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the fair value was determined based on the quoted price for the notes in an inactive market on the last trading day of the reporting period and is considered as level 2 in the fair value hierarchy . long-term investments as of december 31 story_separator_special_tag financial condition and results of operations the following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. as discussed in the section entitled “ 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 significantly 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 discussed below and elsewhere in this report , particularly in the section entitled “ risk factors ” included under part i , item1a . this section of this form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussion regarding our financial condition and results of operations for fiscal 2018 as compared to fiscal 2017 is included in item 7 of our annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on february 27 , 2019. overview we are a leading provider of software-as-a-service ( “ saas ” ) solutions that enable businesses to communicate , collaborate , and connect . we believe that our innovative , cloud-based approach disrupts the large market for business communications and collaboration by providing flexible and cost-effective solutions that support distributed workforces , mobile employees , and the proliferation of smart phones and tablets . we enable convenient and effective communications for organizations across all their locations and employees , enabling them to be more productive and more responsive to their customers . our cloud-based business communications and collaboration solutions are designed to be easy to use , providing a single user identity across multiple locations and devices , including smartphones , tablets , pcs and desk phones . our solutions can be deployed rapidly and configured and managed easily . through our platform , we enable third-party developers and customers to integrate our solution with leading business applications to customize their own business workflows . we have a portfolio of cloud-based offerings that are subscription based , made available at different rates varying by the specific functionalities , services , and number of users . we primarily generate revenues from the sale of subscriptions to our offerings . our subscription plans have monthly , annual , or multi-year contractual terms . we believe that this flexibility in contract duration is important to meet the different needs of our customers . for the years ended december 31 , 2019 , 2018 , and 2017 , subscriptions revenues accounted for 90 % or more of our total revenues . the remainder of our revenues has historically been primarily comprised of product revenues from the sale of pre-configured phones and professional services . we do not develop , manufacture , or otherwise touch the delivery of physical phones and offer it as a convenience for a total solution to our customers in connection with subscriptions to our services . we rely on third-party providers to develop and manufacture these devices and fulfillment partners to successfully serve our customers . we continue to invest in our direct inside sales force while also developing indirect sales channels to market our brand and our subscription offerings . our indirect sales channel consists of a network of resellers who sell our solutions . we also sell our solutions through carriers including at & t , inc. ( “ at & t ” ) , telus communications company ( “ telus ” ) , and bt group plc ( “ bt ” ) . in october 2019 , we entered into a strategic partnership with avaya holdings corp. ( `` avaya '' ) , which includes the introduction of a new solution avaya cloud office by ringcentral ( `` aco '' ) , which will be marketed and sold by avaya and its subsidiaries . in december 2019 , we entered into a strategic partnerhip with atos se ( `` atos '' ) , which includes the introduction of a co-branded unified communications as a service ( `` ucaas '' ) solution . we intend to continue to foster this network and expand our network with other resellers . we also participate in more traditional forms of media advertising , such as radio and billboard advertising . since its launch , our revenue growth has primarily been driven by our flagship ringcentral office product offering , which has resulted in an increased number of customers , increased average subscription revenue per customer , and increased retention of our existing customer and user base . we define a “ customer ” as one individual billing relationship for the subscription to our services , which generally correlates to one company account per customer . as of december 31 , 2019 , we had customers from a range of industries , including financial services , education , healthcare , legal services , real estate , retail , technology , insurance , construction , hospitality , and state and local government , among others . for the years ended december 31 , 2019 , 2018 and 2017 , the vast majority of our total revenues were generated in the u.s. and canada , although we expect the percentage of our total revenues derived outside of the u.s. and canada to grow as we continue to expand internationally . story_separator_special_tag we also generate revenues through sales of our subscriptions and products by resellers and carrier partners . when we control the performance of the contractual obligations , we record the revenues on a gross basis and amounts retained by our resellers are recorded as sales and marketing expenses . our assumption of such control is evidenced when , among other things , we take responsibility for delivery of the service or products , establish pricing of the arrangement , and assume inventory risk . when a reseller assumes the majority of these factors , we record the associated revenue at the net amount remitted to us by the reseller . “ other revenues ” includes product revenues from the sale of pre-configured phones , phone rentals , and professional services . product revenue is recognized when the product has been delivered to the customer . professional services revenue is recognized as services are delivered . cost of revenues and gross margin our cost of subscriptions revenue primarily consists of fees paid to third-party telecommunications providers , network operations , costs to build out and maintain data centers , including co-location fees for the right to place our servers in data centers owned by third parties , depreciation of servers and equipment , along with related utilities and maintenance costs , personnel costs associated with customer care and support of the functionality of our platform and data center operations , including share-based compensation expenses , and allocated costs of facilities and information technology . we define subscriptions gross margins as subscriptions revenue minus the cost of subscriptions revenue expressed as a percentage of subscriptions revenue . cost of other revenue is comprised primarily of the cost associated with the purchase of phones , cost of professional services , and allocated costs of facilities and information technology . operating expenses we classify our operating expenses as research and development , sales and marketing , and general and administrative expenses . 