plan . story_separator_special_tag our deferred financing costs are associated with the issuance and subsequent amendments to our credit facilit y . during the years ended december 31 , 201 3 and 201 2 , we recognized $ 4 44,000 and $ 308 ,000 , respectively , of deferred financing amortization . other income : in august 2011 , we entered into an escrow agreement with the sellers of the north jackson facility , pursuant to which $ 2.5 million of the purchase price of the north jackson facility was placed in escrow until certain claims under the purchase agreement were resolved . during the year ended december 31 , 2013 , we entered into a settlement agreement with the sellers of the north jackson facility , whereby we received $ 425,000 as a final settlement of certain claims under the escrow agreement . the settlement was recognized as a gain during the year ended december 31 , 2013 , which is included as a component of other income on the consolidated statement of operations . income tax ( benefit ) provision : our effective tax rate for the years ended december 31 , 2013 and 2012 was ( 38.1 ) % and 30.2 % , respectively . during 2013 , we recorded a tax valuation allowance of $ 986,000 against certain new york state deferred tax assets , which negatively impacted our effective tax rate . our 2013 effective tax rate benefited from approximately $ 1.0 million of research and development tax credits that we generated for 2012 and 2013. our 2012 effective tax rate benefited from prior years ' research and development tax credits claimed on amended federal income tax returns and a change in state income tax apportionment . net ( loss ) income : our net ( loss ) income decreased to $ ( 4.1 ) million , or $ ( 0.58 ) per diluted share , for the year ended december 31 , 2013 as compared to $ 14.6 million , or $ 2.02 per diluted share , for the year ended december 31 , 2012 for the reasons stated above . liquidity and capital resources historically , we have financed our operating activities through cash provided by operations and cash provided through our credit facilities . net cash provided by operating activities : during 2014 , we generated net cash from operating activities of $ 12.9 million . our net income adjusted for non-cash expenses generated approximately $ 26.5 million of cash in 2014 , which were partially offset by increases in our managed working capital . our ma naged working capital , defined as net account s receivable plus net inventory minus accounts payable increased by $ 15.4 million to $ 105.1 million at de cember 31 , 2014 compared to $ 89.8 million at december 31 , 2013 primarily due to improved market conditions in most of our end markets . our net accounts receivable balances increased $ 7.6 million primarily as a result of a 31.0 % increase in net sales for the three-month period ended december 31 , 2014 compared to the same period in 2013. inventory levels increased by $ 18.5 million to $ 101.1 million as of december 31 , 2014 from $ 82.6 million as of december 31 , 2013 due to planned increases on certain product grades as a result of increased customer activity in 2014 and anticipated improved sales levels heading into 2015 . our accounts payable balance increased by $ 10.7 million from december 31 , 2013 to december 31 , 2014 , due to increased operating activity , the timing of vendor payments and higher fourth quarter 2014 capital spending . during 2013 , we generated net cash from operating activities of $ 28.9 million . the decrease in our net inventory and net accounts receivable provided $ 11.9 million and $ 3.3 million of cash , respectively . the net increase in our accounts payable and other accruals provided an additional $ 2.6 million . in addition , during 2013 , our net loss adjusted for non-cash expenses generated approximately $ 11.0 million of cash . 16 net cash used in investing activity : during 2014 , our capital spending , which is primarily discretionary in nature , was $ 11.2 million , as compared to $ 11.8 million we incurred in 2013 . d uring the first half of 2013 , we incurred approximately $ 3.7 million of capital expenditures associated with completing the build out of our north jackson facility . we believe that capital expenditures in 2015 will be similar to 2014 spending levels . net cash used in financing activities : during 2014 , we used $ 1.9 million in cash from our financing activities . net cash used under our credit facility was approximately $ 2.9 million . additionally , we received $ 1.0 million in receipts from the exercise of stock options and the issuance of stock under our employee stock purchase plan . our borrowings increased to support higher inventory and operating levels . during 2013 , we used $ 17.1 million in cash from our financing activities . of this amount , $ 16.9 million of our cash was utilized to reduce our bank debt . in addition , we received $ 1.1 million of cash from the exercise of stock options which was almost entirely offset by cash used to amend our credit facility in march and november 2013. we believe that our cash flows from continuing operations as well as available borrowings under our credit facility are adequate to satisfy our working capital , capital expenditure requirements , and other contractual obligations for the foreseeable future , including at least the next 12 months .
| results of operations 2014 results as compared to 2013 replace_table_token_6_th 11 market segment information : replace_table_token_7_th melt type information : replace_table_token_8_th the majority of our products are sold to service centers/processors rather than the ultimate end market customers . the end market information in this annual report is our estimate based upon our knowledge of our customers and the grade of material sold to them , that they will in-turn sell to the ultimate end market customer . end market information : replace_table_token_9_th net sales : net sales for the year ended december 31 , 2014 increased $ 24.8 million , or 13.7 % , as compared to the similar period in 2013 . the increase in our sales primarily reflects a 6.6 % increase in consolidated tons shipped in 2014 compared to 2013 as demand for our products increased as a result of improved market conditions in 2014. the increase in both sales and sales dollars per shipped ton is primarily a result of increased base prices as well as more favorable product mix of our higher value added products . our product sales to all of our end markets , except heavy equipment , increased as noted in the above table . our product sales to our targeted end markets of aerospace , power generation , and oil and gas end markets increased 18.2 % , 8.4 % and 3.1 % , respectively in 2014 compared 12 to 2013. sales to our heavy equipment market decreased by $ 1.6 million , or 8.3 % , in 2014 compared to 2013 , primarily due to uneven buying patterns from year to year because of the many smaller customers we have in this end market . during the year ended december 31 , 2014 , we recognized a $ 3.2 million , or a 30.0 % , increase in premium alloy sales when compared to 2013 . it is a primary focus of ours to ship higher value added products .
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the second step of the goodwill impairment test , used to measure the amount of impairment loss , compares the implied fair value of the affected reporting unit 's goodwill with the carrying value of that goodwill . no impairment losses have been recognized in the years ended december 31 , 2010 story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements , the accompanying notes to these financial statements , and the other financial information that appear elsewhere in this annual report on form 10-k. this discussion contains predictions , estimates , and other forward-looking statements that involve a number of risks and uncertainties . in some cases , you can identify forward-looking statements by terminology such as may , will , should , expects , plans , anticipates , believes , estimates , predicts , potential , or continue ; the negative of these terms ; or other comparable terminology . actual results may differ materially from those discussed in these forward-looking statements due to a number of factors , including those set forth in the section entitled risk factors and elsewhere in this annual report on form 10-k. 47 although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance , or achievements . except as required by law , we are under no duty to update or revise any of the forward-looking statements , whether as a result of new information , future events , or otherwise , after the date of annual report on form 10-k. overview athenahealth provides business services that help medical practices achieve and sustain financial health by collecting more money and exercising more control over their administrative tasks . these services are designed to reduce the administrative burden of complex billing rules , quality measurement and reporting , clinical documentation and data exchange , patient communication , and many of the related tasks that distract medical providers and staff from the practice of medicine . our services are delivered and consumed through a single instance of our cloud-based platform , athenanet . we differentiate our services by regularly deploying updates and improvements through athenanet to clients without any action on the part of the client . athenanet enables us to quickly implement our solution at a low up-front cost and to seamlessly work in tandem with our clients in real time . the services provided through our single-instance cloud are currently packaged as three integrated components : athenacollector for revenue cycle management , athenaclinicals for clinical cycle management , and athenacommunicator for patient cycle management . the use of our single-instance platform allows all clients to benefit from the collective knowledge of all of our other clients through our patented billing rules engine and our clinical quality management engine . our clients use these rules engines to monitor and benchmark their performance with peer practices across the network . our business intelligence application , anodyne analytics , also supports our clients in their pursuit of financial health by equipping users with data visualization tools and insight into their practice 's performance . each service we provide is supported by a model comprised of three distinct components : software , knowledge , and work . the cloud-based software is provided at no extra charge to users but is the primary conduit through which we exchange information between clients , payers , and our staff of experts . knowledge is infused into each of our services via our rules engine as we work with clients , payers , and other partners to codify rules associated with reimbursement , clinical quality measures , and other factors related to our clients ' performance . the third component to each of our services is the work that we perform on behalf of our clients . wherever possible , we replace manual processes with automation , but where automation is not possible , we provide that manual labor rather than returning it to clients to be completed . this unique service model of software , knowledge , and work has allowed us to align our success with our clients ' performance , creating a continual cycle of improvement and efficiency . we charge clients a percentage of collections in most cases , so our financial results are a direct reflection of our ability to drive revenue to medical practices . in 2010 , we generated revenue of $ 245.5 million from the sale of our services compared to $ 188.5 million in 2009 and $ 136.3 million in 2008. given the scope of our market opportunity , we have increased our spending each year on growth , innovation , and infrastructure . despite increased spending in these areas , higher revenue and lower direct operating expense as a percentage of revenue have led to greater operating income . our revenues are predominately derived from business services that we provide on an ongoing basis . this revenue is generally determined as a percentage of our clients ' collections , so the key drivers of our revenue include growth in the number of physicians working within our client accounts and the collections of these physicians . to provide these services , we incur expense in several categories , including direct operating , selling and marketing , research and development , general and administrative , and depreciation and amortization expense . in general , our direct operating expense increases as our volume of work increases , whereas our selling and marketing expense increases in proportion to our rate of adding new accounts to our network of physician clients . our other expense categories are less directly related to growth of revenues and relate more to our planning for the future , our overall business management activities , and our infrastructure . story_separator_special_tag general and administrative expense consists primarily of personnel-related expense for administrative employees ( including salaries , benefits , stock-based compensation , non-billable travel , lodging , and other out-of-pocket employee-related expense ) , occupancy and other indirect costs ( including building maintenance and utilities ) , and insurance , as well as software license fees ; outside professional fees for accountants , lawyers , and consultants ; and compensation for temporary employees . we expect that general and administrative expense will increase in absolute terms for the foreseeable future as we invest in infrastructure to support our growth and incur additional expense related to being a publicly traded company . though expenses are expected to continue to rise in absolute terms , we expect general and administrative expense to decline as a percentage of total revenues . depreciation and amortization expense . depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of capitalized software development costs , which we amortize over a two-year period from the time of release of related software code . cost for our revenue cycle application are considered maintenance and we expense those costs as incurred , and , as a result , in 2010 approximately 83 % of our software development expenditures were expensed rather than capitalized . in the years ended december 31 , 2009 and 2008 , approximately 85 % and 87 % , respectively , were expensed rather than capitalized . as we grow , we will continue to make capital investments in the infrastructure of the business , and we will continue to develop software that we capitalize . therefore , we expect related depreciation and amortization expense to increase in absolute terms and increase as a percentage of total revenue in the near term . other income ( expense ) . interest expense consists primarily of interest costs related to our equipment-related term leases , our term loan and revolving loans under our credit facility , and our former subordinated term loan , offset by interest income on investments . interest income represents earnings from our cash , cash equivalents , and investments . the gain or loss on interest rate derivative contract represents the change in the fair market value of a derivative instrument that is not designated a hedge under the authoritative accounting guidance . although this derivative has not been designated for hedge accounting , we believe that such instrument is correlated with the underlying cash flow exposure related to variability in interest rate movements on our term loan . acquisitions 2009 acquisition in october 2009 , we acquired anodyne health partners , inc. , a software-as-a-service ( saas ) business intelligence company based in alpharetta , georgia . we believe that the acquisition of anodyne provides us with expanded service offerings that will better enable us to compete in the large medical group and enterprise markets . the anodyne saas business intelligence tool enhances customers ' ability to view all facets of its revenue cycle information and to access and extract critical operational and administrative information from various data systems . consideration for this transaction was $ 22.3 million plus potential additional consideration of $ 7.7 million which will be paid over a three-year period if anodyne achieves certain business and financial milestones . as of december 31 , 2010 , we have paid $ 0.2 million of the additional consideration . 2008 acquisition in september 2008 , we acquired specified assets and assumed specified liabilities of crest line technologies , llc ( d.b.a . medicalmessaging.net ) . medicalmessaging provided live and automated calling services for healthcare professionals . the purpose of the acquisition is to augment our core business service offering with medicalmessaging 's automated and live communication services . we believe the purchase of 50 medicalmessaging gave us access to a developed technology that could speed the time to market versus internal development of our own similar product . in addition , we plan to leverage its existing customer base to increase revenues of the medicalmessaging services . consideration for this transaction was $ 7.7 million including potential additional consideration of $ 1.0 million which will be paid over a three-year period if medicalmessaging achieves certain financial milestones . as of december 31 , 2010 , we have paid $ 0.7 million of the additional consideration . critical accounting policies our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states ( gaap ) . in connection with the preparation of our consolidated financial statements , we are required to make assumptions and estimates about future events , and apply judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and the related disclosures . we base our assumptions , estimates and judgments on historical experience , current trends and other factors we believe to be relevant at the time we prepared our consolidated financial statements . on a regular basis , we review the accounting policies , assumptions , estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . the preparation of our consolidated financial statements in conformity with gaap requires us to make estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the reporting periods .
| consolidated results of operations the following table sets forth our consolidated results of operations as a percentage of total revenue for the periods shown : replace_table_token_5_th 55 comparison of the years ended december 31 , 2010 and 2009 replace_table_token_6_th revenue . total revenue for the year ended december 31 , 2010 , was $ 245.5 million , an increase of $ 57.0 million , or 30 % , over revenue of $ 188.5 million for the year ended december 31 , 2009. this increase was due almost entirely to an increase in business services revenue . business services revenue . revenue from business services for the year ended december 31 , 2010 , was $ 237.1 million , an increase of $ 53.9 million , or 29 % , over revenue of $ 183.2 million for the year ended december 31 , 2009. this increase was primarily due to the growth in the number of physicians and other medical providers using our services . the summary of changes in the physicians and active medical providers using our revenue cycle management service , athenacollector , clinical cycle management service , athenaclinicals , and patient cycle management service , athenacommunicator are as follows : replace_table_token_7_th * introduced in march 2010 therefore no comparative prior year data also contributing to this increase was the growth in related collections on behalf of these physicians and medical providers . total collections generated by these physicians and other medical providers that were posted for the year ended december 31 , 2010 , was $ 5.9 billion , an increase of $ 1.0 billion over posted collections of $ 4.9 billion for the year ended december 31 , 2009. implementation and other revenue .
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the words “ we , ” “ us , ” “ our , ” or the “ company ” refer to first choice bancorp and first choice bank collectively and on a consolidated basis . references to the “ bank ” refer to first choice bank , on a stand-alone basis . 38 headquartered in cerritos , california , the bank is a community-based financial institution that serves commercial and consumer clients in diverse communities . the bank specializes in loans to small- to medium-sized businesses and private banking clients , commercial and industrial loans , and commercial real estate loans with a specialization in providing financial solutions for the hospitality industry . the bank is a preferred small business administration ( “ sba ” ) lender . the bank conducts business through nine full-service branches and two loan production offices located in los angeles , orange and san diego counties . as a california-chartered member bank , the bank is primarily regulated by the california department of business oversight ( the “ dbo ” ) and the board of governors of the federal reserve system ( the “ federal reserve ” ) . the bank 's deposits are insured up to the maximum legal limit by the federal deposit insurance corporation ( the “ fdic ” ) and , as a result , the fdic also has examination authority over the bank . effective july 31 , 2018 , we acquired pacific commerce bancorp ( “ pcb ” ) and its wholly-own subsidiary bank , pacific commerce bank by merger in an all-stock transaction . in connection therewith , we issued , in the aggregate , 4,386,816 shares of our common stock in exchange for all of the outstanding shares of pcb common stock and replacement stock options exercisable for 420,393 shares of our common stock in cancellation of pcb stock options . the acquisition has been accounted for using the acquisition method of accounting and , accordingly , the operating results of pcb have been included in the consolidated financial statements since august 1 , 2018. recent developments senior secured notes maturity date extension effective december 22 , 2019 , we extended the maturity date of this line of credit to march 22 , 2022. the interest rate decreased from wall street journal prime + 0.25 % , floating to wall street journal prime , floating ( effective january 2 , 2020 ) . at the same time , the debt covenants were updated and confirmed as follow s ( i ) bank leverage ratio greater than or equal to 9.0 % , ( ii ) bank tier 1 capital ratio greater than or equal to 11.0 % and $ 150.0 million , ( iii ) bank total capital ratio greater than or equal to 12.0 % , ( iv ) bank cet1 capital ratio greater than or equal to 11.0 % , ( v ) bank trailing twelve months return on average assets , excluding one-time expense related to the merger with pcb , greater than or equal to 1.0 % , ( vi ) bank classified assets to tier 1 capital plus the allowance for loan losses of less than or equal to 35.0 % , ( vii ) certain defined bank liquidity ratios and ( viii ) specific concentration levels for commercial real estate and construction and land development loans . downtown branch relocation and consolidations in december 2019 , the company ( 1 ) entered into an agreement to terminate the `` little tokyo '' office lease agreement and ( 2 ) relocated the downtown los angeles branch to a smaller space within the same building and signed a sublease of the current space which began on january 1 , 2020. as a result of these relocation and consolidation efforts , the company recognized an after-tax impairment charge of $ 568 thousand , or $ 0.05 per diluted share , in the fourth quarter of 2019. the year-to-date total impairment charge recognized for these two locations was $ 1.2 million pre-tax ( $ 850 thousand after tax ) , which is estimated to result in net cost savings , after impairment charges , of approximately $ 621 thousand pre-tax ( $ 437 thousand after tax ) . as a result of the impairment charges in 2019 and expected cost savings , occupancy expense for these locations is expected to be reduced on average by approximately $ 550 thousand before tax ( $ 390 thousand after tax ) annually over the next three years . stock repurchase plan during the fourth quarter of 2019 , the company repurchased 13,547 shares of its common stock at an average price of $ 22.80 and a total cost of $ 309 thousand under the stock repurchase program announced in december 2018. for the year ended december 31 , 2019 , the company repurchased 429,817 shares at an average price of $ 21.64 and a total cost of $ 9.3 million . the remaining number of shares authorized to be repurchased under this program was 733,900 shares at december 31 , 2019 . federal reserve bank secured borrowing arrangement in the third quarter of 2019 , the bank expanded its existing secured borrowing capacity with the federal reserve by participating in the borrower-in-custody ( `` bic '' ) program . as a result , our borrowing capacity with the federal reserve increased to $ 177.1 million at december 31 , 2019 . prior to participating in the bic program , the bank only pledged securities held-to-maturity as collateral for access to the discount window . at december 31 , 2019 , the bank has pledged certain qualifying loans with an unpaid principal balance of $ 252.4 million and securities held-to-maturity with a carrying 39 value of $ 5.1 million as collateral for this line of credit . borrowings under this bic program are overnight advances with interest chargeable at the discount window ( `` primary credit '' ) borrowing rate . there were no borrowings under this arrangement at or during the years ended december 31 , 2019 and 2018 . story_separator_special_tag noninterest expense noninterest expense includes : ( a ) salaries and employee benefits ; ( b ) occupancy and equipment ; ( c ) data processing ; ( d ) professional fees ; ( e ) office , postage and telecommunication ; ( f ) deposit insurance and regulatory assessments ; ( g ) loan related expenses ; ( h ) customer service related expenses ; ( i ) merger , integration and public company registration expenses ; ( j ) amortization of core deposit intangible ; and ( k ) other general and administrative expenses . financial condition the primary factors we use to evaluate and manage our consolidated financial condition are asset levels , liquidity , capital and asset quality . asset levels we manage our asset levels based upon forecasted loan originations and estimated loan sales to ensure we have both the necessary liquidity and capital to fund asset growth while exceeding the required regulatory capital ratios . we evaluate our funding needs by forecasting loan originations and sales of loans . liquidity we manage our liquidity based upon factors that include the amount of our custodial and brokered deposits as a percentage of total assets and deposits , the level of diversification of our funding sources , the allocation and amount of our deposits among deposit types , the short-term funding sources used to fund assets , the amount of non-deposit funding used to fund assets , the availability of unused funding sources , off-balance sheet obligations , the availability of assets to be readily converted into cash without a material loss on the investment , the amount of cash and cash equivalent securities we hold , the repricing characteristics and maturities of our assets when compared to the repricing characteristics of our liabilities and other factors . capital we manage our regulatory capital based upon factors that include : ( a ) the level of capital and our overall consolidated financial condition ; ( b ) the trend and volume of problem assets ; ( c ) the level and quality of earnings ; ( d ) the risk exposures and level of reserves in our consolidated balance sheets ; and ( e ) other factors . in addition , we have regularly increased our capital through equity issuances and net income and we return capital to our shareholders through dividends and share repurchases . asset quality we manage the diversification and quality of our assets based upon factors that include the level , distribution , severity and trend of problem , classified , delinquent , nonaccrual , nonperforming and restructured assets , the adequacy of our allowance for loan losses , the diversification and quality of loan and investment portfolios , the extent of counterparty risks , credit risk concentrations and other factors . non-gaap financial measures this following tables present a reconciliation of non-gaap financial measures to gaap measures for : ( 1 ) efficiency ratio , ( 2 ) adjusted efficiency ratio , ( 3 ) adjusted net income , ( 4 ) average tangible common equity , ( 5 ) adjusted return 42 on average assets , ( 6 ) adjusted return on average equity , ( 7 ) return on average tangible common equity , ( 8 ) adjusted return on average tangible common equity , ( 9 ) tangible common equity , ( 10 ) tangible assets , ( 11 ) tangible common equity to tangible asset ratio , and ( 12 ) tangible book value per share . the company believes the presentation of certain non-gaap financial measures assists investors in evaluating our financial results . these non-gaap financial measures are used by management , the board and investors on a regular basis , in addition to our gaap results , to facilitate the assessment of our financial performance . these non-gaap financial measures complement our gaap reporting and are presented below to provide investors and others information that we use to manage the business each period . because not all companies use identical calculations , the presentation of these non-gaap financial measures may not be comparable to other similarly titled measures used by other companies . however , we believe the non-gaap information shown below provides useful information to investors to assess our consolidated financial condition and consolidated results of operations . in particular , the use of return on average tangible equity , tangible equity to asset ratio , and tangible book value per share is prevalent among banking regulators , investors and analysts . these non-gaap measures should be taken together with the corresponding gaap measures and should not be considered a substitute of the gaap measures . replace_table_token_6_th ( 1 ) non-gaap measure . replace_table_token_7_th ( 1 ) non-gaap measure . 43 replace_table_token_8_th ( 1 ) non-gaap measure . comparison of operating results general net income was $ 27.8 million or $ 2.36 diluted earnings per share for 2019 compared to $ 15.1 million or $ 1.64 diluted earnings per share for 2018 . the $ 12.7 million increase in net income was due to higher net interest income of $ 22.6 million and noninterest income of $ 4.1 million , partially offset by increases in provision for loan losses of $ 1.3 million , noninterest expense of $ 7.0 million and income taxes of $ 5.6 million for 2019 compared to 2018 . the increase in net interest income was a result of higher average loan balances , relating to both the pcb acquisition and organic loan growth , and increased yields on loans . noninterest income increased due to higher sba loan sale activity and related gains , as well as higher service charges and fees on deposits accounts . we also had increases in servicing fees and other income .
| financial highlights financial performance net income increased $ 12.7 million to $ 27.8 million or $ 2.36 per diluted share for 2019 compared to $ 15.1 million or $ 1.64 per diluted share for 2018 . the increase in net income was driven by organic loan growth , increased yields on loans and the pcb acquisition which was completed on july 31 , 2018. our 2019 financial results include 12 months of pcb operations as compared to 5 months for 2018. in addition , our 2018 financial results included after-tax merger , integration and public company registration expenses of $ 4.0 million which reduced diluted earnings per share by $ 0.44 for 2018 . there were no such expenses in 2019 . financial results for the full year of 2019 included after-tax impairment charges of $ 850 thousand , or $ 0.07 per diluted share , related to branch relocation and consolidation efforts that are expected to result in future cost savings . return on average assets and return on average equity was 1.74 % and 10.93 % for 2019 compared to 1.28 % and 9.09 % for 2018 . the after-tax merger , integration and public company registration expenses lowered the return on average assets and return on average equity by 34 basis points and 242 basis points for 2018 . return on average tangible equity was 15.90 % for 2019 compared to 11.38 % for 2018 . the after-tax merger , integration and public company registration expenses lowered the return on average tangible equity by 304 basis points for 2018 . refer to - non-gaap financial measures section in this md & a . net interest margin increased 31 basis points to 5.24 % for 2019 from 4.93 % for 2018 . the average cost of funds was 91 basis points for 2019 compared to 86 basis points for 2018 .
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generally , all of the financial services mortgage loans and related servicing rights are sold to third party investors within two to three weeks story_separator_special_tag results of operations overview m/i homes , inc. ( the “ company ” or “ we ” ) is one of the nation 's leading builders of single-family homes , having delivered over 83,000 homes since we commenced homebuilding activities in 1976. the company 's homes are marketed and sold under the m/i homes , showcase homes and triumph homes trade names . the company has homebuilding operations in columbus and cincinnati , ohio ; indianapolis , indiana ; chicago , illinois ; tampa and orlando , florida ; austin , houston and san antonio , texas ; charlotte and raleigh , north carolina ; and the virginia and maryland suburbs of washington , d.c. included in this management 's discussion and analysis of financial condition and results of operations are the following topics relevant to the company 's performance and financial condition : information relating to forward-looking statements ; our application of critical accounting estimates and policies ; our results of operations ; discussion of our liquidity and capital resources ; summary of our contractual obligations ; discussion of our utilization of off-balance sheet arrangements ; and impact of interest rates and inflation . forward-looking statements certain information included in this report or in other materials we have filed or will file with the securities and exchange commission ( the “ sec ” ) ( as well as information included in oral statements or other written statements made or to be made by us ) contains or may contain forward-looking statements , including , but not limited to , statements regarding our future financial performance and financial condition . words such as “ expects , ” “ anticipates , ” “ targets , ” “ goals , ” “ projects , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” variations of such words and similar expressions are intended to identify such forward-looking statements . these statements involve a number of risks and uncertainties . any forward-looking statements that we make herein and in future reports and statements are not guarantees of future performance , and actual results may differ materially from those in such forward-looking statements as a result of various risk factors . please see “ item 1a . risk factors ” in part i of this annual report on form 10-k for more information regarding those risk factors . any forward-looking statement speaks only as of the date made . except as required by applicable law , we undertake no obligation to publicly update any forward-looking statements , whether as a result of new information , future events or otherwise . however , any further disclosures made on related subjects in our subsequent reports on forms 10-k , 10-q and 8-k should be consulted . this discussion is provided as permitted by the private securities litigation reform act of 1995 , and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section . application of critical accounting estimates and policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . management bases its estimates and judgments on historical experience and on 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 value of assets and liabilities that are not readily apparent from other sources . on an ongoing basis , management evaluates such estimates and judgments and makes adjustments as deemed necessary . actual results could differ from these estimates using different estimates and assumptions , or if conditions are significantly different in the future . revenue recognition . revenue from the sale of a home is recognized when the closing has occurred , title has passed , the risks and rewards of ownership are transferred to the buyer , and an adequate initial and continuing investment by the homebuyer is received , or when the loan has been sold to a third-party investor . revenue for homes that close to the buyer having a deposit of 5 % or greater , home closings financed by third parties , and all home closings insured under federal housing administration ( “ fha ” ) , u.s. veterans administration ( “ va ” ) and other government-insured programs are recorded in the financial statements on the date of closing . revenue related to all other home closings initially funded by our 100 % -owned subsidiary , m/i financial corp. ( “ m/i financial ” ) , is recorded on the date that m/i financial sells the loan to a third-party investor , because the receivable from the third-party investor is not 25 subject to future subordination , and the company has transferred to this investor the usual risks and rewards of ownership that is in substance a sale and does not have a substantial continuing involvement with the home . all associated homebuilding costs are charged to cost of sales in the period when the revenues from home closings are recognized . homebuilding costs include : land and land development costs ; home construction costs ( including an estimate of the costs to complete construction ) ; previously capitalized interest ; real estate taxes ; indirect costs ; and estimated warranty costs . all other costs are expensed as incurred . sales incentives , including pricing discounts and financing costs paid by the company , are recorded as a reduction of revenue in the company 's consolidated statements of operations . story_separator_special_tag for example , a decrease in estimated base sales price or an increase in home sales incentives may result in a corresponding increase in sales absorption pace or a reduction in base house costs . changes in our key assumptions , including estimated average selling price , construction and development costs , absorption pace , selling strategies , or discount rates , could materially impact future cash flow and fair value estimates . as of december 31 , 2012 , our projections generally assume a gradual improvement in market conditions . if communities are not recoverable based on estimated future undiscounted cash flows , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets . the fair value of a community is estimated by discounting management 's cash flow projections using an appropriate risk-adjusted interest rate . as of december 31 , 2012 , we utilized discount rates ranging from 13 % to 16 % in our valuations . the discount rate used in determining each asset 's estimated fair value reflects the inherent risks associated with the related estimated cash flow stream , as well as current risk-free rates available in the market and estimated market risk premiums . for example , construction in progress inventory , which is closer to completion , will generally require a lower discount rate than land under development in communities consisting of multiple phases spanning several years of development . operating communities . if an indicator for impairment exists for existing operating communities , the recoverability of assets is evaluated by comparing the carrying amount of the assets to estimated future undiscounted net cash flows expected to be generated by the assets based on home sales . these estimated cash flows are developed based primarily on management 's assumptions relating to the specific community . the significant assumptions used to evaluate the recoverability of assets include : the timing of development and or marketing phases ; projected sales price and sales pace of each existing or planned community ; the estimated land development , home construction , and selling costs of the community ; overall market supply and demand ; the local market ; and competitive conditions . management reviews these assumptions on a quarterly basis . while we consider available information to determine what we believe to be our best estimates as of the end of a reporting period , these estimates are subject to change in future reporting periods as facts and circumstances change . we believe the most critical assumptions in the company 's cash flow models are projected absorption pace for home sales , sales prices , and costs to build and deliver homes on a community by community basis . in order to estimate the assumed absorption pace for home sales included in the company 's cash flow models , the company analyzes the historical absorption pace in the community as well as other communities in the geographic area . in addition , the company considers internal and external market studies and trends , which may include , but are not limited to , statistics on population demographics , unemployment rates , foreclosure sales , and availability of competing products in the geographic area where a community is located . when analyzing the company 's historical absorption pace for home sales and corresponding internal and external market studies , the company places greater emphasis on more current metrics and trends such as the absorption pace realized in its most recent quarters and management 's most current assessment of sales pace . in order to estimate the sales prices included in its cash flow models , the company considers the historical sales prices realized on homes it delivered in the community and other communities in the geographic area , as well as the sales prices included in its current backlog for such communities . in addition , the company considers internal and external market studies and trends , which may include , but are not limited to , statistics on sales prices in neighboring communities , which include the impact of short sales , if any , and sales prices on similar products in non-neighboring communities in the geographic area where the community is located . when analyzing its historical sales prices and corresponding market studies , the company places greater emphasis on more current metrics and trends such as the sales prices realized in its most recent quarters and the sales prices in current backlog . based upon this analysis , the company sets a sales price for each house type in the community which it believes will achieve an acceptable gross margin and sales pace in the community . this price becomes the price published to the sales force for use in its sales efforts . the company then considers the average of these published sales prices when estimating the future sales prices in its cash flow models . in order to arrive at the company 's assumed costs to build and deliver homes , the company generally assumes a cost structure reflecting contracts currently in place with its vendors and subcontractors , adjusted for any anticipated cost reduction initiatives or increases in cost structure . with respect to overhead included in the cash flow models , the company uses forecasted rates included in the company 's annual budget adjusted for actual experience . future communities . if an indicator of impairment exists for raw land , land under development , or lots that management anticipates will be utilized for future homebuilding activities , the recoverability of assets is evaluated by comparing the carrying amount of the assets to the estimated future undiscounted cash flows expected to be generated by the assets based on home sales , consistent with the evaluations performed for operating communities discussed above .
| summary of company results in 2012 summary of financial results we had net income of $ 13.3 million , or $ 0.67 per diluted share , for 2012 , our highest net income since 2006 , compared to a net loss of $ 33.9 million in 2011 , or a loss of $ 1.81 per diluted share . our income in 2012 included a $ 3.0 million settlement the company received in 2012 related to defective imported drywall , a $ 2.2 million increase in land sale profit and a $ 18.5 million decrease in impairment charges taken during 2012 compared to 2011 . other contributing factors are described below . in 2012 , total revenue was $ 761.9 million , an increase of 35 % from 2011 . we earned $ 728.8 million in revenue from homes delivered , $ 9.9 million in revenue from land sales and $ 23.3 million in revenue from our financial services operation . revenue from homes delivered increased 32 % driven primarily by the 487 additional homes delivered in 2012 compared to 2011 ( a 21 % increase ) and by a 9 % increase in the average sales price of homes delivered ( $ 22,000 per home delivered ) . revenue from land sales increased $ 8.8 million from 2011 due primarily to one large land sale in 2012 . revenue in our financial services segment increased 62 % from $ 14.4 million in 2011 primarily due to an increase in the number of loan originations and an increase in the average loan amount from $ 213,000 in 2011 to $ 228,000 in 2012 . also contributing to the increase in our financial services revenue was $ 0.8 million in revenue in 2012 from retaining mortgage servicing rights and an increase in revenue from our refinance business when compared to 2011 . total gross margin increased $ 70.6
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idex 's products are sold in niche markets to a wide range of industries throughout the world . accordingly , idex 's businesses are affected by levels of industrial activity and economic conditions in the u.s. and in other countries where it does business and by the relationship of the u.s. dollar to other currencies . levels of capacity utilization and capital spending in certain industries and overall industrial activity are important factors that influence the demand for idex 's products . the company has three reportable business segments : fluid & metering technologies , health & science technologies and fire & safety/diversified products . within our three reportable segments , the company maintains thirteen platforms , where we focus on organic growth and strategic acquisitions . each of our thirteen platforms is also a reporting unit , where we annually test for goodwill impairment . the fluid & metering technologies segment designs , produces , and distributes positive displacement pumps , flow meters , valves , injectors , and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food , chemical , general industrial , water & wastewater , agriculture , and energy industries . the fluid & metering technologies segment contains the energy platform ( comprised of corken , liquid controls , sampi , and toptech ) , the valves platform ( comprised of alfa valvole , richter , and aegis ) , the water platform ( comprised of pulsafeeder , obl , knight , ads , trebor , and ipek ) , the pumps platform ( comprised of viking and warren rupp ) , and the agriculture platform ( comprised of banjo ) . the health & science technologies segment designs , produces , and distributes a wide range of precision fluidics , rotary lobe pumps , centrifugal and positive displacement pumps , roll compaction and drying systems used in beverage , food processing , pharmaceutical , and cosmetics , pneumatic components and sealing solutions , including very high precision , low-flow rate pumping solutions required in analytical instrumentation , clinical diagnostics , and drug discovery , high performance molded and extruded sealing components , biocompatible medical devices and implantables , air compressors used in medical , dental , and industrial applications , optical components and coatings for applications in the fields of scientific research , defense , biotechnology , life sciences , aerospace , telecommunications , and electronics manufacturing , laboratory and commercial equipment used in the production of micro and nano scale materials , precision photonic solutions used in life science , research , and defense markets , and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications . the health & science technologies segment contains the scientific fluidics & optics platform ( comprised of eastern plastics , rheodyne , sapphire engineering , upchurch scientific , erc , cidra precision services , thinxxs , cvi melles griot , semrock , and at films ) , the sealing solutions platform ( comprised of precision polymer engineering , ftl seals technology , novotema , and sfc koenig ) the gast platform , the micropump platform , and the material processing technologies platform ( comprised of quadro , fitzpatrick , microfluidics , and matcon ) . the fire & safety/diversified products segment produces firefighting pumps and controls , valves , monitors , nozzles , rescue tools , lifting bags and other components and systems for the fire and rescue industry , engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications , and precision equipment for dispensing , metering , and mixing colorants and paints used in a variety of retail and commercial businesses around the world . the fire & safety/diversified products segment is comprised of the fire & safety platform ( comprised of class 1 , hale , akron brass , awg fittings , godiva , dinglee , hurst jaws of life , lukas , and vetter ) , the band-it platform , and the dispensing platform . our 2017 financial results were as follows : sales of $ 2.3 billion increased 8 % , reflecting a 6 % increase in organic sales ( excluding acquisitions and divestitures ) and a 2 % increase due to acquisitions/divestitures . operating income of $ 502.6 million was up 22 % and operating margin of 22.0 % was up 250 basis points , respectively , from the prior year . net income increased 24 % to $ 337.3 million . diluted eps of $ 4.36 increased $ 0.83 , or 24 % , compared to 2016 . our 2017 financial results , adjusted for $ 8.5 million of restructuring expense and a $ 9.3 million gain on sale of a business , compared to our 2016 financial results , adjusted for $ 3.7 million of restructuring expense , a $ 3.6 million pension settlement charge and a $ 22.3 million loss on the sale of businesses - net , were as follows ( these non-gaap measures have been reconciled to u.s. gaap measures in item 6 , “ selected financial data ” ) : adjusted operating income of $ 501.7 million was up 14 % and adjusted operating margin of 21.9 % was up 120 basis points , respectively , from the prior year . 17 adjusted net income increased 16 % to $ 333.7 million . adjusted eps of $ 4.31 was 15 % higher than prior year adjusted eps of $ 3.75 . based on continued order strength in the fourth quarter , as well as benefits from our growth initiatives and segmentation efforts , we project approximately 5 % organic revenue growth in 2018. full year 2018 eps is expected to be in the range of $ 4.90 to $ 5.10. story_separator_special_tag based on cumulative foreign earnings of $ 779.0 million ; and an additional $ 10.2 million of tax expense primarily related to the removal of the permanent reinvestment representation with respect to certain of its subsidiaries in canada , italy , and germany . story_separator_special_tag sales within our scientific fluidics & optics platform increased compared to 2016 due to strong demand in all primary end markets , including analytical instrumentation , in-vitro diagnostics and biotechnology , dna sequencing and semiconductor , partially offset by the impact of the cvi japan and cvi korea divestitures in 2016. sales within our material processing technologies platform were relatively flat compared to the prior year primarily due to the impact of strategic changes in product focus which resulted in discontinued products , offset by global strength in the food and pharma end markets and a strong project funnel . sales within our sealing solutions platform increased significantly compared to 2016 due to the full year impact of the sfc koenig acquisition in 2016 as well as strength in the semiconductor market and an uptick in the oil and gas , mining and automotive markets . sales in our gast platform remained relatively flat year over year primarily due to the impact of oem headwinds during the first half of 2017 offset by increasing demand in industrial and dental markets . sales within our micropump platform increased year over year due to solid demand in the north american industrial markets . 20 operating income and operating margin of $ 179.6 million and 21.9 % , respectively , in 2017 were up from $ 153.7 million and 20.6 % , respectively , in 2016 , primarily due to higher volume and the dilutive impact of the inventory step-up charge related to the sfc koenig acquisition in the prior year , partially offset by higher restructuring expenses in 2017 , costs associated with site consolidations within the material processing technologies and the scientific fluidics & optics platforms as well as additional engineering investments and operational challenges as a result of the strong growth within the segment . fire & safety/diversified products segment replace_table_token_17_th sales of $ 587.5 million increased $ 67.5 million , or 13 % , in 2017 compared with 2016 . this increase reflected a 4 % increase in organic sales and a 9 % increase due to acquisitions ( awg fittings - july 2016 and akron brass - march 2016 ) . in 2017 , sales increased 9 % domestically and 17 % internationally . sales to customers outside the u.s. were approximately 52 % of total segment sales in 2017 compared with 51 % in 2016 . sales within our dispensing platform decreased slightly compared to 2016 due to declining markets in latin america and u.s. retail , partially offset by growing strength in europe and asia . sales increased in our band-it platform compared to the prior year as a result of rebounding energy markets as well as strength across the transportation and industrial markets and increasing demand in asia and latin america . sales within our fire & safety platform increased significantly compared to 2016 primarily due to the full year impact of the prior year acquisitions as well as strength in municipal and north american oem markets . operating income of $ 147.0 million and operating margin of 25.0 % were higher than the $ 123.6 million and 23.8 % , respectively , in 2016 , primarily due to higher volume and productivity , as well as the full year impact of the akron brass and awg fittings acquisitions on 2017 financial results and the inclusion of $ 7.5 million of fair value inventory step-up charges related to the acquisitions in the prior year period . performance in 2016 compared with 2015 replace_table_token_18_th sales in 2016 were $ 2.1 billion , a 5 % increase from 2015. this increase reflects a 1 % decrease in organic sales , a 1 % decrease from foreign currency translation and a 7 % increase from acquisitions/divestitures ( acquisitions : sfc koenig - september 2016 ; awg fittings - july 2016 ; akron brass - march 2016 ; cidra precision services - july 2015 ; alfa valvole - june 2015 and novotema - june 2015. divestitures : cvi korea - december 2016 ; ietg - october 2016 ; cvi japan - september 2016 ; hydra-stop - july 2016 and ismatec - july 2015 ) . sales to customers outside the u.s. represented approximately 50 % of total sales in both 2016 and 2015. in 2016 , fluid & metering technologies contributed 40 % of sales and 44 % of operating income ; health & science technologies contributed 35 % of sales and 31 % of operating income ; and fire & safety/diversified products contributed 25 % of sales and 25 % of operating income . gross profit of $ 930.8 million in 2016 increased $ 26.5 million , or 3 % , from 2015 , while gross margin decreased 80 basis points to 44.0 % in 2016 from 44.8 % in 2015. the increase in gross profit is primarily a result of increased sales volume as a result of acquisitions , while the margin decrease is mainly attributable to $ 14.7 million of fair value inventory step-up charges from 2016 acquisitions compared to $ 3.4 million from 2015 acquisitions . sg & a expenses increased to $ 492.4 million in 2016 from $ 474.2 million in 2015. the $ 18.2 million increase is mainly attributable to $ 41.4 million of incremental costs from new acquisitions , partially offset by current year divestitures and cost savings from prior year restructuring actions . as a percentage of sales , sg & a expenses were 23.3 % for 2016 and 23.5 % for 2015 . 21 during 2016 , the company recorded a $ 22.3 million pre-tax loss on the sale of businesses related to the four divestitures during the year ( hydra-stop - july 2016 ; cvi japan - september 2016 ; ietg - october 2016 ; and cvi korea - december 2016 ) , compared to the $ 18.1 million pre-tax gain on the sale of a business in 2015 ( ismatec - july 2015 ) .
| results of operations the following is a discussion and analysis of our results of operations for each of the three years in the period ended december 31 , 2017 . for purposes of this item , reference is made to the consolidated statements of operations in part ii , item 8 , “ financial statements and supplementary data. ” segment operating income excludes unallocated corporate operating expenses . management 's primary measurements of segment performance are sales , operating income , and operating margin . in the following discussion , and throughout this report , references to organic sales , a non-gaap measure , refers to sales from continuing operations calculated according to generally accepted accounting principles in the united states but excludes ( 1 ) the impact of foreign currency translation and ( 2 ) sales from acquired or divested businesses during the first twelve months of ownership or divestiture . the portion of sales attributable to foreign currency translation is calculated as the difference between ( a ) the period-to-period change in organic sales and ( b ) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period . management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers . the company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management 's control , is subject to volatility and can obscure underlying business trends . the company excludes the effect of acquisitions and divestitures because the nature , size , and number of acquisitions and divestitures can vary dramatically from period to period and between the company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult .
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68 commvault systems , inc. notes to consolidated financial statements — ( continued ) ( in thousands , except per share data ) our purchased intangible assets were recently acquired in connection with the hedvig inc. transaction . the most material story_separator_special_tag you should read the following discussion and analysis along with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. the statements in this discussion regarding our expectations of our future performance , liquidity and capital resources , and other non-historical statements 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 under “ risk factors ” and elsewhere in this annual report on form 10-k. our actual results may differ materially from those contained in or implied by any forward-looking statements . overview commvault is a leading provider of data protection and information management software applications and related services . commvault was incorporated in 1996 as a delaware corporation . the commvault software platform is an enterprise level , integrated data and information management solution , built from the ground up on a single platform and unified code base . all software functionality share the same back-end technologies to deliver the benefits of a holistic approach to protecting , managing , and accessing data . the software addresses many aspects of data management in the enterprise , while providing scalability and control of data and information . we also sell appliances that integrate the commvault software with hardware and address a wide-range of business needs and use cases , ranging from support for remote or branch offices with limited it staff up to large corporate data centers . commvault also provides customers with a broad range of professional services that are delivered by our worldwide support and field operations . commvault software enables our customers to simply and cost effectively protect and manage their enterprise data throughout its lifecycle , from the mobile worker to the remote office , to the data center , covering the leading operating systems , relational databases , virtualized environments and applications . in addition to addressing today 's data and information management challenges , our customers can realize lower capital costs through more efficient use of their enterprise-wide storage infrastructure assets . this includes the automated movement of data from higher cost to lower cost storage devices throughout its lifecycle , and through sharing and better utilization of storage resources across the enterprise . we can also provide our customers with reduced operating costs through a variety of methods , including fast application deployment , reduced training time , lower cost of storage media consumables , proactive monitoring and analysis , and lower administrative overhead . we also provide our customers with a broad range of professional services that are delivered by our worldwide support and field operations . history and background in early 2000 , we launched commvault galaxy for backup and recovery , a storage industry award winner . in the years since , commvault has forged numerous alliances with top software application and hardware vendors to enhance capabilities and to create a premiere suite of data and information management solutions . in 2002 , we launched our single-platform technology that provides the foundation of our information management approach to storing , managing , and accessing data . since that time we have continued to innovate and have been recognized by industry analysts as having the most comprehensive and powerful data management solution . in the third quarter of fiscal 2020 commvault completed the acquisition of hedvig inc. , a california-based developer of software-defined storage solutions . the primary reason for the business combination is the complementary nature of hedvig 's technology , with our other technology , which will expand our addressable market . hedvig software allows customers to tailor their storage environment to their application and data demands through a software-defined storage platform . this transaction supports commvault 's strategy of unified storage and data management . hedvig 's technology enables a scalable , distributed software defined storage solution that is already multi-cloud enabled . 34 the industry in which we currently operate continues to go through accelerating changes as the result of compounding data growth and the introduction of new technologies . we are continuing to pursue an aggressive product development program in both data and information management solutions . our data management solutions include not only traditional backup , but also new innovations in de-duplication , data movement , virtualization , snap-based backups and enterprise reporting . our information management innovations are primarily in the areas of archiving , ediscovery , records management , governance , operational reporting and compliance . we remain focused on both the data and information management trends in the marketplace and , in fact , a material portion of our existing research and development expenses are utilized toward the development of such new technologies discussed above . while we are confident in our ability to meet these changing industry demands with our commvault suite and potential future releases , the development , release and timing of any features or functionality remain at our sole discretion and our solutions or other technologies may not be widely adopted . given the nature of the industry in which we operate , our software applications are subject to obsolescence . we continually develop and introduce updates to our existing software applications in order to keep pace with evolving industry technologies . in addition , we must address evolving industry standards , changing customer requirements and competitive software applications that may render our existing software applications obsolete . we also sell a backup appliance which integrates our software with hardware . if our forecast exceeds our actual requirements , a supply chain partner may assess additional charges or we may incur costs related to excess inventory , each of which could negatively affect our gross margins . story_separator_special_tag our services revenue is made up of fees from the delivery of customer support and other professional services , which are typically sold in connection with the sale of our software applications . customer support agreements provide technical support and unspecified software updates on a when-and-if-available basis for an annual fee based on licenses purchased and the level of service subscribed . other professional services include consulting , assessment and design services , implementation and post-deployment services and training , all of which to date have predominantly been sold in connection with the sale of software applications . our newly launched software-as-a-service solution , branded metallic , is also included in services revenue . revenue from metallic , which has not been material to date , is recognized ratably over the contract period . most of our customer support agreements are for a one-year term . as the end of the annual period approaches , we pursue the renewal of the agreement with the customer . historically , maintenance renewals have represented a significant portion of our total revenue . because of this characteristic of our business , if our customers choose not to renew their maintenance and support agreements with us on beneficial terms , or at all , our business , operating results and financial condition could be harmed . the gross margin of our services revenue was 78 % for fiscal 2020 and 77 % for both fiscal 2019 and fiscal 2018 . overall , our services revenue has lower gross margins than our software and products revenue . the gross margin of our software and products revenue was 90 % for fiscal 2020 , 92 % for fiscal 2019 and 98 % for fiscal 2018 . the decrease in gross margin percentage of software and products is a result of the decrease in sales of our integrated appliance , which includes hardware . description of costs and expenses our cost of revenues is as follows : cost of software and products revenue , consists primarily of the cost of appliance hardware , third-party royalties and other costs such as media , manuals , translation and distribution costs ; and cost of services revenue , consists primarily of salary and employee benefit costs in providing customer support and other professional services . 36 our operating expenses are as follows : sales and marketing , consists primarily of salaries , commissions , employee benefits , stock-based compensation and other direct and indirect business expenses , including travel and related expenses , sales promotion expenses , public relations expenses and costs for marketing materials and other marketing events ( such as trade shows and advertising ) ; research and development , which is primarily the expense of developing new software applications and modifying existing software applications , consists principally of salaries , stock-based compensation and benefits for research and development personnel and related expenses ; contract labor expense and consulting fees as well as other expenses associated with the design , certification and testing of our software applications ; and legal costs associated with the patent registration of such software applications ; general and administrative , consists primarily of salaries , stock-based compensation and benefits for our executive , accounting , human resources , legal , information systems and other administrative personnel . also included in this category are other general corporate expenses , such as outside legal and accounting services , compliance costs and insurance ; and depreciation and amortization , consists of depreciation expense primarily for our owned corporate campus headquarters location and computer equipment we use for information services and in our development and test labs as well as amortization of intangible assets acquired through the purchase of hedvig . foreign currency exchange rates ' impact on results of operations sales outside the united states were approximately 49 % of our total revenue for fiscal 2020 , 47 % of our total revenue for fiscal 2019 and 46 % for fiscal 2018 . the income statements of our non-u.s. operations are translated into u.s. dollars at the average exchange rates for each applicable month in a period . to the extent the u.s. dollar weakens against foreign currencies , the translation of these foreign currency denominated transactions generally results in increased revenue , operating expenses and income from operations for our non-u.s. operations . similarly , our revenue , operating expenses and net income will generally decrease for our non-u.s. operations if the u.s. dollar strengthens against foreign currencies . using the average foreign currency exchange rates from fiscal 2019 , our software and products revenue would have been higher by $ 4.6 million , our services revenue would have been higher by $ 5.9 million , our cost of sales would have been higher by $ 1.6 million and our operating expenses would have been higher by $ 5.8 million from non-u.s. operations for fiscal 2020 . in addition , we are exposed to risks of foreign currency fluctuation primarily from cash balances , accounts receivables and intercompany accounts denominated in foreign currencies and are subject to the resulting transaction gains and losses , which are recorded as a component of general and administrative expenses . we recognized net foreign currency transaction gains of $ 0.4 million in fiscal 2020 , $ 1.0 million in fiscal 2019 , and $ 0.1 million in fiscal 2018 . critical accounting policies in presenting our consolidated financial statements in conformity with u.s. generally accepted accounting principles , we are required to make estimates and judgments that affect the amounts reported therein . some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events . we base these estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate . actual results may differ significantly from these estimates .
| results of operations fiscal year ended march 31 , 2020 compared to fiscal year ended march 31 , 2019 revenues ( in millions ) - total revenues decreased $ 40.1 million , or 6 % - software and products revenue decreased $ 34.6 million , or 11 % , primarily due to the following : software and products revenue represented 41 % of our total revenues in fiscal 2020 and 44 % of our total revenues in fiscal 2019 . enterprise transactions ( deals greater than $ 0.1 million ) represented approximately 65 % of our software and products revenue in both fiscal 2020 and fiscal 2019 . decrease of $ 22.4 million in enterprise transactions decrease of 19 % in the number of enterprise transactions , partially offset by an increase of 10 % in the average dollar amount of such transactions the average dollar amount of enterprise transactions was approximately $ 298,000 in fiscal 2020 and approximately $ 272,000 in fiscal 2019 . decrease of $ 12.2 million in transactions less than $ 0.1 million 40 - services revenue decreased $ 5.5 million , or 1 % , primarily due to the following : decrease of $ 6.9 million in training and consulting service revenue partially offset by an increase of $ 1.4 million in revenue from customer support agreements as a result of software sales to new customers and renewal agreements with our installed software base services revenue represented 59 % of our total revenues in fiscal 2020 and 56 % of our total revenues in fiscal 2019 . we track software and products revenue on a geographic basis . the geographic regions that are tracked are the americas ( united states , canada , latin america ) , emea ( europe , middle east , africa ) and apj ( australia , new zealand , southeast asia , china ) .
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part i of the budget control act of 2011 ( budget control act ) provided for a reduction in planned defense budgets by at least $ 487 billion over a ten year period , and the fiscal year ( fy ) 2013 impacts were incorporated in the u.s. government 's fy 2013 budget . part ii mandated substantial additional reductions , through a process known as “ sequestration , ” which took effect march 1 , 2013 , and resulted in approximately $ 40 billion of additional reductions to the fy 2013 defense budget . in march 2013 , the president signed into law the consolidated and further continuing appropriations act ( 2013 ) which included specific appropriations for our major federal customers , including the dod , subject to further reductions or sequestration under the budget control act . in october 2013 , congress passed a continuing resolution to fund the government through january 15 , 2014 ( subsequently extended through january 18 , 2014 ) , and suspended the statutory limit on the amount of permissible federal debt ( the debt ceiling ) through february 7 , 2014. in december 2013 , congress passed the national defense authorization act ( ndaa ) for fy 2014. congress also passed , and the president signed into law , the bipartisan budget act of 2013 , which set discretionary spending levels for fy 2014 and fy 2015. the legislation provides for additional budget funding of approximately $ 63 billion over fy 2014 and fy 2015. the additional funding is expected to alleviate some budget cuts that would otherwise have been instituted through sequestration in fy 2014 and fy 2015 , with approximately $ 45 billion ( generally split equally between defense and non-defense spending ) applied to fy 2014. on january 16 , 2014 , congress passed the consolidated appropriations act of 2014 , providing for federal spending levels consistent with the bipartisan budget act of 2013. the president signed the legislation into law on january 17 , 2014. the discretionary spending levels for fy 2014 total approximately $ 1.1 trillion , of which the defense spending level is $ 572 billion , comprised of $ 487 billion in base defense and $ 85 billion in overseas contingency operations ( oco ) funds . the president 's budget request for fy 2015 is currently due to congress in february 2014. congressional appropriation and authorization of spending for fy 2015 and beyond , including defense spending , and the application of sequestration remain marked by significant debate and an uncertain schedule . congress and the administration also continue to debate the debt ceiling , among other fiscal issues , as they negotiate plans for long-term national fiscal policy . the outcome of these debates could have a significant impact on defense spending broadly and the company 's programs in particular . if the existing debt ceiling is not raised , we may be required to continue to perform for some period of time on certain of our u.s. government contracts even if the u.s. government is unable to make timely payments . a debt ceiling breach could , among other impacts , have significant near and long-term consequences for our company , our employees , our suppliers and the defense industry . it could negatively affect the u.s. government 's timely payment of our billings , result in delayed cash collections and have a material adverse effect on our financial position , results of operations and or cash flows . the budget environment , including sequestration as currently mandated , remain a significant long-term risk . considerable uncertainty exists regarding how future budget and program decisions will unfold and what challenges budget reductions will present for the defense industry . we believe continued budget pressures will have serious negative consequences for the security of our country , the defense industrial base , including northrop grumman , and the customers , employees , suppliers , investors , and communities that rely on companies in the defense industrial base . although it is difficult to determine specific impacts , we expect that over the longer term , the budget environment may result in lower awards , revenues , profits and cash flows from our u.s. government contracts . members of congress continue to discuss various options to address sequestration in future budget planning , but we can not predict the outcome of these efforts . it is likely budget and program decisions made in this environment will have long-term impacts on our company and the entire defense industry . faced with continued budget uncertainty and continued threats to national security , the dod is reviewing the roles and structure of the u.s. military . in january 2012 , the dod announced a new defense strategy intended to guide its priorities and budgeting decisions . the strategy calls for the u.s. military to project power globally and operate effectively in all domains , including cyberspace , and places particular emphasis on asia pacific as an area of strategic focus . in march 2013 , the secretary of defense directed senior pentagon officials to conduct a - 25 - northrop grumman corporation comprehensive strategic review of the dod strategy , including examination of the choices underlying the strategy , force posture , investments and institutional management in light of the budgetary and strategic environment . the dod briefed the results of this review in late july 2013 and provided some broad indications of the choices being weighed . in examining budget constraints within a sequestration environment over the next decade , the dod determined reductions in personnel , compensation and benefits , force structure , and modernization likely would be necessary . on force planning , the review broadly outlined several options , some that favor current capacity and others that emphasize future investments . the dod has stated that while the review demonstrated various alternatives , decisions are still being finalized . story_separator_special_tag performance refers to changes in contract margin rates for the period , primarily related to the changes in estimates referred to above . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > was voluntarily pre-funded , as compared with $ 367 million in 2012 , of which $ 300 million was voluntarily pre-funded . 2012 – net cash provided by continuing operations for 2012 increased by $ 293 million , or 12 percent , as compared with 2011 , principally driven by lower pension contributions , partially offset by higher income taxes paid . in 2012 , we voluntarily pre-funded our pension plans by $ 300 million , as compared to $ 1.0 billion in 2011 . segment operating results basis of presentation we are aligned in four segments : aerospace systems , electronic systems , information systems and technical services . this section discusses segment sales , operating income and operating margin rates . the reconciliation of segment sales to total sales is provided in note 4 to the consolidated financial statements in part ii , item 8 , with the difference being intersegment sales eliminations . for purposes of the discussion in this segment operating results section , references to operating income and operating income margin rate reflect segment operating income and segment operating margin rate . for a more complete description of each segment 's products and services , see the business descriptions in part i , item 1. segment operating income segment operating income , as reconciled below , is a non-gaap measure and is used by management as an internal measure for financial performance of our operating segments . segment operating income is defined as operating income less certain corporate-level expenses that are not considered allowable or allocable under applicable cas or far and net fas/cas pension differences . replace_table_token_12_th 2013 - segment operating income for 2013 decreased by $ 96 million , or 3 percent , as compared with 2012 . the decrease in segment operating income was principally due to lower sales . the decrease in operating margin rate reflects lower net favorable adjustments in 2013 , partially offset by higher contract margin rates across our portfolio resulting from several factors , including the continuing effect of prior net favorable adjustments . 2012 - segment operating income for 2012 increased by $ 121 million , or 4 percent , as compared with 2011 , due to a number of factors including improved performance , particularly at electronic systems . the improved performance reflects mitigation of contract risks and cost reduction initiatives , as well as portfolio shaping efforts . the increase in segment operating margin rate reflects this improved segment performance on lower sales . the table below reconciles segment operating income to total operating income : replace_table_token_13_th for financial statement purposes , we account for our employee pension plans in accordance with gaap under fas . we charge the costs of these plans to our contracts in accordance with the far and the related cas that govern such - 29 - northrop grumman corporation plans . the net fas/cas pension adjustment is pension expense determined in accordance with gaap less pension expense charged to contracts and included in segment operating income . the increase in net fas/cas pension adjustment during 2013 reflects an update for actual demographic experience as of january 1 , 2013 , which resulted in an increase to the company 's 2013 cas pension expense . unallocated corporate expenses generally include the portion of corporate expenses , other than fas pension costs , not considered allowable or allocable under applicable cas and far rules , and therefore not allocated to the segments , such as a portion of management and administration , legal , environmental , certain compensation and retiree benefits , and other expenses . the decrease in unallocated corporate expenses for 2013 , as compared to 2012 , is primarily due to lower year-over-year provisions for disallowed costs and litigation matters and the favorable settlement of overhead claims , partially offset by changes in deferred tax assets due to lower blended state income tax rates . aerospace systems replace_table_token_14_th 2013 - aerospace systems sales for 2013 were slightly higher than 2012 , due to higher volume on manned military aircraft programs , offset by lower volume on unmanned and space programs . the increase in manned military aircraft programs reflects higher sales of $ 107 million from increased deliveries on the f-35 program , as well as higher volume on the b-2 and e-2d advanced hawkeye programs , partially offset by lower volume on various other programs . the decrease for unmanned programs reflects lower sales of $ 295 million on the global hawk program largely due to ramp-down on sustainment , support and logistics contracts , partially offset by higher sales of $ 187 million on the nato alliance ground surveillance ( ags ) program resulting from ramp-up activities . the decrease in space programs reflects lower volume for restricted programs due to ramp-down activities , and higher volume on the james webb space telescope ( jwst ) and advanced extremely high frequency ( aehf ) programs . operating income and operating margin rate for 2013 were comparable to 2012. operating income and operating margin rate also reflect the impact of a forward loss recognized on a restricted program , which was offset by the continuing effect of higher contract margin rates across the segment principally related to prior net favorable adjustments . 2012 - aerospace systems sales for 2012 were comparable to 2011. sales of unmanned systems increased approximately $ 280 million , primarily related to ramping up on the nato ags and fire scout programs . additionally , there was higher volume of approximately $ 200 million on the f-35 program due to deliveries on lrip 5 , the first f-35 contract accounted for under the units-of-delivery method .
| consolidated operating results selected financial highlights , excluding the results of discontinued operations , are presented in the table below : replace_table_token_8_th sales sales for 2013 decreased $ 557 million , or 2 percent , as compared with 2012 . sales for 2012 decreased $ 1.2 billion , or 5 percent , as compared with 2011 . the table below shows the variances in segment sales from the respective prior years : replace_table_token_9_th for further information by segment refer to segment operating results below , and for product and service detail , refer to the product and service analysis section that follows segment operating results . operating costs and expenses operating costs and expenses are primarily comprised of labor , material , subcontractor and overhead costs , and are generally allocated to contracts as incurred . in accordance with industry practice and the regulations that govern cost accounting requirements for government contracts , most general management and corporate expenses incurred at the segment and corporate locations are considered allowable and allocable costs . allowable and allocable general and administrative costs are allocated on a systematic basis to contracts in progress . - 27 - northrop grumman corporation operating costs and expenses comprise the following : replace_table_token_10_th 2013 – product and service costs for 2013 decreased $ 356 million , or 2 percent , as compared with 2012 , consistent with the change in sales . general and administrative expenses as a percentage of total sales decreased to 9.1 percent in 2013 , from 9.7 percent in 2012 ; the decrease reflects lower indirect costs principally related to cost reduction initiatives at information systems , as well as lower bid and proposal expenses . 2012 – product and service costs for 2012 decreased $ 1.1 billion , or 6 percent , as compared with 2011 .
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the company had no recognized allowance as of december 31 , 2017. the company recognized an allowance related to one customer of approximately $ 0.4 million as of december 31 , 2016. for the year ended december 31 , 2017 and 2016 , the provisions and write-offs were immaterial . contingencies the company accrues for amounts related to legal matters if it is probable that a liability has been incurred and the amount is reasonably estimable . litigation expenses are expensed as incurred . fair value of financial instruments the fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties , other than in a forced sale or liquidation . significant differences can arise between the fair value and carrying amounts of financial instruments that are recognized at historical cost amounts . the company considers that story_separator_special_tag the following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included in this annual report on form 10-k. background we are a biopharmaceutical company focused on developing therapies that restore function and improve the lives of people with neurological disorders . we market two fda-approved therapies , including ampyra ( dalfampridine ) extended release tablets , 10 mg , a treatment to improve walking in adult patients with multiple sclerosis , or ms , as demonstrated by an increase in walking speed . we have a pipeline of novel neurological therapies addressing a range of disorders , including parkinson 's disease and ms. we currently derive substantially all our revenue from the sale of ampyra . in march 2017 , we announced a decision by the united states district court for the district of delaware in litigation with certain generic drug manufacturers upholding our ampyra orange book-listed patent set to expire on july 30 , 2018 , but invalidating our four other orange book-listed patents pertaining to ampyra that were set to expire between 2025 and 2027. under this decision , we expect to maintain patent exclusivity with respect to ampyra at least through july 30 , 2018 , depending on the outcome of appeal of the district court 's decision . the defendant generic drug manufacturers have appealed the district court 's decision upholding the patent that expires in july 2018 , and we have appealed the ruling on the four invalidated patents . we expect the appeals process to take approximately 12 to 18 months from the filing of the appeal in may 2017. the date for oral argument will be scheduled by the appellate court , which we expect will be in the first half of 2018. we expect to experience a rapid and significant decline in ampyra sales beyond july 2018 due to competition from generic versions of ampyra that may be marketed after the expiration of our remaining ampyra patent , unless the district court 's decision on the four invalidated patents is overturned on appeal , which could include reversal or remand by the appeals court back to the district court . if the appeals court does not overturn the district court 's decision by july 30 , 2018 , multiple anda filers may be able to launch generic versions of ampyra absent injunctive relief . in april 2017 , following the district court 's decision , we implemented a corporate restructuring to reduce our cost structure and focus our resources on our most important and valuable initiatives , including our inbrija ( levodopa inhalation powder ) development program and maximizing ampyra value . as part of this restructuring , we reduced headcount by approximately 20 % . the majority of the reduction was completed in april 2017. inbrija , our most advanced development program , is a self-administered , inhaled formulation of levodopa , or l-dopa , being investigated for the treatment of off periods in people with parkinson 's disease who are taking a carbidopa/levodopa regimen . inbrija is based on our proprietary arcus platform , a dry-powder pulmonary drug delivery technology that we believe has potential applications in multiple disease areas . we announced positive phase 3 efficacy and safety data for this 68 program in 2017. in june 2017 , we submitted a new drug application , or nda , for inbrija to the fda . in august 2017 , we announced that we received a refusal to file , or rtf , letter from the fda regarding the inbrija nda . upon its preliminary review , the fda determined that the nda was not sufficiently complete to permit a substantive review . the fda specified two reasons for the rtf : first , the date when the manufacturing site would be ready for inspection ; and second , a question regarding the submission of the drug master production record . the fda also requested additional information at resubmission , which was not part of the basis for the rtf . we resubmitted the nda in december 2017. the resubmission addressed the two issues raised in the rtf and included all additional information requested by the fda in the rtf . on february 20 , 2018 , we announced that the resubmitted nda was accepted for filing by the fda , and that under the prescription drug user fee act , or pdufa , the fda has set a target date of october 5 , 2018. our commercial preparations for the launch of inbrija continue . we are projecting that , if approved , annual peak net revenue of inbrija in the u.s. alone could exceed $ 800 million . we expect to file a marketing authorization application , or maa , with the european medicines agency in the first quarter of 2018. we are in discussions with potential partners regarding inbrija outside of the u.s. in november 2017 , we discontinued our clinical development program for tozadenant , an investigational treatment for reduction of off time in people with parkinson 's that we acquired with our 2016 acquisition of biotie therapies . story_separator_special_tag three of the largest national health plans in the u.s. – aetna , cigna and united healthcare – have listed ampyra on their commercial formulary . approximately 75 % of insured individuals in the u.s. continue to have no or limited prior authorizations , or pa 's , for ampyra . we define limited pas as those that require only an ms diagnosis , documentation of no contraindications , and or simple documentation that the patient has a walking impairment ; such documentation may include a timed 25-foot walk ( t25w ) test . the access figure is calculated based on the number of pharmacy lives reported by health plans . license and collaboration agreement with biogen ampyra is marketed as fampyra outside the u.s. by biogen international gmbh , or biogen , under a license and collaboration agreement that we entered into in june 2009. fampyra has been approved in a number of countries across europe , asia and the americas . under our agreement with biogen , we are entitled to receive double-digit tiered royalties on sales of fampyra and we are also entitled to receive additional payments based on achievement of certain regulatory and sales milestones . we received a $ 25 million milestone payment from biogen in 2011 , which was triggered by biogen 's receipt of conditional approval from the european commission for fampyra . the next expected milestone payment would be $ 15 million , due when ex-u.s. net sales exceed $ 100 million over four consecutive quarters . in november 2017 , we announced a $ 40 million fampyra royalty monetization transaction with healthcare royalty partners , or hcrp . in return for the payment to us , hcrp obtained the right to receive these fampyra royalties up to an agreed-upon threshold . until this threshold is met , if ever , we will not receive fampyra royalty revenue although we have retained the right to receive any potential future milestone payments , described above . ampyra patent update we have five issued patents listed in the orange book for ampyra , four of which were held invalid in litigation in u.s. district court for the district of delaware with certain generic drug manufacturers , as further described below in this report . the first is u.s. patent no . 5,540,938 , the claims of which relate to methods for treating a neurological disease , such as ms , and cover the use of a sustained release dalfampridine formulation , such as ampyra ( dalfampridine ) extended release tablets , 10 mg for improving walking in people with ms. in april 2013 , this patent received a five year patent term extension under the patent restoration provisions of the hatch-waxman act . with a five year patent term extension , this patent will expire on july 30 , 2018. we have an exclusive license to this patent from alkermes ( originally with elan , but transferred to alkermes as part of its acquisition of elan 's drug technologies business ) . this patent was held valid by the district court in the litigation , although in june 2017 the defendant generic drug manufacturers with whom we have not reached settlements appealed the district court 's decision upholding this patent . the other four orange book-listed patents were held invalid by the district court in the litigation with generic drug manufacturers . these patents , which had been set to expire in 2025 through 2027 , consist of u.s. patent no . 8,007,826 , with 70 claims relating to methods to improve walking in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily ; u.s. patent no . 8,354,437 , which includes claims relating to methods to improve walking , increase walking speed , and treat walking disability in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily ; u.s. patent no . 8,440,703 , which includes claims directed to methods of improving lower extremity function and walking and increasing walking speed in patients with ms by administering less than 15 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily ; and u.s. patent no . 8,663,685 with claims relating to methods to improve walking in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . the patent litigation referenced above relates to paragraph iv certification notices received from ten generic drug manufacturers in 2014 and 2015 , who submitted abbreviated new drug applications , or andas , with the fda seeking marketing approval for generic versions of ampyra ( dalfampridine ) extended release tablets , 10mg . the anda filers challenged the validity of our orange book-listed patents for ampyra , and they also asserted that generic versions of their products do not infringe certain claims of these patents . in 2015 and 2016 , we reached settlement agreements with six of the generic companies . a bench trial against the remaining four generic companies was completed in september 2016. in february 2017 , we announced that we had reached a settlement agreement with one of those four generic companies . in march 2017 , the u.s. district court for the district of delaware rendered a decision upholding our orange-book listed patent for ampyra set to expire in july 2018 , but invalidating our four other orange book-listed patents . in may 2017 , we appealed the ruling on these four patents , and as described above , in june 2017 the other non-settling parties appealed the decision on the patent set to expire in july 2018. we expect the appeals process to take approximately 12 to 18 months from the filing of the appeal in may 2017. both the biotechnology innovation organization ( bio ) and pharmaceutical research and manufacturers of america ( phrma ) filed amicus briefs in support of our appeal , raising important issues in conjunction with biopharmaceutical innovation .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 net revenue ampyra we recognize product sales of ampyra following receipt of product by our network of specialty pharmacy providers , kaiser permanente and asd specialty healthcare , inc. we recognized net revenue from the sale of ampyra to these customers of $ 543.3 million and $ 492.8 million for the years ended december 31 , 2017 and 2016 , respectively . this net revenue reflected 9.5 % and 4.0 % increases in our list sale price for ampyra effective january 1 , 2017 and july 1 , 2017 , respectively . the net revenue increase comprised net volume increases of $ 9.8 million and price increases and discount and allowance adjustments of $ 40.7 million . net revenue from sales of ampyra increased for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due to our price increase and greater demand we believe due to , in part , the success of certain marketing programs such as our 60-day free trial program . as with a number of specialty pharmaceuticals , first quarter sales for ampyra typically have been lower than the preceding fourth quarter sales due to inventory build in the fourth quarter , and the temporary effects of people changing insurance plans and entering the medicare part d coverage gap ( the “ donut hole ” ) at the beginning of the year . we expect a similar trend in 2018. effective january 1 , 2018 , we increased our list sale price to our customers by 9.5 % . discounts and allowances , which are included as an offset in net revenue , consist of allowances for customer credits , including estimated chargebacks , rebates , and discounts . discounts and allowances are recorded following shipment of ampyra tablets to our network of specialty pharmacy providers , kaiser permanente and asd specialty healthcare , inc.
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and all of its subsidiaries that are consolidated in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the following discussion should be read in conjunction with the other sections of this report , including the consolidated financial statements and notes thereto appearing in item 8. consolidated financial statements and supplementary data of this report , the risk factors appearing in item 1a . risk factors of this report , and the disclaimer regarding forward-looking statements appearing at the beginning of item 1. business of this report . historical results set forth in item 6. selected financial data and item 8. consolidated financial statements and supplementary data of this report should not be taken as indicative of our future operations . restatement as indicated in note 2 to our consolidated financial statements included in part ii , item 8 , of this form 10-k , we corrected errors in our previously issued consolidated financial statements for the restated periods primarily related to the following matters : ( i ) purchase accounting associated with contracts acquired as part of the acquisition of the rocketdyne business ; ( ii ) contract accounting related to subsequent modifications to one significant acquired contract ; ( iii ) contract accounting related to the improper recognition of sales associated with incentives ; and ( iv ) other individually immaterial items . a summary of the impact to pretax income ( loss ) from continuing operations by reporting period is presented below ( in millions ) : replace_table_token_11_th _ ( 1 ) our errors associated with purchase accounting primarily related to the following : ( i ) fair value assessment of rocketdyne business acquired customer contracts at the acquisition date following the close of the transaction . the company failed to fair value three acquired contracts in purchase accounting ; and ( ii ) the estimates of the rocketdyne business contracts ' percentage of completion used to recognize net sales should have been based on its estimate of remaining effort on such contracts at the acquisition date instead of the inception date of the contract . ( 2 ) we did not appropriately account for one significant rocketdyne business contract amendment . instead of being accounted for as a modification , the amendment was accounted for as a new contract . ( 3 ) we immediately recognized incentives as sales based on the full amount received rather than on the percentage of completion of the related contract . the correction of the matters described above resulted in the following adjustments to the previously issued consolidated financial statements : ( i ) an increase of $ 0.3 million , or $ 0.00 loss per share , to net loss for the first nine months of fiscal 2015 ; ( ii ) a decrease of $ 3.0 million , or $ 0.06 loss per share , to net loss for fiscal 2014 ; and ( iii ) a decrease of $ 5.0 million , or $ 0.06 diluted income per share , to net income for fiscal 2013. a summary of the impact to net ( loss ) income on the consolidated statements of operations by reporting period is presented below ( in millions ) : replace_table_token_12_th overview we are a manufacturer of aerospace and defense products and systems which develops and manufactures propulsion systems for defense and space applications , and armaments for precision tactical and long-range weapon systems applications . we also have a real estate segment that includes activities related to the re-zoning , entitlement , sale , and leasing of our excess real estate assets . our continuing operations are organized into two segments : 32 aerospace and defense — includes the operations of our wholly-owned subsidiary aerojet rocketdyne , a leading technology-based designer , developer and manufacturer of aerospace and defense products and systems for the u.s. government , including the dod , nasa , major aerospace and defense prime contractors as well as portions of the commercial sector . aerojet rocketdyne is a world-recognized engineering and manufacturing company that specializes in the development and production of propulsion systems for defense and space applications , armament systems for precision tactical systems and munitions , and is considered a domestic market leader in launch propulsion , in-space propulsion , missile defense propulsion , tactical missile propulsion and hypersonic propulsion systems . real estate — includes the activities of our wholly-owned subsidiary easton related to the re-zoning , entitlement , sale , and leasing of our excess real estate assets . we own approximately 11,500 acres of land adjacent to u.s. highway 50 between rancho cordova and folsom , california east of sacramento . we are currently in the process of seeking zoning changes and other governmental approvals on a portion of the sacramento land to optimize its value . in addition , we are currently in the process of completing certain infrastructure improvements to the sacramento land to enhance its value . a summary of the significant financial highlights for fiscal 2015 which management uses to evaluate our operating performance and financial condition is presented below . net sales for fiscal 2015 totaled $ 1,708.3 million compared to $ 1,602.2 million for fiscal 2014 . net loss for fiscal 2015 was $ ( 16.2 ) million , or $ ( 0.27 ) loss per share , compared to net loss of $ ( 50.0 ) million , or $ ( 0.86 ) loss per share , for fiscal 2014 . adjusted ebitdap ( non-gaap measure * ) for fiscal 2015 was $ 217.9 million , or 12.8 % of net sales , compared to $ 181.5 million , or 11.3 % of net sales , for fiscal 2014 . segment performance ( non-gaap measure * ) before environmental remediation provision adjustments , retirement benefit expense , and unusual items was $ 200.1 million for fiscal 2015 , compared to $ 152.8 million for fiscal 2014 . cash provided by operating activities in fiscal 2015 totaled $ 65.1 million , compared to $ 150.6 million in fiscal 2014 . story_separator_special_tag sales to the u.s. government and its agencies , including sales to our significant customers discussed above , were as follows ( dollars in millions ) : replace_table_token_15_th the standard missile program , which is comprised of several contracts and is included in u.s. government sales , represented 14 % , 12 % , and 22 % of net sales for fiscal 2015 , 2014 , and 2013 , respectively . in addition , the thaad program , which is comprised of several contracts and is included in u.s. government sales , represented 13 % , 12 % , and 3 % of net sales for fiscal 2015 , 2014 , and 2013 , respectively . industry update our primary aerospace and defense customers include the dod and its agencies , nasa , and the prime contractors that supply products to these customers . we are seeing more opportunities for commercial launch and in-space business . in addition , sales to our aerospace and defense customers that provide products to international customers continue to grow . however , we continue to rely on particular levels of u.s. government spending on propulsion systems for defense , space and armament systems , precision tactical weapon systems and munitions applications , and our backlog depends , in large part , on continued funding by the u.s. government for the programs in which we are involved . these funding levels are not generally correlated with any specific economic cycle , but rather follow the cycle of general public policy and political support for this type of funding . moreover , although our contracts often contemplate that our services will be performed over a period of several years , the u.s. congress must appropriate funds for a given program and the u.s. president must sign government budget legislation each gfy and may significantly increase , decrease or eliminate , funding for a program . a decrease in dod and or nasa expenditures , the elimination or curtailment of a material program in which we are or hope to be involved , or changes in payment patterns of our customers as a result of changes in u.s. government outlays , could have a material adverse effect on our operating results , financial condition , and or cash flows . the budget control act of 2011 established statutory limits on u.s. government discretionary spending , or budgets caps , for both defense and non-defense over the next 10 years . the bipartisan budget act of 2013 provided temporary relief to the budget control act of 2011 cap levels in gfy 2014 and 2015 and eased sequestration spending cuts to the dod and other federal agencies ( e.g. , nasa ) for gfy 2014 and 2015 , paving the way for eventual agreements on gfy 2014 and 2015 appropriations for all federal agencies . similarly , in november 2015 , the u.s. president signed into law the bipartisan budget act of 2015 , providing another two years of relief to the budget control act cap numbers . the bipartisan budget act of 2015 covers both gfy 2016 and 2017 and allows for increased spending levels for dod and other u.s. government agencies including nasa . this paved the way for the u.s. congress to pass and the u.s. president to sign into law a $ 1.1 trillion “ omnibus ” appropriations bill for gfy 2016 , funding all government agencies . the defense portion of the bill provides $ 514.1 35 billion in base defense funding and $ 58.6 billion in overseas contingency operations . the base funding level is $ 12.8 billion below the gfy 2016 budget request while the overseas contingency operations portion is $ 7.7 billion above the gfy 2016 budget request . the nasa portion contains a top line of $ 19.3 billion , a $ 1.3 billion increase over gfy 2015 level . despite overall u.s. government budget pressures , we believe we are well-positioned to benefit from funding in dod and nasa priority areas . this view reflects the dod 's strategic guidance report released in january 2012 , and the 2014 qdr which affirms support for many of our core programs and explicitly states missile defense , space , nuclear deterrence , and precision strike as key capabilities for the dod to preserve . the nasa authorization act has again identified the sls program as one of its top priorities in the nasa gfy 2016 budget . the sls program also has enjoyed wide , bipartisan support in both chambers of congress . we maintain a strong relationship with nasa and our propulsion systems have been powering nasa launch vehicles and spacecraft since the inception of the u.s. space program . our booster , upper stage and orion vehicle propulsion systems are currently baselined on the new sls vehicle and both upper stage and booster engines are in development for future sls variants . due to the retirement of the space shuttle fleet , u.s. astronauts are now dependent on russian soyuz flights for access to and from the iss for the better part of this decade . nasa has been working to re-establish u.s. manned space capability as soon as possible through development of a new “ space taxi ” to ferry astronauts and cargo to the iss . in 2014 , boeing 's cst-100 starliner capsule , powered by aerojet rocketdyne propulsion , was selected by nasa to transport astronauts to and from the iss . as boeing 's teammate , aerojet rocketdyne will be providing the propulsion system for this new vehicle , thereby supplementing its work for nasa on the sls designed for manned deep space exploration . in both instances , we have significant propulsion content and we look forward to supporting these generational programs for nasa . the competitive dynamics of our multi-faceted marketplace vary by product sector and customer as we experience many of the same influences felt by the broader aerospace and defense industry .
| results of operations replace_table_token_18_th net sales : replace_table_token_19_th * primary reason for change . the increase in net sales was primarily due to the following : ( i ) an increase of $ 84.3 million in space advanced programs primarily driven by the rs-25 program which is currently engaged in a significant development and integration effort in support of the sls development program and increased development work on the orion program partially offset by the successful completion of current j-2x program ; ( ii ) an increase of $ 80.3 million in missile defense and strategic systems programs primarily driven by the increased deliveries on the thaad and standard missile programs ; and ( iii ) sale of approximately 550 acres of our sacramento land for $ 42.0 million . the increase in net sales was partially offset by a decrease of $ 109.7 million in space launch programs primarily associated with the rl10 and rs-68 programs as a result of the timing of deliveries and costs incurred on these multi-year contracts and lower sales related to the antares aj-26 program close-out ( see discussion below ) . * * primary reason for change . the increase in net sales was primarily due to the net sales from the acquired rocketdyne business . the rocketdyne business generated sales of $ 681.9 million in fiscal 2014 compared to $ 311.8 million in fiscal 2013. fiscal 2014 and 2013 results include 12 months and 5 1 / 2 months , respectively , of the acquired rocketdyne business . the increase in net sales also included increased deliveries on the aj60 , thaad , and orion programs totaling $ 71.9 million .
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see “ note 8—derivative instruments ” for additional information related to the derivative story_separator_special_tag this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 , including statements that involve expectations , plans or intentions ( such as those relating to future business , future results of operations or financial condition , new or planned features or services , or management strategies ) . you can identify these forward-looking statements by words such as “ may , ” “ will , ” “ would , ” “ should , ” “ could , ” “ expect , ” “ anticipate , ” “ believe , ” “ estimate , ” “ intend , ” “ plan ” and other similar expressions . these forward-looking statements involve risks and uncertainties that could cause our actual results and financial condition to differ materially from those expressed or implied in our forward-looking statements . such risks and uncertainties include , among others , those discussed in “ item 1a . risk factors ” of this annual report on form 10-k , as well as in our consolidated financial statements , related notes , and the other information appearing elsewhere in this report and our other filings with the sec . we do not intend , and undertake no obligation , to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances . given these risks and uncertainties , readers are cautioned not to place undue reliance on such forward-looking statements . you should read the following “ management 's discussion and analysis of financial condition and results of operations ” in conjunction with the audited consolidated financial statements and the related notes that appear elsewhere in this report . separation from ebay inc. on september 30 , 2014 , ebay inc. ( “ ebay ” ) announced its intent to separate its payments business into an independent , publicly traded company . to accomplish this separation , in january 2015 , ebay incorporated paypal holdings , inc. ( “ paypal holdings ” ) which is now the parent of paypal , inc. and holds directly or indirectly all of the assets and liabilities associated with paypal , inc. in june 2015 , the board of directors of ebay approved the separation ( the “ separation ” ) of ebay 's payments business through the distribution ( the “ distribution ” ) of 100 % of the outstanding common stock of paypal holdings to ebay 's stockholders . paypal holdings ' registration statement on form 10 , as amended , was declared effective by the u.s. securities and exchange commission on june 29 , 2015. on july 17 , 2015 ( the “ distribution date ” ) , paypal holdings became an independent publicly traded company through the pro rata distribution by ebay of 100 % of the outstanding common stock of paypal holdings to ebay stockholders . each ebay stockholder of record as of the close of business on july 8 , 2015 received one share of paypal holdings common stock for every share of ebay common stock held on the record date . approximately 1.2 billion shares of paypal holdings common stock were distributed on july 17 , 2015 to ebay stockholders . paypal holdings ' common stock began “ regular way ” trading under the ticker symbol “ pypl ” on the nasdaq stock market on july 20 , 2015. prior to the separation , ebay transferred substantially all of the assets and liabilities and operations of ebay 's payments business to paypal holdings , which was completed in june 2015 ( the “ capitalization ” ) . the consolidated financial statements prior to the capitalization were prepared on a stand-alone basis and were derived from ebay 's consolidated financial statements and accounting records . the consolidated financial statements reflect our financial position , results of operations , comprehensive income and cash flows as our business was operated as part of ebay prior to the capitalization . following the capitalization , our consolidated financial statements include the accounts of paypal holdings and its wholly-owned subsidiaries . the consolidated financial position , results of operations and cash flows as of dates and for periods prior to the separation may not be indicative of what our financial position , results of operations and cash flows would have been as a separate stand-alone entity during the periods presented , nor are they indicative of what our financial position , results of operations and cash flows may be in the future . for additional information , see “ note 1—overview and summary of significant accounting policies ” to our consolidated financial statements included elsewhere in this annual report on form 10-k. unless otherwise expressly stated or the context otherwise requires , references to “ we , ” “ our , ” “ us , ” “ the company ” and “ paypal ” refer to paypal holdings and its consolidated subsidiaries or , in the case of information as of dates or for periods prior to the separation , the consolidated entities of the payments business of ebay , including paypal , inc. and certain other assets and liabilities that had been historically held at the ebay corporate level but were specifically identifiable and attributable to the payments business . business environment we are a leading technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants worldwide . our vision is to democratize financial services , as we believe that managing and moving money is a right for all people , not just the affluent . our goal is to increase our relevance for consumers and merchants to manage and move their money anywhere in the world , anytime , on any platform and using any device . story_separator_special_tag payment transactions are the total number of payments , net of payment reversals , successfully completed through our payments platform , excluding transactions processed through our gateway and paydiant products . we earn additional fees on transactions settled in foreign currencies when we enable cross-border transactions ( i.e. , transactions where the merchant or consumer were in different countries ) . other value added services : net revenues derived principally from interest and fees earned on our paypal credit loans receivable portfolio , subscription fees , gateway fees , gain on sale of participation interests in certain consumer loans 40 receivable , revenue share we earn through partnerships , interest earned on certain paypal customer account balances , fees earned through our paydiant products and other services that we provide to consumers and merchants . our revenues can be significantly impacted by the following : the mix of merchants , products and services ; the mix between domestic and cross-border transactions ; geographic region or country in which a transaction occurs ; and the amount of paypal credit loans receivable outstanding with consumers and merchants . net revenues analysis the components of our net revenue for the years ended december 31 , 2016 , 2015 and 2014 were as follows : replace_table_token_8_th transaction revenues transaction revenues increased by $ 1.4 billion , or 17 % , in 2016 compared to 2015 , and by $ 1.0 billion , or 14 % , in 2015 compared to 2014 . xoom transaction revenues contributed two percentage points to the 2016 growth rate and had no impact to the 2015 growth rate . the increase in transaction revenues in 2016 and 2015 was due primarily to the growth in tpv and in the number of payment transactions , both of which were due primarily to increased engagement from our customers ( measured by payment transactions per active account ) and the increase in our active customer accounts . net gains from our foreign currency exchange contracts recognized as a component of transaction revenues in 2016 were $ 119 million , compared to $ 182 million in 2015. refer to “ note 8—derivative instruments ” to our consolidated financial statements included elsewhere in this annual report on form 10-k for additional information on our foreign currency exposure management program . the following table provides a summary of our active customer accounts , number of payment transactions , tpv and related metrics : replace_table_token_9_th all amounts in tables are rounded to the nearest millions , except as otherwise noted . as a result , certain amounts may not recalculate using the rounded amounts provided . 1 an active customer account is a registered account that successfully sent or received at least one payment or payment reversal through our payments platform , excluding transactions processed through our gateway and paydiant products , in the past 12 months . 2 payment transactions are the total number of payments , net of payment reversals , successfully completed through our payments platform , excluding transactions processed through our gateway and paydiant products . 3 number of payment transactions per active customer account reflects the total number of payment transactions within the previous 12 month period , divided by active customer accounts at the end of the period 4 total payment volume or “ tpv ” is the value of payments , net of payment reversals , successfully completed through our payments platform , excluding transactions processed through our gateway and paydiant products . * * not meaningful the percentage growth in transaction revenues was lower than the percentage growth in tpv and payment transactions in 2016 due primarily to a higher portion of person-to-person ( “ p2p ” ) transactions ( including our venmo products ) for which we earn 41 lower rates , and a higher portion of tpv generated by large merchants who generally pay lower rates with higher transaction volume . the percentage growth in transaction revenues was lower than the percentage growth in tpv and payment transactions in 2015 due to a higher portion of tpv generated by large merchants who generally pay lower rates on higher transaction volume and a lower mix of cross-border transactions . cross-border transactions generally provide higher revenues than similar transactions that take place within a single country or market . the percent of tpv generated by large merchants increased in 2016 and 2015 . the impact of increases or decreases in prices charged to our customers did not significantly impact revenue growth in 2016 or 2015 . other value added services net revenues from other value added services increased by $ 232 million , or 21 % , in 2016 compared to 2015 , and by $ 202 million , or 22 % , in 2015 compared to 2014 . growth in net revenues from other value-added services in 2016 was due primarily to interest and fee income earned on our paypal credit loans receivable portfolio . the total consumer and merchant loans receivable balance as of december 31 , 2016 and december 31 , 2015 was $ 5.7 billion and $ 4.4 billion , respectively , reflecting a year over year increase of 29 % . the increase in net revenues from other value added services in 2015 was due primarily to interest and fee income earned on loans receivable outstanding from consumers and merchants that used our paypal credit products , revenue share earned under our credit program agreement with synchrony financial , and the gain on sale of a participation interest in certain consumer loans receivable that we purchased , as described further below . in the third quarter of 2015 , we amended the terms of our credit program agreement with synchrony financial . as a result of the amendment , we recognized $ 78 million of additional revenue under the agreement during 2015. in addition , as part of the amended agreement , our obligation to purchase the portfolio of consumer loan receivables relating to the customer accounts arising out of the credit program agreement with synchrony financial was terminated .
| overview of results of operations the following table provides a summary of our consolidated operating results for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_5_th all amounts in tables are rounded to the nearest millions , except as otherwise noted . as a result , certain amounts may not recalculate using the rounded amounts provided . ( 1 ) on july 17 , 2015 , the distribution date , ebay stockholders of record as of the close of business on july 8 , 2015 received one share of paypal common stock for every share of ebay common stock held as of the record date . basic and diluted net income per share for the year ended december 31 , 2014 was calculated using the number of common shares distributed on july 17 , 2015 . ( 2 ) the weighted average number of common shares outstanding for diluted earnings per share for the year ended december 31 , 2015 was based on the number of common shares distributed on july 17 , 2015 for the period prior to distribution and the weighted average number of common shares outstanding for the period beginning after the distribution date . * * not meaningful net revenues increased $ 1.6 billion , or 17 % , in 2016 and $ 1.2 billion , or 15 % , in 2015 . the increase was primarily driven by growth in tpv ( as defined below under “ net revenues ” ) of 26 % in 2016 and 20 % in 2015 . net revenues from xoom ( acquired in november 2015 ) contributed two percentage points to the 2016 growth rate and had no impact to the 2015 growth rate . total operating expenses increased $ 1.5 billion , or 19 % , in 2016 and $ 1 billion or 15 % in 2015 .