44 our research and development efforts are focused on developing new and expanded features for our solutions , integrations with distributors and other software platforms , and improvements to our backend architecture . research and development expenses consist primarily of personnel costs for employees and contractors , including share-based compensation expenses , and allocated costs of facilities and information technology , software tools , and product certification . we expense research and development costs as incurred , except for certain internal-use software development costs that we capitalize . we believe that continued investment in our products is important for our future growth , and we expect our research and development expenses to continue to increase in absolute dollars for the foreseeable future , although these expenses may fluctuate as a percentage of our total revenues from period to period depending on the timing of these expenses . sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs for employees and contractors directly associated with our sales and marketing activities including share-based compensation expenses , internet advertising fees , radio and billboard advertising , public relations , commissions paid to employees , resellers and other third parties , amortization of capitalized sales commissions , trade shows , travel expenses , credit card fees , marketing and promotional activities , amortization of acquired customer relationship intangibles , and allocated costs of facilities and information technology . we expect our sales and marketing expenses to continue to increase in absolute dollars for the foreseeable future as we expand our sales and marketing efforts domestically and internationally and continue to build our brand , although these expenses may fluctuate as a percentage of our total revenues from period to period depending on the timing of these expenses . general and administrative expenses consist primarily of personnel costs , including share-based compensation expenses , for employees and contractors engaged in infrastructure and administrative activities to support the day-to-day operations of our business . other significant components of general and administrative expenses include professional service fees , allocated costs of facilities and information technology , cost of compliance with certain government-imposed taxes , the costs of legal matters , business acquisition costs , and loss contingencies . we expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future , although these expenses may fluctuate as a percentage of our total revenues from period to period , depending on the timing of these expenses . story_separator_special_tag style= '' line-height:120 % ; padding-top:24px ; text-align : justify ; font-size:10pt ; '' > other income ( expense ) , net replace_table_token_11_th nm - not meaningful other expense , net increased by $ 1.6 million during fiscal year 2019 as compared to fiscal year 2018 , primarily driven by an increase in costs associated with strategic partnerships and acquisitions of $ 10.6 million , interest expense of $ 4.4 million resulting from the amortization of debt discount and issuance costs of our 0 % convertible senior notes due 2023 ( “ notes ” ) , offset in part by $ 8.3 million non-cash gains recognized from our long-term investments , increase of $ 3.0 million in interest income earned on our cash and cash equivalents , and gain on foreign exchange of $ 1.6 million . 48 net loss net loss increased by $ 27.4 million during fiscal year 2019 , mainly due to higher share-based compensation expense of $ 33.3 million and non-recurring acquisitions and strategic partnership related expenses of $ 24.1 million , offset by growth in continuing operations , as discussed above . liquidity and capital resources as of december 31 , 2019 and 2018 , we had cash and cash equivalents of $ 343.6 million and $ 566.3 million , respectively . we finance our operations primarily through sales to our customers and a majority of our customers are billed monthly .
| results of operations the following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues . the historical results presented below are not necessarily indicative of the results that may be expected for any future period ( in thousands ) : replace_table_token_4_th 45 percentage of total revenues * replace_table_token_5_th * percentages may not add up due to rounding . comparison of fiscal years ended december 31 , 2019 , 2018 , and 2017 : revenues replace_table_token_6_th subscriptions revenue . s ubscriptions revenue increased by $ 204.9 million , or 33 % , during fiscal year 2019 as compared to fiscal year 2018 . the increase was primarily a combination of the acquisition of new customers and upsells of seats and additional offerings to our existing customer base . this growth was primarily driven by an increase in sales to our mid-market and enterprise customers as we continue to expand up market , and increase in sales through our channel partners . other revenues . other revenues are primarily comprised of product revenue from the sale of pre-configured phones , phone rentals , and professional services . 46 other revenue increased by $ 24.3 million , or 40 % , during fiscal year 2019 as compared to fiscal year 2018 , primarily due to the increase in product sales and professional services resulting from the overall growth in our business . cost of revenues and gross margin replace_table_token_7_th subscription cost of revenues and gross margin . cost of subscriptions revenues increased by $ 50.9 million , or 46 % , during fiscal year 2019 as compared to fiscal year 2018 .
| 5,000 |
certain risks , uncertainties and other factors , including but not limited to those set forth under “ cautionary note regarding forward-looking statements , ” “ risk factors , ” and elsewhere in this annual report on form 10-k , may cause actual results to differ materially from those projected in the forward looking statements . we assume no obligation to update any of these forward-looking statements . covid-19 pandemic during march 2020 , the world health organization declared the novel strain of coronavirus ( “ covid-19 ” ) a global pandemic in response to the rapidly growing outbreak of the virus . covid-19 has significantly impacted local , national and global economies due to stay-at-home orders and social distancing guidelines , and has caused economic and social disruption on an unprecedented scale . while some industries have been impacted more severely than others , all businesses have been impacted to some degree . this disruption has resulted in the shuttering of businesses across the country , significant job loss , and aggressive measures by the federal government . congress , the president , and the frb have taken several actions designed to cushion the economic fallout . most notably , the cares act was signed into law on march 27 , 2020 as a $ 2 trillion legislative package . the goal of the cares act was to prevent a severe economic downturn through various measures , including direct financial aid to american families and economic stimulus to significantly impacted industry sectors . the package also included extensive emergency funding for hospitals and providers . in addition to the general impact of covid-19 , certain provisions of the cares act as well as other recent legislative and regulatory relief efforts have had and continue to have a material impact on our operations . in response to the covid-19 pandemic , the company has prioritized the health and safety of its employees and customers , and continues to take protective measures during the ongoing covid-19 pandemic , such as implementing remote work arrangements to the full extent possible and by adjusting banking center hours and operational measures to promote social distancing , and it will continue to do so throughout the duration of the pandemic . at the same time , the company is closely monitoring the effects of the covid-19 pandemic on our loan and deposit customers , and is assessing the risks in our loan portfolio and working with our customers to reduce the pandemic 's impact on them while minimizing losses for the company . meanwhile , the company remains focused on improving shareholder value , managing credit exposure , challenging expenses , enhancing the customer experience and supporting the communities it serves . we have implemented loan programs to allow customers who are experiencing hardships from the covid-19 pandemic to defer loan principal and interest payments for up to nine months . the small business administration ( the “ sba ” ) made debt relief payments for the principal , interest and fee payments of all our sba loan customers for six months through the end of september 2020. as of december 31 , 2020 , we had 14 non-sba commercial customers with outstanding loan balances totaling $ 42.0 million who were approved for a third round of payment deferrals . this is a decline from the second round of payment deferrals that were granted to 24 non-sba commercial customers with outstanding balances totaling $ 82.5 million as of september 30 , 2020. during our first round of payment deferrals , we granted payment deferrals to 89 non-sba loans with outstanding balances of $ 157.5 million as of june 30 , 2020. included in the third round of non-sba payment deferrals were eight loans totaling $ 24.2 million with a weighted average loan-to-value ( “ ltv ” ) of 44.2 % in the hotel industry and no loans in the restaurant industry , which are two industries heavily impacted by the covid-19 pandemic . as of december 31 , 2020 and following the expiration of the sba debt relief payments mentioned above , we had approved three month payment deferrals for 18 sba loans with outstanding gross loan balances totaling $ 25.5 million ( $ 6.4 million unguaranteed book balance ) . of these sba payment deferrals , four loans totaling $ 6.0 million ( $ 1.5 million unguaranteed book balance ) were in the restaurant industry and no loans were in the hotel industry . as of december 31 , 2020 , the company had 51 loans totaling $ 141.2 million in the hotel industry and 116 loans totaling $ 36.1 million in the restaurant industry , which make up 8.6 % and 2.2 % of our total loan portfolio , respectively . 43 as of december 31 , 2020 , our residential real estate loan portfolio made up 59.6 % of our total loan portfolio and had a weighted average amortized ltv of approximately 55.6 % . as of december 31 , 2020 , 1.0 % of our residential mortgages remain on hardship payment deferral covering principal and interest payments for three to six months . this is a significant decrease from the first round of payment deferrals granted during the second quarter of 2020 , which made up 19.2 % of our residential mortgage balances as of june 30 , 2020 , and a slight decrease from the second round of payment deferrals granted during the third quarter of 2020 , which made up 1.7 % of our residential mortgage balances as of september 30 , 2020. in addition , as a preferred sba lender , we are participating in the paycheck protection program created under the cares act and implemented by the sba to help provide loans to our business customers in need . as of december 31 , 2020 , the company approved and funded over 1,800 ppp loans totaling $ 96.9 million . these ppp loans were funded with our current cash balances and all ppp loans are fully guaranteed by the sba . story_separator_special_tag the benefits provided under all of these plans are subject to asc topic 718 , compensation – stock compensation ( “ asc 718 ” ) . our results of operations for the years ended december 31 , 2020 , 2019 and 2018 were impacted by the recognition of non-cash expense related to the fair value of our share based compensation awards . the determination of fair value of stock-based payment awards on the date of grant using the black scholes model is affected by our stock price , as well as the input of other subjective assumptions . these assumptions include , but are not limited to , the expected term of stock options and our stock price volatility . our stock options have characteristics significantly different from those of traded options , and changes in the assumptions can materially affect the fair value estimates . current accounting guidance requires forfeitures to be estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . if actual forfeitures vary from our estimates , we will recognize the difference in compensation expense in the period the actual forfeitures occur . fair value of financial instruments asc topic 820 , fair value measurement ( “ asc 820 ” ) , defines fair value as the price that would be received to sell a financial asset , or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date . the degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters . for financial instruments that 45 trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value . when observable market prices and parameters are not available , management judgment is necessary to estimate fair value . in addition , changes in market conditions may reduce the availability of quoted prices or observable date . see note 15 of our consolidated financial statements as of december 31 , 2020 , included elsewhere in this annual report on form 10-k , for a complete discussion of fair value of financial assets and liabilities and their related measurement practices . income taxes we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance may be established . we consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets , including projections of future taxable income . these judgments and estimates are reviewed on a continual basis as regulatory and business factors change . see note 10 of our consolidated financial statements as of december 31 , 2020 , included elsewhere in this annual report on form 10-k , for additional information . the jobs act contains provisions that , among other things , reduce certain reporting and other regulatory requirements for qualifying public companies . as an “ emerging growth company ” we have elected under the jobs act to retain the ability to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies . however , at december 31 , 2020 , 2019 and 2018 , we have adopted all new accounting standards that could affect the comparability of our financial statements to those of other public entities . in the event we choose in the future to delay adoption of future accounting pronouncements applicable to public companies , our consolidated financial statements as of a particular date and for a particular period in the future may not be comparable to the financial statements as of such date and for such period of a public company situated similarly to us that is neither an emerging growth company nor an emerging growth company that has opted out of the extended transition period . such financial statements of the other company may be prepared in conformity with new or revised accounting standards then applicable to public companies , but not to private companies , while , if we are then in the extended transition period , our consolidated financial standards would not be prepared in conformity with such new or revised accounting standards . additionally , we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , if , as an “ emerging growth company , ” we choose to rely on such exemptions we may not be required to , among other things , ( i ) provide an auditor 's attestation report of our internal control over financial reporting pursuant to the sarbanes-oxley act , ( ii ) comply with any requirement that may be adopted by the pcaob regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) , ( iii ) provide more extensive disclosures regarding our executive compensation arrangements , including a “ compensation discussion and analysis ” section and all of the disclosures required under the dodd-frank act , ( iv ) hold nonbinding advisory votes on executive compensation or golden parachute arrangements .
| results of operations net income year ended december 31 , 2020 compared to year ended december 31 , 2019 we recorded net income of $ 36.4 million for the year ended december 31 , 2020 compared to $ 44.7 million for the same period in 2019 , a decrease of $ 8.3 million , or 18.6 % . the decrease was due to a $ 12.7 million decrease in noninterest income , a $ 1.1 million increase in noninterest expense , and a $ 3.5 million increase in provision for loan losses , partially offset by a $ 5.1 million increase in net interest income . basic and diluted earnings per common share for the year ended december 31 , 2020 was $ 1.42 and $ 1.41 , respectively , compared to $ 1.82 and $ 1.81 for the basic and diluted earnings per common share for the same period in 2019. year ended december 31 , 2019 compared to year ended december 31 , 2018 we recorded net income of $ 44.7 million for the year ended december 31 , 2019 compared to $ 41.3 million for the same period in 2018 , an increase of $ 3.4 million , or 8.2 % . the increase was due to a $ 2.8 million increase in net interest income , a $ 2.3 million increase in noninterest income , and a $ 1.2 million decrease in provision for loan losses , partially offset by a $ 1.4 million increase in noninterest expense . basic and diluted earnings per common share for the year ended december 31 , 2019 was $ 1.82 and $ 1.81 , respectively , compared to $ 1.71 and $ 1.69 for the basic and diluted earnings per common share for the same period in 2018. net interest income the management of interest income and expense is fundamental to our financial performance .
| 5,001 |
because of the prepayments the company has story_separator_special_tag unless otherwise indicated or the context otherwise requires , as used in this management 's discussion and analysis of financial condition and results of operations , the terms we , us , the company , our , cdw and similar terms refer to cdw corporation and its subsidiaries . management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the related notes included elsewhere in this report . this discussion contains forward-looking statements that are subject to numerous risks and uncertainties . actual results may differ materially from those contained in any forward-looking statements . see forward-looking statements at the end of this discussion . overview we are a leading multi-brand technology solutions provider to business , government , education and healthcare customers in the u.s. and canada . we provide comprehensive and integrated solutions for our customers ' technology needs through our extensive hardware , software and value-added service offerings . our breadth of offerings allows our customers to streamline their procurement processes by partnering with us as a complete technology solutions provider . our hardware offerings include products with leading brands across multiple categories such as network communications , notebooks/mobile devices , data storage , video monitors , printers , desktops and servers , among others . our software offerings