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an audit includes examining , on a test basis , evidence supporting the amounts and disclosures story_separator_special_tag the following discussion should be read in conjunction with the consolidated and combined financial statements and notes thereto that are included in this annual report on form 10-k. overview—basis of presentation wpg inc. is an indiana corporation that was created to hold the community center business and smaller enclosed malls of spg and its subsidiaries . on may 28 , 2014 , wpg separated from spg through the distribution of 100 % of the outstanding units of wpg l.p. to the owners of spg l.p. and 100 % of the outstanding shares of wpg to the spg shareholders in a tax-free distribution . prior to the separation , wpg inc. and wpg l.p. were wholly owned subsidiaries of spg and its subsidiaries . prior to or concurrent with the separation , spg engaged in certain formation transactions that were designed to consolidate the ownership of its interests in the spg businesses and distribute such interests to us . pursuant to the separation agreement , spg distributed 100 % of the common shares of wpg on a pro rata basis to spg 's shareholders as of the may 16 , 2014 record date . the consolidated and combined financial statements are prepared in accordance with gaap . the consolidated balance sheet as of december 31 , 2015 includes the accounts of wpg inc. and wpg l.p. , as well as their wholly-owned subsidiaries . the consolidated and combined statements of operations include the consolidated accounts of the company and the combined accounts of the spg businesses . accordingly , the results presented for the year ended december 31 , 2014 reflect the aggregate operations and changes in cash flows and equity on a carve-out basis of the spg businesses for the period from january 1 , 2014 through may 27 , 2014 and on a consolidated basis of the company subsequent to may 27 , 2014. the financial statements for the periods prior to the separation are prepared on a carve-out basis from the consolidated financial statements of spg using the historical results of operations and bases of the assets and liabilities of the transferred businesses and including allocations from spg . all intercompany transactions have been eliminated in consolidation and combination . the combined financial statements prior to the separation include the allocation of certain assets and liabilities that have historically been held at the spg corporate level but which are specifically identifiable or allocable to the spg businesses . cash and cash equivalents , short-term investments and restricted funds held by spg were not allocated to the spg businesses unless the cash or investments were held by an entity that was transferred to wpg . long-term unsecured debt and short-term borrowings were not allocated to the spg businesses as none of the debt recorded by spg is directly attributable to or guaranteed by the spg businesses . all intercompany transactions and accounts have been eliminated . the total net effect of the settlement of these intercompany transactions is reflected in the consolidated and combined statements of cash flow as a financing activity and in the consolidated and combined balance sheets as spg equity in the spg businesses for periods prior to the separation . 44 the combined historical financial statements prior to the separation do not necessarily include all of the expenses that would have been incurred had we been operating as a separate , stand-alone entity and may not necessarily reflect our results of operations , financial position and cash flows had we been a stand-alone company during the periods presented prior to the separation . our combined historical financial statements include charges related to certain spg corporate functions , including senior management , property management , legal , leasing , development , marketing , human resources , finance , public reporting , tax and information technology . these expenses have been charged based on direct usage or benefit where identifiable , with the remainder charged on a pro rata basis of revenues , headcount , square footage , number of transactions or other measures . we consider the expense allocation methodology and results to be reasonable for all periods presented . however , the charges may not be indicative of the actual expenses that would have been incurred had wpg operated as an independent , publicly traded company for the periods presented prior to the separation . wpg now incurs additional costs associated with being an independent , publicly traded company , primarily from newly established or expanded corporate functions . we believe that cash flow from operations will be sufficient to fund these additional corporate expenses . prior to the separation , wpg entered into agreements with spg under which spg provides various services to us relating primarily to the legacy spg businesses , including accounting , asset management , development , human resources , information technology , leasing , legal , marketing , public reporting and tax . the charges for the services are based on an hourly or per transaction fee arrangement and pass-through of out-of-pocket costs . in connection with the separation , we incurred $ 38.9 million of expenses , including investment banking , legal , accounting , tax and other professional fees , which are included in spin-off costs for the year ended december 31 , 2014 in the consolidated and combined statements of operations and comprehensive ( loss ) income . at the time of the separation , our assets consisted of interests in 98 shopping centers . in addition to these properties , the combined historical financial statements include interests in three shopping centers held within a joint venture portfolio of properties which were sold during the first quarter of 2013 as well as one additional shopping center which was sold by that same joint venture on february 28 , 2014. as of december 31 , 2015 , our assets consisted of material interests in 121 shopping centers . story_separator_special_tag , arizona and town center plaza ( which consists of town center plaza and the adjacent town center crossing ) located in leawood , kansas ( collectively the `` o'connor properties '' ) . under the terms of the joint venture agreement , we retained a 51 % interest in the o'connor joint venture and sold the remaining 49 % interest to o'connor . in addition , the company received reimbursement for 49 % of costs incurred as of june 1 , 2015 related to development activity at scottsdale quarter . the transaction generated net proceeds , after taking into consideration the assumption of debt ( including the new loans on pearlridge center and scottsdale quarter - see `` financing and debt '' below ) and costs associated with the transaction , of approximately $ 432 million ( including $ 28.7 million for the partial reimbursement of the scottsdale quarter development costs ) , which was used to repay a portion of the bridge loan ( defined below ) . since we no longer control the operations of the o'connor properties , we deconsolidated the properties and recorded a gain related to this sale of $ 4.8 million , which is included in gain upon acquisition of controlling interests and on sale of interests in properties for the year ended december 31 , 2015 within the consolidated and combined statements of operations and comprehensive ( loss ) income . we retained management and leasing responsibilities for the o'connor properties . the purchase and sale agreement related to the o'connor joint venture contains certain lease-up provisions , the majority of which are complete . the company believes that the small number of leases yet to be completed will be executed in 2016. o'connor could seek an adjustment payment if the leases are not completed timely , which would effectively reduce the amount paid for their acquisition of joint venture interest . 46 impairment during the fourth quarter of 2015 , we concluded that it was unlikely that we would continue to hold our non-core malls for more than the period necessary to negotiate or arrange for the disposal of these properties , which may occur at any time within the next two years . we sold two of these centers , forest mall and northlake mall , on january 29 , 2016 and have classified those malls as held-for-sale as of december 31 , 2015. nevertheless , given uncertainties over the likelihood of finding suitable buyers for the remaining non-core assets , we can not conclude that disposal is probable within one year and therefore these properties remain classified as held for use as of december 31 , 2015. accordingly , we shortened the hold period in our quarterly impairment testing for these assets , which resulted in an inability to recover the net book value of these assets over the estimated hold period and thus required that we measure these assets at fair value to determine whether any impairment exists . these non-core assets were valued appropriately at the time of the spin . the impairment charge was due to the change in facts and circumstances when we decided to hold the assets for a shorter period . the company used level 3 inputs within the fair value hierarchy to determine the estimated fair value of these properties . in using these inputs , we applied the market capitalization rates that we believe a market participant would use when valuing these properties , multiplied by our estimate of stabilized net operating income for each property . we then compared these fair value measurements to the related carrying values , which has resulted in the recording of an impairment charge of approximately $ 138 million in the consolidated statements of operations and comprehensive ( loss ) income for the year ended december 31 , 2015. the charge primarily relates to the following non-core assets : ( 1 ) forest mall , a shopping center located in fond du lac , wisconsin ( subsequently sold on january 29 , 2016 ) ; ( 2 ) gulf view square mall , a shopping center located in port richey , florida ; ( 3 ) knoxville center , a shopping center located in knoxville , tennessee ; ( 4 ) northlake mall , a shopping center located in atlanta , georgia ( subsequently sold on january 29 , 2016 ) ; ( 5 ) river oaks center , a shopping center located in calumet city , illinois ; and ( 6 ) virginia center commons , a shopping center located in glen allen , virginia . during the third quarter of 2015 , we were informed that a major anchor tenant of chesapeake square , located in chesapeake , virginia , intends to close their store at the property during the first half of 2016. this impending closure was deemed a triggering event and , therefore , we evaluated this property in conjunction with our quarterly impairment review and preparation of our financial statements for the quarter ended september 30 , 2015. the company used level 3 inputs within the fair value hierarchy to determine the estimated fair value of this property . in using these inputs , we applied the market capitalization rates for similar properties to our estimated future cash flows of the property , taking into consideration the above mentioned impending closure . this analysis yielded a shortfall in estimated undiscounted future cash flows against net book value . accordingly , we wrote the value of the investment in real estate down to its estimated fair value of $ 25.4 million by recording an impairment loss of $ 9.9 million in the consolidated statements of operations and comprehensive ( loss ) income for the year ended december 31 , 2015. furthermore , on october 30 , 2015 , we received a notice of default letter from the lender and have commenced discussion with the special servicer regarding the $ 62.6 million non-recourse mortgage encumbering this property ( see `` financing and debt - covenants '' below ) .
| results of operations the following acquisitions , dispositions and developments affected our results in the comparative periods : on june 1 , 2015 , we completed the transaction forming the o'connor joint venture with regard to the ownership and operation of the o'connor properties , consisting of five of our malls and certain related out-parcels acquired in the merger . under the terms of the joint venture agreement , we retained a 51 % interest and sold a 49 % interest to o'connor , the third-party partner . 54 on january 15 , 2015 , we acquired 23 properties in the merger ( the `` merger properties '' ) . total revenues and net loss ( excluding transaction costs and costs of corporate borrowing ) from these properties ( including the amounts from the o'connor properties for periods prior to the date of the o'connor joint venture transaction ) from the date of the merger of $ 243.2 million and $ 36.6 million , respectively , for the year ended december 31 , 2015 are included in the consolidated and combined statements of operations and comprehensive ( loss ) income . the primary driver of the net loss is depreciation and amortization on the newly acquired assets recorded at fair value . thus , the operating results of the properties are contributing positive ffo for the company . on january 13 , 2015 , we acquired canyon view marketplace , a 43,000 square foot shopping center located in grand junction , colorado . on december 31 , 2014 , fairfield town center , a development property located in houston , texas , was partially put into service . on december 1 , 2014 , we acquired our partner 's 50 percent interest in whitehall mall , a 613,000 square foot shopping center located in whitehall , pennsylvania . the property was previously accounted for under the equity method , but is now consolidated as it is wholly owned post-acquisition .
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forward looking statements we are including the following cautionary statement in this annual report on form 10-k to make applicable and take advantage of the safe harbor provisions of the private securities litigation reform act of 1995 for any forward-looking statements made by or on our behalf . forward looking statements include statements concerning plans , objectives , goals , strategies , future events or performance and underlying assumptions and other statements which are other than statements of historical facts . certain statements contained herein are forward-looking statements and accordingly involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in good faith forward-looking statements . our expectations , beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis , including without limitation , management 's examination of historical operating trends , data contained in our records and other data available from third parties , but there can be no assurance that management 's expectations , beliefs or projections will result or be achieved or accomplished . any forward-looking statement contained in this document speaks only as of the date on which the statement is made . we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events . in addition to other factors and matters discussed elsewhere herein , the following are important factors that in our view , could cause actual results to differ materially from those discussed in the forward-looking statements : the carrying-out of our research and development program for our product candidates , including demonstrating their safety and efficacy at each stage of testing ; the timely obtaining of regulatory approvals and patents ; the commercialization of our product candidates , at reasonable costs ; the ability of our suppliers to continue to provide sufficient supply of products ; the ability to compete against products intended for similar use by recognized and well capitalized pharmaceutical companies ; our ability to raise capital when needed , and without adverse and highly dilutive consequences to stockholders ; and our ability to retain management and obtain additional employees as required . we are also subject to numerous risks relating to our product candidates , manufacturing , regulatory , financial resources , competition and personnel as set forth in the section “ risk factors ” in this report . except to the extent required by applicable laws or rules , we disclaim any obligations to update any forward looking statements to reflect events or circumstances after the date hereof . overview we are a development stage biopharmaceutical company that was formed in july 2003 to focus on developing and commercializing therapeutic products for the treatment of inflammatory diseases . our product candidates are based on c1-inh , a human plasma protein that mediates inflammation and is potentially applicable as a treatment for a range of medical indications . we initiated a phase iii clinical trial of our lead product candidate , c1-inh for the acute treatment of hae , in march 2005. in november 2005 , we initiated a phase iii clinical trial of c1-inh for the prophylactic treatment of hae . in october 2005 , we received fast track designation status by the fda for the treatment of hae . we are also developing c1-inh for the treatment of selective other diseases and disorders in which inflammation is known or believed to play an underlying role . we have certain rights to c1-inh technology through agreements with sanquin , an amsterdam-based not-for-profit organization that provides blood and plasma products and related services , carries out research and provides education , primarily in the netherlands . from july 21 , 2003 ( inception ) through december 31 , 2007 , we have not generated any revenue from operations . we expect to incur additional losses to perform further research and development activities . we do not currently have any commercial biopharmaceutical products , and do not expect to have a product until mid-2008 at the earliest , subject to fda approval . as a company that may have limited product revenues , subject to fda approval , and no profit over the next year , management of cash flow is extremely important . the most significant use of our cash is for research and development activities , which include clinical trials and regulatory clearance . during 2007 , our research and development expenses were $ 15,379,305 . 41 research/product programs hereditary angioedema in january 2004 , we entered into a distribution and manufacturing services agreement with sanquin relating to the treatment of hae . sanquin currently manufactures and markets a highly purified preparation of c1-inh in europe and pursuant to the agreement , sanquin agreed to provide us with c1-inh for use in our clinical trials and for commercial distribution upon regulatory licensure . pursuant to the agreement , we have distribution rights in israel and all countries in north , central and south america , with the exception of the dutch overseas territories , argentina and brazil . under the distribution agreement , it is our responsibility to conduct the phase iii clinical trials of c1-inh for the treatment of hae and to prepare and file all regulatory applications necessary to register the product candidate . sanquin agreed to provide us with the technical data and support necessary to assist us in preparing and filing all such regulatory applications . furthermore , sanquin agreed to supply c1-inh for our phase iii clinical trials . upon receipt of fda approval for our product candidate for the treatment of hae , upon commercial launch of this product and thereafter during the term of the agreement , sanquin will supply us with our commercial requirements for c1-inh for the treatment of hae in each country where we have received regulatory approval . our purchase of c1-inh from sanquin is subject to minimum annual purchase requirements upon receipt of fda approval . story_separator_special_tag this merger was undertaken to increase the authorized number of shares of common stock to permit the conversion of the series a preferred stock , to reincorporate fcp in the state of delaware and to change the name of the company . on february 17 , 2005 , the recapitalization merger closed and the issued and outstanding series a preferred stock of fcp was automatically converted into an aggregate of 66,767,994 shares of common stock which , along with the 4,505,530 shares of fcp common stock outstanding prior to the public company merger and the 5,029,795 shares of common stock issued to the old lev stockholders in the public company merger , resulted in a total of 76,303,319 shares of common stock outstanding as of february 17 , 2005. as part of the recapitalization merger , old lev changed its name to lev development corp. and fcp changed its name to lev pharmaceuticals , inc. as a result of these mergers , the stockholders of old lev acquired approximately 94 % of our outstanding common stock . the public company merger , which resulted in the stockholders of old lev obtaining control of fcp , represents a recapitalization of fcp , or a “ reverse merger ” , rather than a business combination . in connection therewith , old lev 's historical capital accounts were retroactively adjusted to reflect the equivalent number of shares issued by fcp while old lev 's historical accumulated deficit was carried forward . employment agreements new amended and restated executive employment agreements on december 20 , 2007 , we entered into second amended and restated employment agreements with each of its chief executive officer , mr. joshua d. schein , and its executive vice president and chairman , mr. judson cooper . as used in the following summary , the term “ executive ( s ) ” shall refer to messrs. schein and cooper . in addition to the execution of the amended and restated employment agreements , on december 20 , 2007 , we also awarded each of the executives a cash bonus for the 2007 fiscal year of $ 425,000 , which was approved by our compensation committee . the amended and restated employment agreements are for an initial term expiring december 31 , 2012 and at the end of the initial term renew automatically for additional one year terms unless sooner terminated or not renewed . under the employment agreements , the executives will continue to receive a base salary of $ 425,000 ; provided , however , that the base salary shall increase to $ 500,000 effective upon the date on which the u.s. food and drug administration approves our biologics license application for its lead product candidate ( the “ approval date ” ) . in addition , the base salary shall increase at the end of each year of service ( commencing at the end of 2007 ) by the greater of ( i ) 4 % or ( ii ) a percentage equal to the increase , if any , in the united states department of labor consumer price index ( or comparable index , if available ) for the new york metropolitan area over the previous 12 months . commencing in the year in which the approval date occurs , the executives will be entitled to a bonus opportunity within the target range of 75 % to 200 % of base salary , based on satisfaction of performance targets to be determined by the compensation committee . in addition , we granted 2,000,000 shares of restricted common stock to each of the executives with the following vesting schedule : 50 % of the restricted stock shall vest and the restrictions thereon shall lapse on the approval date and thereafter 25 % of the restricted stock shall vest and the restrictions thereon shall lapse on each of the first and second anniversaries of the approval date 43 satisfaction of cash resources to date , we have relied solely upon selling equity securities in private placements to generate cash to implement our plan of operations . based on our current levels of research and development and our business plan , we believe that our existing cash and cash equivalents of $ 21,910,084 as of december 31 , 2007 and borrowings from the term loan will be sufficient to meet our cash requirements for the next six months . this raises substantial doubt about the ability for us to continue as a going concern . we do not have any commercial products available for sale and have not generated significant revenues and there is no assurance that if approval of their products is received that we will be able to generate cash flow to fund operations . as we expect that our cash used in operations will increase significantly over the next several years , we may be required to raise additional capital to complete the development and commercialization of our current product candidates . we will pursue equity and or debt financing alternatives or other financing in order to raise needed funds . if we are unsuccessful in raising additional capital we will need to reduce costs and operations substantially . in addition , we intend to continue to seek purchasers of the residual plasma derived from our manufacturing process to generate additional cash resources for us . however , we currently do not have any definitive agreements with any third-parties for any such arrangements and no assurances can be given that we will be successful in selling any given quantity of residual plasma on acceptable terms , if at all . as described elsewhere herein , on november 2 , 2007 , we entered into a term loan agreement and a pledge and security agreement with the lender executing the loan agreement and mast capital management , llc , as agent for the lender .
| results of operations year ended december 31 , 2007 as compared to year ended december 31 , 2006 we had no revenues during the year ended december 31 , 2007 because we do not have any commercial biopharmaceutical products . research and development expenses for the years ended december 31 , 2007 and december 31 , 2006 were $ 15,379,305 and $ 7,167,459 , respectively . the increase of $ 8,211,846 is primarily due to the purchase of plasma and the manufacture of c1-inh , our lead product candidate , to support our phase iii clinical trials for the acute and prophylactic treatment of hae , offset by $ 1,054,084 of sales of residual plasma resulting from our manufacturing process and treated as a cost-recovery . included in research and development expense for the year ended december 31 , 2007 is employee stock option expense of $ 173,227. for the year ended december 31 , 2006 , the company entered an employment contract with its vice president of regulatory affairs and product development for $ 200,000 plus bonus and options to purchase 500,000 shares of our common stock , see note j [ 5 ] to our consolidated financial statements . general and administrative expenses were $ 13,110,974 and $ 4,835,444 for the years ended december 31 , 2007 and december 31 , 2006 , respectively . the increase of $ 8,275,530 was due to increased salaries and benefits , marketing , professional fees , travel and stock option expense .
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the following table sets forth , for the period indicated , certain financial data expressed for the three years ended december 31 , 2016 : ( dollars in millions ) replace_table_token_5_th revenues in our dds segment , we recognize revenues based on the quantity delivered or resources utilized and in the period in which the services are performed and delivery has occurred . revenues for contracts billed on a time-and-materials basis are recognized as services are performed . revenues under fixed-fee contracts , which are not significant to the overall revenues , are recognized on the percentage of completion method of accounting , as services are performed or milestones are achieved . in our iads segment we recognize revenues primarily based on the quantity delivered , and the period in which services are performed and deliverables are made as per contracts . a portion of our iads segment revenue is derived from licensing our software and providing access to our hosted software platform . revenue from such services are recognized monthly when access to the service is provided to the end user and there are no significant remaining obligations , persuasive evidence of an arrangement exists , the fees are fixed or determinable and collection is reasonably assured . our mis segment derives its revenues primarily from subscription arrangements and provision of enriched media analysis services . revenue from subscriptions are recognized monthly when access to the service is provided to the end user and there are no significant remaining obligations , persuasive evidence of an arrangement exists , the fees are fixed or determinable , and collection is reasonably assured . revenues from enriched media analysis services are recognized when the services are performed and delivered to the client . 27 we consider us gaap standard accounting criteria for determining whether to report revenue gross as a principal versus net as an agent . factors considered include whether we are the primary obligor , have risks and rewards of ownership , and bear the risk that a client may not pay for the services performed . if there are circumstances where the above criteria are not met and therefore we are not the principal in providing services , amounts received from clients are presented net of payments in the consolidated statements of operations and comprehensive loss . revenues include reimbursement of out-of-pocket expenses , with the corresponding out-of-pocket expenses included in direct operating costs . direct operating costs direct operating costs consist of direct payroll , occupancy costs , data center hosting fees , content acquisition costs , depreciation and amortization , travel , telecommunications , computer services and supplies , realized gain ( loss ) on forward contracts , foreign currency revaluation gain ( loss ) , and other direct expenses that are incurred in providing services to our clients . selling and administrative expenses selling and administrative expenses consist of management and administrative salaries , sales and marketing costs including commissions , new services research and related software development , third-party software , advertising and trade conferences , professional fees and consultant costs , and other administrative overhead costs . adjusted ebitda performance metric in addition to measures of financial performance presented in our consolidated financial statements , we monitor “ adjusted ebitda ” to help us evaluate our ongoing operating performance including our ability to operate the business effectively . we define adjusted ebitda as net income ( loss ) attributable to innodata inc. and subsidiaries in accordance with gaap before income taxes , depreciation , amortization of intangible assets , impairment charges , changes in fair value of contingent consideration , stock-based compensation , loss attributable to non-controlling interests and interest income ( expense ) . we believe adjusted ebitda is useful to our management and investors in evaluating our operating performance and for financial and operational decision-making purposes . in particular , it facilitates comparisons of the core operating performance of our company from period to period on a consistent basis and helps us to identify underlying trends in our business . we believe it provides useful information about our operating results , enhances the overall understanding of our past performance and future prospects and allows for greater transparency with respect to key metrics used by the management in our financial and operational decision-making . we use this measure to establish operational goals for managing our business and evaluating our performance . adjusted ebitda has limitations as an analytical tool and should not be considered in isolation or as a substitute for results reported under gaap . some of these limitations are : · adjusted ebitda does not reflect tax payments , and such payments reflect a reduction in cash available to us ; 28 · adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs and for our cash expenditures or future requirements for capital expenditures or contractual commitments ; · adjusted ebitda excludes the potential dilutive impact of stock-based compensation expense related to our workforce , interest income ( expense ) and net loss attributable to non-controlling interests , and these items may represent a reduction or increase in cash available to us ; · 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 ; and · other companies , including companies in our own industry , may calculate adjusted ebitda differently from our calculation , limiting its usefulness as a comparative measure . adjusted ebitda should be considered as a supplement to , and not as a substitute for or superior to , gaap net income . story_separator_special_tag unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the united states taxes that may be payable on distribution to the united states , because such earnings are not anticipated to be remitted to the united states . undistributed earnings of foreign subsidiaries amount to approximately $ 31.6 million at december 31 , 2016. these earnings are considered to be indefinitely reinvested except for the amount described below and , accordingly , no provision for u.s. federal or state income taxes has been made . when such earnings are repatriated in the future , or are no longer deemed to be indefinitely reinvested , we will accrue the applicable amount of taxes associated with such earnings , net of foreign tax credits . in order to preserve cash in the united states , for the year 2016 the u.s. entity deferred $ 4.2 million in payments due to its asian operating subsidiaries , which resulted in a deemed dividend that is taxable income for u.s. tax purposes under section 956 of the internal revenue code . the taxable income was offset against the net operating loss carryforwards of the u.s. entity . we project that during the period from 2017 through 2018 the u.s. entity may not have sufficient cash to pay in full amounts that will be payable by it to its asian operating subsidiaries and that the cash deficit will amount to approximately $ 7.0 million . the resulting deferral in payments would result in a deemed dividend that would be taxable income to the u.s. entity and would be off set against its net operating loss carryforwards . we adjusted our deferred tax assets and the corresponding valuation allowance as of december 31 , 2016 to reflect the projected deferral in payments . pursuant to an income tax audit by the indian bureau of taxation in 2009 , our indian subsidiary received a tax assessment approximating $ 309,000 including interest , through december 31 , 2016 for the fiscal year ended march 31 , 2006. we disagreed with the basis of these tax assessments , have filed an appeal against the assessments and are contesting them vigorously . in january 2012 , the indian subsidiary received a final tax assessment of approximately $ 1.0 million , including interest , for the fiscal year ended march 31 , 2008 , from the indian bureau of taxation . we disagree with the basis of this tax assessment , and have filed an appeal against it . due to this assessment , we recorded a tax provision amounting to $ 493,000 including interest through december 31 , 2016. in april 2015 , we received a favorable judgment whereby the appeal officer reduced the tax assessment to $ 0.3 million . under the indian income tax act , however , the income tax assessing officer has the right to appeal against the judgment passed by the appeal officer . in the third quarter of 2015 , the income tax assessing officer exercised this right and filed an appeal . based on recent experience , we believe that the tax provision of $ 493,000 including interest is adequate . as we are continually subject to tax audits by the indian bureau of taxation , we continuously assess the likelihood of an unfavorable assessment for all fiscal years for which we have not been audited and , as of december 31 , 2016 , we recorded a tax provision amounting to $ 158,000 including interest , through december 31 , 2016 . 32 in 2015 , our indian subsidiary was subject to an inquiry by the service tax bureau in india regarding the classification of services provided by this subsidiary , asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services ( oid services ) , and not under the category of business support services ( bs services ) that are exempt from service tax as historically indicated in our service tax filings . in the event the service tax bureau is successful in proving that our services fall under the category of oid services , the revenue earned by our indian subsidiary would be subject to a service tax of approximately 14.5 % and this would increase our operating costs . the revenues of our indian subsidiary in 2016 were $ 16.8 million . we disagree with the service tax bureau 's position and contest these assertions vigorously . in 2016 , our indian subsidiary received notices of appeal from the commissioner , service tax , seeking to reverse service tax refunds previously granted to us for certain quarters in 2014 , asserting that the services provided by this subsidiary fall under the category of oid services and not bs services . we disagree with the basis of these appeals and are contesting them vigorously . we expect delays in receiving service tax refunds until the appeals are adjudicated with finality . from time to time we are also subject to various tax proceedings and claims for our philippines subsidiaries . we have recorded a tax provision amounting to $ 224,000 including interest through december 31 , 2016 , for several ongoing tax proceedings in the philippines . although the ultimate outcome can not be determined at this time , we continue to contest these claims vigorously . we have unrecognized tax benefits of $ 1.2 million at both december 31 , 2016 and 2015. the portion of unrecognized tax benefits relating to interest and penalties was $ 0.5 million for both december 31 , 2016 and 2015. the unrecognized tax benefits as of december 31 , 2016 and 2015 , if recognized , would have an impact on our effective tax rate . we are subject to various tax audits and claims which arise in the ordinary course of business . management currently believes that the ultimate outcome of these audits and claims will not have a material adverse effect on our consolidated financial position , results of operations or cash flows .
| results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 revenues total revenues were $ 63.1 million for the year ended december 31 , 2016 , an 8 % increase from $ 58.5 million for the year ended december 31 , 2015 . 29 revenues from the dds segment were $ 50.7 million and $ 51.7 million for the years ended december 31 , 2016 and 2015 , respectively , a decline of $ 1.0 million or approximately 2 % . the decline was on account of reduced volume from a key e-book client and a combination of lower volume and pricing concessions extended to another key client for certain projects . the decline was partially offset by an increase in revenue primarily attributable to a ramp-up on new projects for a european publisher and a ramp-up for two new customers , one for whom services began in the fourth quarter of 2015 and for other services began in the fourth quarter of 2016. in 2016 we deferred $ 750,000 of revenue from one client that will be accounted for on a cash basis . no revenue was deferred for this client in 2015. revenues from the iads segment were $ 4.3 million and $ 2.1 million for the years ended december 31 , 2016 and 2015 , respectively , an increase of $ 2.2 million or approximately 105 % . the increase primarily reflects additional volume from synodex clients . revenues from the mis segment were $ 8.1 million and $ 4.7 million for the year ended december 31 , 2016 and 2015 , respectively , an increase of $ 3.4 million or approximately 72 % .
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our homebuilding company operates under our taylor morrison and darling homes brand names . our business is organized into 15 homebuilding operating divisions , and a mortgage operating division , which are managed as four reportable segments : east , central , west and mortgage operations , as follows : east atlanta , charlotte , north florida , raleigh , and west florida central austin , dallas , houston ( which includes a taylor morrison division and a darling homes division ) west bay area , chicago , denver , phoenix , sacramento , and southern california mortgage operations taylor morrison home funding ( tmhf ) and inspired title we offer single family attached and detached homes and revenue is recognized when the homes are completed and delivered to the buyers . our primary costs are the acquisition of land in various stages of development and the construction costs of the homes we sell . our mortgage operations reportable segment provides mortgage and title services to customers through our wholly owned mortgage subsidiary , tmhf , and our wholly owned title services subsidiary , inspired title . revenues from loan origination are recognized at the time the related real estate transactions are completed , usually upon the close of escrow . industry overview and current market developments except for certain housing markets , we believe that a fundamental housing recovery is still underway on a national basis , driven by consumers who have remained optimistic about their economic prospects , and we believe the recovery is supported by certain positive economic and demographic factors , including decreasing unemployment , strong home values , improving household balance sheets , declines in new and existing for-sale home inventory and low interest rates supporting affordability and home ownership . while we were encouraged by certain positive and improved trends during 2015 , several challenges still exist that may impact the speed of the recovery , such as lingering unemployment concerns , uncertainty of the oil industry impacting certain markets , stagnation in real wages and real or perceived personal wealth , national and global economic uncertainty and a continuing restrictive mortgage lending environment . we are additionally challenged by shortages in the labor supply , specifically as it relates to qualified tradespeople , and volatility in energy prices . nevertheless , we believe we are 36 in an upward business cycle in most of our markets as the ability to deliver homes to prospective buyers still lags behind demand and the availability of new and pre-owned homes remains constrained . land acquisition and development because the housing market is cyclical , and home price movement between the peak and trough of the cycle can be significant , we seek to adhere to our core operating principles through these cycles to drive consistent long-term performance . based on our current land position , we expect to drive revenue by opening new communities from our existing land supply . we believe land supply provides us with the opportunity to increase community count prospectively . we also currently own or have an option to purchase the majority of the land on which we expect to close homes during 2016 . during the next twelve months we expect to open communities in geographic markets in line with consumer demand . our approach in allocating capital and managing our land portfolio has been to acquire assets that have attractive characteristics , including good access to schools , shopping , recreation and transportation facilities . in connection with our overall land inventory management process , our management team reviews these considerations , as well as other financial metrics , in order to decide the highest and best use of our capital . we intend to maintain a consistent approach to land positioning within our regions , markets and communities in the foreseeable future in an effort to concentrate a greater amount of our land inventory in areas that have the attractive characteristics referred to above . we also intend to continue to combine our land development expertise with our homebuilding operations to increase the flexibility of our business and to optimize our margin performance . from time to time , we may sell land in our communities if we believe it is best for our overall operations . we do not expect such sales to have a significant effect on our overall results , but they may impact our overall gross margins . we will continue to identify the preferences of our customer and demographic groups and offer them innovative , high-quality homes that are efficient and profitable to build . to achieve this goal , we conduct market research to determine preferences of our customer groups . 2015 highlights on january 28 , 2015 we closed the sale of monarch corporation , our former canadian business ( “ monarch ” ) . as a result of the sale , we do not have significant continuing involvement with monarch . see note 5 - discontinued operations in the notes to the consolidated financial statements included in item 8 of this annual report for further information . on april 30 , 2015 , we acquired jeh homes , an atlanta based homebuilder , for a purchase price of approximately $ 63.2 million , excluding contingent consideration . in addition , on july 21 , 2015 , we acquired three divisions of orleans homes in charlotte , chicago , and raleigh for a purchase price of approximately $ 167.3 million . see note 3 – business combinations in the notes to the consolidated financial statements included in item 8 of this annual report for further information regarding the assets acquired and the allocation of purchase price for both transactions . story_separator_special_tag in addition to direct carrying costs , we also capitalize interest , real estate taxes , and related development costs that benefit the entire community , such as field construction supervision and related direct overhead . home construction costs are accumulated and charged to cost of sales at home closing using the specific identification method . land acquisition , development , interest , real estate taxes and overhead are allocated to homes and units using the relative sales value method . these costs are capitalized to inventory from the point development begins to the point construction is completed . changes in estimated costs to be incurred in a community are generally allocated to the remaining homes on a prospective basis . for those communities that have been temporarily closed or development has been discontinued , we do not allocate interest or other costs to the community 's inventory until activity resumes . we assess the recoverability of our land inventory in accordance with the provisions of accounting standards codification ( “ asc ” ) topic 360 , “ property , plant , and equipment . ” we review our real estate inventory for indicators of impairment by community during each reporting period . if indicators of impairment are present for a community , we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows . if the carrying value of the assets exceeds their estimated undiscounted cash flows , then the assets are deemed to be impaired and are recorded at fair value as of the assessment date . these cash flows are significantly impacted by various estimates of sales prices , construction costs , sales pace , and other factors . the discount rate used in determining each asset 's fair value depends on the community 's projected life and development stage . our estimate of undiscounted cash flows from these communities may change with market conditions and could result in a need to record impairment charges to adjust the carrying value of these assets to their estimated fair value . several factors could lead to changes in the estimates of undiscounted future cash flows for a given community . the most significant of these include pricing and incentive levels actually realized in the community , the rate at which the homes are sold and changes in the costs incurred to develop lots and construct homes . pricing and incentive levels are often interrelated with sales pace within a community , and price reductions generally lead to an increase in sales pace . further , both of these factors are heavily influenced by the competitive pressures facing a given community from both new homes and existing homes , some of which may result from foreclosures . if conditions worsen in the broader economy , the homebuilding industry or specific markets in which we operate our communities , may be reevaluated for potential impairment . for assets that are currently “ mothballed ” ( i.e. , strategic long-term land positions not currently under development or subject to an active selling effort ) , assumptions are based on current development plans and current price pace and house costs of similar communities . these evaluations may result in additional impairment charges . when an impairment charge for a community is determined , the charge is then allocated to each lot in the community in the same manner as land and development costs are allocated to each lot . inventory within each community is categorized as construction in progress and finished homes , residential land , lots developed and under development , or land held for development , based on the stage of production or plans for future development . the life cycle of the community generally ranges from two to five years , commencing with the acquisition of unentitled or entitled land , continuing through the land development phase and concluding with the sale , construction and delivery of homes . actual community lives will vary based on the size of the community , the sales absorption rate and whether we purchased the property as raw land or as finished lots . we capitalize qualifying interest costs to inventory during the development and construction periods . capitalized interest is charged to cost of sales when the related inventory is delivered or when the related inventory is charged to cost of sales . insurance costs , self-insurance reserves and warranty reserves we have certain deductible amounts under our workers ' compensation , automobile and general liability insurance policies , and we record expense and liabilities for the estimated costs of potential claims for construction defects . we also generally require our sub-contractors and design professionals to indemnify us for liabilities arising from their work , subject to certain limitations . beneva indemnity company ( “ beneva ” ) , one of our wholly owned subsidiaries , provides insurance coverage for 39 construction defects discovered up to ten years following the closing of a home , premises operations risk and property coverage . we accrue for the expected costs associated with the deductibles and self-insured amounts under our various insurance policies based on historical claims , estimates for claims incurred but not reported , and potential for recovery of costs from insurance and other sources . the estimates are subject to significant variability due to various factors , such as claim settlement patterns , litigation trends and the length of time in which a construction defect claim might be made after the closing of a home . we offer warranties on homes that generally provide for a limited one-year warranty to cover various defects in workmanship or materials or to cover structural construction defects . we may also facilitate a longer warranty in certain markets or to comply with regulatory requirements . warranty reserves are recorded as each home closes in an amount estimated to be adequate to cover expected future costs of materials and outside labor during warranty periods .
| results of operations 41 the following table sets forth our results of operations for the periods presented : replace_table_token_13_th year ended december 31 , 2015 compared to year ended december 31 , 2014 42 average active selling communities replace_table_token_14_th average active selling communities increased 25.7 % , primarily due to the acquisitions of jeh in april 2015 and three divisions of orleans in july 2015. in addition , we experienced community growth in existing divisions such as west florida and austin . we also opened new communities and closed out existing communities throughout all of our legacy markets . we open communities when we believe we have the greatest probability of capitalizing on favorable market conditions in which the community is located . net sales orders replace_table_token_15_th ( 1 ) net sales orders represent the number and dollar value of new sales contracts executed with customers , net of cancellations . east : the number of net homes sold and sales value of homes increased by 39.6 % and 40.8 % , respectively , primarily due to the acquisition of jeh and eastern divisions of orleans , which contributed to the increase in communities . in addition , the growth in average active selling communities in florida further contributed to the increase in net homes sold and sales value . the average selling price in the east remained relatively flat due to a shift in product mix from florida to our newer divisions with a lower average selling price . central : the number of net homes sold and sales value of homes decreased by 9.2 % and 6.9 % , respectively . inclement weather , lack of availability of labor resources , and the economic uncertainty of the oil industry in this segment impacted the year over year performance . however , the average selling price increased 2.5 % from the prior year .
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actual results may differ materially from our expectations that are expressed or implied by any forward-looking statement . the discussion in item 1a , risk factors , lists some of the factors that could cause our actual results to vary materially from those expressed or implied by any forward-looking statements , and such discussion is incorporated into this discussion by reference . general overview old national is the largest financial holding company incorporated in the state of indiana and maintains its principal executive offices in evansville , indiana . old national , through old national bank , provides a wide range of services , including commercial and consumer loan and depository services , and other traditional banking services . old national also provides services to supplement the traditional banking business including fiduciary and wealth management services , investment and brokerage services , investment consulting , and other financial services . our basic mission is to be the community bank in the cities and towns we serve . we focus on establishing and maintaining long-term relationships with customers , and are committed to serving the financial needs of the communities in our market area . old national provides financial services primarily in indiana , kentucky , michigan , and wisconsin . corporate developments in fiscal 2016 in 2016 , we expanded our footprint into the state of wisconsin through our acquisition of anchor bancorp wisconsin inc. ( anchor ) . in addition to our entry into this vibrant new market , management remained keenly focused on organic growth and efficiency efforts . this is evidenced by the following 2016 initiatives : organic loan growth of over 7 % ( including loans held for sale ) ; the sale of our insurance subsidiary and the redeployment of capital into our higher yielding banking business ; the termination of our frozen pension plan , which will eliminate future annual expense associated with the plan ; the termination of our labor-intensive loss share agreements with the fdic at a minimal financial impact ; and the on-going assessment of our service and delivery network , resulting in the consolidation of five banking centers in 2016 and fifteen additional banking centers in january 2017. total revenues increased to $ 655.5 million , or 10 % , from $ 596.7 million in 2015 and noninterest expenses remained well controlled , increasing to $ 454.1 million , or 5 % , from $ 430.9 million in 2015. net income for 2016 was $ 134.3 million , which compares favorably to 2015 net income of $ 116.7 million . diluted earnings per share were $ 1.05 per share in 2016 , compared to $ 1.00 per share in 2015. business outlook post-election , equity prices have surged and there is optimism that several policy changes will boost gdp growth . while it is yet to be seen if these proposals will pass and if they will truly benefit united states business , there appears to be rising consumer confidence . if our commercial loan pipeline is at all predictive , it appears that companies may be coming off the sidelines , and we may see an uptick in business investment during 2017. old national , along with all financial institutions , is also watching interest rates closely , and is encouraged by the 25 basis-point rate increase at the end of 2016. additional rate increases in 2017 will benefit old national as our assets tend to re-price faster and with more margin than our liabilities . in addition , old national 's dominant market share in many of the communities in which we serve will become more valuable as deposits typically cost less than other types of funding . 30 our focus for 2017 will be much like our focus in 2016 , as we execute on our revenue growth and expense management strategy . we have transitioned our footprint into higher growth markets and opportunistically will continue to do so . we believe we have the right people and the right products in the right markets , with strong leadership in place . core revenue growth , improvement in our operating leverage , and the prudent use of capital will remain priorities . story_separator_special_tag on average earning assets decreased 8 basis points from 4.04 % in 2015 to 3.96 % in 2016 and the cost of interest-bearing liabilities increased 7 basis points from 0.43 % in 2015 to 0.50 % in 2016. average earning assets increased by $ 1.478 billion , or 14 % . the increase in average earning assets consisted of a $ 1.391 billion increase in loans , a $ 97.2 million increase in lower yielding investment securities , partially offset by a $ 10.7 million decrease in money market and other interest-earning investments . average interest-bearing liabilities increased $ 1.217 billion , or 16 % . the increase in average interest-bearing liabilities consisted of a $ 909.7 million increase in interest-bearing deposits , an $ 11.9 million increase in federal funds purchased and interbank borrowings , a $ 37.4 million decrease in securities sold under agreements to repurchase , a $ 327.7 million increase in federal home loan bank advances , and a $ 4.7 million increase in other borrowings . average noninterest-bearing deposits increased by $ 275.6 million . the increase in average earning assets in 2016 compared to 2015 was primarily due to our acquisition of anchor in may 2016. including loans held for sale , the loan portfolio , which generally has an average yield higher than the investment portfolio , was approximately 70 % of average interest earning assets in 2016 compared to 66 % in 2015. average loans including loans held for sale increased $ 1.391 billion in 2016 compared to 2015 reflecting $ 1.152 billion of average loans acquired from anchor in may 2016 , along with $ 239.2 million of organic loan growth . story_separator_special_tag the fdic had agreed to reimburse old national for losses incurred on certain acquired loans , and we recorded an indemnification asset at fair value on the date that we acquired these loans . the indemnification asset , on the 36 acquisition date , reflected the reimbursements expected to be received from the fdic . deterioration in the expected credit quality of both oreo and loans increased the basis of the indemnification asset . the offset for both oreo and loans was recorded through the consolidated statement of income . increases in the credit quality or cash flows of loans ( reflected as an adjustment to yield and accreted into income over the remaining life of the loans ) decreased the basis of the indemnification asset , with the decrease being amortized into income over the same period or the life of the loss share agreements , whichever was shorter . old national entered into an agreement with the fdic on june 22 , 2016 to terminate its loss share agreements . under the early termination agreement , the fdic made a final payment of $ 8.7 million to old national as consideration for the early termination . after the elimination of the remaining fdic indemnification asset and the payment of settlement charges , old national realized a pre-tax gain of $ 0.2 million during 2016. all remaining assets that were covered by the loss share arrangements were reclassified to noncovered assets effective june 22 , 2016. all future gains and losses associated with covered assets will be recognized entirely by old national . noninterest expense noninterest expense totaled $ 454.1 million in 2016 , an increase of $ 23.2 million , or 5 % , from $ 430.9 million in 2015. noninterest expense during 2016 was impacted by our transition into the higher growth markets in wisconsin , the divestitures of our illinois franchise and our insurance business , and other branch restructuring during 2015. the following table details the components of noninterest expense for the years ended december 31. replace_table_token_10_th salaries and benefits , the largest component of noninterest expense , totaled $ 252.9 million in 2016 , compared to $ 243.9 million in 2015 , an increase of $ 9.0 million , or 4 % . impacting salaries and benefits expense were the acquisition of anchor and the divestitures described above . also contributing to the increase in salaries and benefits was a pension plan settlement loss of $ 9.8 million resulting from the termination of the employee retirement plan . the increase was partially offset by a higher level of severance expense in 2015 related to early retirement offers and other workforce reductions along with lower incentive bonus accruals in 2016. occupancy expenses decreased $ 2.3 million to $ 50.9 million in 2016 compared to 2015 primarily due to branch divestures and consolidations in the third quarter of 2015. the decrease was partially offset by occupancy expenses attributable to the anchor acquisition . marketing expense increased $ 4.2 million in 2016 compared to 2015 primarily due to additional expenses recorded in 2016 associated with the anchor acquisition , higher advertising , and public relations expense . 37 data processing expense increased $ 4.7 million in 2016 compared to 2015 primarily due the systems conversion associated with the anchor acquisition . professional fees increased $ 3.9 million in 2016 compared to 2015 primarily due additional expenses recorded in 2016 associated with the anchor acquisition . other expense was $ 28.7 million in 2016 compared to $ 31.0 million in 2015. included in other expense in 2016 were $ 4.8 million of costs related to the consolidation of fifteen banking centers in january 2017 , anchor acquisition and integration costs of $ 2.4 million , and higher charitable contributions of $ 2.1 million when compared to 2015. included in other expense in 2015 were costs associated with branch divestitures , closures , and consolidations totaling $ 7.8 million and a $ 4.8 million legal settlement accrual . provision for income taxes we record a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future , which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes . the major difference between the effective tax rate applied to our financial statement income and the federal statutory tax rate is caused by interest on tax-exempt securities and loans . the effective tax rate was 33.0 % in 2016 compared to 28.3 % in 2015. the higher effective tax rate in 2016 when compared to 2015 is primarily the result of the sale of oni in may 2016 and the associated tax expense of $ 8.3 million to record a deferred tax liability relating to oni 's nondeductible goodwill . see note 17 to the consolidated financial statements for additional details on old national 's income tax provision . comparison of fiscal years 2015 and 2014 in 2015 , we generated net income of $ 116.7 million and diluted net income per share of $ 1.00 compared to $ 103.7 million and diluted net income per share of $ 0.95 , respectively , in 2014. the 2015 earnings included a $ 0.2 million decrease in provision for loan losses and a $ 65.5 million increase in noninterest income . these increases to net income were partially offset by a $ 0.3 million decrease in net interest income , a $ 44.5 million increase in noninterest expense , and a $ 7.9 million increase in income tax expense .
| results of operations the following table sets forth certain income statement information of old national for the years ended december 31 , 2016 , 2015 , and 2014 : replace_table_token_5_th ( 1 ) efficiency ratio is defined as noninterest expense before amortization of intangibles as a percent of fully taxable net interest income and noninterest income , excluding net gains from securities transactions . this presentation excludes intangible amortization and net securities gains , as is common in other company disclosures , and better aligns with true operating performance . this is a non-gaap financial measure that management believes to be helpful in understanding old national 's results of operations . comparison of fiscal years 2016 and 2015 net interest income net interest income is the most significant component of our earnings , comprising 61 % of 2016 revenues . net interest income and margin are influenced by many factors , primarily the volume and mix of earning assets , funding sources , and interest rate fluctuations . other factors include the level of accretion income on purchased loans , prepayment risk on mortgage and investment-related assets , and the composition and maturity of earning assets and interest-bearing liabilities . interest rates increased in the fourth quarter 2016 , driven by improving economic conditions evidenced by the federal reserve increasing the discount rate 25 basis points at their december meeting . the yield curve steepened as the spread between short and longer duration treasuries widened . these factors improve the outlook for our net interest income and margin . loans typically generate more interest income than investment securities with similar maturities . funding from client deposits generally costs less than wholesale funding sources .
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during 2008 , the company recorded a valuation allowance against u.s. deferred tax assets , net of definite-lived deferred tax liabilities , for which realization could not be assured based on a more-likely-than-not standard . the company retained that valuation allowance for all subsequent periods through december 31 , 2011 principally due to the company 's cumulative three-year operating loss history as of the end of each period . the company routinely evaluates the extent to which the valuation allowance may be reversed . during 2013 , the company utilized the remaining portion of its u.s. federal nol carryforwards and released a $ 6.6 story_separator_special_tag management 's overview for the quarter ended december 31 , 2015 , net income attributable to stewart was $ 2.6 million , or $ 0.11 per diluted share , compared to net income attributable to stewart of $ 11.9 million , or $ 0.49 per diluted share , for the same period in 2014. pretax income for the fourth quarter 2015 was $ 3.1 million , compared to pretax income of $ 16.0 million for the same period in 2014. the results for the fourth quarter 2015 were impacted by : charges recorded in the mortgage services segment of $ 3.7 million , primarily related to our previously announced plan to exit the delinquent loan servicing operations , $ 1.8 million recorded in the title segment primarily for severance and intangible asset impairment , $ 1.7 million recorded in the corporate segment related primarily to severance and residual contracts resulting from our previously reported cost management program , non-operating realized losses of $ 2.7 million recorded in the corporate segment , and $ 2.2 million , or $ 0.09 per diluted share , of income tax benefits , including $ 1.4 million for state tax loss carryforwards and $ 0.8 million for a deferred tax asset valuation allowance release . the results for the fourth quarter 2014 were impacted by : aggregate costs of $ 5.1 million recorded in the corporate and mortgage services segments related to the integration of acquisitions and the cost management program , $ 3.5 million of litigation-related accruals in the title segment , non-operating net realized gains of $ 5.2 million recorded in the corporate and mortgage services segments , and $ 5.5 million , or $ 0.23 per diluted share , of income tax benefits primarily from the partial release of a deferred tax asset valuation allowance . our title segment revenues for the fourth quarter 2015 were $ 453.3 million , an increase of about 1.0 % from the fourth quarter 2014 and a decrease of 9.8 % from the third quarter 2015. in the fourth quarter 2015 , the title segment generated pretax income of $ 54.9 million ( 12.1 % margin ) , compared to the fourth quarter 2014 pretax income of $ 45.6 million ( 10.2 % margin ) . the fourth quarter 2015 results included $ 1.8 million of severance and asset impairment charges , while the fourth quarter 2014 results included the $ 3.5 million litigation-related accruals mentioned above . following the seasonal pattern , fourth quarter 2015 pretax income decreased sequentially from $ 77.9 million ( 15.5 % margin ) in the third quarter 2015. revenues from direct title operations for the fourth quarter 2015 increased by about 1.0 % compared to the same quarter last year , but , following the usual pattern , were down 9.1 % from the third quarter 2015. international revenues grew on a local currency basis ; however , the strengthening of the u.s. dollar resulted in a net decline in international non-commercial revenues . revenues from independent agency operations decreased by about 1.0 % in the fourth quarter 2015 compared to the fourth quarter 2014 and decreased 10.7 % from the third quarter 2015. net of agency retention , the fourth quarter 2015 independent agency revenues increased 1.5 % compared to the fourth quarter 2014 , and declined sequentially 8.8 % compared to the third quarter 2015. total orders closed in the fourth quarter 2015 decreased slightly ( 1.5 % ) compared to the fourth quarter 2014. revenues generated by our mortgage services segment were $ 42.2 million for the fourth quarter 2015 , decreasing 39.8 % compared to $ 70.1 million in the fourth quarter 2014. fourth quarter 2014 revenues included net realized gains of $ 6.2 million . sequentially , revenues decreased 14.0 % compared to the third quarter 2015. relative to the fourth quarter 2014 , the revenue decline is primarily attributable to declines within our delinquent loan servicing operations , falling market activity for certain centralized title products , including refinancing transactions and default-related title , and the impact of the sale of a small subsidiary in the fourth quarter 2014 . 13 in july 2015 , we announced the exit of our delinquent loan servicing operations and we anticipate the orderly wind-down and final exit of these operations by the end of the first quarter 2016 . $ 2.9 million of exit-related costs were incurred during the fourth quarter 2015 , including $ 1.1 million of accelerated depreciation charges . through december 31 , 2015 , exit-related costs are approximately $ 3.5 million , and we expect the total charge to be incurred related to exiting these operations to be $ 5 million to $ 7 million . we finalized our review for impairment of goodwill and other intangibles associated with the segment and recorded an additional non-cash charge of $ 0.7 million ( $ 0.6 million net of tax ) in the fourth quarter 2015. the mortgage services segment reported a pretax loss of $ 12.5 million in the fourth quarter 2015 compared to pretax income of $ 7.4 million in the fourth quarter 2014 and a pretax loss of $ 43.4 million in the third quarter 2015 ( which included a goodwill impairment charge of $ 35.0 million ) . story_separator_special_tag our method for recording the reserves for title losses on both an interim and annual basis begins with the calculation of our current loss provision rate which is applied to our current premium revenues , resulting in a title loss expense for the period . this loss provision rate is set to provide for losses on current year policies and is determined using moving average ratios of recent actual policy loss payment experience ( net of recoveries ) to premium revenues . at each quarter end , our recorded reserve for title losses begins with the prior period 's reserve balance for claim losses , adds the current period provision to that balance and subtracts actual paid claims , resulting in an amount that our management compares to its actuarially-based calculation of the ending reserve balance necessary to provide for future title losses . the actuarially-based calculation is a paid loss experience calculation where loss experience factors are selected based on company data and input from our third-party actuaries . we also obtain input from third-party actuaries in the form of a reserve analysis utilizing generally accepted actuarial methods . while we are responsible for determining our loss reserves , we utilize this actuarial input to assess the overall reasonableness of our reserve estimation . if our recorded reserve amount is not at the actuary 's point estimate but is within a reasonable range ( +5.0 % /-4.0 % ) of our actuarially-based reserve calculation and the actuary 's point estimate , our management assesses the major factors contributing to the different reserve estimates in order to determine the overall reasonableness of our recorded reserve , as well as the position of the recorded reserves relative to the point estimate and the estimated range of reserves . the major factors considered can change from period to period and include items such as current trends in the real estate industry ( which management can assess although there is a time lag in the development of this data for use by the actuary ) , the size and types of claims reported and changes in our claims management process . if the recorded amount is not within a reasonable range of our third-party actuary 's point estimate , we will adjust the recorded reserves in the current period and reassess the provision rate on a prospective basis . once our reserve for title losses is recorded , it is reduced in future periods as a result of claims payments and may be increased or reduced by revisions to our estimate of the overall level of required reserves . 15 large claims ( those exceeding $ 1.0 million on a single claim ) , including large title losses due to independent agency defalcations , are analyzed and reserved for separately due to the higher dollar amount of loss , lower volume of claims reported and sporadic reporting of such claims . large title losses due to independent agency defalcations typically occur when the independent agency misappropriates funds from escrow accounts under its control . such losses are usually discovered when the independent agency fails to pay off an outstanding mortgage loan at closing ( or immediately thereafter ) from the proceeds of the new loan . once the previous lender determines that its loan has not been paid off timely , it will file a claim against the title insurer . it is at this point that the title insurance underwriter is alerted to the potential theft and begins its investigation . as is industry practice , these claims are considered a claim on the newly issued title insurance policy since such policy insures the holder ( in this case , the new lender ) that all previous liens on the property have been satisfied . accordingly , these claim payments are charged to policy loss expense . these incurred losses are typically more severe in terms of dollar value compared with traditional title policy claims since the independent agency is often able , over time , to conceal misappropriation of escrow funds relating to more than one transaction through the constant volume of funds moving through its escrow accounts . as long as new funds continue to flow into escrow accounts , an independent agency can mask one or more defalcations . in declining real estate markets , lower transaction volumes result in a lower incoming volume of funds , making it more difficult to cover up the misappropriation with incoming funds . thus , when the defalcation is discovered , it often relates to several transactions . in addition , the overall decline in an independent agency 's revenues , profits and cash flows increases the agency 's incentive to improperly utilize the escrow funds from real estate transactions . internal controls relating to independent agencies include , but are not limited to , pre-signing and periodic audits , site visits and reconciliations of policy inventories and premiums . the audits and site visits cover examination of the escrow account bank reconciliations and an examination of a sample of closed transactions . in some instances , the scope of our review is limited by attorney agencies that cite client confidentiality . certain states have mandated annual reviews of all agencies by their underwriter . we also determine whether our independent agencies have appropriate internal controls as defined by the american land title association and us . however , even with adequate internal controls in place , their effectiveness can be circumvented by collusion or improper override of the controls by management at the independent agencies . to aid in the selection of independent agencies to review , we have developed an agency risk model that aggregates data from different areas to identify possible problems . this is not a guarantee that all independent agencies with deficiencies will be identified . in addition , we are typically not the only underwriter for which an independent agency issues policies , and independent agencies may not always provide complete financial records for our review .
| results of operations a comparison of our consolidated results of operations for 2015 to 2014 and 2014 to 2013 follows . factors contributing to fluctuations in results of operations are presented in the order of their monetary significance , and we have quantified , when necessary , significant changes . results from our mortgage services and corporate segments are included in year-to-year discussions and , when relevant , are discussed separately . our employee costs and certain other operating expenses are sensitive to inflation . title revenues . revenues from direct title operations increased $ 88.8 million , or 11.0 % , and $ 44.7 million , or 5.9 % , in 2015 and 2014 , respectively . revenues in 2015 increased primarily due to higher refinancing and residential resale closed orders , driven by the rise in new and existing home sales , and contribution from our centralized title operations acquired in mid-2014 . revenues in 2014 increased relative to 2013 primarily due to our 2014 acquisitions and a continued shift in mix to more residential resale and commercial orders , partially offset by a decline in refinance transaction volume . international revenues ( including foreign-sourced commercial revenues of $ 19.8 million and $ 25.4 million for 2015 and 2014 , respectively ) decreased $ 10.6 million , or 9.1 % , in 2015 compared to 2014 and increased $ 3.8 million , or 3.4 % , in 2014 compared to 2013. international revenues in 2015 grew on a local currency basis , however , the strengthening of the u.s. dollar , primarily against the canadian dollar and british pound , was the principal cause of the reported net revenues decline . total commercial revenues increased $ 15.8 million , or 9.3 % , and $ 18.4 million , or 13.4 % , in 2015 compared to 2014 and in 2014 compared to 2013 , respectively .
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hei consolidated executive overview and strategy . hei is a holding company that operates subsidiaries ( collectively , the company ) , principally in hawaii 's electric utility and banking sectors . hei 's strategy is to build fundamental earnings and profitability of its electric utilities and bank in a controlled risk manner to support its current dividend and improve operating and capital efficiency in order to build shareholder value . hei , through its electric utility subsidiaries ( hawaiian electric company , inc. ( heco ) and its subsidiaries , hawaii electric light company , inc. ( helco ) and maui electric company , limited ( meco ) ) , provides the only electric public utility service to approximately 95 % of hawaii 's population . hei also provides a wide array of banking and other financial services to consumers and businesses through its bank subsidiary , american savings bank , f.s.b . ( asb ) , one of hawaii 's largest financial institutions based on total assets . in 2008 , the company initiated aggressive strategies to set both the utilities and asb on a new course the utilities entered into an agreement with the state to create a clean energy future for hawaii and asb set new performance standards . in 2011 , the company continued to make major progress on these strategies ( see segment discussions below ) . together , hei 's unique combination of electric utilities and a bank continues to provide the company with a strong balance sheet and the financial resources to invest in the strategic growth of its subsidiaries while providing an attractive dividend for investors . in 2011 , net income for hei common stock was $ 138 million , compared to $ 114 million in 2010. basic earnings per share were $ 1.45 per share in 2011 , up 19 % from $ 1.22 per share in 2010 due to higher earnings for the electric utility and bank segments , partly offset by slightly higher losses for the other segment and the effects of the higher weighted average number of shares outstanding . electric utility net income for common stock in 2011 of $ 100 million increased 31 % from the prior year due primarily to higher interim and final rate increases and decoupling revenue adjustments . key to results for 2012 will be the impacts of actions taken under the hawaii clean energy initiative ( hcei ) and energy agreement , including the steps taken toward the integration of new generation from a variety of renewable energy sources into the utility systems , and managing o & m expenses to the levels included in rates . asb 's earnings in 2011 of $ 60 million increased $ 1 million over prior year net income due primarily to lower provision for loan losses and noninterest expenses , partly offset by lower net interest and noninterest income . asb 's future financial results will continue to be impacted by the interest rate environment , the quality of asb 's loan portfolio , and the ongoing results of the performance improvement project . hei 's other segment had a net loss in 2011 of $ 22 million , comparable to the net loss in 2010. hei 's consolidated effective tax rate was 35 % in 2011 compared to 37 % in 2010. the decrease in the effective tax rate was due primarily to additional low income housing credits and tax-free income from municipal bonds and bank-owned life insurance at asb , and a favorable irs appeals settlement related to foreign losses at hei in 2011. shareholder dividends are declared and paid quarterly by hei at the discretion of hei 's board of directors . hei and its predecessor company , heco , have paid dividends continuously since 1901. the dividend has been stable at $ 1.24 per share annually since 1998. the indicated dividend yield as of december 31 , 2011 was 4.7 % . the dividend payout ratios based on net income for common stock for 2011 , 2010 and 2009 were 86 % , 102 % and 137 % , respectively . the hei board of directors considers many factors in determining the dividend quarterly , including but not limited to the company 's results of operations , the long-term prospects for the company , and current and expected future economic conditions . 41 hei 's subsidiaries from time to time consider various strategies designed to enhance their competitive positions and to maximize shareholder value . these strategies may include the formation of new subsidiaries or the acquisition or disposition of businesses . the company may from time to time be engaged in preliminary discussions , either internally or with third parties , regarding potential transactions . management can not predict whether any of these strategies or transactions will be carried out or , if so , whether they will be successfully implemented . economic conditions . note : the statistical data in this section is from public third-party sources ( e.g. , department of business , economic development and tourism ( dbedt ) ; university of hawaii economic research organization ( uhero ) ; u.s. bureau of labor statistics ; blue chip economic indicators ; u.s. energy information administration ; hawaii tourism authority ( hta ) ; honolulu board of realtors ® ; bureau of economic analysis and national and local newspapers ) . hawaii 's tourism industry , a significant driver of hawaii 's economy , maintained a positive growth trend in 2011. state visitor arrivals grew by 3.8 % in 2011 over 2010. state visitor expenditures continued to grow , increasing by 15.6 % in 2011 over 2010. hotel occupancies and room rates remain higher year-over-year . the outlook for the visitor industry remains positive with the hawaii tourism authority expecting a 3.8 % increase in airline seat capacity in the first quarter of 2012 , with growth in international flights offset by a slight decline in u.s. mainland capacity . story_separator_special_tag the company intends to make contributions to the qualified retirement plan for hei and heco equal to the calculated net periodic pension cost for the year . however , if the minimum required contribution determined under the employee retirement income security act of 1974 ( erisa ) , as amended by the pension protection act of 2006 , for the year is greater than the net periodic pension cost , then the company 43 will contribute the minimum required contribution and the utilities ' difference between the minimum required contribution and the net periodic pension cost will increase their regulatory asset . in the next rate case , the regulatory asset will be amortized over five years and used to reduce the cash funding requirement based on net periodic pension cost . the regulatory asset may not be applied against the erisa minimum required contribution . the erisa minimum required contribution is expected to be higher than the net periodic pension cost for 2012 and 2013. therefore , the pension protection act minimum required contribution will be the basis of the cash funding for 2012 and 2013 as shown in the following table and constitutes forward-looking statements : replace_table_token_20_th the company 's pension protection act minimum required contribution in 2012 is estimated to increase to $ 104 million primarily due to the decrease in the effective interest rate . the estimated subsequent decrease in 2013 to $ 89 million is primarily due to assumed asset growth outpacing assumed liability growth . actual results , however , could differ substantially from these estimates . based on various assumptions in note 9 of hei 's notes to consolidated financial statements and assuming no further changes in retirement benefit plan provisions , information regarding consolidated hei 's , consolidated heco 's and asb 's retirement benefits was , or is estimated to be , as follows , and constitutes forward-looking statements : replace_table_token_21_th sensitivities of the projected benefit obligation ( pbo ) and accumulated postretirement benefit obligation ( apbo ) as of december 31 , 2011 , associated with a change in certain actuarial assumptions , were as follows and constitute forward-looking statements. actuarial assumption change in assumption in basis points impact on pbo or apbo ( dollars in millions ) pension benefits discount rate +/ 50 $ ( 85 ) / $ 94 other benefits discount rate +/ 50 ( 12 ) /13 health care cost trend rate +/ 100 4/ ( 5 ) baseline assumptions : 5.19 % discount rate for pension benefits ; 4.90 % discount rate for other benefits ; 7.75 % asset return rate ; 8.5 % medical trend rate for 2012 , grading down to 5 % for 2019 and thereafter ; 5 % dental trend rate ; and 4 % vision trend rate . the impact on 2012 net income for common stock for changes in actuarial assumptions should be immaterial based on the adoption by the electric utilities of pension and postretirement benefits other than pensions ( opeb ) tracking mechanisms approved by the puc . see note 9 of hei 's notes to consolidated financial statements for further retirement benefits information . 44 other segment . replace_table_token_22_th 1 including writedowns of and net gains and losses from investments . nmnot meaningful . the other business segment includes results of the stand-alone corporate operations of hei and american savings holdings , inc. ( ashi ) , both holding companies ; hei properties , inc. ( heipi ) , a company holding passive , venture capital investments ( venture capital investments valued at $ 0.6 million as of december 31 , 2011 ) ; and the old oahu tug service , inc. ( toots ) , a maritime freight transportation company that ceased operations in 1999 , hei investments , inc. ( heiii ) , a company previously holding investments in leveraged leases but whose wind-down was substantially completed during 2009 ; pacific energy conservation services , inc. ( pecs ) , a contract services company which provided windfarm operational and maintenance services to an affiliated electric utility until the windfarm was dismantled in the fourth quarter of 2010 and dissolved in the second quarter of 2011 ; as well as eliminations of intercompany transactions . hei corporate-level operating , general and administrative expenses were $ 15 million in 2011 compared to $ 13 million in each of 2010 and 2009. in 2011 , expense increased primarily due to the accrual of $ 3 million of contributions to be made to the hei charitable foundation in 2012. in 2010 , expenses increased slightly primarily due to higher compensation expense , partly offset by lower retirement benefit expense and an accrual in 2009 to dismantle a windfarm in 2010. the other segment 's interest expenses were $ 22 million in 2011 , $ 20 million in 2010 and $ 18 million in 2009. in 2011 and 2010 , financing costs were higher due in part to the recognition of the ineffective portion of the change in fair value of the forward starting swaps . also in 2010 , there was a higher level of borrowings . the other segment 's income tax benefits were $ 17 million in 2011 , $ 13 million in 2010 and $ 14 million in 2009. the increase in income tax benefits in 2011 was primarily due to higher operating losses , higher interest expense and a favorable settlement in 2011 in an irs appeal related to the character ( ordinary versus capital ) of a foreign loss , and the write-off in 2010 of a deferred tax asset due to the expiration of a capital loss carryforward period . effects of inflation .
| results of operations . replace_table_token_27_th 1 the rate schedules of the electric utilities currently contain energy cost adjustment clauses ( ecacs ) through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers . 2 kwh sales for 2011 and 2010 were lower when compared to the prior year due largely to cooler , less humid weather and continued conservation efforts by customers . 54 · 2011 vs. 2010 replace_table_token_28_th 55 · 2010 vs. 2009 replace_table_token_29_th 56 most recent rate proceedings . the electric utilities initiate puc proceedings from time to time to request electric rate increases to cover rising operating costs and the cost of plant and equipment , including the cost of new capital projects to maintain and improve service reliability . the puc may grant an interim increase within 10 to 11 months following the filing of an application , but there is no guarantee of such an interim increase and interim amounts collected are refundable , with interest , to the extent they exceed the amount approved in the puc 's final d & o . the timing and amount of any final increase is determined at the discretion of the puc . the adoption of revenue , expense , rate base and cost of capital amounts ( including the roace and rorb ) for purposes of an interim rate increase does not commit the puc to accept any such amounts in its final d & o . the following table summarizes certain details of each utility 's most recent rate cases , including the details of the increases requested , whether the utility and the consumer advocate reached a settlement that they proposed to the puc , and the details of increases granted in interim and final puc d & os or whether an interim or final puc d & o remains pending . 57 replace_table_token_30_th note : the request date reflects the application filing date for the rate proceeding .
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as of december 31 , 2017 , management including the ceo and vp of finance , assessed the effectiveness of the company 's internal control over financial reporting based on the criteria established in “ internal control-integrated framework 2013 ” issued by the committee of sponsoring organizations of the treadway commission ( “ coso ” ) in 2013. our management determined that , as of december 31 , 2017 , a material weakness existed in our internal control over financial reporting . specifically , a failure to perform a timely and effective risk assessment over the financial reporting process and a failure to maintain adequate documentation of how control activities address the financial statement risks , including the identification of key reports and design of controls in validating the completeness and accuracy of reports utilized in the revenue controls cycle . the material weakness did not result in any material misstatement in the financial statements included in this annual report on form 10-k or previously issued financial statements . the effectiveness of internal control over financial reporting as of december 31 , 2017 , has been audited by bdo usa , llp , an independent registered public accounting firm , as stated in its attestation report , which is included on the following page . c ) plan for remediation of material weakness that existed as of december 31 , 2017 management will remediate this material weakness by evaluating our control environment and our risk assessment process , including the implementation and documentation of the control process and identification and testing of key revenue reports . d ) changes in internal control over financial reporting except as relating to the material weaknesses identified in the current period noted above , there have been no changes in our internal control over financial reporting identified in connection with the evaluation of our controls performed during the year ended december 31 , 2017 that have materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . 35 report of independent registered public accounting firm shareholders and board of directors psychemedics corporation acton , massachusetts opinion on internal control over financial reporting we have audited psychemedics corporation and its subsidiaries ' ( the “ company 's ” ) internal control over financial reporting as of december 31 , 2017 , based on criteria established in internal control – integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission ( the “ coso criteria ” ) . in our opinion , the company did not maintain , in all material respects , effective internal control over financial reporting as of december 31 , 2017 , based on the coso criteria . we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) ( “ pcaob ” ) , the consolidated balance sheets of the company as of december 31 , 2017 and 2016 , the related consolidated statements of income and comprehensive income , stockholders ' equity , and cash flows for each of the three years in the period ended december 31 , 2017 , and the related notes ( collectively referred to as “ the financial statements ” ) and our report dated march 16 , 2018 expressed an unqualified opinion thereon . basis for opinion the company 's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting , included in the accompanying item 9a , management 's report on internal control over financial reporting . our responsibility is to express an opinion on the company 's internal control over financial reporting based on our audit . we are a story_separator_special_tag the management 's discussion and analysis of financial condition and results of operations should be read together with the more detailed business information and financial statements and related notes that appear elsewhere in this annual report on form 10-k. this annual report may contain certain “ forward-looking ” information within the meaning of the private securities litigation reform act of 1995. this information involves risks and uncertainties . actual results may differ materially from the results discussed in the forward-looking statements . factors that might cause such a difference include , but are not limited to , those discussed in “ item 1a — risk factors. ” story_separator_special_tag reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax . for the year ended december 31 , 2017 , we recognized no transition tax because the company 's brazil entity is a disregarded entity for u.s. income tax purposes . in all cases , we will continue to make and refine our calculations as additional analysis is completed . in addition , our estimates may also be affected as we gain a more thorough understanding of the tax law . results for the year ended december 31 , 2016 compared to results for the year ended december 31 , 2015 replace_table_token_7_th revenue : the increase was driven entirely from new business in brazil . the volume and average revenue per sample for the domestic business was essentially flat from 2015 to 2016. see note 12 for geographic breakdown of revenue . gross profit : the gross profit margin increased from 47 % in 2015 to 55 % in 2016. the increase in margin was primarily driven from increased sales . also , the gross profit margin in 2015 was lower than normal due to $ 1.4 million of expenditures related to capacity expansion . general and administrative ( “ g & a ” ) expenses : the increase in expenses related to additional costs associated with the new brazil opportunity and higher audit fees . story_separator_special_tag such sources could include , issuance of common stock or debt financing , lines of credit , or equipment leasing , although there is no assurance that such financings will be available to the company on terms it deems acceptable , if at all . at december 31 , 2017 , the company has paid dividends over the past eighty-five quarters . it most recently declared a dividend on march 7 , 2018 with a payment date of march 29 , 2018 in the amount of $ 824 thousand . the company 's current intention is to continue to declare dividends to the extent funds are available and not required for operating purposes or capital requirements , and only then , upon approval by the board of directors . there can be no assurance that in the future the company will declare dividends . contractual obligations as of december 31 , 2017 were as follows ( in thousands ) : replace_table_token_8_th purchase commitment operating leases consist of rent obligations for the company 's facilities . the company has no significant contractual obligation for supply agreements as of december 31 , 2017. critical accounting policies the company 's significant accounting policies are described in note 2 to the financial statements included in item 8 of this form 10-k. management believes the most critical accounting policies are as follows : revenue recognition the company is in the business of performing drug testing services and reporting the results thereof . the company 's services are primarily drug and alcohol testing for its customers for an agreed-upon fee per unit tested . the revenues are recognized when the drug test is performed and reported to the customer . 16 the company records revenue for the shipping of samples from the customer or independent hair collection facility to the laboratory for customers that choose to use the company 's shipping account . the company also records revenue for the collection of the hair sample for customers that choose to have the company manage this process at the same time the sample test is completed and results reported to the customer . the associated costs incurred in connection with these services is recorded as costs of revenue . the company records revenue for these services on a gross basis as it has determined it is the principal under these arrangements . the company also provides expert testimony , when and if necessary , to support the results of the tests , which is generally billed separately and recognized as the services are provided . estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates , including bad debts , long-lived asset lives , income tax valuation , stock based compensation and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . capitalized development costs we capitalize costs related to significant software projects developed or obtained for internal use in accordance with u.s. generally accepted accounting standards . costs incurred during the preliminary project work stage or conceptual stage , such as determining the performance requirements , system requirements and data conversion , are expensed as incurred . costs incurred in the application development phase , such as coding , testing for new software and upgrades that result in additional functionality , are capitalized and are amortized using the straight-line method over the useful life of the software for 5 years . costs incurred during the post-implementation/operation stage , including training costs and maintenance costs , are expensed as incurred . we capitalized internally developed software costs of approximately $ 511 thousand , $ 315 thousand and $ 364 thousand during the years ended december 31 , 2017 , 2016 and 2015 , respectively . the software development is for primarily for two projects . determining whether particular costs incurred are more properly attributable to the preliminary or conceptual stage , and thus expensed , or to the application development phase , and thus capitalized and amortized , depends on subjective judgments about the nature of the development work , and our judgments in this regard may differ from those made by other companies . general and administrative costs related to developing or obtaining such software are expensed as incurred . allowance for doubtful accounts the allowance for doubtful accounts is based on management 's assessment of the ability to collect amounts owed to it by its customers . management reviews its accounts receivable aging for doubtful accounts and uses a methodology based on calculating the allowance using a combination of factors including the age of the receivable along with management 's judgment to identify accounts that may not be collectible . the company routinely assesses the financial strength of its customers and , as a consequence , believes that its accounts receivable credit risk exposure is limited . the company maintains an allowance for potential credit losses but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area . bad debt expense has been within management 's expectations . income taxes the company accounts for income taxes using the liability method , which requires the company to recognize a current tax liability or asset for current taxes payable or refundable and a net deferred tax liability for the estimated future tax effects of temporary differences between the financial statement and tax reporting bases of assets and liabilities to the extent that they are realizable . deferred tax expense ( benefit ) results from the net change in deferred tax assets and liabilities during the year . a deferred tax valuation allowance is required if it is more likely than not that all or a portion of the
| overview psychemedics corporation is the world 's largest provider of hair testing for drugs of abuse , utilizing a patented hair analysis method involving digestion of hair , enzyme immunoassay technology and confirmation by mass spectrometry to analyze human hair to detect abused substances . the company 's customers include fortune 500 companies , as well as small to mid-size corporations , schools and governmental entities , located in the united states and internationally . in 2017 , the company enhanced its presence in brazil by establishing a wholly owned subsidiary with the goal of potentially opening a laboratory in the country . during the year ended december 31 , 2017 , the company produced $ 39.7 million in revenue , while generating a gross margin of 50 % and pre-tax margins of 21 % . the company had net income of $ 6.1 million and diluted earnings per share of $ 1.10 for the year ended december 31 , 2017 , a decrease of $ 0.6 million , or 8 % from the prior year . at december 31 , 2017 , the company had $ 8.2 million of cash and cash equivalents . during 2017 , the company had operating cash flow of $ 9.1 million and it distributed approximately $ 3.3 million or $ 0.60 per share of cash dividends to its shareholders . in addition , the company spent approximately $ 1.2 million on equipment , leasehold improvements and software development . as of december 31 , 2017 , the company has paid eighty-five consecutive quarterly cash dividends . the following table sets forth , for the periods indicated , the selected statements of operations data as a percentage of total revenue : replace_table_token_4_th revenue by geographic region replace_table_token_5_th 13 results for the year ended december 31 , 2017 compared to results for the year ended december 31 , 2016 replace_table_token_6_th revenue : domestic revenue was up 3 % and the international revenue was flat from 2016 to 2017. see geographic breakdown of revenue above .
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in total , 10 employees were terminated , representing approximately 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 “ risk factors ” 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 are a clinical-stage biopharmaceutical company focused on discovering and developing novel products for patients with cancer . we have proprietary targeted anti-cancer agents designed to disrupt specific cellular pathways that are important for cancer cell proliferation . we believe that the product candidates in our pipeline have the potential to be efficacious in a variety of cancers with unmet medical need . we have the following two clinical-stage programs : 1. on 123300 , multi-kinase inhibitor in solid tumors ; and 2. oral rigosertib alone or in combination with pd-1 inhibitors for treatment of kras-mutated solid tumors . we were incorporated in delaware in december 1998 and commenced operations in january 1999. our operations to date have included our organization and staffing , business planning , raising capital , in-licensing technology from research institutions , identifying potential product candidates , developing product candidates and building strategic alliances , as well as undertaking preclinical studies and clinical trials of our product candidates . since commencing operations , we have dedicated a significant portion of our resources to the development of our clinical-stage product candidates , particularly rigosertib . we incurred research and development expenses of $ 16.9 million and $ 15.5 million during the years ended december 31 , 2020 and 44 2019 , respectively . we anticipate that a significant portion of our operating expenses will continue to be related to research and development as we continue to advance on 123300 and our other programs . in september 2019 we closed on an offering of common stock to certain investors . we issued 2,198,938 shares of common stock and amended warrants for the purchase of 2,198,938 shares of common stock . the investors , who were also holders of our preferred stock warrants issued in february 2018 and or may 2018 , received a warrant amendment under which a certain number of such investors ' preferred stock warrants received a reduction in exercise price and an extension of term . net proceeds from the sale of common stock and the amendment of preferred stock warrants were approximately $ 3.3 million . in november 2019 , we closed on an offering of units of common stock and warrants . we issued 30,250,000 shares of common stock , pre-funded warrants to purchase 24,750,000 shares of common stock , and common stock warrants to purchase 55,000,000 shares of common stock . net proceeds were approximately $ 9.7 million . on december 10 , 2019 , we closed on an offering of units of common stock and warrants . we issued 14,326,648 shares of common stock and common stock warrants to purchase 7,163,324 shares of common stock . net proceeds were approximately $ 4.4 million . on december 19 , 2019 , we closed on an offering of units of common stock and warrants . we issued 13,878,864 shares of common stock and common stock warrants to purchase 6,939,432 shares of common stock . net proceeds were approximately $ 4.4 million . during 2019 , pre-funded warrants were exercised for 23,720,784 shares of common stock and net proceeds were $ 35,000. also during 2019 , common warrants were exercised for 21,014,378 shares of common stock and net proceeds were approximately $ 4.9 million . in january 2020 , we closed on an offering of common stock . we issued 27,662,518 shares of common stock and net proceeds were approximately $ 9.0 million . also during 2020 , common warrants were exercised for 45,863,397 shares of common stock and net proceeds were approximately $ 10.3 million . in january 2021 , we closed on an offering of common stock . we issued 19,551,124 shares of common stock and net proceeds were approximately $ 8.5 million . in february 2021 , we closed on an offering of common stock . we issued 28,750,000 shares of common stock and net proceeds were approximately $ 26.7 million . in addition , since december 31 , 2020 common warrants were exercised for 2,325,000 shares of common stock and net proceeds were approximately $ 0.5 million . as a result of these transactions , as of february 28 , 2021 , we have 236,612,391 common shares outstanding . our net losses were $ 25.2million and $ 21.5 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 428.6 million . we expect to incur significant expenses and operating losses for the foreseeable future as we continue the development and clinical trials of , and seek regulatory approval for , our product candidates , even if milestones under our license and collaboration agreements may be met . as of december 31 , 2020 we had $ 19.0 million in cash and cash equivalents . as of february 28 , 2021 , we had $ 49.5 million in cash and cash equivalents . story_separator_special_tag the following table sets forth a summary of revenue recognized during the years ended december 31 , 2020 and 2019 : 46 replace_table_token_2_th we have not generated any revenue from commercial product sales . in the future , if any of our product candidates currently under development are approved for commercial sale in the united states or other territories where we have retained commercialization rights , we may generate revenue from product sales , or alternatively , we may choose to select a collaborator to commercialize our product candidates in these markets . the symbio collaboration agreement is considered to be a multiple-element arrangement for accounting purposes . we determined that there were three deliverables under the symbio collaboration agreement ; specifically , the license to rigosertib for japan and korea , our obligation to perform research and development services necessary for symbio to seek approval in its territory and our obligation to participate on a joint steering committee . we concluded that these deliverables should be accounted for as a single unit of accounting . we determined that the $ 7.5 million upfront payment received in 2011 should be deferred and recognized as revenue on a straight-line basis through december 2037 , reflecting our estimate of when we will complete our obligations under the agreement . for the years ended december 31 , 2020 and 2019 , we recognized revenues of $ 226,000 and $ 227,000 , respectively , under the symbio collaboration agreement . in addition , we recognized revenues of $ 5,000 and $ 55,000 for the years ended december 31 , 2020 and 2019 , respectively , related to the supply agreement . the hanx rigosertib license agreement and two securities purchase agreements were signed in may 2019. we determined that the license was distinct and that control of the license had been transferred during the second quarter of 2019. as such , we recognized the $ 1.7 million net upfront fee and $ 300,000 premium , related to the securities purchase agreements , allocated to the license in the quarter ended june 30 , 2019. in december 2019 , we reversed $ 200,000 of the revenue related to the securities purchase premium after reassessing the likelihood of receiving payment . the hanx rigosertib license agreement was terminated on january 16 , 2020. the knight license agreement was signed in november , 2019. we determined that the license was distinct and that control of the license had been transferred during the fourth quarter of 2019. as such , we recognized the $ 100,000 upfront payment allocated to the license in the quarter ended december 31 , 2019. the sta license agreement was signed in december , 2019. we determined that the license was distinct and that control of the license had been transferred during the fourth quarter of 2019. as such , we recognized the $ 50,000 upfront payment allocated to the license in the quarter ended december 31 , 2019. operating expenses the following table summarizes our operating expenses for the years ended december 31 , 2020 and 2019 : replace_table_token_3_th general and administrative expenses general and administrative expenses consist principally of salaries and related costs for executive and other administrative personnel , including stock-based compensation and travel expenses . other general and 47 administrative expenses include facility-related costs , communication expenses , insurance , board of directors expenses and professional fees for legal , patent review , consulting and accounting services . we anticipate that our general and administrative expenses will remain consistent in the short-term , but would increase in the future with the continued research and development and potential commercialization of our product candidates . these increases will likely include increased costs for insurance , costs related to the hiring of additional personnel and payments to outside consultants among other expenses . additionally , if and when we believe a regulatory approval of a product candidate appears likely , we anticipate an increase in payroll and expense as a result of our preparation for commercial operations , especially as it relates to the sales and marketing of our product candidates . research and development expenses our research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with cros and investigative sites that conduct our clinical trials and preclinical studies ; the cost of acquiring , developing and manufacturing clinical trial materials ; direct expenses for maintenance of research equipment , clinical trial insurance and other supplies ; and costs associated with preclinical activities and regulatory operations . research and development costs are expensed as incurred . license fees and milestone payments we make related to in-licensed products and technology are expensed if it is determined that they have no alternative future use . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . to date , our research and development expenses have related primarily to the development of rigosertib and the related inspire trial in hr-mds patients . the inspire trial failed to meet its primary endpoint and was discontinued in august 2020. in the future , research and development expenses will be related to on 123300 , other candidates in our pipeline , and potentially in-licensed products . we do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis because we are organized and record expense by functional department and our employees may allocate time to more than one development project .
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_8_th 53 revenues revenues decreased by $ 2.0 million for the year ended december 31 , 2020 when compared to the same period in 2019 primarily as a result the recognition of revenue from license agreements for rigosertib with hanx and knight during the 2019 period , as well as higher clinical supply revenue from symbio in 2019. general and administrative expenses general and administrative expenses decreased by $ 19,000 or 0.2 % , to $ 8.3 million for the year ended december 31 , 2020 from $ 8.3 million for the year ended december 31 , 2019. this decrease was cause by a decrease of $ 1.7 million of personnel and stock compensation expense costs related to severance due to headcount reductions in 2019 period . this decrease was partially offset by increases of $ 0.5 million of investor relations fees and costs related to our annual general meeting of stockholders and our reconvened annual general meeting of stockholders , $ 0.9 million of commercialization preparations expenses , and $ 0.3 million higher insurance expenses . research and development expenses research and development expenses increased by $ 1.4 million , or 8.8 % , to $ 16.9 million for the year ended december 31 , 2020 from $ 15.5 million for the year ended december 31 , 2019. this increase was caused primarily by $ 1.4 million higher regulatory consulting expenses related to our new drug application ( “ nda ” ) preparations , and by $ 0.9 million higher manufacturing costs related to our clinical supply for inspire and for our on123300 pre-ind product candidate .
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readers are cautioned that the statements , estimates , projections or outlook contained in this report , including discussions regarding financial prospects , economic conditions , trends and uncertainties contained in this item 7 , may constitute forward-looking statements within the meaning of the pslra . these forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations expressed or implied in the forward-looking statements . a description of some of the risks and uncertainties can be found further below in this item 7 and in item 1a , “ risk factors. ” executive overview general unitedhealth group is a diversified health and well-being company dedicated to helping people live healthier lives and making the health system work better for everyone . we offer a broad spectrum of products and services through two distinct platforms : unitedhealthcare , which provides health care coverage and benefits services ; and optum , which provides information and technology-enabled health services . we have four reportable segments across our two business platforms , unitedhealthcare and optum : unitedhealthcare , which includes unitedhealthcare employer & individual , unitedhealthcare medicare & retirement , unitedhealthcare community & state and unitedhealthcare international ; optumhealth ; optuminsight ; and optumrx . further information on our business and reportable segments is presented in item 1 , “ business ” and in note 13 to the consolidated financial statements in item 8 , “ financial statements. ” 2014 business realignment . on january 1 , 2014 , we realigned certain of our businesses to respond to changes in the markets we serve and the opportunities that are emerging as the health system evolves . our optum business platform took responsibility for certain technology operations and business processing activities with the intention of pursuing additional third-party commercial opportunities in addition to continuing to serve unitedhealthcare . these activities , which were historically a corporate function , will be included in optuminsight 's results of operations . our periodic filings with the sec beginning with our first quarter 2014 form 10-q will include historical segment results restated to reflect the effect of this realignment and will continue to present the same four reportable segments ( unitedhealthcare , optumhealth , optuminsight and optumrx ) . business trends our businesses participate in the u.s. , brazilian and certain other international health economies . in the united states , health care spending comprises approximately 18 % of gross domestic product and has grown consistently for many years . we expect overall spending on health care to continue to grow in the future , due to inflation , medical technology and pharmaceutical advancement , regulatory requirements , demographic trends in the population and national interest in health and well-being . the rate of market growth may be affected by a variety of factors , including macro-economic conditions and regulatory changes , including enacted health care reforms in the united states , which could also impact our results of operations . pricing trends . we seek to price our health care benefit products consistent with anticipated underlying medical trends , while balancing growth , margins , and competitive dynamics ( such as product positioning and price competitiveness ) and legislative and regulatory changes such as cost increases for the industry fees and tax provisions of health reform legislation . we continue to expect premium rates to be under pressure from ongoing market competition in commercial products and from government payment rates . aggregating unitedhealthcare 's businesses , and before giving effect to health reform legislation taxes , we believe the medical care ratio will rise over time as we continue to grow in the senior and public markets and participate in the emerging public health benefit exchange market . in response to health reform legislation , hhs established a review threshold of annual commercial premium rate increases generally at or above 10 % and enacted a new rule requiring the production of information for any proposed rate increase . hhs review does not supersede existing state review and approval procedures . we have experienced regulatory challenges to appropriate premium rate increases in several states , including california and new york . the competitive forces common in our markets do not support unjustifiable rate increases . further , our rates and rate filings are developed using methods 30 consistent with the standards of actuarial practices and we endeavor to sustain a commercial medical care ratio in a stable range for an equivalent mix of business . we have requested and received rate increases above 10 % in a number of markets due to the combination of medical cost trends and the incremental costs of health care reform . we expect commercial pricing to continue to be highly competitive . the intensity of pricing competition depends on local market conditions and competitive dynamics . overall , the industry has experienced lower medical costs trends due to moderated utilization , which has impacted pricing trends . conversely , carriers are generally reflecting the 2014 health reform legislation industry fees in their pricing . in some markets , competitors have adjusted their pricing to reflect recent medical cost trend experience as well as the implication of rate review rules and new benefit changes from health reform legislation . in other areas we are seeing greater price competition due to pricing adjustments and other varied approaches used by competitors . the medicare advantage rate structure is changing and funding has been cut in recent years , with additional reductions to take effect in 2014 and 2015 , as discussed below in “ regulatory trends and uncertainties. ” we expect these factors to result in year-over-year pressure on gross margin percentages for our medicare business during 2014. states are struggling to balance budget pressures with increases in their medicaid expenditures . during 2013 , rate changes for some medicaid programs were slightly negative year-over-year . story_separator_special_tag the impact of these cuts to our medicare advantage revenues is partially mitigated by reductions in provider reimbursements for those care providers with rates indexed to medicare advantage revenues or medicare fee-for-service reimbursement rates . compared to 2013 , and prior to any efforts to mitigate these funding reductions , we estimate that the net impact on our 2014 consolidated after-tax earnings will be approximately $ 0.9 billion . these factors affected our plan benefit designs , market participation , growth prospects and earnings potential for our medicare advantage plans in 2014. further , beginning in 2014 , medicare advantage and medicare part d plans will be required to have minimum mlrs of 85 % . we do not believe the minimum mlr standard will have a material impact on our earnings . cms is expected to release the proposed 2015 medicare advantage rates on february 21 , 2014. we expect sustained medicare advantage rate pressures in 2015 due to the continuing effect of the factors described above . health reform legislation directed hhs to establish a program to reward high-quality medicare advantage plans beginning in 2012. accordingly , our medicare advantage rates are currently enhanced by cms quality bonuses in certain counties based on a plan 's star rating . the level of star ratings from cms , based upon specified clinical and operational performance standards , will impact future quality bonuses . in addition , star ratings affect the amount of savings a plan has to generate to offer supplemental benefits , which ultimately may affect the plan 's revenue . the current expanded stars bonus program that pays bonuses to qualifying plans rated 3 stars or higher is set to expire after 2014. in 2015 , quality bonus payments will only be paid to 4 and 5 star plans . for the 2014 payment year , approximately 57 % of our current medicare advantage members are enrolled in plans that will be rated 3.5 stars or higher and approximately 9 % are enrolled in plans that will be rated 4 stars or higher . for the 2015 payment year , based on scoring released by cms in october 2013 , approximately 70 % of our current medicare advantage members are enrolled in plans that will be rated 3.5 stars or higher and approximately 24 % are enrolled in plans that will be rated 4 stars or higher . the ongoing reductions to medicare advantage funding place continued importance on effective medical management and ongoing improvements in administrative efficiency . there are a number of adjustments we can make and are making to partially offset these rate reductions . these adjustments will impact the majority of the seniors we serve through medicare advantage . for example , we seek to intensify our medical and operating cost management , make changes to the size and composition of our care provider networks , adjust members ' benefits , implement or increase member premiums over and above the monthly payments we receive from the government , and decide on a county-by-county basis where we will offer medicare advantage plans . the depth of the underfunding of these benefits has caused us to exit certain plans and market areas for 2014 in which we served approximately 150,000 medicare advantage beneficiaries in 2013. in other markets , we may experience some reduction in membership in the plans with the greatest benefit cuts , but expect stable or growing membership in our strongest markets . we are dedicating substantial resources to improving our quality scores and star ratings to improve the performance and sustainability of our local market programs for 2016 and beyond . in the longer term , we also may be able to mitigate some of the effects of reduced funding by increasing enrollment due , in part , to the increasing number of people eligible for medicare in coming years . as medicare advantage reimbursement changes , other products may become relatively more attractive to medicare beneficiaries increasing the demand for other senior health benefits products such as our medicare supplement and medicare part d insurance offerings . industry fees and taxes . health reform legislation includes an annual , non-deductible insurance industry tax to be levied proportionally across the insurance industry for risk-based products , beginning january 1 , 2014. the industry-wide amount of 32 the annual tax is $ 8 billion in 2014 , $ 11.3 billion in 2015 and 2016 , $ 13.9 billion in 2017 and $ 14.3 billion in 2018. for 2019 and beyond , the amount will equal the annual tax for the preceding year increased by the rate of premium growth for the preceding year . the annual tax will be allocated to each market participant based on the ratio of the entity 's net premiums written during the preceding calendar year to the total health insurance industry 's net premiums written for any u.s. health risk-based products during the preceding calendar year , subject to certain exceptions . this tax will first be expensed ratably throughout 2014 and our first payment will be made in september 2014. with the introduction of state health insurance exchanges and other significant market reforms in the individual and small group markets in 2014 , health reform legislation includes three programs designed to stabilize the health insurance markets . these programs encompass : a transitional reinsurance program ; a temporary risk corridors program ; and a permanent risk adjustment program . the transitional reinsurance program is a temporary program that will be funded on a per capita basis from all commercial lines of business including insured and self-funded arrangements , $ 25 billion over a three-year period beginning in 2014 of which $ 20 billion , subject to increases based on state decisions , will fund the reinsurance pool and $ 5 billion will fund the u.s. treasury ( reinsurance program ) . while funding for the reinsurance program will come from all commercial lines of business , only non-grandfathered , market reform compliant individual business will be eligible for reinsurance recoveries .
| results summary the following table summarizes our consolidated results of operations and other financial information : replace_table_token_5_th nm= not meaningful ( a ) medical care ratio is calculated as medical costs divided by premium revenue . ( b ) return on equity is calculated as net earnings divided by average equity . average equity is calculated using the equity balance at the end of the preceding year and the equity balances at the end of the four quarters in the year presented . selected operating performance and other significant items the following represents a summary of select 2013 year-over-year operating comparisons to 2012 and other 2013 significant items . consolidated revenues increased by 11 % , unitedhealthcare revenues increased by 10 % and optum revenues grew by 26 % . earnings from operations increased by 4 % , including a decrease of 6 % at unitedhealthcare and an increase of 61 % at optum . unitedhealthcare medical enrollment grew organically by 4.5 million people , including 2.9 million military beneficiaries through the tricare contract . medicare part d stand-alone membership grew by 725,000 people . optumrx completed the insourcing of pharmacy services for 12 million new and migrating customers served by unitedhealthcare . the consolidated medical care ratio of 81.5 % increased 110 basis points . as of december 31 , 2013 , there was $ 1.0 billion of cash available for general corporate use and 2013 cash flows from operations were $ 7.0 billion . 34 2013 results of operations compared to 2012 results consolidated financial results revenues the increases in revenues during 2013 were primarily driven by the full year effect of 2012 acquisitions , including amil , growth in the number of individuals served through benefit products and overall organic growth in each of optum 's major businesses . the revenue impact of these factors was partially offset by the reduction in medicare advantage rates .
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( 2 ) total issuance of 2,298,879 common units . ( 3 ) includes $ story_separator_special_tag overview condor hospitality trust , inc. is a self-administered reit for federal income tax purposes that specializes in the investment and ownership of high-quality select-service , limited-service , extended stay , and compact full service hotels . substantially all of our opera tions are conducted through condor hospitality limited partnership , our operating partnership , for which we serve as general p artner . as of december 31 , 2017 , the company owned 18 hotels , representing 2 , 176 rooms , in nine states , including one hotel owned through an 80 % interest in an unconsolidated joint venture . condor achieved substantial successes in 2017. the company 's portfolio of high-quality , select-service assets outperformed both the company 's peers and industry in 2017. additionally , condor achieved signific ant accomplishments related to its portfolio composition , equity structure , and debt profile . the repositioning strategy launched two years ago is substantially complete and we believe condor is well-positioned to continue to drive outperformance and deliver attractive investor returns . significant accomplishments for 2017 are summarized as follows : portfolio outperformance : the company 's new investment platform hotels achieved same-store 5.0 % revpar growth in 2017. the 5.0 % revpar growth significantly outperformed both the industry and the company 's direct public hotel reit peer group . portfolio composition : the transition of the portfolio from economy hotels to high-quality , select-service assets is substantially complete . in 2017 , the company sold eight legacy hotels generating $ 29.1 million of gross proceeds . these legacy asset sales were completed in individual transactions at valuations management believes were attractive . the net proceeds from these dispositions were used to repay outstanding i ndebtedness on the company 's credit facility , thereby enabling the company to c ontinue to acquire high-quality , select-service assets . the company acquired seven new investment platform asset s in 2017 for $ 131.8 million , including the fairfield inn & suite el paso airport ( texas ) , the residence inn austin airport ( texas ) , the home2 suites austin/round rock ( texas ) , the home2 suites lexington university/medical center ( kentucky ) , the home2 suites tallahassee state capitol ( florida ) , the home2 suites memphis southaven ( mississippi ) , and the hampton inn & suites lake mary ( florida ) . additionally , subsequent to the end of the year , the company sold two legacy asset s for proceeds totaling $ 8.2 million and acquired two additional new investment platform hotels for $ 36.1 million . the new additions to the portfolio included the towneplace suites austin north tech ridge ( texas ) and the home2 suites summerville charleston ( south carolina ) . from the fourth quarter of 2015 to the date of this document , the company has acquired $ 276 .6 million of acquisitions representing fourteen high-quality , premium-branded , select-serve assets flagged under the leading marriott , hilton , and ihg hotel br ands . the company has only three l egacy assets remaining , with one of these assets under contract for sale at the time of this document . equity structure : on february 28 , 2017 , the holders of the series d preferred stock voluntarily converted to common stock . at the time of conversion , the series d holders were granted $ 9.3 million of newly created series e preferred stock . on march 29 , 2017 , the company completed its underwritten public offering of 4,772,500 shares of its common stock , including 622,500 shares issued pursuant to the full exercise of an option to purchase additional shares of common stock granted to the underwriters , at a public offering price per share of $ 10.50 with net proceeds totaling $ 45.9 million . the company repaid borrowings under its credit facility with the net proceeds , thereby increasing the borrowing availability for future acquisitions . the company now has a substantially healthier equity structure that management believes is better positioned to enable the company to achieve its growth objectives . 29 debt profile : on march 1 , 2017 , the company closed a new $ 90.0 million secured credit facility . keybank and the huntington national bank served as the joint lead arrangers for the revolving credit facility . the new credit facility significantly reduced the company 's weighted average cost of debt and enabled the refinancing of all 2017 and 2018 maturities . on may 12 , 2017 , the credit facility borrowing capacity was increased to $ 150.0 million . management believes the facility closed and upsized in 2017 is a strong indicator of condor 's credit-worthiness and the confidence of the debt community in the company 's new strategic direction . additionally , on october 4 , 2017 , the company refinanced floating-rate debt totaling $ 25.0 million with a $ 26.5 million mortgage loan which was effectively converted to fixed rate debt with the simultaneous purchase of an interest rate swap . this refinancing was completed with a new financing partner , wells fargo . with the aforementioned successes serving as a foundation for future growth , condor 's management is excited about 2018 and is confident in its ability to achieve the mission of providing attractive total returns in the lodging sector to condor 's shareholders . condor remains cautiously optimistic on the outlook of the hospitality sector in 2018. the hospitality sector experienced its eighth straight year of positive revpar growth in 2017 , albeit at a deaccelerated pace compared to previous years . most industry forecasts estimate that u.s. revpar will continue to grow in 2018 with industry estimates ranging from 2.0 % - 3.0 % . condor management believes the sectors and segments it targets will see growth in excess of these estimates . story_separator_special_tag results for the hotels for periods prior to our ownership were provided to us by prior owners and have not been adjusted by us or audited or reviewed by our independent auditors . the performance metrics for the hotel acquired through 80 % ownership of the atlanta aloft jv , also presented below , reflect 100 % of the operating results of the property , including our interest and the interest of our partner . replace_table_token_9_th within t he new investment platform , total same-store revpar increased 5.0 % in 2017 , also driven by both increases in adr of 1.8 % and occupancy of 3.1 % . the largest increases in revpar for these hotels related to the dowell/solomons hilton garden inn , the san antonio springhill suites , the lexington home2 suites , the tallahassee home2 suites , a nd the lake mary hampton inn & suites . at the hilton garden inn , the revpar increase was driven by significantly increased occupancy related to area construction and increased event business following a concerted sales effort . at the springhill suites , the increase was driven both by increased convention business following the completion in the third quarter of 2016 of a significant expansion and renovation of the convention center as well as increased government business following a focused sales effort to increase this sector . at the lexington home2 suites , the increase was driven by an increased relationship with the university of kentucky as well as a soft 2016 during a period of absorption of the opening of a new hotel nearby . at the 32 tallahassee home2 suites , the increase in revpar was primarily the result of a changed meeting schedule used by the state legislature ( impacting early 2017 results ) combined with increased awareness of the property by both area colleges and government travelers and a successful sales effort to increase the extended stay base at the property . at the lake mary hampton inn & suites , 2016 results were impacted by ongoing renovations . additionally , this hotel has transitioned out a lower rate piece of group business in recent periods , allowing the property to grow adr in excess of the market . in the legacy held for use portfolio of hotels , total revpar increased by 7.9 % in 2017 , driven by both an increase in adr of 5.5 % and an increase in occupancy of 2.3 % . these increases were driven primarily by the results of the quality inn solomons , which has benefited from the same increase in area construction business discussed above in relation to the hilton garden inn . additionally , this hotel has undergone significant renovations that have driven increased leisure business and increased rate in general . comparative statistics for 2016 and 2015 are not presented due to the significant change in the company 's hotel portfolio in and since 2015 and the age of the company 's holdings ( of the 13 new investment portfolio hotels owned at december 31 , 2017 , six of those hotels were either opened originally or following a significant renovation subsequent to january 1 , 2015 ) . story_separator_special_tag style= '' margin:0pt ; text-align : justify ; text-justify : inter-ideograph ; font-family : helvetica-narrow ; font-size : 12pt '' > impairment loss , net during the year ended december 31 , 2017 , we incurred $ 2,231 of impairment losses and $ 80 of recovery of previously recognized impairment . during the year ended december 31 , 2016 , we recognized i mpairment losses totaling $ 1,477 . all impairments recognized in both periods related to hotels held for sale or sold during the periods . income tax expense as of december 31 , 2016 and during prior periods , a full valuation allowance was recorded against the company 's net deferred tax asset due to the uncertainty of realization because of historical operating losses . as such , no income tax expense or benefit was recorded during 2016 with the exception of amounts totaling $ 125 for alternative minimum tax recorded in 2016 related to the use of net oper ating losses during the period . during the fourth quarter of 2017 , it was determined by management that a valuation allowance against federal and certain state net deferred tax assets is no longer required as management believes that it is more likely than not that remaining deferred tax assets will be realized . the release of this valuation allowance , partially offset by the tax impact of the tax cuts and jobs act which was passed on december 22 , 2017 and lowers the value of the deferred tax assets of the company by way of lowering the corporate tax rate , led to the net tax benefit of $ 595 recognized during 2017 . comparison of the year ended december 31 , 2016 to the yea r ended december 31 , 2015 ( in thousands , except per share amounts ) replace_table_token_11_th revenue during 2016 , revenue from continuing operations decreased by $ 8,067 between the periods . revenue from properties acquired i n and subsequent to the fourth quarter of 2015 increased $ 10,175 and revenue from our other held for use asset s remained consistent , decreasing by $ 129 . revenue from held for sale and sol d properties decreased by $ 18,113 driven by property sales during the periods presented . expenses hotel and property operations expense from continuing operations decreased by $ 6,275 , driven by declines resulting from sold hotels partially offset by increases related to newly acquired properties . in totality , hotel and operations expenses from continuing operations decreased as a percentage of revenue by 0.6 % because of increases in adr and because the legacy hotels that remain in our portfolio and our recent acquisitions have higher operating margins than the hotels that were sold during the period .
| results of operations comparison of the year ended december 31 , 2017 to the year en ded december 31 , 2016 ( in thousands , except per share amounts ) replace_table_token_10_th revenue d uring 2017 , reven ue from continuing operations increased by $ 4,806 between the periods . this increase in r evenue was driven by changes in the company 's portfolio between the periods with revenue from properties acquired in or after 2016 increasing by $ 23,534 in 2017 wh ile revenue decreased by $ 19,937 as a result of decreased revenue from held for sale and sold properties included in continuing operations . the remaining increase in r evenue related to held for use properties was the result of the changes in revpar on the new investment platform and legacy held for use hotels as discussed above . expenses hotel and property operations expense from continuing operations in total remained relatively stable between the periods , in creasing by $ 42 , driven by declines resu lting from sold hotels offset by increases related to newly a cquired properties . in total , hotel and operations expenses from continuing operations decre ased as a percentage of total revenue to 67.0 % in 2017 from 73.2 % in 2016 . this decrease was both a result of increased adr in our hotel 33 portfolio and because significantly fewer legacy hotels remain in our portfolio and new investment platform properties have higher operating margins than the hotels that were sold during and between the periods .
| 4,939 |
prior period segment information has been reclassified to conform to the new segment reporting structure . our commercial and specialty business segment includes our local group , national accounts , individual and specialty businesses . business units in the commercial and specialty business segment offer fully-insured products ; provide a broad array of managed care services to self-funded customers including claims processing , underwriting , stop loss insurance , actuarial services , provider network access , medical cost management , disease management , wellness programs and other administrative services ; and provide an array of specialty and other insurance products and services such as behavioral health benefit services , dental , vision , life and disability insurance benefits , radiology benefit management , analytics-driven personal health care guidance and long-term care insurance . our government business segment includes our medicare and medicaid businesses , national government services , or ngs , and services provided to the federal government in connection with the federal employee program , or fep . our medicare business includes services such as medicare advantage , medicare part d , and medicare supplement , while our medicaid business includes our managed care alternatives through publicly funded health care programs , including medicaid , state children 's health insurance programs , or chip , and medicaid expansion programs . ngs acts as a medicare contractor in several regions across the nation . our other segment includes other businesses that do not meet the quantitative thresholds for an operating segment as defined by financial accounting standards board , or fasb , guidance , as well as corporate expenses not allocated to the other reportable segments . in preparation for the coming changes to the health care system and to focus on our core growth opportunities across our commercial and specialty business and government business segments , we entered into a definitive agreement in december 2013 to sell our 1-800 contacts , inc. , or 1-800 contacts , business to the private equity firm thomas h. lee partners , l.p. concurrently , we entered into an asset purchase agreement with luxottica group to sell our glasses.com related assets . the divestitures were completed on january 31 , 2014. the operating results for 1-800 contacts are reported as discontinued operations as a result of the pending divestiture at december 31 , 2013. these results were previously reported in the commercial and specialty business segment . additionally , the assets and liabilities of 1-800-contacts are reported as held for sale in the consolidated balance sheets included in this form 10-k. unless otherwise specified , all financial information , other than cash flows , disclosed in this md & a is from continuing operations . in accordance with fasb guidance , we have elected to not separately disclose net cash provided by or used in operating , investing , and financing activities and the net effect of those cash flows on cash and cash equivalents for discontinued operations during the periods presented . for additional information regarding these transactions , see note 3 , “ business acquisitions and divestitures , '' to our audited consolidated financial statements as of and for the year ended december 31 , 2013 , included in this form 10-k. our operating revenue consists of premiums , administrative fees and other revenue . premium revenue comes from fully-insured contracts where we indemnify our policyholders against costs for covered health and life benefits . administrative fees come from contracts where our customers are self-insured , or where the fee is based on either processing of transactions or a percent of network discount savings realized . additionally , we earn administrative fee revenues from our medicare - 42 - processing business and from other health-related businesses including disease management programs . other revenue includes miscellaneous income other than premium revenue and administrative fees . our benefit expense primarily includes costs of care for health services consumed by our members , such as outpatient care , inpatient hospital care , professional services ( primarily physician care ) and pharmacy benefit costs . all four components are affected both by unit costs and utilization rates . unit costs include the cost of outpatient medical procedures per visit , inpatient hospital care per admission , physician fees per office visit and prescription drug prices . utilization rates represent the volume of consumption of health services and typically vary with the age and health status of our members and their social and lifestyle choices , along with clinical protocols and medical practice patterns in each of our markets . a portion of benefit expense recognized in each reporting period consists of actuarial estimates of claims incurred but not yet paid by us . any changes in these estimates are recorded in the period the need for such an adjustment arises . while we offer a diversified mix of managed care products and services through our managed care plans , our aggregate cost of care can fluctuate based on a change in the overall mix of these products and services . our managed care plans include : preferred provider organizations , or ppos ; health maintenance organizations , or hmos ; point-of-service plans , or pos plans ; traditional indemnity plans and other hybrid plans , including consumer-driven health plans , or cdhps ; and hospital only and limited benefit products . we classify certain claims-related costs as benefit expense to reflect costs incurred for our members ' traditional medical care , as well as those expenses which improve our members ' health and medical outcomes . these claims-related costs may be comprised of expenses incurred for : ( i ) medical management , including case and utilization management ; ( ii ) health and wellness , including disease management services for such conditions as diabetes , high-risk pregnancies , congestive heart failure and asthma management and wellness initiatives like weight-loss programs and smoking cessation treatments ; and ( iii ) clinical health policy . these types of claims-related costs are designed to ultimately lower our members ' cost of care . story_separator_special_tag in our small group markets , we offer bronze , silver and gold products , both on and off the exchanges , in the states of colorado , connecticut , georgia , indiana , kentucky , maine , missouri , nevada , new hampshire , ohio and virginia and we offer bronze , silver and gold products , off the exchanges , in the states of california , new york and wisconsin . additionally , we offer platinum products , off the exchanges , in the states of california , connecticut , georgia , maine and virginia . the legislation also imposes new regulations on the health insurance sector , including , but not limited to , guaranteed coverage requirements ; prohibitions on some annual and all lifetime limits on amounts paid on behalf of or to our members ; increased restrictions on rescinding coverage ; establishment of minimum medical loss ratio , or mlr , requirements ; a requirement to cover preventive services on a first dollar basis ; the establishment of state insurance exchanges and essential benefit packages ; and greater limitations on how we price certain of our products . the legislation also reduces the reimbursement levels for health plans participating in the medicare advantage program over time . as a result of health care reform , the department of health and human services , or hhs , issued mlr regulations that require us to meet minimum mlr thresholds for large group , small group and individual lines of business . for purposes of determining mlr rebates , hhs has defined the types of costs that should be included in the mlr rebate calculation . however , certain components of the mlr calculation as defined by hhs can not be classified consistently under u.s. generally accepted accounting principles , or gaap . while considered benefit expense or a reduction of premium revenue by hhs , certain of these costs are classified as other types of expense , such as income tax expense or selling , general and administrative expense , in our gaap basis financial statements . accordingly , the benefit expense ratio determined using our consolidated gaap operating results is not comparable to the mlr calculated under hhs regulations . beginning with rebates paid in 2014 for the 2013 benefit year , mlr rebates will be based on a three year average . this calculation will determine an average mlr for each market segment within each state for the previous three calendar years . additionally , insurers will be able to adjust experience to account for prior mlr rebates refunded to groups or individuals . once the three year average mlr is calculated and compared to the minimum mlr threshold , the rebate percentage will be applied to current year premiums as defined by health care reform . beginning with mlr rebates paid in 2015 for the 2014 - 44 - benefit year , insurers will adjust for the risk adjustment , reinsurance , and risk corridor premium stabilization programs of health care reform . health care reform also imposes a separate minimum mlr threshold of 85 % for medicare advantage plans beginning in 2014. medicare advantage plans that do not meet this threshold will have to pay a minimum mlr rebate . if a plan 's mlr is below 85 % for three consecutive years beginning with 2014 , enrollment will be restricted . a medicare advantage plan contract will be terminated if the plan 's mlr is below 85 % for five consecutive years . these and other provisions of health care reform are likely to have significant effects on our future operations , which , in turn , could impact the value of our business model and results of operations , including potential impairments of our goodwill and other intangible assets . we will continue to evaluate the impact of health care reform as key aspects go into effect and additional guidance is made available . for additional discussion regarding health care reform , see part i , item 1 “ business—regulation ” and part i , item 1a “ risk factors ” in this form 10-k. finally , federal and state regulatory agencies may further restrict our ability to obtain new product approvals , implement changes in premium rates or impose additional restrictions , under new or existing laws that could adversely affect our business , cash flows , financial condition and results of operations . we are also subject to regulations that may result in assessments under state insurance guarantee association laws . the national organization of life & health insurance guaranty associations , or nolhga , is a voluntary organization consisting of the state life and health insurance guaranty associations located throughout the u.s. state life and health insurance guaranty associations , working together with nolhga , provide a safety net for their state 's policyholders , ensuring that they continue to receive coverage even if their insurer is declared insolvent . we are aware that the pennsylvania insurance commissioner , or insurance commissioner , has placed penn treaty network america insurance company and its subsidiary american network insurance company , or collectively penn treaty , in rehabilitation , an intermediate action before insolvency . the state court denied the insurance commissioner 's petition for the liquidation of penn treaty and ordered the insurance commissioner to file an updated plan of rehabilitation , which proposed plan was filed on april 30 , 2013. the state court has ordered a hearing on the proposed plan for which a date has not yet been set . the insurance commissioner has filed a notice of appeal asking the pennsylvania supreme court to reverse the order denying the liquidation petition . the supreme court has probable jurisdiction over the appeal and issued a schedule for filing briefs . in the event rehabilitation of penn treaty is unsuccessful and penn treaty is declared insolvent and placed in liquidation , we and other insurers may be required to pay a portion of their policyholder claims through state guaranty association assessments in future periods .
| consolidated results of operations our consolidated summarized results of operations for the years ended december 31 , 2013 , 2012 and 2011 are discussed in the following section . replace_table_token_6_th certain of the following definitions are also applicable to all other results of operations tables in this discussion : 1 includes interest expense , amortization of other intangible assets and loss on extinguishment of debt . 2 the operating results of 1-800 contacts are reported as discontinued operations at december 31 , 2013 as a result of the pending divestiture . 3 calculation not meaningful . 4 benefit expense ratio represents benefit expense as a percentage of premium revenue . premiums for the years ended december 31 , 2013 , 2012 and 2011 were $ 66,119.1 , $ 56,496.7 and $ 55,969.6 , respectively . premiums are included in total operating revenue presented above . 5 bp = basis point ; one hundred basis points = 1 % . 6 selling , general and administrative expense ratio represents selling , general and administrative expense as a percentage of total operating revenue . - 55 - year ended december 31 , 2013 compared to the year ended december 31 , 2012 total operating revenue increased $ 9,677.4 , or 16.0 % , to $ 70,191.4 in 2013 , resulting primarily from higher premiums and , to a lesser extent , increased administrative fees . the higher premiums were mainly due to increases in our medicaid business primarily as a result of our acquisition of amerigroup in december 2012. rate increases in our local group , fep , individual and national businesses designed to cover overall cost trends as well as premium rate and membership increases in our specialty businesses and increased administrative fees resulting from pricing increases for self-funded members in our commercial businesses also contributed to the increased operating revenue .
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this update will be effective for the company beginning with its fiscal 2019 first quarter . note b share-based payments total share-based compensation expense ( a component of operating , selling , general and administrative expenses ) was $ 38.2 story_separator_special_tag we are the nation 's leading retailer , and a leading distributor , of automotive replacement parts and accessories in the united states . we began operations in 1979 and at august 26 , 2017 , operated 5,465 autozone stores in the united states , including puerto rico ; 524 stores in mexico ; 14 stores in brazil ; and 26 imc branches . each autozone store carries an extensive product line for cars , sport utility vehicles , vans and light trucks , including new and remanufactured automotive hard parts , maintenance items , accessories and non-automotive products . at august 26 , 2017 , in 4,592 of our domestic autozone stores , we also had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local , regional and national repair garages , dealers , service stations and public sector accounts . we also have commercial programs in autozone stores in mexico and brazil . imc branches carry an extensive line of original equipment quality import replacement parts . we also sell the alldata brand automotive diagnostic and repair software through www.alldata.com and www.alldatadiy.com . additionally , we sell automotive hard parts , maintenance items , accessories and non-automotive products through www.autozone.com , and accessories , performance and replacement parts through www.autoanything.com , and our commercial customers can make purchases through www.autozonepro.com and www.imcparts.net . we do not derive revenue from automotive repair or installation services . executive summary for fiscal 2017 , we achieved record net income of $ 1.281 billion , a 3.2 % increase over the prior year , and sales growth of $ 253.0 million , a 2.4 % increase over the prior year . both our retail sales and commercial sales grew this past year , as we continue to make progress on our initiatives that are aimed at improving our ability to say yes to our customers more frequently , drive traffic to our stores and accelerate our commercial growth . our business is impacted by various factors within the economy that affect both our consumer and our industry , including but not limited to fuel costs , wage rates , and other economic conditions . given the nature of these macroeconomic factors , we can not predict whether or for how long certain trends will continue , nor can we predict to what degree these trends will impact us in the future . 23 one macroeconomic factor affecting our customers and our industry during fiscal 2017 was gas prices . during fiscal 2017 , the average price per gallon of unleaded gasoline in the united states was $ 2.31 per gallon , compared to $ 2.14 per gallon during fiscal 2016. we believe fluctuations in gas prices impact our customers ' level of disposable income . with approximately 12 billion gallons of unleaded gas consumption each month across the u.s. , each $ 1 increase at the pump reduces approximately $ 12 billion of additional spending capacity to consumers each month . given the unpredictability of gas prices , we can not predict whether gas prices will increase or decrease , nor can we predict how any future changes in gas prices will impact our sales in future periods . we have also experienced accelerated pressure on wages in the united states during fiscal 2017. some of this is attributed to regulatory changes in certain states and municipalities , while the larger portion is being driven by general market pressures with lower unemployment rates and some specific actions taken in recent years by other retailers . the regulatory changes are going to continue , as evidenced by the areas that have passed legislation to increase their wages substantially over the next few years , but we are still assessing to what degree these changes will impact our earnings growth in future periods . during fiscal 2017 , failure and maintenance related categories represented the largest portion of our sales mix , at approximately 84 % of total sales , with failure related categories continuing to be our largest set of categories . while we have not experienced any fundamental shifts in our category sales mix as compared to previous years , in our domestic stores we did experience a slight increase in mix of sales of the failure category as compared to last year . we believe the improvement in this sales category was driven by differences in regional weather patterns and improved merchandise assortments due to the products we have added over the last year . our sales mix can be impacted by severe or unusual weather over a short term period . over the long term , we believe the impact of the weather on our sales mix is not significant . our primary response to fluctuations in the demand for the products we sell is to adjust our advertising message , store staffing , and product assortment . in recent years , we initiated a variety of strategic tests focused on increasing inventory availability in our domestic stores . as part of those tests , we closely studied our hub distribution model , store inventory levels and product assortment , which led to strategic tests on increased frequency of delivery to our domestic stores and significantly expanding parts and assortment in select domestic stores we call mega hubs . during fiscal 2015 , we concluded our tests on these specific new concepts . during fiscal 2016 and most of fiscal 2017 , we continued the implementation of more frequent deliveries from our distribution centers to additional domestic stores and the execution of our mega hub strategy . in the fourth quarter of fiscal 2017 , however , we made substantial changes to test different scenarios to determine the optimal approach around increased delivery frequency . story_separator_special_tag in fiscal 2015 , the proceeds from the issuance of debt were used for the repayment of a portion of our outstanding commercial paper borrowings , which were used to repay the $ 500 million 5.750 % senior notes due january 2015 and for the acquisition of imc . we used commercial paper borrowings to repay the $ 300 million senior notes due in november 2015 and the $ 200 million senior notes due in june 2016. in 2017 , we made net repayments of commercial paper and short-term borrowings in the amount of $ 42.4 million . net proceeds from the issuance of commercial paper and short-term borrowings for fiscal 2016 and 2015 were $ 149.9 million and $ 153.8 million , respectively . during fiscal 2018 , we expect to invest in our business at a decreased rate as compared to fiscal 2017 , as fiscal 2017 included significant investment for the building of new distribution centers . our investments are expected to be directed primarily to new locations , supply chain infrastructure , enhancements to existing locations and investments in technology . the amount of our investments in our new locations is impacted by different factors , including such factors as whether the building and land are purchased ( requiring higher investment ) or leased ( generally lower investment ) , located in the united states , mexico or brazil , or located in urban or rural areas . during fiscal 2017 , 2016 and 2015 , our capital expenditures have increased by approximately 13 % , 2 % , and 10 % , respectively , as compared to the prior year . in addition to the building and land costs , our new locations require working capital , predominantly for inventories . historically , we have negotiated extended payment terms from suppliers , reducing the working capital required and resulting in a high accounts payable to inventory ratio . we plan to continue leveraging our inventory purchases ; however , our ability to do so may be limited by our vendors ' capacity to factor their receivables from us . certain vendors participate in financing arrangements with financial institutions whereby they factor their receivables from us , allowing them to receive payment on our invoices at a discounted rate . in recent years , we initiated a variety of strategic tests focused on increasing inventory availability , which increased our inventory per location . many of our vendors have supported our initiative to update our product assortments 27 by providing extended payment terms . these extended payment terms have allowed us to continue our high accounts payable to inventory ratio . we had an accounts payable to inventory ratio of 107.4 % at august 26 , 2017 , 112.8 % at august 27 , 2016 , and 112.9 % at august 29 , 2015. the decrease from fiscal 2016 to fiscal 2017 was due to inventory growth and slowing inventory turns . depending on the timing and magnitude of our future investments ( either in the form of leased or purchased properties or acquisitions ) , we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures , working capital requirements and stock repurchases . the balance may be funded through new borrowings . we anticipate that we will be able to obtain such financing in view of our credit ratings and favorable experiences in the debt markets in the past . our cash balances are held in various locations around the world . as of august 26 , 2017 , and august 27 , 2016 , cash and cash equivalents of $ 148.4 million and $ 78.1 million , respectively , were held outside of the u.s. and were generally utilized to support liquidity needs in our foreign operations . we intend to continue to permanently reinvest the cash held outside of the u.s. in our foreign operations . for the fiscal year ended august 26 , 2017 , our after-tax return on invested capital ( roic ) was 29.9 % as compared to 31.3 % for the comparable prior year period . roic is calculated as after-tax operating profit ( excluding rent charges ) divided by invested capital ( which includes a factor to capitalize operating leases ) . the decrease in roic is primarily due to the increase in average debt , along with the impact of recent investments in the business . currently , these investments are diluting our return metrics . we use roic to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance . refer to the reconciliation of non-gaap financial measures section for further details of our calculation . debt facilities on november 18 , 2016 , we amended and restated our existing multi-year revolving credit facility ( the new multi-year revolving credit agreement ) by increasing the committed credit amount from $ 1.25 billion to $ 1.6 billion , extending the expiration date by two years and renegotiating other terms and conditions . this credit facility is available to primarily support commercial paper borrowings , letters of credit and other short-term unsecured bank loans . the capacity of the credit facility may be increased to $ 2.1 billion prior to the maturity date at our election and subject to bank credit capacity and approval , and may include up to $ 200 million in letters of credit . under the revolving credit facility , we may borrow funds consisting of eurodollar loans , base rate loans or a combination of both . interest accrues on eurodollar loans at a defined eurodollar rate , defined as libor plus the applicable percentage , as defined in the revolving credit facility , depending upon our senior , unsecured , ( non-credit enhanced ) long-term debt rating . interest accrues on base rate loans as defined in the credit facility . we also have the option to borrow funds under the terms of a swingline loan subfacility .
| results of operations fiscal 2017 compared with fiscal 2016 for the fiscal year ended august 26 , 2017 , we reported net sales of $ 10.889 billion compared with $ 10.636 billion for the year ended august 27 , 2016 , a 2.4 % increase from fiscal 2016. this growth was driven primarily by net sales of $ 172.5 million from new domestic autozone stores and domestic same store sales increase of 0.5 % . domestic commercial sales increased $ 110.9 million , or 5.7 % , over domestic commercial sales for fiscal 2016. at august 26 , 2017 , we operated 5,465 domestic autozone stores , 524 in mexico , 14 in brazil , and 26 imc branches compared with 5,297 domestic autozone stores , 483 in mexico , eight in brazil , and 26 imc branches at august 27 , 2016. we reported a total auto parts ( domestic , mexico , brazil , and imc ) sales increase of 2.6 % for fiscal 2017. gross profit for fiscal 2017 was $ 5.740 billion , or 52.7 % of net sales , a 2 basis point decrease compared with $ 5.609 billion , or 52.7 % of net sales for fiscal 2016. the slight decline in gross margin was attributable to higher supply chain costs ( -20 basis points ) associated with current year inventory initiatives , partially offset by higher merchandise margins . operating , selling , general and administrative expenses for fiscal 2017 increased to $ 3.660 billion , or 33.6 % of net sales , from $ 3.548 billion , or 33.4 % of net sales for fiscal 2016. the increase in operating expenses , as a percentage of sales , was primarily due to deleverage on occupancy costs ( -23 basis points ) and domestic store payroll driven by higher wage pressure .
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as part of these efforts , we committed to a more agile and efficient operating model . our transformation and process improvement efforts across the company are enabling us to reallocate resources to fund many of our innovative pipeline and growth opportunities that deliver value to patients and stockholders . the transformation includes a restructuring plan that we continue to estimate will result in pre-tax accounting charges in the range of $ 825 million to $ 900 million . as of december 31 , 2017 , restructuring costs incurred to date were $ 797 million . during 2017 , 2016 and 2015 , we incurred restructuring costs of $ 88 million , $ 37 million and $ 114 million , respectively . we expect that we will incur most of the remaining estimated costs in 2018 in order to support our ongoing transformation and process improvement efforts . since 2014 , we have realized approximately $ 1.5 billion of transformation and process improvement savings . net savings have not been significant as savings were reinvested in product launches , clinical programs and external business development . additional information required for our restructuring plan is incorporated herein by reference to part iv—note 2 , restructuring , to the consolidated financial statements . puerto rico operations in september 2017 , hurricane maria made landfall on the island of puerto rico . the hurricane caused widespread damage to the island and some damage to our facility in juncos . critical manufacturing areas of our facility were not significantly affected , and we have resumed our full manufacturing operations . further recovery efforts on the island are ongoing . we have continued to provide an uninterrupted supply of medicines for patients around the world . see part i , item 1a . risk factors— we perform a substantial majority of our commercial manufacturing activities at our facility in the u.s. territory of puerto rico and substantially all of our clinical manufacturing activities at our facility in thousand oaks , california ; significant disruptions or production failures at these facilities could significantly impair our ability to supply our products or continue our clinical trials . we incurred $ 146 million of pre-tax expenses in 2017 related to hurricane maria . at this time , we do not expect significant pre-tax expenses in 2018. cost of sales cost of sales decreased to 17.8 % of total revenues for 2017 , driven primarily by lower amortization of intangible assets , lower royalties and favorable manufacturing costs , offset partially by expenses related to hurricane maria , unfavorable product mix and other inventory costs . cost of sales decreased to 18.1 % of total revenues for 2016 , driven primarily by certain manufacturing efficiencies . research and development the company groups all of its r & d activities and related expenditures into three categories : ( 1 ) discovery research and translational sciences ( drts ) , ( 2 ) later-stage clinical programs and ( 3 ) marketed products . these categories include the company 's r & d activities as set forth in the following table : category description drts r & d expenses incurred in activities substantially in support of early research through the completion of phase 1 clinical trials . these activities encompass our drts functions , including drug discovery , toxicology , pharmacokinetics and drug metabolism , and process development . later-stage clinical programs r & d expenses incurred in or related to phase 2 and phase 3 clinical programs intended to result in registration of a new product or a new indication for an existing product in the united states or the eu . marketed products r & d expenses incurred in support of the company 's marketed products that are authorized to be sold in the united states or the eu . includes clinical trials designed to gather information on product safety ( certain of which may be required by regulatory authorities ) and their product characteristics after regulatory approval has been obtained , as well as the costs of obtaining regulatory approval of a product in a new market after approval in either the united states or the eu has been obtained . 51 r & d expense by category was as follows ( in millions ) : replace_table_token_18_th the decrease in r & d expenses for 2017 was driven by decreased costs associated with later-stage clinical program support , lower external business development expense in drts and lower marketed-product support . all categories of r & d spend benefited from savings from transformation and process improvement efforts and we continue to advance our pipeline . the decrease in r & d expenses for 2016 was driven primarily by decreased costs associated with later-stage clinical programs support of $ 822 million , offset partially by increased costs associated with marketed-products support of $ 550 million . all categories of r & d spend benefited from savings from transformation and process improvement efforts . the decrease was offset partially by reinvestment for the long-term benefit of the company , including an increase in drts for up-front milestone payments related to several collaboration transactions . prior to approval , costs related to our launch products were categorized largely as later-stage clinical programs . selling , general and administrative the decrease in selling , general and administrative ( sg & a ) expense for 2017 was driven primarily by the expiration of the enbrel residual royalty payments on october 31 , 2016 , offset partially by investments in product launch and marketed product support . story_separator_special_tag the increase in sg & a expense for 2016 was driven primarily by further investments in product launches , offset partially by the expiration of the enbrel residual royalty payments on october 31 , 2016. the enbrel co-promotion term expired in october 2013 , and we were required to pay pfizer residual royalties on a declining percentage of net enbrel sales in the united states and canada . effective november 2016 , there were no further residual royalty payments . the residual royalty percentage ranged from 10 % to 11 % in 2016 and 2015. other other operating expenses for 2017 included $ 284 million of net charges associated with the discontinuance of the internal development of amg 899 and $ 83 million of certain net charges related to our restructuring plan . see part iv—note 3 , business combinations , to the consolidated financial statements . other operating expenses for 2016 included $ 105 million of charges related to legal proceedings . other operating expenses for 2015 included $ 91 million of charges related to legal proceedings ; certain charges related to our restructuring initiatives , including separation costs of $ 49 million ; $ 31 million of write-offs of non-key assets acquired in a prior-year business combination ; and $ 111 million of gains from the sale of assets related to our site closures . non-operating expenses , income and provision for income taxes non-operating expenses , income and provision for income taxes were as follows ( dollar amounts in millions ) : replace_table_token_19_th interest expense , net the increases in interest expense , net in 2017 and 2016 were due primarily to a higher average amount of debt outstanding compared with the respective prior year . 52 interest and other income , net the increase in interest and other income , net for 2017 compared with 2016 was due primarily to higher interest income that resulted from higher average investment balances and higher gains on strategic investments . the increase in interest and other income , net for 2016 compared with 2015 was due primarily to higher interest income as a result of higher average investment balances in 2016 , offset partially by higher gains on strategic equity investments in 2015 . income taxes the increase in our effective tax rate for 2017 compared with 2016 was due primarily to impacts of the 2017 tax act , including the repatriation tax on accumulated foreign earnings , offset partially by the remeasurement of certain net deferred and other tax liabilities . the increase in our effective tax rate for 2016 compared with 2015 was due primarily to the unfavorable tax impact of changes in jurisdictional mix of income and expenses , offset partially by the adoption of a new accounting standard that amends certain aspects of the accounting for employee share-based compensation payments . one aspect of the standard requires that excess tax benefits and deficiencies that arise upon vesting or exercise of share-based payments be recognized as an income tax benefit and expense in the income statement . on december 22 , 2017 , the united states enacted the 2017 tax act that imposes a repatriation tax on accumulated earnings of foreign subsidiaries , implements a territorial tax system together with a current tax on certain foreign earnings and lowers the general corporate income tax rate to 21 % . on december 22 , 2017 , the sec staff issued staff accounting bulletin no . 118 ( sab 118 ) that allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date . we currently are analyzing the 2017 tax act , and in certain areas , have made reasonable estimates of the effects on our consolidated financial statements and tax disclosures , including the amount of the repatriation tax and changes to our existing deferred tax balances . the repatriation tax is based primarily on our accumulated foreign earnings and profits that we previously deferred from u.s. income taxes . we recorded an estimated amount for our repatriation tax liability of $ 7.3 billion as of december 31 , 2017. we no longer reinvest our undistributed earnings of our foreign operations indefinitely outside the united states . in addition , we remeasured certain net deferred and other tax liabilities based on the tax rates at which they are expected to reverse in the future . the estimated amount recorded related to the remeasurement of these balances was a net benefit of $ 1.2 billion . the net estimated impact of the 2017 tax act is $ 6.1 billion . we consider the key estimates on the repatriation tax , net deferred tax remeasurement and the impact on our unrealized tax benefits to be incomplete due to our continuing analysis of final year-end data and tax positions . our analysis could affect the measurement of these balances and give rise to new deferred tax assets and liabilities . since the 2017 tax act was passed late in the fourth quarter of 2017 , and further guidance and accounting interpretation is expected over the next 12 months , our review is still pending . we expect to complete our analysis within the measurement period . as previously disclosed , we received a rar from the irs for the years 2010 , 2011 and 2012. the rar proposes to make significant adjustments that relate primarily to the allocation of profits between certain of our entities in the united states and the u.s. territory of puerto rico . on november 29 , 2017 , we received a modified rar that revised their calculation but continued to propose substantial adjustments . we disagree with the proposed adjustments and are pursuing resolution through the irs administrative appeals process , which we believe will likely not be concluded within the next 12 months . final resolution of the irs audit could have a material impact on our results of consolidated operations and cash flows
| results of operations product sales worldwide product sales were as follows ( dollar amounts in millions ) : replace_table_token_8_th future sales of our products will depend , in part , on the factors discussed in the overview , part i , item 1. business—marketing , distribution and selected marketed products—competition , in part i , item 1a . risk factors , and any additional factors discussed in the individual product sections below . in addition , for a list of our products ' significant competitors , see part i , item 1. business—marketing , distribution and selected marketed products—competition . enbrel total enbrel sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_9_th the decrease in enbrel sales for 2017 was driven primarily by lower unit demand and net selling price , offset partially by an increase in inventory . for 2018 , we expect the trends of lower unit demand and net selling price to continue . the increase in enbrel sales for 2016 was driven primarily by an increase in net selling price , offset partially by the impact of competition . neulasta ® total neulasta ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_10_th the decreases in global neulasta ® sales for 2017 and 2016 were driven primarily by lower unit demand , offset partially by an increase in net selling price in the united states . as of the end of december 2017 , utilization of the neulasta ® onpro ® kit continues to grow in the united states . 47 our final material u.s. patent for neulasta ® expired in october 2015. therefore , we expect to face competition in the united states , which over time may have a material adverse impact on future sales of neulasta ® . multiple companies have announced applications to the fda for proposed biosimilar versions of neulasta ® .
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our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors , including those discussed under `` cautionary statement regarding forward-looking statements '' , `` item 1a . risk factors '' and elsewhere in this annual report . replace_table_token_5_th 44 business overview we are a multi-faceted insurance group that offers innovative capital release solutions and specialty underwriting capabilities through our network of group companies in bermuda , the united states , the united kingdom , continental europe , australia , and other international locations . our core focus is acquiring and managing insurance and reinsurance companies and portfolios of insurance and reinsurance business in run-off . since the formation of our bermuda-based holding company in 2001 , we have completed over 80 acquisitions or portfolio transfers . until 2013 , all but one of our acquisitions had been in the non-life run-off business , which for us generally includes property and casualty , workers ' compensation , asbestos and environmental , construction defect , marine , aviation and transit , and other closed business . while our core focus remains acquiring and managing non-life run-off business , in 2013 and 2014 , we expanded our business to include active underwriting through our acquisitions of atrium and starstone . we partnered with trident in the atrium and starstone acquisitions , with enstar owning a 59.0 % interest , trident owning a 39.3 % interest , and dowling owning a 1.7 % interest . we also expanded our portfolio of run-off businesses to include closed life and annuities , primarily through our acquisition of pavonia from hsbc holdings plc on march 31 , 2013 , although in 2017 we disposed of pavonia , which made up the majority of our life and annuities business . our businesses strategies are discussed in `` item 1. business - company overview '' , `` - business strategy '' , `` -strategic growth '' and `` - recent acquisitions and significant new business . '' key pe rformance indicator our primary corporate objective is growing our fully diluted book value per share . this is driven primarily by growth in our net earnings , which is in turn driven in large part by successfully completing new acquisitions , effectively managing companies and portfolios of business that we have acquired , and executing on our active underwriting strategies . the drivers of our book value growth are discussed in `` item 1. business - business strategy . '' during 2017 , we increased our book value per share on a fully diluted basis by 10.8 % to $ 159.19 per share . the increase was primarily attributable to net earnings of $ 311.5 million . see `` item 6. selected financial data '' herein for the computation of fully diluted book value per share . the growth of our fully diluted book value per share since becoming a public company is shown in the table below . 45 current outlook run-off our business strategy includes generating growth through acquisitions and reinsurance transactions , particularly in our non-life run-off segment . our non-life run-off gross reserves were $ 5.9 billion as at december 31 , 2017 , and we continue to evaluate opportunities for future growth . in january and february 2018 , we entered into separate agreements to assume net reserves of approximately $ 811.0 million , $ 456.4 million and $ 275.0 million from novae , neon and zurich australia , respectively . additionally , in december 2017 , we assumed net reserves of $ 81.4 million from allianz . we completed the sale of our pavonia and laguna businesses during 2017 , which formerly comprised the majority of our life and annuities segment . we will continue to employ a disciplined approach when assessing , acquiring or managing portfolios of risk . we manage claims in a professional and disciplined manner , drawing on our global team of in-house claims management experts as we aim to proactively manage risks and claims efficiently . we employ an opportunistic commutation strategy in which we negotiate with policyholders and claimants with a goal of commuting or settling existing insurance and reinsurance liabilities at a discount to the ultimate liability and also to avoid unnecessary legal and other associated run-off fees and expense . as a result of the number of transactions we have completed over the years , we have a complex organizational structure consisting of licensed entities across many jurisdictions . in managing our group , we continue to look for opportunities to simplify our legal structure by way of company amalgamations and mergers , reinsurance , or other transactions to improve capital efficiency and decrease ongoing compliance and operational costs over time . in addition , we seek to pool risk in areas where we maintain the expertise to manage such risk to achieve operational efficiencies , which will allow us to most efficiently manage our assets and to achieve capital diversification benefits . underwriting our underwriting results can be affected by changes in premium rates , significant losses , development of prior year loss reserves and current year underwriting margins . in general , our expectation for 2018 is that underwriting margins will be slightly higher than in 2017 , with premium rates expected to be impacted by both market and general economic conditions . we continue to see overcapacity in many markets which can impact premium rates and or terms and conditions . if general economic conditions worsen , a decrease in the level of economic activity may impact insurable risks and our ability to write premium that is acceptable to us . we may adjust our level of reinsurance to maintain an amount of net exposure that is aligned with our risk tolerance . story_separator_special_tag with specific reference to our run-off business , we are preparing to build and expand on our existing run-off capabilities within the european union for the purpose of receiving transfers of new run-off business . we are also investigating the post-brexit additional requirements in each applicable state for the continued payment of policyholders ' claims in respect of the existing run-off business of our u.k. non-life run-off companies . underwriting ratios in presenting our results for the atrium and starstone segments , we discuss the loss ratio , acquisition cost ratio , operating expense ratio , and the combined ratio of our active underwriting operations within these segments . management believes that these ratios provide the most meaningful measure for understanding our underwriting profitability . these measures are calculated using gaap amounts presented on the statements of earnings for both atrium and starstone . the loss ratio is calculated by dividing net incurred losses and lae by net premiums earned . the acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned . the operating expense ratio is calculated by dividing operating expenses by net earned premiums . the combined ratio is the sum of the loss ratio , the acquisition cost ratio and the operating expense ratio . 47 the atrium segment also includes corporate expenses which are not directly attributable to the underwriting results in the segment . the corporate expenses include general and administrative expenses related to amortization of the definite-lived intangible assets in the holding company , and expenses relating to atrium underwriters limited ( `` aul '' ) employee salaries , benefits , bonuses and current year share grant costs . the aul general and administrative expenses are incurred in managing the syndicate . these are principally funded by the profit commission fees earned from syndicate 609 , which is a revenue item not included in the insurance ratios . 48 consolidated results of operations - for the years ended december 31 , 2017 , 2016 and 2015 the following table sets forth our consolidated statements of earnings for each of the periods indicated . for a discussion of the critical accounting policies that affect the results of operations , see `` critical accounting policies '' below . replace_table_token_6_th highlights consolidated results of operations for 2017 consolidated net earnings of $ 311.5 million and basic and diluted earnings per share of $ 16.06 and $ 15.95 , respectively net earnings from non-life run-off segment of $ 343.8 million net premiums earned of $ 613.1 million , including $ 134.7 million and $ 459.4 million in our atrium and starstone segments , respectively combined ratios of 99.9 % and 108.5 % for the active underwriting operations within our atrium and starstone segments , respectively . excluding the impact of hurricanes harvey , irma and maria during 2017 , the combined ratios were 86.7 % and 96.7 % for atrium and starstone , respectively ( refer to `` underwriting ratios '' above ) net investment income of $ 208.8 million and net realized and unrealized gains of $ 190.3 million 49 consolidated financial condition as at december 31 , 2017 total investments , cash and funds held of $ 9,625.0 million total reinsurance balances recoverable of $ 2,021.0 million total a ssets of $ 13,606.4 million shareholders ' equity of $ 3,136.7 million and redeemable noncontrolling interest of $ 479.6 million total gross reserves for losses and lae of $ 7,398.1 million , with $ 2,450.8 million of gross reserves acquired and assumed in our non-life run-off operations during 2017 diluted book value per ordinary share of $ 159.19 consolidated overview 2017 versus 2016 : we reported consolidated net earnings attributable to enstar group limited shareholders of $ 311.5 million in 2017 , an increase of $ 46.7 million from $ 264.8 million in 2016 . our results were impacted by the loss portfolio transfer reinsurance transactions we completed during 2017 with rsa and qbe , and during 2016 with allianz , coca-cola and neon . the most significant drivers of the change in our financial performance during 2017 as compared to 2016 included : net incurred losses and lae in our non-life run-off segment - net reduction in the liability for net incurred losses and lae within our non-life run-off segment continued to be one of the predominant drivers of our consolidated earnings in 2017 , contributing $ 190.7 million to consolidated net earnings . although this was a decrease of $ 95.2 million from 2016 , net earnings provided by the non-life run-off segment increase d by $ 82.2 million in 2017 compared to 2016 primarily due to improved investment results , increased fee income and higher other income , partially offset by higher expenses and other items ; higher net investment income - total net investment income increased by $ 23.3 million in 2017 , compared to 2016 . the increase was primarily attributable to an increase in average invested assets and an increase in the book yield we obtained on our assets . the increase in average invested assets was primarily due to the rsa and qbe transactions which were completed in 2017 . the increase in the book yield was primarily due to asset allocation strategies and in an increase in the duration of our fixed maturity portfolio ; atrium - net earnings attributable to the atrium segment were $ 5.4 million in 2017 , compared to $ 6.4 million in 2016 . the combined ratio in 2017 was 99.9 % , compared to 94.3 % in 2016 , and the increase was primarily driven by a higher loss ratio . the underwriting performance was impacted by the large losses in the third quarter of 2017 , primarily hurricanes harvey , irma and maria , partially offset by favorable prior year loss reserve development .
| overall results 2017 versus 2016 : net earnings were $ 343.8 million in 2017 , compared to $ 261.6 million in 2016 , an increase of $ 82.2 million . the increase of $ 82.2 million was primarily attributable to an increase of $ 101.9 million in net realized and unrealized gains in 2017 , an increase of $ 26.4 million in fees and commission income , an increase of $ 24.6 million in other income , an increase in net investment income of $ 21.4 million , and a decrease in operating expenses of $ 19.1 million . these items were partially offset by a lower reduction in net incurred losses and lae of $ 95.2 million and an increase in corporate expenses of $ 40.0 million . income taxes were a benefit of $ 7.0 million in 2017 , compared to a tax expense of $ 28.6 million in 2016 , a change of $ 35.6 million . 2016 versus 2015 : net earnings were $ 261.6 million in 2016 compared to $ 185.7 million in 2015 , an increase of $ 76.0 million . the increase of $ 76.0 million was primarily attributable to an increase in net realized and unrealized gains of $ 109.1 million , an increase in net investment income of $ 56.2 million , a higher reduction in net incurred losses and lae of $ 15.1 million , and a decrease in operating expenses of $ 7.5 million , partially offset by an increase in the net earnings attributable to noncontrolling interest of $ 51.3 million , a decrease in net premiums earned of $ 27.6 million , a decrease in other income of $ 26.8 million and an increase of $ 16.0 million in income taxes . investment results are separately discussed below in `` investments . ''
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evolent health llc 's class b common units can be exchanged ( together with a corresponding number of shares of our class b common stock ) for one share of our class a common stock . as a result of the offering reorganization , evolent health , inc. obtained voting control over evolent health llc and therefore consolidated evolent health llc and recognized a gain of $ 414.1 million upon obtaining control . the gain represents the excess of the fair value of our interest in evolent health llc 's net assets over the carrying value of our equity method investment story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand the company 's financial condition as of december 31 , 2015 , compared with december 31 , 2014 , and the results of operations for 2015 and 2014 , compared with the immediately preceding year . the md & a is provided as a supplement to , and should be read in conjunction with our consolidated financial statements and the accompanying notes to consolidated financial statements presented in “ part ii – item 8. financial statements and supplementary data ” as well as “ part i - item 1a . risk factors. ” introduction background and recent events evolent was originally organized as a corporation in august 2011 and was capitalized through contributions of cash and intangible assets in exchange for preferred stock . on september 23 , 2013 , evolent health , inc. undertook a reorganization ( the “ series b reorganization ” ) in which evolent health holdings was formed and evolent health , inc. converted into evolent health llc , a limited liability company . evolent health holdings did not control evolent health llc after the series b reorganization , but was able to exert significant influence and , accordingly , accounted for its investment in evolent health llc using the equity method of accounting . evolent health , inc. , the registrant , was incorporated as a delaware corporation on december 12 , 2014 , for the purpose of the company 's ipo . immediately prior to the completion of the ipo in june 2015 , we amended and restated our certificate of incorporation to , among other things , authorize two classes of common stock , class a common stock and class b common stock ( the “ offering reorganization ” ) . pursuant to the offering reorganization , evolent health , inc. merged with evolent health holdings and an affiliate of tpg . in accordance with the terms of the mergers , each of the then-existing stockholders of evolent health holdings , including upmc , the advisory board , tpg , as well as certain other entities , existing customers and employees , received a certain number of shares of our class a common stock in exchange for each share of common stock it held in evolent health holdings , and tpg received a certain number of shares of our class a common stock in exchange for 100 % of the equity that it held in its affiliate that was merged with evolent health , inc. in addition , pursuant to the offering reorganization we issued shares of our class b common stock to tpg and the advisory board , each of which was a member of evolent health llc prior to the offering reorganization . shares of our class b common stock vote together with shares of our class a common stock as a single class , except as otherwise required by law or pursuant to our amended and restated certificate of incorporation or amended and restated bylaws . each class b common unit of evolent health llc can be exchanged ( together with a corresponding number of shares of our class b common stock ) for one share of our class a common stock and is otherwise non-transferable pursuant to an exchange agreement . substantially all of our operations will continue to be conducted through evolent health llc , and subsequent to the offering reorganization the financial results of evolent health llc are consolidated in the financial statements of evolent health , inc. evolent health , inc. is a holding company whose principal asset is all of the class a common units it holds in evolent health llc , and its only business is to act as sole managing member of evolent health llc . business overview we are a market leader and a pioneer in the new era of healthcare delivery and payment , in which leading providers are taking on increasing clinical and financial responsibility for the populations they serve . our purpose-built platform , powered by our technology , proprietary processes and integrated services , enables providers to migrate their economic orientation from ffs reimbursement to value-based payment models . by partnering with providers to accelerate their path to value-based care , we enable our provider partners to expand their market opportunity , diversify their revenue streams , grow market share and improve the quality of the care they provide . we consider value-based care to be the necessary convergence of healthcare payment and delivery . we believe the pace of this convergence is accelerating , driven by price pressure in traditional ffs healthcare , public policy , a regulatory environment that is incentivizing value-based care models , a rapid expansion of retail insurance driven by the emergence of the health insurance exchanges and innovation in data and technology . we believe providers are positioned to lead this transition to value-based care because of their control over large portions of healthcare delivery costs , their primary position with consumers and their strong local brand . we market and sell our services primarily to major providers throughout the united states . we typically work with our partners in two phases . story_separator_special_tag additional funds may not be available on terms favorable to us or at all . if we are unable to achieve our revenue growth objectives , we may not be able to achieve profitability . as of december 31 , 2015 , we believe we have sufficient liquidity for the next twelve months . we manage our operations and allocate resources as a single reportable segment . all of our revenue is recognized in the united states and all of our long-lived assets are located in the united states . critical accounting policies and estimates we have identified the accounting policies below as critical to the understanding of our results of operations and our financial condition . in applying these critical accounting policies in preparing our financial statements , management must use critical assumptions , estimates and judgments concerning future results or other developments , including the likelihood , timing or amount of one or more future events . actual results may differ from these estimates under different assumptions or conditions . on an ongoing 38 basis , we evaluate our assumptions , estimates and judgments based upon historical experience and various other information that we believe to be reasonable under the circumstances . for a detailed discussion of other significant accounting policies , see “ part ii - item 8. financial statements and supplementary data - note 2. ” goodwill we recognize the excess of the purchase price , plus the fair value of any non-controlling interests in the acquiree , over the fair value of identifiable net assets acquired as goodwill . goodwill is not amortized , but is reviewed at least annually on october 31 for indications of impairment , with consideration given to financial performance and other relevant factors . we perform a two-step test in our evaluation of the carrying value of goodwill , if qualitative factors determine it is necessary to complete the two-step goodwill impairment test . in step 1 of the evaluation , the fair value is determined and compared to the carrying value . if the fair value is greater than the carrying value , then the carrying value is deemed to be recoverable , and step 2 is not required . if the fair value estimate is less than the carrying value , it is an indicator that impairment may exist , and step 2 is required . in step 2 , the implied fair value of goodwill is determined . the fair value as determined in step 1 is assigned to all of its net assets ( recognized and unrecognized ) as if the entity was acquired in a business combination as of the date of the impairment test . if the implied fair value of goodwill is lower than its carrying amount , goodwill is impaired and written down to its fair value ; and a charge is reported in impairment of goodwill on our consolidated statements of operations . factors could cause us to believe our estimated fair value of our single reporting unit may be lower than the carrying value and trigger a step 1 test , but may not require a step 2 test if the fair value of the reporting unit is greater than its carrying value . in the event a step 2 test is conducted , it may not result in goodwill impairment because the implied fair value of goodwill may exceed our carrying amount of goodwill . the implied fair value of goodwill is most sensitive to our estimates of revenue growth , expense management , working capital investment , margins and discount rates . step 1 results we performed a step 1 analysis on our single reporting unit as part of our annual impairment assessment as of october 31 , 2015. to determine the implied fair value for our single reporting unit , we utilize both a discounted cash flow valuation approach ( “ income approach ” ) and a market multiple valuation approach ( “ market approach ” ) . in determining the estimated fair value , we consider discounted cash flow calculations of management 's estimates of future financial performance , management 's long-term plans , the level of our class a common stock price and assumptions that we consider market participants would make in valuing our reporting unit , including a control premium . this analysis requires us to make judgments about revenues , expenses , fixed asset and working capital requirements , the timing of exchanges of our class b common shares , capital market assumptions and discount rates . for our 2015 annual impairment testing , the most sensitive assumption for purposes of the market approach was our estimate of the control premium that would be paid to acquire the company , and the most sensitive assumption related to the income approach , other than our cash flows , was the discount rate . as of october 31 , 2015 , our single reporting unit passed the step 1 analysis as we determined that its implied fair value was greater than its carrying value based on both the income approach and the market approach ; however , under one of the approaches , fair value exceeded carrying value by less than 10 % . if fair value had been less than carrying value , we would have been required to perform a step 2 test to determine the implied fair value of our goodwill . outlook in interim periods between annual goodwill reviews , we also evaluate qualitative factors including , but not limited to ( i ) macroeconomic conditions , ( ii ) industry and market considerations , ( iii ) our overall financial performance including an analysis of our current and projected cash flows , revenue and earnings , ( iv ) a sustained decrease in share price and ( v ) other relevant entity-specific events including changes in strategy , customers , or litigation .
| review of consolidated financial condition liquidity and capital resources as noted in “ results of operations ” above , evolent health , inc. is the managing member of evolent health llc and the financial statements of evolent health , inc. include the consolidated results and cash flows of evolent health llc for the periods june 4 , 2015 , through december 31 , 2015 , and january 1 , 2013 , through september 22 , 2013 , and reflect the results of evolent health llc as an equity method investment for the period september 23 , 2013 , through june 3 , 2015. since its inception , the company has incurred operating losses and cash outflows from operations . the company incurred operating losses of $ 43.0 million , zero , and $ 21.2 million , in 2015 , 2014 and 2013 , respectively . net cash used in operating activities was $ 18.5 million , zero and $ 13.6 million in 2015 , 2014 and 2013 , respectively . as of december 31 , 2015 , the company had $ 145.7 million of cash and cash equivalents . we believe our current cash , short-term investments and other sources of liquidity will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months . our future capital requirements will depend on many factors , including our rate of revenue growth , the expansion of our sales and marketing activities and the timing and extent of our spending to support our investment efforts and expansion into other markets . we may also seek to invest in , or acquire complementary businesses , applications or technologies . cash , cash equivalents and restricted cash as of december 31 , 2015 , the company had $ 145.7 million of cash and cash equivalents and $ 6.3 million in restricted cash .
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cytori cell therapy consists of a heterogeneous population of specialized cells including stem cells that are involved in response to injury , repair and healing . these cells are extracted from an adult patient 's own adipose ( fat ) tissue using our fully automated , enzymatic , sterile celution ® system devices and consumable sets at the place where the patient is receiving their care ( i.e . there is no off-site processing or manufacturing ) . cytori cell therapy can either be administered to the patient the same day or banked for future use . an independent published study has demonstrated that cytori 's proprietary process results in higher nucleated cell viability , less residual enzyme activity , less processing time , and improved economics in terms of cell progenitor output compared to the three other semi-automated and automated processes assessed . in addition to our targeted therapeutic development , we have continued to upgrade and sell our celution® system under select medical device clearances to commercial customers , as well as research customers developing new therapeutic applications for cytori cell therapy , in europe , japan , and other regions . the sales enhance the body of clinical feasibility data using our technology that could lead to new indications and intellectual property , contribute to near term marginal profit that partially offset our operating expenses and provide the basis for further partnerships and commercial experience that should facilitate future product revenue growth . development pipeline the primary therapeutic areas currently in the development pipeline are scleroderma , orthopedics , urinary incontinence , and the treatment of thermal burns . in january 2015 , the fda granted unrestricted ide approval for a pivotal clinical trial , named the “ star ” trial , to evaluate cytori cell therapy as a potential treatment for impaired hand function in scleroderma , a rare autoimmune disease affecting approximately 50,000 patients in the united states . the star trial is a 48 week , randomized , double blind , placebo-controlled pivotal clinical trial of 80 patients in the united states . the trial evaluates the safety and efficacy of a single administration of cytori cell therapy in scleroderma patients affecting the hands and fingers . based on our internal analysis of the clinical and commercial chances of success , we have decided that scleroderma is our most advanced clinical indication as it is a phase iii pivotal study . in the later part of 2014 , we received approval by the fda to begin a u.s. ide pilot ( phase iia/b ) trial of cytori cell therapy in patients with osteoarthritis of the knee . the trial , called act-oa , is a 94 patient , randomized , double-blind , placebo control study involving two dose escalations of cytori cell therapy , a low dose and a high dose conducted over 48 weeks . the randomization is 1:1:1 between the control , low dose and high dose groups . the first patient was enrolled in february 2015 , and enrollment was completed in june 2015. a pre-specified partial unblinding and top-line analysis of 24 week data was completed in q1 of 2016. the objective of the analysis was to determine whether early high level data could be useful in planning the anticipated phase iii program or support ongoing r & d activities that could accelerate the overall clinical development of the technology . in the 3 rd quarter of 2016 , following full un-blinding of the data , the company will be able to more fully evaluate the data including 48 week follow up , patient subset analyses , and the effect on knee cartilage as measured by magnetic resonance imaging results changes between baseline and 48 weeks . another therapeutic target under evaluation is stress urinary incontinence in men following radical prostatectomy , which is based on positive data reported in a peer reviewed journal . in july 2015 , a company-supported male stress urinary incontinence ( sui ) trial in japan for male prostatectomy patients ( after prostate surgery ) received approval to being enrolled from the japanese ministry of health , labor and welfare . the goal of this investigator-initiated trial is to gain regulatory approval in japan of our cytori cell therapy for this indication . 34 cytori cell therapy is also being developed for the treatment of thermal burns combined with radiation injury . in the third quarter of 2012 , we were awarded a contract to develop a new countermeasure for thermal burns valued at up to $ 106 million with the u.s. department of health and human service 's biomedical advanced research and development authority ( barda ) . the initial base period included $ 4.7 million over two years and covered preclinical research and continued development of cytori 's celution® system to improve cell processing . the additional contract options , if fully executed , could cover our clinical development through fda approval under a device-based pma regulatory pathway . the cost-plus-fixed-fee contract is valued at up to $ 106 million , with a guaranteed two-year base period of approximately $ 4.7 million . we submitted reports to barda in late 2013 detailing the completion of the objectives in the initial contract . an in-process review meeting in the first half of 2014 confirmed completion of the proof of concept phase . in august and december 2014 , barda awarded to us contract options of $ 14 million . the options allowed for continuation of research , regulatory , clinical , and other activities required for approval and completion of a pilot clinical trial using cytori cell therapy ( dcct-10 ) for the treatment of thermal burns combined with radiation injury . in august 2014 , we announced the execution of a contract option with barda to fund the continued investigation and development of cytori cell therapy for use in thermal burn injuries . the extension was valued at approximately $ 12.1 million . story_separator_special_tag the decrease in sales and marketing expense during the year ended december 31 , 2014 as compared to the same period in 2013 was mainly attributed to the decrease in salary and related benefits expense ( excluding share-based compensation ) of $ 1.1 million related to a decrease in headcount of 10 full-time equivalent employees , $ 0.6 million of professional services expenses , $ 0.3 million in travel , and $ 0.2 million in advertising and promotion . the future : we expect sales and marketing expenditures to stabilize or slightly increase during 2016 , associated with investments toward the emea managed access program and commercial planning activities for hand scleroderma , knee osteoarthritis and stress urinary incontinence . general and administrative expenses general and administrative expenses include costs for administrative personnel , legal and other professional expenses , and general corporate expenses . the following table summarizes the general and administrative expenses for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_8_th for the year ended december 31 , 2015 as compared to the same period in 2014 , the general and administrative expenses ( excluding share-based compensation ) decreased primarily due to a decrease in salary and related benefits expense ( excluding share-based compensation ) of $ 1.6 million related to a decrease in headcount , $ 2.1 million decrease in professional services expenses , $ 0.4 million decrease in rent and utilities , $ 1.3 million decrease in bad debt expense and $ 0.1 million decrease in travel expenses . these decreases are mostly attributable to the expense reduction initiative implemented throughout 2014 and 2015 throughout the organization . 38 for the year ended december 31 , 2014 as compared to the same period in 2013 , the general and administrative expenses ( excluding share-based compensation ) remained relatively consistent . however , within general and administrative expenses we had a decrease in salary and related benefits expense ( excluding share-based compensation ) of $ 0.7 million related to a decrease of headcount of 13 full-time equivalent employees , partially offset by an increase in professional services ( which includes legal and consulting services ) of $ 0.7 million . the future : we expect general and administrative expenditures to remain consistent at current levels or slightly increase throughout 2016. stock-based compensation expenses stock-based compensation expenses include charges related to options and restricted stock awards issued to employees , directors and non-employees along with charges related to the employee stock purchases under the employee stock purchase plan ( espp ) . we measure stock-based compensation expense based on the grant-date fair value of any awards granted to our employees . such expense is recognized over the requisite service period . the following table summarizes the components of our stock-based compensation for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_9_th most of the share-based compensation expenses for the years ended december 31 , 2015 , 2014 and 2013 related to the vesting of stock option and restricted stock awards to employees . see note 15 to the consolidated financial statements included elsewhere herein for disclosure and discussion of share-based compensation . the decrease in share-based compensation for the year ended december 31 , 2015 as compared to the same period in 2014 is primarily related to a lower annual grant and due to the decline in the stock price during 2015 as compared to the same period in 2014 , and its corresponding impact into the share-based compensation . the decrease in share-based compensation for the year ended december 31 , 2014 as compared to the same period in 2013 is primarily due to the decrease in headcount of 37 full-time equivalent employees , the stock price decrease experienced in 2014 and share-based compensation expense reversals due to option cancellations . the future : we expect to continue to grant options and stock awards to our employees , directors , and , as appropriate , to non-employee service providers . in addition , previously-granted options will continue to vest in accordance with their original terms . as of december 31 , 2015 , the total compensation cost related to non-vested stock options and stock awards not yet recognized for all our plans is approximately $ 2.4 million , which is expected to be recognized as a result of vesting under service conditions over a weighted average period of 1.61 years . change in fair value of warrant liability the following is a table summarizing the change in fair value of warrant liability for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_10_th the change in fair value of our warrant liability for the years ended december 31 , 2015 and 2014 is primarily related to changes in stock price and the issuance of warrants with exercise price reset features during the october 2014 , may 2015 and august 2015 equity financings . for the year ended december 31 , 2013 , the balance relates to warrants issued in 2008 in connection with a private placement that expired in august 2013 . 39 the future : we do not expect any further changes in fair value of warrant liability , as all of our outstanding warrants with exercise price reset features were settled during december 2015. change in fair value of option liability the following is a table summarizing the change in fair value of option liability for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_11_th changes in fair value of our put option liability are due to changes in assumptions used in estimating the value of the put , such as bankruptcy threshold for cytori , fair value of the olympus joint venture , volatility and others .
| results of operations product revenues product revenues consisted of revenues primarily from our celution® system devices , consumables and stemsource® cell banks . the following table summarizes the components for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_3_th a majority of our product revenue in 2015 was derived from japan . with two new regenerative medicine laws in japan going into effect in november 2014 that removed regulatory uncertainties and provided a clear path for us to offer cytori cell therapy in japan , we expect continued demand from researchers at academic hospitals seeking to perform investigator-initiated and funded studies . 35 we experienced a decrease in product revenue during the year ended december 31 , 2015 as compared to the same period in 2014 , primarily due to decreased revenue in americas of $ 0.2 million and decreased revenue in japan of $ 0.7 million , offset by increased revenues in asia pacific of approximately $ 0.8 million . revenue deferred in the years ended december 31 , 2015 , 2014 , and 2013 was $ 0.1million , $ 1.4 million , and $ 3.6 million , respectively . the future : we expect to continue to generate a majority of product revenues from the sale of celution® system devices and consumables to researchers , clinicians , and distributors in emea , japan , asia pacific , and americas . in japan and emea , researchers will use the celution® system to construct ongoing and new investigator-initiated and funded studies focused on , but not limited to , hand scleroderma , crohn ' disease , peripheral artery disease , erectile dysfunction , and diabetic foot ulcer . eccs-50 therapy for hand scleroderma prepared with the celution® system will be accessible to patients and physicians through a managed access program that launched in emea in early 2016. in the america 's , cytori 's partner , kerastem , will utilize the celution® system as part of their fda-approved style trial .
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statement of cash flows − in august 2016 , the fasb issued asu 2016-15 , classification of certain cash receipts and cash payments , an accounting standards update that amends the guidance on the classification of certain cash receipts and cash payments presented within the statement of cash flows to reduce the existing diversity in practice . this guidance is effective for annual reporting periods , and interim periods within those annual periods , beginning after december 15 , 2017 , with early adoption permitted . the company is currently evaluating the effect that this guidance will have on its consolidated financial statements . income taxes − in october 2016 , the fasb issued asu 2016-16 , income taxes , an accounting standards update that amends the guidance on the classification of income taxes related to the intra-entity transfer of assets other than inventory . this guidance is effective for annual reporting periods , and interim periods within those annual periods , beginning after december 15 , 2017 , with early adoption permitted . the company is currently evaluating the effect that this guidance will have on its consolidated financial statements . however , the significance of adoption is dependent on the nature of the transactions and corresponding tax laws in effect at the time of adoption . restricted cash − in november 2016 , the fasb issued asu 2016-18 , restricted cash , an accounting standards update that amends the guidance on restricted cash within the statement of cash flows . the update amends the classification of restricted cash and cash equivalents to be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts . this guidance is effective for annual reporting periods , story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes included in item 8. consolidated financial statements and supplementary data of this annual report on form 10-k. all currency amounts are presented in thousands , except per share amounts or as otherwise noted . general we are a public residential real estate finance company focused on acquiring , investing in and managing residential mortgage assets in the united states . we were incorporated in maryland on october 31 , 2012 , and we commenced operations on or about october 9 , 2013 following the completion of our ipo and a concurrent private placement . our common stock is listed and traded on the new york stock exchange under the symbol chmi. we are externally managed by our manager , cherry hill mortgage management , llc , an sec-registered investment adviser . our principal objective is to generate attractive current yields and risk-adjusted total returns for our stockholders over the long term , primarily through dividend distributions and secondarily through capital appreciation . we attempt to attain this objective by selectively constructing and actively managing a portfolio of servicing related assets and rmbs and , subject to market conditions , other cash flowing residential mortgage assets . we are subject to the risks involved with real estate and real estate-related debt instruments . these include , among others , the risks normally associated with changes in the general economic climate , changes in the mortgage market , changes in tax laws , interest rate levels , and the availability of financing . we elected to be taxed as a reit for u.s. federal income tax purposes commencing with our short taxable year ended december 31 , 2013. we operate so as to continue to qualify to be taxed as a reit . our asset acquisition strategy focuses on acquiring a diversified portfolio of residential mortgage assets that balances the risk and reward opportunities our manager observes in the marketplace . prior to our acquisition of aurora in may 2015 , our servicing related assets consisted of excess msrs in three pools : excess msr pool 1 , excess msr pool 2 and excess msr pool 2014. the excess msrs in these three pools had been previously acquired by the company from freedom mortgage . aurora has the licenses necessary to service mortgage loans on a nationwide basis and is approved to service loans for fannie mae , freddie mac and ginnie mae . on november 15 , 2016 , we sold excess msr pool 1 and excess msr pool 2014 to freedom mortgage . we sold excess msr pool 2 to freedom mortgage on february 1 , 2017. in connection with the sale of the excess msrs in excess msr pool 2 to freedom mortgage , freedom mortgage transferred to aurora ginnie mae msrs on mortgage loans that had an aggregate upb of approximately $ 4.5 billion as of january 31 , 2017. in connection with these sales , we repaid the outstanding borrowings drawn on the nexbank term loan . in addition , the acknowledgment agreement that we and freedom mortgage entered into with ginnie mae at the time of our ipo was terminated . in connection with the sale transactions , freedom mortgage made 12 monthly yield maintenance payments aggregating $ 3.0 million to the company from december 2016 to november 2017. in addition to servicing related assets , we invest in agency rmbs , primarily those backed by 30- , 20- and 15-year frms that offer what we believe to be favorable prepayment and duration characteristics . we finance our rmbs with leverage , the amount of which will vary from time to time depending on the particular characteristics of our portfolio , the availability of financing and market conditions . we do not have a targeted leverage ratio for our rmbs . our borrowings for rmbs consist of short-term borrowings under master repurchase agreements . we have also invested in agency cmos consisting of ios as well as risk-sharing securities issued by fannie mae and freddie mac . story_separator_special_tag similarly , if we purchase assets at a discount to par value , and borrowers prepay their mortgage loans slower than expected , the decrease in corresponding prepayments may reduce the expected yield on assets because we will not be able to accrete the related discount as quickly as originally anticipated . if prepayment speeds are significantly greater than expected , the fair value of the servicing related assets could exceed their fair value as previously reported on our consolidated balance sheets . such a reduction in the fair value of the servicing related assets would have a negative impact on our book value . furthermore , a significant increase in prepayment speeds could materially reduce the ultimate cash flows we receive from the servicing related assets , and we could ultimately receive substantially less than what we paid for such assets . we do not utilize derivatives to hedge against changes in the fair value of the servicing related assets . our balance sheet , results of operations and cash flows are susceptible to significant volatility due to changes in the fair value of , or cash flows from , the servicing related assets as interest rates change . a slower than anticipated rate of prepayment due to an increase in market interest rates also will cause the life of the related rmbs to extend beyond that which was projected . as a result , we would have an asset with a lower yield than current investments for a longer period of time . in addition , if we have hedged our interest rate risk , extension may cause the security to be outstanding longer than the related hedge , thereby reducing the protection intended to be provided by the hedge . voluntary and involuntary prepayment rates may be affected by a number of factors including , but not limited to , the availability of mortgage credit , the relative economic vitality of the area in which the related properties are located , the servicing of the mortgage loans , possible changes in tax laws , other opportunities for investment , homeowner mobility and other economic , social , geographic , demographic and legal factors , none of which can be predicted with any certainty . we attempted to reduce the exposure of our excess msrs to voluntary prepayments through the structuring of recapture agreements with freedom mortgage . with the sale of our excess msrs to freedom mortgage in november 2016 and february 2017 , these arrangements were terminated . in june 2016 , aurora entered into a joint marketing recapture agreement with freedom mortgage . pursuant to this agreement , freedom mortgage attempts to refinance certain mortgage loans underlying aurora 's portfolio of fannie mae , freddie mac and ginnie mae msrs as directed by aurora . if a loan is refinanced , aurora will pay freedom mortgage a fee for its origination services . freedom mortgage will be entitled to sell the loan for its own benefit and will transfer the related msr to aurora . the agreement had an initial term of one year , subject to automatic renewals of one year each and subject to termination by either party upon 60 days prior notice . all new loans must qualify for sale to fannie mae or freddie mac or pooling with ginnie mae , as applicable , and meet other conditions set forth in the agreement . in the year ended december 31 , 2017 , aurora received msrs with an aggregate upb of approximately $ 27.6 million and paid fees of approximately $ 43,000 to freedom mortgage under this joint marketing recapture agreement . 39 with respect to our business operations , increases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to increase ; the value of our assets to fluctuate ; the coupons on any adjustable-rate and hybrid rmbs we may own to reset , although on a delayed basis , to higher interest rates ; prepayments on our rmbs to slow , thereby slowing the amortization of our purchase premiums and the accretion of our purchase discounts ; and an increase in the value of any interest rate swap agreements we may enter into as part of our hedging strategy . conversely , decreases in interest rates , in general , may over time cause : prepayments on our rmbs to increase , thereby accelerating the amortization of our purchase premiums and the accretion of our purchase discounts ; the interest expense associated with our borrowings to decrease ; the value of our assets to fluctuate ; to the extent we enter into interest rate swap agreements as part of our hedging strategy , the value of these agreements to decrease ; and coupons on any adjustable-rate and hybrid rmbs assets we may own to reset , although on a delayed basis , to lower interest rates . effects of spreads on our assets the spread between the yield on our assets and our funding costs affects the performance of our business . wider spreads imply greater income on new asset purchases but may have a negative impact on our stated book value . wider spreads may also negatively impact asset prices . in an environment where spreads are widening , counterparties may require additional collateral to secure borrowings which may require us to reduce leverage by selling assets . conversely , tighter spreads imply lower income on new asset purchases but may have a positive impact on stated book value of our existing assets . in this case , we may be able to reduce the amount of collateral required to secure borrowings . credit risk we are subject to varying degrees of credit risk in connection with our assets . although we expect relatively low credit risk with respect to our portfolios of agency rmbs , we are subject to the credit risk of the borrowers under the loans for which we hold msrs .
| results of operations presented below is a comparison of the company 's results of operations for the periods indicated ( dollars in thousands ) : results of operations replace_table_token_7_th 44 presented below is summary financial data on our segments together with a reconciliation to the same data for the company as a whole , for the periods indicated ( dollars in thousands ) : segment summary data for replace_table_token_8_th replace_table_token_9_th replace_table_token_10_th 45 interest income interest income for the year ended december 31 , 2017 was $ 42.0 million as compared to $ 30.7 million for the year ended december 31 , 2016 , after giving effect for the estimated catch up premium amortization ( benefit ) cost on excess msrs of approximately $ 2.4 million for the year ended december 31 , 2016. the $ 11.3 million increase in interest income for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 , was comprised of a decrease of approximately $ 13.6 in servicing related assets due to the sale of our remaining excess msrs in february 2017 and an increase of approximately $ 24.9 million in rmbs resulting from the investment of the net proceeds of the two equity offerings that the company completed during the year ended december 31 , 2017. interest income for the year ended december 31 , 2016 , was $ 30.7 million as compared to $ 27.7 million for the year ended december 31 , 2015 , after giving effect for the estimated catch up premium amortization ( benefit ) cost of approximately $ 2.4 million and approximately $ 1.9 million , respectively . the $ 3.0 million increase in interest income was comprised of a decrease of approximately $ 200,000 in servicing related assets and an increase of approximately $ 3.2 million in rmbs .
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the company reviews current business trends , inventory agings and discontinued merchandise categories to determine adjustments , which it estimates will be needed to liquidate existing clearance inventories and reduce inventories to the lower of cost or market . inventory held on consignment by third parties totaled story_separator_special_tag overview the following discussion and analysis is intended to help you understand us , our operations and our financial performance . it should be read in conjunction with our consolidated financial statements and the accompanying notes , which are included elsewhere in this report . we are one of the largest branded apparel companies in the world , with a heritage dating back over 130 years . our brand portfolio consists of nationally and internationally recognized brand names , including calvin klein , tommy hilfiger , van heusen , izod , arrow , speedo ( licensed in perpetuity for north america and the caribbean from speedo international , ltd. ) , warner 's and olga . in addition , through the end of the third quarter of 2013 , we owned and operated businesses under the g.h . bass & co . and bass trademarks . we also license brands from third parties primarily for use on dress shirts , neckwear and underwear offered in the united states and canada . we sold substantially all of the assets of our bass business on november 4 , 2013 and announced in january 2015 that we will exit our izod retail business during 2015 . 30 our business strategy is to manage and market a portfolio of nationally and internationally recognized apparel and lifestyle brands at multiple price points and across multiple channels of distribution and geographies . we believe this approach reduces our reliance on any one demographic group , merchandise preference , distribution channel or geographic region . we acquired warnaco on february 13 , 2013 and , with it , acquired the global calvin klein jeans and calvin klein underwear businesses and the core intimates ( warner 's and olga ) and speedo businesses , which operate in north america . prior to the acquisition , warnaco was our largest calvin klein licensee , as their royalty and administrative fee payments to us accounted for approximately 37 % of our calvin klein royalty , advertising and other revenue in 2012. the total consideration for the acquisition was $ 3.137 billion , consisting of $ 2.180 billion paid in cash , the issuance of approximately 8 million shares of our common stock ( valued at $ 926 million ) , the issuance of stock awards valued at $ 40 million ( to replace outstanding stock awards made by warnaco to its employees ) and the elimination of a $ 9 million pre-acquisition liability to warnaco . we funded the cash portion and related costs of the acquisition , repaid all outstanding borrowings under our previously outstanding senior secured credit facilities and repaid all of warnaco 's previously outstanding long-term debt with the net proceeds of ( i ) an offering during the fourth quarter of 2012 of $ 700 million of 4 1/2 % senior notes due 2022 ; and ( ii ) $ 3.075 billion of term loans borrowed during the first quarter of 2013 under new senior secured credit facilities . these items are more fully described in the section entitled “ liquidity and capital resources ” below . our revenue reached a record $ 8.241 billion in 2014 , approximately 45 % of which was generated internationally . our global designer lifestyle brands , tommy hilfiger and calvin klein , together generated over 75 % of our revenue . results of operations operations overview we generate net sales from ( i ) the wholesale distribution to retailers , franchisees , licensees and distributors of men 's dress shirts , neckwear and underwear , jeanswear , sportswear , intimate apparel , swim products , footwear , accessories and related products under owned and licensed trademarks , and ( ii ) the sale through ( a ) over 1,500 company-operated free-standing retail store locations worldwide under our calvin klein , tommy hilfiger , van heusen and izod trademarks , ( b ) over 1,100 company-operated concessions/shop-in-shops worldwide under our calvin klein and tommy hilfiger trademarks , and ( c ) e-commerce websites in certain regions under our calvin klein and tommy hilfiger trademarks , of apparel , footwear , accessories and other products , and speedo 's own e-commerce website in north america of swimwear and related products . we also operated g.h . bass & co . stores through the end of the third quarter of 2013 , at which time we sold substantially all of the assets of our bass business . we generate royalty , advertising and other revenue from fees for licensing the use of our trademarks . as noted above , a substantial portion of our calvin klein licensing revenue was generated from warnaco prior to the acquisition and , therefore , our royalty , advertising and other revenue decreased significantly in 2013 as compared to 2012. in addition , the loss of such licensing revenue had a negative impact on our gross margin and operating margin as compared to 2012 , as licensing revenue carries no cost of goods sold . we recorded pre-tax charges during 2014 , 2013 and 2012 principally in connection with the warnaco acquisition , integration and restructuring that totaled $ 139 million , $ 471 million and $ 46 million , respectively . the amounts incurred in 2013 included noncash charges of approximately $ 175 million , principally related to short-lived valuation adjustments and amortization . we also recorded pre-tax debt modification and extinguishment charges in 2014 and 2013 that totaled $ 93 million and $ 40 million , respectively . story_separator_special_tag the net reduction of $ 185 million of net sales in our heritage brands retail and heritage brands wholesale segments , which includes a reduction of $ 176 million related to the loss of net sales of the exited bass business , as mid-single digit percentage growth in the wholesale sportswear business was more than offset by poor performance within the dress shirt business and a 5 % comparable store sales decline in our retail stores ( excluding the izod retail business in the fourth quarter , which is no longer included in retail comparable store sales as the business is being exited in 2015 ) . the net sales increase of $ 2.265 billion in 2013 as compared to 2012 was due principally to the effect of the following items : the aggregate addition of $ 1.744 billion in net sales in our calvin klein north america and calvin klein international segments . the calvin klein businesses acquired early in 2013 with the warnaco acquisition contributed $ 1.635 billion of this increase . also driving the increase was strong performance in the pre-acquisition north america businesses due to an 8 % increase in the wholesale business combined with an increase in the retail business , driven by comparable store sales growth of 3 % and square footage expansion . partially offsetting these increases was a reduction of $ 30 million in the calvin klein international segment due to sales returns from certain wholesale customers in the acquired asia business in connection with our initiative to reduce excess inventory levels . the net addition of $ 313 million in net sales in our heritage brands wholesale and heritage brands retail segments . the acquired speedo , warner 's and olga businesses contributed $ 450 million of net sales in our heritage brands wholesale segment and revenue in our pre-acquisition ongoing heritage brands wholesale businesses increased 2 % . these revenue increases were partially offset by ( i ) the loss of $ 75 million of revenue generated in the fourth quarter of 2012 related to the exited bass business , ( ii ) the loss of sales related to the exited izod women 's and timberland wholesale sportswear businesses , which totaled $ 42 million in 2012 , and ( iii ) a comparable store sales decline of 7 % in the retail business due , in large part , to weak performance at bass during the first three quarters of 2013. the aggregate addition of $ 209 million in net sales attributable to growth in our tommy hilfiger north america and tommy hilfiger international segments . within the tommy hilfiger north america segment , net sales increased 8 % , principally driven by 4 % retail comparable store sales growth , retail square footage expansion and double-digit percentage growth in the wholesale business . net sales in the tommy hilfiger international segment increased 6 % . growth in europe was driven by a 6 % european retail comparable store sales increase , retail square footage expansion and a 9 % increase in the european wholesale business and also included the positive impact of foreign currency translation due to a stronger euro as compared to 2012. these increases were partially offset by a revenue decline in japan , including a negative impact of foreign currency translation due to a weaker yen compared with the prior year . royalty , advertising and other revenue royalty , advertising and other revenue in 2014 increased to $ 392 million from $ 380 million in 2013. calvin klein royalty revenue increased 2 % from the prior year period , which is the net of the effect of 4 % growth driven by continued strength in women 's apparel , partially offset by a decline of 2 % due to the absence of royalty revenue from warnaco in 2014. the prior year 's first quarter included royalty revenue from warnaco for the first ten days of the year , which were prior to the acquisition . tommy hilfiger royalty revenue increased 9 % , driven by strength in asia and growth across most product categories . 33 royalty , advertising and other revenue in 2013 decreased to $ 380 million from $ 502 million in 2012 , as strong performance in women 's apparel , handbags and accessories , as well as men 's and women 's outerwear , was more than offset by the absence in 2013 of warnaco royalty and advertising revenue subsequent to the warnaco acquisition , and the expiration of a long-term contractual agreement related to calvin klein royalties in the north america women 's sportswear business , which together totaled $ 146 million . excluding this contractual agreement and the loss of warnaco royalty and advertising revenue , calvin klein royalty , advertising and other revenue increased 8 % . tommy hilfiger royalty , advertising and other revenue increased $ 7 million due to growth across most licensed product categories . we currently expect that our 2015 revenue will decrease approximately 4 % as compared to 2014 , including a negative impact of 7 % due to the stronger united states dollar . aggregate revenue for our calvin klein north america and calvin klein international segments in 2015 is projected to be relatively flat as compared to 2014 , including a negative impact of 5 % due to the stronger united states dollar . aggregate revenue for our tommy hilfiger north america and tommy hilfiger international segments in 2015 is expected to decrease 7 % from 2014 , including a negative impact of 10 % due to the stronger united states dollar . aggregate revenue for our heritage brands wholesale and heritage brands retail segments is expected to decrease 4 % as compared to 2014. gross profit on total revenue gross profit on total revenue is calculated as total revenue less cost of goods sold . included as cost of goods sold are costs associated with the production and procurement of product , such as inbound freight costs , purchasing and receiving costs and inspection costs .
| cash flow summary cash and cash equivalents at february 1 , 2015 was $ 479 million , a reduction of $ 114 million from the amount at february 2 , 2014 of $ 593 million . this reduction included $ 425 million of debt repayments . cash and cash equivalents at february 1 , 2015 excluded a restricted cash balance of $ 20 million , which was placed into an escrow account prior to year end to contribute funding to our joint venture in australia in the first quarter of 2015. cash flow in 2015 will be impacted by various factors in addition to those noted below in this “ liquidity and capital resources ” section , including the amount of debt repayments we make in 2015. as of february 1 , 2015 , approximately $ 389 million of cash and cash equivalents was held by international subsidiaries whose undistributed earnings are considered permanently reinvested . our intent is to continue to reinvest these funds in international operations . if management decides at a later date to repatriate these funds to the united states , we would be required to pay taxes on these amounts based on applicable united states tax rates , net of foreign taxes already paid . operations cash provided by operating activities was $ 789 million in 2014 as compared with $ 412 million in 2013. the increase in cash provided by operating activities as compared to the prior year was primarily driven by an increase in net income , as adjusted for noncash charges in the current year period and a $ 57 million reduction in pension contributions .
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at october 31 , 2016 , we owned or had equity interests in 75 properties , which include equity interests we own in three consolidated joint ventures and seven unconsolidated joint ventures , containing a total of 5.0 million square feet of gross leasable area ( `` gla '' ) . of the properties owned by wholly-owned subsidiaries or joint venture entities that we consolidate , approximately 93.3 % was leased ( 95.8 % at october 31 , 2015 ) . of the properties owned by unconsolidated joint ventures , approximately 98.4 % was leased ( 98.1 % at october 31 , 2015 ) . the drop in our leased rate at october 31 , 2016 , when compared with the leased rate at october 31 , 2015 , is predominantly related to the bankruptcy of great atlantic and pacific tea company , inc. ( `` a & p '' ) . during the first quarter of fiscal 2016 , three of the nine spaces that a & p occupied became vacant . those spaces totaled 132,000 square feet or about 3.3 % of our consolidated property square footage . two of the aforementioned three spaces were re-leased in the second quarter of fiscal 2016 , but one former a & p space , totaling approximately 63,000 square feet , remains vacant at october 31 , 2016 ( 1.6 % of consolidated portfolio square footage ) . for more information about the impact of the a & p bankruptcy , see `` leasing—significant events with impacts on leasing '' below in this item 7. the above percentages exclude our white plains property . in november 2014 , a zoning change was obtained from the city of white plains that will allow this property to be converted to a higher and better use . on this basis , we have completely vacated the property to make potential redevelopment possible . this included the expiration of two leases at the property totaling 90,000 square feet in february 2015 , for which the average base rent per square foot was approximately $ 24.69 per annum . in april 2015 , we entered into a contract to sell this property to a third party , with the closing date scheduled to be fifteen days after the property is completely vacated of all tenants , which was accomplished in april 2016. in february 2016 , the sale contract was amended to allow the purchaser to extend the closing . the amendment provided the purchaser six one-month options to extend the closing date for a payment of $ 461,000 per one-month extension option exercised . the purchaser exercised all of the six options , and we recorded the $ 2.8 million received as base rent revenue as of october 31 , 2016. in addition , in october 2016 , we granted the purchaser an additional extension option to extend the closing until march 2017. in exchange for granting the extension , we received an additional $ 2 million , which we have recorded as base rent revenue as of october 31 , 2016. furthermore , the extension agreement required the purchaser to deposit a total of $ 11.9 million with us and an additional $ 3 million with a third-party agent to be applied to the purchase price of the shopping center at closing . the $ 11.9 million is recorded in other liabilities at october 31 , 2016. we have paid quarterly dividends to our shareholders continuously since our founding in 1969 and have increased the level of dividend payments to our shareholders for 22 consecutive years . we derive substantially all of our revenues from rents and operating expense reimbursements received pursuant to long-term leases and focus our investment activities on community and neighborhood shopping centers , anchored principally by regional supermarket chains . we believe that because consumers need to purchase food and other types of staple goods and services generally available at supermarket-anchored shopping centers , the nature of our investments provides for relatively stable revenue flows even during difficult economic times . we have a conservative capital structure and do not have any secured debt maturing until october 2017 , for which we have entered into a commitment to refinance in july 2017. see `` significant financings and debt transactions in fiscal 2016 '' below in this item 7. we focus on increasing cash flow , and consequently the value of our properties , and seek continued growth through strategic re-leasing , renovations and expansions of our existing properties and selective acquisitions of income-producing properties . key elements of our growth strategies and operating policies are to : · acquire quality neighborhood and community shopping centers in the northeastern part of the united states with a concentration on properties in the metropolitan new york tri-state area outside of the city of new york , and unlock further value in these properties with selective enhancements to both the property and tenant mix , as well as improvements to management and leasing fundamentals ; · selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet our acquisition criteria ; · invest in our properties for the long term through regular maintenance , periodic renovations and capital improvements , enhancing their attractiveness to tenants and customers , as well as increasing their value ; · leverage opportunities to increase gla at existing properties , through development of pad sites and reconfiguring of existing square footage , to meet the needs of existing or new tenants ; · proactively manage our leasing strategy by aggressively marketing available gla , renewing existing leases with strong tenants , and replacing weak ones when necessary , with an eye towards securing leases that include regular or fixed contractual increases to minimum rents , replacing below-market-rent leases with increased market rents when possible and further improving the quality of our tenant mix at our shopping centers ; · maintain strong working relationships with our tenants , particularly our anchor tenants ; · maintain a conservative capital structure with low leverage levels ; and · control property operating story_separator_special_tag the change in rental income on comparable space leases is impacted by numerous factors including current market rates , location , individual tenant creditworthiness , use of space , market conditions when the expiring lease was signed , the age of the expiring lease , capital investment made in the space and the specific lease structure . tenant improvements include the total dollars committed for the improvement ( fit-out ) of a space as it relates to a specific lease but may also include base building costs ( i.e . expansion , escalators or new entrances ) that are required to make the space leasable . incentives ( if applicable ) include amounts paid to tenants as an inducement to sign a lease that do not represent building improvements . the leases signed in 2016 generally become effective over the following one to two years . there is risk that some new tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating , financing or other matters . however , these increases/decreases do provide information about the tenant/landlord relationship and the potential increase we may achieve in rental income over time . in 2017 , we believe our leasing volume will be in-line with our historical averages with overall positive increases in rental income for renewal leases and flat to slightly positive increases for new leases . however , changes in rental income associated with individual signed leases on comparable spaces may be positive or negative , and we can provide no assurance that the rents on new leases will continue to increase at the above described levels , if at all . 17 significant events with impacts on leasing in july 2015 , one of our largest tenants , a & p , filed a voluntary petition under chapter 11 of title 11 of the united states bankruptcy code ( the `` bankruptcy code '' ) . subsequently , a & p determined that it would be liquidating the company . as of october 31 , 2015 , a & p leased and occupied nine spaces totaling 365,000 square feet in our portfolio . the total base rent per annum for these nine spaces totaled $ 5,540,000 at october 31 , 2015. the bankruptcy process relating to our nine spaces is complete . as of october 31 , 2016 , eight of the nine a & p leases have been assumed by new operators in the bankruptcy process or re-leased by the company to new operators ( see notes 1 , 2 and 3 below ) . the remaining lease was rejected by a & p in bankruptcy ( see note 4 below ) , and we are in the process of re-leasing that space . the table below details information about the nine former a & p leases in our portfolio prior to the transactions described above : property location square feet base rent per annum base rent per square foot lease expiration note pompton lakes town square pompton lakes , nj 63,000 $ 1,244,000 $ 19.80 rejected by a & p 4 ferry plaza shopping center newark , nj 63,000 1,215,000 $ 19.15 nov 2020 * 1 village shopping center new providence , nj 46,000 990,000 $ 21.75 feb 2029 * 1 boonton shopping center boonton , nj 49,000 950,000 $ 19.21 oct 2024 * 1 valley ridge shopping center wayne , nj 36,000 540,000 $ 15.00 terminated 3 harrison shopping center harrison , ny 12,000 264,000 $ 22.00 sept 2024 * 2 bloomfield shopping center bloomfield , nj 31,000 154,000 $ 5.00 terminated 3 shoppes at eastchester eastchester , ny 30,000 110,000 $ 3.71 oct 2019 1 and 5 mclean plaza shopping center yonkers , ny 35,000 73,000 $ 2.09 oct 2034 * 1 365,000 $ 5,540,000 * subject to further tenant renewal options note 1 – lease purchased by acme , a division of albertson 's . note 2 – lease purchased by key food . note 3 – lease purchased by urstadt biddle properties inc. lease subsequently terminated and re-leased to new supermarket operator at increased base rent per square foot . note 4 – rejected by a & p in the bankruptcy process ; in process of re-leasing . note 5 – we have amended the lease to increase the base rent per square foot from $ 3.71 to $ 10.00 per square foot through 10/31/19 and to provide tenant with an option to extend the lease term through 10/31/24 at a base rent of $ 25.00 per square foot . in the second quarter of fiscal 2016 , we completed the re-leasing of both the bloomfield and wayne a & p spaces to new regional supermarket operators ( see note 3 above ) . the new leases will generate annual base rent of $ 1.07 million as compared with $ 694,000 that a & p was previously paying on those two spaces , which is an aggregate increase of $ 372,000 per annum . the bloomfield a & p lease had twenty years of remaining term ( including tenant options ) with no base rental rate increases . both new leases provide for the tenant to pay its proportionate share of common area maintenance and real estate taxes as additional rent . the bloomfield space was delivered to the tenant in early february 2016 , and the wayne space was delivered to the tenant at the beginning of march 2016. we are still marketing the pompton lakes location for lease . impact of inflation on leasing our long-term leases contain provisions to mitigate the adverse impact of inflation on our operating results . such provisions include clauses entitling us to receive ( a ) scheduled base rent increases and ( b ) percentage rents based upon tenants ' gross sales , which generally increase as prices rise .
| results of operations fiscal 2016 vs. fiscal 2015 the following information summarizes our results of operations for the years ended october 31 , 2016 and 2015 ( amounts in thousands ) : replace_table_token_8_th note 1 – properties held in both periods includes only properties owned for the entire periods of 2016 and 2015 including the company 's white plains property ( see executive summary above ) . all other properties are included in the property acquisition/sales column . there are no properties excluded from the analysis . revenues base rents increased by 3.9 % to $ 87.2 million in fiscal 2016 , as compared with $ 83.9 million in the comparable period of 2015. the increase in base rents and the changes in other income statement line items were attributable to : property acquisitions and properties sold : in fiscal 2015 , the company purchased equity interests in six properties totaling approximately 409,000 square feet of gla and sold two properties totaling approximately 320,000 square feet and in fiscal 2016 , the company purchased two properties totaling 99,000 square feet . these properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in fiscal 2016 when compared with fiscal 2015. properties held in both periods : revenues base rents increased by $ 4.8 million in fiscal 2016 as compared to fiscal 2015 primarily as a result of the company receiving $ 4.8 million in extension fees from the entity in contract to purchase our white plains property . in fiscal 2015 , the company entered into contract to sell our white plains property and that closing was scheduled to occur in april 2016. in february the purchaser approached the company and asked for an extension of the closing to october 2016. in exchange for granting the extension the company received $ 2.8 million .