include licensing , licensing management and software solutions and services that help our customers to optimize their software investments . we offer a full-suite of value-added services , which typically are delivered as part of a technology solution , to help our customers meet their specific needs . our solutions range from configuration services for computer devices to fully-integrated solutions such as virtualization , collaboration , security , mobility , data center optimization and cloud computing . we also offer complementary services including installations , sales of warranties and managed services such as remote network and data center monitoring . we believe both software and service offerings will be important growth areas for us in the future . we have two reportable segments : corporate , which is comprised primarily of business customers , and public , which is comprised of government entities and education and healthcare institutions . our corporate segment is divided into medium-large business , primarily serving customers having between 100 and 1,000 employees , and small business , primarily serving customers with up to 100 employees . we also have two other operating segments , cdw advanced services and canada , which do not meet the reportable segment quantitative thresholds and , accordingly , are combined together as other. the cdw advanced services business consists primarily of customized engineering services delivered by cdw professional engineers and managed services , including hosting and data center services . revenues from the sale of hardware , software , custom configuration and third party provided services are recorded within our corporate and public segments . our business is well-diversified across customers , product and service offerings and vendors from whom we purchase products for resale . we have aligned our sales and marketing functions around customer channels to retain and increase our sales to existing customers and to acquire new customers . we have an experienced and dedicated direct selling organization consisting of account managers who provide inside sales coverage , and field account executives who work within an assigned territory and interact with customers in person . our direct selling organization is supported by a team of technology specialists who design solutions and provide recommendations in the selection and procurement processes . we purchase products for resale from oems and distributors . we believe that effective purchasing from a diverse vendor base is a key element of our business strategy . we are authorized by oems to sell via direct marketing all or selected products offered by the manufacturer . we also operate as a reseller for major software publishers that allows the end-user customer to acquire packaged software or licensed products and services . our authorization with each oem or software publisher may include one or more of the following : product return privileges , price protection policies , purchase discounts and vendor incentive programs , such as volume rebates and cooperative advertising reimbursements . we market the cdw brand on a national basis through a variety of public and community relations and corporate communications efforts , and through brand advertising that includes the use of print , broadcast , online , social and other media . we also market to current and prospective customers through integrated marketing programs that include print and online media , events and sponsorships . as a result of our relationships with our vendors , a substantial portion of our advertising and marketing expenses are reimbursed through cooperative advertising reimbursement programs . such programs are at the discretion of our vendors and are typically tied to sales or purchasing volumes or other commitments to be met by us within a specified period of time . an important factor affecting our ability to generate sales and achieve our targeted operating results is the impact of general economic conditions on our customers ' willingness to spend on information technology . during the recent economic downturn beginning in late 2008 and into 2009 , we experienced significantly lower sales and gross profit as our customers generally reduced spending on information technology products and services . during 2010 , we experienced significant increases in sales , gross profit and operating income compared to 2009. while general economic conditions and our recent operating results have generally improved , competitive pricing pressures continue in the market . downturns in the global economy , declines in the availability of credit , weakening consumer and business confidence or increased unemployment could result in reduced spending 24 by our customers on information technology products and services and increased competitive pricing pressures . our public segment sales are impacted by government spending policies , budget priorities and revenue levels . story_separator_special_tag 28 interest expense , net at december 31 , 2010 , our outstanding long-term debt , excluding capital leases , totaled $ 4,289.1 million . net interest expense was $ 391.9 million in 2010 , compared to $ 431.7 million in 2009. the decrease in interest expense was primarily due to the year-over-year change in the net non-cash impact of hedge ineffectiveness recorded in interest expense on the interest rate swap agreements , as described in note 8 to our consolidated financial statements , which resulted in a gain of $ 25.8 million in 2010 , compared to a loss of $ 28.7 million in 2009. also contributing to the decrease were lower average outstanding debt balances during 2010 compared to 2009. partially offsetting these items was a higher interest rate on the senior secured term loan facility as a result of the november 2009 amendment to this facility and increased expense due to changes in the fair value of the interest rate cap agreements , as described in note 8 to our consolidated financial statements . net gain on extinguishments of long-term debt we recorded a net gain of $ 2.0 million on the extinguishment of long-term debt resulting from two transactions during 2010. in march 2010 , we repurchased $ 28.5 million of principal amount of the outstanding senior subordinated loans/notes for a purchase price of $ 18.6 million . we recorded a gain of $ 9.2 million on the extinguishment of this debt in our consolidated statement of operations during the first quarter of 2010. the gain represents the difference between the purchase price , including expenses paid to the debt holders and agent , and the net carrying amount of the purchased debt , adjusted for a portion of the unamortized deferred financing