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following is a summary of future minimum payments under operating leases that have initial or remaining non-cancelable lease terms for the next five years ( in thousands ) : replace_table_token_19_th rental expense for operating leases amounted to $ 1.7 million , $ 1.6 million and $ 1.5 million in 2018 , 2017 and 2016 , respectively , as reported in operating expenses in the consolidated statements of income . note 7. long-term debt on july 20 , 2016 , the company entered into an amended and restated credit facility agreement ( the “ amended credit facility ” ) , under which our former $ 100 story_separator_special_tag the following discussion is intended to assist in the understanding of our results of operations and our present financial condition . the consolidated financial statements and the accompanying notes contain additional detailed information that should be referred to when reviewing this material . statements in this discussion may be forward-looking . such forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those expressed . see “ forward-looking statements ” preceding item 1 . “ business. ” overview monarch owns and operates the atlantis casino resort spa , a hotel and casino in reno , nevada ( the “ atlantis ” ) and monarch casino black hawk , a casino in black hawk , colorado . in addition , we own separate parcels of land located next to the atlantis and a parcel of land with an industrial warehouse located between denver , colorado and monarch casino black hawk . we also own chicago dogs eatery , inc. and monarch promotional association , both of which were formed in relation to licensure requirements for extended hours of liquor operation in black hawk , colorado . our business strategy is to maximize revenues , operating income and cash flow primarily through our casino , food and beverage operations and , at the atlantis , our hotel operations . the monarch casino black hawk does not have a hotel ; however , we are in the process of renovations and construction that will include a hotel . see item 1 , “ business - the monarch casino black hawk. ” we focus on delivering exceptional service and value to our guests . our hands-on management style focuses on customer service and cost efficiencies . factors impacting our results of operations our operating results may be affected by , among other things , competitive factors , gaming tax increases , the commencement of new gaming operations , construction at our facilities , general public sentiment regarding travel , overall economic conditions and governmental policies affecting the disposable income of our patrons and weather conditions affecting our properties , as well as those matters discussed in item 1a . “ risk factors ” above . the following significant factors and trends should be considered in analyzing our operating performance : atlantis : our business strategy is to maximize revenues , operating income and cash flow primarily through our casino , food and beverage operations and hotel operations . we continuously upgrade our property . with quality gaming , hotel and dining products , we believe the atlantis is well positioned to benefit from future macro and local economic growth . businesses continue to relocate to northern nevada and local business volume has steadily increased . while such economic activity could ultimately drive additional revenue and profit at atlantis , we are experiencing the more immediate effect of increased labor costs , which , combined with continued aggressive marketing programs by our competitors , have applied upward pressure on atlantis operating costs . monarch casino black hawk : since the acquisition of monarch casino black hawk in april 2012 , our focus has been to maximize casino and food and beverage revenues while upgrading the existing facility and working on the major expansion . there is currently no hotel on the property . in august 2015 , we completed the redesign and upgrade of the existing monarch casino black hawk , bringing to the facility 's interior the same quality , ambiance and finishes of the ongoing master planned expansion that will transform monarch casino black hawk into a full-scale casino resort . in november 2016 , we opened for guest use our elegant nine-story parking facility with about 1,350 spaces . construction of a new hotel tower and casino expansion on the site where the old parking structure was sitting is under way . ( see capital spending and development – monarch black hawk expansion plan ) . once completed , the monarch black hawk expansion plan will nearly double the casino space and will add a 23-story hotel tower with approximately 500 guest rooms and suites , an upscale spa and pool facility , three additional restaurants ( increasing the total to four ) , additional bars and associated support facilities . we currently expect the new expanded casino , hotel tower , restaurants and retail areas to be completed in the third quarter of 2019 and the upgraded amenities in the existing casino to be completed in the fourth quarter of 2019 . 32 story_separator_special_tag style= '' margin:0pt ; text-indent:18pt ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > for the year ended december 31 , 2017 , our net income totaled $ 25.5 million , or $ 1.39 per diluted share , compared to net income of $ 24.6 million , or $ 1.39 per diluted share for the same period of 2016 , reflecting a 3.9 % increase in net income and no change in diluted earnings per share . net revenue for the years ended december 31 , 2017 and 2016 was $ 230.7 million and $ 217.0 million , respectively , reflecting an increase of $ 13.7 million , or 6.3 % . income from operations for the year ended december 31 , 2017 totaled $ 40.7 million compared to $ 38.5 million for the same period in 2016 , representing an increase of $ 2.1 million , or 5.5 % . story_separator_special_tag in november 2016 , the new nine-story parking structure , offering approximately 1,350 parking spaces , was completed and became available for use by monarch casino black hawk guests . the demolition and removal of the old parking structure , which included a controlled implosion of the old garage , was completed in the first quarter of 2017. on february 8 , 2017 , we broke ground on the hotel tower and casino expansion . the new 23-story tower will nearly double the existing casino space and will include approximately 500 hotel rooms , an upscale spa and pool facility , three additional restaurants and additional bars . during 2018 , we completed certain modifications to the monarch black hawk expansion plan scope which , we believe , will provide additional revenue opportunities for our expanded resort , including enlarging the casino floor and associated amenities by approximately 6,500 square feet . in addition , we made adjustments to the budget for the rise in construction costs and furniture , fixtures and equipment costs . accordingly , we increased our budget for the hotel tower and casino expansion cost by $ 35 million , to approximately $ 264 million to $ 269 million . our monarch casino black hawk general contractor has informed us that the new expanded casino , hotel tower , restaurants and retail areas will be completed in the third quarter of 2019 and that the upgraded amenities in the existing 35 casino will be completed in the fourth quarter of 2019. we expect to continue to finance the cost through a combination of operating cash flow and the amended credit facility . we can provide no assurance that any project will be completed on schedule , if at all , or within established budgets , or that any project will result in increased earnings . liquidity and capital resources our principal sources of liquidity are cash provided by operations and , for capital expansion projects , borrowings available under our amended credit facility . operating activities for the year ended december 31 , 2018 , net cash provided by operating activities totaled $ 58.8 million , an increase of approximately $ 9.3 million , or 18.8 % , compared to the same period of the prior year . this increase was primarily due to : i ) a $ 8.6 million increase in net income ; and ii ) a $ 7.1 million decrease in working capital , all offset by the effect of the changes in stock-based compensation expense and in deferred income taxes and a $ 0.5 million decrease in depreciation and amortization . investing activities net cash used in investing activities totaled $ 125.7 million and $ 46.7 million in the years ended december 31 , 2018 and 2017 , respectively . net cash used in investing activities during the year ended december 31 , 2018 consisted primarily of cash used for the new hotel tower and casino expansion at monarch casino black hawk and for the acquisition of gaming and other equipment at both properties . net cash used in investing activities during the year ended december 31 , 2017 consisted primarily of cash used for the new hotel tower and casino expansion at monarch casino black hawk , the purchase of a parcel of land with an industrial warehouse in proximity to the monarch casino black hawk , the re-carpeting of the casino floor and hotel rooms and upgrading the fountains at atlantis , and for the acquisition of gaming and other equipment at both properties . financing activities net cash provided by financing activities during the year ended december 31 , 2018 was $ 68.3 million and represented borrowing under our amended credit facility . there were no financing activities during the year ended december 31 , 2017. amended credit facility on july 20 , 2016 , we entered into the amended credit facility , under which our former $ 100 million credit facility was increased to $ 250.0 million , and the maturity date was extended from november 15 , 2016 to july 20 , 2021. as of december 31 , 2018 , we had an outstanding principal balance of $ 94.5 million under the amended credit facility and a $ 0.6 million standby letter of credit and $ 154.9 million remaining in available borrowings of the $ 250.0 million maximum principal available under the amended credit facility . as of december 31 , 2018 , there have been no withdrawals from the standby letter of credit . the total revolving loan commitment under the amended credit facility will be automatically and permanently reduced to $ 50 million at the earlier of the first full quarter after completion of the hotel tower and casino expansion at the monarch casino black hawk and december 31 , 2019 and all then outstanding revolving loans up to $ 200 million under the amended credit facility will be converted to a term loan at such time . we may be required to prepay borrowings under the amended credit facility no later than december 31 , 2019 using excess cash flows depending on our leverage ratio . we have an option to permanently reduce the maximum revolving available credit at any time so long as the amount of such reduction is at least $ 0.5 million and in multiples of $ 50,000. borrowings are secured by liens on substantially all of our real and personal property .
| results of operations comparison of operating results for the years ended december 31 , 2018 and 2017 for the year ended december 31 , 2018 , our net income totaled $ 34.1 million , or $ 1.83 per diluted share , compared to net income of $ 25.5 million , or $ 1.39 per diluted share for the same period of 2017 , reflecting a 33.5 % increase in net income and 31.7 % in diluted earnings per share . net revenue for the years ended december 31 , 2018 and 2017 was $ 240.3 million and $ 230.7 million , respectively , reflecting an increase of $ 9.6 million , or 4.2 % . income from operations for the year ended december 31 , 2018 totaled $ 42.8 million compared to $ 40.7 million for the same period in 2017 , representing an increase of $ 2.2 million , or 5.3 % . casino revenue decreased 29.5 % in the year ended december 31 , 2018 compared to the same period of 2017 due to the adoption of the new revenue standard , which resulted in a reduction of $ 59.5 million in casino revenues due to certain reclassifications . under the prior revenue standard , casino revenue increased 3.8 % . casino revenue growth was suppressed by a low table games hold in the second and third quarters of 2018. casino operating expense as a percentage of casino revenue decreased to 34.8 % for the year ended december 31 , 2018 , compared to 40.9 % in 2017 due to the new revenue standard , partially offset by the low table games revenue and an increase in small equipment expense . food and beverage revenue increased 12.3 % in the year ended december 31 , 2018 over the same period in 2017 , due to an 11.0 % increase in average revenue per cover and a 1.2 % increase in covers served .
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our portfolio of software products and rapidly deployable software-enabled services allows our clients to automate and integrate front-office functions such as trading and modeling , middle-office functions such as portfolio management and reporting , and back-office functions such as accounting , performance measurement , reconciliation , reporting , processing and clearing . our solutions enable our clients to focus on core operations , better monitor and manage investment performance and risk , improve operating efficiency and reduce operating costs . we provide our solutions globally to more than 7,000 clients , principally within the institutional asset management , alternative investment management and financial institutions vertical markets . in addition , our clients include commercial lenders , corporate treasury groups , insurance and pension funds , municipal finance groups and real estate property managers . since 2012 , through a combination of strategic acquisitions and internal development of new products and services , we have expanded our presence in current markets and entered new markets , increased our contractually recurring revenues , more than doubled our operating income and expanded our reach in the financial services market . our acquisitions since 2012 have expanded our offerings for alternative investment managers and added to our portfolio management systems . our acquisitions of globeop financial services , s.a. , or globeop , and thomson reuters ' portia business , or the portia business , in 2012 significantly expanded our geographic footprint , most notably in europe and asia , and client base and added broader employee expertise . our contractually recurring revenues , which we define as our maintenance revenues and software-enabled services revenues , were $ 698.1 million in 2014 , compared to $ 656.0 million and $ 500.2 million in 2013 and 2012 , respectively . in 2014 , contractually recurring revenues represented 90.9 % of total revenues , compared to 92.0 % and 90.6 % in 2013 and 2012 , respectively . we believe our high level of contractually recurring revenues provides us with the ability to better manage our costs and capital investments . our revenues from sales outside the united states were $ 253.1 million in 2014 , compared to $ 246.0 million and $ 191.4 million in 2013 and 2012 , respectively . as we have expanded our business , we have focused on increasing our contractually recurring revenues . since 2012 , we have seen increased demand in the financial services industry for our software-enabled services from existing and new customers . we have taken a number of steps to support that demand , such as automating our software-enabled services delivery methods , expanded our service offerings and providing our employees with sales incentives . we have also acquired businesses that offer software-enabled services or have a large base of maintenance clients . our software-enabled services revenues increased from $ 406.5 million in 2012 to $ 592.5 million in 2014. our maintenance revenues increased from $ 93.8 million in 2012 to $ 105.6 million in 2014. maintenance customer retention rates have continued to be in excess of 90 % for our core enterprise products , and we have maintained both pricing levels for new contracts and annual price increases for existing contracts . to support the growth in our software-enabled services revenues and maintain our level of customer service , we have added personnel , expanded our facilities and invested in information technology . these investments and automation improvements in our software-enabled services have served to improve gross margins . although our acquisitions of globeop and the portia business in 2012 added a significant amount of amortization expense related to intangible assets , which initially caused a decrease in our gross margins , our gross margins have increased from 45.7 % in 2012 to 46.5 % in 2014. in connection with the acquisitions of globeop and the portia business in the second quarter of 2012 , we entered into a new credit agreement , which is described in liquidity and capital resources , to fund a portion of the purchase prices and refinance amounts outstanding under our prior senior credit facility . 38 we generated $ 252.5 million in cash from operating activities in 2014 , compared to $ 208.3 million and $ 134.4 million in 2013 and 2012 , respectively . in 2014 , we used our operating cash flow , $ 75.0 million in proceeds received from our revolving credit facility and existing cash to repay $ 212.0 million of debt , acquire dst global solutions ltd. and dst global solutions llc , together dstgs , subsidiaries of dst systems , inc. , invest in capital expenditures in our business and buy back $ 11.2 million in shares of common stock for treasury and pay $ 10.5 million in dividends . in february 2015 , we entered into a definitive agreement with advent software , inc. , or advent , wherein ss & c will acquire advent for an enterprise value of approximately $ 2.7 billion in cash , equating to $ 44.25 per share plus assumption of debt . the closing , which is expected to occur in the second quarter of 2015 , remains subject to advent stockholder approval , clearances by relevant regulatory authorities and satisfaction of customary closing conditions ( as discussed in liquidity and capital resources and note 16 to our consolidated financial statements ) . acquisitions . to supplement our growth , we evaluate and execute acquisitions that provide complementary products or services , add proven technology and an established client base , expand our intellectual property portfolio or address a highly specialized problem or a market niche . since the beginning of 2012 , we have spent approximately $ 1,058 million to acquire six businesses in the financial services industry , using a combination of cash and debt financing ( as discussed in notes 6 and 12 to our consolidated financial statements ) . story_separator_special_tag liquidity and capital resources our principal cash requirements are to finance the costs of our operations pending the billing and collection of client receivables , to fund payments with respect to our indebtedness , to invest in research and development and to acquire complementary businesses or assets . we expect our cash on hand and cash flows from operations to provide sufficient liquidity to fund our current obligations , projected working capital requirements and capital spending for at least the next twelve months . 43 in february 2015 , we entered into a definitive agreement with advent wherein ss & c will acquire advent for an enterprise value of approximately $ 2.7 billion in cash , equating to $ 44.25 per share plus assumption of debt . the closing , which is expected to occur in the second quarter of 2015 , remains subject to advent stockholder approval , clearances by relevant regulatory authorities and satisfaction of customary closing conditions . ss & c plans to fund the acquisition and refinancing of existing debt with $ 3.0 billion of debt financing , cash on hand and approximately $ 400 million of equity ( as discussed in note 16 to our consolidated financial statements ) . also in february 2015 , our board of directors declared a quarterly cash dividend of $ 0.125 per share of common stock payable on march 16 , 2015 to stockholders of record as of the close of business on march 2 , 2015. our cash and cash equivalents at december 31 , 2014 were $ 109.6 million , an increase of $ 25.1 million from $ 84.5 million at december 31 , 2013. the increase in cash is primarily due to cash provided by operations as well as cash received from our revolving credit facility and proceeds from stock option exercises and the related income tax benefits . these increases were partially offset by cash used for repayments of debt , business acquisitions , capital expenditures , repurchases of our common stock and dividends . see notes 4 , 6 and 12 to our consolidated financial statements for further discussion of equity , debt and acquisitions , respectively . net cash provided by operating activities was $ 252.5 million in 2014. cash provided by operating activities primarily resulted from net income of $ 131.1 million adjusted for non-cash items of $ 89.4 million and changes in our working capital accounts ( excluding the effect of acquisitions ) totaling $ 32.0 million . the changes in our working capital accounts were driven by changes in income taxes prepaid and payable , increases in accrued expenses , accounts payable and deferred maintenance and other revenues and a decrease in accounts receivable , partially offset by increases in prepaid expenses and other current assets . the change in income taxes prepaid and payable was primarily related to the income tax benefits received from option exercises ( included in the non-cash items ) and a refund received for prior year return . the increase in accounts payable was primarily due to timing of payments . the increase in deferred maintenance and other revenue was primarily due to the collection of annual maintenance fees . the decrease in accounts receivable was primarily due to an improvement in days ' sales outstanding , partially offset by revenue growth . investing activities used net cash of $ 104.4 million in 2014 , primarily related to $ 86.9 million in net cash paid for our acquisition of dstgs , $ 15.0 million in cash paid for capital expenditures , and $ 3.5 million in cash paid for capitalized software , partially offset by the release of restricted cash of $ 1.0 million . financing activities used net cash of $ 120.1 million in 2014 , representing $ 212.0 million in repayments of debt , $ 11.2 million in purchases of common stock for treasury , $ 10.5 million related to the payment of our quarterly dividends , $ 0.5 million related to the payment of refinancing fees and $ 0.5 million related to the payment of the prime contingent consideration liability . these payments were partially offset by $ 75.0 million in proceeds from our revolving credit facility , proceeds of $ 24.1 million from stock option exercises and income tax windfall benefits of $ 15.5 million related to the exercise of stock options . we have made a permanent reinvestment determination in certain non-u.s. operations that have historically generated positive operating cash flows . at december 31 , 2014 , we held approximately $ 71.6 million in cash and cash equivalents at non-u.s. subsidiaries where we had made such a determination and in turn no provision for u.s. income taxes had been made . at december 31 , 2014 , we held approximately $ 29.3 million in cash by subsidiaries of ss & c technologies holdings europe s.a.r.l. , or ss & c sarl , the foreign borrower under our credit facility that will be used to facilitate debt servicing of ss & c sarl . at december 31 , 2014 , we held approximately $ 24.0 million in cash at our indian operations that if repatriated to our foreign debt holder would incur distribution taxes of approximately $ 4.1 million . 44 off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . contractual obligations the following table summarizes our contractual obligations as of december 31 , 2014 that require us to make future cash payments ( in thousands ) : replace_table_token_11_th ( 1 ) reflects interest payments on our credit facility at an assumed interest rate of one-month libor of 0.17 % plus 2.00 % for u.s. dollar loans on our term a-2 facility , one month libor of 0.17 % plus 2.50 % for our revolving credit facility and 3.25 % on our term b-1 and b-2 facilities .
| results of operations revenues our revenues consist primarily of software-enabled services and maintenance revenues , and , to a lesser degree , software license and professional services revenues . as a general matter , fluctuations in our software-enabled services revenues are attributable to the number of new software-enabled services clients as well as total assets under management in our clients ' portfolios and the number of outsourced transactions provided to our existing clients , while our software license and professional services revenues tend to fluctuate based on the number of new licensing clients . maintenance revenues vary based on the rate by which we add or lose maintenance clients over time and , to a lesser extent , on the annual increases in maintenance fees , which are generally tied to the consumer price index . 39 the following table sets forth the percentage of our total revenues represented by each of the following sources of revenues for the periods indicated : replace_table_token_4_th the following table sets forth revenues ( dollars in thousands ) and percent change in revenues for the periods indicated : replace_table_token_5_th fiscal 2014 versus fiscal 2013. our revenues increased in 2014 as compared to 2013 primarily due to a continued increase in demand for our fund administration services from alternative investment managers as well as revenues related to our acquisitions of dstgs and prime , for which revenues increased $ 13.8 million . these increases were partially offset by the unfavorable impact from foreign currency translation of $ 3.2 million , which resulted from the strength of the u.s. dollar relative to currencies such as the canadian dollar and the australian dollar . our software licenses revenues increased primarily due to the impact of a significant perpetual license in the period and increased demand for our institutional software products .
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21 financial results the following is a summary of our financial performance ( dollars in millions , except per share data ) : replace_table_token_5_th our sales growth was led by our thv products , which benefited from the launch of the edwards sapien xt transcatheter heart valve in the united states ( june 2014 ) , and the launches of the edwards sapien 3 transcatheter heart valve in europe ( january 2014 ) and in the united states ( july 2015 ) . our gross profit as a percentage of net sales was positively impacted in 2015 by foreign currency exchange rate fluctuations ( which had a negative impact to gross profit in 2014 ) and an improved product mix , led by thv products . net income in 2014 benefited from the receipt of $ 750.0 million ( $ 487.9 million , net of tax ) from medtronic , inc. ( `` medtronic '' ) for an upfront payment due under a litigation settlement agreement . healthcare environment , opportunities , and challenges the medical technology industry is highly competitive and continues to evolve . our success is measured both by the development of innovative therapies and the value they bring to our stakeholders . we are committed to developing new technologies and providing innovative patient care , and we are committed to defending our intellectual property in support of those developments . to strengthen our leadership and enable future growth opportunities , in 2015 we invested 15.4 % of our net sales in research and development . in a consolidating industry , we believe our focus on innovation and a robust product pipeline of meaningful new technologies will help us continue to be a preferred partner , sustain our successes , and build long-term value for our shareholders . the following is a summary of important developments during 2015 : final five-year clinical data for high-risk patients treated with the first-generation sapien transcatheter aortic valve in the partner trial demonstrated equivalent outcomes to traditional open-heart surgery , and no structural valve deterioration requiring intervention ; 30-day outcomes for intermediate-risk patients treated transfemorally with the sapien 3 transcatheter aortic valve at centers in europe and canada demonstrated very low mortality and stroke rates ; high-risk patients who received the advanced edwards sapien 3 transcatheter aortic valve via transfemoral delivery had high one-year survival rates , as well as low rates of stroke and paravalvular leak ; we received fda approval of the edwards sapien 3 valve with the commander delivery system for the treatment of high-risk patients suffering from severe , symptomatic aortic stenosis ; we acquired cardiaq , a privately-held company and developer of a transcatheter mitral valve replacement system ; and we received fda approval for aortic valve-in-valve procedures using the edwards sapien xt transcatheter heart valve . we are dedicated to generating robust clinical and economic evidence increasingly expected by patients , clinicians , and payors in the current healthcare environment , with the goal of encouraging the adoption of innovative new medical therapies that demonstrate superior outcomes . 22 story_separator_special_tag the united states and rest of world , and core hemodynamic products outside the united states , partially offset by foreign currency exchange rate fluctuations , which decreased net sales by $ 12.0 million due primarily to the weakening of the japanese yen against the united states dollar . gross profit replace_table_token_8_th the increase in gross profit as a percentage of net sales in 2015 was driven by : a 1.9 percentage point increase due to the impact of foreign currency exchange rate fluctuations , including the settlement of foreign currency hedging contracts ; and a 0.9 percentage point increase in the united states and a 0.4 percentage point increase in international markets , due to an improved product mix , driven by thv products ; partially offset by : multiple investments in our operations , including an increase in costs to improve our manufacturing processes . 26 the decrease in gross profit as a percentage of net sales in 2014 was driven by : a 0.7 percentage point decrease due to the impact of foreign currency exchange rate fluctuations , including the settlement of foreign currency hedging contracts ; a 0.7 percentage point decrease due to higher performance-based incentive compensation ; and higher manufacturing costs , primarily for our operations in utah ; partially offset by : a 0.8 percentage point increase due to an improved product mix in the united states , driven by thv products . selling , general , and administrative ( `` sg & a '' ) expenses ( dollars in millions ) replace_table_token_9_th the decrease in sg & a expenses in 2015 resulted primarily from foreign currency , which reduced expenses by $ 61.1 million due primarily to the weakening of the euro and the japanese yen against the united states dollar . this decrease was partially offset by ( 1 ) higher sales and marketing expenses in europe , the united states , and japan , mainly to support our thv program and ( 2 ) higher personnel-related costs . the decrease in sg & a expenses as a percentage of net sales in 2015 was due primarily to higher thv sales in the united states , europe , and japan . the increase in sg & a expenses in 2014 was due primarily to ( 1 ) higher sales and marketing expenses in the united states , europe , and japan , mainly to support our thv program and ( 2 ) higher performance-based incentive compensation . research and development ( `` r & d '' ) expenses ( dollars in millions ) replace_table_token_10_th the increase in r & d expenses in 2015 was due primarily to new thv and surgical heart valve therapy product development efforts . these costs were partially offset by lower spending for thv clinical trials . the increase in r & d expenses in 2014 was due primarily to new thv product development efforts , additional investments in clinical studies in our surgical heart valve therapy program , and higher performance-based incentive compensation . story_separator_special_tag management believes that adequate amounts of tax and related penalty and interest have been provided in income tax expense for any adjustments that may result from our uncertain tax positions . 29 at december 31 , 2015 , all material state , local , and foreign income tax matters have been concluded for years through 2008. the internal revenue service ( `` irs '' ) has substantially completed its fieldwork for the 2009 through 2012 tax years . however , the audits are currently in suspense pending finalization of an advance pricing agreement ( `` apa '' ) and joint committee of taxation approval . as noted above , we entered into an apa process between the switzerland and united states governments for the years 2009 through 2015 covering transfer pricing matters . the transfer pricing matters are significant to our consolidated financial statements , and the final outcome and timing of the negotiations between the two governments is uncertain . during 2014 , we filed with the irs a request for a pre-filing agreement associated with a tax return filing position on a portion of the litigation settlement payment received from medtronic in may 2014. during the first quarter of 2015 , the irs accepted the pre-filing agreement into the pre-filing agreement program . the finalization of the pre-filing agreement is still pending . however , we made an advance payment of tax in december 2015 to prevent the further accrual of interest on any potential deficiency only and not to signify any potential agreement to a contrary position that may be taken by the irs . management believes that adequate amounts of tax and related penalty and interest have been provided in income tax expense for any adjustments that may result from our uncertain tax positions . based upon the information currently available and numerous possible outcomes , we can not reasonably estimate what , if any , changes in our existing uncertain tax positions may occur in the next 12 months and thus have recorded the gross uncertain tax positions as a long-term liability . however , if the apa and or pre-filing agreement is finalized in the next 12 months , it is reasonably possible that these events could result in a significant change in our uncertain tax positions within the next 12 months . the effective income tax rate for the year ended december 31 , 2015 was lower than the rate for the year ended december 31 , 2014 primarily because the rate for december 31 , 2014 included ( 1 ) $ 262.1 million of tax expense associated with a $ 750.0 million litigation settlement payment received from medtronic in may 2014 ( see note 3 to the “ consolidated financial statements ” ) and ( 2 ) $ 4.8 million of tax benefits from the remeasurement of uncertain tax positions . the effective income tax rate for the year ended december 31 , 2013 included ( 1 ) an $ 8.4 million benefit for the full year 2012 federal research credit and ( 2 ) $ 31.3 million of tax expense associated with the $ 83.6 million litigation award received from medtronic in february 2013 ( see note 3 to the “ consolidated financial statements ” ) . we have received tax incentives in puerto rico , the dominican republic , singapore , and switzerland . the tax reductions as compared to the local statutory rates favorably impacted earnings per diluted share for the years ended december 31 , 2015 , 2014 , and 2013 by $ 0.25 , $ 0.31 , and $ 0.22 , respectively . the puerto rico , dominican republic , and singapore grants provide our manufacturing operations partial or full exemption from local taxes until the years 2028 , 2030 ( subject to review in 2015 and subsequent years ) , and 2024 respectively . the switzerland grant expired december 31 , 2015 and we are in the process of filing for renewal through 2018. liquidity and capital resources our sources of cash liquidity include cash and cash equivalents , short-term investments , amounts available under credit facilities , and cash from operations . we believe that these sources are sufficient to fund the current requirements of working capital , capital expenditures , and other financial commitments for the next twelve months . however , we periodically consider various financing alternatives and may , from time to time , seek to take advantage of favorable interest rate environments or other market conditions . as of december 31 , 2015 , cash and cash equivalents and short-term investments held in the united states and outside the united states were $ 266.0 million and $ 958.7 million , respectively . we believe that cash held in the united states , in addition to amounts available under credit facilities and cash from operations , are sufficient to fund our united states operating requirements for the foreseeable future . cash and cash equivalents and short-term investments held outside the united states have historically been used to fund international operations and acquire businesses and assets outside of the united states , the majority of which relates to undistributed earnings of certain of our foreign subsidiaries , which are considered by us to be indefinitely reinvested . we consider making short-term loans of cash held outside the united states to the united states from time to time based on facts and circumstances . the permanent repatriations of cash and cash equivalents and short-term investments held outside the united states are subject to restrictions in certain jurisdictions , and may be subject to withholding and other taxes . the potential tax liability related to any repatriation would be dependent on the facts and circumstances that exist at the time such repatriation is made and the complexities of the tax laws of the united states and the respective foreign jurisdictions .
| results of operations net sales by major regions ( dollars in millions ) replace_table_token_6_th international net sales include the impact of foreign currency exchange rate fluctuations . the impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on international manufacturing and operating costs and our hedging activities . for more information see `` quantitative and qualitative disclosures about market risk . '' net sales by product group ( dollars in millions ) replace_table_token_7_th transcatheter heart valve therapy 2015 compared with 2014 the increase in net sales of thv products in the united states was due primarily to : the edwards sapien 3 valve , driven by its launch in july 2015 ; and 23 the edwards sapien xt valve , driven by its launch in june 2014 ; partially offset by : lower sales of the edwards sapien valve as customers converted to edwards sapien xt . the increase in international net sales of thv products was due primarily to : the edwards sapien 3 valve , driven primarily by its launch in europe in january 2014 ; and the edwards sapien xt valve in japan , driven by its launch in october 2013 ; partially offset by : lower sales of the edwards sapien xt valve in europe , as customers converted to edwards sapien 3 ; and foreign currency exchange rate fluctuations , which decreased net sales by $ 71.2 million , due primarily to the weakening of the euro against the united states dollar .
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we conduct operations worldwide and are managed in the following geographical regions : united states , europe , japan , and rest of world . our products are categorized into the following main areas : transcatheter heart valve therapy ( `` thvt '' ) , surgical heart valve therapy ( `` shvt '' ) , and critical care . 22 financial highlights our sales growth was led by our thvt products , primarily due to increased sales of the edwards sapien 3 transcatheter heart valve in the united states , japan , and europe . our gross profit margin in 2017 was positively impacted by an improved product mix , led by thvt products . our gross profit margin in 2016 was negatively impacted relative to 2015 by foreign currency exchange rate fluctuations , partially offset by an improved product mix , led by thvt products . the increase in our net income in 2017 was primarily driven by our increased sales and a gain from our successful litigation related to the theft of trade secrets , partially offset by increased tax expenses due to the implementation of u.s. tax law changes . our net income in 2016 increased compared to 2015 primarily due to increased sales , partially offset by an in-process research and development ( `` ipr & d '' ) charge for technology we acquired for use in our transcatheter heart valve programs . healthcare environment , opportunities , and challenges the medical technology industry is highly competitive and continues to evolve . our success is measured both by the development of innovative products and the value we bring to our stakeholders . we are committed to developing new technologies and providing innovative patient care , and we are committed to defending our intellectual property in support of those developments . in 2017 , we invested 16.1 % of our net sales in research and development . the following is a summary of important developments during 2017 : we acquired valtech , a privately held company based in israel and the developer of the cardioband system for transcatheter repair of the mitral and tricuspid valves ; we received fda approval for the hemosphere advanced monitoring platform . this technology provides clinicians with clarity on a patient 's hemodynamics , or the factors that manage blood flow , to help them make proactive , timely clinical decisions ; we received fda approval for aortic and mitral valve-in-valve procedures using the edwards sapien 3 transcatheter heart valve ; we received fda approval for our inspiris resilia aortic valve , the first in a new class of resilient heart valves ; we acquired harpoon medical , inc. , a privately held medical technology company pioneering beating-heart repair for degenerative mitral regurgitation ; and we received ce mark for harpoon , our newly acquired beating heart mitral valve repair system . we are dedicated to generating robust clinical , economic , and quality of life evidence increasingly expected by patients , clinicians , and payors in the current healthcare environment , with the goal of encouraging the adoption of innovative new medical therapies that demonstrate superior outcomes . 23 story_separator_special_tag style= '' line-height:120 % ; text-indent:24px ; font-size:10pt ; '' > a 4.3 percentage point decrease due to the impact of foreign currency exchange rate fluctuations , including the settlement of foreign currency hedging contracts ; and investments in manufacturing capacity ; 27 partially offset by : a 1.6 percentage point increase in the united states , and a 0.5 percentage point increase in international markets , due to an improved product mix , driven by thvt products . selling , general , and administrative ( `` sg & a '' ) expenses the increase in sg & a expenses in 2017 compared to 2016 was due primarily to higher sales and marketing expenses in the united states and europe , mainly to support the thvt program , and higher personnel-related costs . the decrease in sg & a expenses as a percentage of net sales in 2017 was due primarily to leverage from our higher thvt sales in the united states and japan . the increase in sg & a expenses in 2016 compared to 2015 resulted primarily from higher sales and marketing expenses in the united states and europe , mainly to support our thvt program , and higher personnel-related costs . these increases were partially offset by the suspension of the medical device excise tax in the united states for 2016 through 2019. the decrease in sg & a expenses as a percentage of net sales in 2016 was due primarily to higher sales in the united states and japan . 28 research and development ( `` r & d '' ) expenses the increase in r & d expenses in 2017 compared to 2016 was due primarily to mitral , aortic , and tricuspid thvt product development efforts , including development expenses associated with the cardioband reconstruction system . the increase in r & d expenses in 2016 compared to 2015 was due primarily to mitral and aortic thvt product development efforts . the suspension of the united states medical device excise tax provided additional flexibility to accelerate investments in structural heart initiatives . intellectual property litigation ( income ) expenses , net in november 2017 , we recorded a $ 112.5 million litigation gain related to the theft of trade secrets . we incurred external legal costs related to intellectual property litigation of $ 39.2 million , $ 32.6 million and $ 7.0 million during 2017 , 2016 and 2015 , respectively . change in fair value of contingent consideration liabilities , net the change in fair value of contingent consideration liabilities resulted in income of $ 9.9 million , net , for the year ended december 31 , 2017 , and expense of $ 1.1 million and $ 0.2 million for the years ended december 31 , 2016 and 2015 , respectively . story_separator_special_tag in addition , the effective tax rate for 2017 was favorably impacted by the adoption of the new accounting standard for the tax benefit of employee shared-based compensation ( see note 2 ) . uncertain tax positions as of december 31 , 2017 and 2016 , the gross uncertain tax positions were $ 225.6 million and $ 245.5 million , respectively . we estimate that these liabilities would be reduced by $ 94.0 million and $ 44.9 million , respectively , from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments , state income taxes , and timing adjustments . the net amounts of $ 131.6 million and $ 200.6 million , respectively , if not required , would favorably affect our effective tax rate . a reconciliation of the beginning and ending amount of uncertain tax positions , excluding interest , penalties , and foreign exchange , is as follows ( in millions ) : replace_table_token_9_th we recognize interest and penalties , if any , related to uncertain tax positions in the provision for income taxes . as of december 31 , 2017 , we had accrued $ 7.4 million ( net of $ 2.9 million tax benefit ) of interest related to uncertain tax positions , and as of december 31 , 2016 , we had accrued $ 14.7 million ( net of $ 10.8 million tax benefit ) of interest related to uncertain tax 31 positions . during 2017 , 2016 , and 2015 , we recognized interest expense ( benefit ) , net of tax benefit , of $ ( 7.3 ) million , $ 4.0 million , and $ 3.9 million , respectively , in “ provision for income taxes ” on the consolidated statements of operations . we strive to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time . while we have accrued for matters we believe are more likely than not to require settlement , the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the consolidated financial statements . furthermore , we may later decide to challenge any assessments , if made , and may exercise our right to appeal . the uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes , such as lapsing of applicable statutes of limitations , proposed assessments by tax authorities , negotiations between tax authorities , identification of new issues , and issuance of new legislation , regulations , or case law . we believe that adequate amounts of tax and related penalty and interest have been provided in income tax expense for any adjustments that may result from our uncertain tax positions . at december 31 , 2017 , all material state , local , and foreign income tax matters have been concluded for years through 2008. the irs has substantially completed its fieldwork for the 2009 through 2012 tax years . however , the audits have been in suspense pending a final determination with respect to the application for an advance pricing agreement ( `` apa '' ) discussed below . as a result of the partial agreement discussed below , the irs will now be able to finalize their audits of the 2009 through 2011 tax years . the irs began its examination of the 2014 tax year during the fourth quarter of 2016. we had been pursuing an apa between the switzerland and united states governments for the years 2009 through 2013 covering transfer pricing matters with the possibility of a roll-forward of the results to subsequent years . during december 2017 , the u.s. and swiss competent authorities agreed on the terms of several of the transactions covered by the apa , including a rollforward of some of the results through 2020. the remaining terms of transactions not covered by the final bilateral agreement will be reviewed by the irs as part of the traditional exam process for the tax years beyond 2011. these transfer pricing matters are significant to our consolidated financial statements as the disputed amounts are material , and the final outcome is uncertain . we continue to believe our positions are supportable . as a result of the bilateral agreement , a reclassification of $ 73.7 million was made from the long-term liability for uncertain tax positions to current taxes payable , and a $ 15.2 million tax benefit was recorded during the quarter . during 2014 , we filed with the irs a request for a pre-filing agreement associated with a tax return filing position on a portion of the litigation settlement payment received in may 2014. during the first quarter of 2015 , the irs accepted our request into the pre-filing agreement program . the closing agreement for this matter was finalized during the fourth quarter of 2016. there remained a disputed issue and we were accepted into the fast-track appeals process in july 2017. we met with the fast-track appeals team in october 2017 and were unable to reach an agreement . we intend to revert to the regular appeals process on this issue . we made an advance payment of tax in december 2015 to prevent the further accrual of interest on any potential deficiency . we believe that adequate amounts of tax and related penalty and interest have been provided in income tax expense for any adjustments that may result from our uncertain tax positions . based upon the information currently available and numerous possible outcomes , we can not reasonably estimate what , if any , changes in our existing uncertain tax positions may occur in the next 12 months and thus have recorded the gross uncertain tax positions as a long-term liability .
| results of operations net sales by major regions ( dollars in millions ) replace_table_token_5_th international net sales include the impact of foreign currency exchange rate fluctuations . the impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on international manufacturing and operating costs , and our hedging activities . for more information , see `` quantitative and qualitative disclosures about market risk . '' net sales by product group ( dollars in millions ) replace_table_token_6_th transcatheter heart valve therapy 24 2017 compared with 2016 the increase in net sales of thvt products in the united states was due primarily to : the edwards sapien 3 valve , driven by strong therapy adoption . the increase in international net sales of thvt products was due primarily to : the edwards sapien 3 valve , primarily increased sales in japan , driven by its launch in march 2016 , and europe , driven by strong therapy adoption ; partially offset by : lower sales of the edwards sapien xt valve as customers converted to edwards sapien 3 . 2016 compared with 2015 the increase in net sales of thvt products in the united states was due primarily to : increased sales of the edwards sapien 3 valve , driven by its launch in july 2015 ; partially offset by : lower sales of the edwards sapien xt valve as customers converted to edwards sapien 3. the increase in international net sales of thvt products was due primarily to increased sales of the edwards sapien 3 valve , driven primarily by its launch in europe in january 2014 and in japan in march 2016. in june 2017 , we received fda approval for aortic and mitral valve-in-valve procedures using the edwards sapien 3 transcatheter heart valve for patients at high risk for a subsequent open-heart surgery to replace their bioprosthetic valve
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this methodology allows for changes in either direction in the market prices of the precious metals used by the company to be passed through to the customer and reduces the impact changes in prices could have on the company 's margins and operating profit . the consigned metal is owned by financial institutions who charge the company a financing fee based upon the current value of the metal on hand . in certain instances , a customer may want to establish the price for the precious metal at the time the sales order is placed rather than at the time of shipment . setting the sales price at a different date than when the material would be purchased potentially creates an exposure to movements in the market price of the metal . therefore , in these limited situations , the company story_separator_special_tag overview we are an integrated producer of high performance advanced engineered materials used in a variety of electrical , electronic , thermal and structural applications . our products are sold into numerous markets , including consumer electronics , industrial components and commercial aerospace , defense and science , medical , energy , automotive electronics , telecommunications infrastructure and appliance . sales of $ 1.3 billion in 2012 were 17 % lower than our record-high sales of $ 1.5 billion in 2011. market conditions and the associated demand levels were mixed during 2012. we were encouraged by the continuing improvement of our medical market sales and shipments into the industrial components and commercial aerospace market . consumer electronics sales were adversely impacted by changes within the led sector while energy sales softened due to a reduction in the oil and gas rig count and the weakness of the solar energy sector . within the defense and science market , sales for defense applications softened as a result of government budget cuts and the timing of programs while sales for science applications improved . our sales in 2012 were also affected by differences in the metal price pass-through , the use of customer-supplied metal and our discontinuation of a product line . gross margin of $ 198.8 million in 2012 was $ 16.5 million lower than the gross margin in 2011. margins were negatively impacted by the lower volumes in 2012 but benefitted from a favorable change in product mix and improved pricing . the gross margin in 2012 was also negatively impacted by a physical inventory loss recorded in the fourth quarter . implementation and start-up of the new beryllium facility continued in 2012 and , while the associated additional costs reduced margins , improvements in the output and manufacturing efficiencies were made throughout the year . during 2012 , we announced the consolidation of various operations that included the closing of three small facilities and the relocation of their businesses to other facilities . these actions were designed to improve customer service levels and operating efficiencies while reducing costs over the long term . one-time costs associated with the consolidation plan totaled $ 4.8 million in 2012. as a result of the lower gross margin and the facility consolidation costs , as well as an increase in expenses , operating profit declined from $ 57.1 million in 2011 to $ 36.8 million in 2012. earnings per share were $ 1.19 in 2012 and $ 1.93 in 2011. cash flow from operations was solid once again , as we generated $ 38.6 million in 2012. cash flow in the fourth quarter 2012 was particularly strong . we declared a quarterly dividend on our common shares starting in the second quarter 2012 and paid $ 4.6 million to shareholders during the year . in the first quarter 2012 , we acquired the outstanding stock of aerospace metal composites limited ( amc ) , a small manufacturing operation that produces metal matrix composites . the amc acquisition followed the acquisition of the outstanding stock of eis optics limited ( eis ) , a producer of optical filters and related materials , in the fourth quarter 2011 . 21 story_separator_special_tag 23 % in 2012 from 2011 after growing 23 % in 2011 over 2010. domestic sales include the majority of the impact of the differences in metal price pass-through between periods . international sales , which are included in each of our reportable segments , grew 2 % in 2012 over 2011 and 4 % in 2011 over 2010. gross margin was $ 198.8 million , or 16 % of sales , in 2012 versus $ 215.3 million , or 14 % of sales , in 2011 and $ 222.6 million , or 17 % of sales , in 2010. the lower sales volumes reduced gross margin by an estimated $ 31.0 million in 2012 from 2011 while differences in the volumes sold by the four segments between 2011 and 2010 resulted in a net increase of $ 9.2 million in gross margin in 2011 over 2010. the change in product mix was favorable in 2012 partially due to higher sales of precious metal products for medical applications and pure beryllium metal products that generally generate higher margins . the change in product mix effect was unfavorable in 2011. margins also benefited from improved pricing in portions of our business in both 2012 and 2011. improved yields on nickel products generated a margin benefit in 2012 as compared to 2011 after the lower yields and associated higher costs reduced margins in 2011 from 2010. installation and start-up of our new beryllium facility continued throughout 2012 and 2011 at the elmore , ohio plant site . the resulting additional operating and material costs and manufacturing inefficiencies reduced gross margin by an estimated $ 5.2 million in 2012 and an estimated $ 5.3 million in 2011. the gross margin in 2012 was reduced by a net physical inventory adjustment of $ 7.4 million recorded in the fourth quarter at a facility within the advanced material technologies segment . we believe that a portion , and perhaps a significant portion , of this loss may be due to theft . story_separator_special_tag other costs , including information technology , environmental , health and safety , business development and communications , have increased in order to support a larger and more diverse organization . legal compliance costs were also higher in 2011 over 2010 but leveled off in 2012. research and development ( r & d ) expenses were $ 12.5 million in 2012 , $ 11.1 million in 2011 and $ 7.1 million in 2010. while r & d expenses increased in 2012 and 2011 over the respective prior year , the expense was less than 1 % of sales in each of the three years presented . the majority of the increase in 2012 was due to expenses incurred by eis . the higher expense in 2011 was due to an increase in activity levels and various special projects . our r & d staff works closely with production engineers , sales engineers and marketing to support the development of new products and applications as well as to make improvements in the current product portfolio . derivative ineffectiveness expense was $ 0.6 million in 2010. there was no derivative ineffectiveness recorded in 2012 or 2011. the ineffectiveness recorded in 2010 related to copper-based derivatives that did not qualify for hedge accounting and matured during that year . 24 other-net expense totaled $ 15.6 million in 2012 , $ 15.8 million in 2011 and $ 14.8 million in 2010. see note n to the consolidated financial statements for the details of the major components of other-net expense for each of the three years . the major differences in other-net expense between the years are described below . the metal consignment fee was $ 0.9 million lower in 2012 than in 2011 , mainly due to differences in the rate charged by the financial institutions and lower average metal prices . the consignment fee increased $ 3.3 million in 2011 over 2010 as a result of higher metal prices and increased quantities of metal on hand . the net foreign currency exchange and translation gains totaled $ 1.5 million in 2012 compared to net losses of $ 2.8 million in 2011 and $ 0.8 million in 2010. these gains and losses result from movements in the value of the u.s. dollar versus other currencies , primarily the euro and yen , and the related impact on certain foreign currency denominated assets , liabilities and transactions and the maturity of foreign currency hedge contracts . the purchase agreement for our acquisition of the outstanding stock of barr associates , inc. in 2009 included an earn-out feature that would require us to make additional payments to the prior owners of barr based upon barr 's performance against identified benchmarks over the 2010 to 2013 period . the present value of the earn-out was estimated to be $ 1.9 million at the time of the acquisition and was recorded in other long-term liabilities . no payments were required to be made in 2010 , 2011 or 2012 based upon barr 's actual performance relative to the individual benchmarks for those years . we determined that the fair value of this liability , based upon the facts and circumstances and updated projections , should be reduced to zero as of december 31 , 2011. we had previously reduced the fair value of the liability to $ 1.1 million as of december 31 , 2010 based upon a review of the facts and circumstances at that time . the $ 1.1 million benefit from the reduction to the liability in the fourth quarter 2011 and the $ 0.8 million benefit from the liability reduction taken in the fourth quarter 2010 were recorded as income in those respective periods in accordance with accounting guidelines . other-net in 2011 included a $ 1.3 million benefit from the favorable resolution of a lawsuit that we had filed against a utility provider for raising our billing rates , which was in violation of our contract . in the fourth quarter 2011 , the court ruled in our favor and we received $ 1.3 million in full satisfaction of our claim . we donated our former headquarters building and the associated land to a non-profit organization , which resulted in a write-off of the carrying value of $ 0.5 million to other-net expense in 2010. the majority of this unfavorable impact on income before income taxes was offset by a favorable income tax adjustment in that year . operating profit was $ 36.8 million in 2012 compared to $ 57.1 million in 2011. the $ 20.3 million decline in profitability was due to lower gross margin as a result of the reduced volumes , the physical inventory differences and other factors , the charges recorded for the plant consolidations and higher sg & a expenses . operating profit in 2011 was $ 16.5 million lower than the operating profit of $ 73.6 million generated in 2010. the decline resulted from the margin benefit from changes in the sales volume being more than offset by the additional plant start-up costs , other margin issues , higher sg & a expenses , an increase in metal consignment fees and other factors . interest expense - net was $ 3.1 million in 2012 , $ 2.8 million in 2011 and $ 2.7 million in 2010. the increase in expense in 2012 over 2011 was due primarily to higher average debt levels and , to a lesser extent , an increase in the average borrowing rate .
| results of operations replace_table_token_5_th sales were $ 1.3 billion in 2012 , a decline of $ 253.6 million , or 17 % , from sales of $ 1.5 billion in 2011. sales in 2011 were $ 224.4 million , or 17 % , higher than sales of $ 1.3 billion in 2010. the decline in sales in 2012 was partially due to a lower metal price pass-through , an increase in the use of customer-supplied metal and the discontinuation of a non-strategic product line , while the changes in sales by market were mixed . sales to the consumer electronics market , our largest market , improved slightly in 2012 over 2011 after adjusting for differences in metal price pass-through and use of customer-supplied metal . the growth was primarily due to the acquisition of eis . sales to the consumer electronics market in 2012 were negatively affected by softer sales for led applications due to changes in market conditions . sales to the consumer electronics market grew approximately 10 % in 2011 over 2010 , but this growth was mainly due to higher metal pass-through prices . end-use applications for our materials in the consumer electronics market include cell phones , tablets , gaming systems and other hand-held devices , and the market 's demand for increased power and miniaturization in these applications favors the use of our high-performance materials . as a material supplier , we sell to stamping houses and sub-assembly shops so we are several steps removed from the final consumer . our sales to this market in a given period , therefore , are affected by downstream inventory levels and production schedules and changes in market share of the intermediaries within the supply chain and not necessarily by changes in sales of the final product or in consumer demand in that period .
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other than that , the company paid $ 1,500 to bfb for the review of interim financial statements during 2018 and $ 4,000 for the previous audit for the period starting on june 1 , 2017 ( inception ) and ending on december 31 , 2017. audit-related fees during the year ended december 31 , 2018 , our principal accountant did not render audit-related services to us . tax fees during the year ended december 31 , 2018 , our principal accountant did not render services to us for tax compliance , tax advice or tax planning . all other fees during the year ended december 31 , 2018 , there were no fees billed for products and services provided by the principal accountant other than those set forth above . currently , we have no independent audit committee . our full board of directors functions as our audit committee and is comprised of one director who is not considered to be `` independent `` in accordance with the requirements of rule 10a-3 under the exchange act . our audit committee 's pre-approval policies and procedures described in paragraph ( c ) ( 7 ) ( i ) of rule 2-01 of regulation s-x were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor . 17 part iv item 15 exhibits , financial statement schedules ( a ) the following documents are filed as a part of this report : 1. financial statements . the following financial statements of new leap , inc. are included in item 8 : reports of independent registered public accounting firms balance sheets at december 31 , 2018 and december 31 , 2017 statements of operations for the year ended december 31 , 2018 and the period from inception ( june 1 , 2017 ) to december 31 , 2017 statements of stockholders ' deficit as of inception december 31 , 2018 and as of december 31 , 2017 statements of cash flows for the year ended december 31 , 2018 and the period from inception ( june 1 , 2017 ) to december 31 , 2017 notes to the financial statements 2. financial statement schedule ( s ) : all schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable . 3. exhibits : replace_table_token_7_th _ * filed herewith . ( 1 ) incorporated herein by reference from the company 's form s-1 filed with the securities and exchange commission on august 8 , 2017 . 18 signatures in accordance with section 13 or 15 ( d ) of the securities exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : march 27 , 2019 by : itzhak ostashinsky itzhak ostashinsky chief executive officer 19 story_separator_special_tag this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal year ended december 31 , 2018. the discussion and analysis that follows should be read together with the section entitled “ forward looking statements ” and our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. 7 except for historical information , the matters discussed in this section are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . company overview new leap plans to match up potential investors from all over the world , except for u.s. residents with private u.s. companies and companies which are publicly traded in the u.s. ( both u.s. and foreign incorporated ) . the goal is to use the crowdfunding trend in order to make private investments in such companies more accessible to non-u.s. investors on one hand and allow easier access to capital for these companies on the other . we will not allow u.s. persons access to the materials presented by the companies offering their securities on our website . anyone trying to gain access to the offering materials posted on our website will first need to fill out a questionnaire which will include a question about the country of residence . anyone answering “ u.s.a ” or any of its states will be prohibited from gaining access to the page showing the offering materials of the presenting companies . we intend to start developing a website following completion of this offering . for this purpose our intention is to use a third party vendor which can provide both design and programming services . all securities will bear a legend indicating that the securities are `` restricted securities '' and may not be sold in the u.s. absent an effective registration statement under the securities act covering the resale of such securities or an available exemption from such registration requirement . new leap will keep a complete audit trail of investments in the companies presenting on its website . funds committed for an investment will be kept in an escrow account until the company 's funding goal is reached . upon reaching such goal , funds will be transferred from the escrow account to the company 's bank account while simultaneously stock certificates will be delivered to the investors . should the funding goal not be reached until the deadline of the offering , funds would immediately be returned to the investors . story_separator_special_tag dir= '' ltr '' style= '' margin : 0px 0px 0px story_separator_special_tag other than that , the company paid $ 1,500 to bfb for the review of interim financial statements during 2018 and $ 4,000 for the previous audit for the period starting on june 1 , 2017 ( inception ) and ending on december 31 , 2017. audit-related fees during the year ended december 31 , 2018 , our principal accountant did not render audit-related services to us . tax fees during the year ended december 31 , 2018 , our principal accountant did not render services to us for tax compliance , tax advice or tax planning . all other fees during the year ended december 31 , 2018 , there were no fees billed for products and services provided by the principal accountant other than those set forth above . currently , we have no independent audit committee . our full board of directors functions as our audit committee and is comprised of one director who is not considered to be `` independent `` in accordance with the requirements of rule 10a-3 under the exchange act . our audit committee 's pre-approval policies and procedures described in paragraph ( c ) ( 7 ) ( i ) of rule 2-01 of regulation s-x were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor . 17 part iv item 15 exhibits , financial statement schedules ( a ) the following documents are filed as a part of this report : 1. financial statements . the following financial statements of new leap , inc. are included in item 8 : reports of independent registered public accounting firms balance sheets at december 31 , 2018 and december 31 , 2017 statements of operations for the year ended december 31 , 2018 and the period from inception ( june 1 , 2017 ) to december 31 , 2017 statements of stockholders ' deficit as of inception december 31 , 2018 and as of december 31 , 2017 statements of cash flows for the year ended december 31 , 2018 and the period from inception ( june 1 , 2017 ) to december 31 , 2017 notes to the financial statements 2. financial statement schedule ( s ) : all schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable . 3. exhibits : replace_table_token_7_th _ * filed herewith . ( 1 ) incorporated herein by reference from the company 's form s-1 filed with the securities and exchange commission on august 8 , 2017 . 18 signatures in accordance with section 13 or 15 ( d ) of the securities exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : march 27 , 2019 by : itzhak ostashinsky itzhak ostashinsky chief executive officer 19 story_separator_special_tag this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal year ended december 31 , 2018. the discussion and analysis that follows should be read together with the section entitled “ forward looking statements ” and our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. 7 except for historical information , the matters discussed in this section are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . company overview new leap plans to match up potential investors from all over the world , except for u.s. residents with private u.s. companies and companies which are publicly traded in the u.s. ( both u.s. and foreign incorporated ) . the goal is to use the crowdfunding trend in order to make private investments in such companies more accessible to non-u.s. investors on one hand and allow easier access to capital for these companies on the other . we will not allow u.s. persons access to the materials presented by the companies offering their securities on our website . anyone trying to gain access to the offering materials posted on our website will first need to fill out a questionnaire which will include a question about the country of residence . anyone answering “ u.s.a ” or any of its states will be prohibited from gaining access to the page showing the offering materials of the presenting companies . we intend to start developing a website following completion of this offering . for this purpose our intention is to use a third party vendor which can provide both design and programming services . all securities will bear a legend indicating that the securities are `` restricted securities '' and may not be sold in the u.s. absent an effective registration statement under the securities act covering the resale of such securities or an available exemption from such registration requirement . new leap will keep a complete audit trail of investments in the companies presenting on its website . funds committed for an investment will be kept in an escrow account until the company 's funding goal is reached . upon reaching such goal , funds will be transferred from the escrow account to the company 's bank account while simultaneously stock certificates will be delivered to the investors . should the funding goal not be reached until the deadline of the offering , funds would immediately be returned to the investors . story_separator_special_tag dir= '' ltr '' style= '' margin : 0px 0px 0px
| results of operations inception ( june 1 , 2017 ) to december 31 , 2017 compared to january 1 , 2018 to december 31 , 2018 selling , general and administrative expenses selling , general and administrative expenses for the period starting at inception ( june 1 , 2017 ) and ending december 31 , 2017 were $ 73,271 compared to $ 54,774 for the year ended december 31 , 2018. the expenses were consisted primarily of contributed services from the sole officer and director , legal , accounting and travel expenses . liquidity and capital resources the following is a summary of the company 's cash flows provided by ( used in ) operating , investing , and financing activities for the period from inception ( june 1 , 2017 ) to december 31 , 2017 and the year ended december 31 , 2018 : replace_table_token_1_th 8 to date , most of our resources and work have been devoted to planning our business , completing our registration statement and building our website . private capital , if sought , we believe will be sought from former business associates of our president and chief executive officer or through private investors referred to us by those same business associates . if a market for our shares ever develops , of which there can be no assurances , we may use restricted shares of our common stock to compensate employees/consultants and independent contractors wherever possible . we can not predict the likelihood or source of raising capital or funds that may be needed to complete the development of our business plan . we are a public company and as such we have incurred and will continue to incur significant expenses for legal , accounting and related services .
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corecivic generally expects to renew these contracts for periods consistent with the remaining renewal options allowed by the contracts or other reasonable extensions ; however , no assurance can be given that such renewals will be obtained . fixed monthly rate revenue is recorded in the month earned and fixed per diem revenue , including revenue under those contracts that include guaranteed minimum populations , is recorded based on the per diem rate multiplied by the number of offenders housed or guaranteed during the respective period . corecivic recognizes any additional management service revenues upon completion of services provided to the customer . certain of the government agencies also have the authority to audit and investigate corecivic 's contracts with them . if the agency determines that corecivic has improperly allocated costs to a specific contract or otherwise was unable to perform certain contractual services , corecivic may not be reimbursed for those costs and could be required to refund the amount of any such costs that have been reimbursed . in these instances , the amounts required to be returned to the customer are reflected as operating expenses . upon adoption of accounting standards story_separator_special_tag financial condition and results of operations . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k . in this report , we use the term , the `` company , '' `` corecivic , '' `` we , '' `` us , '' and `` our '' to refer to corecivic , inc. and its subsidiaries unless context indicates otherwise . this discussion contains forward-looking statements that involve risks and uncertainties . our 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 described under item 1a , `` risk factors '' and included in other portions of this report . overview we are a diversified government solutions company with the scale and experience needed to solve tough government challenges in flexible , cost-effective ways . through three business offerings , corecivic safety , corecivic properties , and corecivic community , we provide a broad range of solutions to government partners that serve the public good through corrections and detention management , government real estate solutions , and a growing network of residential reentry centers to help address america 's recidivism crisis . we have been a flexible and dependable partner for government for more than 30 years . our employees are driven by a deep sense of service , high standards of professionalism and a responsibility to help government better the public good . as of december 31 , 2017 , we owned and managed 70 correctional , detention , and residential reentry facilities , and managed an additional seven correctional and detention facilities owned by our government partners , with a total design capacity of approximately 78,000 beds in 19 states . in addition , as of december 31 , 2017 , we owned 12 properties leased to third parties and used by government agencies , totaling 1.1 million square feet in five states . we are one of the nation 's largest owners of partnership correctional , detention , and residential reentry facilities and one of the largest prison operators in the united states . we also believe we are the largest private owner of real estate used by government agencies . our size and experience provide us with significant credibility with our current and prospective customers , and enable us to generate economies of scale in purchasing power for food services , health care and other supplies and services we offer to our government partners . we are structured as a real estate investment trust , or reit . we began operating as a reit effective january 1 , 2013. see item 1 , `` business – overview '' for a description of how we are organized and how we provide correctional services and conduct other operations through taxable reit subsidiaries , or trss , in order to comply with reit qualification requirements . we believe that operating as a reit maximizes our ability to create stockholder value given the nature of our assets , helps lower our cost of capital , draws a larger base of potential stockholders , provides greater flexibility to pursue growth opportunities , and creates a more efficient operating structure . our business we are compensated for providing bed capacity and correctional , detention , and residential reentry services at a per diem rate based upon actual or minimum guaranteed occupancy levels . federal , state , and local governments are constantly under budgetary constraints putting pressure on governments to control correctional budgets , including per diem rates our customers pay to us as well as pressure on appropriations for building new prison capacity . our federal revenue declined from 2016 to 2017 primarily as a result of an amendment to the inter-governmental service agreement , or igsa , associated with our south texas family residential center , which became effective in the fourth quarter of 2016 , as further described hereafter . in addition , populations in federal facilities , particularly within the federal bureau of prisons , or the bop , system nationwide , have declined over the past three years . inmate populations in the bop system declined due , in part , to the retroactive application of changes to sentencing guidelines applicable to certain federal drug trafficking offenses . despite this decline , we continue to believe utilization of private sector bed capacity and management services provides our federal partners with flexible and cost-effective solutions essential to their missions . for example , in november 2016 , we announced that the bop exercised a two-year renewal option at our 1,978-bed mcrae 51 correctional facility . story_separator_special_tag we are also pursuing investment opportunities in other real estate assets with a bias toward those used to provide mission-critical governmental services , as well as other businesses that expand the range of solutions we provide to government partners which will further diversify our cash flows . we also remain steadfast in our efforts to contain costs . approximately 60 % of our operating expenses consist of salaries and benefits . the turnover rate for correctional officers for our company , and for the corrections industry in general , remains high . we are making investments in systems and processes intended to help manage our workforce more efficiently and effectively , especially with respect to overtime and costs of turnover . we are also focused on workers ' compensation and medical benefits costs for our employees due to continued rising healthcare costs throughout the country . reducing these staffing costs requires a long-term strategy to control such costs , and we continue to dedicate resources to enhance our benefits , provide specialized training and career development opportunities to our staff and attract and retain quality personnel . through ongoing company-wide initiatives , we continue to focus on efforts to contain costs and improve operating efficiencies . through the combination of our initiatives to ( i ) increase our revenues by increasing the utilization of our available beds , ( ii ) deliver new bed capacity through new facility construction and expansion opportunities , ( iii ) invest in real estate-only solutions , ( iv ) acquire community corrections facilities , and ( v ) contain our operating expenses , we believe we will be able to maintain our competitive advantage and continue to diversify the range of services we provide to our customers at an attractive price , thereby producing value for our stockholders . critical accounting policies the consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states . as such , we are required to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . a summary of our significant accounting policies is described in note 2 of the notes to the consolidated financial statements contained in this annual report . the significant accounting policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : 53 asset impairments . the primary risk we face for asset impairment charges , excluding goodwill , is associated with correctional facilities we own . as of december 31 , 2017 , we had $ 2.8 billion in property and equipment , including $ 242.1 million in long-lived assets , excluding equipment , at eight idled correctional facilities . the carrying values of the eight idled facilities as of december 31 , 2017 were as follows ( in thousands ) : replace_table_token_7_th we also have two idled non-core facilities containing 440 beds with an aggregate net book value of $ 4.0 million . we incurred approximately $ 10.8 million , $ 8.1 million , and $ 7.2 million in operating expenses at the idled facilities for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . we evaluate the recoverability of the carrying values of our long-lived assets , other than goodwill , when events suggest that an impairment may have occurred . such events primarily include , but are not limited to , the termination of a management contract or a significant decrease in offender populations within a facility we own . accordingly , we tested each of the idled facilities for impairment when we were notified by the respective customers that they would no longer be utilizing such facility . we re-perform the impairment analyses on an annual basis for each of the idle facilities and evaluate on a quarterly basis market developments for the potential utilization of each of these facilities in order to identify events that may cause us to reconsider our most recent assumptions . such events could include negotiations with a prospective customer for the utilization of an idle facility at terms significantly less favorable than those used in our most recent impairment analysis , or changes in legislation surrounding a particular facility that could impact our ability to care for certain types of offenders at such facility , or a demolition or substantial renovation of a facility . further , a substantial increase in the number of available beds at other facilities we own could lead to a deterioration in market conditions and cash flows that we might be able to obtain under a new management contract at our idle facilities . although they are not frequently received , an unsolicited offer to purchase any of our idle facilities at amounts that are less than the carrying value could also cause us to reconsider the assumptions used in our most recent impairment analysis . in performing our annual impairment analyses , the estimates of recoverability are initially based on projected undiscounted cash flows that are comparable to historical cash flows from management contracts at similar facilities to the idled facilities and sensitivity analyses that consider reductions to such cash flows . our sensitivity analyses included reductions in projected cash flows by as much as half of the historical cash flows generated by the respective facility as well as prolonged periods of vacancies . in all cases , the projected undiscounted cash flows in our analyses as of december 31 , 2017 , exceeded the carrying amounts of each facility . our impairment evaluations also take into consideration our historical experience in securing new management contracts to utilize facilities that had been previously idled for substantial periods of time .
| results of operations our results of operations are impacted by the number of facilities we owned and managed , the number of facilities we managed but did not own , the number of facilities we leased to other operators , and the facilities we owned that were not in operation . the following table sets forth the changes in the number of facilities operated for the years ended december 31 , 2017 , 2016 , and 2015. replace_table_token_8_th 57 year ended december 31 , 2017 compared to the year ended december 31 , 2016 during the year ended december 31 , 2017 , we generated net income of $ 178.0 million , or $ 1.50 per diluted share , compared with net income of $ 219.9 million , or $ 1.87 per diluted share , for the previous year . our financial results were impacted by several non-routine transactions , including the renegotiation of a contract at the south texas family residential center in the fourth quarter of 2016 that resulted in a decrease in revenue of $ 96.7 million at this facility in 2017 compared with 2016 , income tax charges of $ 4.5 million resulting from the tax cuts and jobs act , or the tcja , enacted in the fourth quarter of 2017 , and restructuring charges of $ 4.0 million in the third quarter of 2016. each of these factors is described more fully hereafter . facility operations a key performance indicator we use to measure the revenue and expenses associated with the operation of the facilities we own or manage is expressed in terms of a compensated man-day , which represents the revenue we generate and expenses we incur for one offender for one calendar day . revenue and expenses per compensated man-day are computed by dividing facility revenue and expenses by the total number of compensated man-days during the period .
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in addition to the impact of the overall reported declines in north american mall traffic in december , other significant drivers of the decrease included changes in media and marketing tactics , shifts in licensed product sales and the execution of unplanned promotional activities , a decrease in gift card redemptions and missed e-commerce sales in the fourth quarter due to the inability of our e-commerce systems to process the increased traffic to our site . commercial revenue : commercial revenue includes the company 's transactions with other businesses , mainly through wholesale and licensing transactions . revenue from wholesale product sales includes revenue from sales of merchandise to third parties that operate stores under licensing agreements . in addition , we have historically entered into a number of outbound licensing arrangements whereby third parties manufacture merchandise carrying the build-a-bear trademark and sell it to other retailers . revenue from outbound licensing activities is generally based on a percentage of sales made by licensees to third parties and is recognized at the time of sale by the licensee . franchise fees : typically , we receive an initial , one-time franchise fee for each master franchise agreement which is amortized to revenue over the initial term of the respective franchise agreement , which may extend for periods up to 25 years and include a renewal option if certain conditions are met . master franchise rights are typically granted to a franchisee for an entire country or countries . continuing franchise fees are based on a percentage of sales made by the franchisees ' stores and are recognized as revenue at the time of those sales as well as fees for sale of fixtures and equipment required to open and operate stores . 19 costs and expenses cost of merchandise sold - retail and retail gross margin : cost of merchandise sold – retail includes the cost of the merchandise , including royalties paid to licensors of third party branded merchandise ; store occupancy cost , including store depreciation and store asset impairment charges ; cost of warehousing and distribution ; packaging ; stuffing ; damages and shortages ; and shipping and handling costs incurred in shipment to customers . retail gross margin is defined as net retail sales less the cost of merchandise sold - retail . selling , general and administrative expense : these expenses include store payroll and benefits , advertising , credit card fees , store supplies and normal store closing expenses as well as central office general and administrative expenses , including costs for management payroll , benefits , incentive compensation , travel , information systems , accounting , insurance , legal and public relations . these expenses also include depreciation of central office assets as well as the amortization of intellectual property and other assets . certain store expenses such as credit card fees historically have increased or decreased proportionately with net retail sales . preopening : these expenses include costs incurred prior to store openings , remodels and relocations including certain store set-up , labor and hiring costs , rental charges , payroll , marketing , travel and relocation costs . they are expensed as incurred . s tores co rporately-managed locations : the number of build-a-bear workshop stores in the uni ted states , canada , puerto rico ( collectively , north america ) , the united kingdom , ireland and denmark ( collectively , europe ) and china for the last three fiscal years are summarized as follows : replace_table_token_5_th during 2017 , we continued to make improvements to an aged store portfolio by leveraging new discovery formats including the concourse shops in conjunction with select natural lease events as well as to focus on places where families go for entertainment , including tourist locations . we also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans . as of december 30 , 2017 , we operated 105 discovery format stores , including 26 concourse shops . w e also operate in a number of other non-traditional locations , such as a ballpark and science center . additionally , we operate shop-in-shop locations within other retailers ' stores . we also operate temporary stores , which generally have lease terms of six to eighteen months . these specific locations are designed to capitalize on short-term opportunities . international franchise locations : our first franchisee location was opened in november 2003. all franchised stores have similar signage , store layout and merchandise assortments as our corporately-managed stores . as of december 30 , 2017 , we had nine master franchise agreements , which typically grant franchise rights for a particular country or group of countries , covering an aggregate of 17 countries . the number of international , franchised stores opened and closed for the periods presented below are summarized as follows : replace_table_token_6_th 20 the distribution of franchised locations among these countries is as follows : replace_table_token_7_th ( 1 ) gulf states master franchise agreement includes kuwait , bahrain , qatar , and the united arab emirates which all have stores as well as oman where we do not currently have a store open ( 2 ) germany master franchise agreement also includes austria and switzerland where stores have not yet opened in the ordinary course of business , we anticipate signing additional master franchise agreements in the future and terminating other such agreements . we believe there is a total market potential for approximately 300 international stores outside of the united states , canada , the united kingdom , ireland and denmark . story_separator_special_tag in 2016 , we began to source fixtures and other supplies for our franchisees from china which significantly reduced the capital and lowered the expenses required to open franchises . we are leveraging new formats that have been developed for our corporately-managed locations such as concourses and shop-in-shops with our franchisees . in 2017 , we opened our first franchise in china . we expect to develop market expansion through both new and existing franchisees in 2018 and beyond . results of operations 201 7 overview we continued to make significant progress on key platforms of our long-term strategic plan in 2017. we maintained the commitment to position ourselves for the future through the continued development and implementation of our four key strategic initiatives of channel evolution inclusive of international franchising , product expansion , brand and experience amplification and long-term profitability improvement . in 2017 , we advanced our retail portfolio diversification strategy into 26 new concourse shop formats as well as tourist locations including a new location in new york city adjacent to the empire state building . in the fourth quarter of 2017 , our relaunched web platform paved the way for increased omni-channel capabilities and supported our focus on channel evolution and brand amplification . regarding long-term profitability , we recorded our fourth straight year of net income and improved on the prior year 's results . however , our comparable sales decreased and were impacted negatively by the overall traffic declines at traditional malls throughout the year including the critically important gift-buying month of december . we are evolving our tactics to make the necessary adjustments to drive total revenue growth and to deliver sustained profit to enhance long-term shareholder value . 21 the following table sets forth , for the periods indicated , selected statement of operation s data expressed as a percentage of total revenues , except where otherwise indicated . percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding : replace_table_token_8_th ( 1 ) cost of merchandise sold – retail and cost of merchandise sold – commercial are expressed as a percentage of net retail sales and commercial revenue , respectively . ( 2 ) retail gross margin represents net retail sales less cost of merchandise sold – retail ; retail gross margin percentage represents retail gross margin divided by net retail sales . fiscal year ended december 3 0 , 201 7 compared to fiscal year ended december 31 , 2016 total revenues . net retail sales were $ 349.4 million for fiscal 2017 , compared to $ 357.6 million for fiscal 2016 , a decrease of $ 8.2 million . the components of this decrease are as follows : replace_table_token_9_th in fiscal 2017 , our estimate of deferred revenue increased net retail sales by $ 3.8 million compared to fiscal 2016 primarily due to breakage . the increase in breakage revenue was primarily the result of a larger gift card base , favorable historical redemption rates and changes in the estimate of liabilities for older gift cards . see “ critical accounting estimates revenue recognition ” discussion for additional breakage discussion . commercial revenue was $ 6.0 million for fiscal 2017 compared to $ 4.3 million for fiscal 2016 , an increase of $ 1.7 million . this increase was primarily due to the addition of new wholesale customers and growth in outbound licensing activity in 2017. revenue from international franchise fees was $ 2.5 million for fiscal 2017 compared to $ 2.3 million for fiscal 2016. this $ 0.2 million increase was primarily the result of having more franchise locations in fiscal 2017. retail gross margin . retail gross margin was $ 163.9 million in fiscal 2017 compared to $ 161.7 million in fiscal 2016 , an increase of $ 2.2 million , or 1.4 % . as a percentage of net retail sales , retail gross margin increased to 46.9 % for fiscal 2017 from 45.2 % for fiscal 2016 , an increase of 170 basis points as a percentage of net retail sales . retail gross margin improved primarily due to a $ 3.8 million increase in gift card breakage , cost efficiencies and the absence of a prior year $ 2.3 million store asset impairment charge . 22 selling , general and administrative . selling , general and administrative expenses were $ 152.7 million for fiscal 2017 as compared to $ 157.2 million for fiscal 2016 , a decrease of $ 4.5 million , or 2.9 % . selling , general and administrative expenses were lower primarily due to the absence of the charge associated with the prior year duty dispute in the uk , the positive impact of foreign currency translation and lower marketing expenses , partially offset by higher incentive compensation in fiscal 2017. as a percentage of total revenues , selling , general and administrative expenses were 42.7 % for fiscal 2017 , compared to 43.2 % for fiscal 2016. store preopening . store preopening expenses were $ 2.5 million in fiscal 2017 as compared to $ 3.5 million in fiscal 2016. the decrease was attributable to the lower number of new and remodeled discovery format stores opened in fiscal 2017 as compared to fiscal 2016 as well as the reduced cost associated with concourse shop openings . interest expense ( income ) , net . interest expense , net of interest income , was flat for fiscal 2017 as compared to fiscal 2016. provision for income taxes . income tax expense in fiscal 2017 was $ 5.9 million compared to income tax expense of $ 3.9 million in fiscal 2016. the 2017 effective rate of 42.7 % differed from the statutory rate of 34 % primarily due to the effect of the provisional tax charge of $ 1.4 million for the re-measurement of u.s. net deferred tax assets as a result of the enactment of the
| seasonality and quarterly results the following is a summary of certain unaudited quarterly results of operations data for each of the last two fiscal years . replace_table_token_13_th ( 1 ) retail g ross margin represents net retail sales less cost of retail merchandise sold . 25 our operating results for one period may not be indicative of results for other periods , and may fluctuate significantly because of a variety of factors , including , but not limited to : ( 1 ) fluctuations in the profitability of our stores ; ( 2 ) increases or decreases in comparable sales and total revenues ; ( 3 ) changes in general economic conditions and consumer spending patterns ; ( 4 ) the timing and frequency of our marketing initiatives including national media appearances and other public relations events ; ( 5 ) changes in foreign currency exchange rates ; ( 6 ) seasonal shopping patterns and holiday and vacation schedules ; ( 7 ) the timing of store closures , relocations and openings and related expenses ; ( 8 ) the effectiveness of our inventory management ; ( 9 ) changes in consumer preferences ; ( 10 ) the continued introduction and expansion of merchandise offerings ; ( 11 ) actions of competitors or mall anchors and co-tenants ; ( 12 ) weather conditions ; and ( 13 ) the impact of a 53rd week in our fiscal year , which occurs approximately every six years . the timing of store openings , closures and remodels may cause fluctuations in quarterly results due to the changes in revenues and expenses associated with each store location . we typically incur most preopening costs for a new store , remodeled or relocated store in the three months immediately preceding the store 's opening . expenses related to store closings are typically incurred in stages : when the decision is made to close the store , when the closure is communicated to store associates and at the time of closure .
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as of june 30 , 2020 and 2019 , cash balances of $ 1,116 and $ 1,821 , respectively , were maintained at australia financial institutions , and were insured as the australian government guarantees deposits up to aud 250,000 ( approximately story_separator_special_tag the following discussion and analysis of our company 's financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in the report . this discussion contains forward-looking statements that involve risks and uncertainties . actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors . overview sino-global has focused on providing customers with customized shipping agency and freight logistic services but has since begun looking aggressively at diversifying its revenue and service mix by seeking new growth opportunities to expand its business due to increased margin compression . these opportunities have ranged from complementary businesses to other service and product initiatives . with the hope of bringing us back to the shipping management business , on april 10 , 2019 , the company entered into a cooperation agreement with mr. weijun qin , ceo of a shipping management company in china , to set up a joint venture in new york named state priests management ltd. ( “ state priests ” ) , of which we hold 90 % equity interest . on november 6 , 2019 , we signed a revised cooperation agreement with mr. qin to restructure our equity interest in state priests . due to state priests ' failure to timely obtain the necessary approval from related authorities , mr. qin agreed to exchange 80 % equity interest in sea continent management ltd. ( “ sea continent ” ) , another entity he owns , for 90 % equity interest that we hold in state priests . sea continent already has the international ship safety management certificate from the china classification society for its operations . to adapt to the changing china market , which has a high demand for agricultural products and agricultural by-products , one of the company 's business strategies is to provide services in connection with the purchase of the u.s agricultural products and the shipment of these products to china using its overall supply chain logistics . on january 10 , 2020 , the company entered into a cooperation agreement with mr. shanming liang , a director of guangxi jinqiao industrial group co. , ltd. , to set up a joint venture in new york named lsm trading ltd. ( “ lsm trading ” ) to engage in trading business , of which we hold 40 % equity interest . no investment has been made by the company as of the date of this report . lsm trading will facilitate the purchase of the agricultural commodities and agricultural by-products in the u.s. for customers in china and the company will provide comprehensive supply chain and logistics solutions . due to uncertainty in current trade environment and the impact of novel coronavirus , the company has not made any investment in the aforementioned joint ventures and no significant operations has commenced . the company has started shipping management services by its us subsidiary through fiscal year 2020. the outbreak of the novel coronavirus ( covid-19 ) starting from late january 2020 in the prc has spread rapidly to many parts of the world . the pandemic has resulted in quarantines , travel restrictions , and the temporary closure of stores and business facilities in china and united states for the past few months . in march 2020 , the world health organization declared the covid-19 as a pandemic . given the rapidly expanding nature of the covid-19 pandemic , and because substantially all of our business operations and our workforce are concentrated in china and united states , our business , results of operations , and financial condition have been materially and adversely affected . potential impact to our results of operations beyond fiscal year 2020 will also depend on future developments and new information that may emerge regarding the duration and severity of the covid-19 and the actions taken by government authorities and other entities to contain the covid-19 or mitigate its impact , almost all of which are beyond our control . the impacts of covid-19 on our business , financial condition , and results of operations include but are not limited to , the following : ● we temporarily closed our chinese and u.s. offices and implemented work-from-home policy beginning from late january to march 2020 for our china offices and from march to june 2020 for our u.s. offices , as required by relevant prc and u.s. regulatory authorities , respectively . our office closure and limited activity had caused business interruption which led to a slower growth for our operations . 12 ● our customers have been negatively impacted by the outbreak , which reduced demand for the shipping agency and management as well as freight logistics services in 2020. as a result , our revenue , gross profit and net income has been negatively impacted in 2020. our revenue and gross profit for the year ended june 30 , 2020 were down by approximately 35.2 million or 84.4 % and 2.9 million or 50.4 % , respectively , and net loss increased by approximately 5.9 million or 84.0 % from the same period last year . ● our customers required additional time to pay us or failed to pay us , which required us to record additional allowances . we are currently working with customers to resolve the delinquency issues and made $ 4,996,006 of allowance for doubtful accounts in the year ended june 30 , 2020. we wrote off $ 8,220,754 of accounts receivable in the year ended june 30 , 2020. we will monitor our collections closely throughout the rest of calendar year 2020 . ● we prepaid the costs of commodities and recognized as advance payments on behalf of our customers . story_separator_special_tag we operate in four operating segments , including ( 1 ) shipping agency and management services , operated by our subsidiary in hong kong and the u.s. ; ( 2 ) inland transportation management services , operated by our subsidiaries in the u.s. ; ( 3 ) freight logistics services , operated by our subsidiaries in the prc and the u.s. ; and ( 4 ) container trucking services , operated by our subsidiaries in the prc and the u.s. our corporate structure diagram as of the date of this report is as below : story_separator_special_tag : 0.5in '' > for the years ended june 30 , 2020 and 2019 , revenues generated from container trucking services were $ 61,709 and $ 482,432 , respectively . overall revenues from this segment decreased by $ 420,723 or approximately 87.2 % . the decrease in revenues from this segment was primarily due to the pending trade negotiations between the u.s. and china , which decreased container shipments from china to the u.s. the related gross profit decreased by $ 48,592 from $ 54,987 gross profit for the year ended june 30 , 2019 to $ 6,395 for the same period in 2020. gross profit margin for both periods remained relatively consistent . operating costs and expenses operating costs and expenses decreased by $ 23,467,433 or approximately 49.2 % , from $ 47,741,493 for the year ended june 30 , 2019 to $ 24,274,060 for the year ended june 30 , 2020. this decrease was mainly due to the decrease in cost of revenue , selling expenses , general and administrative expenses and stock-based compensation as discussed below . the following table sets forth the components of the company 's costs and expenses for the periods indicated : replace_table_token_6_th 16 cost of revenues cost of revenues consisted primarily of freight costs to various freight carriers , cost of labor , other overhead and sundry costs . cost of revenues was $ 3,678,863 for the year ended june 30 , 2020 , a decrease of $ 32,327,647 , or approximately 89.8 % , as compared to $ 36,006,510 for the same period in 2019. the overall cost of revenues as a percentage of our revenues decreased from approximately 86.2 % for the year ended june 30 , 2019 , to approximately 56.3 % for the same period in 2020. cost of revenues for freight logistics and container trucking services consists primarily of freight costs to various freight carriers . the decrease of costs was mainly due to the aforementioned certain freight logistic contracts in which only acted as an agent and did not control the services rendered to the customers for the year ended june 30 , 2020. selling expenses our selling expenses consisted primarily of salaries and travel expenses for our sales representatives . for the year ended june 30 , 2020 , we had $ 393,617 of selling expenses , as compared to $ 718,754 for the same period in 2019 , which represents a decrease of $ 325,137 or approximately 45.2 % . the decrease was mainly due to approximately $ 299,000 decrease in business development expenses as limited activities for our selling team under covid-19 . general and administrative expenses our general and administrative expenses consist primarily of salaries and benefits , travel expenses for administration department , software development expenses , office expenses , regulatory filing and professional service fees including audit , legal and it consulting . for the year ended june 30 , 2020 , we had $ 3,386,690 of general and administrative expenses , as compared to $ 4,344,435 for the same period in 2019 , representing a decrease of $ 957,745 , or approximately 22.0 % . the decrease was mainly due to the decrease in it expenses of approximately $ 601,000 , the decrease in professional service fees of approximately $ 131,000 as we incurred less expenses on management consulting and advisory services and the decrease in travel and office expenses of approximately $ 497,000 as we incurred less travel and office expenses due to our office closure and limited activity under covid-19 . the decrease was offset by the approximately $ 271,000 increase in depreciation and amortization expenses . impairment loss of fixed assets and intangible asset for the year ended june 30 , 2020 , we recorded $ 327,632 of impairment loss of fixed assets and intangible asset due to the continued decrease in revenues generated from the inland transportation management segment . there was no such transaction for year ended june 30 , 2019. impairment loss of deposit for leasehold improvement for the year ended june 30 , 2019 , we recorded a $ 425,068 impairment loss on the deposit as we paid a $ 422,381 deposit for leasehold improvements on our it infrastructure facility including upgrading the server room of its shanghai office . the design plan for the leasehold improvement was not approved by the building management due to power supply issues and we planned to move the it infrastructure facility to our ningbo office . there was no such transaction for year ended june 30 , 2020 . 17 provision for doubtful accounts we made $ 15,051,209 provision for doubtful accounts and offset by the recoveries of accounts receivable of $ 99,366 and other receivable - related party of $ 41,341 for the year ended june 30 , 2020 compared to $ 3,978,893 with no recovery for the same period in 2019 , an increase of $ 10,931,609 , or approximately 274.7 % . this increase of provision for doubtful accounts was mainly because the recent outbreak of covid-19 has adversely affected our customers ' business operations , which in turn adversely affected our ability to collect accounts receivable and other receivables from our customers .
| results of operations comparison of the years ended june 30 , 2020 and 2019 revenues revenues decreased by $ 35,235,091 or approximately 84.4 % , from $ 41,771,047 for the year ended june 30 , 2019 to $ 6,535,956 for the same period in 2020. the decrease was primarily due to the fact that in certain freight logistics contracts that we entered into with customers starting from the first quarter of fiscal year 2020 , we only acted as an agent and did not control the services rendered to the customers as we are not the primary responsible party to fulfill the services in order to reduce possible risks as a result of the uncertainties in current trade environments . as such our revenues on these contracts are accounted for on a net basis . the decrease was also due to the decrease in revenues from inland transportation management services as our service contracts with customers have expired and there was no new business for this segment . in addition , as a result of covid-19 , which caused business interruption staring third quarter of fiscal year 2020 had slowed our revenue growth than expected across all segments . the following tables present summary information by segments mainly regarding the top-line financial results for the years ended june 30 , 2020 and 2019 : replace_table_token_2_th * for the year ended june 30 , 2020 , gross revenue and gross cost of revenue related to the contracts where we acted as agents amounted to approximately $ 25.8 million and $ 24.3 million , respectively . 14 replace_table_token_3_th replace_table_token_4_th disaggregated information of revenues by geographic locations are as follows : replace_table_token_5_th revenues ( 1 ) shipping agency and management services for the years ended june 30 , 2020 and 2019 , shipping agency and management services generated revenues of $ 2,105,651 and $ 2,093,680 , respectively , representing an approximately 0.6 % increase in revenues .
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gains and losses on the sale of oreo and reductions in fair value subsequent to foreclosure , and any subsequent operating expenses or income of such properties are included in all other expense on the consolidated statements of operations . bank owned life insurance : the bank has purchased life insurance policies on certain key employees . boli is recorded at the amount that can be realized under the insurance contract , which is the cash surrender value . premises , equipment , and capital leases : land is carried at cost . story_separator_special_tag critical accounting policies we follow accounting and reporting policies and procedures that conform , in all material respects , to gaap and to practices generally applicable to the financial services industry , the most significant of which are described in note 1 to consolidated financial statements included in `` item 8. financial statements and supplementary data '' of this annual report on form 10-k. the preparation of consolidated financial statements in conformity with gaap requires management to make judgments and accounting estimates that affect the amounts reported for assets , liabilities , revenues and expenses on the consolidated financial statements and accompanying notes , and amounts disclosed as contingent assets and liabilities . while we base estimates on historical experience , current information and other factors deemed to be relevant , actual results could differ from those estimates . accounting estimates are necessary in the application of certain accounting policies and procedures that are particularly susceptible to significant change . critical accounting policies are defined as those that require the most complex or subjective judgment and are reflective of significant uncertainties , and could potentially result in materially different results under different assumptions and conditions . management has identified our most critical accounting policies and accounting estimates as : investment securities , allowance for loan losses and deferred income taxes . see note 1. summary of significant accounting policies of the notes to consolidated financial statements contained in “ item 8. financial statements and supplementary data ” for a description of these policies . recent accounting pronouncements see note 1. summary of significant accounting policies of the notes to consolidated financial statements contained in “ item 8. financial statements and supplementary data ” for information on recent accounting pronouncements and their expected impact , if any , on our consolidated financial statements . the following recently issued accounting pronouncement is of material importance to us : in june 2016 , the fasb issued asu 2016-13 , financial instruments-credit losses ( topic 326 ) ( asu 2016-13 ) which is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date . to achieve this objective , the amendments in this guidance replace the incurred loss impairment methodology in current us gaap with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to credit loss estimates . this asu will be effective for fiscal years beginning after december 15 , 2019. we have developed our models to estimate lifetime expected credit losses on our loans primarily using a lifetime loss methodology . we have used these models to execute our process for estimating the allowance for credit losses under the new standard in parallel with our existing process for estimating the allowance for credit losses based on incurred losses and have developed an appropriate governance process for our estimate of expected credit losses under the new standard . the adoption of this standard will be applied through a cumulative effect adjustment to retained earnings as of january 1 , 2020. we expect our allowance for credit losses may increase by approximately 5 % to 15 % from our allowance for credit losses as of december 31 , 2019 . 38 executive overview we are california 's premier , relationship-focused , full-service business bank . headquartered in orange county , the bank has over 630 employees , 42 offices and 32 full service community banking branches , extending from san diego to santa barbara . we offer a depth of resources and financial strength that allows us to adapt quickly and thoughtfully , delivering the best solutions to help our clients achieve their financial goals . as the 15th largest bank headquartered in california , we help all types of businesses obtain the financing and banking solutions they need to help their businesses grow and succeed . story_separator_special_tag other financial institutions . ( 3 ) includes average balance of boli of $ 108.1 million , $ 105.8 million and $ 103.6 million for the years ended december 31 , 2019 , 2018 and 2017 . ( 4 ) net interest income divided by average interest-earning assets . 41 rate/volume analysis the following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities . information is provided on changes attributable to ( i ) changes in volume multiplied by the prior rate and ( ii ) changes in rate multiplied by the prior volume . changes attributable to both rate and volume which can not be segregated have been allocated proportionately to the change due to volume and the change due to rate . replace_table_token_8_th ( 1 ) total loans includes income from discontinued operations for the years ended december 31 , 2018 and 2017. year ended december 31 , 2019 compared to year ended december 31 , 2018 net interest income was $ 248.2 million for the year ended december 31 , 2019 , a decrease of $ 38.6 million , or 13.5 % , from $ 286.7 million for the year ended december 31 , 2018 . the decrease in net interest income between periods was largely due to the net decrease in interest earning assets coupled with average cost of interest-bearing liabilities outpacing the increase in average yield on interest-earning assets . story_separator_special_tag we recorded a provision for loan losses of $ 36.4 million and $ 30.2 million for the years ended december 31 , 2019 and 2018 . the 2019 loan loss provision of $ 36.4 million was primarily attributable to a previously reported $ 35.1 million charge-off of a line of credit originated in november 2017 to a borrower purportedly the subject of a fraudulent scheme . on october 22 , 2019 , in connection with this matter , the bank filed a complaint in u.s. district court for the southern district of california ( case cv '19 02031 gpc ksc ) seeking to recover its losses and other monetary damages against chicago title insurance company and chicago title company , asserting claims under rico , 18 u.s.c § 1962 and for rico conspiracy , fraud , aiding and abetting fraud , negligent misrepresentation , breach of fiduciary duty and negligence . we are actively considering and pursuing available sources of recovery and other potential means of mitigating the loss ; however , no assurance can be given that we will be successful in that regard . during the year ended december 31 , 2019 , we undertook an extensive collateral review of all commercial lending relationships $ 5 million and above not secured by real estate , consisting of 53 loans representing $ 536 million in commitments . the collateral review focused on security and collateral documentation and confirmation of the bank 's collateral interest . the review was performed by the bank 's internal audit department and the work was validated by an independent third party . our review and outside validation did not identify any other instances of apparent fraud for the credits reviewed or concerns over the existence of collateral held by the bank or on our behalf at third parties ; however , there are no assurances that our internal review and third party validation are sufficient to identify all such issues . the 2018 provision for loans losses of $ 30.2 million includes a $ 13.9 million charge-off on a line of credit determined to have been fraudulently obtained , and was otherwise a result of the 15.6 % net loan portfolio growth , higher classified loans of 97.8 % and allowance methodology enhancements implemented during 2018 , such as an extension of look-back period , more granular qualitative adjustments and loan segmentations , and an annual update of the loss emergence period . see further discussion in `` allowance for loan losses . '' 43 noninterest income the following table presents noninterest income for the periods indicated : replace_table_token_9_th year ended december 31 , 2019 compared to year ended december 31 , 2018 noninterest income was $ 12.1 million for the year ended december 31 , 2019 , a decrease of $ 11.8 million , or 49.3 % , from $ 23.9 million for the year ended december 31 , 2018 . the decrease in noninterest income was mainly due to lower loan servicing income of $ 3.0 million , higher net loss on the sale of investment securities of $ 10.4 million , and lower other income of $ 8.9 million , partially offset by lower impairment losses on investment securities of $ 2.5 million and higher net gain on sale of loans of $ 5.9 million . loan servicing income was $ 679 thousand for the year ended december 31 , 2019 , a decrease of $ 3.0 million , or 81.7 % , from $ 3.7 million for the year ended december 31 , 2018 . the decrease between periods was attributable to the sale during the year ended december 31 , 2018 of $ 28.5 million of mortgage servicing rights on $ 3.55 billion in unpaid principal balances of conventional mortgage loans . servicing fees were $ 1.3 million and $ 5.0 million for the years ended december 31 , 2019 and 2018 . servicing fees were offset by losses on fair value changes and runoff of servicing assets of $ 612 thousand and $ 1.3 million for the years ended december 31 , 2019 and 2018 . net ( loss ) gain on sale of securities available-for-sale was $ ( 4.9 ) million for the year ended december 31 , 2019 , compared to $ 5.5 million for the year ended december 31 , 2018 . we sold securities available-for-sale of $ 1.20 billion and $ 406.8 million during the years ended december 31 , 2019 and 2018 . during the year ended december 31 , 2019 , we sold non-agency commercial mortgage-backed securities of $ 132.2 million for a gain of $ 9 thousand , agency mortgage-backed securities of $ 423.6 million for a loss of $ 5.0 million and collateralized loan obligations of $ 644.0 million for a net gain of $ 143 thousand . during the year ended december 31 , 2019 , we recognized $ 731 thousand of other-than-temporary impairment on the mbs portfolio , which is reflected in impairment loss on investment securities in the accompanying consolidated statements of operations . during the year ended december 31 , 2018 , we changed our intent to sell our non-agency commercial mortgage-backed securities which were in an unrealized loss position and recognized $ 3.3 million of otti losses . net gain on sale of loans was $ 7.9 million for the year ended december 31 , 2019 , compared to $ 1.9 million for the year ended december 31 , 2018 . during the year ended december 31 , 2019 , we sold jumbo sfr mortgage loans of $ 382.8 million resulting in a gain of $ 787 thousand and multifamily residential loans of $ 751.6 million resulting in a gain of $ 11.7 million . offsetting these gains was $ 4.4 million related to establishing reserves for expected loan repurchases associated with our multifamily securitization .
| financial highlights for the years ended december 31 , 2019 , 2018 and 2017 , net income from continuing operations was $ 23.8 million , $ 42.1 million and $ 53.5 million . diluted earnings per common share from continuing operations were $ 0.05 , $ 0.38 and $ 0.63 for the years ended december 31 , 2019 , 2018 and 2017 . the decrease in net income from continuing operations for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 was mainly due to lower net interest income and noninterest income , and a higher provision for loan losses , partially offset by lower noninterest expense . total assets were $ 7.83 billion at december 31 , 2019 , a decrease of $ 2.80 billion , or 26 % , from $ 10.63 billion at december 31 , 2018 . the decrease was mainly due to our continued progress towards transitioning to become a relationship-focused business bank . as part of this transition , we continue to de-emphasize the production of lower margin commoditized loan products and we opportunistically reduced holdings of certain investment securities . significant financial highlights include : securities available-for-sale were $ 912.6 million at december 31 , 2019 , a decrease of $ 1.08 billion , or 54.2 % , from $ 1.99 billion at december 31 , 2018 . the decrease was primarily the result of call and net sale activities between periods . we lowered the amount of collateralized loan obligations in the investment securities portfolio and repositioned our securities available-for-sale portfolio to navigate a volatile rate environment by reducing the overall duration of the portfolio by selling longer-duration residential mortgage-backed securities and commercial mortgage-backed-securities . the sales of securities helped remix overall earning assets as the proceeds were primarily used to fund loan originations and reduce borrowings .
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91 national rural utilities cooperative finance corporation notes to consolidated story_separator_special_tag introduction our financial statements include the consolidated accounts of national rural utilities cooperative finance corporation ( “ cfc ” ) , national cooperative services corporation ( “ ncsc ” ) and rural telephone finance cooperative ( “ rtfc ” ) , and subsidiaries created and controlled by cfc to hold foreclosed assets . cfc did not hold , and did not have any subsidiaries or other entities that held , foreclosed assets as of may 31 , 2018 or may 31 , 2017 . see “ item 1. business—overview ” for information on the business activities of each of these entities . unless stated otherwise , references to “ we , ” “ our ” or “ us ” relate to cfc and its consolidated entities . all references to members within this document include members , associates and affiliates of cfc and its consolidated entities . management monitors a variety of key indicators to evaluate our business performance . in addition to financial measures determined in accordance with gaap , management also evaluates performance based on certain non-gaap measures , which we refer to as “ adjusted ” measures . we identify our non-gaap adjusted measures in “ item 6. selected financial data ” and provide a reconciliation to the most comparable gaap measures below under “ non-gaap financial measures. ” the following md & a is intended to provide the reader with an understanding of our results of operations , financial condition and liquidity by discussing the factors influencing changes from period to period and the key measures used by management to evaluate performance , such as net interest income , net interest yield , loan growth , debt-to-equity ratio and credit quality metrics . md & a is provided as a supplement to , and should be read in conjunction with , our audited consolidated financial statements and related notes in this annual report on form 10-k for the fiscal year ended may 31 , 2018 and the information contained elsewhere in this report , including the risk factors discussed under “ part i—item 1a . risk factors ” in this report . executive summary our primary objective as a member-owned cooperative lender is to provide cost-based financial products to our rural electric members while maintaining a sound financial position required for investment-grade credit ratings on our debt instruments . our objective is not to maximize net income ; therefore , the rates we charge our member-borrowers reflect our adjusted interest expense plus a spread to cover our operating expenses , a provision for loan losses and earnings sufficient to achieve interest coverage to meet our financial objectives . our goal is to earn an annual minimum adjusted tier of 1.10 and to maintain an adjusted debt-to-equity ratio at approximately or below 6.00-to-1 . we are subject to period-to-period volatility in our reported gaap results due to changes in market conditions and differences in the way our financial assets and liabilities are accounted for under gaap . our financial assets and liabilities expose us to interest-rate risk . we use derivatives , primarily interest rate swaps , as part of our strategy in managing this risk . our derivatives are intended to economically hedge and manage the interest-rate sensitivity mismatch between our financial assets and liabilities . we are required under gaap to carry derivatives at fair value on our consolidated balance sheet ; however , the financial assets and liabilities for which we use derivatives to economically hedge are carried at amortized cost . changes in interest rates and spreads result in periodic fluctuations in the fair value of our derivatives , which may cause volatility in our earnings because we do not apply hedge accounting for our interest rate swaps . as a result , the mark-to-market changes in our interest rate swaps are recorded in earnings . based on the composition of our interest rate swaps , we generally record derivative losses in earnings when interest rates decline and derivative gains when interest rates rise . this earnings volatility generally is not indicative of the underlying economics of our business , as the derivative forward fair value gains or losses recorded each period may or may not be realized over time , depending on the terms of our derivative instruments and future changes in market conditions that impact the periodic cash settlement amounts of our interest rate swaps . as such , management uses our adjusted non-gaap results to evaluate our operating performance . our adjusted results include realized net periodic interest rate swap settlement amounts but exclude the impact of unrealized forward fair value gains and losses . our financial debt covenants are also based on our non-gaap adjusted results , as the forward fair value gains and losses related to our interest rate swaps do not affect our cash flows , liquidity or ability to service our debt . 23 financial performance reported results we reported net income of $ 457 million and a tier of 1.58 for fiscal year ended may 31 , 2018 ( “ fiscal year 2018 ” ) , compared with a net income of $ 312 million and a tier of 1.42 for fiscal year 2017 , and a net loss of $ 52 million and a tier of 0.92 for fiscal year 2016 . our debt-to-equity ratio decreased to 16.72 as of may 31 , 2018 , from 21.94 as of may 31 , 2017 , primarily due to an increase in equity resulting from our reported net income of $ 457 million for fiscal year 2018 , which was partially offset by patronage capital retirement of $ 45 million in september 2017. the variance of $ 145 million between our reported net income of $ 457 million for fiscal year 2018 and net income of $ 312 million for fiscal year 2017 was driven by an increase in derivative gains of $ 137 million and a favorable shift in the provision for loan losses of $ 24 million , partially story_separator_special_tag the increase was primarily attributable to an increase in dealer medium-term notes of $ 638 million ; an increase in the federal agricultural mortgage corporation ( “ farmer mac ” ) notes payable of $ 378 million ; an aggregate increase in member commercial paper , select notes and daily liquidity fund notes of $ 230 million ; and an increase in dealer commercial paper outstanding of $ 65 million . these increases were partially offset by a decrease in notes payable to the federal financing bank and guaranteed by rus under the guaranteed underwriter program of $ 129 million . we provide additional information on our financing activities below under “ consolidated balance sheet analysis—debt ” and “ liquidity risk. ” outlook for the next 12 months we currently expect that our net interest income , net interest yield , adjusted net interest income and adjusted net interest yield will increase over the next 12 months as a result of a projected decrease in our average cost of funds and an increase in average outstanding loans . we have scheduled maturities of higher-cost debt over the next 12 months , including $ 1,830 million in collateral trust bonds with a weighted average coupon rate of 6.98 % . on july 12 , 2018 , we redeemed $ 300 million of the $ 1 billion aggregate principal amount of 10.375 % collateral trust bonds due november 1 , 2018 , leaving a remaining outstanding amount of $ 700 million . we expect that we will be able to replace this higher-cost debt with lower-cost funding , which will reduce our aggregate weighted average cost of funds . we expect the amount of long-term loan advances to exceed anticipated loan repayments over the next 12 months , resulting in an increase in average outstanding loans . long-term debt scheduled to mature over the next 12 months totaled $ 2,745 million as of may 31 , 2018 . we believe we have sufficient liquidity from the combination of existing cash and cash equivalents , member loan repayments , committed bank revolving lines of credit and our ability to issue debt in the capital markets , to our members and in private placements , to meet the demand for member loan advances and satisfy our obligations to repay long-term debt maturing over the next 12 months . as of may 31 , 2018 , sources of liquidity available for access , which we refer to as our liquidity reserves , totaled $ 7,147 million , consisting of ( i ) $ 231 million in cash and cash equivalents , ( ii ) up to $ 1,225 million available under committed loan facilities under the guaranteed underwriter program , ( iii ) up to $ 3,082 million available under committed bank revolving line of credit agreements , ( iv ) up to $ 200 million available under a committed revolving note purchase agreement with farmer mac , and ( v ) up to $ 2,409 million available under a revolving note purchase agreement with farmer mac , subject to market conditions . we believe we can continue to roll over the outstanding member short-term debt of $ 2,632 million as of may 31 , 2018 , based on our expectation that our members will continue to reinvest their excess cash in our commercial paper , daily liquidity fund notes , select notes and medium-term notes . although we expect to continue accessing the dealer commercial paper market to help meet our liquidity needs , we intend to manage our short-term wholesale funding risk by maintaining outstanding dealer commercial paper at an amount below $ 1,250 million for the foreseeable future . we expect to continue to be in compliance with the covenants under our committed bank revolving line of credit agreements , which will allow us to mitigate roll-over risk as we can draw on these facilities to repay dealer or member commercial paper that can not be refinanced with similar debt . 25 while we are not subject to bank regulatory capital rules , we generally aim to maintain an adjusted debt-to-equity ratio at approximately or below 6.00-to-1 . our adjusted debt-to-equity ratio was 6.18 as of may 31 , 2018 , above our targeted threshold due to the increase in debt outstanding to fund loan growth . due to anticipated asset growth , we expect our adjusted debt-to-equity ratio to be above 6.00-to-1 over the next 12 months . critical accounting policies and estimates the preparation of financial statements in accordance with gaap requires management to make a number of judgments , estimates and assumptions that affect the amount of assets , liabilities , income and expenses in the consolidated financial statements . understanding our accounting policies and the extent to which we use management 's judgment and estimates in applying these policies is integral to understanding our financial statements . we provide a discussion of our significant accounting policies under “ note 1—summary of significant accounting policies. ” we have identified certain accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters , and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition . our most critical accounting policies and estimates involve the determination of the allowance for loan losses and fair value . we evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions . management has discussed significant judgments and assumptions in applying our critical accounting policies with the audit committee of our board of directors . see “ item 1a . risk factors ” for a discussion of the risks associated with management 's judgments and estimates in applying our accounting policies and methods . allowance for loan losses we maintain an allowance for loan losses that represents management 's estimate of probable losses inherent in our loan portfolio as of each balance sheet date .
| results of operations of foreclosed assets results of operations of foreclosed assets consists of the operating results of entities controlled by cfc that hold foreclosed assets , impairment charges related to those entities , gains or losses related to the disposition of the assets and potential subsequent charges related to those assets . on july 1 , 2016 , we completed the sale of caribbean asset holdings , llc ( “ cah ” ) . as a result , we did not carry any foreclosed assets on our consolidated balance sheet as of may 31 , 2018 and 2017 . we recorded charges of $ 2 million in fiscal year 2017 and $ 7 million in fiscal year 2016 related to foreclosed assets . the charge of $ 2 million in fiscal year 2017 represented the combined impact of adjustments recorded at the closing date of the sale of cah , post-closing purchase price adjustments and certain legal costs incurred pertaining to cah . the charge of $ 7 million in fiscal year 2016 was attributable to impairment of our investment in cah due to a reduction in the fair value less estimated cost to sell . in connection with the sale of cah , $ 16 million of the sale proceeds was deposited into escrow to fund potential indemnification claims following the closing . of this amount , $ 14.5 million was designated to cover general indemnification claims and has been released back to us . the remaining $ 1.5 million was designated to cover indemnification of certain tax liens and remains in escrow . we continue to be liable for certain indemnification obligations , if raised and substantiated , regardless of whether amounts are held in escrow . 36 non-interest expense non-interest expense consists of salaries and employee benefit expense , general and administrative expenses , losses on early extinguishment of debt and other miscellaneous expenses .
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the main purpose of the trust structure is to enhance the credit worthiness of our debt obligation through certain bankruptcy protection provisions story_separator_special_tag overview in 2015 , we experienced the continuation of uncertain economic conditions and the persistent competitiveness of the airline industry . even with these external factors , 2015 was the most profitable years in our history and is our fourth consecutive year of net income growth . we generated operating revenue growth of almost 10.3 % year-over-year and reported our highest ever net income which benefited significantly from a rapid decline in fuel prices . we are committed to delivering a safe and reliable jetblue experience for our customers as well as increasing returns for our shareholders . we believe our continued focus on cost discipline , product innovation and network enhancements , combined with our service excellence , will drive our future success . 2015 story_separator_special_tag replace_table_token_10_th passenger revenue accounted for 91.8 % of our total operating revenue for the year ended december 31 , 2015 . as well as seat revenue , passenger revenue includes revenue from our ancillary product offerings such as evenmore space . revenue generated from international routes , including puerto rico , accounted for 30 % of our passenger revenues in 2015 . revenue is recognized either when transportation is provided or after the ticket or customer credit expires . we measure capacity in terms of available seat miles , which represents the number of seats available for passengers multiplied by the number of miles the seats are flown . yield , or the average amount one passenger pays to fly one mile , is calculated by dividing passenger revenue by revenue passenger miles . we attempt to increase passenger revenue primarily by increasing our yield per flight which produces higher revenue per available seat mile . our objective is to optimize our fare mix to increase our overall average fare while continuing to provide our customers with competitive fares . in 2015 , the increase in passenger revenue was mainly attributable to a 9.4 % increase in revenue passengers and a 0.8 % increase in average fare . our largest ancillary product remains the evenmore space seats , generating approximately $ 228 million in revenue , an increase of over 14 % compared to 2014 . 33 the primary component of other revenue is the fees from reservation changes and excess baggage charged to customers in accordance with our published policies . we also include the marketing component of trueblue ® point sales , on-board product sales , charters , ground handling fees of other airlines and rental income . we sold our subsidiary , livetv , in june 2014 and any third party revenues earned for the sale of in-flight entertainment systems and on-going services provided for these systems before this date were included in other revenue of approximately $ 30 million . also included in other revenue is transportation of cargo which was discontinued during the fourth quarter of 2015 . in 2015 , other revenue increase d by $ 49 million compared to 2014 . the increase in other revenue was primarily due to an increase in bag fees partly attributable to our new fare options pricing structure . also contributing to the increase was revenues mainly from getaways sales and the marketing component of trueblue ® point sales , which was offset by the $ 30 million of revenue prior to the sale of livetv in june 2014. operating expenses replace_table_token_11_th aircraft fuel and related taxes aircraft fuel and related taxes represents 26 % of our total operating expenses in 2015 compared to 36 % in 2014 . the average fuel price decreased 35.6 % in 2015 to $ 1.93 per gallon . this was partially offset by an increase in our fuel consumption of approximately 61 million gallons . additional fuel consumption was mainly due to our increase in capacity and lower flight cancellations during the first quarter of 2015 compared to flight cancellations during the first quarter of 2014 as a result of the harsh winter weather . based on our expected fuel volume for 2016 , a 10 % per gallon increase in the cost of aircraft fuel would increase our annual fuel expense by approximately $ 120 million . in 2015 , we recorded fuel hedge losses of $ 126 million compared to $ 30 million in fuel hedge losses in 2014 which was recorded in aircraft fuel and related taxes . fuel derivatives not qualifying as cash flow hedges resulted in a gain of $ 2 million in 2014 which were recorded in interest income and other . accounting ineffectiveness on fuel derivatives classified as cash flow hedges resulted in losses of less than $ 1 million in both 2015 and 2014 and were recorded in interest income and other . we are unable to predict what the amount of ineffectiveness will be related to these instruments , or the potential loss of hedge accounting which is determined on a derivative-by-derivative basis , due to the volatility in the forward markets for these commodities . salaries , wages and benefits salaries , wages and benefits represent approximately 30 % of our total operating expenses in 2015 compared to 24 % in 2014 . the increase in salaries , wages and benefits was primarily driven by profit sharing and an increase in our headcount . our profit sharing is calculated as 15 % of adjusted pre-tax income , reduced by retirement plus contributions and special items . profit sharing increased by $ 126 million in 2015 compared to 2014 , primarily driven by increased revenues and lower aircraft fuel and related taxes . during 2015 , the average number of full-time equivalent employees increased by 9 % and the average tenure of our crewmembers increased to 6.3 years . story_separator_special_tag revenues generated from international routes , including puerto rico , accounted for 30 % of our passenger revenue in 2014 compared to 28 % in 2013 . in 2014 , the increase in passenger revenue was mainly attributable to a 5 % increase in capacity and a 2 % increase in yield . our largest ancillary product remains the evenmore space seats , generating approximately $ 200 million in revenue , an increase of over 16 % compared to 2013 . in 2014 , other revenue increased by $ 4 million compared to 2013 . while there was a $ 42 million increase in revenues mainly from fees , getaways sales , the marketing component of trueblue ® point sales and on-board product sales , this was offset by a $ 38 million reduction in third party livetv revenue as a result of the sale of livetv in june 2014 . 36 operating expenses replace_table_token_13_th aircraft fuel and related taxes in 2014 , aircraft fuel and related taxes remained our largest expense category , representing 36 % of our total operating expenses in 2014 compared to 38 % in 2013 . even though the average fuel price decreased 5 % in 2014 to $ 2.99 per gallon , our fuel expenses increased by $ 13 million as we consumed 35 million more gallons of aircraft fuel compared to 2013 . this was mainly due to our increase in capacity and was offset slightly by our higher than anticipated flight cancellations during the first quarter of 2014 as a result of the harsh winter weather . in 2014 , we recorded fuel hedge losses of $ 30 million compared to $ 10 million in fuel hedge losses in 2013 . fuel derivatives not qualifying as cash flow hedges in 2014 resulted in a gain of $ 2 million compared to losses of less than $ 1 million in 2013 which were recorded in interest income and other . accounting ineffectiveness on fuel derivatives classified as cash flow hedges resulted in losses of less than $ 1 million in both 2014 and 2013 and were recorded in interest income and other . salaries , wages and benefits in 2014 , salaries , wages and benefits were our second largest expense , representing approximately 24 % of our total operating expenses in 2014 compared to 23 % in 2013 . during 2014 , the average number of full-time equivalent employees increased by 7 % and the average tenure of our crewmembers increased to 6.2 years , both of which contributed to a $ 159 million , or 14.1 % , increase compared to 2013 . retirement plus contributions , which equate to 5 % of all of our eligible crewmembers wages , increased by $ 4 million and our 3 % retirement contribution for a certain portion of our faa-licensed crewmembers , which we refer to as retirement advantage , increased by $ 3 million . our increased profitability resulted in $ 25 million of profit sharing expense in 2014 compared to $ 12 million in 2013 . depreciation and amortization depreciation and amortization increased $ 30 million , or 10 % , primarily due to having an average of 137 owned and capital leased aircraft in 2014 compared to 125 in 2013 . we also had an additional $ 13 million in amortization expense during 2014 as a result of a change in the expected useful lives of certain software . maintenance , materials and repairs the average age of our aircraft in 2014 was 7.8 years and we had an average of 11.0 additional operating aircraft in 2014 compared to 2013 . in 2014 , maintenance , materials and repairs decreased by $ 14 million as we had higher engine related costs for our embraer e190 aircraft in 2013 . in the latter half of 2013 , we finalized a flight-hour based maintenance and repair agreement for these engines and in 2014 we amended our flight-hour based agreements to include other certain services which resulted in better planning of maintenance activities . other operating expenses other operating expenses increased by $ 81 million , or 14 % , compared to 2013 mainly due to an increase in outside services . as our capacity and number of departures grew in 2014 , our related variable handling costs also increased . additionally we had higher personnel expenses , such as lodging and per diem , relating to the harsh winter weather in the first quarter of the year . non-recurring items in 2014 included the sale of an engine for a gain of $ 3 million and a gain of $ 4 million relating to a legal settlement . in 2013 , we had a gain of approximately $ 2 million relating to the sale of three spare engines as well as a gain of approximately $ 7 million relating to the sale of livetv 's investment in the airfone business . 37 income taxes our effective tax rate was 36 % in 2014 and 40 % in 2013 . our 2014 effective tax rate differs from the statutory income tax rate primarily due to the release of the $ 19 million tax benefit related to the utilization of a capital loss carryforward . this capital loss carryforward was able to be utilized due to the sale of our subsidiary , livetv . the rate is also affected by state income taxes and the non-deductibility of certain items for tax purposes . the relative size of these items compared to our 2014 pre-tax income of $ 623 million and our 2013 pre-tax income of $ 279 million also affect the rate . 38 quarterly results of operations the following table sets forth selected financial data and operating statistics for the four quarters ended december 31 , 2015. the information for each of these quarters is unaudited and has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this report .
| financial highlights we reported our highest ever net income of $ 677 million , an increase of $ 276 million compared to 2014 . this increase was principally driven by higher passenger revenue and a reduction in aircraft fuel expenses , partially offset by an increase in controllable costs . we generated over $ 6.4 billion in operating revenue , an increase of $ 599 million compared to 2014 due primarily to a 9.4 % increase in revenue passengers as well as a 0.8 % increase in the average fare . operating margin increased by 10.1 points to 19.0 % and we improved our return on invested capital , or roic , by 7.4 points to 13.7 % primarily driven by higher revenue , a reduction in aircraft fuel expenses and continued balance sheet improvement . our earnings per diluted share were $ 1.98 , the highest in our history . we generated $ 1.6 billion in cash from operations . the significant amount of cash we generated provided the opportunity to pay cash for all 2015 aircraft deliveries , reduce existing debt balances and execute share repurchases . operating expenses per available seat mile decreased 10.4 % to 10.56 cents , primarily driven by a reduction in aircraft fuel expenses . excluding fuel , profit sharing and related taxes our cost per available seat mile increased 0.5 % in 2015 . company initiatives strengthening of our balance sheet throughout 2015 we continued to focus on strengthening our balance sheet . we ended the year with unrestricted cash , cash equivalents and short-term investments of $ 876 million and undrawn lines of credit of approximately $ 600 million . at year end 2015 unrestricted cash , cash equivalents and short-term investments was approximately 14 % of trailing twelve months revenue .
| 4,960 |
warrants to purchase a total of 150,000 shares were exercised during the year ended december 31 , 2011. note 11. licensing agreement the company operates under an operating and licensing agreement with a related party that is majority-owned and controlled by the company 's chief executive officer and chairman , benjamin p. cowart , that provides for an irrevocable , non-transferable , royalty-free , perpetual right to use tcep to re-refine certain used oil feedstock and associated operations of this technology on a global basis . this includes the right to utilize the technology in any future production facilities built by the company . story_separator_special_tag strategy and plan of operations our goal is to continue to grow our business of recycling used motor oil and other petroleum by-product streams . strategies to achieve this goal include ( 1 ) working to grow revenues in core businesses , ( 2 ) seeking to increase margins through developing additional processing capabilities , including but not limited to tcep at additional locations other than baytown , texas , ( 3 ) increasing market share through greenfield development or through acquisitions , and ( 4 ) continued pursuit of alternative energy project development opportunities , some of which were originally sourced by world waste . · our primary focus is to continue to supply used motor oil and other hydrocarbons to existing customers and to cultivate additional feedstock supply volume by expanding relationships with existing suppliers and developing new supplier relationships . we will seek to maintain good relations with existing suppliers , customers and vendors and the high levels of customer service necessary to maintain these businesses . we plan to seek to develop relationships with several other re-refining facilities to serve as such facilities ' primary and exclusive feedstock provider . · we intend to work to improve margins by applying new technologies , including but not limited to the re-refining of certain oil feedstock through tcep to existing and new feedstock streams . the first application of this technology at cmt 's baytown , texas facility came on-line during the third quarter of 2009 and we have continued to enhance the facility and process since that time . we also plan to build additional facilities for various processes to implement proprietary company-owned , leased , or potentially acquired technologies to upgrade feedstock materials to create fuel oil cutter , vacuum gas oil and other value-added energy products . by moving from our historical role as a value-added logistics provider , to operating as an actual re-refiner ourselves , we plan to improve margins through the upgrading of used motor oil and transmix inventories into higher value end products , funding permitting , of which there can be no assurance . · we plan to seek to grow our market share by consolidating feedstock supply through partnering with or acquiring collection and aggregation assets , funding permitting . for example , we may seek to use a combination of stock and cash to acquire or enter into joint ventures with various local used motor oil collectors and aggregators , technology providers , real estate partners and others . such acquisitions and or ventures , if successful , could add to revenues and provide better control over the quality and quantity of feedstock available for resale and or upgrading as well as providing additional locations for the implementation of the contracted tcep technology . this may include the greenfield development of collection assets , terminals , re-refining facilities and equipment and opportunistic mergers and acquisitions . additionally , the board of directors has previously formed a sub-committee of the related party transaction committee to begin reviewing a potential acquisition of certain assets and or business units related to vertex lp , which is a related party , controlled by benjamin p. cowart , our largest shareholder , president and director ( “ vertex lp ” ) . as part of the company 's merger transaction with world waste technologies , inc. and vertex lp , which closed on april 16 , 2009 , the company was provided ( 1 ) a right of first refusal to match any third-party offer to purchase vertex lp or its related entities ( collectively the “ vertex lp entities ” ) on the terms and conditions set forth in such offer ; and ( 2 ) the option , exercisable in our sole discretion any time after the 18-month anniversary of the closing of the merger ( which date was october 16 , 2010 ) and so long as mr. cowart is employed by the company , to purchase all or any part of the outstanding stock or assets of any of the vertex lp entities owned by vertex lp or vtx , inc. ( its general partner , which is also controlled by mr. cowart ) , at a price based on an independent third-party valuation and appraisal of the fair market value of such vertex lp entity . pursuant to the merger agreement , the company formed the related party transaction committee which is required to include at least two “ independent directors ” ( defined as any individuals who do not beneficially own more than 5 % of the outstanding voting shares of the company , are not employed by , or officers of the company or any entity related to mr. cowart , are not directors or managers of any such company , are not family members of mr. cowart , and would qualify as “ independent directors ” as defined in the rules and regulations of the new york stock exchange ) . the related party transaction committee is charged with the review and pre-approval of any and all related party transactions , including between vertex and vertex lp , mr. cowart , or any other company or individual which may be affiliated with mr. cowart . story_separator_special_tag gross profit increased 90 % from $ 4,239,944 for the twelve months ended 2010 to $ 8,074,070 for the twelve months ended 2011 , primarily due to increases in volumes sold or re-refined , more stabilized and increasing commodity pricing , and reduced costs related to the contracted tcep process . we had selling , general and administrative expenses of $ 4,099,682 for the twelve months ended december 31 , 2011 , compared to $ 3,093,307 from the prior year 's period , an increase of $ 1,006,375 or 33 % from the prior period , due to increases in marketing , investor relations and payroll expenses from the prior period . we had income before income taxes of $ 3,911,702 for the twelve months ended december 31 , 2011 compared to income before income taxes of $ 1,249,223 for the twelve months ended december 31 , 2010 , an increase in net income of $ 2,662,479 or 213 % from the prior year 's period . the increase in net income before taxes was largely due to increased volumes and improved performance of our tcep process which created an increase of 90 % in our gross profit , compared to the year ended december 31 , 2010. we had an income tax benefit of $ 1,841,813 for the year ended december 31 , 2011 , compared to an income tax expense of $ 20,797 for the year ended december 31 , 2010. the increase is due to a benefit for income taxes , for which for the company has recorded a net deferred asset based on reducing our valuation allowance related to our approximately $ 42 million of net operating losses that may be used to offset taxable income generated by the company in future periods . we had net income of $ 5,753,515 for the twelve months ended december 31 , 2011 compared to net income of $ 1,228,426 for the twelve months ended december 31 , 2010 , an increase in net income of $ 4,525,089 or 368 % from the prior year 's period . financial highlights for the fourth quarter include : · revenue increased 99 % to $ 31.3 million for the fourth quarter 2011 , compared with $ 16 million in the year-ago quarter ; · gross profit decreased 12 % to $ 1.30 million compared with $ 1.48 million in the prior year 's quarter ; and · volumes increased 29 % during the fourth quarter of 2011 compared to 2010 , and our per barrel margin decreased approximately 32 % for the fourth quarter of 2011 , compared to the prior year 's fourth quarter . liquidity and capital resources the success of our current business operations is not dependent on extensive capital expenditures , but rather on relationships with feedstock suppliers and end-product customers , and on efficient management of overhead costs . through these relationships , we are able to achieve volume discounts in the procurement of our feedstock , thereby increasing the margins of our segments ' operations . the resulting operating cash flow is crucial to the viability and growth of our existing business lines . -40- we had total assets of $ 16,733,971 as of december 31 , 2011 compared to $ 8,139,345 at december 31 , 2010. this increase was partially due to the improvement in net income during the twelve months ended december 31 , 2011 which increased by $ 4,525,089 to net income of $ 5,753,515 for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 , as well as the $ 2,506,999 increase in inventory along with an increase in accounts receivable of $ 3,953,496 as of december 31 , 2011 , compared to december 31 , 2010. this increase in inventory is partly due to increased commodity pricing which increases the carrying cost of our inventory as well as timing of our sales . in addition there was a $ 95,583 increase in the balance of the license for the tcep technology ( due to increased expenditures on such process offset by amortization on such asset ) , described below , all of which attributed to the increase in total assets as of december 31 , 2011 , compared to december 31 , 2010. total current assets as of december 31 , 2011 of $ 12,674,254 consisted of cash and cash equivalents of $ 675,188 , accounts receivable , net of $ 5,436,006 , accounts receivable-related party of $ 2,459 , inventory of $ 6,408,780 , and prepaid expenses of $ 151,821. long term assets consisted of fixed assets , net of $ 124,168 , and a licensing agreement , net , in the amount of $ 1,929,549 , which represents the value of the company 's licensing agreement for the use of tcep , net of amortization . as of december 31 , 2011 , an additional $ 861,358 of development investments have been made to tcep and added to the original $ 1.4 million license value . in addition as a result of the approximately $ 42 million of net operating losses that may be used to offset taxable income generated by the company in future periods , the company has recorded a deferred federal income tax asset of $ 2,006,000 as of december 31 , 2011. the company has fully paid cmt for the license for the thermal/chemical process as of the date of this filing . our cash , accounts receivable , inventory and accounts payable fluctuate and are somewhat tied to one another based on the timing of our inventory cycles and sales . the enhancements to the contracted tcep process during the year ended december 31 , 2011 , which were expended by cmt and reimbursed by the company totaled $ 241,454 , and helped increase certain efficiencies related to the plant , as well as increase the volume of throughput capacity through the facility .
| results of operations description of material financial line items : revenues we generate revenues from two existing operating divisions as follows : black oil - revenues for our black oil division are comprised primarily of feedstock sales ( used motor oil ) which are purchased from a network of local and regional suppliers . volumes are consolidated for efficient delivery and then sold to third-party re-refiners and fuel oil blenders for the export market . refining and marketing - the refining and marketing division generates revenues relating to the sales of finished products . the refining and marketing division gathers hydrocarbon streams in the form of petroleum distillates , transmix and other chemical products that have become off-specification during the transportation or refining process . these feedstock streams are purchased from pipeline operators , refineries , chemical processing facilities and third-party providers , and then processed at a third-party facility under our direction . the end products are typically three distillate petroleum streams ( gasoline blendstock , pygas and fuel oil cutterstock ) , which are sold to major oil companies or to large petroleum trading and blending companies . the end products are delivered by barge and truck to customers . in addition , the refining and marketing division purchases black oil which is then re-refined through tcep . the finished product is then sold by barge as a fuel oil cutterstock and a feedstock component for major refineries . our revenues are affected by changes in various commodity prices including crude oil , natural gas and # 6 oil . cost of revenues black oil - cost of revenues for our black oil division are comprised primarily of feedstock purchases from a network of providers . other cost of revenues include transportation costs incurred by third parties , purchasing and receiving costs , analytical assessments , brokerage fees and commissions , surveying and storage costs .
| 4,961 |
a kamai acquired fastsoft with a goal of complementing akamai 's cloud infrastructure solutions with technology for optimizing the throughput of video and other digital content across ip networks . the company allocated $ 8.8 million of the cost of the acquisition to goodwill story_separator_special_tag overview we provide content delivery and cloud infrastructure services for accelerating and improving the delivery of content and applications over the internet . we primarily derive revenues from the sale of services to customers executing contracts with terms of one year or longer , which we refer to as recurring revenue contracts or long-term contracts . these contracts generally commit the customer to a minimum monthly level of usage with additional charges applicable for actual usage above the monthly minimum . alternatively , many of our customer contracts have minimum usage commitments that are based on quarterly , annual or longer periods . having a consistent and predictable base level of income is important to our financial success . accordingly , to be successful , we must maintain our base of recurring revenue contracts by eliminating or reducing lost recurring revenue due to price reductions and customer cancellations or terminations and build on that base by adding new customers and increasing the number of services and features that our existing customers purchase . at the same time , we must manage the rate of growth in our expenses as we invest in strategic initiatives that we anticipate will generate future revenue growth . accomplishing these goals requires that we compete effectively in the marketplace on the basis of quality , price and the attractiveness of our services and technology . this management 's discussion and analysis of financial condition and results of operations , or md & a , should be read in conjunction with our consolidated financial statements and notes thereto that appear elsewhere in this annual report on form 10-k. see “ risk factors ” elsewhere in this annual report on form 10-k for a discussion of certain risks associated with our business . the following discussion contains forward-looking statements . the forward-looking statements do not include the potential impact of any mergers , acquisitions , divestitures , or other events that may be announced after the date hereof . recent event effective january 1 , 2013 , f. thomson leighton became our new chief executive officer . dr. leighton co-founded akamai and has served as our chief scientist and as a director since august 1998. on january 24 , 2013 , we announced the acquisition by mediamath , inc. of substantially all of the assets used by us in our advertising decision solutions business . simultaneously with the sale , we entered into a multi-year relationship agreement whereby mediamath will have exclusive rights to leverage our pixel-free technology for use within digital advertising and marketing applications . on february 6 , 2013 , we announced that our board of directors authorized a $ 150 million extension of its share repurchase program , effective for a 12-month period beginning february 1 , 2013. as of this date , all prior repurchase authorizations have expired . overview of financial results we increased our net income in 2012 to dollar levels that exceeded both 2011 and 2010 . the improvement primarily resulted from our efforts to increase our recurring revenues while effectively managing the expenses needed to support that growth . the following sets forth , as a percentage of revenues , consolidated statements of operations data for the years indicated : replace_table_token_4_th 20 we were profitable for fiscal years 2012 , 2011 and 2010 ; however , we can not guarantee continued profitability or profitability at the levels we have recently experienced for any period in the future . we have observed the following trends and events that are likely to have an impact on our financial condition and results of operations in the foreseeable future : revenues and customers during 2012 , we were able to offset lost committed recurring revenues by adding new customers and increasing sales of incremental services to our existing customers . a continuation of this trend could lead to increased revenues . overall revenues are also impacted favorably by amounts we are paid for items such as traffic usage in excess of committed amounts and one-time events , but negatively impacted by price declines . our unit prices offered to some customers have declined as a result of increased competition . these price reductions primarily impacted customers for which we deliver high volumes of traffic over our network , such as digital media customers . if we continue to experience decreases in unit prices and are unable to offset such reductions with increased traffic , enhanced efficiencies in our network , lower co-location and bandwidth expenses , or increased sales of incremental services to existing customers , our revenues and profit margins would decrease . during 2012 , we experienced an increase in the rate of traffic growth in our video and software download solutions as compared to 2011 . if this trend does not continue , our ability to generate revenue growth could be adversely impacted . we have historically experienced seasonal variations of higher revenues in the fourth quarter of the year and lower revenues during the summer months . we primarily attribute such variations to patterns of usage of e-commerce services by our retail customers . we expect this trend to continue , which could impact our ability to generate quarterly revenue growth on a sequential basis . during 2012 , revenues derived from customers outside the united states accounted for 28 % of our total revenues . for 2013 , we anticipate revenues from such customers as a percentage of our total revenues to be consistent with 2012 . costs and expenses during 2012 , we continued to reduce our network bandwidth costs per unit and to invest in internal-use software development to improve the performance and efficiency of our network . story_separator_special_tag our estimates are based upon assumptions and judgments about matters that are highly uncertain at the time the accounting estimate is made and applied and require us to assess a range of potential outcomes . review of critical accounting policies and estimates revenue recognition : we recognize service revenue in accordance with the authoritative guidance for revenue recognition , including guidance on revenue arrangements with multiple deliverables . revenue is recognized only when the price is fixed or determinable , persuasive evidence of an arrangement exists , the service is performed and collectability of the resulting receivable is reasonably assured . we primarily derive revenues from the sale of services to customers executing contracts with terms of one year or longer . these contracts generally commit the customer to a minimum monthly , quarterly or annual level of usage and specify the rate at which the customer must pay for actual usage above the monthly , quarterly or annual minimum . for these services , we recognize the monthly minimum as revenue each month , provided that an enforceable contract has been signed by both parties , the service has been delivered to the customer , the fee for the service is fixed or determinable and collection is reasonably assured . should a customer 's usage of our service exceed the monthly minimum , we recognize revenue for such excess usage in the period of the usage . for annual or other non-monthly period revenue commitments , we recognize revenue monthly based upon the customer 's actual usage each month of the commitment period and only recognize any remaining committed amount for the applicable period in the last month thereof . we typically charge customers an integration fee when the services are first activated . the integration fees are recorded as deferred revenue and recognized as revenue ratably over the estimated life of the customer arrangement . we also derive revenue 22 from services sold as discrete , non-recurring events or based solely on usage . for these services , we recognize revenue once the event or usage has occurred . when more than one element is contained in a revenue arrangement , we determine the fair value for each element in the arrangement based on vendor-specific objective evidence , or vsoe , for each respective element , including any renewal rates for services contractually offered to the customer . elements typically included in our multiple element arrangements consist of our core services - the delivery of content , applications and software over the internet - as well as mobile and security solutions , and enterprise professional services . these elements have value to our customer on a stand-alone basis in that they can be sold separately by another vendor . additionally , there is not generally a right of return relative to these services . we typically use vsoe to determine the fair value of our separate elements . all stand-alone sales of professional services are reviewed to establish the average stand-alone selling price for those services . for our core services , the fair value is the price charged for a single deliverable on a per unit basis , when it is sold separately . for arrangements in which we are unable to establish vsoe , third-party evidence , or tpe , of the fair value of each element is determined based upon the price charged when the element is sold separately by another vendor . for arrangements in which we are unable to establish vsoe or tpe for each element , we use the best estimate of selling price ( `` besp '' ) , to determine the fair value of the separate deliverables . we estimate besp based upon a management-approved product price list and pre-established discount levels for each product that takes into consideration volume , geography and industry lines . we allocate arrangement consideration across the multiple elements using the relative selling price method . at the inception of a customer contract , we make an estimate as to that customer 's ability to pay for the services provided . we base our estimate on a combination of factors , including the successful completion of a credit check or financial review , our collection experience with the customer and other forms of payment assurance . upon the completion of these steps , we recognize revenue monthly in accordance with our revenue recognition policy . if we subsequently determine that collection from the customer is not reasonably assured , we record an allowance for doubtful accounts and bad debt expense for all of that customer 's unpaid invoices and cease recognizing revenue for continued services provided until cash is received from the customer . changes in our estimates and judgments about whether collection is reasonably assured would change the timing of revenue or amount of bad debt expense that we recognize . we also sell our services through a reseller channel . assuming all other revenue recognition criteria are met , we recognize revenue from reseller arrangements based on the reseller 's contracted non-refundable minimum purchase commitments over the term of the contract , plus amounts sold by the reseller to its customers in excess of the minimum commitments . amounts attributable to this excess usage are recognized as revenue in the period in which the service is provided . from time to time , we enter into contracts to sell our services or license our technology to unrelated enterprises at or about the same time we enter into contracts to purchase products or services from the same enterprises . if we conclude that these contracts were negotiated concurrently , we record as revenue only the net cash received from the vendor , unless the product or service received has a separate and identifiable benefit and the fair value to us of the vendor 's product or service can be objectively established . we may from time to time resell licenses or services of third parties .
| results of operations revenues . total revenues increased 19 % , or $ 215.4 million , to $ 1,373.9 million for the year ended december 31 , 2012 as compared to $ 1,158.5 million for the year ended december 31 , 2011 . total revenues increased 13 % , or $ 135.0 million , to $ 1,158.5 million for the year ended december 31 , 2011 as compared to $ 1,023.6 million for the year ended december 31 , 2010 . the following table quantifies the increase in revenues attributable to the different industry verticals in which we sell our services ( in millions ) : 25 replace_table_token_5_th we believe that the continued growth in use of the internet by businesses and consumers was the principal factor driving increased purchases of our services during each of the last several years . we expect this trend to continue in 2013 , but our revenue may increase at a lower rate due to competitive factors , general economic conditions and the impact of the sale of our advertising decisions solutions , or ads , business in early 2013. our growth rate in 2012 benefited from revenues from acquisitions ; we may not experience such benefits in 2013. revenues from our media and entertainment vertical increased due to traffic growth stemming from increased online media consumption . revenues from our commerce and enterprise verticals for 2012 as compared to 2011 , as well as 2011 as compared to 2010 , increased due to growth in application and cloud performance solutions , particularly security-related solutions , sold to customers in these verticals . revenues from our high tech vertical increased in 2012 as compared to 2011 due to increased demand for cloud performance solutions and higher software download volumes . revenues from the public sector increased in 2012 as compared to 2011 due to the timing of completion of certain elements of government agency contracts .
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the company has valued these options using the black-scholes option pricing model which resulted in a fair market value of $ 55,043 which have been fully recognized as expense for the year ended july 31 , 2015. lightlake also recognized stock based compensation expense of $ 37,048 in connection with vested options granted in prior periods . the assumptions used in the valuation for all of the options granted for the year ended july 31 , 2015 were as follows : replace_table_token_6_th 38 lightlake therapeutics inc. notes to financial statements for the years ended july 31 , 2015 and 2014 stock option activity for year ended july 31 , 2015 is presented in the table below : replace_table_token_7_th a summary of the status of lightlake 's non-vested options as of july 31 , 2015 and changes during the year ended july 31 , 2015 are presented below : replace_table_token_8_th at july 31 , 2015 , there was $ 135,640 of unrecognized compensation costs related to non-vested stock options . warrants on december 16 , 2014 , lightlake issued 38,800 stock warrants with an exercise price of $ 8.00 per share to a consultant for services rendered . these warrants have a term of 10 years and vested immediately . the company has valued these warrants using the black-scholes option pricing model which resulted in a fair market value of $ 144,724 which have been fully recognized as expense for the year ended july 31 , 2015. on march 19 , 2015 , lightlake issued 45,000 stock warrants story_separator_special_tag the following discussion and analysis of the results of operations and financial condition for the fiscal years ended july 31 , 2015 and 2014 and should be read in conjunction with lightlake 's financial statements , and the notes to those financial statements that are included elsewhere in this report . story_separator_special_tag times new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > lightlake has incurred significant losses , a working capital deficit as of july 31 , 2015 of $ 3,107,160 and is dependent on generating sufficient revenues and or obtaining adequate capital to fund operating losses until it becomes profitable . if the company is unable to generate sufficient revenues and or obtain the necessary funding it could cease operations . this raises substantial doubt about the company 's ability to continue as a going concern . 20 plan of operation during the next year , lightlake aims to broaden the company 's product pipeline , and anticipates commencing further trials based on the company 's existing as well as potential patents . lightlake has been focused on establishing a clinical development plan and regulatory pathway that could potentially result in fda approval and commercialization of the company 's opioid overdose reversal treatment . on december 4 , 2014 , lightlake announced that the company has begun a trial designed to evaluate its intranasal naloxone application for opioid overdose . the trial was conducted in partnership with nida . on december 15 , 2014 , lightlake and adapt entered into the adapt agreement . pursuant to the agreement adapt has received from the company a global license to develop and commercialize the company 's intranasal naloxone opioid overdose reversal treatment . in exchange for licensing its treatment to adapt , the company could receive potential development and sales milestone payments of more than $ 55 million , plus up to double-digit royalties . on february 17 , 2015 , lightlake announced that adapt received fast track designation by the fda . on april 22 , 2015 , lightlake announced that adapt successfully completed a clinical study of intranasal naloxone . on june 3 , 2015 , lightlake announced that adapt commenced a rolling submission of a nda to the fda for a nasal spray formulation of naloxone , a drug intended to treat opioid overdose . on july 29 , 2015 , lightlake announced that adapt has submitted a nda to the fda for narcan® ( naloxone ) nasal spray , an investigational drug intended to treat opioid overdose . lightlake also aims to collaborate with other parties to progress the company 's drug development program for binge eating disorder . lightlake also has planned a study to help progress a potential treatment for cocaine use disorder . at this time , lightlake can not provide investors with any assurance that the company will be able to generate sufficient revenues and or obtain sufficient funding to meet the company 's obligations over the next twelve months . the company anticipates that if revenues are not sufficient then additional funding will be required in the form of debt financing and or equity financing from the sale of the company 's common stock and or in the form of financing from the sale of interests in the company 's prospective products . the company does not have any arrangements in place for any future funding . the company may also seek to obtain short-term loans from the company 's officers and directors to meet the company 's short-term funding needs . the company has no material commitments for capital expenditures as of july 31 , 2015. critical accounting policies and estimates lightlake believes that the following critical policies affect the company 's more significant judgments and estimates used in preparation of the company 's consolidated financial statements . lightlake prepares its financial statements in conformity with generally accepted accounting principles in the united states of america . these principals require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . management believes that these estimates are reasonable and have been discussed with the company 's board of directors ; however , actual results could differ from those estimates . story_separator_special_tag lightlake issues restricted stock to consultants for various services and employees for compensation . cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued , whichever is measurable more reliably measurable . the value of the common stock is measured at the earlier of : ( i ) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or ( ii ) the date at which the counterparty 's performance is complete . lightlake issues options and warrants to consultants , directors , and officers as compensation for services . these options and warrants are valued using the black-scholes model , which focuses on the current stock price and the volatility of moves to predict the likelihood of future stock moves . this method of valuation is typically used to accurately price stock options and warrants based on the price of the underlying stock . 21 long-lived assets such as property , equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable . when required impairment losses on assets to be held and used are recognized based on the fair value of the asset . the fair value is determined based on estimates of future cash flows , market value of similar assets , if available , or independent appraisals , if required . if the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows , an impairment loss is recognized for the difference between the carrying amount and fair value of the asset . when fair values are not available , lightlake estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets . the company did not recognize any impairment losses for any periods presented . fair value estimates used in preparation of the consolidated financial statements are based upon certain market assumptions and pertinent information available to management . the respective carrying value of certain on-balance-sheet financial instruments approximated their fair values . these financial instruments include cash , accounts payable and due to related parties . fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand . revenue recognition we recognize revenues from nonrefundable , up-front license fees related to collaboration agreements , on a straight-line basis over the contracted or estimated period of performance . the period of performance over which the revenues are recognized is typically the period over which the research and or development is expected to occur or manufacturing services are expected to be provided . when the period of performance is based on the period over which research and or development is expected to occur , we are required to make estimates regarding drug development and commercialization timelines . because of the many risks and uncertainties associated with the development of drug candidates , these estimates regarding the period of performance may change . in addition , we evaluate each arrangement to determine whether or not it qualifies as a multiple-deliverable revenue arrangement under asc 605-25. if one or more of the deliverables have a standalone value , then the arrangement would be separated into multiple units of accounting . this normally occurs when the r & d services could contractually and feasibly be provided by other vendors or if the customer could perform the remaining r & d itself , and when the company has no further obligations and the right has been conveyed . when the deliverables can not be separated , any initial payment received is treated like an advance payment for the services and recognized over the performance period , as determined based on all of the items in the arrangement . this period is usually the expected research and development period . licensing agreements on december 15 , 2014 , lightlake entered into the adapt agreement with adapt pharma operations limited . pursuant to the adapt agreement the company provided a global license to develop and commercialize the company 's intranasal naloxone opioid overdose reversal treatment . in exchange for licensing its treatment , the company received a nonrefundable , upfront license fee of $ 500,000 in december 2014. the company is also to receive a monthly fee for up to one year , for participation in joint development committee calls and the production and submission of an initial development plan . the initial development plan was completed and submitted in may 2015. management evaluated the deliverables of this arrangement and determined that the licensing deliverable has a standalone value and therefore , the payment was recognized as revenue . lightlake could also receive additional payments upon reaching various sales and regulatory milestones . in addition , pursuant to the adapt agreement , the company is required to contribute $ 2,500,000 of development , regulatory , and commercialization costs , some of which was credited for costs incurred by the company prior to the execution of the adapt agreement . at july 31 , 2015 , the company had contributed $ 2,341,419 of which $ 204,908 is unpaid and reported in accounts payable and accrued liabilities in the balance sheets . lightlake recognizes revenue for fees related to participation in the initial development plan and joint development committee calls as revenue once the fee is received and the company has performed the required services for the period . treatment investments with respect to investments in interests in lightlake 's treatments , if an agreement provides an option that allows the investor in the treatment to convert an interest in a treatment into shares of common stock of the company , then revenue is deferred until such time that the option expires or
| results of operations lightlake had $ 1,550,000 of revenue during the year ended july 31 , 2015. the company recognized $ 800,000 of revenue derived from the adapt agreement . the company also recognized $ 750,000 from investments in treatments that were classified as deferred revenue as of july 31 , 2014. lightlake did not have any revenues during the year ended july 31 , 2014 and had generated no revenue from inception through july 31 , 2014 as the company was devoting substantially all of its efforts on establishing the business and its planned principal operations had not commenced . general and administrative expenses lightlake 's general and administrative expenses were incurred in the amounts of $ 6,034,520 and $ 10,838,760 for the years ended july 31 , 2015 and 2014 , respectively . the difference in the year over year change of $ 4,804,240 was primarily due to a reduction in administrative compensation as the company recorded $ 1,729,216 of stock-based compensation during the year ended july 31 , 2015 as compared to $ 9,003,582 during the year ended july 31 , 2014. this was partially offset by increases in professional fees , consulting costs , and non-stock based officer 's compensation . research and development lightlake spent $ 2,414,973 and $ 464,609 during the years ended july 31 , 2015 and 2014 , respectively . the year over year increase is primarily due to increased spending on research and development of the company 's opioid overdose reversal treatment . interest expense during the years ended july 31 , 2015 and 2014 , lightlake 's interest expense decreased from $ 160,303 to $ 28,232. this decrease was due to a reduction in obligations connected to outstanding debt . 19 net loss the comparable net loss for the year ended july 31 , 2015 , as compared to the net loss for the year ended july 31 , 2014 was $ 7,037,873 and $ 11,482,818 , respectively .
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the discussion also provides information about the financial results of the segments of our business to provide a better understanding of how these segments and their results affect our financial condition and results of operations . business overview we provide long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and manage a global investment portfolio of 1,007 properties , including our owned portfolio . our business operates in two segments real estate ownership and investment management , as described below . on september 28 , 2012 , as part of a plan to reorganize the business operations of w. p. carey & co. llc in order to qualify as a reit for u. s. federal income tax purposes , w. p. carey & co. llc merged with and into w. p. carey inc. , with w. p. carey inc. as the surviving corporation , which we refer to as the merger . additionally , on september 28 , 2012 , cpa ® :15 merged with our subsidiary , with cpa ® :15 surviving as our indirect wholly-owned subsidiary . as a result of both transactions , we succeeded to all of the businesses , assets and liabilities of each of w. p. carey & co. llc and cpa ® :15 , and own all the assets previously held by , and carry on the business of each of , w. p. carey & co. llc and cpa ® :15. we now hold substantially all of our real estate assets , including the assets acquired from cpa ® :15 , in our real estate ownership segment , while the activities conducted by our investment management segment subsidiaries are organized under trss ( note 3 ) . real estate ownership we own and invest in commercial properties in the u.s. and europe that are then leased to companies , primarily on a triple-net lease basis , which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property we earn lease revenues from our wholly-owned and co-owned real estate investments . in addition , we generate equity income through our investments in the shares of the managed reits . in addition , through our special member interests in the operating partnerships of the managed reits , we participate in the cash flows of those reits . lastly , we earn other real estate revenues through our investments in self-storage facilities and hotels in the u.s. investment management we earn revenue as the advisor to the managed reits . for the periods presented , we acted as advisor to the following affiliated , publicly-owned , non-listed managed reits : cpa ® :14 ( through the date of the cpa ® :14/16 merger ) , cpa ® :15 ( through the date of the merger ) , cpa ® : 16 global , cpa ® : 17 global , and cwi . under the advisory agreements with the managed reits , we perform various services , including but not limited to the day-to-day management of the managed reits and transaction-related services . we structure and negotiate investments and debt placement transactions for the managed reits , for which we earn structuring revenue , and we manage their portfolios of real estate investments , for which we earn asset-based management revenue . while we are raising funds for a managed reit , the reit reimburses us for certain costs , primarily broker-dealer commissions paid on its behalf and marketing and personnel costs . the managed reits also reimburse us for many of our costs associated with the evaluation of transactions on their behalf that are not completed . we also earn wholesaling fees and dealer manager fees in connection with the initial public offerings of the managed reits . we reimburse , or re-allow , all or a portion of the dealer manager fees to selected dealers in the offerings . dealer manager fees that are not re-allowed are classified as wholesaling revenue . wholesaling revenue earned is generally offset by underwriting costs incurred in connection with the offerings . w. p. carey 2012 10-k 27 financial highlights our results for the years ended december 31 , 2012 and 2011 included the following significant unusual items : · increased lease revenue of $ 61.9 million for the year ended december 31 , 2012 as compared to 2011 primarily due to income generated from properties acquired in the merger ; · costs incurred in connection with the merger of $ 31.7 million in 2012 ; and · non-recurring revenues of $ 52.5 million earned in 2011 in connection with providing a liquidity event for cpa ® :14 stockholders , through the cpa ® :14/16 merger , in may 2011 . · share dilution created by the issuance of 28,170,643 shares on september 28 , 2012 to stockholders of cpa ® : 15 in connection with the merger . ( in thousands ) replace_table_token_7_th we consider the performance measures listed above , including funds from operations as adjusted ( affo ) , a supplemental measure that is not defined by gaap ( non-gaap ) , to be important measures in the evaluation of our results of operations and capital resources . we evaluate our results of operations with a primary focus on increasing and enhancing the value , quality and amount of assets under management by our investment management segment and the ability to generate the cash flow necessary to meet our objectives in our real estate ownership segment . results of operations by reportable segment are described below in results of operations . see supplemental financial measures below for our definition of affo and a reconciliation to its most directly comparable gaap measure . story_separator_special_tag financing activities primarily consist of the payment of distributions to stockholders , borrowings and repayments under our lines of credit and the payment of mortgage principal amortization . w. p. carey 2012 10-k 29 story_separator_special_tag ® :15. subsequent to the merger , we own 100 % and consolidate this investment ( note 3 ) . ( d ) in april 2012 , this jointly-owned entity sold its interests in the investment . results of operations for this investment were classified as a discontinued operation by the entity that holds the controlling interest for all periods presented . ( e ) in june 2011 , this jointly-owned entity sold one of its properties and distributed the proceeds to the investment 's partners . ( f ) dollar amounts shown are based on the exchange rate of the japanese yen at december 31 , 2012 . ( g ) we acquired our interest in this investment in december 2012. w. p. carey 2012 10-k 33 ( h ) in the cpa ® :14/16 merger , we acquired the remaining interest in this investment from cpa ® :14 ( note 4 ) . subsequent to the acquisition , we consolidate this investment . ( i ) in march 2010 , the jointly-owned entity completed the sale of this property , and as a result , we have no further economic interest in this venture . lease revenues as of december 31 , 2012 , 70 % of our net leases , based on annualized contractual minimum base rent , provide for adjustments based on formulas indexed to changes in the cpi , or other similar indices for the jurisdiction in which the property is located , some of which have caps and or floors . in addition , 23 % of our net leases on that same basis have fixed rent adjustments , which contractual minimum base rent is scheduled to increase by an average of 4 % in the next 12 months . we own international investments and , therefore , lease revenues from these investments are subject to fluctuations in exchange rate movements in foreign currencies . during the year ended december 31 , 2012 , we signed 22 leases totaling approximately 2.0 million square feet of leased space . of these leases , three were with new tenants and 19 were lease renewals or extensions with existing tenants . the average new rent for these leases was $ 7.37 per square foot and the average former rent was $ 8.80 per square foot , reflecting current market conditions . we provided tenant improvement allowances and other incentives totaling $ 3.0 million on two of these leases . in addition , through the merger , we acquired properties with 76 tenants with an average remaining lease term of 9.7 years . in 2011 , cpa ® :15 recorded lease revenues of $ 242.2 million . during the year ended december 31 , 2011 , we signed 20 leases , totaling approximately 0.9 million square feet of leased space . of these leases , there were two new tenants and there were 18 lease renewals or short-term extensions with existing tenants . under the 20 leases , the average new rent was $ 9.75 per square foot , and the average former rent was $ 9.06 per square foot . five of the 22 tenants had tenant improvement allowances or concessions totaling approximately $ 6.9 million , of which $ 6.4 million related to a lease of a repositioned asset to a tenant . 2012 vs. 2011 for the year ended december 31 , 2012 as compared to 2011 , lease revenues increased by $ 61.9 million , primarily due to the properties we acquired from cpa ® :15 in the merger in 2012 and from cpa ® :14 in connection with the cpa ® :14/16 merger , which contributed to increases in lease revenues of $ 57.3 million and $ 3.8 million , respectively , in 2012 . 2011 vs. 2010 for the year ended december 31 , 2011 as compared to 2010 , lease revenues increased by $ 11.2 million , primarily due to $ 9.4 million of lease revenues generated from new investments we entered into during 2010 and 2011 , including the properties we purchased in may 2011 from cpa ® :14 in connection with the cpa ® :14/16 merger ( note 4 ) . in addition , lease revenues increased by $ 0.9 million as a result of an out-of-period adjustment recorded in the fourth quarter of 2011 ( note 2 ) and $ 0.8 million as a result of scheduled rent increases at several properties . these increases were partially offset by the impact of tenant activity , including lease restructurings , lease expirations and property sales , which resulted in a reduction to lease revenues of $ 1.0 million . other real estate income other real estate income generally consists of revenue from carey storage management llc ( carey storage ) , a subsidiary that holds investments in domestic self-storage properties , and livho inc. ( livho ) , a subsidiary that operates a hotel under a franchise agreement in livonia , michigan . other real estate income also includes lease termination payments and other non-rent related revenues from real estate ownership . 2012 vs. 2011 for the year ended december 31 , 2012 as compared to 2011 , other real estate income increased by $ 3.8 million primarily due to $ 1.8 million of income related to certain properties we acquired from cpa ® :15 in the merger , bankruptcy and easement proceeds of $ 0.8 million related to two of our tenants and increased revenue from our livho and carey storage subsidiaries totaling $ 1.4 million . the increase in income from carey storage was primarily a result of higher rental income and the increase in income from livho was primarily due to increased occupancy rates in 2012 .
| results of operations we evaluate our results of operations by our two primary reportable segments real estate ownership and investment management . effective january 1 , 2011 , we include our equity investments in the managed reits in our real estate ownership segment . the equity income or loss from the managed reits that is now included in our real estate ownership segment represents our proportionate share of the revenue less expenses of the net-leased properties held by the managed reits . this treatment is consistent with that of our directly-owned properties . results for 2010 have been reclassified to conform to the current period presentation . effective april 1 , 2012 , we include cash distributions and deferred revenue received and earned from the operating partnerships of cpa ® :16 global , cpa ® :17 global and cwi in our real estate ownership segment . results for 2011 and 2010 have been reclassified to conform to the current period presentation . a summary of comparative results of these business segments is as follows : real estate ownership ( in thousands ) replace_table_token_8_th w. p. carey 2012 10-k 30 the following tables present other operating data that management finds useful in evaluating results of operations : replace_table_token_9_th replace_table_token_10_th ( a ) amounts as of december 31 , 2012 reflect 305 properties acquired from cpa ® :15 in the merger in 2012 with a total fair value of approximately $ 1.8 billion ( note 3 ) . amounts as of december 31 , 2011 reflect the acquisition of the remaining interests in three properties from cpa ® :14 in connection with the cpa ® :14/16 merger in may 2011 for approximately $ 119.4 million ( note 4 ) . ( b ) operating properties comprise self-storage properties and hotels that are managed by third parties . wpc 's operating properties are all self-storage properties with the exception of one hotel for all periods presented .
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generally , the guidance is to be applied as of any date from the beginning of an interim period that includes or is subsequent to march 12 , 2020 , or prospectively from a date within an interim period that includes or is subsequent to march 12 , 2020 , up to the date that the financial statements are story_separator_special_tag a discussion and analysis of the company 's financial condition and results of operations for the year ended december 31 , 2018 can be found in “ part ii , item 7. management 's discussion and analysis of financial condition and results of operations ” of its annual report on form 10-k for the year ended december 31 , 2019 , which was filed with the sec on february 28 , 2020. general the following management 's discussion and analysis describes the principal factors affecting our results of operations , liquidity , capital resources and contractual cash obligations . this discussion should be read in conjunction with the accompanying audited consolidated financial statements , information about our business practices , significant accounting policies , risk factors , and the transactions that underlie our financial results , which are included in various parts of this filing . all of our filings with the sec are available free of charge through our website ( www.callon.com ) as soon as reasonably practicable after we file them with , or furnish them to , the sec . information on our website does not form part of this 2020 annual report on form 10-k. we are an independent oil and natural gas company incorporated in the state of delaware in 1994 , but our roots go back over 70 years to our company 's establishment in 1950. we are focused on the acquisition , exploration and development of high-quality assets in the leading oil plays of south and west texas . our activities are primarily focused on horizontal development in the midland and delaware basins , both of which are part of the larger permian basin in west texas , as well as the eagle ford , which we entered into through the carrizo acquisition in late 2019. our operating culture is centered on responsible development of hydrocarbon resources , safety and the environment , which we believe strengthens our operational performance . our drilling activity is predominantly focused on the horizontal development of several prospective intervals in the permian , including multiple levels of the wolfcamp formation and the lower spraberry shales , and the eagle ford . we have assembled a multi-year inventory of potential horizontal well locations and intend to add to this inventory through delineation drilling of emerging zones on our existing acreage and through acquisition of additional locations through working interest acquisitions , leasing programs , acreage purchases , joint ventures and asset swaps . recent developments february winter storm in february 2021 , severe winter storms affected field operations in both the permian and eagle ford resulting in the shut-in of nearly 100 % of our operated production . currently , we have returned nearly all of our eagle ford and midland basin wells to production and expect to have all of our delaware well production returned by the end of february . the impact to our drilling and completion operations were not significant enough to alter our expectations for the full year development schedule . covid-19 outbreak and global industry downturn the worldwide outbreak of covid-19 in 2020 , the uncertainty regarding the impact of covid-19 and various governmental actions taken to mitigate the impact of covid-19 , have resulted in an unprecedented decline in demand for oil and natural gas . at the same time , the decision by saudi arabia in march 2020 to drastically reduce export prices and increase oil production followed by curtailment agreements among opec and other countries such as russia further increased uncertainty and volatility around global oil supply-demand dynamics . these dual demand and supply shocks caused oil prices to collapse at the end of the first quarter of 2020 as well as created an excess supply of oil in the united states , which could continue for a sustained period ; this is in addition to recent and continued excess supply of natural gas in the united states . this excess supply , in turn , resulted in transportation and storage capacity constraints in the united states during 2020 , although these constraints have recently lessened and inventories have declined from peak levels . our expectation is that commodity prices , which are the most significant factors impacting our profitability , will remain cyclical and volatile . while commodity prices have recently increased to pre-covid-19 levels , there is no assurance of how long they will remain at these levels . story_separator_special_tag prices , and revenues specifically associated with carrizo , sales and reserve volumes , prices , and revenues for ngls were presented with natural gas . operating expenses replace_table_token_19_th lease operating expenses . these are daily costs incurred to extract oil and natural gas and maintain our producing properties . such costs also include maintenance , repairs , gas treating fees , salt water disposal , insurance and workover expenses related to our oil and natural gas properties . lease operating expenses for the year ended december 31 , 2020 increased by 111 % to $ 194.1 million compared to $ 91.8 million for the same period of 2019 , primarily due to production volumes increasing 147 % . lease operating expense per boe for the year ended december 31 , 2020 decreased to $ 5.22 compared to $ 6.09 for the same period of 2019 primarily due to continuing improvement of managing our field operating costs during the integration of the properties acquired from carrizo as well as lower repairs and maintenance activities and workover expenses . production and valorem taxes . in general , severance taxes are based upon current year commodity prices whereas ad valorem taxes are based upon prior year commodity prices . story_separator_special_tag the following table sets forth the components of our interest expense , net of capitalized amounts for the periods indicated : replace_table_token_22_th interest expense , net of capitalized amounts , incurred during the year ended december 31 , 2020 increased $ 91.4 million to $ 94.3 million compared to $ 2.9 million for the same period of 2019. the increase is primarily due to debt that was assumed as a result of the carrizo acquisition and the issuance of the second lien notes during 2020 partially offset by an increase in capitalized interest as a result of an increase in the balance of unevaluated properties as a result of the carrizo acquisition . ( gain ) loss on derivative contracts . we utilize commodity derivative financial instruments to reduce our exposure to fluctuations in commodity prices . this amount represents the ( i ) ( gain ) loss related to fair value adjustments on our open derivative contracts and ( ii ) ( gains ) losses on settlements of derivative contracts for positions that have settled within the period . the net ( gain ) loss on derivative contracts for the periods indicated includes the following : replace_table_token_23_th see “ note 8 - derivative instruments and hedging activities ” and “ note 9 - fair value measurements ” of the notes to our consolidated financial statements for additional information . ( gain ) loss on extinguishment of debt . during november 2020 , in connection with the exchange of $ 389.0 million of our senior unsecured notes for the november 2020 second lien notes , we recorded a gain on extinguishment of debt of $ 170.4 million , which consisted of the carrying values of the senior unsecured notes exchanged less the aggregate principal amount of the november 2020 second lien notes issued , net of the associated debt discount of $ 9.1 million , which was based on the november 2020 second lien notes ' allocated fair value on the exchange date . during december 2019 , in connection with the carrizo acquisition , we entered into a new credit facility and simultaneously terminated our prior credit facility . as a result of terminating the prior credit facility , we recorded a loss on extinguishment of debt of $ 4.9 million , which was comprised solely of the write-off of unamortized deferred financing costs associated with the prior credit facility . see “ note 7 – borrowings ” of the notes to our consolidated financial statements for additional information . sales and cost of purchased oil and gas . for the year ended december 31 , 2020 , we recorded sales of purchased oil and gas of $ 49.3 million and cost of purchased oil and gas of $ 51.8 million related to commodities purchased from third parties and sold to our customers . no sales or cost of purchased oil and gas occurred during the same periods of 2019. income tax expense . we use the asset and liability method of accounting for income taxes , under which deferred tax assets and liabilities are recognized for the future tax consequences of ( 1 ) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and ( 2 ) operating loss and tax credit carryforwards . deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted . when appropriate , based on our analysis , we record a valuation allowance for deferred tax assets when it is more likely than not that the deferred tax assets will not be realized . we recorded income tax expense of $ 122.1 million for the year ended december 31 , 2020 compared to $ 35.3 million for the same period of 2019. the increase in income tax expense is due to the recording of a valuation allowance during the year ended 54 december 31 , 2020. see “ note 12 – income taxes ” of the notes to our consolidated financial statements for additional information regarding the valuation allowance . preferred stock dividends . on july 18 , 2019 , we redeemed all outstanding shares of preferred stock , after which , the preferred stock was no longer deemed outstanding and dividends ceased to accrue . as such , we did not make any preferred stock dividend payments during the year ended december 31 , 2020. preferred stock dividends of $ 4.0 million were paid during the year ended december , 31 , 2019. see “ note 11 – stockholders ' equity ” of the notes to our consolidated financial statements for additional information . loss on redemption of preferred stock . as a result of the redemption of our preferred stock mentioned above , we recognized an $ 8.3 million loss due to the excess of the $ 73.0 million redemption price over the $ 64.7 million redemption date carrying value during 2019. see “ note 11 – stockholders ' equity ” of the notes to our consolidated financial statements for additional information . liquidity and capital resources 2021 capital budget and funding strategy . our primary uses of capital are for the exploration and development of our oil and natural gas properties . our 2021 capital budget has been established at up to $ 430.0 million , with approximately 80 % directed towards drilling , completion , and equipment expenditures . our scaled development plan for 2021 will continue to employ our life of field development philosophy and benefit from our balanced capital deployment strategy . the 2021 capital budget leverages the structural savings and operational efficiencies achieved during 2020 from shared best practices following the integration of callon and carrizo . approximately 70 % of the 2021 capital budget is allocated towards development in the permian with the remaining 30 % towards development in the eagle ford .
| 2020 highlights operational our total production in 2020 increased by 147 % to 37.2 mmboe ( 63 % oil ) as compared to 2019 primarily as a result of the carrizo acquisition in late 2019 and wells placed on production during 2020 as a result of our horizontal drilling program . 47 although our actual 2020 operational capital expenditures were approximately 50 % or our original operational capital budget as a result of covid-19 and the macro-economic environment , we drilled 91 gross ( 86.0 net ) horizontal well and completed 90 gross ( 81.4 net ) horizontal wells for the year ended december 31 , 2020 and had , as of december 31 , 2020 , 65 gross ( 62.1 net ) horizontal wells awaiting completion . estimated proved reserves as of december 31 , 2020 were 475.9 mmboe ( 61 % oil ) , with 45 % classified as proved developed . financing on november 13 , 2020 , we exchanged $ 389.0 million of aggregate principal amount of our existing senior unsecured notes for $ 216.7 million aggregate principal amount of november 2020 second lien notes and 1.75 million november 2020 warrants . this exchange resulted in the removal of approximately $ 172.3 million from the long-term debt balance in our consolidated balance sheets . on september 30 , 2020 , we issued $ 300.0 million of aggregate principal amount of september 2020 second lien notes and 7.3 million september 2020 warrants for proceeds , net of issuance costs , of approximately $ 288.6 million . as of december 31 , 2020 , our credit facility had a borrowing base and elected commitment amount of $ 1.6 billion and $ 985.0 million of borrowings outstanding as compared to borrowings outstanding as of december 31 , 2019 of $ 1.3 billion .
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the forward-looking statements contained herein include , without limitation , statements regarding trends , seasonality , cyclicality and growth in , and drivers of , the markets we sell into , our strategic direction , our future effective tax rate and tax valuation allowance , earnings from our foreign subsidiaries , remediation activities , new product and service introductions , the ability of our products to meet market needs , changes to our manufacturing processes , the use of contract manufacturers , the impact of local government regulations on our ability to pay vendors or conduct operations , our liquidity position , our ability to generate cash from operations , growth in our businesses , our investments , the potential impact of adopting new accounting pronouncements , our financial results , our purchase commitments , our contributions to our pension plans , the selection of discount rates and recognition of any gains or losses for our benefit plans , our cost-control activities , savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives , and other regulatory approvals , the integration of our acquisitions and other transactions , our transition to lower-cost regions , and the existence of economic instability , that involve risks and uncertainties . our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors , including those discussed in item 1a and elsewhere in this form 10-k. basis of presentation and separation from agilent on november 1 , 2014 , keysight technologies , inc. ( “ we , ” `` our , '' “ keysight ” or `` the company ” ) became an independent publicly-traded company through the distribution by agilent technologies , inc. ( `` agilent '' ) of 100 percent of the outstanding common stock of keysight to agilent 's shareholders ( the `` separation '' ) . each agilent shareholder of record as of the close of business on october 22 , 2014 , received one share of keysight common stock for every two shares of agilent common stock held on the record date . keysight was incorporated in delaware on december 6 , 2013 and is comprised of agilent 's former electronic measurement business . keysight 's registration statement on form 10 was declared effective by the u.s. securities and exchange commission on october 6 , 2014. keysight 's common stock began trading `` regular-way '' under the ticker symbol `` keys '' on the new york stock exchange on november 3 , 2014. our fiscal year end is october 31 , and our fiscal quarters end on january 31 , april 30 and july 31. unless otherwise stated , all dates refer to our fiscal year and fiscal periods . prior to the distribution , agilent transferred substantially all of the assets and liabilities and operations of the electronic measurement business to keysight in august 2014 ( `` the capitalization '' ) . combined f inancial statements prior to the capitalization were prepared on a stand-alone basis and were derived from agilent 's consolidated financial statements and accounting records . the combined financial statements included elsewhere in this annual report on form 10-k reflect our financial position , results of operations , comprehensive income and cash flows as our business was operated as part of agilent prior to the capitalization . following the capitalization the consolidated financial statements include the accounts of the company and our wholly-owned subsidiaries . all periods have been accounted for in conformity with u.s. generally accepted accounting principles . for periods prior to the capitalization , the combined and consolidated financial statements included the allocation of certain assets and liabilities that were historically held at the agilent level but which were specifically identified or allocated to us . cash and cash equivalents held by agilent were not allocated to us . agilent 's debt and related interest expense were not allocated to us since we are not the legal obligor of the debt and agilent 's borrowings were not directly attributable to us . in addition , prior to the capitalization , all intercompany transactions between us and agilent were considered to be effectively settled at the time the transactions were recorded . all cash generated by our business was assumed to be remitted to the agilent subsidiary located in the same legal entity or country . the total net effect of the settlement of these intercompany transactions prior to the capitalization is reflected in the combined and consolidated statement of cash flows as a financing activity and in the combined and consolidated balance sheet as agilent net investment . on october 15 , 2014 , we issued $ 500 million of 3.30 percent senior notes due in 2019 and $ 600 million of 4.55 percent senior notes due in 2024. a portion of the proceeds from the offering was used to make a $ 900 million cash distribution to agilent in october 2014. we intend to use the remaining proceeds to fund working capital and other liquidity needs . the combined and consolidated statement of operations includes our direct expenses for cost of products and services sold , research and development , sales and marketing , distribution , and administration as well as allocations of expenses arising from shared services and infrastructure provided by agilent to us . these allocated expenses include costs of information technology , accounting and legal services , real estate and facilities , corporate advertising , insurance services , treasury and other corporate and infrastructure services . in addition , other costs allocated to us include restructuring costs , share-based compensation expense and 28 retirement plan expenses related to agilent 's corporate and shared services employees . these expenses are allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by us . story_separator_special_tag at the capitalization , the assets and liabilities of these plans that were allocable to keysight employees were transferred to keysight plans ; therefore , the plans are no longer considered multi-employer plans . our combined and consolidated statements of operations include expense that has been allocated to us based on keysight employees participating in these plans and our share of agilent 's corporate and shared services employee costs . we consider the expense allocation methodology and results to be reasonable for all periods presented . at capitalization , we established defined benefit retirement and post-retirement plans for our current and former employees . the defined benefit retirement and post- retirement obligations relating to those participants in these plans were transferred from agilent 's plans to our defined benefit plans . a proportionate share of the defined benefit plan assets was allocated from the agilent pension trust in each applicable country to a newly established keysight pension trust . subject to local law , it is anticipated that the share of assets allocated to us will be in the same proportion as the projected benefit obligation of our participants to the total projected benefit obligation of agilent . retirement and post-retirement benefit plan costs are a significant cost of doing business . they represent obligations that will ultimately be settled sometime in the future and therefore are subject to estimation . pension accounting is intended to reflect the recognition of future benefit costs over the employees ' average expected future service to keysight based on the terms of the plans and investment and funding decisions . to estimate the impact of these future payments and our decisions concerning funding of these obligations , we are required to make assumptions using actuarial concepts within the framework of accounting principles generally accepted in the u.s. two critical assumptions are the discount rate and the expected long-term return on plan assets . other important assumptions include , expected future salary increases , expected future increases to benefit payments , expected retirement dates , employee turnover , retiree mortality rates , and investment portfolio composition . we evaluate these assumptions at least annually . the discount rate is used to determine the present value of future benefit payments at the measurement date , which is october 31 for both u.s. and non-u.s. plans . for 2014 , the u.s. discount rates were based on the results of matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio . for 2014 , the discount rate for non-u.s. plans was generally based on published rates for high-quality corporate bonds . if we changed our discount rate by 1 percent , the impact would be $ 4 million on u.s. net periodic benefit cost and $ 12 million on non-u.s. net periodic benefit cost . lower discount rates increase the present value of the liability and subsequent year pension expense ; higher discount rates decrease the present value of the liability and subsequent year pension expense . the company uses alternate methods of amortization , as allowed by the authoritative guidance , that amortizes the actuarial gains and losses on a consistent basis for the years presented . for u.s. plans , gains and losses are amortized over the average future working lifetime . for most non-u.s. plans and u.s. post-retirement benefit plans , gains and losses are amortized using a separate layer for each year 's gains and losses . the expected long-term return on plan assets is estimated using current and expected asset allocations as well as historical and expected returns . plan assets are valued at fair value . if we changed our estimated return on assets by 1 percent , the impact would be $ 7 million on u.s. net periodic benefit cost and $ 13 million on non-u.s. net periodic benefit cost . goodwill and other intangible assets . we review goodwill for impairment annually during our fourth fiscal quarter and whenever events or changes in circumstances indicate the carrying value may not be recoverable . as defined in the authoritative guidance , a reporting unit is an operating segment , or one level below an operating segment . we aggregated components of an operating segment that have similar economic characteristics into our reporting units . at the time of an acquisition , we assign goodwill to the reporting unit that is expected to benefit from the synergies of the combination . companies have the option to perform a qualitative assessment to determine whether performing the two-step quantitative 31 test is necessary . if an entity believes , as a result of its qualitative assessment , that it is more-likely-than-not ( i.e . > 50 % chance ) that the fair value of a reporting unit is less than its carrying amount , the quantitative impairment test will be required . otherwise , no further testing will be required . the guidance includes examples of events and circumstances that might indicate that a reporting unit 's fair value is less than its carrying amount . these examples include macro-economic conditions such as deterioration in the entity 's operating environment or industry or market considerations ; entity-specific events such as increasing costs , declining financial performance , or loss of key personnel ; or other events such as an expectation that a reporting unit will be sold or a sustained decrease in the stock price on either an absolute basis or relative to peers . the qualitative indicators replace those previously used to determine whether an interim goodwill impairment test is required . if it is determined , as a result of the qualitative assessment , that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount , the provisions of authoritative guidance require that we perform a two-step impairment test on goodwill . in the first step , we compare the fair value of each reporting unit to its carrying value .
| overview and executive summary we provide electronic measurement instruments and systems and related software , software design tools , and related services that are used in the design , development , manufacture , installation , deployment and operation of electronics equipment . related services include start-up assistance , instrument productivity and application services and instrument calibration and repair . we also offer customization , consulting and optimization services throughout the customer 's product lifecycle . historically , we conducted our business in one reportable operating segment for agilent . in fiscal 2014 , in conjunction with the planned separation , we implemented changes in our organizational structure which resulted in the formation of two reportable operating segments , measurement solutions and customer support and services . the measurement solutions segment is primarily the hardware and associated software businesses serving the electronic measurement market . the customer support and services segment provides repair and calibration of the hardware measurement solutions and the resale of used instrument equipment . years ended october 31 , 2014 , 2013 and 2012 total orders in 2014 were $ 2,963 million , an increase of 3 percent when compared to 2013. orders increased in all market segments including aerospace and defense ; industrial , computer , and semiconductor test ; and communications test . foreign currency movements had an unfavorable impact of 1 percentage point on the year‑over‑year comparison . orders of $ 2,866 million in 2013 declined 13 percent when compared to 2012 on declines in all market segments , including aerospace and defense ; industrial , computer and semiconductor test ; and communications test . net revenue of $ 2,933 million in 2014 increased 2 percent when compared to 2013 , with industrial , computer and semiconductor test contributing 2 percentage points of the increase , and communication test contributing 1 percentage point of the increase , partially offset by a decline in aerospace and defense revenue .
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we work with financial advisors who are independent , as well as those who are associated with financial advisory firms and financial institutions , which we refer to as enterprise clients . we focus our technology development efforts and our sales and marketing approach on addressing financial advisors ' front- , middle- and back-office needs . we believe our investment solutions and services allow financial advisors to be more efficient and effective in the activities critical to their businesses by facilitating client interactions , supporting and enhancing portfolio management and analysis , and enabling reliable account support and administration . in addition , we are not controlled by a financial institution , broker-dealer or other entity operating in the securities or wealth management industry , which we believe affords us a greater level of independence and impartiality . our centrally-hosted technology platform provides financial advisors with the flexibility to choose freely among a wide range of investment solutions , services , investment managers and custodians to identify those that are most appropriate for their clients . given the flexibility of choice it provides , we refer to our technology platform as having open architecture . in addition , our technology platform allows us to add new or upgrade existing features and functionality as the industry and financial advisors ' needs evolve . our technology platform provides financial advisors with the following : a series of integrated services to help them better serve their clients , including risk assessment and selection of investment strategies , asset allocation models , research and due diligence , portfolio construction , proposal generation and paperwork preparation , model management and account rebalancing , account monitoring , customized fee billing , overlay services covering asset allocation , tax management and socially responsible investing , aggregated multi-custodian performance reporting and communication tools , as well as access to a wide range of leading third-party asset custodians ; web-based access to a wide range of technology-enabled investment solutions , including : separately managed accounts , or smas , which allow advisors to offer their investor clients a customized , professionally managed portfolio of securities with a personalized tax basis ; unified managed accounts , or umas , which are similar to smas but allow the advisor to use different types of investment vehicles in one account ; mutual funds and portfolios of exchange-traded funds , or etfs ; and advisor as portfolio manager , or apm , where advisors create , implement and maintain their own investment portfolio models to address specific client needs ; and access to a broad range of investment managers and investment strategists , as well as to our internal investment management and portfolio consulting group , envestnet|pmc . envestnet|pmc primarily engages in consulting services aimed at providing financial advisors with additional support in addressing their clients ' needs , as well as the creation of proprietary investment solutions and products . envestnet|pmc 's investment solutions and products include managed account and multi-manager portfolios , mutual fund portfolios and etf portfolios . 38 revenues overview we earn revenues primarily under two pricing models . first , a majority of our revenues is derived from fees charged as a percentage of the assets that are managed or administered on our technology platform by financial advisors . these revenues are recorded under revenues from assets under management or administration . our asset-based fees vary based on the types of investment solutions and services that financial advisors utilize . asset-based fees accounted for approximately 80 % , 77 % and 73 % of our total revenues for the years ended december 31 , 2011 , 2010 and 2009 , respectively . in future periods , the percentage of our total revenues attributable to asset-based fees is expected to vary based on fluctuations in securities markets , whether we enter into significant license agreements , the mix of assets under management , or aum , and assets under administration , or aua , and other factors . as of december 31 , 2011 , approximately $ 70 billion of investment assets subject to asset-based fees were managed or administered utilizing our technology platform by approximately 13,900 financial advisors through approximately 341,000 investor accounts . second , we generate revenues from recurring , contractual licensing fees for providing access to our technology platform , generally from a small number of enterprise clients . these revenues are recorded under revenues from licensing and professional services . licensing fees are generally fixed in nature for the contract term and are based on the level of investment solutions and services provided , rather than on the amount of client assets on our technology platform . licensing fees accounted for 16 % , 20 % and 24 % of our total revenues for the years ended december 31 , 2011 , 2010 and 2009. fees received in connection with professional services accounted for the remainder of our total revenues . as of december 31 , 2011 , approximately $ 70 billion of investment assets for which we receive licensing fees for utilizing our technology platform were serviced by approximately 5,700 financial advisors through approximately 588,000 investor accounts . the following table provides information regarding the amount of assets utilizing our platform , financial advisors and investor accounts in the periods indicated . replace_table_token_5_th 39 revenues from assets under management or administration we generally charge our customers fees based on a higher percentage of the market value of aum than the fees we charge on the market value of aua , because we provide fiduciary oversight and or act as the investment advisor in connection with assets we categorize as aum . the level of fees varies based on the nature of the investment solutions and services we provide , as well as the specific investment manager , fund and or custodian chosen by the financial advisor . a portion of our revenues from assets under management or administration include costs paid by us to third parties for sub-advisory , clearing , custody and brokerage services . story_separator_special_tag assets are tested for recoverability whenever events or circumstances indicate that the carrying value of the assets may not be recoverable . internally developed software is amortized on a straight-line basis over its estimated useful life . we evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets . intangible assets are depreciated using an accelerated basis over their estimated economic useful lives and are reviewed for possible impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets . 2011 developments fundquest agreement on december 13 , 2011 we acquired all of the outstanding shares of fundquest for total consideration of $ 28.7 million . fundquest , operating as envestnet portfolio solutions , inc. , provides managed account programs , overlay portfolio management , mutual funds , institutional asset management and investment consulting to registered investment advisors , independent advisors , broker-dealers , banks and trust organizations . upon closing of the transaction , the existing platform services agreement between us and fundquest was terminated ( see notes 3 and 4 to the notes to the audited financial statements ) and approximately $ 5.8 billion of the fundquest 's assets were reclassified to assets under management from assets under administration . in addition , one of fundquest 's clients with $ 1.5 billion in assets transitioned to licensing from assets under administration . 42 fidelity agreement for the years ended december 31 , 2011 , 2010 and 2009 , revenues associated with our relationship with our single largest client , fidelity , accounted for 28 % , 31 % and 31 % , respectively , of our total revenues . as of december 31 , 2011 , we renegotiated a five year license agreement with fidelity which resulted in a reduction in our current license fee revenue . in addition , as a part of the renegotiated agreement , we will continue to receive ongoing platform services fees through the fidelity relationship based upon asset based fees . management anticipates that projected increases in asset based fees will offset the aforementioned reduction in license fees by the end of fiscal 2012. however , no assurance can be given that the projected increases in asset based fees will offset the reduction in license fees . 2012 developments prima capital holding , inc. agreement on february 9 , 2012 we entered into a stock purchase agreement with the shareholders of prima to acquire all of the outstanding shares of prima for cash consideration of approximately $ 13.75 million , subject to certain post-closing adjustments . prima provides investment management due diligence , research applications , asset allocation modeling and multi-manager porfolios to the wealth management and retirement industries . prima 's clientele includes seven of the top 20 banks in the u.s. as measured by total assets , independent rias , regional broker-dealers , family offices and trust companies . we anticipate closing this transaction in the first half of 2012. tamarac , inc. agreement on february 16 , 2012 we entered into a merger agreement with tamarac . a newly formed subsidiary of envestnet will merge with and into tamarac , and tamarac will become a wholly owned subsidiary of envestnet . under the terms of the agreement , total cash consideration will be approximately $ 54.0 million in cash for all of the outstanding stock of tamarac , subject to certain post-closing adjustments . we have also agreed to establish a management incentive plan funded by $ 7.0 million of shares of common stock for the benefit of certain employees of tamarac . such shares will be distributed at pre-established intervals , but in no event later than may 15 , 2015 , based upon tamarac meeting certain financial targets and will be subject to additional vesting requirements . tamarac is a provider of sophisticated portfolio management technology that enables ria 's to efficiently deliver customized individual account management to their clients . we anticipate closing this transaction in the first half of 2012. critical accounting policies our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states , or u.s. gaap . the accounting policies described below require management to apply significant judgment in connection with the preparation of our consolidated financial statements . in particular , judgment is applied to determine the appropriate assumptions to be used in calculating estimates that affect certain reported amounts in our consolidated financial statements . these estimates and assumptions are based on historical experience and on various other factors that we believe to be reasonable under the circumstances . if different estimates or assumptions were used , our results of operations , financial condition and cash flows could have been materially different than those reflected in our consolidated financial statements . for additional information regarding our critical accounting policies , see note 2 to the notes to the audited consolidated financial statements . revenue recognition we recognize revenues when all four of the following criteria have been met : persuasive evidence of an arrangement exists ; the product has been delivered or the service has been performed ; the fee is fixed or determinable ; and collectability is reasonably assured . 43 types of revenues we generate revenues from assets under management or administration and from licensing and professional service fees . revenues from assets under management or administration are generated from fees based on a contractual percentage of assets under management or administration valued at each quarter-end . these fees are generally collected at the beginning of a quarter in advance based upon the previous quarter-end values . in less than 15 % of our contracts , fees are collected at the end of the quarter based upon the average daily balance . the contractual fee percentages vary based upon the level and type of services we provide to our customers .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 replace_table_token_11_th * not meaningful . revenues total revenues increased 26 % from $ 98.1 million in 2010 to $ 123.2 million in 2011. the increase was primarily due to an increase in revenues from assets under management or administration of $ 23.2 million . revenues from assets under management or administration comprised 80 % and 77 % of total revenue in 2011 and 2010 , respectively . assets under management or administration revenues earned from assets under management or administration increased 31 % from $ 76.0 million in 2010 to $ 99.2 million in 2011. this increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in 2011 , relative to those used in 2010. our 2011 revenues were positively affected by 49 new account growth and positive net flows of aum and aua during the fourth quarter of 2010 through september 30 , 2011. this increase was partially offset by a decrease in the market value of aum and aua from the fourth quarter of 2010 to september 30 , 2011. new account growth and positive net flows of aum and aua resulted from continued efforts to increase the number of financial advisors and accounts on our technology platform and the implementation of the fundquest assets on our technology platform .
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we also sell integrated circuits , on which our software and ir code database , or library , is embedded , to oems that manufacture wireless control devices , cable converters or satellite receivers for resale in their products . since our beginning in 1986 , we have compiled an extensive ir code library that covers over 606,500 individual device functions and approximately 4,500 individual consumer electronic equipment brand names . our library is regularly updated with ir codes used in newly introduced av devices . these ir codes are captured directly from the remote control devices or the manufacturer 's written specifications to ensure the accuracy and integrity of the database . we believe that our universal remote control library contains device codes that are capable of controlling virtually all ir controlled set-top boxes , televisions , audio components , dvd players , and cd players , as well as most other infrared remote controlled home entertainment devices and home automation control modules worldwide . we operate as one business segment . we have twenty-four subsidiaries located in argentina , cayman islands , france , germany , hong kong ( 6 ) , india , italy , the netherlands , singapore , spain , brazil , british virgin islands ( 3 ) , people 's republic of china ( 4 ) and the united kingdom . to recap our results for 2011 : our net sales grew 41.2 % to $ 468.6 million for 2011 from $ 331.8 million for 2010 , due primarily to the acquisition of enson during november 2010 , which added $ 150.1 million of net sales during 2011. excluding enson 's net sales , our 2011 net sales increased 3.8 % to $ 318.6 million from $ 306.8 million for 2010. this is due primarily to the increase in net sales within the latin america subscription broadcasting market and our acquisition of new domestic customers in our business category throughout 2011. our 2011 operating income increased 24.8 % to $ 26.6 million for 2011 from $ 21.3 million for 2010. our operating margin percentage decreased to 5.7 % for 2011 from 6.4 % for 2010 due primarily to the decrease in our gross margin percentage to 27.8 % for 2011 from 31.3 % for 2010. the decrease in our gross margin rate was due primarily to sales mix , as a higher percentage of our total sales were comprised of our lower-margin business category . partially offsetting the decrease in our gross margin percentage was a 2.8 % improvement in operating expenses as a percentage of net sales for 2011 compared to 2010. our strategic business objectives for 2012 include the following : continue to develop industry-leading technologies and products with attractive gross margins in order to improve profitability ; further penetrate the growing asian and latin american subscription broadcasting markets ; acquire new customers in historically strong regions ; increase our share with existing customers ; increase the utilization of enson 's factories by becoming less dependent on third party contract manufacturers ; place more operations , logistics , quality , program management , engineering , sales , and marketing personnel in the asia region : and continue to seek acquisitions or strategic partners that complement and strengthen our existing business . 24 we intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements , the changes in certain key items in those financial statements from period to period , and the primary factors that accounted for those changes , as well as how certain accounting principles , policies and estimates affect our consolidated financial statements . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue recognition , allowance for sales returns and doubtful accounts , warranties , inventory valuation , business combination purchase price allocations , our review for impairment of long-lived assets , intangible assets and goodwill , income taxes and compensation expense . actual results may differ from these judgments and estimates , and they may be adjusted as more information becomes available . any adjustment may be significant . an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , if different estimates reasonably may have been used , or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements . management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue on the sale of products when title of the goods has transferred , there is persuasive evidence of an arrangement ( such as a purchase order from the customer ) , the sales price is fixed or determinable and collectability is reasonably assured . we record a provision for estimated retail sales returns . the provision recorded for estimated sales returns and allowances is deducted from gross sales to arrive at net sales in the period the related revenue is recorded . these estimates are based on historical sales returns , analysis of credit memo data and other known factors . actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates . story_separator_special_tag million . business combinations we are required to allocate the purchase price of acquired companies to the tangible and intangible assets and the liabilities assumed , as well as in-process research and development ( ipr & d ) , based upon their estimated fair values . we engage independent third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed . such valuations require management to make significant fair value estimates and assumptions , especially with respect to intangible assets . management estimates the fair value of certain intangible assets by utilizing the following ( but not limited to ) : future free cash flow from customer contracts , customer lists , distribution agreements , acquired developed technologies , trademarks , trade names and patents ; expected costs to develop ipr & d into commercially viable products and cash flows from the products once they are completed ; brand awareness and market position , as well as assumptions regarding the period of time the brand will continue to be used in our product portfolio ; and discount rates utilized in discounted cash flow models . 26 our estimates are based upon assumptions believed to be reasonable ; however , unanticipated events or circumstances may occur which may affect the accuracy of our fair value estimates , including assumptions regarding industry economic factors and business strategies . valuation of long-lived assets and intangible assets we assess long-lived and intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable . factors considered important which may trigger an impairment review , if significant , include the following : underperformance relative to historical or projected future operating results ; changes in the manner of use of the assets ; changes in the strategy of our overall business ; negative industry or economic trends ; a decline in our stock price for a sustained period ; and a variance between our market capitalization relative to net book value . if the carrying value of the asset is larger than its undiscounted cash flows , the asset is impaired . the impairment is measured as the difference between the net book value of the asset and the assets estimated fair value . fair value is estimated utilizing the assets projected discounted cash flows . in assessing fair value , we must make assumptions regarding estimated future cash flows , the discount rate and other factors . we have not made any material changes in our impairment loss assessment methodology during the past three fiscal years . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate the impairment of long-lived assets and intangible assets . however , if actual results are not consistent with our estimates and assumptions we may be exposed to material impairment charges . capitalized software development costs at each balance sheet date , we compare the unamortized capitalized software development costs to the net realizable value of the related product . the amount by which the unamortized capitalized software development costs exceed the net realizable value of the related product is written off . the net realizable value is the estimated future gross revenues attributable to each product reduced by its estimated future completion and disposal costs . any remaining amount of capitalized software development costs that have been written down are considered to be the cost for subsequent accounting purposes , and the amount of the write-down is not subsequently restored . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates of net realizable value we use to test for impairment losses on capitalized software development costs . however , if actual results are not consistent with our estimates and assumptions we may be exposed to impairment charges . goodwill we evaluate the carrying value of goodwill on december 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount . such circumstances may include , but are not limited to : ( 1 ) a significant adverse change in legal factors or in business climate , ( 2 ) unanticipated competition or ( 3 ) an adverse action or assessment by a regulator . when performing the impairment review , we determine the carrying amount of each reporting unit by assigning assets and liabilities , including the existing goodwill , to those reporting units . a reporting unit is defined as an operating segment or one level below an operating segment ( referred to as a component ) . a component of an operating segment is deemed a reporting unit if the component constitutes a business for which discrete financial information is available , and segment management regularly reviews the operating results of that component . we have a single reporting unit . on december 31 , 2011 , we had goodwill of $ 30.8 million . 27 to evaluate whether goodwill is impaired , we compare the estimated fair value of the reporting unit to which the goodwill is assigned to the reporting unit 's carrying amount , including goodwill . we estimate the fair value of our reporting unit based on income and market approaches . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . under the market approach , we estimate the fair value based on market multiples of enterprise value to ebitda for comparable companies . if the carrying amount of a reporting unit exceeds its fair value , the amount of the impairment loss must be measured . the impairment loss would be calculated by comparing the implied fair value of goodwill to its carrying amount .
| results of operations the following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated . replace_table_token_10_th the comparability of information between 2011 and prior years is affected by the acquisition of enson during the fourth quarter of 2010. see item 7. management 's discussion and analysis of financial condition and results of operations and item 8. financial statements and supplementary data notes to consolidated financial statements note 21 for further information . year ended december 31 , 2011 compared to year ended december 31 , 2010 consolidated net sales for the year ended december 31 , 2011 were $ 468.6 million , an increase of 41.2 % compared to $ 331.8 million for the same period last year . net income for 2011 was $ 19.9 million or $ 1.31 per diluted share compared to $ 15.1 million or $ 1.07 per diluted share for 2010. replace_table_token_11_th net sales in our business lines ( subscription broadcasting , oem , and computing companies ) were approximately 90 % of net sales for 2011 compared to approximately 85 % for 2010. net sales in our business lines for 2011 increased by approximately 49 % to $ 421.4 million from $ 282.9 million for 2010. this increase in net sales resulted primarily from the november 2010 acquisition of enson , which added several significant customers and contributed $ 150.1 million of net sales to the business category during 2011 compared to $ 25.0 million during 2010. excluding the net sales from enson , business category sales increased by $ 13.4 million .