costs . the $ 28.5 million in principal amount of loans was exchanged for increasing rate notes and subsequently surrendered to the indenture trustee for cancellation . in december 2010 , we extinguished $ 500.0 million of the outstanding principal balance of our senior secured term loan facility as described in note 7 to our consolidated financial statements . we recorded a loss of $ 7.2 million on the extinguishment of this debt in our consolidated statement of operations during the fourth quarter of 2010. this loss represents a write-off of a portion of the unamortized deferred financing costs on the senior secured term loan facility . there was no additional gain or loss resulting from the paydown of the debt balance , as the cash paid equaled the par value of the debt principal extinguished . income tax benefit the income tax benefit was $ 7.8 million in 2010 , compared to $ 87.8 million in 2009. the effective income tax rate , expressed by calculating the income tax benefit as a percentage of loss before income taxes , was 21.1 % in 2010 , compared to 19.0 % in 2009. the change in the effective rate from 2009 to 2010 was due to the nondeductible goodwill charge in 2009 and a relatively higher impact on the effective tax rate of permanent items in 2010 due to the relatively small pre-tax loss . in addition , state taxes in 2010 were higher due to changes in state rates and apportionment . net loss the net loss was $ 29.2 million in 2010 , compared to a net loss of $ 373.4 million in 2009. the year-over-year change was primarily due to the impairment charges discussed above . adjusted ebitda adjusted ebitda was $ 601.8 million in 2010 , an increase of $ 136.5 million , or 29.3 % , compared to $ 465.4 million in 2009. as a percentage of net sales , adjusted ebitda was 6.8 % in 2010 , compared to 6.5 % in 2009 . 29 we have included a reconciliation of ebitda and adjusted ebitda for 2010 and 2009 in the table below . ebitda is defined as earnings before interest , taxes , depreciation and amortization . adjusted ebitda , which is a measure defined in our credit agreements , means ebitda adjusted for certain items which are described in the table below . both ebitda and adjusted ebitda are considered non-gaap financial measures . generally , a non-gaap financial measure is a numerical measure of a company 's performance , financial position , or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with gaap . we believe that ebitda and adjusted ebitda provide helpful information with respect to our operating performance and cash flows including our ability to meet our future debt service , capital expenditures and working capital requirements . adjusted ebitda also provides helpful information as it is the primary measure used in certain financial covenants contained in our credit agreements . see selected financial data included elsewhere in this report for a reconciliation of ebitda to cash flow from operating activities . replace_table_token_9_th ( 1 ) other adjustments include certain severance and retention costs , equity investment gains and losses and the gain related to the sale of informacast software and equipment in 2009 . 30 year ended december 31 , 2009 compared to year ended december 31 , 2008 the following table presents our results of operations , in dollars and as a percentage of net sales , for the years ended december 31 , 2009 and 2008 : replace_table_token_10_th net sales the following table presents our net sales by segment , in dollars and as a percentage of total net sales , and the year-over-year percentage change in net sales for the years ended december 31 , 2009 and 2008 : replace_table_token_11_th ( 1 ) there were 254 selling days in 2009 , compared to 255 selling days in 2008. on an average daily basis , total net sales decreased 10.9 % .
| results of operations year ended december 31 , 2010 compared to year ended december 31 , 2009 the following table presents our results of operations , in dollars and as a percentage of net sales , for the years ended december 31 , 2010 and 2009 : replace_table_token_5_th 25 net sales the following table presents our net sales by segment , in dollars and as a percentage of total net sales , and the year-over-year percentage change in net sales for the years ended december 31 , 2010 and 2009 : replace_table_token_6_th ( 1 ) there were 254 selling days in both the years ended december 31 , 2010 and 2009. the following table presents our net sales by customer channel for our corporate and public segments and the dollar and percentage change between periods in net sales for the years ended december 31 , 2010 and 2009 : replace_table_token_7_th total net sales in 2010 increased $ 1,638.5 million , or 22.9 % , to $ 8,801.2 million , compared to $ 7,162.6 million in 2009. there were 254 selling days in both 2010 and 2009. the increase in total net sales was the result of general growth and increased demand in the information technology industry overall , in addition to our focus on growing our market share . the most significant driver of sales growth in 2010 was the rebound by our corporate segment , which was significantly impacted by the recent economic downturn . corporate segment net sales in 2010 increased $ 1,015.4 million , or 26.6 % , compared to 2009. within our corporate segment , net sales to medium / large customers increased 28.3 % between years , while net sales to small business customers increased 20.3 % . public segment net sales in 2010 increased $ 525.1 million , or 17.3 % , between years driven by growth across all customer channels .
| 5,002 |
the ka steel results of operations have been included in our consolidated results for the period subsequent to the effective date of the acquisition . our results for the year ended december 31 , 2012 include ka steel sales of $ 156.3 million and $ 4.5 million of segment income , which includes depreciation and amortization expense story_separator_special_tag business background our operations are concentrated in three business segments : chlor alkali products , chemical distribution and winchester . chlor alkali products and winchester are both capital intensive manufacturing businesses . chlor alkali products operating rates are closely tied to the general economy . each segment has a commodity element to it , and therefore , our ability to influence pricing is quite limited on the portion of the segment 's business that is strictly commodity . our chlor alkali products and chemical distribution businesses are commodity businesses where all supplier products are similar and price is the major supplier selection criterion . we have little or no ability to influence prices in this large , global commodity market . cyclical price