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the company 's interest rates range from 3.5 % to 6.0 % on january 31 , 2018 . on january 31 , 2018 , the company can borrow $ 13.5 million under these credit arrangements . the company borrowed $ 0.1 million and had $ 4.1 million available under these credit arrangements as of january 31 , 2018 . in addition , $ 9.3 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases . the company has a revolving line for 14.6 million saudi riyal ( approximately $ 3.9 million u.s. dollars at the prevailing exchange rate on the transaction date ) from a saudi arabian bank . the loan has an interest rate of approximately 6 % and matures april 2018 . subsequent to january 31 , 2018 , the company reduced this revolving line to 5.4 million saudi riyal ( approximately $ 1.4 million ) which matures october 2018. the company has a revolving line for 10 million dirhams ( approximately $ 2.7 million u.s. dollars at the prevailing exchange rate on the transaction date ) from a bank in the u.a.e . the loan has an interest rate of approximately 6 % and matures june 2018 . the company has a revolving line for 25.5 million dirhams ( approximately $ 6.4 million u.s. dollars at the prevailing exchange rate on the transaction date ) from a bank in the u.a.e . the loan has an interest rate of approximately 6 % and matures july 2018 . the company ' credit arrangements used by its middle eastern subsidiaries renew on an annual basis . the company guarantees the subsidiaries ' debt including all foreign debt . mortgages . on july 28 , 2016 , the company borrowed $ 8.0 million cad ( approximately $ 6.1 million at the prevailing exchange rate on the transaction date ) from a bank in canada under a mortgage note secured by the manufacturing facility located in alberta , canada that matures on december 23 , 2042 . the interest rate is variable , currently at 4.7 % , with monthly payments of $ 31 thousand cad ( approximately $ 24 thousand ) for interest ; and monthly payments of $ 27 thousand cad ( approximately $ 20 thousand ) for principal . principal payments began january 2018. on june 19 , 2012 , the company borrowed $ 1.8 million under a mortgage note secured by its manufacturing facility in lebanon , tennessee . the proceeds were used for payment of amounts borrowed . the loan bears interest at 4.5 % with monthly payments of $ 13 thousand for both principal and interest and matures july 1 , 2027 . on june 19 , 2022 , and on the same day of each year thereafter , the interest rate shall adjust to the prime rate , provided that the applicable interest rate shall not adjust more than 2.0 % per annum and shall be subject to a ceiling of 18.0 % and a floor of 4.5 % . capital leases . on october 20 , 2017 , the company obtained a capital lease for $ 0.18 million cad ( approximately $ 0.1 million at the prevailing exchange rate on the transaction date ) to finance vehicle equipment . the interest rate for these capital leases is 4.0 % per annum with monthly principal and interest payments of $ 3 thousand , and these leases mature on september 29 , 2022 . on may 5 , 2017 , the company obtained two capital leases for a total of $ 0.94 million cad ( approximately $ 0.7 million usd at the prevailing exchange rate on the transaction date ) to finance vehicle equipment . the interest rate for these capital leases is 7.8 % per annum with monthly principal and interest payments of $ 9 thousand , and these leases mature on april 30 , 2021 . 38 on august 5 , 2016 , the company obtained a capital lease for 0.6 million indian rupees ( approximately $ 8 thousand u.s. dollars at the prevailing exchange rate on the transaction date ) to finance vehicle equipment . the interest rate for this capital lease is 15.6 % per annum with monthly principal and interest payments of less than a thousand dollars , and the lease matures on july 5 , 2019 . on june 26 , 2014 , the company obtained two capital leases for $ 0.9 million cad ( approximately $ 0.9 million at the prevailing exchange rate on the transaction date ) to finance vehicle equipment . the interest rate for these capital leases story_separator_special_tag certain statements contained in this management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) , which can be identified by the use of forward-looking terminology such as `` may , '' `` will , '' `` expect , '' `` continue , '' `` remains , '' `` intend , '' `` aim , '' `` should , '' `` prospects , '' `` could , '' `` future , '' `` potential , '' `` believes , '' `` plans , '' `` likely , '' and `` probable , '' or the negative thereof or other variations thereon or comparable terminology , constitute `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the exchange act and are subject to the safe harbors created thereby . these statements should be considered as subject to the many risks and uncertainties that exist in the company 's operations and business environment . story_separator_special_tag on january 31 , 2018 , the company was in compliance with all covenants under the credit agreement . the domestic revolving line balances as of january 31 , 2018 and 2017 were included as current liabilities in the consolidated balance sheets , because the credit agreement has a subjective acceleration clause . interest rates vary based on the average availability in the preceding fiscal quarter and are : ( a ) a margin in effect plus a base rate , if below certain availability limits ; or ( b ) a margin in effect plus the eurodollar rate for the corresponding interest period . on january 31 , 2018 , the company had borrowed $ 7.3 million at 7.0 % , 5.06 % and 3.95 % and had $ 0.9 million available to it under the revolving line of credit . in addition , $ 0.2 million of availability was used under the credit agreement primarily to support letters of credit to guarantee amounts committed for inventory purchases . cash required for operations is provided by draw-downs on the line of credit . the credit agreement will expire in september 2018. the company has engaged a financial advisor and is actively pursuing refinancing the credit agreement and replacement financing sources . 15 in the event the company 's refinancing of the credit agreement is delayed or unavailable , the company believes that its cash positions outside of north america could be repatriated and that such cash , together with projected cash flow from operations , would be sufficient to satisfy the company 's repayment obligations under the credit agreement and to support the near-term operating cash needs of the company going forward . revolving lines foreign . the company also has annual credit arrangements used by its middle eastern subsidiaries . these credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the company operates . some credit arrangement covenants require a minimum tangible net worth to be maintained , as well as a minimum balance of intercompany subordinated debt . in addition , some of the revolving credit facilities restrict payment of dividends . on january 31 , 2018 , the company was in compliance with the covenants under the credit arrangements . interest rates are 4.0 % per annum below national bank of fujairah base rate , minimum 3.5 % per annum , and emirates inter bank offered rate ( eibor ) plus 3.5 % per annum . the company 's interest rates range from 3.5 % to 6.0 % . on january 31 , 2018 , the company can borrow $ 13.5 million under these credit arrangements . the company borrowed $ 0.1 million and had $ 4.1 million available under these credit arrangements as of january 31 , 2018 . in addition , $ 9.3 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases . for further information , see note 8 - debt , in the notes to consolidated financial statements . the company 's credit arrangements used by its middle eastern subsidiaries renew on an annual basis . subsequent to january 31 , 2018 , the company reduced one of the foreign credit lines by $ 2.5 million , thus reducing the amount available to borrow by $ 2.4 million . in 2017 , the company obtained three capital leases for $ 1.1 million cad ( approximately $ 0.8 million usd at the prevailing exchange rates on the transaction dates ) to finance vehicle equipment . the interest rates for these capital leases were from 4.0 % to 7.8 % per annum with monthly principal and interest payments of less than $ 0.1 million . these leases mature from april 30 , 2021 to september 29 , 2022 . critical accounting estimates and policies the company 's significant accounting policies are discussed in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k. the application of certain of these policies requires significant judgments or a historical based estimation process that can affect the results of operations and financial position of the company as well as the related footnote disclosures . the company bases its estimates on historical experience and other assumptions that it believes are reasonable . if actual amounts ultimately differ from previous estimates , the revisions are included in the company 's results of operations for the period in which the actual amounts become known . revenue recognition . the company recognizes revenues , including shipping and handling charges billed to customers , when all the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . all subsidiaries of the company , except as noted below , recognize revenues upon shipment or delivery of goods or services when title and risk of loss pass to customers . percentage of completion revenue recognition . all divisions recognize revenues under the above stated revenue recognition policy except for domestic complex contracts that require periodic recognition of income . for these contracts , the company uses the `` percentage of completion '' accounting method . under this approach , income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete . the choice of accounting method is made at the time the contract is received based on the expected length and complexity of the project . the percentage of completion is determined by the relationship of costs incurred to the total estimated costs of the contract . provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined .
| consolidated results of operation : replace_table_token_3_th 2017 compared to 2016 net sales : net sales were $ 105.2 million in 2017 , an increase of 6.5 % from $ 98.8 million in 2016 . higher revenues resulted primarily from increased sales to distributors in canada . cost of sales and gross profit : gross profit remained unchanged at $ 11.7 million in 2017 and 2016 . gross margin decreased to 11 % from 12 % of net sales in the prior year due to changes in the north american product mix and continued competitive pricing pressures in the united states and middle east . selling expenses : selling expenses decreased to $ 5.0 million from $ 5.7 million , an improvement of 11.9 % . as a percentage of net sales , selling expenses decreased to 4.8 % in 2017 from 5.8 % in the prior year . this improvement was due to management changes in the middle east and realignment of the north american sales organization . general and administrative expenses : general and administrative expenses were $ 16.2 million in 2017 compared to $ 17.6 million 2016 , an improvement of 7.8 % . following the departures of the president and vice president of the company 's middle east region in june 2017 and the related regional management transition , the company 's management became concerned that its corporate policies , procedures and internal controls within the region may not have been adhered to fully by the prior management team . as a result of these concerns , the company engaged outside third-party firms to complete an extensive review of regional management activities from early 2014. the total non-recurring costs for this review and the resulting policy improvement implementations for the year 2017 were approximately $ 1.2 million .
| 4,969 |
in addition , we agreed to extend the time he will have to exercise his outstanding stock options to january 15 , 2021. employment agreement with alvaro amorrortu on january 25 , 2019 , we entered into an employment agreement with mr. amorrortu , our former chief operating officer , which employment agreement amended and restated the terms of his existing agreement ( with the exception of the restrictive covenant provisions contained therein ) . pursuant to his employment agreement , mr. amorrortu was entitled to an annual base salary of $ 400,000 , effective as of january 1 , 2019 , which base salary was subject to change in the discretion of the board of directors . mr. amorrortu was also eligible to earn an annual performance bonus in the form of cash , equity award ( s ) , or a combination of cash and equity , with a target bonus amount equal to up to 40 % of his base salary , based upon the board 's assessment of his performance and the company 's attainment of targeted goals as set by the board in its sole discretion . mr. amorrortu will remain bound by proprietary rights , non-disclosure , developments , non-competition and non-solicitation obligations pursuant to the restrictive covenants in his existing employment agreement , which provisions shall remain in full force and effect . under these restrictive covenants story_separator_special_tag financial condition and results of operations . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described , in or implied , by these forward-looking statements . overview our mission is to cure duchenne muscular dystrophy , or dmd , a genetic muscle-wasting disease predominantly affecting boys , with symptoms that usually manifest between three and five years of age . dmd is a progressive , irreversible and ultimately fatal disease that affects approximately one in every 3,500 to 5,000 live male births and has an estimated prevalence of 10,000 to 15,000 cases in the united states alone . dmd is caused by mutations in the dystrophin gene , which result in the absence or near-absence of dystrophin protein . dystrophin protein works to strengthen muscle fibers and protect them from daily wear and tear . without functioning dystrophin and certain associated proteins , muscles suffer excessive damage from normal daily activities and are unable to regenerate , leading to the build-up of fibrotic , or scar , and fat tissue . there is no cure for dmd and , for the vast majority of patients , there are no satisfactory symptomatic or disease-modifying treatments . our efforts are focused on our lead product candidate , sgt-001 , a gene transfer candidate under investigation for its ability to drive functional dystrophin protein expression in patients ' muscles and improve the course of the disease . based on our preclinical program that included multiple animal species of different phenotypes and genetic variations , as well as preliminary clinical trial biomarker results , we believe that sgt-001 , has the potential to slow or even halt the progression of dmd , regardless of the type of genetic mutation or stage of the disease . since our inception , we have devoted substantial resources to identifying and developing sgt-001 and our other product candidates , developing our manufacturing processes , organizing and staffing our company and providing general and administrative support for these operations . we have incurred significant losses every year since our inception . we do not have any products approved for sale . to date , we have not generated any revenue . our ability to eventually generate any product revenue sufficient to achieve profitability will depend on the successful development , approval and eventual commercialization of sgt-001 and our other product candidates . if successfully developed and approved , we intend to commercialize sgt-001 in the united states and european union and may enter into licensing agreements or strategic collaborations in other markets . if we generate product sales or enter into licensing agreements or strategic collaborations , we expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of any product sales , license fees , milestone payments and other payments . if we fail to complete the development of sgt-001 and our other product candidates in a timely manner or obtain regulatory approval of them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . sgt-001 has been granted rare pediatric disease designation , or rpdd , and fast track designation , in the united states and orphan drug designations in both the united states and european union . the safety and efficacy of sgt-001 are currently being evaluated in a phase i/ii clinical trial called ignite dmd , which is currently on clinical hold . due to our significant research and development expenditure , licensing and patent investment , and general administrative costs associated with our operations , we have generated substantial operating losses in each period since our inception . our net losses were $ 117.2 million , $ 74.8 million and $ 53.2 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 316.3 million . story_separator_special_tag personnel costs , including salaries , benefits , bonuses and equity-based compensation expense , comprise a significant component of each of these expense categories . we allocate expenses associated with personnel costs based on the nature of work associated with these resources . 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 sgt-001 and our other product candidates and include : expenses incurred under agreements with third parties , including cros , that conduct research and preclinical activities on our behalf , as well as cmos , that manufacture sgt-001 and our other product candidates for use in our preclinical studies and clinical trials ; salaries , benefits and other related costs , including equity-based compensation expense , for personnel engaged in research and development functions ; costs of outside consultants , engaged to assist in our research and development activities , including their fees , equity-based compensation and related travel expenses ; costs of laboratory supplies and acquiring , developing and manufacturing preclinical study and clinical trial materials ; costs incurred in seeking regulatory approval of sgt-001 and our other product candidates ; expenses incurred under our intellectual property licenses ; and facility-related research and development expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development expenses as incurred . we recognize costs for certain development activities , such as preclinical research and development and clinical trial costs , based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors , collaborators and third-party service providers . 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 consolidated financial statements as prepaid or accrued research and development expenses . we typically use our employee and infrastructure resources across our product candidates . we track outsourced development costs and milestone payments made under our licensing arrangements by product candidates , but we do not allocate personnel costs , license payments made under our licensing arrangements or other internal costs to product candidates on a program-specific basis . these costs are included in unallocated research and development expenses in the table below . the following table summarizes our research and development expenses by product candidates for the respective periods : replace_table_token_2_th 78 we can not determine with certainty the duration , costs and timing of clinical trials of sgt-001 and our other product candidates or if , when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates for which we obtain marketing approval or our other research and development expenses . we may never succeed in obtaining marketing approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , expense and results of any clinical trials of sgt-001 or other product candidates and other research and development activities that we may conduct ; the imposition of regulatory restrictions on clinical trials , including full and partial clinical holds and the time and activities required to lift any such holds ; uncertainties in clinical trial design and patient enrollment or drop out or discontinuation rates ; significant and changing government regulation and regulatory guidance ; potential additional studies or clinical trials requested by regulatory agencies ; the timing and receipt of any marketing approvals ; and the expense of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will decrease in calendar year 2020 , as a result of the organizational changes announced in january 2020 , to create a leaner organization focused on advancing sgt-001 . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including equity-based compensation , for personnel in our executive , finance , business development and administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters , professional fees for accounting , auditing , tax and consulting services , insurance costs , travel expenses , and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of office facilities and other operating costs . we expect that our general and administrative expenses will increase in the future as we expect to continue to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance costs and investor and public relations costs . other income ( expense ) revaluation of preferred unit tranche right the terms of the series 1 senior preferred unit purchase agreement , as amended on september 1 , 2017 , contained a right , which we refer to as the series 1 tranche right . the series 1 tranche right obligated the holders of the series 1 senior preferred units to purchase 1,973,430 series 2 senior preferred units at a purchase price of $ 12.67 per unit in the event we achieved certain preclinical milestones .
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_3_th research and development expenses replace_table_token_4_th research and development expenses for the year ended december 31 , 2019 were $ 94.7 million , compared to $ 58.0 million for the year ended december 31 , 2018. the increase of $ 36.8 million in research and development costs was due to total unallocated research and development costs of $ 19.1 million primarily due to personnel and facility related expenses , including costs incurred to operate our lab facility , a $ 16.2 million increase in costs related to our lead product candidate sgt-001 driven by higher clinical development and manufacturing activities of $ 13.2 million and contract cancellation fees of $ 3.0 million as well as $ 1.4 million increase in costs related to our other product candidates . general and administrative expenses general and administrative expenses were $ 24.6 million for the year ended december 31 , 2019 , compared to $ 17.7 million for the year ended december 31 , 2018. the increase of $ 6.9 million was driven by a $ 4.4 million increase in equity-based compensation as a result of grants issued during the year ended december 31 , 2019 , and other personnel and facility related expenses of $ 1.6 million as well as an increase of $ 0.9 million for professional services and other corporate expenses . interest income interest income was $ 1.6 million and $ 0.6 million for the years ended december 31 , 2019 and 2018 , respectively . the increase in interest income was due to an increase in available-for-sale securities in our portfolio during the first half of 2019 . 82 other income other income for the year ended december 31 , 2019 was $ 0.5
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we operate one of the most comprehensive matrices of chinese language content and services , and we developed and operate one of the most popular massively multiplayer online games and two popular web games in china . substantially all of our operations are conducted through our indirect wholly-owned and majority-owned china-based subsidiaries and variable interest entities ( collectively the sohu group ) . our businesses consist of the online advertising business , which consists of the brand advertising business as well as the search and others business , the online game business , the wireless business and the others business , among which online advertising and online games are our core businesses . factors and trends affecting our business the internet and internet-related markets in china continued to evolve rapidly during 2012. according to an annual report issued by the china internet network information center ( cnnic ) , the total number of internet users in china had reached 564 million by the end of december 2012 , an increase of 50.9 million from the end of 2011. the number of mobile internet users in china had reached 420 million by the end of december 2012 , an increase of 64.4 million from the end of 2011 , and exceeding the 398 million desktop computer internet users as of december 2012. mobile internet became the top channel for internet users to access websites in china in 2012. we believe that this large and expanding user base will continue to provide significant opportunities for our company to expand our product offerings and to explore new revenue streams . that being said , our brand advertising business in 2012 was impacted by macro-economy conditions as the slowdown in china 's economic growth reduced the spending of some large advertisers . these adverse factors resulted in a deceleration in revenue growth for our brand advertising business . in china , online video is a popular internet application , with over 370 million users as of december 31 , 2012 , according to an annual report issued by cnnic . we expect that brand advertisers will continue to allocate more advertising dollars to online video in order to exploit this growing market . to better employ market opportunities , we made a strategic decision in early 2012 to set up a dedicated sales force for our online video business . in the fourth quarter of 2012 , we completed the establishment of our dedicated video sales team and the transition was smooth . we expect this business to reaccelerate in 2013 . 81 during the year of 2012 , our search and others business continued to grow , which was attributable to the growth of pay-for-click services , as well as online marketing services on the sogou web directory . we expect our search and others business will sustain healthy revenue growth through the year of 2013. we continue to be pleased with and optimistic regarding the growth and profitability of our online games business . we believe that our strong performance in 2012 reflects the resilience of the chinese online games industry despite the weakening global macroeconomic environment and economic slowdown in china . we also believe that it reflects the ongoing strength of our online games content and our successful transition from a dominant player in the massively multi-player online gaming business to a broad spectrum gaming company responding to fast-growing segments of the industry and new technologies and platforms . summary of our business for the year ended december 31 , 2012 , our total revenues increased by 25 % to $ 1,067.2 million and gross margin decreased from 72 % to 65 % . our online advertising business generated revenues of $ 414.6 million with 21 % annual growth , representing 39 % of total revenues . our online game business generated revenues of $ 574.7 million with 32 % annual growth , representing 54 % of total revenues . net income contributed by the online game business was $ 293.6 million , which represented 166 % of our total net income . in 2012 , our net income before deducting the noncontrolling interest was $ 177.2 million , compared to $ 228.3 million in 2011. in 2012 , our net income after deducting the noncontrolling interest was $ 87.2 million , compared to $ 162.7 million in 2011. diluted net income per share attributable to sohu.com inc was $ 2.03 in 2012 , compared to $ 3.93 in 2011. for the details of our business and business restructuring , please see item 1 business overview . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( u.s . gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . identified below are the accounting policies that reflect our more significant estimates and judgments , and those that we believe are the most critical to fully understanding and evaluating our consolidated financial statements . basis of consolidation and recognition of noncontrolling interest the consolidated financial statements include the accounts of sohu and its wholly-owned and majority-owned subsidiaries and the consolidated variable interest entities ( vies ) . all intercompany transactions are eliminated . we have adopted the guidance of accounting for vies , which requires vies to be consolidated by the primary beneficiary of the entity . story_separator_special_tag the primary factor is whether we are acting as the principal in offering services to the customer or whether we are acting as an agent in the transaction . whether we are serving as principal or agent in a transaction is judgmental in nature and is determined by evaluating the terms of the arrangement . our revenues from online advertising services are recognized on a gross basis as we have the primary responsibility for fulfillment and acceptability . these revenues are recognized after deducting agent rebates paid to advertising agencies and applicable taxes and /or related surcharges . 83 before september 1 , 2012 , our online advertising revenues were subject to prc business tax , ( business tax ) . our online advertising revenues were recognized after deducting agent rebates and applicable business tax and related surcharges . business tax is imposed primarily on revenues from the provision of taxable services and is calculated by multiplying the applicable tax rate by gross revenue . effective september 1 , 2012 , the prc ministry of finance and the state administration of taxation launched a business tax to value added tax ( vat ) transformation pilot program , ( the pilot program ) , for certain industries in eight regions , including beijing and tianjin . vat payable on goods sold or taxable labor services provided by a general vat taxpayer for a taxable period is the net balance of the output vat for the period after crediting the input vat for the period . hence , the amount of vat payable does not result directly from output vat generated from goods sold or taxable labor services provided . with the adoption of the pilot program , our online advertising revenues are subject to vat . our online advertising revenues are now recognized after deducting agent rebates and net of vat and related surcharges . brand advertising revenues business model currently the brand advertising business has two main types of pricing models , consisting of the fixed price model and the cost per impression ( cpm ) pricing model . under the fixed price model , a contract is signed to establish a fixed price for the advertising services to be provided . under the cpm pricing model , the total contract amount for the advertising services is not fixed . instead , a fixed price for each qualifying display is stated . advertisers using the cpm pricing model pay us based on the number of qualifying displays of their advertisements appearing on our websites , and we recognize as revenue the fees charged to advertisers each time their advertisements are displayed on the websites , on the condition that each display meets certain selected criteria imposed by advertisers . we provide advertisement placements to our advertisers on our different website channels and in different formats , which can include , among other things , banners , links , logos , buttons , full screen , pre-roll , post-roll , and mid-roll video screens , as well as pause video screens . revenue recognition for brand advertising revenue recognition , prior to entering into contracts , we make a credit assessment of the customer to assess the collectability of the contract . for those contracts for which the collectability is determined to be reasonably assured , we recognize revenue when all revenue recognition criteria are met . for those contracts for which the collectability is determined not to be reasonably assured , we recognize revenue only when the cash was received and all other revenue recognition criteria are met . before 2011 , since almost all of the elements were delivered within one calendar quarter , we treated all elements of advertising contracts as one single unit of accounting for revenue recognition purposes . commencing january 1 , 2011 , in accordance with asu no.2009 -13 , we treat advertising contracts with multiple deliverable elements as separate units of accounting for revenue recognition purposes and to recognize revenue on a periodic basis during the contract when each deliverable service is provided . since the contract price is for all deliverables , we allocate the arrangement consideration to all deliverables at the inception of the arrangement on the basis of their relative selling prices . since the number of advertising contracts that covered more than one quarter and the revenues from advertising contracts that covered more than one quarter were immaterial compared to the total advertising contracts , the impact of adoption of asu 2009-13 to us is immaterial . search and others revenues search and others services mainly include pay-for-click services , as well as online marketing services on the sogou web directory . pay-for-click services pay-for-click services are services that enable our advertisers ' promotional links to be displayed on sogou search result pages and sogou website alliance members ' websites where the links are relevant to the subject and content of such web pages . for pay-for-click services , we introduce internet users to our advertisers through our auction based pay-for-click systems and charge advertisers on a per click basis when the users click on the displayed links . revenue for pay-for-click services is recognized on a per click basis when the users click on the displayed links . online marketing services on the sogou web directory online marketing services on the sogou web directory mainly consist of displaying advertiser website links on the web pages of the sogou web directory . the sogou web directory is a chinese web directory navigation site which serves as a key access point to popular and preferred websites and applications . revenue for online marketing services on the sogou web directory is normally recognized on a straight-line basis over the contract period , provided our obligations under the contract have been met and all revenue recognition criteria have been met . 84 sogou website alliance both pay-for-click services and online marketing services on the sogou web directory expand distribution of its advertisers ' website links or advertisements by leveraging traffic on sogou website alliance members ' websites .
| quarterly results of operations in 2011 , we adjusted our business grouping from brand advertising business , online game business , sponsored search business , and wireless and others business to online advertising business , online game business , wireless business and others business . accordingly , we adjusted our presentation based on the new classification for the years prior to 2011 to conform to the current year classification . in 2012 , with the development of our business , we reclassified certain expenses for our search and others business and our video division . certain comparative figures have been reclassified to conform to the current presentation . 101 the following table sets forth , for the periods presented , our unaudited quarterly results of operations for the eight quarters ended december 31 , 2012. the data have been derived from our consolidated financial statements and , in our management 's opinion , they have been prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments , consisting only of normal recurring adjustments , necessary for a fair statement of the financial results for the periods presented . this information should be read in conjunction with the annual consolidated financial statements included elsewhere in this form 10-k. the operating results in any quarter are not necessarily indicative of the results that may be expected for any future period . replace_table_token_11_th 102 replace_table_token_12_th liquidity and capital resources resources analysis our principal sources of liquidity are cash and cash equivalents , short-term investments , investments in debt securities , as well as the cash flows generated from our operations . cash equivalents primarily comprise time deposits . as of december 31 , 2012 , we had cash and cash equivalents , short-term investments and investments in debt securities of approximately $ 968.0 million .
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after preferred stock dividends and discount accretion of $ 5.3 million , the company reported net income available to common stockholders of $ 4.4 million , or diluted earnings per share of $ 0.92. the $ 5.3 million of preferred stock dividends and discount accretion included $ 1.2 million of accelerated discount accretion on the repurchased treasury capital purchase program ( “ tcpp ” ) preferred shares . excluding the impact of the accelerated accretion , the company 's diluted earnings per share for 2011 would have been $ 1.18. for the same period in 2010 , the company recognized net income of $ 6.8 million , and net income attributable to qcr holdings , inc. of $ 6.6 million , which excludes the net income attributable to noncontrolling interests of $ 221 thousand . after preferred stock dividends and discount accretion of $ 4.1 million , the company reported net income available to common stockholders of $ 2.5 million , or diluted earnings per share of $ 0.53. by comparison , for 2009 , the company recognized net income of $ 2.0 million , and net income attributable to qcr holdings , inc. of $ 1.8 million , which excludes the net income attributable to noncontrolling interests of $ 277 thousand . after preferred stock dividends of $ 3.8 million , the company reported a net loss available to common stockholders of $ 2.1 million , or diluted loss per share of $ 0.46. following is a table that represents the various net income ( loss ) measurements for the years ended december 31 , 2011 , 2010 , and 2009. replace_table_token_9_th * includes $ 1.2 million of accelerated accretion of discount on the tcpp preferred shares repurchased during the third quarter of 2011. see financial statement note 11 for detailed discussion of preferred stock . * * in accordance with u.s. gaap , the common equivalent shares are not considered in the calculation of diluted earnings per share as the numerator is a net loss . 25 following is a table that represents the major income and expense categories . replace_table_token_10_th net interest income , on a tax equivalent basis , grew $ 4.3 million , or 9 % in 2011 compared to 2010. declines in interest income were more than offset by significant declines in interest expense . for 2011 , average earning assets increased by $ 53.0 million , or 3 % , and average interest-bearing liabilities declined by $ 25.3 million , or 2 % , when compared with average balances for 2010. offsetting this decline and primarily funding the growth in average earning assets , noninterest-bearing deposits grew $ 84.5 million , or 36 % . a comparison of yields , spreads and margins from 2011 to 2010 shows the following ( on a tax equivalent basis ) : · the average yield on interest-earning assets decreased 27 basis points from 4.68 % to 4.41 % . · the average cost of interest-bearing liabilities decreased 43 basis points from 2.08 % to 1.65 % . · the net interest spread improved 16 basis points from 2.60 % to 2.76 % . · the net interest margin improved 16 basis points from 2.92 % to 3.08 % . net interest income , on a tax equivalent basis , declined slightly in 2010 compared to 2009. specifically , on a tax equivalent basis , net interest income totaled $ 50.3 million for 2010 compared to $ 51.1 million for 2009. excluding the one-time positive adjustment to interest income in 2009 , declines in interest income were effectively offset by declines in interest expense . for 2010 , average earning assets increased by $ 94.9 million , or 6 % , and average interest-bearing liabilities increased by $ 46.9 million , or 3 % , when compared with average balances for 2009. a comparison of yields , spreads and margins from 2010 to 2009 shows the following ( on a tax equivalent basis ) : · the average yield on interest-earning assets decreased 61 basis points from 5.29 % to 4.68 % . · the average cost of interest-bearing liabilities decreased 41 basis points from 2.49 % to 2.08 % . · the net interest spread declined 20 basis points from 2.80 % to 2.60 % . · the net interest margin declined 22 basis points from 3.14 % to 2.92 % . the company 's management closely monitors and manages net interest margin . from a profitability standpoint , an important challenge for the company 's subsidiary banks and majority-owned leasing company is the improvement of their net interest margins . management continually addresses this issue with pricing and other balance sheet management strategies including , but not limited to , the use of alternative funding sources . 26 for example , the company 's largest subsidiary bank , qcbt , executed a balance sheet restructuring during the first quarter of 2011. specifically , the bank utilized excess liquidity and prepaid $ 15.0 million of fhlb advances with a weighted average interest rate of 4.87 % and a weighted average maturity of may 2012. the fees for prepayment totaled $ 832 thousand . the company sold $ 37.4 million of government sponsored agency securities and recognized pre-tax gains of $ 880 thousand which more than offset the prepayment fees . the proceeds from the sales of the government sponsored agency securities were reinvested into government guaranteed residential mortgage-backed securities with reduced risk-weighting for regulatory capital purposes and yields that were comparable to the sold securities . story_separator_special_tag qualitative factors include the general economic environment in the company 's markets , including economic conditions throughout the midwest , and in particular , the economic health of certain industries . size and complexity of individual credits in relation to loan/lease structure , existing loan/lease policies and pace of portfolio growth are other qualitative factors that are considered in the methodology . as the company adds new products and increases the complexity of its loan/lease portfolio , it enhances its methodology accordingly . management may report a materially different amount for the provision for loan/lease losses in the statement of operations to change the allowance for loan/lease losses if its assessment of the above factors were different . the discussion regarding the company 's allowance for loan/lease losses should be read in conjunction with the company 's financial statements and the accompanying notes presented elsewhere in this form 10-k , as well as the portion of this management 's discussion and analysis section entitled “ financial condition – allowance for estimated losses on loans/leases. ” although management believes the level of the allowance as of december 31 , 2011 was adequate to absorb losses inherent in the loan/lease portfolio , a decline in local economic conditions , or other factors , could result in increasing losses that can not be reasonably predicted at this time . the company 's assessment of other-than-temporary impairment of its available-for-sale securities portfolio is another critical accounting policy as a result of the level of judgment required by management . available-for-sale securities are evaluated to determine whether declines in fair value below their cost are other-than-temporary . in estimating other-than-temporary impairment losses management considers a number of factors including , but not limited to , ( 1 ) the length of time and extent to which the fair value has been less than amortized cost , ( 2 ) the financial condition and near-term prospects of the issuer , ( 3 ) the current market conditions , and ( 4 ) the intent of the company to not sell the security prior to recovery and whether it is not more-likely-than-not that the company will be required to sell the security prior to recovery . the discussion regarding the company 's assessment of other-than-temporary impairment should be read in conjunction with the company 's financial statements and the accompanying notes presented elsewhere in this form 10-k. 30 results of operations for the years ended december 31 , 2011 , 2010 , and 2009 story_separator_special_tag was the result of the following : · the company continued to experience improving loan quality as evidenced by the declining trend in the level of classified and criticized loans ( see table and further discussion in the allowance for estimated losses on loans/leases section ) . this trend translated over to nonperforming loans/leases for the year as the company 's level of nonperforming loans/leases declined $ 9.1 million , or 22 % . · modest growth in the company 's loan/lease portfolio . specifically , loans/leases grew $ 28.2 million , or 2 % , with a strong portion of the growth in residential real estate loans which have smaller average balances and are historically less risky than the company 's commercial loan portfolio . the company 's provision for loan/lease losses declined sharply from $ 17.0 million for 2009 to $ 7.5 million for 2010. the decline was the result of the following : · the company experienced strengthening in its core loan portfolio as the level of classified and criticized loans declined throughout the year ( see table and further discussion in the allowance for estimated losses on loans/leases section ) . this trend contributed to a reduction in nonperforming loans/leases in the fourth quarter of 2010 . · despite the decline in the fourth quarter , nonperforming loans/leases experienced a net increase during 2010. the majority of the additions consisted of commercial credits which management thoroughly reviewed and identified a strong collateral position that did n't require significant additional specific reserves , or the company had already reserved adequate amounts in the prior years while the loan/lease was still performing . · the company 's loan/lease portfolio declined $ 71.8 million , or 6 % , in 2010 . 32 noninterest income . the following tables set forth the various categories of noninterest income for the years ended december 31 , 2011 , 2010 and 2009. replace_table_token_13_th trust department fees continue to be a significant contributor to noninterest income . income is generated primarily from fees charged based on assets under administration for corporate and personal trusts and for custodial services . total trust assets under administration were $ 1.06 billion at december 31 , 2011 , flat from the level at december 31 , 2010 and down from $ 1.22 billion at december 31 , 2009. the decline in total trust assets during 2010 was planned and consisted of approximately $ 281 million of assets held in safekeeping by qcbt that were outsourced . management determined outsourcing allowed for enhanced service to the clients and increased profitability for the company . the majority of the trust department fees are determined based on the value of the investments within the fully managed trusts . as the markets have experienced volatility with the national economy 's recovery from recession , the company 's fee income has experienced similar volatility , but has realized net growth year-over-year in fee income for 2010 ( 14,1 % ) and 2011 ( 2.4 % ) . in recent years , the company has been successful in expanding its customer base which has helped to offset some of the volatility and contributed to the net growth in fee income . over the past year , management has placed a stronger emphasis on growing its investment advisory and management services . fee income from investment advisory and management services increased in consecutive years with year-over-year increases of 20.3 % and 16.3 % for 2010 and 2011 , respectively . similar to trust department fees , these fees are largely determined based on the value of the investments managed .
| overview . net income attributable to qcr holdings , inc. for 2011 was $ 9.7 million , or diluted earnings per share of $ 0.92 after preferred stock dividends and discount accretion of $ 5.3 million , compared to $ 6.6 million , or diluted earnings per share of $ 0.53 after preferred stock dividends of $ 4.1 million , for 2010. the $ 5.3 million of preferred stock dividends and discount accretion included $ 1.2 million of accelerated discount accretion on the repurchased tcpp preferred shares . excluding the impact of the accelerated accretion , the company 's diluted earnings per share for 2011 would have been $ 1.18. net interest income grew $ 4.3 million , or 9 % , year-over-year . the company 's noninterest income increased $ 2.1 million , or 13 % , during 2011. as part of the balance sheet restructuring at qcbt and as a result of favorable market conditions , the company sold $ 54.3 million of securities at pre-tax gains totaling $ 1.5 million . the remaining increase consisted of modest growth across the majority of the company 's major noninterest income sources . noninterest expense increased $ 2.4 million , or 5 % , during 2011. the large majority of this increase was salaries and employee benefits as the company resumed customary annual salary and benefits increases for the majority of the employee base , increased health insurance costs , and increased incentive compensation based on improved financial performance . lastly , the company 's provision for loan/lease losses declined $ 848 thousand , or 11 % , during 2011. net income attributable to qcr holdings , inc. for 2010 was $ 6.6 million , or diluted earnings per share of $ 0.53 after preferred stock dividends and discount accretion of $ 4.1 million , compared to $ 1.8 million , or diluted loss per share of $ 0.46 after preferred stock dividends of $ 3.8 million , for 2009. net interest income declined slightly year-over-year .
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approved and launched in europe in second and third quarters of 2016 , respectively . approved and launched in japan in third and fourth quarters of 2016 , respectively . psoriatic arthritis phase iii launched approved and launched in japan in third and fourth quarters of 2016 , respectively . announced in october 2016 top-line results of phase iii trial that met primary endpoints . submission to the u.s. food and drug administration ( fda ) in the first half of 2017. neuroscience bace inhibitor early and mild alzheimer 's disease phase iii moved into the phase iii portion of the phase ii/iii seamless study in april 2016 and initiated phase iii study in mild alzheimer 's disease in august 2016. granted fast track designation ( 1 ) from the fda in august 2016. flortaucipir alzheimer 's disease phase iii phase iii study is ongoing . galcanezumab cluster headache phase iii phase iii studies are ongoing . migraine prevention phase iii initiated first phase iii study in january 2016. solanezumab mild alzheimer 's disease terminated announced in november 2016 top-line results of phase iii trial that did not meet primary endpoints . further development has been discontinued . preclinical alzheimer 's disease phase iii phase iii study to continue . prodromal alzheimer 's disease terminated further development has been discontinued . tanezumab osteoarthritis pain phase iii phase iii studies are ongoing . chronic low back pain phase iii cancer pain phase iii 32 compound indication u.s. europe japan developments oncology abemaciclib metastatic breast cancer phase iii phase iii studies are ongoing . nsclc phase iii lartruvo soft tissue sarcoma launched phase iii granted accelerated approval ( 2 ) by the fda in fourth quarter of 2016 based on phase ii data . launched in the u.s. in the fourth quarter of 2016. granted conditional approval ( 3 ) and launched in europe in fourth quarter of 2016. phase iii study is ongoing . portrazza metastatic squamous nsclc ( first-line ) launched phase ib/ii approved and launched in europe in first and second quarters of 2016 , respectively . ( 1 ) the fda 's fast track program is designed to expedite the development and review of new therapies to treat serious conditions and address unmet medical needs . ( 2 ) continued approval for this indication may be contingent on verification and description of clinical benefit in a confirmatory phase iii trial . ( 3 ) as part of a conditional marketing authorization , results from an ongoing phase iii study will need to be provided . this study is fully enrolled . until availability of the full data , the committee for medicinal products for human use will review the benefits and risks of lartruvo annually to determine whether the conditional marketing authorization can be maintained . there are many difficulties and uncertainties inherent in pharmaceutical research and development and the introduction of new products . a high rate of failure is inherent in new drug discovery and development . the process to bring a drug from the discovery phase to regulatory approval can take over a decade and cost more than $ 2 billion ( dimasi ja , grabowski hg , hansen ra . innovation in the pharmaceutical industry : new estimates of r & d costs , journal of health economics 2016 ; 47:20-33. ) . failure can occur at any point in the process , including late in the process after substantial investment . as a result , most research programs will not generate financial returns . new product candidates that appear promising in development may fail to reach the market or may have only limited commercial success . delays and uncertainties in the regulatory approval processes in the u.s. and in other countries can result in delays in product launches and lost market opportunities . consequently , it is very difficult to predict which products will ultimately be approved . we manage research and development spending across our portfolio of molecules , and a delay in , or termination of , any one project will not necessarily cause a significant change in our total research and development spending . due to the risks and uncertainties involved in the research and development process , we can not reliably estimate the nature , timing , and costs of the efforts necessary to complete the development of our research and development projects , nor can we reliably estimate the future potential revenue that will be generated from a successful research and development project . each project represents only a portion of the overall pipeline , and none is individually material to our consolidated research and development expense . while we do accumulate certain research and development costs on a project level for internal reporting purposes , we must make significant cost estimations and allocations , some of which rely on data that are neither reproducible nor validated through accepted control mechanisms . therefore , we do not have sufficiently reliable data to report on total research and development costs by project , by preclinical versus clinical spend , or by therapeutic category . 33 other matters patent matters we depend on patents or other forms of intellectual-property protection for most of our revenues , cash flows , and earnings . the loss of u.s. patent exclusivity for evista ® in march 2014 resulted in the immediate entry of generic competitors . we lost our data package protection for cymbalta ® in major european countries in 2014. in 2015 , we saw the entry of generic competition in all major european markets . story_separator_special_tag key health policy proposals affecting biopharmaceuticals include a reduction in biologic data exclusivity , modifications to medicare parts b and d , language that would allow the department of health and human services to negotiate prices for biologics and drugs in medicare , proposals that would require biopharmaceutical manufacturers to disclose proprietary drug pricing information , and state-level proposals to reduce the cost of pharmaceuticals purchased by government health care programs . savings projected under these proposals are targeted as a means to fund both health care expenditures and non-health care initiatives , or to manage federal and state budgets . in the private sector , consolidation and integration among healthcare providers is also a major factor in the competitive marketplace for human pharmaceuticals . health plans , pharmaceutical benefit managers , wholesalers , and other supply chain stakeholders have been consolidating into fewer , larger entities , thus enhancing their purchasing strength and importance . payers typically maintain formularies which specify coverage ( the conditions under which drugs are included on a plan 's formulary ) and reimbursement ( the associated out-of-pocket cost to the consumer ) . formulary placement can lead to reduced usage of a drug for the relevant patient population due to coverage restrictions , such as prior authorizations and formulary exclusions , or due to reimbursement limitations which result in higher consumer out-of-pocket cost , such as non-preferred co-pay tiers , increased co-insurance levels and higher deductibles . consequently , pharmaceutical companies compete for formulary placement not only on the basis of product attributes such as greater efficacy , fewer side effects , or greater patient ease of use , but also by providing rebates . price is an increasingly important factor in formulary decisions , particularly in treatment areas in which the payer has taken the position that multiple branded products are therapeutically comparable . these downward pricing pressures could negatively affect future consolidated results of operations . the main coverage expansion provisions of the affordable care act ( aca ) are currently in effect through both state-based exchanges and the expansion of medicaid . an emerging trend has been the prevalence of benefit designs containing high out-of-pocket costs for patients , particularly for pharmaceuticals . in addition to the coverage expansions , many employers in the commercial market , driven in part by aca changes such as the 2020 implementation of the excise tax on employer-sponsored health care coverage for which there is an excess benefit ( the so-called `` cadillac tax '' ) , continue to evaluate strategies such as private exchanges and wider use of consumer-driven health plans to reduce their healthcare liabilities over time . president trump , the new administration , and congress have identified repealing and replacing the aca as a top priority . the proposed timeframe remains unclear . further , provisions included in legislation repealing the aca and any potential replacement program have yet to be determined and could have a material adverse effect on our consolidated results of operations and cash flows . at the same time , the broader paradigm shift towards performance-based reimbursement and the launch of several value-based purchasing initiatives have placed demands on the pharmaceutical industry to offer products with proven real-world outcomes data and a favorable economic profile . 35 international international operations also are generally subject to extensive price and market regulations . cost-containment measures exist in a number of countries , including additional price controls and mechanisms to limit reimbursement for our products . such policies are expected to increase in impact and reach , given the pressures on national and regional health care budgets that come from a growing aging population and ongoing economic challenges . in addition , governments in many emerging markets are becoming increasingly active in expanding health care system offerings . given the budget challenges of increasing health care coverage for citizens , policies may be proposed that promote generics and biosimilars only and reduce current and future access to branded human pharmaceutical products . tax matters we are subject to income taxes in the u.s. and numerous foreign jurisdictions . changes in the relevant tax laws , regulations , administrative practices , principles , and interpretations could adversely affect our future effective tax rates . the u.s. and a number of other countries are actively considering or enacting changes in this regard . for example , the trump administration has stated that one of its top priorities is comprehensive tax reform . the tax rates and the manner in which u.s. companies are taxed could be altered by any such potential tax reform and could have a material adverse effect on our consolidated results of operations and cash flows . additionally , the organisation for economic co-operation and development issued its final recommendations of international tax reform proposals to influence international tax policy in major countries in which we operate . other institutions have also become more active regarding tax-related matters , including the european commission , the united nations , the group of twenty , and the european parliament . while outcomes of these initiatives continue to develop and remain uncertain , changes to key elements of the u.s. or international tax framework could have a material adverse effect on our consolidated results of operations and cash flows . acquisitions see note 3 to the consolidated financial statements for discussion regarding the following acquisitions : our agreement to purchase colucid pharmaceuticals , inc. ( colucid ) for $ 46.50 per share or approximately $ 960 million , which we expect to complete in the first quarter of 2017. our acquisition of boehringer ingelheim vetmedica , inc. 's u.s. feline , canine , and rabies vaccine portfolio , completed on january 3 , 2017 , in an all-cash transaction for approximately $ 885 million . our acquisition of novartis ah , completed on january 1 , 2015 , in an all-cash transaction for $ 5.28 billion . operating results— 2016 revenue the
| financial results the following table summarizes our key operating results : replace_table_token_10_th ( 1 ) operating expense consists of research and development and marketing , selling , and administrative expense . nm - not meaningful revenue and gross margin increased slightly in 2015. operating expense in 2015 remained essentially flat as a decrease in marketing , selling , and administrative expense was largely offset by increased research and development expense . net income and eps increased slightly in 2015 as a higher gross margin , lower income taxes , and decreased asset impairment , restructuring , and other special charges were largely offset by increased acquired ipr & d charges and lower other income . 39 certain items affect the comparisons of our 2015 and 2014 results . the 2015 highlighted items are summarized in the `` results of operations—executive overview '' section . the 2014 highlighted items are summarized as follows : acquired ipr & d ( notes 3 and 4 to the consolidated financial statements ) we recognized acquired ipr & d charges of $ 200.2 million ( pretax ) , or $ 0.12 per share , related to acquired ipr & d from various collaboration agreements . collaborations ( note 4 to the consolidated financial statements ) we recognized income of $ 92.0 million ( pretax ) , or $ 0.06 per share , related to the transfer of our linagliptin and empagliflozin commercial rights in certain countries to boehringer ingelheim . asset impairment , restructuring , and other special charges ( note 5 to the consolidated financial statements ) we recognized charges of $ 468.7 million ( pretax ) , or $ 0.38 per share , related to severance costs associated with our ongoing cost containment efforts to reduce our cost structure and global workforce , and asset impairments primarily associated with the closure of a manufacturing site in puerto rico .
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the amendment reduces the minimum liquidity requirement to maintain in cash and cash equivalents as a percentage of the credit line from 10.0 % to 7.5 % and changes story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. as discussed in the section titled `` special note regarding forward-looking statements , '' the following discussion and analysis contains forward-looking statements that involve risks and uncertainties , as well as assumptions that , if they never materialize or prove incorrect , could cause our results to differ materially from those expressed or implied by such forward-looking statements . factors that could cause or contribute to these differences include , but are not limited to , those identified below and those incorporated by reference into the section titled `` risk factors '' in part i , item 1a of this annual report on form 10-k. additionally , our historical results are not necessarily indicative of the results that may be expected for any period in the future . a discussion regarding our financial condition and results of operation for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 is presented below . a discussion regarding our financial condition and results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 is included under “ management 's discussion and analysis of financial condition and results of operations ” in our prospectus for our follow-on public offering , which was filed with the sec pursuant to rule 424 ( b ) on september 11 , 2020. overview vroom is an innovative , end-to-end ecommerce platform that is transforming the used vehicle industry by offering a better way to buy and a better way to sell used vehicles . we are deeply committed to creating an exceptional experience for our customers . we are driving enduring change in the industry on a national scale . we take a vertically integrated , asset-light approach that is reinventing all phases of the vehicle buying and selling process , from discovery to delivery and everything in between . our platform encompasses : ecommerce : we offer an exceptional ecommerce experience for our customers . in contrast to legacy dealerships and the peer-to-peer market , we provide consumers with a personalized and intuitive ecommerce interface to research and select from thousands of fully reconditioned vehicles . our platform is accessible at any time on any device and provides transparent pricing , real-time financing and nationwide contact-free delivery right to a buyer 's driveway . for consumers looking to sell or trade in their vehicles , we provide attractive market-based pricing , real-time price quotes and convenient , contact-free at-home vehicle pick-up . vehicle operations : our scalable and vertically integrated operations underpin our business model . we strategically source inventory from auctions , consumers , rental car companies , oems and dealers . we improve our ability to acquire high-demand vehicles through enhanced supply science across all our sourcing channels and we have expanded our national marketing efforts to drive consumer sourcing . in our reconditioning and logistics operations , we deploy an asset-light strategy that optimizes a combination of ownership and operation of assets by us with strategic third-party partnerships . this hybrid approach provides flexibility , agility and speed without taking on unnecessary risk and capital investment , and drives improved unit economics and operating leverage . data science and experimentation : data science and experimentation are at the core of everything we do . we rely on data science , machine learning and a/b and multivariate testing to continually drive optimization and operating leverage across our ecommerce and vehicle operations . we leverage data to increase the effectiveness of our national brand and performance marketing , enhance the customer experience , analyze market dynamics at scale , calibrate our vehicle pricing and optimize our overall inventory sales velocity . on the operations side , data science and experimentation enables us to fine tune our supply , sourcing and logistics models and to streamline our reconditioning processes . in 2019 , the u.s. used automotive market is the largest consumer product category , generating approximately $ 841 billion from sales . based on data from cox automotive , there were an estimated 37.2 million used vehicle transactions in 2020 , compared to approximately 40 million transactions in 2019. the u.s. used automotive market is also highly fragmented , with over 42,000 dealers and millions of peer-to-peer transactions across the country . it also is ripe for disruption as an industry that is notorious for consumer dissatisfaction and has one of the lowest levels of ecommerce penetration . industry reports estimate that ecommerce penetration will grow to as much as half of all used vehicle sales by 2030. our platform , coupled with our national presence and brand , provides a significant competitive advantage versus local dealerships and regional players that lack nationwide reach and scalable technology , operations and logistics . the traditional auto dealers and peer-to-peer market do not and can not offer consumers what we offer . 56 our model we generate revenue through the sale of used vehicles and value-added products . we sell vehicles directly to consumers primarily through our ecommerce segment . as the largest segment in our business , ecommerce revenue grew 55.7 % from 2019 to 2020 , and we expect ecommerce to continue to outgrow our other segments as it is the core focus of our growth strategy . we also sell vehicles through wholesale channels , which provide a revenue source for vehicles that do not meet our vroom retail sales criteria . additionally , we generate revenue through the retail sale of used vehicles and value-added products at houston-based texas direct auto , or tda . for the year ended december 31 , 2020 , our ecommerce , wholesale and tda segments represented 67.4 story_separator_special_tag currently , our third-party value-added product offering consists of finance and protection products , including financing from third-party lenders for our customers ' vehicle purchases , as well as sales of vehicle service contracts , gap protection and tire and wheel coverage . as we scale our business , we intend to introduce additional value-added products that will be attractive to our customers and drive revenue and profitable growth . we expect that both expanded product offerings and increased attachment rates in value-added product sales will have a positive impact on our profitability . see “ —key factors and trends affecting our operating results—ability to increase and better monetize value-added products. ” our segments we manage and report operating results through three reportable segments : ecommerce ( 67.4 % of 2020 revenue ; 49.3 % of 2019 revenue ) : the ecommerce segment represents retail sales of used vehicles through our ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales . wholesale ( 18.1 % of 2020 revenue ; 17.9 % of 2019 revenue ) : the wholesale segment represents sales of used vehicles through wholesale channels . tda ( 14.5 % of 2020 revenue ; 32.8 % of 2019 revenue ) : the tda segment represents retail sales of used vehicles from tda and fees earned on sales of value-added products associated with those vehicle sales . 58 gross profit is defined as revenue less cost of sales for each segment . reflected below is a summary of reportable segment revenue and reportable segment gross profit for the years ended december 31 , 2020 , 2019 , and 2018 : replace_table_token_6_th key operating and financial metrics we regularly review a number of metrics , including the following key operating and financial metrics , to evaluate our business , measure our performance , identify trends in our business , prepare financial forecasts and make strategic decisions . we believe these operational measures are useful in evaluating our performance , in addition to our financial results prepared in accordance with u.s. generally accepted accounting principles , or u.s. gaap . you should read the key operating and financial metrics in conjunction with the following discussion of our results of operations and together with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. we focus heavily on metrics related to unit economics as improved gross profit per unit is a key element of our growth and profitability strategies . the calculation of our key operating and financial metrics is straightforward and does not rely on significant projections , estimates or assumptions . nevertheless , each of our key operating and financial metrics has limitations because each focuses specifically on only one standard by which to evaluate our business , without taking into account other applicable standards , performance measures or operating trends by which our business could be evaluated . accordingly , no single metric should be viewed as the bellwether by which our business should be measured . rather , each key operating and financial metric should be considered in conjunction with other metrics and components of our results of operations , such as each of the other key operating and financial metrics and our revenues , inventory , loss from operations and segment results . replace_table_token_7_th 59 ecommerce units sold ecommerce units sold is defined as the number of vehicles sold and shipped to customers through our ecommerce platform , net of returns under our vroom 7-day return program . ecommerce units sold excludes sales of vehicles through the tda and wholesale segments . as we continue to expand our ecommerce business , we expect that ecommerce units sold will be the primary driver of our revenue growth . additionally , each vehicle sale through our ecommerce platform also creates the opportunity to leverage such sale to sell value-added products . continued ecommerce growth will also increase the number of trade-in vehicles acquired from our customers , which we can either recondition and add to our inventory or sell through wholesale channels . vehicle gross profit per ecommerce unit vehicle gross profit per ecommerce unit , which we refer to as vehicle gppu , for a given period is defined as the aggregate retail sales price and delivery charges for all vehicles sold through our ecommerce segment less the aggregate costs to acquire those vehicles , the aggregate costs of inbound transportation to the vrcs and the aggregate costs of reconditioning those vehicles in that period , divided by the number of ecommerce units sold in that period . as we continue to expand our ecommerce business , we believe vehicle gppu will be a key driver of our long-term profitability . product gross profit per ecommerce unit product gross profit per ecommerce unit , which we refer to as product gppu , for a given period is defined as the aggregate fees earned on sales of value-added products in that period , net of the reserves for chargebacks on such products in that period , divided by the number of ecommerce units sold in that period . because we are paid fees on the value-added products we sell , our gross profit is equal to the revenue we generate from the sale of value-added products . we plan to continue to introduce initiatives to increase the attachment rates of value-added products and expand our offerings of value-added products which will grow our product gppu . total gross profit per ecommerce unit total gross profit per ecommerce unit , which we refer to as total gppu , for a given period is calculated as the sum of vehicle gppu and product gppu . we view total gppu as a key metric of the profitability of our ecommerce segment . average monthly unique visitors average monthly unique visitors is defined as the average number of individuals who access our ecommerce platform within a calendar month .
| results of operations the following table presents our consolidated results of operations for the periods indicated : replace_table_token_12_th segments we manage and report operating results through three reportable segments : ecommerce ( 67.4 % of 2020 revenue ; 49.3 % of 2019 revenue ) : the ecommerce segment represents retail sales of used vehicles through our ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales . wholesale ( 18.1 % of 2020 revenue ; 17.9 % of 2019 revenue ) : the wholesale segment represents sales of used vehicles through wholesale channels . tda ( 14.5 % of 2020 revenue ; 32.8 % of 2019 revenue ) : the tda segment represents retail sales of used vehicles from tda and fees earned on sales of value-added products associated with those vehicle sales . 69 year ended december 31 , 2020 and 2019 ecommerce the following table presents our ecommerce segment results of operations for the periods indicated : replace_table_token_13_th ecommerce units after the initial disruption in our ecommerce operations due to the covid-19 pandemic , consumer demand for used vehicles has returned to pre-covid-19 levels and in 2020 , we experienced strong consumer demand for our ecommerce solutions and contact-free delivery . ecommerce units sold increased 15,543 , or 82.0 % , from 18,945 in 2019 to 34,488 in 2020. this increase was driven by higher inventory levels , our national advertising campaign which continues to strengthen our national brand awareness as well as greater consumer acceptance of our business model as a result of disruptions caused by the covid-19 pandemic , and process improvements in our ecommerce platform . average monthly unique visitors to our website grew from 653,216 in 2019 to 969,890 in 2020 , representing year over year growth of 48.5 % . we expect ecommerce units sold to continue to grow in the future as we increase our inventory selection and marketing efforts as well as improve conversion .
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included in the balance at december 31 , 2019 is approximately $ 3.3 million of federal , state and international tax overpayments that were applied against tax payments in 2020. there were no significant federal , state or international tax overpayments included in the balance at december 31 , 2020. property and equipment property and equipment are stated at cost , less accumulated amortization and depreciation . depreciation is computed using the straight-line method over the estimated useful lives of the related assets . buildings and improvements are depreciated over 2 to 50 years . equipment and furniture and fixtures are depreciated over 3 to 10 years . leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease . the company performs ongoing evaluations of the estimated useful lives of the property and equipment for depreciation purposes . the estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset . if the assessment indicates that assets will be used for a longer or shorter period than previously anticipated , the useful lives of the assets are revised , resulting in a change in estimate . the company has not made any such changes in estimates during the years ended december 31 , 2020 , 2019 and 2018. maintenance and repairs are expensed as incurred . interest is capitalized in connection with the construction of company-owned secure facilities . cost for self-constructed secure facilities includes direct story_separator_special_tag introduction the following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of numerous factors including , but not limited to , those described above under “ item 1a . risk factors , ” and “ forward-looking statements - safe harbor ” below . the discussion should be read in conjunction with the consolidated financial statements and notes thereto . this section of this form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019 and are incorporated herein by reference . we are a real estate investment trust specializing in the ownership , leasing and management of secure , reentry facilities and processing centers and the provision of community-based services and youth services in the united states , australia , south africa , and the united kingdom . we own , lease and operate a broad range of secure facilities including maximum , medium and minimum security facilities , processing centers , and community-based reentry facilities . we offer counseling , education and or treatment for alcohol and drug abuse problems at most of the domestic facilities we manage . we are also a provider of innovative compliance technologies , industry-leading monitoring services , and evidence-based supervision and treatment programs for community-based parolees , probationers and pretrial defendants . additionally , we have a contract with ice to provide supervision and reporting services designed to improve the participation of non-detained aliens in the immigration court system . we develop new facilities based on contract awards , using our project development expertise and experience to design , construct and finance what we believe are state-of-the-art facilities that maximize security and efficiency . we also provide secure transportation services for offender and detainee populations as contracted domestically and in the united kingdom through our joint venture geoamey . as of december 31 , 2020 , our worldwide operations included the management and or ownership of approximately 93,000 beds at 118 correctional , detention and reentry facilities , including idle facilities , and also included the provision of servicing more than 210,000 individuals in a community-based environment on behalf of federal , state and local correctional agencies located in all 50 states . for the years ended december 31 , 2020 and 2019 , we had consolidated revenues of $ 2.4 billion and $ 2.5 billion , respectively , and we maintained an average company-wide facility occupancy rate of 86.6 % including 89,499 active beds and excluding 3,334 idle beds for the year ended december 31 , 2020 , and 92.4 % including 92,906 active beds and excluding 2,118 idle beds and beds under development for the year ended december 31 , 2019. reit conversion we have been a leading owner , lessor and operator of correctional , detention and reentry facilities and provider of community-based services and youth services in the industry since 1984 and began operating as a reit for federal income tax purposes effective january 1 , 2013. as a result of the reit conversion , we reorganized our operations and moved non-real estate components into trss . through the trs structure , the portion of our businesses which are non-real estate related , such as our managed-only contracts , international operations , electronic monitoring services , and other non-residential and community based facilities , are part of wholly-owned taxable subsidiaries of the reit . most of our business segments , which are real estate related and involve company-owned and company-leased facilities , are part of the reit . the trs structure allows us to maintain the strategic alignment of almost all of our diversified business segments under one entity . the trs assets and operations will continue to be subject to federal and state corporate income taxes and to foreign taxes as applicable in the jurisdictions in which those assets and operations are located . story_separator_special_tag we record a contract liability if consideration is received in advance of the performance of services . generally , our customers do not provide payment in advance of the performance of services . therefore , any contract liability is not significant at december 31 , 2020 or december 31 , 2019 and revenue recognized during the years ended december 31 , 2020 and 2019 that was included in the opening balance of unearned revenue was not significant . there have been no significant amounts of revenue recorded in the periods presented from performance obligations either wholly or partially satisfied in prior periods . the right to consideration under our contracts is only dependent on the passage of time and is therefore considered to be unconditional . payment terms and conditions vary by contract type , although , with the exception of the contract receivable related to our ravenhall correctional facility ( further discussed below ) , terms generally include a requirement of payment within 30 days after performance obligations are satisfied and generally do not include a significant financing component . there have been no significant changes in receivable or unearned revenue balances during the period other than regular invoicing and collection activity . owned and leased - secure services we recognize revenue for secure services where we own or lease the facility as services are performed . we provide for the safe and secure housing and care of incarcerated individuals under public-private partnerships with federal , state and local government agencies . this includes providing 24-hour care and supervision , including but not limited to , such services as medical , transportation , food service , laundry services and various programming activities . these tasks are considered to be activities to fulfill the safe and secure housing performance obligation and are not considered to be individually separate promises in the contract . each of these activities is highly interrelated and we perform a significant level of integration of these activities . we have identified these activities as a bundle of services and determined that each day of the promised service is distinct . the services provided are part of a series of distinct services that are substantially the same and are measured using the same measure of progress ( time-based output method ) . we have determined that revenue for these services are recognized over time as our customers simultaneously receive and consume the benefits as the services are performed , which is on a continual daily basis , and we have a right to payment for performance completed to date . time-based output methods of revenue recognition are considered to be a faithful depiction of our efforts to fulfill our obligations under our contracts and therefore reflect the transfer of services to our customers . our customers generally pay for these services based on a net rate per day per individual or on a fixed monthly rate . owned and leased - community-based we recognize revenue for community-based reentry services where we own or lease the facility in a manner similar to our secure services discussed above . we provide individuals nearing the end of their sentence with the resources necessary to productively transition back into society . through our residential reentry centers , we provide federal and state parolees and probationers with temporary housing , rehabilitation , substance abuse counseling and vocational and educational programs . these activities are considered to be a bundle of services which are a part of a series of distinct services recognized over time based on the same criteria as discussed above for secure services revenues . our customers also generally pay for these services based on a net rate per day per individual or on a fixed monthly rate . 52 owned and leased - youth services we recognize revenues for youth services where we own or lease the facility in the same manner as discussed above for the housing , supervision , care and rehabilitation of troubled youth residents . the activities to house and care for troubled youth residents are also considered to be a bundle of services which are part of a series of distinct services recognized over time based on the same criteria discussed for the previous two revenue streams . our customers generally pay for these services based on a net rate per day per individual . managed only we recognize revenue for our managed only contracts in the same manner as our owned and leased secure services and owned and leased community-based contracts as discussed above . the primary exception is that we do not own or lease the facility . the facility is owned by the customer . in certain circumstances , our customers may request that we make certain capital improvements to the facility or make other payments related to the facility . these payments are amortized as a reduction of revenues over the life of the contract . our customers generally pay for these services based on a net rate per day per individual or a fixed monthly rate . facility construction and design during 2020 , 2019 and 2018 , we had facility construction and design services related to an expansion project at our fulham correctional centre in australia which was substantially completed in the third quarter of 2020. we determined revenue should be recorded over time using a time-based output method based on the same criteria as discussed above for secure services . fees included and priced in the contract for managing the facility are considered to be stated at their individual estimated stand-alone selling prices using the adjusted market assessment approach . these services are regularly provided by us on a stand-alone basis to similar customers within a similar range of amounts . we used the expected cost-plus margin approach to allocate the transaction price to the construction obligation . we were entitled under the contract to receive consideration in the amount of our costs plus a margin .
| results of operations the following discussion should be read in conjunction with our consolidated financial statements and the notes to the consolidated financial statements accompanying this report . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in the forward-looking statements as a result of certain factors , including , but not limited to , those described under “ item 1a . risk factors ” and those included in other portions of this report . 57 20 20 versus 201 9 revenues replace_table_token_8_th u.s. secure services revenues decreased in 2020 by $ 30.5 million compared to 2019 as a result of $ 36.5 million primarily due to net decreases in populations at our ice processing centers and usms facilities due to the covid-19 pandemic , which resulted in declines in crossings and apprehensions along the southwest border , as well as decreases in court sentencing at the federal levels . additionally , revenues decreased by $ 66.1 million due to the discontinuation of our california modified community correctional facility contracts along with other contract discontinuations . various governmental agencies have also taken steps to decrease the number of those in custody to adhere to social distancing protocols . we also experienced net decreases in population , transportation services and or rates of $ 3.7 million at our bop and state facilities .
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as previously noted , the discussion set forth below , as well as other portions of this form 10-k , contain statements concerning potential future events . readers can identify these forward-looking statements by their use of such verbs as “ expects , ” “ anticipates , ” “ believes ” or similar verbs or conjugations of such verbs . if any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise , our actual results could materially differ from those anticipated by such forward-looking statements . the differences could be caused by a number of factors or combination of factors including , but not limited to , those discussed above in item 1a . readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement . we do not undertake to update any forward-looking statements in this form 10-k. garmin 's fiscal year is a 52-53 week period ending on the last saturday of the calendar year . fiscal year 2013 and 2012 contained 52 weeks compared to 53 weeks for 2011. unless otherwise stated , all years and dates refer to the company 's fiscal year and fiscal periods . unless the context otherwise requires , references in this document to `` we , '' `` us , '' `` our '' and similar terms refer to garmin ltd. and its subsidiaries . unless otherwise indicated , dollar amounts set forth in the tables are in thousands , except per share data . overview we are a leading worldwide provider of navigation , communications and information devices , most of which are enabled by global positioning system , or gps , technology . we operate in five business segments , which serve the marine , outdoor , fitness , automotive/mobile , and aviation markets . our segments offer products through our network of subsidiary distributors and independent dealers and distributors . however , the nature of products and types of customers for the five segments can vary significantly . as such , the segments are managed separately . since our first products were delivered in 1991 , we have generated positive income from operations each year and have funded our growth from these profits . we experience some foreign currency fluctuations in our operating results . foreign currency gains and losses for the company are primarily tied to movements by the taiwan dollar , the euro , and the british pound sterling . the taiwan dollar is the functional currency of garmin corporation . the u.s. dollar remains the functional currency of garmin europe . the euro is the functional currency of most european subsidiaries . as these entities have grown , currency moves can generate material gains and losses . additionally , euro-based inter-company transactions in garmin ltd. can also generate currency gains and losses . other legal entities primarily use the local currency as the functional currency . due to the relative size of entities using a functional currency other than the taiwan dollar , the euro and the british pound sterling , currency fluctuations within these entities are not expected to have a material impact on the company 's financial statements . approximately 77 % of sales by our european subsidiaries are now denominated in british pounds sterling or the euro . we experienced $ 35.5 million in foreign currency gains during fiscal year 2013 and ( $ 20.0 ) million and ( $ 12.1 ) million in foreign currency losses during fiscal years 2012 and 2011 , respectively . to date , we have not entered into hedging transactions related to any currency , and we do not currently plan to utilize hedging transactions in the future . 38 critical accounting policies and estimates general garmin 's discussion and analysis of its financial condition and results of operations are based upon garmin 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the presentation of these financial statements requires garmin to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , garmin evaluates its estimates , including those related to customer sales programs and incentives , product returns , bad debts , inventories , investments , intangible assets , income taxes , warranty obligations , and contingencies and litigation . garmin 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 value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . revenue recognition garmin recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collection is probable . for the large majority of garmin 's sales , these criteria are met once product has shipped and title and risk of loss have transferred to the customer . the company recognizes revenue from the sale of hardware products and software bundled with hardware that is essential to the functionality of the hardware in accordance with general revenue recognition accounting guidance . the company recognizes revenue in accordance with industry specific software accounting guidance for standalone sales of software products and sales of software bundled with hardware not essential to the functionality of the hardware . the company generally does not offer specified or unspecified upgrade rights to its customers in connection with software sales . garmin introduced nümaps lifetime in january 2009 , which is a single fee program that , subject to the program 's terms and conditions , enables customers to download the latest map and point of interest information every quarter for the useful life of their pnd . story_separator_special_tag the reductions to revenue are based on estimates and judgments using historical experience and expectation of future conditions . changes in these estimates could negatively affect garmin 's operating results . these incentives are reviewed periodically and , with the exceptions of price protection and certain other promotions , accrued for on a percentage of sales basis . if market conditions were to decline , garmin may take actions to increase customer incentive offerings , possibly resulting in an incremental reduction of revenue at the time the incentive is offered . 40 the company records revenue net of sales tax , trade discounts and customer returns . the reductions to revenue for expected future product returns are based on garmin 's historical experience . trade accounts receivable we sell our products to retailers , wholesalers , and other customers and extend credit based on our evaluation of each customer 's financial condition . potential losses on receivables are dependent on each individual customer 's financial condition . we carry our trade accounts receivable at net realizable value . typically , our accounts receivable are collected within 80 days and do not bear interest . we monitor our exposure to losses on receivables and maintain allowances for potential losses or adjustments . we determine these allowances by ( 1 ) evaluating the aging of our receivables ; and ( 2 ) reviewing our high-risk customers . past due receivable balances are written off when our internal collection efforts have been unsuccessful . beginning in 2011 , the company has maintained trade credit insurance to provide security against large losses . loan receivable on march 14 , 2013 , the company entered into a memorandum of agreement ( the “ agreement ” ) with bombardier , inc. ( “ bombardier ” ) . the company is the supplier of the avionics system for the lear 70 and lear 75 aircraft currently in development for learjet , inc. , which is a subsidiary of bombardier ( the “ program ” ) . in order to assist bombardier in connection with delayed cash flows from the program partially related to the certification of avionics for the program exceeding the planned delivery date , the company agreed to provide bombardier a short term , interest free , loan of $ 173,708 in cash in seven installments beginning on march 22 , 2013 and ending on september 20 , 2013 pursuant to the terms and conditions of the agreement . bombardier will repay the loan in five installments beginning in november 2013 and ending in april 2014 pursuant to the terms and conditions of the agreement and subsequent amendment signed december 6 , 2013. as of december 28 , 2013 , the company had a loan receivable balance of $ 137,369 from bombardier , in the accompanying consolidated balance sheet . warranties the company provides for estimated warranty costs at the time of sale . the company 's standard warranty obligation to retail partners generally provides for a right of return of any product for a full refund in the event that such product is not merchantable , is damaged or defective . the company 's historical experience is that these types of warranty obligations are generally fulfilled within 5 months from time of sale . the company 's standard warranty obligation to its end-users provides for a period of one to two years from date of shipment while certain aviation products have a warranty period of two years from the date of installation . the company 's estimate of costs to service its warranty obligations are based on historical experience and expectations of future conditions and are recorded as a liability on the balance sheet . to the extent garmin experiences increased warranty claim activity or increased costs associated with servicing those claims , its warranty accrual will increase , resulting in decreased gross profit . inventory garmin 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-downs may be required . investments investments are classified as available for sale and recorded at fair value , and unrealized investment gains and losses are reflected in stockholders ' equity . investment income is recorded when earned , and gains and losses are recognized when investments are sold . investments are reviewed periodically to determine if they have suffered an impairment of value that is considered other than temporary . if investments are determined to be impaired , a loss is recognized at the date of determination . testing for impairment of investments requires significant management judgment . the identification of potentially impaired investments , the determination of their fair value and the assessment of whether any decline in value is other than temporary are the key judgment elements . the discovery of new information and the passage of time can significantly change these judgments . revisions of impairment judgments are made when new information becomes known , and any resulting impairment adjustments are made at that time . the economic environment and volatility of securities markets increase the difficulty of determining fair value and assessing investment impairment . investments are discussed in detail in note 3 of the notes to consolidated financial statements . 41 income taxes garmin provides deferred tax assets and liabilities based on the difference between the tax basis of assets and liabilities and their carrying amount for financial reporting purposes as measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . it is garmin 's policy to record a valuation allowance to reduce its deferred tax assets to an amount that it believes is more likely than not to be realized .
| results of operations the following table sets forth our results of operations as a percentage of net sales during the periods shown ( the table may not foot due to rounding ) : replace_table_token_5_th the following table sets forth our results of operations through income before income taxes for each of our five segments during the period shown . for each line item in the table the total of the segments ' amounts equals the amount in the consolidated statements of income data included in item 6 . 45 replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th 46 comparison of 52-weeks ended december 28 , 2013 and december 29 , 2012 net sales replace_table_token_9_th net sales decreased 3 % in 2013 when compared to the year-ago period . the decrease was driven by the automotive/mobile segment which posted a 13 % decline with offsetting growth in outdoor , fitness , marine and aviation . automotive/mobile revenue remains the largest portion of our revenue mix at 49 % in 2013 , compared to 55 % in 2012. total unit sales decreased 10 % to 13.9 million units in 2013 from 15.4 million units in 2012. the decrease in unit sales volume was attributable to reduced automotive/mobile volumes due to penetration rates and competing technologies . this decline was partially offset by growth in each of the other segments . automotive/mobile segment revenue decreased 13 % from the year-ago period , as volumes decreased 17 % partially offset by average selling price ( asp ) improvement due to the amortization of previously deferred revenue exceeding current year revenue deferrals in 2013 and increased auto oem contribution with a higher asp . aviation revenues increased 16 % from the year-ago period as the oem market improved in some aircraft categories , as well as contribution from recent share gains and aftermarket products .
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the following discussion is based on our current expectations , plans and strategies ( including , without limitation , with respect to new products and services , entry into new markets , levels of anticipated spending or investment , and expectations as to shipments or the cost of products ) , any of which may change materially in the future . in particular , in the event the merger is completed , our current expectations , plans and strategies may change as wms is integrated into scientific games . there can be no assurance that scientific games ' expectations , plans and strategies with respect to wms or the combined company following the merger will be consistent with our current expectations , plans and strategies . moreover , we can not predict the impact of any changes to our current expectations , plans or strategies on the financial condition or results of operations of wms or the combined company . 37 as used in this report , the terms we , us , our , the company and wms mean wms industries inc. , a delaware corporation , and its subsidiaries . all references to years , unless otherwise noted , refer to our fiscal year , which ends on june 30. all references to quarters , unless otherwise noted , refer to the quarters of our fiscal year . overview our mission is : through imagination , talent and technology , we create and provide the world 's most compelling gaming experiences . we are a leading supplier of innovative gaming entertainment products and services worldwide . we design , develop , manufacture , distribute and market casino games and gaming machines , vlts , vgts and interactive gaming products and services . as regulated markets legalize interactive gaming , we intend to enter and do business in those markets . our gaming machine products are installed in all of the major regulated gaming jurisdictions in the united states , as well as in approximately 161 international gaming jurisdictions . on january 30 , 2013 , wms entered into the merger agreement with scientific games , scientific games international , inc. , a wholly owned subsidiary of scientific games , and merger sub . the merger agreement provides for the merger of merger sub with and into wms , with wms surviving as a wholly-owned subsidiary of scientific games . the merger agreement was unanimously approved by our board of directors . at the effective time of the merger , each share of wms ' common stock issued and outstanding immediately prior to such time , other than our treasury shares , shares owned by scientific games or merger sub , and shares with respect to which appraisal rights are properly exercised and not withdrawn under delaware law , will be automatically cancelled and converted into the right to receive $ 26.00 in cash , without interest , on the terms and subject to the conditions set forth in the merger agreement . none of our stockholders exercised appraisal rights . consummation of the merger is subject to customary conditions , which at this point include without limitation ( i ) receipt and effectiveness of specified licenses , permits , and other approvals , issued by certain governmental authorities in relation to our business and ( ii ) other customary closing conditions . on march 11 , 2013 , we received notice from the federal trade commission of the early termination of the waiting period applicable to the consummation of the merger under the hart-scott-rodino antitrust improvements act of 1974 , as amended . in addition on may 10 , 2013 , wms stockholders approved the merger agreement . at this time , we expect to consummate the merger in the fall of calendar 2013. the merger agreement contains certain limitations on the operations of wms during the period prior to the effective time of the merger , including a prohibition on share repurchases by the company . during the fiscal year ended june 30 , 2013 , we incurred approximately $ 13.5 million of pre-tax charges , which are recorded in selling and administrative expenses , related to the process our board of directors utilized in the sale of the company , plus completing the closing conditions and the integration efforts prior to the effective time of the pending merger . following consummation of the merger , there will be no public market for our common stock which will cease to be traded on the nyse , and we will no longer be required to file periodic reports with the sec . a description of the merger agreement and the merger is contained in our definitive proxy statement dated april 8 , 2013 , which was first mailed to our stockholders on or about april 11 , 2013. we generate revenue in two principal ways : product sales and gaming operations , as further described below . in fiscal 2012 , we expanded our interactive gaming products and services with the launch of our first non-wagering social game on facebook and the sale of select wms games for mobile devices and pc 's and in july 2012 , we grouped together all of our worldwide online wagering , social , casual and mobile gaming products and services in order to focus on their revenue growth , development and market efficiencies and to optimize the benefits of interactive gaming products and services for casino operators and their players . also , in july 2012 we launched a second non-wagering social game on facebook titled jackpot party social casino . we expect to facilitate the continued expansion , investment , evolution and extension of our interactive gaming products and 38 services and increase our focus on this rapidly evolving growth area . in fiscal 2014 , we expect to further penetrate each of the new markets and distribution channels we have entered over the last few years and look to further expand our distribution channels . story_separator_special_tag net income in fiscal 2013 includes $ 13.5 million of pre-tax charges , which are recorded in selling and administrative expenses , or $ 0.16 per diluted share , related to the process our board of directors utilized in the sale of the company , plus completing the closing conditions and the integration efforts prior to the effective time of the pending merger . net income also includes ( a ) a $ 2.6 million after-tax benefit , or $ 0.05 per diluted share , for the reinstatement of the u.s. federal research and development tax credit , including retroactive benefits , ( b ) $ 2.2 million after-tax benefit , or $ 0.04 per diluted share , from the completion of the fiscal 2010 federal income tax audit and the reduction of our liability of uncertain taxes due to the expiration of the statute of limitations for fiscal 2009 , partially offset by ( c ) a $ 1.3 million , or $ 0.02 per diluted share , valuation allowance against certain foreign deferred tax assets relating to foreign net operating losses and ( d ) a $ 2.7 million after-tax charge , or $ 0.05 per diluted share , relating to a non-u.s. tax charge and other tax charges . in fiscal 2013 , we recorded after-tax realized and unrealized foreign currency losses of $ 3.3 million , or $ 0.06 per diluted share , , primarily related to the devaluation of the argentina peso against the u.s. dollar . in fiscal 2012 , we recorded after-tax realized and unrealized foreign currency losses of $ 0.3 million , or $ 0.01 per diluted share , related to the movement of foreign currencies against the u.s. dollar . we had expected that with our launch of the network gaming-enabled bluebird2 gaming machines in the december 2008 quarter , concurrent with certain of our competitors launching their networked gaming-enabled products , the industry would experience an improvement in the replacement cycle , which has been at an abnormally low level for the past few years . however , as discussed above , the economy slowed just as the new gaming machines were being launched , so we did not see the expected improvement in the replacement cycle . even with the adverse economic environment and its impact on our industry causing customers to constrain their capital budgets , we launched our bluebird2 gaming machines in the december 2008 quarter with premium features at a significantly higher price , and demand outpaced our expectations . in late june 2010 , we launched another new networked-enabled gaming machine , the bluebird xd cabinet , as the replacement for our original bluebird slant cabinets and it too had a significantly higher price , and once again demand outpaced our expectations . in the march 2012 quarter , we launched our new bluebird2e gaming machine as an upgrade to our bluebird2 gaming machines . the bluebird2e gaming machines contain the emotive lighting feature that we launched with the bluebird xd cabinet . in the december 2012 quarter , we launched the initial placements of my poker xd cabinets to address a segment of the casino floor in which we have little presence . in march 2013 , we launched our new blade upright cabinet for product sales and new gamefield xd cabinet for our participation installed base , and both utilize our next-generation cpu-nxt3 operating system platform . we believe that as the economy improves and gaming operators see meaningful improvements in their profitability and cash flows , they will increase their annual capital budgets for replacement units , which will improve the replacement demand in future years , although we can not predict when this will occur or the rate of increase in their capital budgets . we believe several recent developments fueled by the challenging economic situation could expand our revenue opportunities over the long term . in the united states , legislators have passed or are considering enabling new or expanded gaming legislation in ohio , illinois , kansas , iowa , maryland , california , new hampshire , new york , florida , and massachusetts . internationally , singapore opened as a new market in fiscal 2010. in addition , legislation has been passed or discussed in greece , bolivia , brazil , japan , spain and taiwan that could open new market or expansion opportunities . in the united states , the states of nevada , delaware and new jersey have adopted legislation to legalize certain forms of online gaming and federal legislators and certain 40 other state legislators and governments in canada and europe have legalized or are considering legalizing certain forms of online gaming , which if passed could expand our revenue opportunities . the breadth and timing of these opportunities remain uncertain due to the political process in each of these jurisdictions , as well as the difficult credit environment facing our customers and the risk of continued economic uncertainty . we review certain financial measures in assessing our financial condition and operating performance not only in connection with creating our forecasts and in making comparisons to financial results from prior periods , but also in making comparisons to our competitors ' financial results and our internal plans . we focus on fluctuations in revenue , number of new units sold , average selling price , average participation installed base and average revenue per day , cost on both products sales and gaming operations and also pay close attention to our operating income , operating margin , net income , diluted earnings per share , total cash , total accounts and notes receivable , inventories and accounts payable , cash flows provided by or used in operating activities , investing activities and financing activities and free cash flows ( cash flows from operating activities less capital expenditures ) as they are key indicators of our performance .
| cash flows summary our cash is utilized to acquire materials for the manufacture of goods for resale , to pay payroll , operating expenses , interest , and taxes and to fund research and development activities , invest in gaming operations equipment , property , plant and equipment and license or acquire intangibles and other non-current assets from third parties and fund share repurchases although under the terms of our merger agreement we can not repurchase any shares through the effective time of the merger . cash flows from operating , investing and financing activities , as reflected in our consolidated statements of cash flows , are summarized in the following table ( in millions ) : replace_table_token_14_th operating activities : the $ 3.4 million decrease in cash provided by operating activities in fiscal 2013 compared to fiscal 2012 , resulted from : ø a $ 55.9 million negative impact from a $ 29.5 million decrease in net income , a $ 20.1 million negative impact from lower tax benefits from exercise of stock options and deferred income taxes and a $ 6.3 million decrease from non-cash based impairment and restructuring charges and other non-cash items ; partially offset by ø a $ 30.7 million positive impact from a $ 30.6 million increase of depreciation and amortization expense and a $ 0.1 million increase of share-based compensation ; and ø a $ 21.8 million positive impact from lower changes in operating assets and liabilities .
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” how we evaluate our operations our management uses a variety of financial and operational measurements other than our financial statements prepared in accordance with u.s. gaap to analyze our performance . these include : ( 1 ) net income before interest expense , income tax expense , and depreciation and amortization ( “ ebitda ” ) , ( 2 ) adjusted ebitda and ( 3 ) distributable cash flow . our management views these measures as important performance measures of core profitability for our operations and the ability to generate and distribute cash flow , and as key components of our internal financial reporting . we believe investors benefit from having access to the same financial measures that our management uses . ebitda and adjusted ebitda . certain items excluded from ebitda and adjusted ebitda are significant components in understanding and assessing an entity 's financial performance , such as cost of capital and historic costs of depreciable assets . we have included information concerning ebitda and adjusted ebitda because they provide investors and management with additional information to better understand the following : financial performance of our assets without regard to financing methods , capital structure or historical cost basis ; our operating performance and return on capital as compared to those of other similarly situated entities ; and the viability of acquisitions and capital expenditure projects . our method of computing adjusted ebitda may not be the same method used to compute similar measures reported by other entities . the economic substance behind our use of adjusted ebitda is to measure the ability of our assets to generate cash sufficient to pay interest costs , support our indebtedness and make distributions to our unit holders . distributable cash flow . distributable cash flow is a significant performance measure used by our management and by external users of our financial statements , such as investors , commercial banks and research analysts , to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders . distributable cash flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment . specifically , this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates . distributable cash flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit 's yield , which in turn is based on the amount of cash distributions the entity pays to a unitholder . ebitda , adjusted ebitda and distributable cash flow should not be considered alternatives to , or more meaningful than , net income , cash flows from operating activities , or any other measure presented in accordance with u.s. gaap . our method of computing these measures may not be the same method used to compute similar measures reported by other entities . non-gaap financial measures the following table reconciles the non-gaap financial measurements used by management to our most directly comparable gaap measures for the years ended december 31 , 2013 , 2012 , and 2011 , which represents ebitda , adjusted ebitda and distributable cash flow from continuing operations . reconciliation of ebitda , adjusted ebitda , and distributable cash flow 48 replace_table_token_8_th story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > operating expenses . operating expenses increased primarily as a result of outside towing , tankerman , and fuel expenses associated with the newly acquired florida marine assets of $ 1.5 million , higher property and liability premiums of $ 0.3 million , and increased pipeline maintenance expenses of $ 0.2 million . selling , general and administrative expenses . selling , general and administrative expenses decreased primarily as a result of the reserve for an uncollectible customer receivable in 2012 of $ 0.7 million and the recovery of an uncollectible customer receivable in 2013 of $ 0.3 million . these decreases were partially offset by increased compensation expense of $ 0.3 million and increased property tax expense of $ 0.1 million . depreciation and amortization . depreciation and amortization increased as a result of the acquisition of the florida marine assets during the first quarter of 2013. comparative results of operations for the twelve months ended december 31 , 2012 and 2011 53 replace_table_token_13_th revenues . natural gas services sales volumes increased 54 % , positively impacting revenues $ 288.0 million , primarily as a result of us entering the louisiana butane market during april 2012. our ngl average sales price per barrel decreased $ 9.44 , or 12 % , resulting in an offsetting decrease to revenues of $ 74.2 million . cost of products sold . our average cost per barrel decreased $ 9.79 , or 12 % . our margins increased $ 0.36 per barrel during the period , primarily related to increased margins resulting from our entrance into the louisiana butane market in april 2012. operating expenses . operating expenses increased primarily as a result of 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 primarily as a result of 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 from year to year . sulfur services segment comparative results of operations for the twelve months ended december 31 , 2013 and 2012 replace_table_token_14_th 54 revenues . the increase in service revenue is attributable to increased contract rates . product revenue declined $ 28.3 million as a result of a 12 % decrease in sales volumes . story_separator_special_tag ” how we evaluate our operations our management uses a variety of financial and operational measurements other than our financial statements prepared in accordance with u.s. gaap to analyze our performance . these include : ( 1 ) net income before interest expense , income tax expense , and depreciation and amortization ( “ ebitda ” ) , ( 2 ) adjusted ebitda and ( 3 ) distributable cash flow . our management views these measures as important performance measures of core profitability for our operations and the ability to generate and distribute cash flow , and as key components of our internal financial reporting . we believe investors benefit from having access to the same financial measures that our management uses . ebitda and adjusted ebitda . certain items excluded from ebitda and adjusted ebitda are significant components in understanding and assessing an entity 's financial performance , such as cost of capital and historic costs of depreciable assets . we have included information concerning ebitda and adjusted ebitda because they provide investors and management with additional information to better understand the following : financial performance of our assets without regard to financing methods , capital structure or historical cost basis ; our operating performance and return on capital as compared to those of other similarly situated entities ; and the viability of acquisitions and capital expenditure projects . our method of computing adjusted ebitda may not be the same method used to compute similar measures reported by other entities . the economic substance behind our use of adjusted ebitda is to measure the ability of our assets to generate cash sufficient to pay interest costs , support our indebtedness and make distributions to our unit holders . distributable cash flow . distributable cash flow is a significant performance measure used by our management and by external users of our financial statements , such as investors , commercial banks and research analysts , to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders . distributable cash flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment . specifically , this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates . distributable cash flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit 's yield , which in turn is based on the amount of cash distributions the entity pays to a unitholder . ebitda , adjusted ebitda and distributable cash flow should not be considered alternatives to , or more meaningful than , net income , cash flows from operating activities , or any other measure presented in accordance with u.s. gaap . our method of computing these measures may not be the same method used to compute similar measures reported by other entities . non-gaap financial measures the following table reconciles the non-gaap financial measurements used by management to our most directly comparable gaap measures for the years ended december 31 , 2013 , 2012 , and 2011 , which represents ebitda , adjusted ebitda and distributable cash flow from continuing operations . reconciliation of ebitda , adjusted ebitda , and distributable cash flow 48 replace_table_token_8_th story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > operating expenses . operating expenses increased primarily as a result of outside towing , tankerman , and fuel expenses associated with the newly acquired florida marine assets of $ 1.5 million , higher property and liability premiums of $ 0.3 million , and increased pipeline maintenance expenses of $ 0.2 million . selling , general and administrative expenses . selling , general and administrative expenses decreased primarily as a result of the reserve for an uncollectible customer receivable in 2012 of $ 0.7 million and the recovery of an uncollectible customer receivable in 2013 of $ 0.3 million . these decreases were partially offset by increased compensation expense of $ 0.3 million and increased property tax expense of $ 0.1 million . depreciation and amortization . depreciation and amortization increased as a result of the acquisition of the florida marine assets during the first quarter of 2013. comparative results of operations for the twelve months ended december 31 , 2012 and 2011 53 replace_table_token_13_th revenues . natural gas services sales volumes increased 54 % , positively impacting revenues $ 288.0 million , primarily as a result of us entering the louisiana butane market during april 2012. our ngl average sales price per barrel decreased $ 9.44 , or 12 % , resulting in an offsetting decrease to revenues of $ 74.2 million . cost of products sold . our average cost per barrel decreased $ 9.79 , or 12 % . our margins increased $ 0.36 per barrel during the period , primarily related to increased margins resulting from our entrance into the louisiana butane market in april 2012. operating expenses . operating expenses increased primarily as a result of 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 primarily as a result of 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 from year to year . sulfur services segment comparative results of operations for the twelve months ended december 31 , 2013 and 2012 replace_table_token_14_th 54 revenues . the increase in service revenue is attributable to increased contract rates . product revenue declined $ 28.3 million as a result of a 12 % decrease in sales volumes .
| results of operations the results of operations for the years ended december 31 , 2013 , 2012 , and 2011 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 , 2013 , 2012 , and 2011 . our consolidated results of operations are presented 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 . 49 the natural gas services segment information below excludes the discontinued operations of our natural gas gathering and processing assets ( as described in item 8 , note 5 and collectively referred to as the “ prism assets ” ) for all periods . replace_table_token_9_th terminalling and storage segment comparative results of operations for the twelve months ended december 31 , 2013 and 2012 50 replace_table_token_10_th services revenues . services revenue increased primarily due to $ 17.7 million attributable to our new crude terminal in corpus christi , texas , which was placed into service in may 2012. in addition , $ 5.2 million of the increase is due to revenues generated by our talen 's acquisition on december 31 , 2012. the remaining increase is primarily due to increased throughput at the smackover refinery . products revenues . an 8 % increase in sales volumes at our blending and packaging facilities resulted in a $ 10.7 million positive impact on product revenues .
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gross profit margin as a percentage of sales for 2016 was 33.7 % , compared with 41.3 % for 2015. our cost of products and gross profit margin are derived primarily from material , labor and overhead costs , product mix , manufacturing volumes and pricing . the decline in gross profit margins for 2016 compared to the prior year is attributed primarily to competitive factors associated with the tsa orders , which comprised a significant portion of our sales for the year . the gross profit margins realized from our product sales to customers other than tsa were relatively consistent with the prior year . we continue to utilize contract manufacturing relationships to maximize production efficiencies and minimize material and labor costs . we also regularly consider manufacturing alternatives to improve quality , speed and costs . we anticipate that our current contract manufacturing relationships or comparable alternatives will be available to us in the future . we believe gross margin improvements can be realized by leveraging increased sales volumes and manufacturing efficiencies . we may encounter product cost and competitive pricing pressures in the future . however , the extent of their impact on gross margins , if any , is uncertain . selling , general and administrative expenses sg & a expenses consist of marketing , sales , commissions , engineering , product development , management information systems , accounting , headquarters expenses and non-cash , share-based employee compensation expense . for 2016 , sg & a expenses totaled approximately $ 12.8 million , or 25.3 % of sales , compared with approximately $ 10.9 million , or 36.5 % of sales , for 2015. engineering and product development expenses for 2016 totaled approximately $ 4.1 million ( 8.1 % of total sales ) , compared with approximately $ 3.6 million ( 12.2 % of total sales ) for the previous year . additional staff-related expenses and new product development projects were partially offset by decreases in amortization of capitalized software . marketing and selling expenses for 2016 totaled approximately $ 5.4 million ( 10.6 % of sales ) , compared with $ 4.2 million ( 14.1 % of sales ) for the prior year . the increase for 2016 was attributed primarily to sales incentive compensation , which correlates to sales performance , combined with initiatives to capture more new opportunities and drive sales growth . general and administrative expenses for 2016 totaled approximately $ 3.3 million ( 6.5 % of total sales ) , compared with approximately $ 3.0 million ( 10.2 % of total sales ) for 2015. the increase for the year was related primarily to incentive compensation and other headquarters expenses . operating income operating income for 2016 increased 199.7 % to approximately $ 4.3 million ( 8.5 % of sales ) , compared with approximately $ 1.4 million ( 4.8 % of sales ) for 2015. increased operating income for the year was primarily the product of sales growth , as offset by reduced gross profit margins for the tsa delivery orders . interest income/expense , net for 2016 , we realized interest income of approximately $ 9,000 on our cash balances , compared with approximately $ 1,000 for the prior year . we incurred no interest expense in 2016 or 2015. interest expense may be incurred from time to time on outstanding borrowings under our revolving credit facility . the interest rate on such revolving credit facility as of december 31 , 2016 was 4.00 % per annum . this rate is variable based on the lender 's prime rate plus 25 basis points . effective as of december 28 , 2016 , we entered into a sixth amendment to our loan and security agreement with silicon valley bank primarily to extend the maturity date by approximately a year , to december 27 , 2017 , and to reduce the maximum facility amount to $ 1 million . our revolving credit facility was not utilized during 2016 or 2015 . 19 income tax expense we recorded income tax expense for 2016 of approximately $ 1.6 million , compared with $ 345,000 for 2015. our income tax expense is primarily non-cash . as of december 31 , 2016 and 2015 , our net deferred tax assets totaled approximately $ 3.4 million and $ 5.5 million , respectively , and are primarily composed of nols , offset by deferred tax liabilities of $ 1.8 million and $ 671,000 , respectively , primarily derived from depreciation and the unrealized gain on available-for-sale securities . the nols total $ 1.6 million for federal and $ 11.9 million for state purposes , with expirations starting in 2018 through 2030. in order to fully utilize the net deferred tax assets , we will need to generate sufficient taxable income in future years to utilize our nols prior to their expiration . the company analyzes all positive and negative evidence to determine if , based on the weight of available evidence , we are more likely than not to realize the benefit of the net deferred tax assets . the recognition of the net deferred tax assets and related tax benefits is based upon our conclusions regarding , among other considerations , estimates of future earnings based on information currently available and current and anticipated customers , contracts and product introductions , as well as historical operating results and certain tax planning strategies . we have evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets . based on our evaluation , we have concluded that , based on the weight of available evidence , it is more likely than not that we will not realize a portion of the benefit of our state net deferred tax assets recorded at december 31 , 2016. accordingly , we established a valuation allowance totaling approximately $ 76,000 for the portion of state deferred tax assets that more likely than not will not be realized . story_separator_special_tag net inventories and prepaid expenses and other current assets decreased approximately $ 2.1 million and $ 1.7 million , respectively , in 2016 , primarily due to fulfilling the tsa delivery orders , which are described in “ item 1. business ” of part i of this report , under the heading “ significant events of 2016. ” this compares with increases in inventory and prepaid expenses and other current assets of approximately $ 4.2 million and $ 1.2 million , respectively , for 2015. accrued compensation and related taxes for the year ended december 31 , 2016 increased approximately $ 1.1 million , related primarily to incentive compensation , compared with a decrease of $ 110,000 for 2015. deferred tax assets for 2016 decreased by approximately $ 1.2 million due to non-cash tax expense on our pre-tax income , compared with a decrease of $ 328,000 for 2015. depreciation and amortization totaled approximately $ 942,000 for the year ended december 31 , 2016 , compared with approximately $ 914,000 for the previous year . cash used in investing activities for the year ended december 31 , 2016 totaled approximately $ 1.9 million , $ 481,000 of which was related to the investment in iteris common stock ( see “ note 7 ” to our consolidated financial statements in this report ) , and $ 1.4 million that was utilized for the purchase of manufacturing and engineering equipment . for the same period last year , approximately $ 2.8 million was used primarily for the investment in iteris common stock , and $ 1.1 million was utilized for the purchase of manufacturing and engineering equipment . we anticipate that future capital expenditures will be funded through our existing cash balance and operating cash flow . for the year ended december 31 , 2016 , approximately $ 2.6 million was used in financing activities , primarily related to the previously announced capital return program , which included two payments of a quarterly dividend of $ 0.09 per share totaling $ 2.5 million and the third dividend declared in december of $ 1.2 million , and stock repurchases totaling $ 162,000. we also received approximately $ 30,000 provided by the issuance of common stock upon the exercise of stock options . last year , approximately $ 92,000 was provided by financing activities , representing proceeds from the issuance of common stock upon the exercise of stock options . effective as of december 28 , 2016 , our revolving credit facility with silicon valley bank was amended to provide for borrowing availability of $ 1.0 million and a maturity date of december 27 , 2017. the loan and security agreement , as amended , governing the revolving credit facility contains customary borrowing terms and conditions , including the accuracy of representations and warranties , compliance with financial maintenance and restrictive covenants and the absence of events of default . the amendment to the loan and security agreement included the following : ● maximum borrowing availability was reduced from $ 2.0 million to $ 1.0 million ; ● the company is permitted to pay cash dividends , the total of which may not exceed $ 5.0 million in the aggregate during any twelve-month period , so long as an event of default does not exist at the time of such dividend and would not exist after giving effect to such dividend ; ● the variable rate at which borrowings under the credit facility bear interest was modified from the silicon valley bank prime rate to the wall street journal prime rate plus 25 basis points ; and ● the maturity date was extended to december 27 , 2017. we were in compliance with all covenants under the loan and security agreement , as amended , and there were no borrowings outstanding under the revolving credit facility as of december 31 , 2016. for additional information about our revolving credit facility , see “ note 6—debt ” in this report . 22 our cash and cash equivalents balance at december 31 , 2016 was approximately $ 10.9 million . we believe these funds , combined with anticipated cash generated from operations and borrowing availability under our revolving credit facility , are sufficient to meet our working capital requirements for the foreseeable future . however , although we do not anticipate needing additional capital in the near term , financial and economic conditions could limit our access to credit and impair our ability to raise capital , if needed , on acceptable terms or at all . we also face other risks that could impact our business , liquidity and financial condition . for a description of these risks , see “ part i—item 1a . risk factors ” in this report . off balance sheet arrangements we do not have any off balance sheet arrangements . recent accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) 2014-09 on “ revenue from contracts with customers , ” which provides for a single , principles-based model for revenue recognition and replaces the existing revenue recognition guidance . in august 2015 , the fasb issued asu 2015-14 , which delays the effective date of asu 2014-09 by one year . the guidance is effective for annual and interim periods beginning on or after december 15 , 2017 , and will replace most existing revenue recognition guidance under u.s. gaap when it becomes effective . it permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted . the company is evaluating this standard and expects to have its analysis completed by mid-2017 ; however , preliminarily , the company does not expect that this new guidance will have a material effect on its consolidated financial statements and related disclosures .
| executive summary our financial and operating results for 2016 improved significantly from the prior year . total sales increased over 70 % and sales of p-25 digital products increased almost 65 % , which were the primary factors that contributed to a comparative increase of 208 % in pre-tax income and positive cash flow from operations . also , during the year , we announced and implemented a capital return program . as part of the program , we paid quarterly dividends of $ 0.09 per share in june 2016 and september 2016 and repurchased 30,422 of our shares . we also paid a dividend of $ 0.09 per share in january 2017. net sales for 2016 increased 70.5 % to approximately $ 50.7 million , compared with approximately $ 29.7 million for 2015. sales of p-25 digital products for 2016 increased 64.5 % to approximately $ 33.2 million ( 65.5 % of total sales ) , compared with approximately $ 20.2 million ( 68.0 % of total sales ) in 2015. the increase in both total sales and sales of digital products was attributable primarily to our contract with the tsa . gross profit margin as a percentage of sales in 2016 was 33.7 % , compared with 41.3 % for 2015. our gross profit margin is primarily a reflection of the mix of products sold , manufacturing volumes and competitive factors . the change in gross profit margin was attributed primarily to competitive pressures associated with the tsa contract and delivery orders . selling , general and administrative ( “ sg & a ” ) expenses for 2016 totaled approximately $ 12.8 million , or 25.2 % of sales , compared with $ 10.9 million , or 36.5 % of sales for 2015. the increase was attributed primarily to selling and engineering expenses .
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as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in , or implied by , the forward-looking statements contained in the following discussion and analysis . overview we are a late-stage clinical biopharmaceutical company focused on the development and commercialization of novel products utilizing our proprietary print® technology to transform the lives of patients . print is a particle engineering platform that enables precise production of uniform drug particles designed to improve the safety , efficacy and performance of a wide range of therapies . we are currently focused on the development of two product candidates for which we hold worldwide commercial rights : liq861 for the treatment of pulmonary arterial hypertension , or pah , and liq865 for the treatment of local post-operative pain . liq861 , for which we recently filed a new drug application , or nda , with the fda , is an inhaled dry powder formulation of treprostinil designed to improve the therapeutic profile of treprostinil by enhancing deep-lung delivery and achieving higher dose levels than current inhaled therapies . we have applied our print technology to enable us to deliver liq861 through a convenient , palm-sized dry powder inhaler , or dpi . we have also applied our print technology to our second product candidate , liq865 , for which we have completed two phase 1 clinical trials and have initiated phase 2-enabling toxicology studies . liq865 is designed to deliver sustained-release particles of bupivacaine , a non-opioid anesthetic , to treat local post-operative pain for three to five days through a single administration . additionally , we recently initiated a pre-clinical program to develop an inhaled product leveraging the benefits of our print technology to engineer particles with precise , uniform , aerodynamic size and shape for deep lung delivery . our primary objective has been to pursue marketing approval of liq861 and commercialize such product if approved by fda . we will need to raise substantial additional capital to continue our business operations , remain in compliance with the minimum cash requirement on our debt during and beyond the third quarter of 2020 , and to commercialize liq861 , if approved . such capital may not be available to us on a timely basis , on terms that are favorable to us , or at all . alternatively , in light of our current limited cash resources , the recent trading price of our common stock , outstanding debt and associated minimum cash covenant , and based on a review of the status of our programs , resources and capabilities , we continue to explore a wide range of strategic alternatives with the support of our financial advisor , jefferies llc , or jefferies , that could maximize stockholder value . our efforts have been and continue to be focused primarily upon the potential formation of a partnership or a licensing transaction with respect to our lead program , liq861 , for the treatment of pah . strategic alternatives may also include the sale of some of our assets or proprietary technologies , or a potential merger or sale of the company . there can be no assurance that we will be able to enter into such a transaction or transactions on a timely basis , on terms that are favorable to us , or at all . product pipeline we are currently focused on the development of two product candidates for which we hold worldwide commercial rights : liq861 for the treatment of pah and liq865 for the treatment of local post-operative pain . 95 the following table summarizes our clinical-stage product candidates being developed using print technology : liq861 in january 2020 , we submitted an nda to the fda for liq861 , our lead product candidate , as a potential treatment for patients with pah . treprostinil is a synthetic analog of prostacyclin , a vasoactive mediator essential to normal lung function , which is deficient in patients with pah . we believe that liq861 has the potential to improve the therapeutic profile of existing formulations of treprostinil by enhancing deep-lung delivery and achieving higher dose levels than current inhaled therapies . we are developing liq861 under the 505 ( b ) ( 2 ) regulatory pathway with tyvaso as the reference listed drug , which allows us to rely in part on the fda 's previous findings of efficacy and safety of tyvaso and the active ingredient treprostinil , which has been approved in four different products administered through the oral , inhaled and continuous infusion ( parenteral ) routes . in august 2019 , we completed an open-label phase 3 clinical trial , inspire , or in vestigation of the s afety and p harmacology of dry powder i nhalation of t re prostinil , for liq861 . the primary objective of the inspire study was to evaluate the long-term safety and tolerability of liq861 . the study was designed to evaluate patients who have either been under stable treatment with tyvaso ( nebulizer-delivered treprostinil ) , for at least three months and were transitioned to liq861 under the protocol , or transition patients , or patients who had been under stable treatment with no more than two non-prostacyclin oral pah therapies for at least three months and then had their treatment regimen supplemented with liq861 under the protocol , or add-on patients . within the inspire study , 18 transition patients were evaluated in a one-directional crossover sub-study comparing bioavailability and pharmacokinetics , or pk , of treprostinil following dosing of liq861 as compared with tyvaso . in march 2019 , we reported that we had completed enrollment and met the primary endpoint , which was long-term safety and tolerability , in our inspire trial . liq861 was observed to be well-tolerated in 109 patients , with 101 patients ( 93 % ) completing at least two months of treatment . story_separator_special_tag we will review the results from these toxicology studies , and if supportive , we intend to initiate phase 2 proof-of-concept clinical trials , subject to availability of capital and other factors , during 2021. we believe liq865 , if successfully developed and approved , has the potential to provide significantly longer local post-operative pain relief compared to currently marketed formulations of bupivacaine . 97 other we believe that our print technology can be applied to a wide range of therapeutic areas , molecule types and routes of administration . we are currently focused on developing product candidates that we believe are eligible to be approved under the 505 ( b ) ( 2 ) regulatory pathway , which can be capital efficient and potentially enable a shorter time to approval , as it allows us to rely in part on existing knowledge of the safety and efficacy of the relevant reference listed drugs to support our applications for approval in the united states . if any of our product candidates are approved , we intend to conduct initial commercial manufacturing of drug product using in-house capabilities , and to outsource packaging and distribution to third parties . where appropriate , we may also transition the commercial manufacture of our drug product to third parties . in addition to developing our two product candidates , we have provided specific field-limited licenses to our print technology to pharmaceutical companies seeking to develop their own potential drugs and biological therapies . financial overview we have not generated any revenue to date from the sale of pharmaceutical products , and we have historically financed our operations in large part with an aggregate of $ 235.3 million of gross proceeds from sales of our capital stock and convertible promissory notes , $ 16.0 million in term loans from a bank and a $ 2.1 million loan from the university of north carolina at chapel hill , or unc . we do not expect to generate significant product revenue unless and until we obtain marketing approval for and commercialize liq861 , liq865 or one of our other future product candidates . since our inception , we have incurred significant operating losses . our net loss was $ 47.6 million , $ 53.1 million and $ 29.2 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 215.2 million . we expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through clinical trials , seek regulatory approval and pursue commercialization of any approved product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . in addition , we may incur expenses in connection with the in-license or acquisition of additional product candidates . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through the sale of equity , debt financings or other capital sources , including potential collaborations with other companies or other strategic transactions . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed , on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions . as of december 31 , 2019 , we had $ 55.8 million of cash . we believe that our existing cash will enable us to fund our operating expenses and capital expenditure requirements , make payments of interest and principal on our term loan facility with pacific western bank , or pwb , and remain in compliance with the minimum cash covenant of $ 8.5 million pursuant to this term loan facility , through august 2020. we have based these estimates on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we expect . see “ liquidity and capital resources. ” as of december 31 , 2019 , our commitments for capital expenditures consisted of a remaining payment obligation of approximately $ 360,000 related to the build-out of our corporate headquarters which was completed in 2019. as of december 31 , 2019 , we do not have any other material capital expenditure commitments . 98 going concern our financial statements have been prepared assuming we will continue as a going concern , which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business . our operations have consisted primarily of developing our technology , developing products , prosecuting our intellectual property and securing financing . we have incurred recurring losses and cash outflows from operations , have an accumulated deficit , and have debt principal payments that commenced in the first quarter of 2020. we expect to continue to incur losses in the foreseeable future and will require additional financial resources to continue to advance our products and intellectual property , in addition to repaying our maturing debt and other obligations . these circumstances raise substantial doubt about our ability to continue as a going concern . management 's plans with regard to this matter include continuing attempts to obtain additional financing to sustain our operations .
| general and administrative expenses general and administrative expenses were $ 13.6 million for the year ended december 31 , 2019 , compared with $ 8.8 million for the year ended december 31 , 2018. the increase of $ 4.8 million , or 55.3 % during the year ended december 31 , 2019 compared with 2018 was due to an increase in commercialization efforts expenses of $ 2.4 million , an increase in directors and officers insurance of $ 0.8 million , an increase in stock-based compensation of $ 0.7 million , an increase in recruiting fees of $ 0.5 million , an increase in consulting fees of $ 0.2 million and an increase in legal fees of $ 0.2 million . general and administrative expenses consist primarily of personnel expenses , including stock-based compensation , as well as directors and officers insurance , and fees for audit , legal , consulting and other service fees . other income ( expense ) interest income was $ 0.6 million for the year ended december 31 , 2019 , compared with $ 0.3 million for the year ended december 31 , 2018. the increase of $ 0.3 million was due to an increase in cash balances held in interest-bearing accounts in 2019 compared with 2018. interest expense was $ 1.4 million for the year ended december 31 , 2019 , compared with $ 19.0 million for the year ended december 31 , 2018. the decrease in interest expense of $ 17.6 million , or 92.8 % , was primarily due to lower levels of debt during the year ended december 31 , 2019 and the conversion of $ 27.4 million of convertible notes into shares of series d preferred stock in february 2018. during 2018 , our debt refinancing resulted in a non-cash gain of $ 0.1 million in accordance with asc 470-50 , debt – modifications and extinguishments .
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words such as may , will , should , could , would , expect , plan , anticipate , believe , estimate , project , predict , potential , seektarget , goals , intend , 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 special note regarding forward looking statements and in risk factors 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 focused on developing therapies to treat metabolic diseases with high unmet medical need , including serious rare and orphan disorders . arhalofenate , our lead product candidate , is being developed for the treatment of gout . arhalofenate has successfully completed five phase 2 clinical trials in patients with gout and consistently demonstrated the ability to reduce gout flares and reduce serum uric acid ( sua ) . gout flares are recurring and painful episodes of joint inflammation that are triggered by the presence of monosodium urate crystals that form as a result of elevated sua levels . we believe the potential for arhalofenate to prevent or reduce flares while also lowering sua could differentiate it from currently available treatments for gout and classify it as the first potential drug in what we believe could be a new class of gout therapy referred to as urate lowering anti-flare therapy ( ulaft ) . arhalofenate has established a favorable safety profile in 64 clinical trials involving over 1,000 patients exposed to date . we are currently planning to hold an end of phase 2 meeting with the fda in the second half of 2015 to review the results of our completed studies and to discuss the design of a phase 3 program for arhalofenate . our second product candidate , mbx-8025 , demonstrated favorable effects on cholesterol , triglycerides and markers of liver health in a phase 2 clinical trial in patients with mixed dyslipidemia . we are planning to pursue development of mbx-8025 in a number of orphan diseases in which these attributes could be beneficial , such as homozygous familial hypercholestorolemia ( hofh ) , primary biliary cirrhosis ( pbc ) and severe hypertriglyceridemia ( shtg ) . we also believe that mbx-8025 could have utility in the treatment of the more prevalent , but high unmet need , indication of nonalcoholic steatohepatitis ( nash ) . we plan to initiate one or more pilot or proof-of-concept studies for mbx-8025 , beginning with hofh , in the first half of 2015. we are an emerging growth company . under the jobs act emerging growth companies can delay adopting new or revised accounting standards until such time of those standards apply to private companies . we have adopted this exemption from new or revised accounting standards , and therefore , we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. preferred stock conversion and recent financings on september 30 , 2013 , all of the shares of our outstanding preferred stock converted to common stock , we sold shares of our common stock and warrants to purchase shares of our common stock in a private placement for aggregate gross proceeds of $ 26.8 million , and raised an additional $ 5.0 million in venture debt financing pursuant to a $ 10.0 million loan agreement which we entered into simultaneously with the private placement , resulting in aggregate net proceeds to us of $ 28.8 million after deducting placement agent fees and estimated offering expenses . at the same time we issued shares of our common stock in cancellation of approximately $ 16.9 million of debt owed to the holder of that debt . on october 31 , 2013 , we sold additional shares of our common stock and warrants to purchase shares of our common stock , which sales are also part of the private placement , for net proceeds to us of $ 2.2 million after deducting placement agent fees and estimated offering expenses . further , on november 22 , 2013 , we entered into an agreement with investors to purchase shares of our common stock and warrants to purchase shares of our common stock as part of the private placement for net proceeds of $ 2.7 million , which sales occurred shortly after the listing of our common stock on the over-the-counter market on january 24 , 2014. we refer to the private placement , the venture debt financing and the issuance of our common stock in cancellation of the $ 16.9 million of debt as our 2013 financing on july 25 , 2014 , we completed a public offering of 4.6 million shares of our common stock at $ 5.50 per share which we refer to as our 2014 public offering . net proceeds to us in connection with the 2014 public offering were approximately $ 23.0 million after deducting underwriting discounts , commissions and offering expenses . on november 7 , 2014 , we filed a $ 100 million registration statement on form s-3 with the sec and also entered into an at-the-market facility ( atm ) to sell up to $ 25 million of common stock under the registration statement , under which , as of march 1 , 2015 , we have sold shares of common stock with aggregate net proceeds to us of $ 4.3 million . story_separator_special_tag the valuations of our common stock while we were privately held were determined in accordance with the guidelines outlined in the american institute of certified public accountants practice aid , valuation of privately-held-company equity securities issued as compensation . valuation analysis of our common stock was performed on our behalf by third party valuation specialists . the methodology used by the third party valuation specialists to determine the fair value of our common stock included estimating the fair value of the enterprise , subtracting the fair value of debt from this enterprise value , and then allocating this value using the option pricing method to all of the equity interests . the assumptions used in the valuation model to determine the fair value of our common stock as of the date of each option and restricted stock award , are based on numerous objective and subjective factors combined with management judgment including the following : progress of research and development activities ; our operating and financial performance ; market conditions ; developmental milestones achieved ; sales of our convertible preferred stock in arms-length transactions ; business risks ; and management and board of director experience . during the period from january 1 , 2013 , through january 24 , 2014 , the time frame during the reporting period where we were still a privately held company , we granted stock options as summarized below : replace_table_token_4_th 67 while we were privately held , management and our board of directors performed valuation analyses with the assistance of independent valuation specialists to determine the then current fair value of our common stock . to facilitate these valuation analyses , we developed projections of our future revenues and operating expenses . key assumptions reflected in the income approach calculations included the anticipated timing of a potential liquidity event , the estimated volatility of our common stock , and the discount for lack of marketability of our common stock . these income approach assumptions are set forth below for the valuation performed as of december 31 , 2013 : common stock value per share $ 5.00 time to liquidity ( in years ) 0.25 volatility 64.6 % risk-free interest rate 0.02 % marketability discount rate 12.8 % for grants of stock awards made on dates for which there was no valuation performed by an independent valuation specialist , our board of directors determined the fair value of our common stock on the date of grant based upon the immediately preceding valuation and other pertinent information available to it at the time of grant . warrant liabilities we have issued freestanding warrants to purchase shares of our common stock in connection with financing activities . our outstanding common stock warrants issued in connection with our 2013 financing are classified as liabilities in the balance sheet as they contain terms for redemption of the underlying security that are outside our control we use a binomial lattice option pricing model to value warrants , which requires management to estimate inputs including expected volatility and expected term , and is most significantly impacted by our common stock price . these inputs are inherently subjective and require significant analysis and judgment to develop . the fair value of all warrants is re-measured at each financial reporting date with any changes in fair value being recognized in change in fair value of warrant liabilities , a component of other income ( expense ) , in the statements of operations and comprehensive income ( loss ) . we will continue to re-measure the fair value of the warrant liabilities until exercise or expiration of the related warrant . story_separator_special_tag operating loss carryforwards of $ 164.6 million to offset future taxable income , if any . in addition , we had federal research and development tax credit carry forwards of $ 6.7 million and state research and development tax credit carryforwards of $ 3.2 million . if not utilized , the federal net operating loss and tax credit carryforwards will 70 expire beginning in 2024 through 2034 and the state net operating loss carryforwards will expire beginning in 2015 through 2034 ( specifically , $ 17.3 million of state net operating losses will expire in 2015 ) . the state tax credit will carry forward indefinitely . current federal and state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change . even if the carryforwards are available , they may be subject to annual limitations , lack of future taxable income , or future ownership changes that could result in the expiration of the carryforwards before they are utilized . at december 31 , 2014 , we recorded a 100 % valuation allowance against our deferred assets of approximately $ 102.0 million as our management believes it is more likely than not that they will not be fully realized . if we determine in the future that we will be able to realize all or a portion of our net operating loss carryforwards , an adjustment to our net operating loss carryforwards would increase net income in the period in which we make such a determination . liquidity and capital resources we have financed our operations primarily through the sale of equity securities , licensing fees , issuance of debt and collaborations with third parties . at december 31 , 2014 , we had cash , cash equivalents and marketable securities of $ 34.8 million , primarily as a result of the aggregate proceeds received in our 2013 financing and 2014 public offering . specifically , on september 30 , 2013 , we issued common stock and warrants to purchase our common stock and we secured a term loan facility which together enabled us to raise aggregate net proceeds of $ 28.8 million .
| results of operations general to date , we have not generated any net income from operations . as of december 31 , 2014 , we have an accumulated deficit of $ 380.8 million , primarily as a result of expenditures for research and development and general and administrative expenses . while we may in the future generate revenue from a variety of sources , including license fees and milestone payments in connection with strategic partnerships , our product candidates are at a mid-level stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate sufficient revenue to achieve and sustain profitability . 68 research & development expenses conducting research and development is central to our business model . for the years ended december 31 , 2014 and 2013 , research and development expenses were $ 15.8 million and $ 4.5 million , respectively . research and development expenses are detailed in the table below : replace_table_token_5_th our external research and development costs consist primarily of : expenses incurred under agreements with contract research organizations , investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical activities ; the cost of acquiring and manufacturing clinical trial and other materials ; and other costs associated with development activities , including additional studies internal research and development costs consist primarily of salaries and related fringe benefits costs for our employees ( such as workers compensation and health insurance premiums ) , stock-based compensation charges , travel costs , lab supplies and overhead expenses . internal costs generally benefit multiple projects and are not separately tracked per project . we expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we continue product development and initiate additional clinical studies for arhalofenate and mbx-8025 .
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replace_table_token_38_th 113 6. story_separator_special_tag md & a is intended to inform the reader about matters affecting the financial condition and results of operations of the partnership and its subsidiaries . as a result , the following discussion for the year ended december 31 , 2020 should be read in conjunction with the consolidated financial statements and notes thereto included in this annual report . among other things , the consolidated financial statements and the related notes include more detailed information regarding the basis of presentation for the following information . this discussion contains forward-looking statements that constitute our plans , estimates and beliefs . these forward-looking statements involve numerous risks and uncertainties , including , but not limited to , those discussed in forward-looking statements . actual results may differ materially from those contained in any forward-looking statements . the discussion of our financial condition and results of operations for the years ended december 31 , 2019 and december 31 , 2018 included in exhibit 99.2 , updated 2019 annual report on form 10-k - item 7. management 's discussion and analysis of financial condition and results of operations , of our form 8-k dated august 7 , 2020 , is incorporated by reference into this md & a . overview we are a value-driven limited partnership focused on developing , owning and operating midstream energy infrastructure assets that are strategically located in unconventional resource basins , primarily shale formations , in the continental united states . we classify our midstream energy infrastructure assets into two categories , our core focus areas and our legacy areas . further details on our focus areas and legacy areas are summarized below . core focus areas . core producing areas of basins in which we expect our gathering systems to experience greater long-term growth , driven by our customers ' ability to generate more favorable returns and support sustained drilling and completion activity in varying commodity price environments . in the near-term , we expect to concentrate the majority of our capital expenditures in our core focus areas . our utica shale , ohio gathering , williston basin , dj basin and permian basin reportable segments ( as described below ) comprise our core focus areas . legacy areas . production basins in which we expect volume throughput on our gathering systems to experience relatively lower long-term growth compared to our core focus areas , given that our customers require relatively higher commodity prices to support drilling and completion activities in these basins . upstream production served by our gathering systems in our legacy areas is generally more mature , as compared to our core focus areas , and the decline rates for volume throughput on our gathering systems in the legacy areas are typically lower as a result . we expect to continue to decrease our near-term capital expenditures in these legacy areas . our piceance basin , barnett shale and marcellus shale reportable segments ( as described below ) comprise our legacy areas . our financial results are driven primarily by volume throughput across our gathering systems and by expense management . we generate the majority of our revenues from the gathering , compression , treating and processing services that we provide to our customers . a majority of the volumes that we gather , compress , treat and or process have a fixed-fee rate structure which enhances the stability of our cash flows by providing a revenue stream that is not subject to direct commodity price risk . we also earn a portion of our revenues from the following activities that directly expose us to fluctuations in commodity prices : ( i ) the sale of physical natural gas and or ngls purchased under percentage-of-proceeds or other processing arrangements with certain of our customers in the williston basin , piceance basin , and permian basin segments , ( ii ) the sale of natural gas we retain from certain barnett shale customers and ( iii ) the sale of condensate we retain from our gathering services in the piceance basin segment . during the year ended december 31 , 2020 , these additional activities accounted for approximately 13 % of total revenues . we also have indirect exposure to changes in commodity prices in that persistently low commodity prices may cause our customers to delay and or cancel drilling and or completion activities or temporarily shut-in production , which would reduce the volumes of natural gas and crude oil ( and associated volumes of produced water ) that we gather . if certain of our customers cancel or delay drilling and or completion activities or temporarily shut-in production , the associated mvcs , if any , ensure that we will earn a minimum amount of revenue . 70 the following table presents certain consolidated and reportable segment financial data . for additional information on our reportable segments , see the `` segment overview for the years ended december 31 , 20 20 and 201 9 ” section herein . replace_table_token_0_th ( 1 ) see `` liquidity and capital resources '' herein and note 20 to the consolidated financial statements for additional information on capital expenditures . 71 k ey matters for the year ended december 31 , 20 20 . the following items are reflected in our financial results for the fiscal year ended december 31 , 2020 : gp buy-in transaction . in may 2020 , the partnership completed the gp buy-in transaction whereby the partnership acquired from its then private equity sponsor , ecp , ( i ) summit investments , which indirectly owned the partnership 's general partner , ( ii ) through its ownership of smp holdings , 3,415,646 of its common units and ( iii ) a deferred purchase price obligation receivable owed by the partnership . consideration paid to ecp included a $ 35.0 million cash payment and warrants to purchase up to 666,667 common units . story_separator_special_tag in the dj basin , we determined certain processing plant assets related to our 20 mmcf/d plant would no longer be operational due to our expansion plans for the niobrara g & p system and we recorded an impairment charge of $ 34.7 million related to these assets . in the barnett shale , we determined certain compressor station assets would be shut down and de-commissioned and we recorded an impairment charge of $ 9.7 million related to these assets . double e project . in june 2019 , we continued development of the double e project after securing firm 10-year commitments under binding precedent agreements for a substantial majority of the pipeline 's initial throughput capacity of 1.35 bcf of gas per day and executing the joint venture agreement ( described below ) with an affiliate of double e 's foundation shipper . the double e project , which consists of an approximately 116-mile mainline and related facilities , will provide interstate natural gas transportation service from the delaware basin production area to the waha hub in texas . summit permian transmission . in connection with the double e project , summit permian transmission contributed total assets of approximately $ 23.6 million for a 70 % ownership interest in double e. concurrent with this contribution , double e distributed $ 7.3 million to the partnership . double e financing . in december 2019 , as part of our financing for the double e project , we formed permian holdco , a newly created , unrestricted subsidiary of smlp that indirectly owns smlp 's 70 % interest in double e. in connection with the formation of permian holdco , we entered into an agreement with tpg energy solutions anthem , l.p. ( “ tpg ” ) on december 24 , 2019 to fund up to $ 80 million of permian holdco 's future capital calls associated with the double e project . simultaneously , on december 24 , 2019 , permian holdco issued 30,000 subsidiary series a preferred units to tpg for net proceeds of $ 27.4 million . red rock . in december 2019 , red rock gathering and certain affiliates of smlp ( collectively , “ the red rock parties ” ) entered into a purchase and sale agreement ( the “ red rock psa ” ) pursuant to which the red rock parties agreed to sell certain red rock gathering system assets for a cash purchase price of $ 12.0 million ( the “ red rock sale ” ) . prior to closing , we recorded an impairment charge of $ 14.2 million based on the expected consideration and the carrying value for the red rock gathering system assets . on december 2 , 2019 , we closed the red rock sale . the impairment is included in the long-lived asset impairment caption on the consolidated statement of operations . the financial contribution of these assets ( a component of the piceance basin reportable segment ) are included in our consolidated financial statements and footnotes for the period from january 1 , 2019 through december 1 , 2019. tioga midstream . until march 22 , 2019 , we owned tioga midstream , a crude oil , produced water and associated natural gas gathering system in the williston basin . on march 22 , 2019 , we sold the tioga midstream system to affiliates of hess infrastructure partners lp for a combined cash purchase price of approximately $ 90 million and recorded a gain on sale of $ 0.9 million based on the difference between the consideration received and the carrying value for tioga midstream at closing . the gain is included in the gain on asset sales , net caption on the consolidated statement of operations . the financial results of tioga midstream ( a component of the williston basin reportable segment ) are included in our consolidated financial statements and footnotes for the historical periods through march 22 , 2019. refer to note 18 to the consolidated financial statements for details on the sale of tioga midstream . 73 2019 r estructuring costs . in the third quarter of 2019 , we began an internal initiative to evaluate and transform our cost structure , enhance margins and improve our competitive position in response to a weakening commodity price backdrop . for the year ended december 31 , 2019 , we incurred approximately $ 5.0 million in restructuring costs relating to this initiative ( included in general and administrative expense ) . for the year ended december 31 , 2020 , we incurred an additional $ 3.5 million relat ed to this initiative . trends and outlook our business has been , and we expect our future business to continue to be , affected by the following key trends : ongoing impact of the covid-19 pandemic and reduced demand and prices for oil ; natural gas , ngl and crude oil supply and demand dynamics ; production from u.s. shale plays ; capital markets availability and cost of capital ; and shifts in operating costs and inflation . our expectations are based on assumptions made by us and information currently available to us . to the extent our underlying assumptions about , or interpretations of , available information prove to be incorrect , our actual results may vary materially from our expected results . ongoing impact of the covid-19 pandemic and reduced demand and prices for oil . we are closely monitoring the impact of the outbreak of covid-19 on all aspects of our business , including how it has impacted and will impact our customers , employees , supply chain and distribution network . we are unable to predict the ultimate impact that covid-19 and related factors may have on our business , future results of operations , financial position or cash flows . given the dynamic nature of the covid-19 pandemic and related market conditions , we can not reasonably estimate the period of time that these events will persist or the full extent of the impact they will have on our business .
| results of operations consolidated overview for the years ended december 31 , 2020 and 2019 the following table presents certain consolidated data and volume throughput for the years ended december 31 , 2020 and 2019. replace_table_token_1_th * not considered meaningful ( 1 ) exclusive of volume throughput for ohio gathering . for additional information , see the `` ohio gathering '' section herein . volumes – gas . natural gas throughput volumes decreased 22 mmcf/d for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , primarily reflecting : a volume throughput increase of 5 mmcf/d for the marcellus shale segment . a volume throughput decrease of 88 mmcf/d for the piceance basin segment . a volume throughput increase of 85 mmcf/d for the utica shale segment . a volume throughput increase of 14 mmcf/d for the permian basin segment . a volume throughput decrease of 39 mmcf/d for the barnett shale segment . volumes – liquids . crude oil and produced water throughput volumes at the williston segment decreased 26 mbbl/d for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. for additional information on volumes , see the `` segment overview for the years ended december 31 , 2020 and 2019 '' section herein . 79 revenues . total revenues decreased $ 6 0 . 1 million during the year ended december 31 , 20 20 compared to the prior year primarily comprised of a $ 24 . 0 million decrease in gathering services and related fees and a $ 37 . 7 million decrease in natural gas , ngls and condensate sales . gathering services and related fees .
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pro forma financial information the following supplemental pro forma information ( in thousands , except per share data ) presents the consolidated financial results as if the rf power transaction had occurred at the beginning of fiscal 2017 : replace_table_token_24_th these amounts have been calculated after applying the company 's accounting policies and adjusting the results of the rf power business to give effect to events and transactions that are directly attributable to the rf power business transactions , including the elimination of sales by the company to the rf power business prior to acquisition , additional depreciation and amortization that would have been charged assuming the fair value adjustments primarily to property and equipment and intangible assets had been applied at the beginning of the 2017 fiscal year , together story_separator_special_tag executive summary the following discussion is designed to provide a better understanding of our audited consolidated financial statements and notes thereto , including a brief discussion of our business and products , key factors that impacted our performance and a summary of our operating results . the following discussion should be read in conjunction with our consolidated financial statements included in item 8 of this annual report . historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods . overview cree , inc. ( cree , we , our , or us ) is an innovator of wide bandgap semiconductor products for power and radio-frequency ( rf ) applications , lighting-class light emitting diode ( led ) products , and lighting products . our products are targeted for applications such as transportation , power supplies , inverters , wireless systems , indoor and outdoor lighting , electronic signs and signals , and video displays . our wolfspeed segment 's products consists of silicon carbide ( sic ) and gallium nitride ( gan ) materials , power devices and rf devices based on silicon ( si ) and wide bandgap semiconductor materials . our materials products and power devices are used in solar , electric vehicles , motor drives , power supplies and transportation applications . our materials products and rf devices are used in military communications , radar , satellite and telecommunication applications . our led products segment 's products consist of led chips and led components . our led products enable our customers to develop and market led-based products for lighting , video screens , automotive and specialty lighting applications . our lighting products segment 's products primarily consist of led lighting systems and lamps . we design , manufacture and sell lighting fixtures and lamps for the commercial , industrial and consumer markets . as discussed more fully in note 1 , “ business , ” in our consolidated financial statements included in item 8 of this annual report , on july 13 , 2016 , we executed a definitive agreement to sell the wolfspeed business to infineon . on march 6 , 2017 , the definitive agreement with infineon was terminated . during fiscal 2018 , we expanded our rf product offerings through the acquisition of certain assets of infineon 's radio frequency power business ( rf power ) as discussed in note 4 , `` acquisition '' , in our consolidated financial statements included in part ii , item 8 of this annual report . the majority of our products are manufactured at our production facilities located in north carolina , wisconsin , california , arkansas and china . we also use contract manufacturers for certain products and aspects of product fabrication , assembly and packaging . we operate research and development facilities in north carolina , arizona , arkansas , california , wisconsin , india , italy and china ( including hong kong ) . cree , inc. is a north carolina corporation established in 1987 , and our headquarters are in durham , north carolina . for further information about our consolidated revenue and earnings , please see our consolidated financial statements included in item 1 of this quarterly report . reportable segments our three reportable segments are : wolfspeed led products lighting products reportable segments are components of an entity that have separate financial data that the entity 's chief operating decision maker ( codm ) regularly reviews when allocating resources and assessing performance . our codm is the chief executive officer . our codm does not review inter-segment transactions when evaluating segment performance and allocating resources to each segment , and inter-segment transactions are not included in our segment revenue disclosure . as such , total segment revenue is equal to our consolidated revenue . our codm reviews gross profit as the lowest and only level of segment profit . as such , all items below gross profit in the consolidated statements of loss must be included to reconcile the consolidated gross profit to our consolidated loss before income taxes . 29 for financial results by reportable segment , please refer to note 15 , “ reportable segments , ” in our consolidated financial statements included in item 8 of this annual report . industry dynamics and trends there are a number of industry factors that affect our business which include , among others : overall demand for products and applications using sic power devices , gan and si rf devices , and leds . our potential for growth depends significantly on the adoption of sic and gan materials and device products in the power and rf markets , the continued use of si devices in the rf telecommunications market , the continued adoption of leds and led lighting , and our ability to win new designs for these applications . demand also fluctuates based on various market cycles , continuously evolving industry supply chains , and evolving competitive dynamics in each of the respective markets . these uncertainties make demand difficult to forecast for us and our customers . intense and constantly evolving competitive environment . competition in the industries we serve is intense . story_separator_special_tag wolfspeed segment revenue wolfspeed revenue represented approximately 22 % , 15 % , and 11 % of our total revenue for fiscal 2018 , 2017 and 2016 , respectively . wolfspeed revenue was $ 328.6 million , $ 221.2 million , and $ 176.3 million for fiscal 2018 , 2017 and 2016 , respectively . wolfspeed revenue increased 49 % to $ 328.6 million in fiscal 2018 from $ 221.2 million in fiscal 2017 . this increase was primarily the result of a 30 % increase in units sold , and a 21 % increase in average selling price ( asp ) , which were partially offset by a decrease in contract revenue . the increase in units sold in fiscal 2018 compared to fiscal 2017 was the result of an increase in power products , substrate materials , and the new rf power business sales . the increase in asp in fiscal 2018 compared to fiscal 2017 was primarily due to a greater mix of higher priced products in all product lines . wolfspeed revenue increased 25 % to $ 221.2 million in fiscal 2017 from $ 176.3 million in fiscal 2016 . this increase was primarily the result of a 29 % increase in sales volume and a 2 % increase in asp , which were partially offset by a decrease in contract revenue . the increase in units sold in fiscal 2017 compared to fiscal 2016 was the result of higher sales volume across all products . the increase in asp in fiscal 2017 compared to fiscal 2016 was primarily due to a greater mix of higher priced material substrate and rf products . led products segment revenue led products revenue represented 40 % , 37 % , and 34 % of our total revenue for fiscal 2018 , 2017 and 2016 , respectively . led products revenue was $ 596.3 million , $ 550.3 million , and $ 551.2 million for fiscal 2018 , 2017 and 2016 , respectively . led products revenue increased 8 % to $ 596.3 million in fiscal 2018 from $ 550.3 million in fiscal 2017 . the number of units sold increased 11 % which was partially offset by 2 % decrease in asps . the increase in the units sold was primarily the result of higher demand in component product sales for the following applications : high power general lighting , video screen , specialty lighting applications and mid-power led sales through cree venture led . the decrease in asp in fiscal 2018 compared to fiscal 2017 was due to competitive pricing pressures , which were partially offset by favorable product mix . led products revenue decreased slightly to $ 550.3 million in fiscal 2017 from $ 551.2 million in fiscal 2016 . this decrease was primarily the result of a decrease in licensing revenue mostly offset by increased product sales . the number of units sold increased 7 % which was partially offset by a 5 % decrease in asps . the decrease in asp in fiscal 2017 compared to fiscal 2016 was due to competitive pricing pressures . lighting products segment revenue lighting products revenue represented approximately 38 % , 48 % , and 55 % of our total revenue for fiscal 2018 , 2017 and 2016 respectively . lighting products revenue was $ 568.8 million , $ 701.5 million , and $ 889.1 million for fiscal 2018 , 2017 and 2016 respectively . 33 lighting products revenue decreased 19 % to $ 568.8 million in fiscal 2018 from $ 701.5 million in fiscal 2017 . this decrease was primarily the result of a 31 % decrease in units sold , and the absence of the significant patent license issuance fee we received as part of the confidential feit electric company inc. license agreement in the fiscal quarter ended december 25 , 2016 , which was partially offset by a 21 % increase in asp . the decrease in units sold in fiscal 2018 compared to fiscal 2017 was primarily due to weakness in the north american commercial lighting market , lingering effects related to quality issues and holds which have lowered project win rates , and reduced consumer sales due to lower demand . the asp increase in fiscal 2018 compared to fiscal 2017 was the result of a greater mix of commercial sales . lighting products revenue decreased 21 % to $ 701.5 million in fiscal 2017 from $ 889.1 million in fiscal 2016 . this decrease was the result of a 15 % decrease in units sold and an 11 % decrease in asp , partially offset by the incremental revenue associated with a patent license issuance fee in connection with a new patent license agreement . the decrease in units sold in fiscal 2017 compared to fiscal 2016 was due to lower sales in both our commercial and consumer channels . the decrease in asp in fiscal 2017 compared to fiscal 2016 was primarily due to lower consumer bulb prices year over year . gross profit and gross margin gross profit and gross margin were as follows ( in thousands , except percentages ) : replace_table_token_6_th our consolidated gross profit decreased 6 % to $ 407.6 million in fiscal 2018 from $ 434.6 million in fiscal 2017 . our consolidated gross margin decreased to 27 % in fiscal 2018 from 30 % in fiscal 2017 . our consolidated gross profit decreased 11 % to $ 434.6 million in fiscal 2017 from $ 487.1 million in fiscal 2016 . our consolidated gross margin remained flat at 30 % in fiscal 2017 and 2016 . wolfspeed segment gross profit and gross margin wolfspeed gross profit was $ 158.5 million , $ 103.5 million , and $ 94.6 million in fiscal 2018 , 2017 and 2016 , respectively . wolfspeed gross margin was 48 % , 47 % , and 54 % in fiscal 2018 , 2017 and 2016 , respectively . wolfspeed gross profit increased 53 % to $ 158.5 million in fiscal 2018 from $ 103.5 million in fiscal 2017 .
| results of operations the following table sets forth certain consolidated statement of loss data for the periods indicated ( in thousands , except per share amounts and percentages ) : replace_table_token_4_th 31 lighting business restructuring in april 2018 , we approved a plan to restructure the lighting products business . the purpose is to restructure and realign our cost base with our long-range business strategy that was announced february 26 , 2018. the restructuring activity is expected to be completed in the first quarter of fiscal 2019. the following table summarizes the actual charges incurred ( in thousands ) : capacity and overhead cost reductions total estimated charges cumulative amounts incurred through fiscal year 2018 affected line item in the consolidated statements of loss loss on disposal or impairment of long-lived assets $ 227 $ 227 loss on disposal or impairment of long-lived assets severance expense 5,470 4,682 sales , general and administrative expenses lease termination and facility consolidation costs 2,182 156 sales , general and administrative expenses increase in inventory reserves 897 897 sales , general and administrative expenses total restructuring charges $ 8,776 $ 5,962 led business restructuring in june 2015 , our board of directors approved a plan to restructure the led products business .
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in story_separator_special_tag the management 's discussion and analysis of financial condition and results of operations , which follows , presents a review of the consolidated operating results of northeast bancorp , inc. ( the company ) for the fiscal year ended june 30 , 2012 ( fiscal 2012 ) , the 184-day period ended june 30 , 2011 , and the 181-day period ended december 28 , 2010. this discussion and analysis is intended to assist you in understanding the results of our operations and financial condition . you should read this discussion together with your review of the company 's consolidated financial statements and related notes and other statistical information included in this report . certain amounts in the periods prior to fiscal 2012 have been reclassified to conform to the fiscal 2012 presentation . financial presentation on december 29 , 2010 , the merger ( the merger ) of the company and fhb formation llc , a delaware limited liability company ( fhb ) , was consummated . as a result of the merger , the surviving company received a capital contribution of $ 16.2 million ( in addition to the approximately $ 13.1 million in cash consideration paid to former shareholders ) , and the former members of fhb collectively acquired approximately 60 % of our outstanding common stock . the company applied the acquisition method of accounting , as described in accounting standards codification ( asc ) 805 , business combinations ( asc 805 ) to the merger , which represents an acquisition by fhb of northeast , with northeast as the surviving company ( the successor company ) . in the application of asc 805 to this transaction , the following was considered : identify the accounting acquirer : fhb was identified as the accounting acquirer . fhb , which was incorporated on march 9 , 2009 , acquired a controlling financial interest of approximately 60 % of the successor company 's total outstanding voting and non-voting common stock in exchange for contributed capital and cash consideration . in the evaluation and identification of fhb as the accounting acquirer , it was concluded that fhb was a substantive entity involved in significant pre-merger activities , including the following : raising capital ; incurring debt ; incurring operating expenses ; leasing office space ; hiring staff to develop the surviving company 's business plan ; retaining professional services firms ; and identifying acquisition targets and negotiating potential transactions , including the merger . determine the acquisition date : december 29 , 2010 , the closing date of the merger , was the date that fhb gained control of the combined entity . recognize assets acquired and liabilities assumed : because neither northeast bancorp , the predecessor company ( the acquired company ) , nor fhb ( the accounting acquirer ) exist as separate entities after the merger , a new basis of accounting at fair value for the successor company 's assets and liabilities was established in the consolidated financial statements . at the acquisition date , the successor company recognized the identifiable assets acquired and the liabilities assumed based on their then fair values in accordance with asc topic 820 , fair value measurement ( asc 820 ) . the successor company recognized a bargain purchase gain as the difference between the total purchase price and the net assets acquired . as a result of application of the acquisition method of accounting to northeast bancorp after the merger on december 29 , 2010 , the company 's financial statements from the periods prior to the transaction date are not directly comparable to the financial statements for periods subsequent to the transaction date . to make this distinction , the company has labeled balances and results of operations prior to the transaction date as predecessor company and balances and results of operations for periods subsequent to the transaction date as successor company. the lack of comparability arises from the assets and liabilities having new accounting bases as a result of recording them at their fair values as of the transaction date rather than at historical cost basis . to denote this lack of comparability , a heavy black line has been placed between the successor company and 36 predecessor company columns in the consolidated financial statements and in the tables in the notes to the consolidated financial statements and the discussion herein . in connection with the transaction , as part of the regulatory approval process the company made certain commitments to the board of governors of the federal reserve system ( the federal reserve ) and the maine bureau of financial institutions ( the bureau ) , the most significant of which are , ( i ) maintain a tier 1 leverage ratio of at least 10 % , ( ii ) maintain a total risk-based capital ratio of at least 15 % , ( iii ) limit purchased loans to 40 % of total loans , ( iv ) fund 100 % of the company 's loans with core deposits ( defined as non-maturity deposits and non-brokered insured time deposits ) , and ( v ) hold commercial real estate loans ( including owner-occupied commercial real estate ) to within 300 % of total risk-based capital . the company is currently in compliance with all commitments to the federal reserve and the bureau . as a result of the sale of the company 's insurance agency business in the first quarter of fiscal 2012 and discontinuation of further significant business activities in the insurance agency segment , the company has classified the results of its insurance agency division as discontinued operations in the company 's consolidated financial statements and discussion herein . critical accounting policies critical accounting policies are those that involve significant judgments and assessments by management , and that could potentially result in materially different results under different assumptions and conditions . story_separator_special_tag commercial business : loans in this segment are made to businesses and are generally secured by the assets of the business . repayment is expected from the cash flows of the business . weak national or regional economic conditions , and a resultant decrease in consumer or business spending , will have an adverse effect on the credit quality of this segment . consumer : loans in this segment are generally secured , and repayment is dependent on the credit quality of the individual borrower . repayment of consumer loans is generally based on the earnings of individual borrowers , which may be adversely impacted by regional labor market conditions . purchased : loans in this segment are secured by commercial real estate , multi-family residential real estate , or business assets and have been acquired by the lasg . loans acquired by the lasg are , with limited exceptions , performing loans at the date of purchase . loans in this segment acquired with specific material credit deterioration since origination are identified as purchased credit-impaired ( pci ) . repayment of loans in this segment is largely dependent on cash flow from the successful operation of the property , in the case of non-owner occupied property , or operating business , in the case of owner-occupied property . loan 38 performance may be adversely affected by factors affecting the general economy or conditions specific to the real estate market such as geographic location or property type . loans in this segment are evaluated for impairment under asc 310-30. the company reviews expected cash flows from purchased loans on a quarterly basis . the effect of a decline in expected cash flows subsequent to the acquisition of the loan is recognized through a specific allocation in the allowance for loan losses . the general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by loan segment . the company considers its loss experience subsequent to the merger in its quantitative historical loss analysis . the company does not weight periods used in that analysis to determine the average loss rate in each portfolio segment . this historical loss factor is adjusted for the following qualitative factors : levels and trends in delinquencies trends in the volume and nature of loans trends in credit terms and policies , including underwriting standards , procedures and practices , and the experience and ability of lending management and staff trends in portfolio concentration national and local economic trends and conditions . effects of changes or trends in internal risk ratings other effects resulting from trends in the valuation of underlying collateral there were no changes in the company 's policies or methodology pertaining to the general component of the allowance for loan losses during fiscal year 2012. the allocated component of the allowance for loan losses relates to loans that are classified as impaired . impairment is measured on a loan-by-loan basis for commercial business and commercial real estate loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate or the fair value of the collateral if the loan is collateral dependent . for impaired loans that are collateral dependent , the company obtains or conducts an appraisal of the collateral within 90 days of initial impairment . an allowance is established when the discounted cash flows ( or collateral value ) of the impaired loan is lower that the carrying value of that loan . large groups of smaller-balance homogeneous loans , such as consumer and residential real estate loans are collectively evaluated for impairment based on the group 's historical loss experience adjusted for qualitative factors . accordingly , the company does not separately identify individual consumer and residential loans for individual impairment and disclosure . however , all loans modified in troubled debt restructurings are individually reviewed for impairment . for all loans segments except the purchased loan segment a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired . management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record , and the amount of the shortfall in relation to the principal and interest owed . for the purchased loan segment , a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to realize cash flows as estimated at acquisition . loan impairment of purchased loans is measured based on the decrease in expected cash flows from those estimated at acquisition , excluding changes due to decreases in interest rate indices , discounted at the loan 's effective rate assumed at acquisition . factors considered by management in determining impairment include payment status , collateral value , and the probability of the collecting scheduled principal and interest payments when due . 39 the company periodically may agree to modify the contractual terms of loans . when a loan is modified and a concession is made to a borrower experiencing financial difficulty , the modification is considered a tdr . the company considers all loans modified in a tdr as impaired loans . by policy , loans classified as tdrs remain classified as such until the loan is paid off . the unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio .
| general successor company as noted earlier , the results of operations for the year ended june 30 , 2012 are not directly comparable to the prior year period due to the application of acquisition accounting in connection with the merger . nonetheless , the discussion that follows will compare , to the extent appropriate and useful , certain results for each period . net income from continuing operations for the year ended june 30 , 2012 was $ 1.0 million . items of significance affecting the company 's earnings included : an increase in the net interest margin , which grew to 3.69 % , compared to 3.58 % for the 184 days ended june 30 , 2011 , principally due to growth in the company 's purchased loan portfolio . the following table summarizes interest income and related yields recognized on the company 's purchased and originated loans . replace_table_token_7_th the yield on purchased loans was increased by unscheduled loan payoffs during the period , which resulted in immediate recognition of the prepaid loans ' discount in interest income . the company also realized gains on the sale of purchased loans . in total , the company recognized $ 3.5 million in transactional income during fiscal 2012 , resulting from a total of eleven transactions . transactional income includes accelerated discount accretion and fees realized on loan payoffs and gains on sales of purchased loans . the following table details the total return on purchased loans , based on regularly scheduled interest and accretion and transactional income earned . replace_table_token_8_th 41 net gains on residential mortgage loan sales of $ 2.8 million . security gains totaling $ 1.1 million . increased noninterest expenses , principally resulting from increased staffing and infrastructure costs necessary to execute the company 's loan purchasing strategy . for the 184 days ended june 30 , 2011 , the company reported net income from continuing operations of $ 12.5 million , or $ 3.46 per diluted share .
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factors that could cause or contribute to those differences include , but are not limited to , those identified below and those discussed in the section entitled risk factors included elsewhere in this annual report on form 10-k. this annual report on form 10-k contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended ( the exchange act ) . these statements are often identified by the use of words such as believe , may , potentially , will , estimate , continue , anticipate , intend , could , would , project , plan , expect , seek , and similar expressions or variations . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified herein , and those discussed in the section titled risk factors , set forth in part i , item 1a of this annual report on form 10-k. except as required by law , we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . overview we provide a leading cross-channel advertising cloud platform that enables digital marketers to improve performance of their online advertising campaigns , realize efficiencies and time savings , and make better business decisions . our integrated platform is a software-as-a-service ( saas ) analytics , workflow , and optimization solution for marketing professionals , allowing them to effectively manage their digital advertising spend across search , display , social and mobile advertising channels . our software solution is designed to help our customers : measure the effectiveness of their advertising campaigns through our proprietary reporting and analytics capabilities ; manage and execute campaigns through our intuitive user interface and underlying technology that streamlines and automates key functions , such as ad creation and bidding , across multiple publishers and channels ; and optimize campaigns across multiple publishers and channels in real time based on market and business data to achieve desired revenue outcomes using our predictive bid management technology . in december 2014 , our customers collectively managed more than $ 7.2 billion in annualized advertising spend on our platform and for the quarter ended december 31 , 2014 , we had 818 active advertisers using our solution globally across a wide range of industries . we market and sell our solutions to advertisers directly and through leading advertising agencies . for 2014 , 2013 and 2012 , our revenues were $ 99.4 million , $ 77.3 million and $ 59.6 million , representing period-over-period growth of 29 % , 30 % and 65 % , respectively . we had net losses of $ 33.2 million in 2014 , $ 35.9 million in 2013 , and $ 26.5 million in 2012. we earn revenues principally from subscription contracts under which we provide advertisers with access to our search , social and display advertising management platforms , either directly or through the advertiser 's relationship with an agency that has a contract with us . in accordance with the subscription contracts , we charge fees generally based upon the amount of advertising spend that our customers manage through our platform . our contracts are generally one year or longer in length . under our subscription contracts with most of our direct advertisers and some of our agency customers , customers are contractually committed to a monthly minimum fee , which is payable on a monthly basis over the duration of the contract and is generally greater than one-half of our estimated monthly revenues from these customers , at the time the contract is signed . however , most of our 31 subscription contracts with our advertising agency customers do not include a committed monthly minimum fee . our contractual arrangement is with the advertising agency and the advertiser is not a party to the terms of the contract . accordingly , most advertisers through our agency customers do not have a commitment to use our services and the advertisers may be added or removed from our platform at the discretion of the respective agency . we invoice the advertising agency for the amounts due under the contract . historically , approximately half of our revenues have been earned from advertising agency customers . our subscription fee under most contracts is variable based upon the value of advertising spend that our customers manage through our platform . our deferred revenues consist of the unearned portion of billed subscription fees . our subscription contracts indicate the date at which we begin invoicing our customers , which is generally the first day of the month following the execution of the contract . we generally invoice the greater of the minimum fee or the percentage of advertising spend on our platform . the implementation process for new advertisers is typically four to six weeks ; however , we generally do not charge a separate implementation fee under our subscription contracts . our implementation and customer support personnel , as well as costs associated with our operating infrastructure , are included in our cost of revenues . our cost of revenues and operating expenses have increased in absolute dollars due to our need to increase our headcount to grow our business and to increase data center capacity to support customer revenue growth on our platform . we expect that our cost of revenues will continue to increase in absolute dollars as we continue to invest in our growth . story_separator_special_tag annualized advertising spend on our platform we calculate annualized advertising spend as advertising spend in the last month of a period multiplied by 12. we believe that increases in annualized advertising spend generally lead to increases in revenues over time . however , we believe that other factors related to the terms of customer agreements and seasonality can make it difficult to directly correlate annual advertising spend to changes in revenues in a particular period . our customers collectively managed $ 7.2 billion , $ 6.0 billion and $ 4.7 billion in annualized advertising spend on our platform in december 2014 , 2013 and 2012 , respectively . components of results of operations revenues we generate revenues principally from subscription contracts under which we provide advertisers with access to our search , social and display advertising management platform , either directly or through the advertiser 's relationship with an agency with whom we have a contract . under our subscription contracts with most direct advertisers and some of our agency customers , customers contractually commit to a monthly minimum fee , which is generally greater than one-half of our estimated monthly revenues from these customers , at the time the 33 contract is signed . however , most of our subscription contracts with our advertising agency customers do not include a committed monthly minimum fee . additionally , advertisers we serve through our arrangements with our advertising agencies generally do not have a minimum commitment to continue using our services . our subscription fee under most contracts is variable based upon the value of advertising spend that our customers manage through our platform , although some customers pay a flat monthly rate over the term of their subscription contract . our deferred revenues consist of the unearned portion of billed subscription fees . cost of revenues cost of revenues primarily includes personnel costs , consisting of salaries , benefits , bonuses and stock-based compensation , for employees associated with our cloud infrastructure and global services for implementation and ongoing customer service organizations . other costs of revenues include fees paid to contractors who supplement our support and data center personnel , expenses related to the use of a third-party data center , depreciation of data center equipment , amortization of capitalized internal-use software development costs , amortization of intangible assets and allocated overhead . we intend to continue to invest additional resources in our global services teams and in the capacity of our hosting service infrastructure . as we continue to invest in technology innovation through our research and development organization , we expect to have increased amortization of capitalized internal-use software development costs . we expect that this investment in technology should not only expand the breadth and depth of our cross-channel performance advertising cloud platform but also increase the efficiency of how we deliver these solutions , enabling us to improve our gross margin over time . the level and timing of investment in these areas could affect our cost of revenues in the future . sales and marketing expenses sales and marketing expenses include personnel costs , sales commissions and other costs including travel and entertainment , marketing and promotional events , public relations , marketing activities , professional fees and allocated overhead . all of these costs are expensed as incurred , including sales commissions . our commission plans provide that payment of commissions to our sales representatives are paid based on the actual amounts we invoice customers over a period that is generally up to five months following the execution of the applicable customer contract . we plan to continue investing in sales and marketing by increasing the number of sales and account management employees , expanding our domestic and international sales and marketing activities , building brand awareness and sponsoring additional marketing events , which we believe will enable us to add new customers and increase penetration within our existing customer base . we expect that , in the future , sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense category . research and development expenses research and development expenses consist primarily of personnel costs for our product development and engineering employees and executives , including salaries , benefits , stock-based compensation expense and bonuses . also included are non-personnel costs such as professional fees payable to third-party development resources , amortization of intangible assets and allocated overhead . our research and development efforts are focused on enhancing our software architecture , adding new features and functionality to our platform and improving the efficiency with which we deliver these services to our customers . we expect that , in the future , research and development expenses will increase in absolute dollars , partially offset by the capitalization of internal-use software development costs . we believe that these investments are necessary to maintain and improve our competitive position . 34 general and administrative expenses general and administrative expenses consist primarily of personnel costs , including salaries , benefits , stock-based compensation expense and bonuses , for our administrative , legal , human resources , finance and accounting employees and executives . also included are non-personnel costs , such as travel-related expenses , audit fees , tax services and legal fees , as well as professional fees , insurance and other corporate expenses , along with amortization of intangible assets and allocated overhead . we expect to incur incremental costs associated with supporting the growth of our business , both in terms of size and geographic expansion , and to meet the increased compliance requirements associated with our continued operation as a public company . such costs include increases in our accounting and legal personnel , additional consulting , legal and audit fees , insurance costs , board of directors ' compensation and the costs of achieving and maintaining compliance with the sarbanes-oxley act of 2002. as a result , we expect our general and administrative expenses to increase in absolute dollars in future periods but to decrease as a percentage of revenues over time .
| results of operations the following table is a summary of our consolidated statements of operations . the period-to-period comparisons of results are not necessarily indicative of results for future periods . replace_table_token_9_th 35 ( 1 ) stock-based compensation included in the consolidated statements of operations data above was as follows : replace_table_token_10_th ( 2 ) amortization of intangible assets included in the consolidated statements of operations data above was as follows : replace_table_token_11_th the following table sets forth our consolidated results of operations for the specified periods as a percentage of our revenues for those periods . percent of revenue figures are rounded and therefore may not subtotal exactly . replace_table_token_12_th 36 the following tables set forth our consolidated revenues by geographic area : replace_table_token_13_th adjusted ebitda adjusted ebitda is a financial measure that is not calculated in accordance with generally accepted accounting principles in the united states ( gaap ) . we define adjusted ebitda as net loss , adjusted for stock-based compensation expense , depreciation , the amortization of internally developed software , the amortization of intangible assets , the capitalization of internally developed software , interest expense , net , the benefit from or provision for income taxes , other income or expenses , net , and the non-recurring costs associated with acquisitions . adjusted ebitda is a financial measure that is not calculated in accordance with gaap .
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the us $ 1.51 million , us $ 2.01 million , us1.48 million and us1.52 million are collectively the us dollar loan ( the “ us dollar loans ” ) . the rmb10.08 million , rmb13.35 million , rmb10.28 million and rmb10.55 million are collectively the rmb loan story_separator_special_tag the following discussion and analysis should be read in conjunction with our financial statements and related notes thereto . cautionary statement regarding forward-looking statements this report contains certain statements that may be deemed “ forward-looking statements ” within the meaning of united states of america securities laws . all statements , other than statements of historical fact , that address activities , events or developments that we intend , expect , project , believe or anticipate and similar expressions or future conditional verbs such as will , should , would , could or may occur in the future are forward-looking statements . such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends , current conditions , expected future developments and other factors they believe to be appropriate . these statements include , without limitation , statements about our anticipated expenditures , including those related to general and administrative expenses ; the potential size of the market for our services , future development and or expansion of our services in our markets , our ability to generate revenues , our ability to obtain regulatory clearance and expectations as to our future financial performance . our actual results will likely differ , perhaps materially , from those anticipated in these forward-looking statements as a result of various factors , including : our need and ability to raise additional cash .. the forward-looking statements included in this report are subject to a number of additional material risks and uncertainties , including but not limited to the risks described in our filings with the securities and exchange commission . the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes to those statements included in this filing . in addition to historical financial information , this discussion may contain forward-looking statements reflecting our current plans , estimates , beliefs and expectations that involve risks and uncertainties . as a result of many important factors , particularly those set forth under `` special note regarding forward-looking statements '' , our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements . 40 overview we were incorporated in delaware under the name cardigant medical inc. on april 17 , 2009. our initial business plan was to focus on the development of novel biologic and peptide based compounds and enhanced methods for local delivery for the treatment of vascular disease including peripheral artery disease and ischemic stroke . pursuant to the stock purchase agreement dated as of july 31 , 2014 , yong li , an individual purchased a total of 887,410 restricted shares ( before reverse stock split was 22,185,230 restricted shares ) of common stock of the company from a group of three former stockholders of the company . in consideration for the shares , mr. li paid the sellers $ 399,344 in cash which came from his own capital . the sellers were jerett a. creed , the company 's former chief executive officer , chief financial officer , director and formerly a controlling stockholder of the company , the creed family limited partnership and ralph sinibaldi . the shares represented approximately 95 % of the company 's then issued and outstanding common stock . the sale was consummated on august 28 , 2014. as a result of the transaction , there was a change in control of the company . on august 27 , 2014 , we entered into a contribution agreement with cardigant neurovascular . pursuant to the contribution agreement , we assigned all our assets , properties , rights , title and interest used or held for use by our business , ( except for certain excluded assets set forth therein ) which was the treatment of atherosclerosis and plaque stabilization in both the coronary and peripheral vasculature using systemic and local delivery of large molecule therapeutics and peptide mimetics based on high density lipoprotein targets ( “ cardigant business ” ) . in consideration for such contribution of capital , cardigant neurovascular agreed to assume all our liabilities raising from the business prior to the date of the contribution agreement and thereafter with regard to certain contributed contacts . we granted cardigant neurovascular an exclusive option for a period of 6 months to purchase the excluded assets for $ 1. cardigant neurovascular exercised this option october 20 , 2014 and the excluded assets were assigned to cardigant neurovascular on october 20 , 2014. also on october 20 , 2014 , we acquired all the issued and outstanding shares of hong kong takung , a privately held hong kong corporation , pursuant to the share exchange agreement and hong kong takung became the wholly owned subsidiary of us in a reverse merger , or the merger . pursuant to the merger , all of the issued and outstanding shares of hong kong takung common stock were converted , at an exchange ratio of 10.4988-for-1 , into an aggregate of 8,399,040 shares ( before reverse stock split was 209,976,000 shares ) of our common stock and hong kong takung became a wholly owned subsidiary of us . the holders of our common stock as of immediately prior to the merger held an aggregate of 933,236 shares ( before reverse stock split was 23,330,662 shares ) of our common stock , the accompanying financial statements share and per share information has been retroactively adjusted to reflect the exchange ratio in the merger . subsequent to the merger , our name was changed from “ cardigant medical inc. ” to “ takung art co. , ltd. ” . story_separator_special_tag for service agents who have individual referrers referring traders to us , we will , after rebating such individual referrers 15 % of the commission earned from the transactions of new traders they referred , deduct such 15 % of the commission from the rebates payable to the service agents to which such individual referrers belong . the commission rebate is recognized as reduction of the commission revenue . the rebates and discounts are recognized as a reduction of revenue in the same period the related revenue is recognized . our trading volume and transaction value amounts increased significantly from 2015 when we commenced operations in shanghai and consequently added a significant number of traders from mainland china as they could now settle their trades in renminbi . this trend continued into 2016. trading volume increased by 251 % and trading amount by 303 % for the year ended december 31 , 2016 compared to corresponding year in 2015. in spite of this , total commission revenue decreased by $ 728,825 or 12 % for the year ended december 31 , 2016 to $ 5,416,436 compared to $ 6,145,261 for the year ended december 31 , 2015 primarily because of the change in our commission fee policy . from april 1 , 2016 onwards , our selected traders pay a predetermined monthly fixed fee for their trades in specific artworks while our other non-vip traders continue to pay a commission calculated based on a percentage of transaction value of artworks . ( iii ) management fee revenue we charge traders a management fee to cover the costs of insurance , storage , and transportation for an artwork and trading management of artwork units , which are calculated at $ 0.0013 ( hk $ 0.01 ) per 100 artwork units per day . the management fee is deducted from proceeds from the sale of artwork units . during the year ended december 31 , 2016 , management fee revenue increased by $ 1,646,435 , from $ 115,542 for the year ended december 31 , 2015 to $ 1,761,977 for the year ended december 31 , 2016 , due to the aforementioned increase in artwork units listed on the platform . this was in spite of the promotions we ran that year . from april 9 , 2015 to june 8 , 2015 , we waived all buying traders ' management fees and from september 1 , 2016 to december 31 , 2016 , we waived management fees for certain vip traders . we recognized these promotions as a reduction of revenue , which was recognized upon the completion of the transactions . ( iv ) other revenue during the year ended december 31 , 2016 , authorized agent subscription revenue increased by $ 810,104 , from $ 239,260 for the year ended december 31 , 2015 to $ 1,049,364 for the year ended december 31 , 2016. during the year ended december 31 , 2016 , annual fee revenue decreased by $ 400 , from $ 1,752 for the year ended december 31 , 2015 to $ 1,352 for the year ended december 31 , 2016. cost of revenue cost of revenue for the years ended december 31 , 2016 and 2015 were $ 1,129,031 and $ 805,684 , respectively . our cost of revenue primarily includes the leasing of equipment , depreciation and amortization of hardware and software for our trading platform . 44 in the third quarter of 2014 , we entered into an agreement with qianrong to provide software development services with a total contract amount of $ 902,592 ( hk $ 6,995,000 ) . the services contracted for are divided into different modules , according to different upgrades and new functionalities . as of december 31 , 2016 , nine out of the ten modules have been completed and are operational . we have started to capitalize ( with a total cost of $ 1,069,853 ( hk $ 8,295,000 ) ) and amortized these costs once the modules were completed . as of december 31 , 2015 , eight out of the ten modules were completed and operational . we started to capitalize ( with a total cost of $ 554,143 ( hk $ 4,295,000 ) ) and amortized these costs once the modules were completed . all of these additional costs from gradual completion of our platform system modules and addition of equipment contributed to an increase in our cost of revenue through 2016. gross profit gross profit was $ 18,014,398 for the year ended december 31 , 2016 , compared to $ 10,530,257 for the year ended december 31 , 2015. the increase was primarily due to increased revenue resulting from higher transaction volume with more artworks trading on our platform . the gross profit margin during the year ended december 31 , 2016 was comparable to the corresponding period in 2015. listing fees contributed 57.0 % of the total revenue compared to 42.6 % in the year ended december 31 , 2015 , while commission revenue contributed 28.3 % compared to 54.2 % in the year ended in december 31 , 2015. cost of revenue increased in line with the revenue . consequently , we posted a comparable gross profit margin of 94.1 % and 92.9 % for the years ended december 31 , 2016 and 2015 respectively . operating expenses general and administrative expenses for the year ended december 31 , 2016 were $ 7,299,543 , compared to $ 3,078,217 for the year ended december 31 , 2015. despite the decrease in consultancy fee by $ 56,801 , the substantial increase was primarily due to an increase in legal and professional fees by $ 265,561 because of more filing and compliance activities , an increase in salaries by $ 2,190,331 as a result of an increase in employee headcount , an increase in office , insurance and rental expenses by $ 727,789 because of newly rented offices in hong kong and the prc , an increase in travelling expenses by $ 264,402 because of more travelling needed to set up shanghai takung and tianjin takung , an increase
| results of operation of takung hong kong takung operates a platform for offering and trading artwork . we generate revenue from our services in connection with the offering and trading of artwork ownership units on our system , primarily consisting of listing fees , trading commissions , and management fees . for the years ended december 31 , 2016 and 2015 revenue the following tables set forth our consolidated statements of income data : replace_table_token_4_th 42 the following tables set forth our consolidated statements of income data ( as a percentage of revenue ) : replace_table_token_5_th listing fee revenues were $ 10,914,300 and $ 4,834,126 ; commission revenues were $ 5,416,436 and $ 6,145,261 ( net of applicable rebates and discounts ) ; gross management fee revenues were $ 1,761,977 and $ 115,542 ; annual fee income were $ 1,352 and $ 1,752 ; authorized agent subscription revenue were $ 1,049,364 and $ 239,260 for the years ended december 31 , 2016 and 2015 , respectively . ( i ) listing fee revenue listing fee revenue is calculated based on a percentage of the listing value and transaction value of artworks . listing value is the total offering price of an artwork when the ownership units are initially listed on our trading platform . we utilize an appraised value as a basis to determine the appropriate listing value for each artwork , or portfolio of artworks .
| 4,986 |
non-woven filter media is the most commonly used filter technology to satisfy increasing emission control regulations in a wide range of industries including power , cement , steel , asphalt , incineration , mining , food and pharmaceutical . the business also produces non-woven media that is used in automotive and other commercial applications . the thermal/acoustical metals ( `` t/a metals '' ) segment offers a full range of innovative engineered products to assist in noise and heat abatement within the transportation sector . lydall products are found in underbody ( tunnel , fuel tank , exhaust , rear muffler and spare tire ) and under hood ( engine compartment , turbo charger , and manifolds ) of cars , trucks , suvs , heavy duty trucks and recreational vehicles . the thermal/acoustical fibers ( `` t/a fibers '' ) segment offers a full line of innovative engineered products to assist in noise and heat abatement within the transportation sector . lydall products are found in the interior ( dash insulators ) , underbody ( wheel well , fuel tank , exhaust ) and under hood ( engine compartment ) of cars , trucks , suvs , heavy duty trucks and recreational vehicles . other products and services ( “ ops ” ) was comprised of the life sciences vital fluids business . life sciences vital fluids offered specialty products for blood filtration devices , blood transfusion single-use containers and bioprocessing single-use containers and products for containment of media , buffers and bulk intermediates used in biotech , pharmaceutical and diagnostic reagent manufacturing processes . on january 30 , 2015 , the company sold its vital fluids business for a cash purchase price of $ 29.9 million . highlights on february 20 , 2014 , the company completed an acquisition of certain industrial filtration businesses ( “ industrial filtration ” ) of andrew industries limited , an altham , united kingdom based corporation pursuant to the terms of a sale and purchase agreement ( the “ sale and purchase agreement ” ) for $ 86.9 million in cash ( “ the acquisition ” ) . the company funded the purchase price of the acquisition from cash on hand and borrowings under the company 's amended credit facility . the results of industrial filtration have been included in the company 's financial statements since the date of the acquisition . as a result , the consolidated financial results for the year ended december 31 , 2014 do not reflect a full twelve months of the industrial filtration business . the acquisition resulted in the inclusion of industrial filtration 's assets and liabilities as of the acquisition date at their respective fair values . accordingly , the acquisition materially affected the company 's results of operations and financial position . below are financial highlights comparing lydall 's 2014 results to its 2013 story_separator_special_tag performance materials segment by $ 3.9 million , or 3.5 % , and in the life sciences vital fluids business by $ 2.5 million , or 14.6 % , compared to 2013. net sales in 2013 increased $ 19.0 million , or 5.0 % , compared to 2012. foreign currency translation increased net sales in 2013 by $ 3.8 million , or 1.0 % , compared to 2012 , impacting the thermal/acoustical metals segment 's net sales by $ 2.7 million , or 1.8 % , and the performance materials segment 's net sales by $ 1.1 million , or 0.9 % . the increase in net sales was primarily due to higher net sales of $ 19.9 million , or 21.1 % , for the t/a fibers segment compared to 2012 as parts net sales increased by $ 12.4 million , or 13.2 % , and tooling sales increased $ 7.5 million . net sales in the t/a metals segment increased $ 4.5 million , or 2.9 % , compared to 2012 , primarily due to increased tooling net sales and foreign currency translation . ops net sales increased $ 0.3 million , or 1.9 % . the increase in net sales in the t/a fibers and metals segments and ops were partially offset by lower sales volumes in the performance material segment of $ 6.0 million or 5.1 % . gross profit replace_table_token_5_th 20 the increase in gross margin by 10 basis points in 2014 compared to 2013 was attributable to the pre-acquisition businesses gross margins which increased consolidated gross margin in 2014 , mostly offset by the inclusion of industrial filtration , since the date of acquisition , which reduced the company 's overall gross margin percentage in 2014 compared to 2013. this increase in the pre-acquisition business gross margin was primarily the result of improved gross margin from the t/a fibers segment , which positively impacted the company 's overall gross margin , as a result of increased sales of higher margin part sales compared to lower margin tooling sales , improved absorption of fixed costs , lower raw material costs and labor efficiencies . to a lesser extent gross margin also improved in the t/a metals segment due to a favorable mix of part sales , partially offset by higher aluminum raw material costs , particularly associated with sourcing raw material for the company 's start-up operation in china . increases in gross margin for the performance materials segment and ops had minimal positive impact on the company 's overall gross margin percentage in 2014 compared to 2013. the industrial filtration segment gross margin included the negative impact of a $ 2.1 million purchase accounting adjustment in cost of sales relating to inventory step-up due to the acquisition . the increase in gross margin by 90 basis points in 2013 compared to 2012 was attributable to the t/a fibers segment due to lower raw material costs , improved absorption of fixed overhead costs as a result of higher net sales , labor efficiencies and other cost savings . small changes in gross margin for the t/a metals and performance materials segments and ops had minimal impact on the company 's consolidated gross margin . story_separator_special_tag for 2013 , the difference between the company 's effective tax rate and the statutory federal income tax rate was primarily caused by the release of valuation allowances against state tax credit carryovers of $ 1.1 million , $ 0.8 million of benefit relating to domestic production activities deduction , and a tax benefit of $ 0.5 million related to the conclusion of certain u.s. federal income tax matters through the year ended december 31 , 2009. these favorable tax adjustments were partially offset by an increase in valuation allowance established against a foreign net deferred tax asset . the $ 1.1 million reversal of valuation allowances against state tax credit carryovers included $ 0.3 million of state tax credits 22 which offset 2013 state income taxes and $ 0.8 million expected to benefit future periods . in 2013 , the company maintained a full valuation allowance against a foreign deferred tax asset in the netherlands as future realization of the asset was not reasonably assured due to consistent historical losses since 2008. during 2013 , the company increased this valuation allowance by $ 0.6 million in order to reserve against additional loss carryforwards that were generated in the netherlands during the current year . for 2012 , the difference between the company 's effective tax rate and the statutory federal income tax rate was primarily caused by the release of valuation allowances against foreign tax credit carryovers of $ 3.9 million and state net operating loss carryovers , partially offset by an increase in valuation allowance established against a foreign net deferred tax asset . the company 's state income taxes in 2012 were offset by the reversal of valuation allowances against state net operating loss carryovers of $ 0.5 million as the company used certain state net operating loss carryovers to offset 2012 state income taxes . during 2012 , the company increased its valuation allowance against a foreign deferred tax asset in the netherlands by $ 0.7 million as future realization of such tax benefit was not reasonably assured . the irs released final tangible property regulations on september 13 , 2013 regarding the capitalization of expenditures related to tangible property . all taxpayers must comply with the final tangible property regulations beginning with the first tax year on or after january 1 , 2014. the final regulations did not have a significant impact on the company 's consolidated financial statements in 2014. the company and its subsidiaries file a consolidated federal income tax return , as well as returns required by various state and foreign jurisdictions . in the normal course of business , the company is subject to examination by taxing authorities , including such major jurisdictions as the united states , china , france , germany , hong kong , the netherlands and the united kingdom . the company is no longer subject to u.s. federal examinations for years before 2010 , state and local examinations for years before 2002 , and non-u.s. income tax examinations for years before 2003. segment results replace_table_token_11_th 23 replace_table_token_12_th performance materials segment segment net sales increased $ 3.9 million , or 3.5 % , in 2014 compared to 2013 , due to increased sales volumes and to a lesser extent , the positive impact of foreign currency translation of $ 0.2 million or 0.2 % . an increase in filtration net sales of $ 6.9 million , or 10.6 % , primarily contributed to the increase in segment net sales due to increased demand for air filtration and fluid power products in north america and europe . net sales of life sciences filtration products increased by $ 2.5 million , or 24.2 % , in 2014 compared to 2013 , due to increased demand for liquid filtration and water application products . these increases were partially offset by lower net sales of thermal insulation products of $ 5.5 million , or 15.0 % , in 2014 compared to 2013 , principally due to a decline in sales to a key customer in the hvac market offset to some extent by increased sales of insulation and automotive filtration products . the performance materials segment reported operating income of $ 9.7 million , or 8.4 % of net sales in 2014 , compared to operating income of $ 9.5 million , or 8.4 % of net sales in 2013. during 2014 , the impact of higher sales volume and lower material costs resulted in increased gross margin of approximately 50 basis points , which was nearly offset by higher selling , product development and administrative expenses of $ 1.2 million , or 7.0 % , in 2014 compared to 2013. the higher segment selling , product development and administrative expenses were primarily related to increased accrued incentive compensation of $ 0.9 million as a result of meeting certain operating performance targets in 2014 compared to 2013 when operating performance targets were not met by the business . also , increases in salaries and benefits expense of $ 0.3 million and product development trial costs of $ 0.2 million contributed to the increase in selling , product development and administrative expenses in 2014. these increases were partially offset by lower general administrative expenses of $ 0.2 million primarily related to lower advertising costs and lower depreciation and amortization expense in 2014 compared to 2013. segment net sales decreased $ 6.0 million , or 5.1 % , in 2013 compared to 2012 , due to decreased sales volumes offset to some extent by the positive impact of foreign currency translation of $ 1.1 million or 0.9 % . a reduction in filtration net sales of $ 3.6 million , or 5.3 % , primarily contributed to the reduction in segment net sales as demand for products in europe was lower due to macroeconomic conditions . net sales in the thermal insulation business decreased by $ 1.5 million , including $ 4.5 million of lower net sales in 2013 of electrical papers products .
| results : consolidated net sales of $ 535.8 million , an increase of $ 137.9 million , or 34.6 % , as net sales increased 6.4 % related to pre-acquisition businesses and 28.2 % from the acquisition . foreign currency translation had a minimal impact on sales . gross margin increased to 21.5 % , compared to 21.4 % , principally led by the t/a fibers segment which experienced favorable product mix as well as improved absorption of fixed costs and lower raw material costs , partially offset by lower industrial filtration segment gross margin . 18 selling , product development and administrative expenses were $ 80.9 million , or 15.1 % of net sales , compared to $ 56.5 million , or 14.2 % of net sales ; ◦ inclusion of the industrial filtration segment in 2014 increased selling , product development and administrative expenses by $ 9.5 million ; ◦ selling , product development and administrative expenses increased by $ 5.4 million in all of the company 's pre-acquisition operating businesses including in the performance materials , t/a fibers and t/a metals segments as well as in other products and services . this increase was primarily related to a $ 2.9 million commission settlement in the t/a metals segment as the company terminated a long-standing commercial sales agreement in 2014. other increases were primarily associated with higher salaries and benefits expenses , including an increase of $ 1.3 million in accrued incentive compensation under the company 's 2014 bonus program . excluding the $ 2.9 million commission settlement expense in the t/a metals segment , selling , product development and administrative expenses in the company 's pre-acquisition operating businesses were flat as a percentage of net sales in 2014 compared to 2013 .
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the following discussion should be read in conjunction with the consolidated financial statements and notes thereto which appear elsewhere in this annual report . the company engages in a broad range of activities in the securities industry , including retail securities brokerage , institutional sales and trading , investment banking ( both corporate and public finance ) , research , market-making , trust services and investment advisory and asset management services . its principal subsidiaries are oppenheimer & co. inc. ( `` oppenheimer '' ) and oppenheimer asset management inc. ( `` oam '' ) . as of december 31 , 2015 , the company provided its services from 85 offices in 24 states located throughout the united states , offices in tel aviv , israel , hong kong , china , london , england , st. helier , isle of jersey and geneva , switzerland . client assets administered by the company as of december 31 , 2015 totaled approximately $ 78.7 billion . the company provides investment advisory services through oam and oppenheimer investment management llc ( `` oim '' ) and oppenheimer 's fahnestock asset management , alpha and omega group divisions . at december 31 , 2015 , client assets under management totaled $ 24.1 billion . the company provides trust services and products through oppenheimer trust company of delaware . the company provides discount brokerage services through freedom investments , inc. ( `` freedom '' ) . through opy credit corp. , the company offers syndication as well as trading of issued syndicated corporate loans . oppenheimer multifamily housing & healthcare finance , inc. ( `` omhhf '' ) is engaged in federal housing administration ( `` fha '' ) -insured commercial mortgage origination and servicing . at december 31 , 2015 , the company employed 3,290 employees ( 3,230 full-time and 60 part-time ) , of whom approximately 1,233 were financial advisers . critical accounting policies the company 's accounting policies are essential to understanding and interpreting the financial results reported in the consolidated financial statements . the significant accounting policies used in the preparation of the company 's consolidated financial statements are summarized in note 2 to those statements . certain of those policies are considered to be particularly important to the presentation of the company 's financial results because they require management to make difficult , complex or subjective judgments , often as a result of matters that are inherently uncertain . the following is a discussion of these policies : fair value measurements the accounting guidance for the fair value measurement of financial assets , which defines fair value , establishes a framework for measuring fair value , establishes a fair value measurement hierarchy , and expands fair value measurement disclosures . fair value , as defined by the accounting guidance , is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the fair value hierarchy established by this accounting guidance prioritizes the inputs used in valuation techniques into the following three categories ( highest to lowest priority ) : level 1 : observable inputs that reflect quoted prices ( unadjusted ) for identical assets or liabilities in active markets ; level 2 : inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly ; and level 3 : unobservable inputs that are significant to the overall fair value measurement . the company 's financial instruments that are recorded at fair value generally are classified within level 1 or level 2 within the fair value hierarchy using quoted market prices or quotes from market makers or broker-dealers . financial instruments classified within level 1 are valued based on quoted market prices in active markets and consist of u.s. government , federal agency , and sovereign government obligations , corporate equities , and certain money market instruments . level 2 financial instruments primarily consist of investment grade and high-yield corporate debt , convertible bonds , mortgage and asset-backed securities , municipal obligations , and certain money market instruments . financial instruments classified as level 2 are valued based on quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets that are not active . some financial instruments are classified within level 3 within the fair value hierarchy as observable pricing inputs are not available due to limited market activity for the asset or liability . such financial instruments include investments in hedge funds and private equity funds where the company , through its subsidiaries , is general partner ; less-liquid private label mortgage and asset-backed securities ; certain distressed municipal securities ; interest rate lock commitments where omhhf enters into contractual commitments to originate ( purchase ) and sell multifamily mortgage loans at fixed prices with fixed expiration dates ; and auction rate securities . 35 legal and regulatory reserves the company records reserves related to legal and regulatory proceedings in accounts payable and other liabilities . the determination of the amounts of these reserves requires significant judgment on the part of management . in accordance with applicable accounting guidance , the company establishes reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the company can reasonably estimate the amount of that loss . when loss contingencies are not probable and can not be reasonably estimated , the company does not establish reserves . story_separator_special_tag the company records uncertain tax positions in accordance with asc 740 on the basis of a two-step process whereby it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and , for those tax positions that meet the more-likely-than-not recognition threshold , the company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority . the company records interest and penalties accruing on unrecognized tax benefits in income ( loss ) before income tax provision ( benefit ) as interest expense and other expense , respectively , in its consolidated statement of income . the company permanently reinvests eligible earnings of its foreign subsidiaries and , accordingly , does not accrue any u.s. income taxes that would arise if such earnings were repatriated . new accounting pronouncements recently adopted and recently issued accounting pronouncements are described in note 2 to the consolidated financial statements appearing in item 8. business environment the securities industry is directly affected by general economic and market conditions , including fluctuations in volume and price levels of securities and changes in interest rates , inflation , political events , investor confidence , investor participation levels , legal and regulatory , accounting , tax and compliance requirements and competition , all of which have an impact on commissions , firm trading , fees from accounts under investment management as well as fees for investment banking services , and investment and interest income as well as on liquidity . substantial fluctuations can occur in revenue and net income due to these and other factors . for a number of years , the company offered auction rate securities ( `` ars '' ) to its clients . a significant portion of the market in ars 'failed ' because , in the tight credit market in and subsequent to 2008 , dealers were no longer willing or able to purchase the imbalance between supply and demand for ars . these securities have auctions scheduled on either a 7 , 28 or 35 day cycle . clients of the company own ars in their individual accounts . the absence of a liquid market for these securities presents a significant problem to clients continuing to own ars and , as a result , to the company . it should be noted that this is a failure of liquidity and not a default . these securities in almost all cases have not failed to pay interest or principal when due . these securities are fully collateralized for the most part and , for the most part , remain good credits . the company did not act as an auction agent for ars . interest rates on ars typically reset through periodic auctions . due to the auction mechanism and generally liquid markets , ars historically were categorized as level 1 in the fair value hierarchy . beginning in february 2008 , uncertainties in the credit markets resulted in substantially all of the ars market experiencing failed auctions . once the auctions failed , the ars could no longer be valued using observable prices set in the auctions . the company has used less observable determinants of the fair value of ars , including the strength in the underlying credits , announced issuer redemptions , completed issuer redemptions , and announcements from issuers regarding their intentions with respect to their outstanding ars . the company has also developed an internal methodology to discount for the lack of liquidity and non-performance risk of the failed auctions . due to liquidity problems associated with the ars market , ars that lack liquidity are setting their interest rates according to a maximum rate formula defined in their registration statements . 37 the company has sought financing from a number of sources , with limited success , in order to try to find a means for all its clients to find liquidity from their ars holdings . it seems likely that liquidity will ultimately come from issuer redemptions and tender offers which , to date , combined with purchases by the company have reduced client holdings by approximately 94 % . there can be no assurance that the company will be successful in finding a liquidity solution for all its clients ' ars . see `` risk factors – the company may continue to be adversely affected by the failure of the auction rate securities market '' appearing in item 1a and `` factors affecting 'forward-looking statements ' '' herein . recent events have caused increased review and scrutiny of the methods utilized by financial service companies to finance their short term requirements for liquidity . the company utilizes commercial bank loans , securities lending , and repurchase agreements to finance its short term liquidity needs ( see `` liquidity '' ) . all repurchase agreements and reverse repurchase agreements are collateralized by short term u.s. government obligations and u.s. government agency obligations . the company is focused on growing its private client and asset management businesses through strategic additions of experienced financial advisers in its existing branch system and employment of experienced money management personnel in its asset management business . in addition , the company is committed to the improvement of its technology capability to support client service and the expansion of its capital markets capabilities while addressing the issue of managing its expenses . regulatory and legal environment the brokerage business is subject to regulation by , among others , the sec , the cftc , the nfa and the finra in the united states , the fca in the united kingdom , the jfsc in the isle of jersey , the sfc in hong kong , and various state securities regulators in the united states . in addition , oppenheimer israel ( opco ) ltd. operates under the supervision of the israeli securities authority .
| results of operations the company reported net income attributable to oppenheimer holdings inc. of $ 2.0 million or $ 0.14 basic earnings per share for the year ended december 31 , 2015 compared with net income of $ 8.8 million or $ 0.65 basic earnings per share for the year ended december 31 , 2014 , a decrease of 77.8 % . income before income tax provision for the year ended december 31 , 2015 was $ 6.7 million compared with income before income tax provision of $ 25.7 million for the year ended december 31 , 2014 , a decrease of 73.9 % . revenue for the year ended december 31 , 2015 was $ 928.4 million , a decrease of 7.6 % compared with revenue of $ 1.0 billion for the year ended december 31 , 2014 . the following table sets forth the amount and percentage of the company 's revenue from each principal source for each of the following years ended december 31 : replace_table_token_5_th the company derives most of its revenue from the operations of its principal subsidiaries , oppenheimer and oam . although maintained as separate entities , the operations of the company 's brokerage subsidiaries both in the u.s. and other countries are closely related because oppenheimer acts as clearing broker in transactions initiated by these subsidiaries . except as expressly otherwise stated , the discussion below pertains to the operations of oppenheimer . 42 the following table and discussion summarizes the changes in the major revenue and expense categories for the past two years : replace_table_token_6_th fiscal 2015 compared to fiscal 2014 revenue commission revenue was $ 417.6 million for the year ended december 31 , 2015 , a decrease of 11.1 % compared with $ 469.8 million for the year ended december 31 , 2014 due to a lower financial adviser headcount and reduced transaction volumes from retail investors during the 2015 year .
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based on that evaluation , the company 's management , including the principal executive officer and principal financial officer , concluded that the company 's disclosure controls and procedures were effective as of december 31 , 2011 . 7 management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( “ icfr ” ) for the company . in assessing the company 's icfr , management follows the committee of sponsoring organizations of the treadway commission 's ( “ coso ” ) internal control over financial reporting – guidance for smaller public companies integrated framework ( 2006 ) in assessing the effectiveness of the company 's icfr . management shall determine icfr ineffective if a material weakness exists in the controls . due to the company 's management inability to assess walker louisiana properties ' icfr and lack of compensating controls , management has assessed the company 's icfr as ineffective as of december 31 , 2011. the company owns a one-sixth interest in wlp and wlp 's activities are material to the company . wlp prepares cash basis interim financial statements and audited gaap basis financial statements at year end . at report date , we have not identified a plan or process to remediate the ineffectiveness of the icfr . this annual report does not include an attestation report of the company 's registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by the company 's registered public accounting firm pursuant to temporary rules of the securities and exchange commission that permit the company to provide only management 's report in this annual report . during the quarter ending december 31 , 2011 , the company 's management followed the coso internal control over financial reporting – guidance for smaller public companies integrated framework ( 2006 ) when assessing the icfr . during the quarter ending december 31 , 2011 , there have been no changes in the company 's internal control over financial reporting that has materially affected or is reasonably likely to affect , the company 's internal control over financial reporting . item 9b . other information none . 8 part iii item 10. directors , executive officers , promoters and control persons ; compliance with section 16 ( a ) of the exchange act the information required by item 10 as to directors , nominees for directors , reports under section 16 of the securities exchange act of 1934 , the registrant 's audit committee and an audit committee financial expert is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . executive officers of registrant are as follows : name age position with registrant joseph k. cooper 68 president , chief executive officer and director brian r. jones 51 treasurer , chief financial officer and director charles d. viccellio 78 vice president , secretary and director the occupations of such executive officers during the last five years and other principal affiliations are : name occupations joseph k. cooper president and chief executive officer of ckx lands , inc. since 2008 and 2009 , respectively ; manager of walker louisiana properties , vice president and operations manager of prairie land co. brian r. jones treasurer and chief financial officer of ckx lands , inc. since december 1 , 2006 ; managing member of brian r. jones cpa , llc . charles d. viccellio vice-president and secretary of the company since 1997 and director of the company since 1996 ; attorney in the law firm of stockwell , sievert , viccellio , clements & shaddock , llp . there are no family relationships between any of our directors , except mrs. leach and mrs. werner are mother and daughter , and executive officers or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 . 9 item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . item 13. certain relationships and related transactions the information required by item 13 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 14. principal accountants fees and services the information required by item 14 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . 10 part iv item 15. exhibits , financial statements schedules ( a ) documents filed as part of this report : ( 1 ) financial statements . the financial statements filed as part of this report are listed in the to financial statements appearing immediately after the signature page of this form 10-k and are included herein by reference . ( 2 ) story_separator_special_tag based on that evaluation , the company 's management , including the principal executive officer and principal financial officer , concluded that the company 's disclosure controls and procedures were effective as of december 31 , 2011 . 7 management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( “ icfr ” ) for the company . in assessing the company 's icfr , management follows the committee of sponsoring organizations of the treadway commission 's ( “ coso ” ) internal control over financial reporting – guidance for smaller public companies integrated framework ( 2006 ) in assessing the effectiveness of the company 's icfr . management shall determine icfr ineffective if a material weakness exists in the controls . due to the company 's management inability to assess walker louisiana properties ' icfr and lack of compensating controls , management has assessed the company 's icfr as ineffective as of december 31 , 2011. the company owns a one-sixth interest in wlp and wlp 's activities are material to the company . wlp prepares cash basis interim financial statements and audited gaap basis financial statements at year end . at report date , we have not identified a plan or process to remediate the ineffectiveness of the icfr . this annual report does not include an attestation report of the company 's registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by the company 's registered public accounting firm pursuant to temporary rules of the securities and exchange commission that permit the company to provide only management 's report in this annual report . during the quarter ending december 31 , 2011 , the company 's management followed the coso internal control over financial reporting – guidance for smaller public companies integrated framework ( 2006 ) when assessing the icfr . during the quarter ending december 31 , 2011 , there have been no changes in the company 's internal control over financial reporting that has materially affected or is reasonably likely to affect , the company 's internal control over financial reporting . item 9b . other information none . 8 part iii item 10. directors , executive officers , promoters and control persons ; compliance with section 16 ( a ) of the exchange act the information required by item 10 as to directors , nominees for directors , reports under section 16 of the securities exchange act of 1934 , the registrant 's audit committee and an audit committee financial expert is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . executive officers of registrant are as follows : name age position with registrant joseph k. cooper 68 president , chief executive officer and director brian r. jones 51 treasurer , chief financial officer and director charles d. viccellio 78 vice president , secretary and director the occupations of such executive officers during the last five years and other principal affiliations are : name occupations joseph k. cooper president and chief executive officer of ckx lands , inc. since 2008 and 2009 , respectively ; manager of walker louisiana properties , vice president and operations manager of prairie land co. brian r. jones treasurer and chief financial officer of ckx lands , inc. since december 1 , 2006 ; managing member of brian r. jones cpa , llc . charles d. viccellio vice-president and secretary of the company since 1997 and director of the company since 1996 ; attorney in the law firm of stockwell , sievert , viccellio , clements & shaddock , llp . there are no family relationships between any of our directors , except mrs. leach and mrs. werner are mother and daughter , and executive officers or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 . 9 item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . item 13. certain relationships and related transactions the information required by item 13 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 14. principal accountants fees and services the information required by item 14 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . 10 part iv item 15. exhibits , financial statements schedules ( a ) documents filed as part of this report : ( 1 ) financial statements . the financial statements filed as part of this report are listed in the to financial statements appearing immediately after the signature page of this form 10-k and are included herein by reference . ( 2 )
| results of operations fiscal year 2011 compared to fiscal year 2010 revenues for 2011 were $ 1,984,914 , an increase of 18.76 % when compared with 2010 revenues of $ 1,671,354. oil and gas revenues increased by $ 396,083 , or 28.17 % , to $ 1,802,205 in 2011. oil and gas revenues consist of royalty , lease rental and geophysical revenue . royalty revenue increased by $ 371,894 or 31.89 % , and lease rentals increased by $ 13,883 or 5.80 % , from 2010. geophysical revenues increased by $ 10,306 or 1302.91 % , from 2010. gas production decreased by 6,947 mcf , and the average gas sales price per mcf increased by 0.44 % resulting in a decrease in gas revenue of $ 34,238. revenue from oil production , including plants , increased by $ 406,132 , due to an decrease of 3.47 % in the average barrel sales price and an increase in production of approximately 7,778 barrels . 4 the following five fields produced 57.42 % and 62.01 % of the company 's oil and gas revenues in 2011 and 2010 , respectively . this following schedule shows the number of barrels of oil ( bbl oil ) and mcf of gas ( mcf gas ) produced in 2011 and 2010. replace_table_token_4_th from review of the limited information provided by the field operators , it appears field production increases were due to reworking or recompleting existing wells . field production decreases were due to expected depletion . in 2011 , the company was a lessor in 10 new mineral leases covering a total of 1,040 gross acres . the company 's net acres leased in 2011 were 225 acres . the new leased acres are located in three different parishes and gonzales county , texas .