swings , driven by changes in supply/demand , can be abrupt and significant and , given capacity in our chlor alkali products business , can lead to very significant changes in our overall profitability . winchester also has a commodity element to its business , but a majority of winchester ammunition is sold as a branded consumer product where there are opportunities to differentiate certain offerings through innovative new product development and enhanced product performance . while competitive pricing versus other branded ammunition products is important , it is not the only factor in product selection . recent developments and highlights 2013 year in 2013 , chlor alkali products ' segment income was $ 203.8 million compared to $ 263.2 million in 2012. chlor alkali products ' segment income was lower than the prior year as a result of lower product prices , primarily hydrochloric acid and chlorine , and increased operating costs associated with planned maintenance outages , higher electricity costs primarily due to increased natural gas prices and higher depreciation expense . these decreases were partially offset by an $ 11.0 million favorable contract settlement . operating rates in chlor alkali products were 84 % in 2013 , which reflected the capacity reductions that occurred in fourth quarter of 2012 , and 80 % in 2012. our 2013 ecu netbacks of approximately $ 560 were 3 % lower than the 2012 netbacks of approximately $ 575 due to lower chlorine prices partially offset by higher caustic soda prices . in the first quarter of 2013 , a caustic soda price increase of $ 50 per ton was announced and a chlorine price increase of $ 60 per ton was announced . the 2013 chlorine price increase was not successful . in the second quarter of 2013 , we announced an additional $ 40 per ton caustic soda price increase . in the third quarter of 2013 , an additional caustic soda price increase was announced for $ 30 per ton . none of these caustic soda price increases were successful . finally in the fourth quarter of 2013 , an additional caustic soda price increase was announced for $ 40 per ton . during the fourth quarter of 2013 , weakness in chlorine and caustic soda demand resulted in chlorine and caustic soda prices that declined from the third quarter 2013 level . as a result , ecu netbacks declined from approximately $ 570 in the third quarter of 2013 to approximately $ 525 in the fourth quarter of 2013. in january 2014 , a chlorine price increase of $ 50 per ton was announced . while the success of the first quarter 2014 chlorine price increase and the fourth quarter 2013 caustic soda price increase is not yet known , the majority of the benefit , if realized , would impact second quarter 2014 results . ecu netbacks in the first quarter of 2014 are forecast to be lower than the fourth quarter of 2013 as a result of lower caustic soda prices partially offset by higher chlorine prices . chemical distribution segment income was $ 9.7 million in 2013 compared to $ 4.5 million in 2012. chemical distribution segment income was higher than the prior year as a result of the additional period of our ownership . depreciation and amortization expense included in segment income for the years ended december 31 , 2013 and 2012 of $ 15.4 million and $ 5.5 million , respectively , were primarily associated with the acquisition fair valuing of ka steel . as a result of acquiring ka steel in august of 2012 , we anticipate realizing approximately $ 35 million of annual synergies at the end of three years . these synergies include opportunities to sell additional volumes of products we produce such as caustic soda , bleach , hydrochloric acid and potassium hydroxide through ka steel and to optimize freight cost and logistics assets between our chlor alkali products segment and ka steel . winchester segment income was $ 143.2 million in 2013 , which represented the highest level of segment income in at least the last two decades , improved 159 % compared to 2012 segment income of $ 55.2 million . the increase in segment income compared to last year reflects the impact of increased volumes due to the continuation of the stronger than historical demand that began in the fourth quarter of 2012 , improved selling prices and decreased costs , including the impact of decreased costs associated with our new centerfire operation in oxford , ms. 21 other ( expense ) income in 2013 included a gain of $ 6.5 million on the sale of our equity interest in a limited liability company that owns a bleach related chemical manufacturing facility ( bleach joint venture ) . story_separator_special_tag our results for the year ended december 31 , 2012 included ka steel sales of $ 156.3 million and $ 4.5 million of segment income , which included depreciation and amortization expense of $ 5.5 million , primarily associated with the acquisition fair valuing of ka steel . as a result of acquiring ka steel , we anticipate realizing approximately $ 35 million of annual synergies at the end of three years . these synergies include opportunities to sell additional volumes of products we produce such as caustic soda , bleach , hydrochloric acid and potassium hydroxide through ka steel and to optimize freight cost and logistics assets between our chlor alkali products segment and ka steel . also , under the terms of the acquisition , both parties agreed to make an election under section 338 ( h ) ( 10 ) of the u.s. internal revenue code ( u.s. irc ) that is expected to result in cash tax benefits to us that have a net present value of approximately $ 60 million . financing in august 2012 , we sold $ 200.0 million of 5.5 % senior notes ( 2022 notes ) with a maturity of august 15 , 2022. the 2022 notes were issued at par value . interest is paid semi-annually on february 15 and august 15. the acquisition of ka steel was partially financed with proceeds of $ 196.0 million , after expenses of $ 4.0 million , from the 2022 notes . in june 2012 , we redeemed $ 7.7 million of industrial development and environmental improvement tax-exempt bonds ( industrial revenue bonds ) due in 2017. we paid a premium of $ 0.2 million to the bond holders , which was included in interest expense . we also recognized a $ 0.2 million deferred gain in interest expense related to the interest rate swaps , which were terminated in march 2012 , on these industrial revenue bonds . in december 2012 , we repaid $ 12.2 million due under the annual requirements of the sunbelt notes . on april 27 , 2012 , we entered into a new $ 265 million five-year senior revolving credit facility , which replaced the $ 240 million senior revolving credit facility and a $ 25 million letter of credit facility . the new credit facility will expire in april 