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concentrations of credit risk with respect to receivables are limited due to the company 's large number of clients and their dispersion across many different industries and story_separator_special_tag forward-looking statements this annual report on form 10-k may contain certain statements that we believe are , or may be considered to be , forward-looking statements , within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these forward-looking statements generally can be identified by use of statements that include phrases such as believe , expect , anticipate , intend , plan , foresee , may , will , likely , estimates , potential , continue or other similar words or phrases . similarly , statements that describe our objectives , plans or goals also are forward-looking statements . all of these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement . the principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include , but are not limited to , dependence on attracting and retaining qualified and experienced consultants , maintaining our brand name and professional reputation , potential legal liability , portability of client relationships , global and local political or economic developments in or affecting countries where we have operations , currency fluctuations in our international operations , risks related to growth , restrictions imposed by off-limits agreements , competition , reliance on information processing systems , our ability to enhance and develop new technology , employment liability risk , an impairment in the carrying value of goodwill and other intangible assets , deferred tax assets that we may not be able to use , our ability to develop new products and services , alignment of our cost structure to our growth , risks related to the integration of recently acquired businesses and the matters disclosed under the heading risk factors in the company 's exchange act reports , including item 1a included in this annual report . readers are urged to consider these factors carefully in evaluating the forward-looking statements . the forward-looking statements included in this annual report on form 10-k are made only as of the date of this annual report on form 10-k and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances . the following presentation of management 's discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this annual report on form 10-k. executive summary korn/ferry international ( referred to herein as the company , korn/ferry , or in the first person notations we , our , and us ) is a premier global provider of talent management solutions that helps clients to attract , deploy , develop and reward their talent . we are the premier provider of executive recruitment , leadership and talent consulting and talent acquisition solutions , with the broadest global presence in the recruitment industry . our services include executive recruitment , middle-management recruitment ( through futurestep ) , recruitment process outsourcing ( rpo ) , leadership and talent consulting ( ltc ) and executive coaching . approximately 72 % of the executive recruitment searches we performed in fiscal 2011 were for board level , chief executive and other senior executive and general management positions . our 4,736 clients in fiscal 2011 included many of the world 's largest and most prestigious public and private companies , including approximately 47 % of the fortune 500 , middle market and emerging growth companies , as well as government and nonprofit organizations . we have 21 built strong client loyalty with 78 % of the executive recruitment assignments performed during fiscal 2011 on behalf of clients for whom we had conducted assignments in the previous three fiscal years . in an effort to maintain our long-term strategy of being the leading provider of talent management solutions , our strategic focus for fiscal 2012 centers upon enhancing the integration of our multi-service strategy . we plan to continue to address areas of increasing client demand , including rpo and ltc . we further plan to explore new products and services , continue to pursue a disciplined acquisition strategy , enhance our technology and processes and aggressively leverage our brand through thought leadership and intellectual capital projects as a means of delivering world-class service to our clients . fee revenue increased $ 171.9 million in fiscal 2011 to $ 744.3 million compared to $ 572.4 million fiscal 2010 , with increases in fee revenue in all regions of executive recruitment and futurestep . the north america region in executive recruitment experienced the largest dollar increase in fee revenue . during fiscal 2011 , we recorded consolidated operating income of $ 85.8 million , with the executive recruitment and futurestep segments contributing $ 111.4 million and $ 5.0 million , respectively , offset by corporate expenses of $ 30.6 million . this represents an increase of $ 88.5 million in fiscal 2011 , from an operating loss of $ 2.7 million in fiscal 2010. our cash , cash equivalents and marketable securities increased by $ 72.6 million , or 24 % , to $ 369.1 million at april 30 , 2011 compared to $ 296.5 million at april 30 , 2010 , mainly due to cash provided by operating activities , partially offset by bonuses earned in fiscal 2010 , which were paid in fiscal 2011. as of april 30 , 2011 , we held marketable securities , to settle obligations under our executive capital accumulation plan ( ecap ) , with a cost value of $ 64.7 million and a fair value of $ 71.4 million . our working capital increased by $ 24.9 million in fiscal 2011 to $ 207.7 million . story_separator_special_tag futurestep reported fee revenue of $ 90.2 million , an increase of $ 22.2 million , or 33 % , in fiscal 2011 compared to $ 68.0 million in fiscal 2010. the increase in futurestep 's fee revenue was due to a 21 % increase in the number of engagements billed in fiscal 2011 as compared to fiscal 2010 , coupled with a 10 % increase in the weighted-average fees billed per engagement . the increase in futurestep 's fee revenue consisted of north america fee revenue increase of $ 11.1 million , or 46 % , to $ 35.3 million ; europe fee revenue increase of $ 7.7 million , or 39 % , to $ 27.6 million and an increase in asia pacific fee revenue of $ 3.4 million , or 14 % , to $ 27.3 million . improvement in futurestep fee revenue is attributed to increases in middle-management recruitment and rpo . exchange rates favorably impacted fee revenue for futurestep by $ 2.0 million in fiscal 2011. compensation and benefits compensation and benefits expense increased $ 94.1 million , or 23 % , to $ 507.4 million in fiscal 2011 from $ 413.3 million in fiscal 2010. the increase in compensation and benefits expenses is primarily due to an increase in the weighted-average compensation in fiscal 2011 as compared to fiscal 2010 , including a $ 53.0 million increase in the variable component of compensation and an increase in headcount of 12 % . this increase was partially offset by a $ 2.0 million decrease of the bonus provision due to a change in the estimate of bonus payouts . exchange rates unfavorably impacted compensation and benefits expenses by $ 2.9 million during fiscal 2011 . 25 executive recruitment compensation and benefits expense increased $ 86.9 million , or 26 % , to $ 424.9 million in fiscal 2011 compared to $ 338.0 million in fiscal 2010 , primarily due to a $ 50.3 million increase in the variable component of compensation and to a lesser extent due to a 7 % increase in executive recruitment headcount . variable compensation was also lower during fiscal 2010 compared to fiscal 2011 , due to the challenging economic conditions experienced during fiscal 2010. executive recruitment compensation and benefits expenses as a percentage of fee revenue were 65 % in fiscal 2011 compared to 67 % in fiscal 2010. futurestep compensation and benefits expense increased $ 11.6 million , or 22 % , to $ 64.3 million in fiscal 2011 from $ 52.7 million in fiscal 2010 , primarily due to a 29 % increase in headcount , $ 2.7 million increase in the variable component of compensation and $ 2.5 million for external contractors . futurestep compensation and benefits expense as a percentage of fee revenue decreased to 71 % in fiscal 2011 from 78 % in fiscal 2010. corporate compensation and benefits expense decreased $ 4.4 million , or 20 % , to $ 18.2 million in fiscal 2011 compared to $ 22.6 million in fiscal 2010 , primarily due to a smaller increase in certain deferred compensation liabilities of $ 5.0 million during fiscal 2011 as compared to fiscal 2010. we hold marketable securities , classified as trading securities , in trust for settlement of these deferred compensation obligations . the change in fair value of these marketable securities is included in other income , net , which substantially offsets the decrease in compensation and benefits expense created by the change in these deferred compensation liabilities . we have other deferred compensation retirement plans , which increased compensation and benefits expense by $ 2.2 million in fiscal 2011 as compared to fiscal 2010 due to a smaller increase in the cash surrender value ( csv ) of company owned life insurance ( coli ) during fiscal 2011 as compared to fiscal 2010. general and administrative expenses general and administrative expenses increased $ 1.2 million , or 1 % , to $ 116.5 million in fiscal 2011 compared to $ 115.3 million in fiscal 2010 due to increases of $ 4.3 million in bad debt expense ; $ 3.1 million in travel and meetings expense and $ 2.1 million in other expenses including business development and premises and office expense . substantially offsetting these increases was a $ 4.9 million reduction in the estimated fair value of acquisition-related contingent consideration and a $ 3.4 million decrease in net foreign exchange losses . exchange rates unfavorably impacted general and administrative expenses by $ 0.3 million in fiscal 2011. general and administrative expenses as a percentage of fee revenue was 16 % in fiscal 2011 as compared to 20 % in fiscal 2010. executive recruitment general and administrative expenses increased by $ 5.2 million , or 6 % , to $ 88.6 million in fiscal 2011 from $ 83.4 million in fiscal 2010. the increase in general and administrative expenses was driven by increases of $ 3.9 million in bad debt expense , $ 2.4 million in travel and meetings expense and $ 1.4 million in business development expenses , which were offset by a $ 1.8 million decrease in net foreign exchange losses and $ 1.5 million in professional expenses . the increase in bad debt expense was in line with the increase in our revenues . travel and meetings expense and business development expenses increased primarily due to the increase in our overall business activities . executive recruitment general and administrative expenses as a percentage of fee revenue was 14 % in fiscal 2011 compared to 17 % in fiscal 2010. futurestep general and administrative expenses increased $ 3.0 million , or 21 % , to $ 17.4 million in fiscal 2011 compared to $ 14.4 million in fiscal 2010 , primarily due to increases of $ 1.2 in other expenses including bad debt expense , professional expenses and business development expense ; $ 0.9 million in travel and meetings expense and $ 0.6 million in premises and office expense .
| results of operations the following table summarizes the results of our operations as a percentage of fee revenue : replace_table_token_5_th 23 the following tables summarize the results of our operations by business segment : replace_table_token_6_th replace_table_token_7_th ( 1 ) margin calculated as a percentage of fee revenue by business segment . fiscal 2011 compared to fiscal 2010 fee revenue fee revenue . fee revenue increased $ 171.9 million , or 30 % , to $ 744.3 million in fiscal 2011 compared to $ 572.4 million in fiscal 2010. excluding fee revenue of $ 11.0 million and $ 3.7 million in fiscal 2011 and 2010 , respectively , from the acquisition of sensa solutions ( which we acquired on january 1 , 2010 ) , fee revenue would have been $ 733.3 million in fiscal 2011 and $ 568.7 million in fiscal 2010 , an increase of $ 164.6 million , or 29 % . the increase in fee revenue , excluding fee revenue from the acquisition of sensa solutions , was primarily attributable to a 24 % increase in the number of engagements billed during fiscal 2011 as compared to fiscal 2010 and a 4 % increase in the weighted-average fees billed per engagement during the same period . exchange rates favorably impacted fee revenues by $ 4.1 million in fiscal 2011. executive recruitment . executive recruitment reported fee revenue of $ 654.1 million , an increase of $ 149.7 million , or 30 % , in fiscal 2011 compared to $ 504.4 million in fiscal 2010. the increase in executive 24 recruitment fee revenue was mainly due to a 26 % increase in the number of executive recruitment engagements billed in fiscal 2011 as compared to fiscal 2010 , and a 3 % increase in the weighted-average fees billed per engagement during the same period .
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by offering efficient ways to move , interpret , and visualize complex and highly sensitive information , we help our customers in healthcare , life sciences , logistics , telecommunications , and other industries , to automate , understand , and act on data while keeping it secure and scalable . nanthealth 's product portfolio comprises the latest technology in payer/provider collaboration platforms for real-time coverage decision support ( navinet and eviti ) , molecular analysis services ( gps cancer and omics core ) , and data solutions that include multi-data analysis , reporting and professional services offerings ( quadris ) . in addition , the opennms group , inc. ( `` opennms '' ) , a nanthealth subsidiary , helps businesses monitor and manage network health and performance . altogether , we generally derive revenue from saas subscription fees , support services , professional services , molecular analysis services , and revenue sharing through collaborations with complementary businesses . we market certain of our solutions as a comprehensive integrated solution that includes our clinical decision support , payer engagement solutions , molecular sequencing and analysis services , data analysis and network monitoring and management . we also market our clinical decision support , payer engagement solutions , molecular sequencing and analysis services , data analysis and network monitoring and management on a stand-alone basis . to accelerate our commercial growth and enhance our competitive advantage , we intend to continue to : introduce new marketing , education and engagement efforts and foster relationships across the health care community to drive adoption of nanthealth products and services ; strengthen our commercial organization to increase our nanthealth solutions client base and to broaden usage of our solutions by existing clients ; develop new features and functionality for nanthealth solutions to address the needs of current and future healthcare provider and payer , self-insured employer and biopharmaceutical company clients , as well as logistics , telecommunications and other clients through opennms ; pursue reimbursement of molecular sequencing and analysis services from regional and national third-party payers and government payers ; and publish scientific and medical advances . the acquisition of opennms , an enterprise-grade open-source network management company , expands and diversifies nanthealth 's software portfolio and service offerings , adding ai technologies , and enhancing cloud and saas capabilities . we believe opennms will provide nanthealth customers with a new set of services to maintain reliable network connections for critical data flows that enable patient data collaboration and decision making at the point of care . since our inception , we have devoted substantially all our resources to the development and commercialization of nanthealth solutions , as well as the commercial launch and expansion of our molecular sequencing and analysis business . to complement our internal growth and expertise , we have made several strategic acquisitions of companies , products and technologies . we have incurred significant losses since our inception and , as of december 31 , 2020 , our accumulated deficit was approximately $ 1.0 billion . we expect to continue to incur operating losses over the near term as we expand our commercial operations , invest further in nanthealth solutions , and support adoption of our molecular sequencing and analysis solutions ( including gps cancer ) . - 82 - we plan to ( i ) continue investing in our infrastructure , including but not limited to solution development , sales and marketing , implementation and support , ( ii ) continue efforts to make infrastructure investments within an overall context of maintaining reasonable expense discipline , ( iii ) add new clients through maintaining and expanding sales , marketing and solution development activities , ( iv ) expand our relationships with existing clients through delivery of add-on and complementary solutions and services and ( v ) continue our commitment of service in support of our client satisfaction programs . 2020 acquisition of the opennms group , inc. on july 22 , 2020 , we entered into an assignment agreement ( the “ assignment agreement ” ) with cambridge to acquire approximately 91 % of opennms for $ 5.6 million in cash . contemporaneously with the closing of the assignment agreement , opennms issued call options to the company consisting of , when exercised , cash payment of $ 0.3 million and issuance of 56,769 shares of the company 's common stock in exchange for the 9 % of the shares of opennms common stock held by the remaining shareholders . these call options expired unexercised on september 30 , 2020. covid-19 pandemic in march 2020 , the world health organization declared the novel coronavirus ( covid-19 ) a pandemic . in the same month , the president of the united states declared a state of national emergency due to the covid-19 outbreak . many jurisdictions , particularly in north america ( including the united states ) , europe and asia , as well as u.s. states in which we operate , including california , have adopted or are considering laws , rules , regulations or decrees intended to address the covid-19 outbreak , including implementing travel restrictions , closing non-essential businesses and or restricting daily activities . in addition , many communities have limited , and are considering to further limit , social mobility and gathering . to date , there has been no material adverse impact to our business from the covid-19 pandemic . given the unprecedented and evolving nature of the pandemic , the future impact of these changes and potential changes on the company and our contractors , consultants , customers , resellers and partners is unknown at this time . however , in light of the uncertainties regarding economic , business , social , health and geopolitical conditions , our revenues , earnings , liquidity , and cash flows could be adversely affected , whether on an annual or quarterly basis . continued impacts of the covid-19 pandemic could materially adversely affect our current and long-term account receivable collectibility , as our negatively impacted customers from the pandemic may request temporary relief , delay , or not make scheduled payments . story_separator_special_tag we also agreed that allscripts shall receive at least $ 0.5 million per year in payments from bookings ( the “ annual minimum commitment ” ) . if the total payments received by allscripts from bookings during such period are less than the annual minimum commitment , we shall pay to allscripts the difference between the annual minimum commitment and the total amount received by allscripts from bookings during such period . in the event of a bookings commitment shortfall at the end of the ten-year period , we may be obligated to pay 70 % of the shortfall , subject to certain credits . we will earn 30 % commission from allscripts on each software referral transaction that results in a booking with allscripts . we account for the bookings commitment at its estimated fair value over the life of the agreement . the total estimated liability was $ 33.9 million and $ 22.7 million as of december 31 , 2020 and 2019 , respectively . non-gaap net loss from continuing operations and non-gaap net loss per share from continuing operations adjusted net loss from continuing operations and adjusted net loss per share from continuing operations are financial measures that are not prepared in conformity with united states generally accepted accounting principles ( u.s. gaap ) . our management believes that the presentation of non-gaap financial measures provides useful supplementary information regarding operational performance , because it enhances an investor 's overall understanding of the financial results for our core business . additionally , it provides a basis for the comparison of the financial results for our core business between current , past and future periods . other companies may define these measures in different ways . non-gaap financial measures should be considered only as a supplement to , and not as a substitute for or as a superior measure to , financial measures prepared in accordance with u.s. gaap . non-gaap net loss from continuing operations excludes the effects of ( 1 ) loss from equity method investments including impairment losses , ( 2 ) stock-based compensation expense , ( 3 ) change in fair value of derivatives liability , ( 4 ) change in fair value of the bookings commitment , ( 5 ) noncash interest expense related to convertible notes , ( 6 ) intangible amortization , ( 7 ) impairment of intangible assets , including internal-use software , ( 8 ) loss on sale of business , ( 9 ) securities litigation costs , and ( 10 ) the impacts of certain income tax benefits and provisions from noncash activity . - 84 - the following table reconciles net loss from continuing operations attributable to nanthealth to net loss from continuing operations attributable to nanthealth - non-gaap for the years ended december 31 , 2020 and 2019 : replace_table_token_0_th the following table reconciles net loss per common share from continuing operations attributable to nanthealth to net loss per common share from continuing operations attributable to nanthealth - non-gaap for the years ended december 31 , 2020 and 2019 : replace_table_token_1_th - 85 - components of our results of operations revenue we generate our revenue from the sale of software-as-a-service ( `` saas '' ) , maintenance , and services . our systems infrastructure and platforms support the delivery of both personalized comprehensive sequencing and molecular analysis , the implementation of value-based care models across the healthcare continuum , and maintenance of reliable network connections . we generate revenue from the following sources : software-as-a-service related - saas related revenue is generated from our clients ' access to and usage of our hosted software solutions on a subscription basis for a specified contract term . in saas arrangements , the customer can not take possession of the software during the term of the contract and generally only has the right to access and use the software and receive any software upgrades published during the subscription period . solutions sold under a saas model include our eviti platform solutions and navinet . maintenance - maintenance revenue includes technical support or maintenance on opennms software during the contract term . our networking monitoring solutions typically consist of a term-based subscription to the opennms software license and maintenance , which entitle customers to unspecified software updates and upgrades on a when-and-if-available basis . revenue is recognized over the maintenance or support term . professional services - professional services revenue is generated from consulting services to help customers install , integrate and optimize opennms , sponsored development , and training to assist customers deploy and use opennms solutions . sponsored development relates to professional services to build customer specific functionality , features , and enhancements into the opennms open source platform . typically , revenue is recognized over time using direct labor hours as a measure of progress . sequencing and molecular analysis - sequencing and molecular analysis revenue is generated by providing customers with reports of the results of performing sequencing and molecular analysis of dna and rna ( and previously proteomic testing ) under our reseller agreement with nantomics , and from blood samples via our liquid/blood-based tumor profiling platform through our subsidiary , nanthealth labs , inc. revenue is recognized at a point in time , when reports of results are transferred to the ordering physician or institution , or on a cash basis ; or ratably over time for the period of a stand-ready obligation to provide blood-based tumor profiling services . home health care services - home health care services revenue includes revenue related to nursing and therapy services provided to patients in a home care setting . on june 7 , 2019 , we completed the divestiture of our home health care services business . see note 4 to the accompanying consolidated financial statements .
| results of operations the following table sets forth our consolidated statements of operations data for each of the periods indicated : replace_table_token_2_th - 89 - the following table sets forth our consolidated statements of operations data as a percentage of revenue for each of the periods indicated ( unaudited ) : replace_table_token_3_th - 90 - comparison of the years ended december 31 , 2020 and 2019 revenue replace_table_token_4_th comparison of the years ended december 31 , 2020 and 2019 total revenue decreased $ 4.3 million , or 5.5 % , from $ 77.4 million for the year ended december 31 , 2019 to $ 73.2 million for the year ended december 31 , 2020. our total decline in revenue was driven primarily by decreases in our home health care services and sequencing and molecular analysis revenue categories . total software-related revenue increased by $ 0.1 million , or 0.2 % , for the year ended december 31 , 2020 , compared to the prior year period . the increase is related to higher maintenance and professional services revenue due to the acquisition of opennms ( see note 19 to the accompanying consolidated financial statements ) and was partially offset by a decrease in saas revenue of $ 0.6 million . the decrease in saas revenue was driven by a $ 3.7 million decrease in navinet revenue related to lower membership , lower professional services implementation amortization , and promotional activities related to the covid-19 pandemic in the second quarter of 2020 , partially offset by higher revenues of $ 3.1 million from our eviti platform solutions due to a combination of new customers and increased covered lives on existing customers . one of our navinet customers representing approximately 14.9 % and 12.9 % of our total revenue for the years ended december 31 , 2020 and 2019 , respectively , did not renew its contract .
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the actual results of the future events described in such forward-looking statements in this annual report could differ materially from those stated in such forward-looking statements . among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in item 1a . risk factors and the uncertainties set forth from time to time in our other public reports and filings and public statements . overview our long-term strategy is to provide the best small and medium-sized businesses in the united states with our specialized human resources service offering and to leverage our buying power and expertise to provide additional valuable services to clients . our most comprehensive hr services offerings are provided through our workforce optimization ® and workforce synchronization tm solutions ( together , our peo hr outsourcing solutions ) , which encompass a broad range of human resources functions , including payroll and employment administration , employee benefits , workers ' compensation , government compliance , performance management and training and development services . our overall operating results can be measured in terms of revenues , payroll costs , gross profit or operating income per worksite employee per month . we often use the average number of worksite employees paid during a period as our unit of measurement in analyzing and discussing our results of operations . in addition to our peo hr outsourcing solutions , we offer a number of other business performance solutions , including human capital management , payroll services , time and attendance , performance management , organizational planning , recruiting services , employment screening and expense management services , retirement services and insurance services , many of which are offered via desktop applications and cloud-based delivery models . these other products or services are offered separately , as a bundle , or along with our peo hr outsourcing solutions . we ended 2017 averaging 189,513 paid worksite employees in the fourth quarter , which represents a 9.8 % increase over the fourth quarter of 2016 . approximately 23.6 % and 24.5 % of our average paid worksite employees were in our middle market sector for the years ended december 31 , 2017 and 2016 , respectively , which is generally defined as companies with 150 to 2,000 worksite employees . we expect the average number of paid worksite employees per month to be between 193,500 and 195,300 in the first quarter of 2018 . our average gross profit per worksite employee per month was $ 261 in 2017 and $ 247 in 2016 . operating expenses increased 14.9 % in 2017 to $ 442.8 million . on a per worksite employee per month basis , operating expenses increased from $ 194 in 2016 to $ 202 in 2017 . adjusted operating expenses increased 14.5 % in 2017 to $ 440.8 million . on a per worksite employee per month basis , adjusted operating expenses increased from $ 193 in 2016 to $ 201 in 2017 . net income in 2017 was $ 84.4 million , a 27.9 % increase compared to 2016 . our adjusted net income in 2017 was $ 103.0 million , a 34.3 % increase compared to 2016 . our adjusted ebitda increased 25.9 % over 2016 to $ 177.7 million . our adjusted ebitda per worksite employee per month increased 14.1 % from $ 71 in 2016 to $ 81 in 2017 . we ended 2017 with working capital of $ 52.5 million . during 2017 , we paid $ 65.8 million in dividends and repurchased shares of our common stock at a cost of $ 38.7 million . revenues we account for our revenues in accordance with accounting standards codification ( “ asc ” ) 605-45 , revenue recognition . our peo hr outsourcing solutions gross billings to clients include the payroll cost of each worksite employee at the client location and a markup computed as a percentage of each worksite employee 's payroll cost . we invoice the gross billings concurrently with each periodic payroll of our worksite employees . revenues , which exclude the payroll cost component of gross billings , and therefore , consist solely of the markup , are recognized ratably over the payroll period as worksite employees perform their service at the client worksite . this markup includes pricing components associated with our estimates of payroll taxes , benefits and workers ' compensation costs , plus a separate component related to our hr services . we - 31 - include revenues that have been recognized but not invoiced in unbilled accounts receivable on our consolidated balance sheets . our revenues are primarily dependent on the number of clients enrolled , the resulting number of worksite employees paid each period and the number of worksite employees enrolled in our benefit plans . because our total markup is computed as a percentage of payroll cost , certain revenues are also affected by the payroll cost of worksite employees , which may fluctuate based on the composition of the worksite employee base , inflationary effects on wage levels and differences in the local economies of our markets . direct costs the primary direct costs associated with revenue-generating activities for our peo hr outsourcing solutions are : employment-related taxes ( “ payroll taxes ” ) costs of employee benefit plans workers ' compensation costs payroll taxes consist of the employer 's portion of social security and medicare taxes under fica , federal unemployment taxes and state unemployment taxes . payroll taxes are generally paid as a percentage of payroll cost . the federal unemployment tax rates are defined by federal regulations . state unemployment tax rates are subject to claim histories and vary from state to state . employee benefits costs are comprised primarily of health insurance premiums and claims costs ( including dental and pharmacy costs ) , but also include costs of other employee benefits such as life insurance , vision care , disability insurance , education assistance , adoption assistance , a flexible spending account program and a work-life program . story_separator_special_tag accordingly , we record the costs of the united plan , including an estimate of the incurred claims , taxes and administrative fees ( collectively the “ plan costs ” ) , as benefits expense in the consolidated statements of operations . the estimated incurred claims are based upon : ( i ) the level of claims processed during the quarter ; ( ii ) estimated completion rates based upon recent claim development patterns under the plan ; and ( iii ) the number of participants in the plan , including both active and cobra enrollees . each reporting period , changes in the estimated ultimate costs resulting from claim trends , plan design and migration , participant demographics and other factors are incorporated into the benefits costs . additionally , since the plan 's inception , under the terms of the contract , united establishes cash funding rates 90 days in advance of the beginning of a reporting quarter . if the plan costs for a reporting quarter are greater than the premiums paid and owed to united , a deficit in the plan would be incurred and we would accrue a liability for the excess costs on our consolidated balance sheets . on the other hand , if the plan costs for the reporting quarter are less than the premiums paid - 33 - and owed to united , a surplus in the plan would be incurred and we would record an asset for the excess premiums on our consolidated balance sheets . the terms of the arrangement with united require us to maintain an accumulated cash surplus in the plan of $ 9.0 million , which is reported as long-term prepaid insurance . as of december 31 , 2017 , plan costs were less than the premiums paid and owed to united by $ 12.1 million . as this amount is in excess of the agreed-upon $ 9.0 million surplus maintenance level , the $ 3.1 million difference is included in prepaid health insurance costs , a current asset , on our consolidated balance sheets . in addition , the premiums owed to united at december 31 , 2017 , were $ 21.9 million , which is included in accrued health insurance costs , a current liability , on our consolidated balance sheets . we believe that recent claims activity is representative of incurred and paid trends during the reporting period . the estimated completion rate and annual trend used to compute incurred but not reported claims involves a significant level of judgment . accordingly , an increase ( or decrease ) in the completion rate or annual trend used to estimate the incurred claims would result in an increase ( or decrease ) in benefits costs and net income would decrease ( or increase ) accordingly . the following table illustrates the sensitivity of changes in the completion rate and annual trend on our estimate of total benefit costs of $ 1.5 billion in 2017 : replace_table_token_8_th workers ' compensation costs – since 2007 , our workers ' compensation coverage has been provided through our arrangement with chubb . the chubb program is fully insured in that chubb has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities . under the chubb program , we have financial responsibility to chubb for the first $ 1 million layer of claims per occurrence and , for claims over $ 1 million , up to a maximum aggregate amount of $ 5 million per policy year for claims that exceed $ 1 million . our coverage from september 1 , 2003 through september 30 , 2007 was provided through selected member insurance companies of american international group , inc. because we bear the financial responsibility for claims up to the levels noted above , such claims , which are the primary component of our workers ' compensation costs , are recorded in the period incurred . workers ' compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury . accordingly , the accrual of related incurred costs in each reporting period includes estimates , which take into account the ongoing development of claims and therefore requires a significant level of judgment . we utilize a third-party actuary to estimate our loss development rate , which is primarily based upon the nature of worksite employees ' job responsibilities , the location of worksite employees , the historical frequency and severity of workers ' compensation claims , and an estimate of future cost trends . each reporting period , changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers ' compensation claims cost estimates . during the years ended december 31 , 2017 and 2016 , we reduced accrued workers ' compensation costs by $ 16.3 million and $ 10.9 million , respectively , for changes in estimated losses related to prior reporting periods . workers ' compensation cost estimates are discounted to present value at a rate based upon the u.s. treasury rates that correspond with the weighted average estimated claim payout period ( the average discount rate was 1.6 % in 2017 and 1.1 % in 2016 ) and are accreted over the estimated claim payment period and included as a component of direct costs in our consolidated statements of operations . our claim trends could be greater than or less than our prior estimates , in which case we would revise our claims estimates and record an adjustment to workers ' compensation costs in the period such determination is made . if we were to experience any significant changes in actuarial assumptions , our loss development rates could increase ( or decrease ) , which would result in an increase ( or decrease ) in workers ' compensation costs and a resulting decrease ( or increase ) in net income reported in our consolidated statements of operations .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 . the following table presents certain information related to our results of operations : replace_table_token_10_th ( 1 ) adjusted to reflect the two-for-one split of our common stock effected on december 18 , 2017 in the form of a stock dividend . ( 2 ) please read “ —non-gaap financial measures ” for a reconciliation of the non-gaap financial measures to their most directly comparable financial measures calculated and presented in accordance with gaap . ( 3 ) gross billings of $ 9,202 and $ 9,011 per worksite employee per month , less payroll cost of $ 7,697 and $ 7,533 per worksite employee per month , respectively . revenues our revenues , which represent gross billings net of worksite employee payroll cost , increased 12.2 % in 2017 compared to 2016 , due to a 10.2 % increase in the average number of worksite employees paid per month and a 1.8 % , or $ 27 increase in revenues per worksite employee per month compared to 2016 . - 37 - we provide our peo hr outsourcing solutions to small and medium-sized businesses in strategically selected markets throughout the united states . by region , our peo hr outsourcing solutions revenue change from 2016 and distribution for the years ended december 31 , 2017 and 2016 were as follows : replace_table_token_11_th ( 1 ) comprised primarily of revenues generated by our other products and services offerings . the percentage of total peo hr outsourcing solutions revenues in our significant markets include the following : replace_table_token_12_th our growth in the number of worksite employees paid is affected by three primary sources : new client sales , client retention and the net change in existing clients through worksite employee new hires and layoffs .
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telecommunications ( “ telco ” ) the company 's telco segment sells new and refurbished telecommunications networking equipment , including both central office and customer premise equipment , to its customer base of telecommunications providers , enterprise customers and resellers located primarily in north america . this segment also offers its customers repair and testing services for telecommunications networking equipment . in addition , this segment offers its customers decommissioning services for surplus and obsolete equipment , which it in turn processes through its recycling program . 10 recent business developments purchase of net assets of fulton technologies , inc. and mill city communications , inc. on december 27 , 2018 , we entered into a purchase agreement to acquire substantially all of the net assets of fulton technologies and mill city . we closed this transaction on january 4 , 2019 for $ 1.3 million in cash . the purchase allows us to enter into the wireless communication services business , which is poised for significant growth with the advent of 5g technology . this acquisition is part of the overall growth strategy that will further grow and diversify the company into the broader telecommunications industry by providing wireless infrastructure services , which will continue to experience significant growth . fulton operates out of two primary locations . fulton north , which is based just outside of chicago in roselle , illinois , operates across the northern states including illinois , iowa and minnesota . fulton southwest , which is based in dallas , texas , operates throughout texas and neighboring states . as part of the asset purchase , we also acquired mill city , which is based in fridley , minnesota . in april 2019 , we decided to market and sell the assets of the mill city operation and focus the company 's operations on its two large metropolitan locations . fulton 's coverage of chicago , dallas , houston , san antonio and austin allows it to participate in a collection of top wireless markets in the nation . one of the key attractions of acquiring fulton is that it had existing contracts and customer relationships . fulton is an approved vendor with the four major u.s. wireless carriers , leading communication tower companies , national integrators , and major equipment manufacturers . the acquisition allowed us to enter the wireless communication space quickly and cost effectively . the customer contracts that fulton had in place eliminated a key barrier for us to enter this industry due to the required experience and safety qualifications necessary to obtain the contracts . in one of its business lines , fulton performs equipment installations , upgrades and maintenance services for its customers primarily on communication towers . having the proper safety record , training capability and quality oversight is paramount in the industry . fulton has prided itself in performing safe , timely and high-quality services . demand for tower equipment installation and upgrading services is at an all-time high , and we expect this trend to continue for the foreseeable future as wireless carriers continue to add capacity , expand their networks and upgrade their current technology for high speed connectivity , including 5g technology . fulton 's other primary business line involves the installation and support of temporary tower locations . this niche and growing business includes the erection of temporary towers to allow for the maintenance of permanent locations without causing a degradation of wireless service coverage in the area . in addition , fulton provides temporary tower solutions for special events that require an increase of coverage and capacity for festivals , concerts and sporting events . fulton has an inventory of temporary poles of different sizes and uses a unique installation process for the quick deployment of a tower location with little to no environmental impact . wireless segment operating results improvements we are excited about the fiscal third and fourth quarter results of our wireless segment . we planned that fulton would incur operating losses in the first few months after the acquisition as we integrated and began ramping up the operation . in just our first nine months of operating this segment , fulton was able to achieve revenue of $ 22.9 million with continually improving operating results as we continue to integrate the operation , which demonstrates fulton 's growth potential . as part of the acquisition , we were able to hire and retain the majority of fulton 's existing employee base , and we continue to successfully recruit strong industry talent throughout the business to help us implement operational improvements with a focus on improving our quality and project margins . we are seeing increased opportunities in the industry as wireless carriers prepare for the roll out of 5g and the required densification of their networks . we also believe that the recent merger news in the industry will present additional opportunities as networks are rationalized and a new carrier potentially expands their network to gain market share . our continued goal is to solidify our processes and project oversight to successfully and profitably take advantage of new growth opportunities as they present themselves . although there is still much work to do at fulton over the next several quarters , we believe that fulton will continue to provide strong revenue growth and gradually improving margins . telco segment we continue to see efficiencies from the operational restructuring put in place earlier this fiscal year , which has enabled us to focus our core team on sales , procurement and recycling opportunities . we are also ramping up our 11 repair activities to take advantage of our new capabilities as we further expand our business lines . story_separator_special_tag the other terms of the renewal were essentially the same . story_separator_special_tag roman ' , times , serif ; font-size : 10pt ; width : 100 % ; text-align : left ; color : # 000000 ; '' > ( a ) the wireless segment includes acquisition expenses of $ 0.2 million and integration expenses of $ 0.3 million for the year ended september 30 , 2019 , related to the acquisition of fulton ( see note 3 – acquisition ) . ( b ) the telco segment includes an inventory obsolescence charge of $ 0.7 million and $ 0.2 million for the years ended september 30 , 2019 and 2018 , respectively . in addition , the telco segment includes a lower of cost or net realizable value charge of $ 0.7 million and $ 0.2 million for the years ended september 30 , 2019 and 2018 , respectively . year ended september 30 , 2018 , compared to year ended september 30 , 2017 ( all references are to fiscal years ) for this discussion , consolidated results and segment results are the same as the wireless segment did not have activity until the fulton acquisition in 2019. consolidated consolidated sales increased $ 1.6 million before the impact of intersegment sales , or 6 % , to $ 27.5 million for 2018 from $ 25.9 million for 2017. the increase in sales was due to an increase in the telco equipment sales of $ 1.6 million . the increase in telco equipment sales was due to increased sales at nave communications and triton datacom of $ 1.3 million and $ 0.3 million , respectively . the increase in equipment sales at nave communications can be attributed in part to the company addressing the lower equipment sales it had been experiencing over the past several quarters at nave communications by restructuring its sales force and implementing a new sales strategy . gross profit increased $ 0.3 million , or 5 % , to $ 7.4 million for the year ended september 30 , 2018 compared to $ 7.1 million for the same period last year . gross margin was 27 % for both 2018 and 2017. operating , selling , general and administrative expenses include all personnel costs , which include fringe benefits , insurance and business taxes , as well as occupancy , communication and professional services , among other less significant cost categories . operating , selling , general and administrative expenses increased $ 0.3 million , or 3 % , to $ 10.3 million for 2018 compared to $ 10.0 million for 2017. this increase was due primarily to increased personnel costs . the telco segment incurred a $ 0.9 million restructuring charge for the telco segment for the year ended september 30 , 2018 resulting from management 's decision to move nave 's inventory management and order fulfillment operations from its facility in jessup , maryland to palco , a third-party reverse logistics provider in huntsville , alabama . as a result , nave incurred the following restructuring charges : 1 ) intangible impairment charge of $ 0.4 million related to inventory tracking software that will no longer be utilized ; 2 ) moving expenses of $ 0.4 million to transfer nave 's inventory from its facility in jessup , maryland to palco ; and 3 ) severance expenses of $ 0.1 million for nave operations employees . other income and expense primarily consists of activity related to our investment in yktg solutions , including equity earnings ( losses ) . equity losses for the year ended september 30 , 2018 were $ 0.3 million and zero for the year ended september 30 , 2017. the equity losses for year ended september 30 , 2018 consisted primarily of a legal settlement with a subcontractor on the yktg solutions wireless cell tower decommissioning project and the associated legal expenses . interest expense decreased $ 0.2 million to $ 0.2 million for 2018 from $ 0.4 million for the same period last year 15 primarily related to the impact of paying off one of our term loans in december 2017. the provision for income taxes from continuing operations was $ 1.5 million , or an effective rate of 36 % for 2018 from a benefit of $ 0.8 million for the same period last year . the effective rate for the year ended september 30 , 2018 was higher due primarily to establishing a valuation allowance for deferred taxes . the effective tax rate for the year ended september 30 , 2018 was also increased by net operating losses in states with higher tax rates due primarily to the loss from yktg solutions . discontinued operations loss from discontinued operations , net of tax , was $ 1.5 million for the year ended september 30 , 2018 compared to income of $ 2.4 million in 2017. this activity included the operations of the cable tv segment prior to the sale on june 30 , 2019. the cable tv segment recognized a goodwill impairment charge of $ 1.2 million for the year ended september 30 , 2018. non-gaap financial measure adjusted ebitda is a supplemental , non-gaap financial measure . ebitda is defined as earnings before interest expense , income taxes , depreciation and amortization . adjusted ebitda as presented also excludes restructuring charge , stock compensation expense , other income , other expense , interest income and income from equity method investment . adjusted ebitda is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market value of companies considered to be in similar businesses .
| results of operations year ended september 30 , 2019 , compared to year ended september 30 , 2018 ( all references are to fiscal years ) consolidated consolidated sales increased $ 27.6 million before the impact of intersegment sales , or 101 % , to $ 55.1 million for 2019 from $ 27.5 million for 2018. the increase in sales was due to the acquisition of the wireless segment resulting in sales of $ 22.9 million and an increase in the telco segment of $ 4.7 million . consolidated gross profit increased $ 1.7 million , or 23 % , to $ 9.1 million for 2019 from $ 7.4 million for 2018. the increase in gross profit was due to an increase in the wireless segment of $ 2.0 million , partially offset by a decrease in the telco segment of $ 0.3 million . operating , selling , general and administrative expenses include all personnel costs , which include fringe benefits , insurance and business taxes , as well as occupancy , communication and professional services , among other less significant cost categories . operating , selling , general and administrative expenses increased $ 2.8 million , or 27 % , to $ 13.1 million for 2019 compared to $ 10.3 million for 2018. this increase was primarily due to increased expenses in the wireless segment of $ 3.5 million , partially offset by a decrease in telco segment expenses of $ 0.7 million . the company recorded a $ 0.9 million restructuring charge for the telco segment for the year ended september 30 , 2018 resulting from management 's decision to move nave 's inventory management and order fulfillment operations from its facility in jessup , maryland to palco telecom ( “ palco ” ) , a third-party reverse logistics provider in huntsville , alabama .
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we develop estimates of claims incurred but not reported based upon the historical time it takes for a claim to be reported and historical claim amounts . we had self-insurance reserves of approximately $ 0.6 million and $ 0.8 million at july 2 , 2011 and july 3 , 2010 , respectively story_separator_special_tag business outlook 15 while we are encouraged with the results we achieved in fiscal year 2011 and with our long term prospects , the continued weakness in the global economy and extreme volatility in input costs are presenting unique obstacles . in fiscal year 2012 we will need to manage through the higher cost cotton rolling through cost of sales , impacting our second and third fiscal quarters most significantly . over the last several years we have continued to improve the performance of our manufacturing operations which we believe has improved our competitive position . our continuous improvement and six sigma programs continued to lower product cost by improving yields , reducing waste and minimizing off quality production . in fiscal year 2011 we expanded the output in most of our manufacturing facilities which leverages our fixed costs and provides additional volume to sell . we ran our manufacturing at capacity during fiscal year 2011 and currently expect to continue this into fiscal year 2012 , taking advantage of the capacity expansions we completed over the past twelve months . our customer base for private label and decorated products is expanding and should add revenue in our basics segment for the upcoming year . market demand for our private label programs remains strong , driven by consumer demand for our customers ' products and the high service levels required in this marketplace . demand for undecorated tees has recently weakened causing additional challenges in the catalog tee business . we expect our branded segment to continue its growth trends in the upcoming year with improved operating margins . our soffe business continues to gain new doors , particularly with the sporting goods distribution channel . during fiscal year 2011 we completed most of the integration work on the cotton exchange and expect to see the benefits of this in fiscal year 2012. we are seeing positive trends in our junkfood business and expect sales growth in fiscal year 2012 , driven by solid business with the gap , along with improved results with boutiques and upper tier retailers . junkfood has been focused on brand building , resulting in strong press coverage over the past six months . we expect strong sales at to the game in fiscal year 2012 driven from sales of salt life ( r ) products and under armor licensed headwear . salt life ( r ) product offerings should be available in a growing number of doors over an expanded geographic area as fiscal year 2012 unfolds . in december we expect to open a flagship salt life ( r ) store , design lab and showroom in jacksonville beach , florida , giving us an exciting venue to display new products , meet with customers , and get consumer feedback in a real salt life environment . we expect to operate our digital printing operation at art gun at full print capacity during the holiday season and we are working on strategies to build volume throughout the rest of the year . art gun continues to attract new customers across different different business platforms . we will soon be launching an improved delta catalog website and are developing a marketing strategy to allow this customer base to utilize our custom design and decorating capabilities . in january 2010 we provided the investment community with three year targets , which included reaching sales of $ 500 million , gross margins of thirty percent and earnings of $ 3.00 per share . we are ahead of our sales goals and believe we are building an operating platform and portfolio of brands and licensed properties which should allow us to reach our gross margin and earnings targets as raw material prices return to more traditional levels . we do , however , remain concerned about the retail climate for apparel and the united states economy in general . raw material prices remain volatile which adds uncertainty to our pricing and production strategies . we have evaluated these heightened risk factors in setting our expectations for the upcoming year , but it is impossible to predict the full impact these conditions may have on our business . earnings guidance for the fiscal year ending june 30 , 2012 , we expect net sales to be in the range of $ 500 to $ 520 million , an increase of 5 % to 9 % from fiscal year 2011 , all of which is expected to be organic growth . earnings are expected to be in the range of $ 2.00 to $ 2.15 per diluted share in fiscal year 2012. our fiscal year 2012 guidance is based on the following assumptions : 1 ) organic sales growth of 5 % to 9 % driven primarily by higher average prices . we expect to achieve sales growth in both our branded and basics segments ; 2 ) decline in gross margins of approximately 150 to 200 basis points for the year driven primarily from higher cotton and other raw material costs , partially offset by improved manufacturing costs as we gain efficiencies and further leverage our fixed expenses . we will be bringing in yarn with the highest cotton cost in our first quarter of fiscal year 2012 , and expect the cotton cost to decline over the remaining quarters . as this yarn flows through our manufacturing process and the finished goods are sold , we expect the highest cost inventory will be in our cost of sales during our second and third quarters of fiscal year 2012 , impacting gross margins most significantly in these quarters . story_separator_special_tag the remaining improvement in gross margins resulted from effective merchandising strategies and operational improvements . our gross margins may not be comparable to other companies , since some companies include costs related to their distribution network in cost of goods sold and we exclude them from gross margin and include them in selling , general and administrative expenses . fiscal year 2010 selling , general and administrative expenses were $ 80.7 million , or 19.0 % of sales , an increase from 18.1 % of sales in the prior year . the increase was primarily driven from the higher selling costs associated with branded products , which includes the royalty expense associated with the sale of licensed products . the increase in selling , general and administrative costs was also due to higher performance-based compensation expense from the improved financial performance and increased stock price during fiscal year 2010 compared to fiscal year 2009. our operating profit was $ 20.2 million , or 4.8 % of sales , in fiscal year 2010 , compared to $ 12.1 million , or 3.4 % of sales , in fiscal year 2009 resulting from the factors described above . the branded segment contributed $ 17.8 million in operating income and the basics segment had operating income of $ 2.4 million . other income for fiscal years 2010 and 2009 was $ 0.1 million , primarily related to our investment in the joint venture of the industrial park where ceiba textiles is located . net interest expense for fiscal year 2010 was $ 3.5 million , a decrease of $ 1.2 million , or 25.6 % , from $ 4.7 million for fiscal year 2009. the decrease in interest expense was primarily due to lower debt levels and lower average interest rates compared to the prior year . during fiscal year 2010 , our average interest rate was 1.5 % compared to 3.7 % in fiscal year 2009. our fiscal year 2010 effective income tax rate was 26.8 % , compared to 13.1 % in fiscal year 2009. the primary driver for the 18 increase in fiscal year 2010 was due to having a higher percentage of pre-tax earnings in the united states and foreign taxable locations compared to earnings in foreign tax-free locations . profits that are permanently reinvested in the tax-free zone of honduras are relatively fixed since this amount is based on a cost-plus determination based on our production output . therefore , our effective tax rate increased during fiscal year 2010 because our u.s. profits increased while our honduran tax-free profits remained relatively constant . the higher effective tax rate compared to the prior fiscal year negatively impacted our earnings by approximately $ 0.25 per diluted share . net income for fiscal year 2010 was $ 12.2 million , a $ 5.7 million increase from fiscal year 2009 net income of $ 6.5 million . liquidity and capital resources credit facility and other financial obligations on may 27 , 2011 , delta apparel , soffe , junkfood , to the game , art gun and tcx entered into a fourth amended and restated loan and security agreement ( the “ amended loan agreement ” ) with the financial institutions named in the amended loan agreement as lenders , wells fargo bank , national association , as administrative agent , bank of america , n.a. , as syndication agent , wells fargo capital finance , llc , as sole lead arranger , and wells fargo capital finance , llc and merrill lynch , pierce , fenner & smith incorporated , as joint bookrunners . in connection with the amended loan agreement , israel discount bank of new york was removed from the syndicate of lenders under the credit facility , and bank of america , n.a . was added to the syndicate of lenders . pursuant to the amended loan agreement , the maturity of the loans under the previously existing credit facility was extended to may 26 , 2016 and the line of credit was increased to $ 145 million ( subject to borrowing base limitations ) , which represents an increase of $ 35 million in the amount that was previously available under the credit facility . under the amended loan agreement , provided that no event of default exists , we have the option to increase the maximum credit available under the facility to $ 200 million ( subject to borrowing base limitations ) , conditioned upon the agent 's ability to secure additional commitments and customary closing conditions . at july 2 , 2011 , we had $ 75.9 million outstanding under our credit facility at an average interest rate of 1.8 % , and had the ability to borrow an additional $ 59.1 million . for further information regarding our u.s. asset-based secured credit facility , refer to note 9 - long-term debt to the consolidated financial statements , which information is incorporated herein by reference . in the third quarter of fiscal year 2011 , we renegotiated our loan agreement with banco ficohsa , a honduran bank . proceeds from the new loan agreement were used to extinguish the existing loan indebtedness and resulted in no gain or loss being recorded upon extinguishment . as of july 2 , 2011 , we had a total of $ 10.8 million outstanding on this loan . for further information regarding our honduran credit facility , refer to note 9 - long-term debt to the consolidated financial statements , which information is incorporated herein by reference . our primary cash needs are for working capital and capital expenditures , as well as to fund share repurchases under our stock repurchase program . in addition , in the future we may use cash to pay dividends . derivative instruments we use derivative instruments to manage our exposure to interest rates . we do not enter into derivative financial instruments for purposes of trading or speculation . when we enter into a derivative instrument , we determine whether hedge accounting can be applied .
| results of operations overview fiscal year 2011 marked another year of growth for delta apparel , inc. and our eighth consecutive year of record revenue . higher selling prices , coupled with continued marketing initiatives to gain new customers and expand business relationships with existing customers , drove organic sales growth of 7.1 % during fiscal year 2011 on top of the 14 % organic growth achieved in fiscal year 2010. the organic sales growth , coupled with the inclusion of revenue from the acquisition of the cotton exchange , resulted in record sales of $ 475.2 million , an increase of $ 50.8 million , or 12.0 % , from the prior year . our operating profit increased $ 5.1 million to $ 25.3 million , or 5.3 % of sales , in fiscal year 2011 , resulting in net income of $ 17.3 million , or $ 1.98 per diluted share . our effective tax rate was 23.6 % in fiscal year 2011 compared to 26.8 % in the prior year as we further developed our tax planning strategies . in addition to growing our top line and expanding our profits , we also continued to focus on managing the capital in the business . the rise of cotton prices during the year and resulting increases in selling prices significantly increased our net working capital requirements . even with the increased investment in working capital , we generated positive cash flows from operations during fiscal year 2011. we continued to invest in the growth of our business through the acquisition of the cotton exchange in july 2011 , and with capital expenditures to further expand our manufacturing capacity , lower our costs and improve our information technology platforms . overall , we believe we have many opportunities to continue our sales growth and further improve our profitability in the upcoming years .
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” we assume no obligation to update any of these forward-looking statements . the information for the year ended december 31 , 2020 ( successor ) , the periods ended march 20 , 2019 to december 31 , 2019 ( successor ) and january 1 , 2019 to march 19 , 2019 ( predecessor ) and for the year ended december 31 , 2018 is derived from osw predecessor 's audited combined financial statements and the notes thereto included elsewhere in this report . any reference to “ onespaworld ” refers to onespaworld holdings limited and our consolidated subsidiaries on a forward-looking basis or , as the context requires , to the historical results of osw predecessor . any reference to “ osw predecessor ” refers to the entities comprising the “ onespaworld ” business prior to the consummation of the business combination . overview due to the global impact of covid-19 , we experienced a near cessation of our operations commencing in the first quarter of 2020. we can not fully predict the continuing impacts of the covid-19 outbreak on the industry or on our business . despite this uncertainty , we believe we have certain strengths that have positioned us as a leader in the hospitality-based health and wellness industry and to participate in the recovery of the cruise industry and the hospitality industry . onespaworld holdings limited ( “ onespaworld , ” the “ company , ” “ we , ” “ our , “ us ” and other similar terms refer to onespaworld holdings limited and its consolidated subsidiaries ) is the pre-eminent global operator of health and wellness centers onboard cruise ships and a leading operator of health and wellness centers at destination resorts worldwide . prior to the near cessation of our operations due to covid-19 , our highly trained and experienced staff offered guests a comprehensive suite of premium health , fitness , beauty and wellness services and products onboard cruise ships and at destination resorts globally . we are the market leader at more than 10x the size of our closest maritime competitor . over the last 50 years , we have built our leading market position on our depth of staff expertise , broad and innovative service and product offerings , expansive global recruitment , training and logistics platform as well as decades-long relationships with cruise line and destination resort partners . throughout our history , our mission has been simple : helping guests look and feel their best during and after their stay . at our core , we are a global services company . we serve a critical role for our cruise line and destination resort partners , operating a complex and increasingly important aspect of our cruise line and destination resort partners ' overall guest experience . decades of investment and know-how have allowed us to construct an unmatched global infrastructure to manage the complexity of our operations . we have consistently expanded our onboard offerings with innovative and leading-edge service and product introductions , and developed the powerful back-end recruiting , training and logistics platforms to manage our operational complexity , maintain our industry-leading quality standards , and maximize revenue and profitability per center . the combination of our renowned recruiting and training platform , deep proprietary labor pool , global logistics and supply chain infrastructure and proven health and wellness center and revenue management capabilities represents a significant competitive advantage that we believe is not economically feasible to replicate . a significant portion of our revenues are generated from our cruise ship operations . historically , we have been able to renew almost all of our cruise line agreements that expired or were scheduled to expire . in 2019 , we signed an agreement with celebrity cruises as the exclusive operator of health and wellness centers on celebrity 's entire fleet , increasing the celebrity vessels on which we operated in 2020 by nine , extended our current agreement with norwegian cruise lines through 2024 , won a contract with the new lifestyle brand virgin voyages to operate the spa and wellness offerings onboard virgin vessels , and entered into an amended agreement with p & o cruises to extend our operations on p & o 's vessels for the next five years . in december 2019 , covid-19 was initially reported in wuhan , china . shortly thereafter , the world health organization declared covid-19 to be a “ public health emergency of international concern ” affecting all parts of the world on a global-scale . on march 8 , 2020 the u.s. department of state issued a warning for u.s. citizens to not travel by cruise ship , and this was soon followed by stringent restrictions on international travel and immigration by the u.s. and many other countries across asia , europe and south america . on march 14 , 2020 , the u.s. centers for disease control and prevention ( “ cdc ” ) issued a no sail order that was extended serval times until , on october 30 , 2020 , the cdc issued a framework for conditional sailing order , which will remain in effect until the earliest of ( 1 ) the expiration of the secretary of health and human services ' declaration that covid-19 constitutes a public health emergency , ( 2 ) the cdc director rescinds or modifies the order based on specific public health or other considerations , or ( 3 ) 34 november 1 , 2021. pursuant to the framework for conditional sailing order , the no sail order has been lifted and the cru ise industry will work with the cdc on a phased in return-to-service , which will consist of three phases : ( i ) testing and implementing additional safeguards for crew members; ( ii ) conducting simulated voyages to test cruise operators ' ability to mitigate c ovid -19 risk; and ( iii ) providing a certification to ships that meet specified requirements , thereby allowing for a phased return to cruise ship passenger voyages . story_separator_special_tag key performance indicators in assessing the performance of our business , we consider several key performance indicators used by management . these key indicators include : ship count . the number of ships , both on average during the period and at period end , on which we operate health and wellness centers . this is a key metric that impacts revenue and profitability . average weekly revenue per ship . a key indicator of productivity per ship . revenue per ship can be affected by the various sizes of health and wellness centers and categories of ships on which we serve . average revenue per shipboard staff per day . we utilize this performance metric to assist in determining the productivity of our onboard staff , which we believe is a critical element of our operations . destination resort count . the number of destination resorts , both on average during the period and at period end , on which we operate the health and wellness centers . this is a key metric that impacts revenue and profitability . average weekly revenue per destination resort health and wellness center . a key indicator of productivity per destination resort health and wellness center . revenue per destination resort health and wellness center in a period can be affected by the mix of u.s. and caribbean and asian centers for such period because u.s. and caribbean centers are typically larger and produce substantially more revenues per center than asian centers . additionally , average weekly revenue can also be negatively impacted by renovations of our destination resort health and wellness centers . for the year ended december 31 , 2019 , we have combined the results of the successor entity , onespaworld holdings limited , for the period from march 20 , 2019 to december 31 , 2019 with the results of osw predecessor for the period from january 1 , 2019 to march 19 , 2019 ( the “ 2019 combined period ” ) in the following table which sets forth the above key performance indicators for the periods presented . due to the impact of covid-19 on our operations in 2020 , current year data is not meaningful and not included in this table . replace_table_token_6_th key financial definitions revenues . revenues consist primarily of sales of services and sales of products to cruise ship passengers and destination resort guests . the following is a brief description of the components of our revenues : service revenues . service revenues consist primarily of sales of health and wellness services , including a full range of massage treatments , facial treatments , nutritional/weight management consultations , teeth whitening , mindfulness services and medi-spa services to cruise ship passengers and destination resort guests . we bill our services at rates which inherently include an immaterial charge for products used in the rendering of such services , if applicable . product revenues . product revenues consist primarily of sales of health and wellness products , such as facial skincare , body care , orthotics and detox supplements to cruise ship passengers , destination resort guests and timetospa.com customers . 36 cost of services . cost of services consists primarily of an allocable portion of payments to cruise lines ( which are derived as a percentage of service revenues or a minimum annual rent or a combination of both ) , an allocable portion of wages paid to shipboard employees , an allocable portion of staff-related shipboard expenses , costs related to recruitment and traini ng of shipboard employees , wages paid directly to destination resort employees , payments to destination resort venue owners , the allocable cost of products consumed in the rendering of a service and health and wellness center depreciation . cost of services has historically been highly variable ; increases and decreases in cost of services are primarily attributable to a corresponding increase or decrease in service revenues . cost of services has tended to remain consistent as a percentage of service revenues . cost of products . cost of products consists primarily of the cost of products sold through our various methods of distribution , an allocable portion of wages paid to shipboard employees and an allocable portion of payments to cruise lines and destination resort partners ( which are derived as a percentage of product revenues or a minimum annual rent or a combination of both ) . cost of products has historically been highly variable , increases and decreases in cost of products are primarily attributable to a corresponding increase or decrease in product revenues . cost of products has tended to remain consistent as a percentage of product revenues . administrative . administrative expenses are comprised of expenses associated with corporate and administrative functions that support our business , including fees for professional services , insurance , headquarters rent and other general corporate expenses . we expect administrative expenses to increase due to additional legal , accounting , insurance and other expenses related to becoming a public company . salary and payroll taxes . salary and payroll taxes are comprised of employee expenses associated with corporate and administrative functions that support our business , including fees for employee salaries , bonuses , payroll taxes , pension/401 ( k ) and other employee costs . amortization of intangible assets . amortization of intangible assets are comprised of the amortization of intangible assets with definite useful lives ( e.g . retail concession agreements , destination resort agreements , licensing agreements ) and amortization expenses associated with the 2015 and 2019 transactions . other income ( expense ) , net . other income ( expense ) consists of royalty income , interest income , interest expense and noncontrolling interest expense . provision for income taxes . provision for income taxes includes current and deferred federal income tax expenses , as well as state and local income taxes . see “ —critical accounting policies—income taxes ” included elsewhere in this annual report on form 10-k. net income . net income consists of income from operations less other income ( expense ) and provision for income taxes .
| results of operations the following tables present operations for two periods , predecessor and successor , which relate to the periods preceding and the periods succeeding the business combination , respectively . references to the “ successor 2019 period ” in the discussion below refer to the period from march 20 , 2019 to december 31 , 2019. references to the “ predecessor 2019 period ” in the discussion below refers to the period from january 1 , 2019 to march 19 , 2019. replace_table_token_7_th revenues . revenues for the year ended december 31 , 2020 , successor 2019 period and predecessor 2019 period were $ 120.9 million , $ 443.8 million and $ 118.5 million , respectively . the decrease was driven by the covid-19 pandemic , which resulted in the cancellation of most cruise ship voyages and the closure of many destination resort health and wellness centers where we operate during mid-march 2020 through december 31 , 2020. the break-down of revenue between service and product revenues was as follows : 38 service revenu es service revenues for the year ended december 31 , 2020 , the successor 2019 period and predecessor 2019 period were $ 93.7 million , $ 339.8 million and $ 91.3 million , respectively . product revenues . product revenues for the year ended december 31 , 2020 , the successor 2019 period and predecessor 2019 period were $ 27.2 million , $ 104.0 million and $ 27.2 million , respectively . cost of services . cost of services for the year ended december 31 , 2020 , successor 2019 period and predecessor 2019 period were $ 107.3 million , $ 292.8 million , and $ 76.8 million , respectively . the decrease for the year ended december 31 , 2020 compared to the combined successor 2019 period and predecessor 2019 period was $ 262.4 million , or 71 % . the decrease was primarily attributable to the impact of the covid-19 pandemic . cost of products .
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our strategy is to focus on early identification of , and entrance into , existing and emerging resource plays , particularly in south america and the u.s. gulf coast . we typically seek to partner with larger operators in development of resources or retain interests , with or without contribution on our part , in prospects identified , packaged and promoted to larger operators . by entering these plays earlier and partnering with , or promoting to , larger operators , we believe we can capture larger resource potential at lower cost and minimize our exposure to drilling risks and costs and ongoing operating costs . we , along with our partners , actively manage our resources through opportunistic acquisitions and divestitures where reserves can be identified , developed , monetized and financial resources redeployed with the objective of growing reserves , production and shareholder value . generally , we generate nearly all our revenues and cash flows from the sale of produced natural gas and crude oil , whether through royalty interests , working interests or other arrangements . we may also realize gains and additional cash flows from the periodic divestiture of assets . recent developments drilling activity during 2012 , we drilled 5 international wells in colombia , as follows : ● 2 wells were drilled on the la cuerva concession in which we hold a 1.6 % working interest , of which 2 were completed and brought onto production ( both wells were sold in connection with the sale of our interest in hc , llc . see “ sale of la cuerva and lla 62 blocks ” ) . ● 3 wells were drilled on the cpo 4 block in colombia , each of which was determined to be non-commercial . at december 31 , 2012 , no wells were being drilled . during 2012 , no domestic wells were drilled . sale of la cuerva and lla 62 blocks during the first quarter of 2012 , we sold all of our interest in hupecol cuerva , llc ( “ hc , llc ” ) , which holds interests in the la cuerva block and , pending approval of the colombian authorities , the lla 62 block , together covering approximately 90,000 acres in the llanos basin in colombia . hc , llc sold for $ 75 million , adjusted for working capital . 13.3 % of the sales price of hc , llc will be held in escrow to fund potential claims arising from the sale . pursuant to our 1.6 % ownership interest in hc , llc , we received 1.6 % in the net sale proceeds after deduction of commissions , overriding royalty interest , and transaction expenses ; subject to the escrow holdback and a further contingency holdback by hupecol of 1.3 % of the sales price . following completion of the sale of hc , llc , we have no continuing interest in the la cuerva and lla 62 blocks . at december 31 , 2011 , our estimated proved reserves associated with the la cuerva and lla 62 blocks totaled 94,619 barrels of oil , which represented 82 % of our estimated proved oil and natural gas reserves . sales of oil and gas properties under the full cost method of accounting are accounted for as adjustments of capitalized costs with no gain or loss recognized , unless the adjustment significantly alters the relationship between capitalized costs and reserves . since the sale of these oil and gas properties would significantly alter the relationship , we recognized a gain on the sale of $ 315,119 during 2012 , computed as follows : 26 sales price $ 1,224,393 add : transfer of asset retirement and other obligations 34,471 less : transaction costs ( 30,330 ) less : prepaid deposits ( 54,857 ) less : carrying value of oil and gas properties , net ( 858,558 ) net gain on sale $ 315,119 the following table presents pro forma data that reflects revenue , income from continuing operations , net loss and loss per common share for 2011 and 2012 as if the hc , llc sale had occurred at the beginning of each period and excludes the gain on sale . replace_table_token_7_th 2012 capital expenditure program during 2012 , we invested $ 26,033,065 for the development of oil and gas properties , consisting of ( 1 ) drilling and drilling preparation costs on 5 wells in colombia of $ 25,915,741 and leasehold costs on u.s. properties of $ 117,324. cpo 4 developments during 2012 , we completed operations on three test wells on our cpo 4 block in colombia . each of the test wells was determined to be noncommercial and was plugged and abandoned . as a result of the determinations to plug and abandon each of those test wells , we included the costs related to those wells in the full cost pool for inclusion in the ceiling test . we recorded an impairment charge of $ 46,235,574 during 2012 to write off costs not being amortized that were attributable to the drilling of the test wells on the cpo 4 block as well as to write off seismic exploration and evaluation cost , general and administrative cost and environmental and governmental cost that were attributable to the test wells through december 31 , 2012. following drilling of the unsuccessful test wells on the cpo 4 prospect , in march 2013 , we entered into a settlement agreement with sk innovation , operator of the cpo 4 prospect , and terminated our interest in the prospect and were released from past and future funding and other obligations relating to the prospect , including our accrued cash call commitments of $ 3,219,128. serrania developments with respect to development of our serrania block , the national hydrocarbon agency of colombia ( the “ anh ” ) has granted extensions of required development commitments , including drilling of a first test well , until security conditions allow operations . story_separator_special_tag the complaint generally alleges that , between march 29 , 2010 and april 18 , 2012 , all of the defendants violated sections 10 ( b ) of the securities exchange act of 1934 and sec rule 10b-5 and the individual defendants violated section 20 ( a ) of the exchange act in making materially false and misleading statements including certain statements related to the status and viability of the tamandua # 1 well . two additional class action lawsuits were filed against us in may 2012. the complaints seek unspecified damages , interest , attorneys ' fees , and other costs . on september 20 , 2012 , the court consolidated the class action lawsuits and appointed a lead plaintiff . we believe all of the claims in the consolidated class action lawsuits are without merit and intend to vigorously defend against these claims . it is not possible at this time to predict the timing or outcome of the class action lawsuits that have or may be filed . we expect to incur costs and to devote management time and resources to defending such lawsuits . 28 on july 19 , 2012 , a purported derivative cause of action was filed in the u.s. district court for the southern district of texas against certain of our directors and officers and houston american energy , as nominal defendant : e. howard king , jr. , derivatively , on behalf of houston american energy corp. , v. john f. terwilliger , john p. boylan , orrie lee tawes iii , stephen hartzell , james j. jacobs , kenneth a. jeffers , defendants , and houston american energy corp. , as nominal defendant , case no . 4:12-cv-02182 . the complaint asserts a cause of action by a shareholder on behalf of houston american against certain of our directors and senior executive officers in connection with the june 11 , 2012 approval of payment of certain bonuses , increases in salary , grant of certain stock options and entry into certain change in control agreements . the complaint alleges that the approval of such matters constituted breach of fiduciary duty and corporate waste and seeks injunctive relief to bar each of the actions in question and seeks restitution . no damages have been or , by the nature of the derivative cause of action , are expected to be alleged against us . we may , however , incur certain costs and demands on management time and resources in connection with the lawsuit . on february 26 , 2013 , an order was entered granting a motion by the company to dismiss the lawsuit and providing leave to the plaintiff to amend its complaint to cure pleading deficiencies . compensation expense in june 2012 , our board of directors approved , and we paid , cash bonuses to our senior management team totaling $ 403,199 and grants of stock options to acquire an aggregate of 1,200,000 shares of common stock and , effective july 1 , 2012 , we increased the base salary of members of our senior management team by amounts ranging from 5 % to 15 % . the options granted vested on the grant date , have a ten year life and have an exercise price of $ 1.65 per share . of those options , 429,000 are exercisable commencing 6 months from the date of grant and 771,000 are exercisable on and after shareholder approval of an amendment to our 2008 equity incentive plan to increase the shares reserved under the plan to facilitate exercise . the option grants to employees , excluding grants that are subject to shareholder approval of amendment to the 2008 equity incentive plan , were valued on the date of grant at $ 354,098 using the black-scholes option-pricing model . of that value , all were recognized as compensation expense at the date of grant . option grants that remain subject to shareholder approval of amendment to the 2008 equity incentive plan will be valued and accounted for at the time of shareholder approval of the amendment . in june 2012 , our board of directors approved grants of stock options to purchase 25,000 shares of common stock , consistent with our existing director compensation program , to each of our non-employee directors and one-time extraordinary grants of stock options to purchase 75,000 shares of common stock to each of our non-employee directors . each of the options vest 20 % on the grant date and 80 % nine months from the grant date and is exercisable for a term of 10 years at an exercise price of $ 1.65 per share ; provided , however , that 48,175 of the options granted to each of the directors shall not be exercisable , in part or in whole , until such time as our shareholders shall have approved an amendment to our 2008 equity incentive plan increasing the shares reserved for issuance under the plan to an amount sufficient to permit issuance of such shares . the option grants to non-employee directors , excluding grants that are subject to shareholder approval of amendment to the 2008 equity incentive plan , were valued on the date of grant at $ 128,328 using the black-scholes option-pricing model . of that value , $ 25,665 was recognized as compensation expense at the date of grant and $ 102,663 will be recognized upon vesting .
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 oil and gas revenues . total oil and gas revenues decreased 64.4 % , to $ 411,349 , in 2012 from $ 1,156,178 in 2011. the decrease in revenue was due to the 2012 sale of our interest in the la cuerva block . the following table sets forth the gross and net producing wells , net oil and gas production volumes and average hydrocarbon sales prices for 2012 and 2011 : replace_table_token_9_th the change in gross and net producing wells and production reflects the sale , during the first quarter of 2012 , of our interest in wells associated with the la cuerva block . the change in average sales prices realized reflects fluctuations in global commodity prices . 31 oil and gas sales revenues for 2012 and 2011 by region were as follows : replace_table_token_10_th lease operating expenses . lease operating expenses , excluding joint venture expenses relating to our colombian operations discussed below , decreased 77.1 % to $ 195,381 in 2012 from $ 854,319 in 2011. the decrease in total lease operating expenses was attributable to the 2012 sale of our interest in the la cuerva block . following is a summary comparison of lease operating expenses for the periods . replace_table_token_11_th consistent with our business model and operating history , we experience steep declines in lease operating expenses following strategic divestitures and anticipate lease operating expenses to ramp up to levels consistent with regional costs as new wells are brought on line . joint venture expenses . joint venture expenses totaled $ 3,244 in 2012 compared to $ 13,930 in 2011. the joint venture expenses represent our allocable share of the indirect field operating and region administrative expenses billed by hupecol .
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this instrument did not contain financing elements . the contractual terms of the university 's derivative instrument have not been structured such that net payments made by one party in the earlier periods are to be subsequently returned by the counterparty in later periods of the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations for the years ended december 31 , 2017 and 2016 should be read in conjunction with our consolidated financial statements and related notes that appear in item 8 , consolidated financial statements and supplementary data . in addition to historical information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in item 1a , risk factors and forward-looking statements . executive overview we are a comprehensive regionally accredited university that offers over 225 graduate and undergraduate degree programs , emphases and certificates across nine colleges both online and on ground at our over 275 acre campus in phoenix , arizona , and onsite at facilities we lease and at facilities owned by third party employers . we are committed to providing an academically rigorous educational experience with a focus on professionally relevant programs that meet the objectives of our students . our undergraduate programs are designed to be innovative and meet the future needs of employers , while providing students with the needed critical thinking and effective communication skills developed through a christian , liberal arts foundation . we offer master 's and doctoral degrees in contemporary fields that are designed to provide students with the capacity for transformational leadership in their chosen industry , emphasizing the immediate relevance of theory , application , and evaluation to promote personal and organizational change . we believe the growing brand of the university and the value proposition for both traditional aged students attending on our campus in phoenix , arizona and working adult students attending on our campus or at off-site locations in cohorts ( referred to by us as professional studies student ) or online , has enabled us to increase enrollment to approximately 90,300 students at december 31 , 2017. at december 31 , 2017 , 79.1 % of our students were enrolled in our online programs , and , of our working adult students ( online and professional studies students ) , 50.5 % were pursuing master 's or doctoral degrees . 44 key trends , developments and challenges the following circumstances and trends present opportunities , challenges and risks . proposed change in the structure of our operations . as discussed above under item 1. business proposed change in the structure of our operations , we are seeking approval of the proposed transaction to effect the sale of gcu to a nonprofit entity as a means of enabling gcu to conduct itself as a traditional nonprofit university , consistent with its history and on a level playing field with other traditional universities with regard to tax status and , among other things , the ability to accept philanthropic contributions , pursue research grant opportunities , and participate in ncaa governance . the transaction involves the sale of the company 's academic-related assets , real estate and related intangibles to a newly formed nonprofit corporation ( new gcu ) . following this sale , the nonprofit corporation would operate the university while the company would continue to operate as a third-party provider of services to new gcu and potentially , in the future , to other universities . if the necessary approvals are obtained , financial and other terms between us and new gcu are agreed upon , definitive agreements are executed , and the proposed transaction is ultimately consummated , then various aspects of our operations would change in important ways . these changes include , but are not limited to , the following : our academic and related operations and assets , as well as approximately 35 % of our full-time employees and substantially all of our part-time employees and student workers , would transfer to new gcu . following this transfer , we would no longer own and operate a regulated institution of higher education , but would instead provide a host of services in support of new gcu 's operations . while the services we would provide are services that we currently provide as part of our business today , we have limited to no experience operating as a service provider to third parties . new gcu would be a separate non-profit entity under the control of an independent board of trustees and independent management . accordingly , our relationship with new gcu , both pursuant to the shared services arrangement and operationally , would no longer be as owner and operator , but as a third party contract party . while we believe this relationship would remain strong , new gcu 's board of trustees and management would have fiduciary and other duties that would require them to focus on the best interests of new gcu and over time those interests could diverge from ours . initially , all of our revenue would be derived pursuant to the shared services arrangement with new gcu . accordingly , new gcu 's ability to continue to increase its enrollment and tuition and fee revenue , and our ability to continue to perform the services necessary to enable new gcu to do so , would be critical to the success of our services business . it is anticipated that the consideration payable by new gcu for the acquired assets , which will be material , will be in the form of a long-term secured note . story_separator_special_tag we attribute the significant growth in our ground enrollment between years to our increasing brand recognition and the value proposition that our ground traditional campus affords to traditional-aged students and their parents . after scholarships , our ground traditional students pay tuition , room , board , and fees in an amount that is often half to a third of what it costs to attend a private , traditional university in another state and an amount comparable to what it costs to attend a public university . our online students pay tuition and fees in an amount that is often less than the cost of other high service online programs such as ours . for example , our largest local competitor 's undergraduate tuition for online programs ranges from $ 510 to $ 718 per credit hour and its graduate tuition for online programs ranges from $ 512 to $ 1,312 per credit hour while our online tuition per credit hour ranges from $ 355 to $ 470 for undergraduate programs and $ 330 to $ 640 for graduate programs . there are online programs that are less expensive than ours but those programs generally do not provide the full level of support services that we provide to our students . although our online enrollment continues to grow , as the proportion of traditional colleges and universities providing alternative learning modalities increases , we will face increasing competition for working adult students from such institutions , including those with well-established reputations for excellence . we did not raise tuition in any of our programs for our 2016-2017 and 2017-2018 academic years . a tuition increase of approximately 1 % was implemented for the majority of online programs for our 2015-2016 academic year . we have not raised our tuition for our traditional ground programs in nine years . net revenues increased 11.5 % over the prior year primarily due to the enrollment growth and due to an increase in ancillary revenues resulting from the increased traditional student enrollment ( e.g . housing , food , etc. ) . operating income was $ 282.8 million for the fiscal year ended december 31 , 2017 , an increase of 19.2 % over the $ 237.2 million in operating income for 2016 . 46 capital expenditures . our capital expenditures in 2017 of $ 113.6 million primarily related to the expansion of our over 275 acre physical campus in phoenix , arizona and significant investment in technology innovation to support our students and staff . in order to accommodate the continued growth of the traditional ground population , the university completed the construction of an additional dormitory , other ground campus building projects and land acquisitions adjacent to our campus , as well as purchases of computer equipment , other internal use software projects and furniture and equipment to support our increasing employee headcount . included in off-site development for 2017 is $ 10.4 million we spent to finish the building and parking garage in close proximity to our ground traditional campus . employees that worked in two leased office buildings in the phoenix area were relocated to this new building by the end of 2016. income taxes . our adoption of the new share-based compensation standard in 2017 resulted in a reduction to our provision for income taxes of $ 16.5 million for the year ended december 31 , 2017 , due to the recognition of excess tax benefits from restricted stock awards that vested or stock options that were exercised in 2017. the inclusion of excess tax benefits and deficiencies as a component of our income tax expense will increase volatility within our provision for income taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards are dependent on our stock price at the date the restricted awards vest , our stock price on the date an option is exercised , and the quantity of options exercised . our restricted stock vests in march each year so the favorable benefit is greatest in the first quarter each year . revenue and enrollment net revenue consists principally of tuition , room and board charges attributable to students residing on our ground campus , application and graduation fees , and fees from educational resources such as access to online materials , less scholarships . factors affecting our net revenue include : ( i ) the number of students who are enrolled and who remain enrolled in our courses ; ( ii ) the number of credit hours per student ; ( iii ) our degree and program mix ; ( iv ) changes in our tuition rates ; ( v ) the timing of our ground traditional campus semesters ; ( vi ) the amount of the scholarships that we offer ; and ( vii ) the number of students housed in , and the rent charged for , our on-campus student apartments and dormitories . we define enrollment as individual students who attended a course during the last two months of the calendar quarter . we offer three 15-week semesters in a calendar year with one start available per semester for our traditional ground students . online and professional studies students have more frequent class starts in courses that generally range from five to sixteen weeks through the calendar year . enrollments are a function of the number of continuing students at the beginning of each period and new enrollments during the period , which are offset by graduations , withdrawals , and inactive students during the period . inactive students for a particular period include students who are not registered in a class and , therefore , are not generating net revenue for that period , but who have not withdrawn from grand canyon university .
| results of operations the following table sets forth statements of operations data as a percentage of net revenue for each of the periods indicated : replace_table_token_9_th year ended december 31 , 2017 compared to year ended december 31 , 2016 net revenue . our net revenue for the year ended december 31 , 2017 was $ 974.1 million , an increase of $ 100.8 million , or 11.5 % , as compared to net revenue of $ 873.3 million for the year ended december 31 , 2016. this increase was primarily due to an increase in online and ground enrollment and , to a lesser extent , an increase in room and board and other student fees , partially offset by an increase in institutional scholarships . we have not raised our tuition for our traditional ground programs in nine years and we have not raised tuition for our working adult students since september 2015. end-of-period enrollment increased 10.2 % between december 31 , 2017 and 2016 , as ground enrollment increased 9.2 % and online enrollment increased 10.5 % over the prior year . the majority of the ground enrollment growth between years is due to an increase in the number of residential students at our ground traditional campus in phoenix , arizona . we attribute the growth in our enrollment between years to our increasing brand recognition and the value proposition we believe we provide to students and their parents . although our online enrollment continues to grow , as the proportion of traditional colleges and universities providing alternative learning modalities increases , we will face increasing competition for working adult students from such institutions , including those with well-established reputations for excellence . the increase in revenue per student between years is primarily due to the enrollment growth and due to an increase in ancillary revenues resulting from the increased traditional student enrollment ( e.g . housing , food , etc. ) .
| 4,997 |
the following weighted average assumptions used for grants as of february 15 , 2011 : dividend yield of zero percent ; expected volatility of 254 % ; risk-free interest rates of 2.02 % and expected life of 2.5 years . the company recognized $ 5,038 in expense for the fair value of the options vesting during 2011. f-11 profire energy , inc. and subsidiary notes to the consolidated financial statements for the years ended march 31 , 2011and 2010 note 7 – common stock purchase options ( continued ) a summary of the status of the company 's stock option plans as of march 31 , 2011 and 2010 and the changes during the period are presented below : 2011 2010 unexercised options , beginning of year 410,000 - stock options issued during the year 600,000 410,000 stock options expired - - stock options exercised - - unexercised options , end of year 1,010,000 410,000 the following table summarizes information about the stock options as of march 31 , 2011 : replace_table_token_21_th the following table summarizes information about the exercisable stock options as of march 31 , 2011 : replace_table_token_22_th the following table summarizes information about non-vested options as of the year ended march 31 , 2011 : replace_table_token_23_th f-12 note 8 – commitments and contingencies the company has a $ 400,000 revolving credit line with a local banking institution that it uses from time to time to satisfy short-term fluctuations in cash flows . at march 31 , 2011 and 2010 the company had $ -0- outstanding on the line of credit . note 9 – subsequent events in accordance with asc 855 , management evaluated the subsequent events through the date the financial statements were issued and has no material events to report . f-13 story_separator_special_tag operations for a complete understanding , this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this annual report on form 10-k. 14 some of the statements set forth in this section are forward-looking statements relating to our future results of operations . our actual results may vary from the results anticipated by these statements . please see “ information concerning forward-looking statements ” on page 4. story_separator_special_tag align= '' justify '' style= '' text-indent : 0pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > foreign currency translation gain ( loss ) our consolidated financial statements are presented in u.s. dollars . our functional currency is canadian dollars . our financial statements were translated to u.s. dollars using year-end exchange rates for the balance sheet and weighted average exchange rates for the statements of operations . equity transactions were translated using historical rates . foreign currency translation gains or losses as a result of fluctuations in the exchange rates are reflected in the statement of operations and comprehensive income . therefore , the translation adjustment in our consolidated financial statements represents the translation differences from translation of our financial statements . as a result , the translation adjustment is commonly , but not always , positive if the average exchange rates are lower than exchange rates on the date of the financial statements and negative if the average exchange rates are higher than exchange rates on the date of the financial statements . during the year ended march 31 , 2011 , we recognized a foreign currency translation gain of $ 365,863 compared to foreign currency translation gain of $ 488,803 during the year ended march 31 , 2010. this gain was the result of the strengthening of the canadian dollar versus the us dollar . total comprehensive income for the foregoing reasons , we realized a total comprehensive income of $ 1,988,246 , or $ 0.04 per share during the year ended march 31 , 2011 compared to total comprehensive income of $ 1,776,518 , or $ 0.03 per share during the year ended march 31 , 2010. this results in a total comprehensive income gain of 12 % . 16 liquidity and capital resources since inception , our operations have been financed primarily from cash flows from operations and loans from company executives . we have a $ 400,000 revolving credit line with a local banking institution that we also use from time to time to satisfy short-term fluctuations in cash flows . at march 31 , 2011 we had $ -0- outstanding on our line of credit . as of march 31 , 2011 we had current assets of $ 5,288,404 and total assets of $ 5,998,864 including cash and cash equivalents of $ 1,689,386. at march 31 , 2011 total liabilities were $ 486,083 , all of which were current liabilities . during the year ended march 31 , 2011 and 2010 cash was primarily used to fund operations . see below for additional discussion and analysis of cash flow . replace_table_token_3_th net cash used in our operating activities was $ 213,916. as discussed above , during the year ended march 31 , 2011 we realized a significant increase in net income which was partially offset by decreases in income taxes payable . as noted above , from time to time we may also draw down on our revolving credit line to meet short-term cash needs but have not in recent years . accounts receivable continue to increase year to year and these could be factored if needed to provide cash flow , but to date this has not been necessary . we have no current capital commitments outside of general operations and do not anticipate any in the near future . our accounts receivables are higher due to our increased sales in the second half of 2011. inventory may fluctuate as we have opportunities to acquire inventory at favorable rates as we buy in scale . this may ebb and flow from quarter to quarter . 17 as of story_separator_special_tag the following weighted average assumptions used for grants as of february 15 , 2011 : dividend yield of zero percent ; expected volatility of 254 % ; risk-free interest rates of 2.02 % and expected life of 2.5 years . the company recognized $ 5,038 in expense for the fair value of the options vesting during 2011. f-11 profire energy , inc. and subsidiary notes to the consolidated financial statements for the years ended march 31 , 2011and 2010 note 7 – common stock purchase options ( continued ) a summary of the status of the company 's stock option plans as of march 31 , 2011 and 2010 and the changes during the period are presented below : 2011 2010 unexercised options , beginning of year 410,000 - stock options issued during the year 600,000 410,000 stock options expired - - stock options exercised - - unexercised options , end of year 1,010,000 410,000 the following table summarizes information about the stock options as of march 31 , 2011 : replace_table_token_21_th the following table summarizes information about the exercisable stock options as of march 31 , 2011 : replace_table_token_22_th the following table summarizes information about non-vested options as of the year ended march 31 , 2011 : replace_table_token_23_th f-12 note 8 – commitments and contingencies the company has a $ 400,000 revolving credit line with a local banking institution that it uses from time to time to satisfy short-term fluctuations in cash flows . at march 31 , 2011 and 2010 the company had $ -0- outstanding on the line of credit . note 9 – subsequent events in accordance with asc 855 , management evaluated the subsequent events through the date the financial statements were issued and has no material events to report . f-13 story_separator_special_tag operations for a complete understanding , this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this annual report on form 10-k. 14 some of the statements set forth in this section are forward-looking statements relating to our future results of operations . our actual results may vary from the results anticipated by these statements . please see “ information concerning forward-looking statements ” on page 4. story_separator_special_tag align= '' justify '' style= '' text-indent : 0pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > foreign currency translation gain ( loss ) our consolidated financial statements are presented in u.s. dollars . our functional currency is canadian dollars . our financial statements were translated to u.s. dollars using year-end exchange rates for the balance sheet and weighted average exchange rates for the statements of operations . equity transactions were translated using historical rates . foreign currency translation gains or losses as a result of fluctuations in the exchange rates are reflected in the statement of operations and comprehensive income . therefore , the translation adjustment in our consolidated financial statements represents the translation differences from translation of our financial statements . as a result , the translation adjustment is commonly , but not always , positive if the average exchange rates are lower than exchange rates on the date of the financial statements and negative if the average exchange rates are higher than exchange rates on the date of the financial statements . during the year ended march 31 , 2011 , we recognized a foreign currency translation gain of $ 365,863 compared to foreign currency translation gain of $ 488,803 during the year ended march 31 , 2010. this gain was the result of the strengthening of the canadian dollar versus the us dollar . total comprehensive income for the foregoing reasons , we realized a total comprehensive income of $ 1,988,246 , or $ 0.04 per share during the year ended march 31 , 2011 compared to total comprehensive income of $ 1,776,518 , or $ 0.03 per share during the year ended march 31 , 2010. this results in a total comprehensive income gain of 12 % . 16 liquidity and capital resources since inception , our operations have been financed primarily from cash flows from operations and loans from company executives . we have a $ 400,000 revolving credit line with a local banking institution that we also use from time to time to satisfy short-term fluctuations in cash flows . at march 31 , 2011 we had $ -0- outstanding on our line of credit . as of march 31 , 2011 we had current assets of $ 5,288,404 and total assets of $ 5,998,864 including cash and cash equivalents of $ 1,689,386. at march 31 , 2011 total liabilities were $ 486,083 , all of which were current liabilities . during the year ended march 31 , 2011 and 2010 cash was primarily used to fund operations . see below for additional discussion and analysis of cash flow . replace_table_token_3_th net cash used in our operating activities was $ 213,916. as discussed above , during the year ended march 31 , 2011 we realized a significant increase in net income which was partially offset by decreases in income taxes payable . as noted above , from time to time we may also draw down on our revolving credit line to meet short-term cash needs but have not in recent years . accounts receivable continue to increase year to year and these could be factored if needed to provide cash flow , but to date this has not been necessary . we have no current capital commitments outside of general operations and do not anticipate any in the near future . our accounts receivables are higher due to our increased sales in the second half of 2011. inventory may fluctuate as we have opportunities to acquire inventory at favorable rates as we buy in scale . this may ebb and flow from quarter to quarter . 17 as of
| results of operations comparison of the years ended march 31 , 2011 and 2010. total revenues our total revenues during the year ended march 31 , 2011 increased nearly 36 % to $ 8,033,926 from $ 5,912,350 during the year ended march 31 , 2010. increasing oil prices during the first half of our fiscal 2011 and the stabilizing worldwide economy increased revenues significantly during that period . the strong rebound in oil prices resulted in improved sales and increased production activity in oil and gas and continued through our entire fiscal year . we have worked to expand our operations by adding facilities in the united states . we expect to realize significant u.s. based revenues during the coming year . during fiscal 2011 , total sales increased 36 % and the service revenue increased 31 % . during the year ended march 31 , 2011 , product sales accounted for 89 % of total revenues and service sales accounted for 11 % of total revenue . during the year ended march 31 , 2010 the mix of product and service sales was the same , with product sales at 89 % of total revenues and service sales accounting for the remaining 11 % of total revenue . we expect total revenues will grow as we continue to expand our operations and due to higher oil prices . however with the general worldwide economic volatility , we expect revenue growth to be limited by macro-economic effects . cost of goods sold cost of goods sold during the year ended march 31 , 2011 was $ 2,812,323 for sales and $ 529,821 for service for a total of $ 3,342,144 compared to $ 1,867,823 for sales and $ 427,641 for service for a total of $ 2,295,464 during the year ended march 31 , 2010. while revenue increased 36 % , cost of goods sold increased by 46 % .
| 4,998 |
included within compensation and benefits expense are share-based amortization expense for senior executive awards granted in september 2012 and february 2016 , non-annual share-based and cash-based awards to other employees and certain year end awards that contain future service requirements for vesting . such senior executive awards contain market and performance conditions and are being amortized over their respective future service periods . compensation expense related to the amortization of share-based and cash-based awards amounted to $ 287.3 million , $ 307.7 million and $ 283.3 million for 2016 , 2015 and 2014 , respectively . compensation and benefits as a percentage of net revenues was 64.8 % , 59.3 % and 56.8 % for 2016 , 2015 and 2014 , respectively . compensation and benefits expense directly related to jefferies bache business was $ 87.7 million and $ 98.6 million for 2015 and 2014 , respectively , and was not meaningful for 2016. included within compensation and benefits expense for the bache business 33 for 2015 are severance , retention and related benefits costs of $ 38.2 million , incurred as part of decisions surrounding the exit of this business . non-compensation expenses non-compensation expenses include floor brokerage and clearing fees , technology and communications expense , occupancy and equipment rental expense , business development , professional services , bad debt provision , impairment charges , depreciation and amortization expense and other costs . all of these expenses , other than floor brokerage and clearing fees , bad debt provision and depreciation and amortization expense , are included within selling , general and other expenses in the consolidated statements of operations . in 2016 , non-compensation expenses decreased 9.1 % compared to 2015. the decrease in 2016 was due to the exiting of the bache business , which in 2015 generated $ 127.2 million of non-compensation expenses , including accelerated amortization expense of $ 19.7 million related to capitalized software , $ 11.2 million in contract termination costs and professional services costs of approximately $ 2.5 million in connection with jefferies actions in exiting the bache business . there were no meaningful non-compensation expenses related to the bache business in 2016. this reduction in 2016 was partially offset by higher technology and communications expenses , excluding the bache business , and higher professional services expenses , excluding the bache business . technology and communications expenses , excluding the bache business , increased due to higher costs associated with the development of the various trading systems and projects associated with corporate support infrastructure . in both years , jefferies continued to incur legal and consulting fees as part of implementing various regulatory requirements . during 2015 , jefferies also released $ 4.4 million in reserves related to the resolution of bankruptcy claims against lehman brothers holdings , inc. in 2015 , non-compensation expenses were 4.4 % lower compared to 2014. the decline is primarily related to bad debt expenses recognized in 2014 and lower bache expenses . during the fourth quarter of 2014 , jefferies recognized a bad debt provision , which primarily related to a receivable of $ 52.3 million from a client to which jefferies provided futures clearing and execution services , which declared bankruptcy . non-compensation expenses for 2014 also includes approximately $ 7.6 million in impairment losses related to customer relationship intangible assets within the bache business and jefferies international asset management business . non-compensation expenses associated directly with the activities of the bache business were $ 127.2 million and $ 197.7 million for 2015 and 2014 , respectively . national beef a summary of results of operations for national beef for the three years in the period ended december 31 , 2016 is as follows ( in thousands ) : replace_table_token_9_th national beef 's profitability is dependent , in large part , on the spread between its cost for live cattle , the primary raw material for its business , and the value received from selling boxed beef and other products coupled with its overall volume . national beef operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces . national beef 's profitability typically fluctuates seasonally with relatively higher margins in the spring and summer months and during times of ample cattle availability . 34 revenues in 2016 decreased about 5 % in comparison to 2015 , due to lower average selling prices for beef and beef by-products , partially offset by an increase in the number of cattle processed . revenues in 2015 decreased about 5 % in comparison to 2014 , due to lower sales volume , as fewer cattle were processed , and lower average selling prices for beef and beef by-products . additionally , during 2015 , decreases to revenues of $ 52.9 million were recorded as a result of national beef 's use of derivatives in its hedging activity . for 2016 , cost of sales declined 11 % as compared to 2015 , due to a decrease in the price of fed cattle , partially offset by an increase in volume . for 2015 , cost of sales declined 5 % as compared to 2014 , due to fewer cattle processed , and a decrease in the price of cattle . for 2016 , the combined effects of increased margin per head and an increase in volume led to record high profitability . for 2015 , the combined effects of both lower volumes and tighter margins due to the relative price of cattle compared to the selling price of beef and beef by-products impacted margins leading to reduced profitability compared to 2014. selling , general and other expenses in 2015 included a $ 4.7 million impairment charge in connection with national beef 's decision to close its brawley , california beef processing plant . also in connection with closing the brawley facility , national beef story_separator_special_tag included within compensation and benefits expense are share-based amortization expense for senior executive awards granted in september 2012 and february 2016 , non-annual share-based and cash-based awards to other employees and certain year end awards that contain future service requirements for vesting . such senior executive awards contain market and performance conditions and are being amortized over their respective future service periods . compensation expense related to the amortization of share-based and cash-based awards amounted to $ 287.3 million , $ 307.7 million and $ 283.3 million for 2016 , 2015 and 2014 , respectively . compensation and benefits as a percentage of net revenues was 64.8 % , 59.3 % and 56.8 % for 2016 , 2015 and 2014 , respectively . compensation and benefits expense directly related to jefferies bache business was $ 87.7 million and $ 98.6 million for 2015 and 2014 , respectively , and was not meaningful for 2016. included within compensation and benefits expense for the bache business 33 for 2015 are severance , retention and related benefits costs of $ 38.2 million , incurred as part of decisions surrounding the exit of this business . non-compensation expenses non-compensation expenses include floor brokerage and clearing fees , technology and communications expense , occupancy and equipment rental expense , business development , professional services , bad debt provision , impairment charges , depreciation and amortization expense and other costs . all of these expenses , other than floor brokerage and clearing fees , bad debt provision and depreciation and amortization expense , are included within selling , general and other expenses in the consolidated statements of operations . in 2016 , non-compensation expenses decreased 9.1 % compared to 2015. the decrease in 2016 was due to the exiting of the bache business , which in 2015 generated $ 127.2 million of non-compensation expenses , including accelerated amortization expense of $ 19.7 million related to capitalized software , $ 11.2 million in contract termination costs and professional services costs of approximately $ 2.5 million in connection with jefferies actions in exiting the bache business . there were no meaningful non-compensation expenses related to the bache business in 2016. this reduction in 2016 was partially offset by higher technology and communications expenses , excluding the bache business , and higher professional services expenses , excluding the bache business . technology and communications expenses , excluding the bache business , increased due to higher costs associated with the development of the various trading systems and projects associated with corporate support infrastructure . in both years , jefferies continued to incur legal and consulting fees as part of implementing various regulatory requirements . during 2015 , jefferies also released $ 4.4 million in reserves related to the resolution of bankruptcy claims against lehman brothers holdings , inc. in 2015 , non-compensation expenses were 4.4 % lower compared to 2014. the decline is primarily related to bad debt expenses recognized in 2014 and lower bache expenses . during the fourth quarter of 2014 , jefferies recognized a bad debt provision , which primarily related to a receivable of $ 52.3 million from a client to which jefferies provided futures clearing and execution services , which declared bankruptcy . non-compensation expenses for 2014 also includes approximately $ 7.6 million in impairment losses related to customer relationship intangible assets within the bache business and jefferies international asset management business . non-compensation expenses associated directly with the activities of the bache business were $ 127.2 million and $ 197.7 million for 2015 and 2014 , respectively . national beef a summary of results of operations for national beef for the three years in the period ended december 31 , 2016 is as follows ( in thousands ) : replace_table_token_9_th national beef 's profitability is dependent , in large part , on the spread between its cost for live cattle , the primary raw material for its business , and the value received from selling boxed beef and other products coupled with its overall volume . national beef operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces . national beef 's profitability typically fluctuates seasonally with relatively higher margins in the spring and summer months and during times of ample cattle availability . 34 revenues in 2016 decreased about 5 % in comparison to 2015 , due to lower average selling prices for beef and beef by-products , partially offset by an increase in the number of cattle processed . revenues in 2015 decreased about 5 % in comparison to 2014 , due to lower sales volume , as fewer cattle were processed , and lower average selling prices for beef and beef by-products . additionally , during 2015 , decreases to revenues of $ 52.9 million were recorded as a result of national beef 's use of derivatives in its hedging activity . for 2016 , cost of sales declined 11 % as compared to 2015 , due to a decrease in the price of fed cattle , partially offset by an increase in volume . for 2015 , cost of sales declined 5 % as compared to 2014 , due to fewer cattle processed , and a decrease in the price of cattle . for 2016 , the combined effects of increased margin per head and an increase in volume led to record high profitability . for 2015 , the combined effects of both lower volumes and tighter margins due to the relative price of cattle compared to the selling price of beef and beef by-products impacted margins leading to reduced profitability compared to 2014. selling , general and other expenses in 2015 included a $ 4.7 million impairment charge in connection with national beef 's decision to close its brawley , california beef processing plant . also in connection with closing the brawley facility , national beef
| corporate and other results a summary of results of operations for corporate and other for the three years in the period ended december 31 , 2016 is as follows ( in thousands ) : replace_table_token_10_th net revenues of corporate and other primarily include realized and unrealized securities gains and interest income for investments which are held at the holding company . revenues for 2016 include a $ 65.6 million increase in a trading asset which is held at fair value . revenues for 2015 include a net realized securities gain related to a recovery of $ 35.0 million of an investment in a non-public security that was sold and had been written off in prior years . revenues for 2014 consist primarily of interest income and a number of smaller securities gains . for the years ended december 31 , 2016 , 2015 and 2014 , corporate compensation and benefits includes accrued incentive bonus expense of $ 7.6 million , $ 17.4 million and $ 13.9 million , respectively . share-based compensation expense was $ 9.7 million , $ 14.6 million and $ 26.3 million in 2016 , 2015 and 2014 , respectively . pursuant to the agreement to sell one of our former subsidiaries , wiltel communications group , llc , the responsibility for wiltel 's defined benefit pension plan was retained by us . wiltel pension expense in 2015 includes a non-cash pension settlement charge of $ 40.7 million related to a voluntary lump sum offer to participants of the legacy plan . see note 20 to our consolidated financial statements for further information . selling , general and other expenses for the 2015 period reflects the recovery of $ 20.1 million in insurance payments in respect of previously expensed legal fees . selling , general and other expenses for 2014 include a charge relating to the agreement to settle certain litigation related to the jefferies acquisition for an aggregate payment of $ 70.0 million plus legal fees .
| 4,999 |
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