2017. borrowing options and restrictive covenants are similar to those of our previous $ 240 million senior revolving credit facility . the $ 265 million senior revolving credit facility includes a $ 110 million letter of credit subfacility and a $ 50 million canadian subfacility . other highlights in 2012 , chlor alkali products ' segment income was $ 263.2 million , an increase of 7 % compared to 2011. segment income in 2012 was higher than 2011 as a result of higher product prices and the ownership of sunbelt for the full period . these increases were partially offset by decreased chlorine and caustic soda volumes . operating rates in chlor alkali products for 2012 and 2011 were 80 % . our 2012 ecu netbacks of approximately $ 575 were 1 % higher than the 2011 netbacks of approximately $ 570 due to higher caustic soda prices partially offset by lower chlorine prices . in the first quarter of 2012 , a caustic soda price increase was announced of $ 45 per ton and a chlorine price increase was announced of $ 40 per ton . the 2012 chlorine price increase was not successful . in the second quarter of 2012 , we announced an additional $ 60 per ton caustic soda price increase . in the third quarter of 2012 , an additional caustic soda price increase was announced of $ 70 per ton . finally , in the fourth quarter of 2012 , an additional caustic soda price increase was announced for $ 50 per ton . during 2012 , caustic soda prices increased , but were more than offset by lower chlorine prices . winchester segment income was $ 55.2 million in 2012 compared to $ 37.9 million in 2011. the increase in segment income compared to 2011 reflects the impact of higher selling prices and increased volumes , partially offset by higher operating costs and incremental costs associated with the ongoing relocation of our centerfire ammunition manufacturing operations to oxford , ms. 23 other operating income in 2012 included $ 4.9 million of insurance recoveries for business interruption related to an outage of one of our chlor alkali customers in the first half of 2012. income before taxes for 2012 and 2011 included $ 0.1 million and $ 11.4 million , respectively , of recoveries from third parties for environmental costs incurred and expensed in prior periods . income tax expense for 2012 included a $ 6.6 million benefit associated with the agricultural chemicals security tax credit under section 45o of the u.s. irc ( section 45o ) , which were partially offset by $ 3.6 million of tax expense associated with remeasurement of deferred taxes , changes in tax contingencies and tax expense associated with previously undistributed earnings from our winchester australia limited subsidiary . capital spending of $ 255.7 million for 2012 included $ 108.1 million for the conversion of our charleston , tn facility from mercury cell technology to membrane technology , $ 58.6 million for the construction of low salt , high strength bleach facilities at our mcintosh , al ; henderson , nv ; and niagara falls , ny chlor alkali sites and $ 16.1 million for the ongoing relocation of our winchester centerfire ammunition manufacturing operations . the conversion of our charleston , tn facility was completed in the second half of 2012 with the successful start-up of two new membrane cell lines and we also completed low salt , high strength bleach facilities at mcintosh , al and niagara falls , ny in the first and third quarters of 2012 , respectively . 2011 year sunbelt acquisition on february 28 , 2011 , we acquired polyone 's 50 % interest in sunbelt for $ 132.3
| segment results we define segment results as income ( loss ) before interest expense , interest income , other operating income , other ( expense ) income and income taxes , and include the results of non-consolidated affiliates . consistent with the guidance in asc 280 “ segment reporting ” ( asc 280 ) , we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results . intersegment sales of $ 81.3 million and $ 18.1 million for the years ended december 31 , 2013 and 2012 , respectively , have been eliminated . these represent the sale of caustic soda , bleach , potassium hydroxide and hydrochloric acid between chemical distribution and chlor alkali products , at prices that approximate market . consistent with management 's monitoring of the operating segments , synergies realized of $ 11.8 million for the year ended december 31 , 2013 have been transferred from the chlor alkali products segment to the chemical distribution segment , representing incremental earnings on volumes sold of caustic soda , bleach , potassium hydroxide and hydrochloric acid . replace_table_token_8_th ( 1 ) earnings of non-consolidated affiliates are included in the chlor alkali products segment results consistent with management 's monitoring of the operating segment . the earnings from non-consolidated affiliates were $ 2.8 million , $ 3.0 million and $ 9.6 million for the years ended 2013 , 2012 and 2011 , respectively . during october 2013 , we sold our equity interest in a bleach joint venture . on february 28 , 2011 , we acquired the remaining 50 % interest in sunbelt . since the date of acquisition , sunbelt 's results are no longer included in earnings of non-consolidated affiliates but are consolidated in our consolidated financial statements . ( 2 ) the service cost and the amortization of prior service cost components of pension expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data .
| 5,003 |
the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report . readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business , including without limitation the disclosures made in item 1a of part i of this annual report under the caption “ risk factors ” . risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to : volatility in our revenues and results of operations ; our ability to generate sufficient revenues to achieve and maintain profitability ; our substantial level of indebtedness ; the accuracy of our estimates and valuations of inventory or assets in “ guarantee ” based engagements ; potential losses related to our auction or liquidation engagements ; potential losses related to purchase transactions in our auction and liquidations business ; the potential loss of financial institution clients ; our ability to successfully implement cost savings measures ; changing economic and market conditions ; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation ; potential mark-downs in inventory in connection with purchase transactions ; failure to successfully compete ; loss of key personnel ; the international expansion of our business ; our ability to borrow under our credit facilities as necessary ; failure to comply with the terms of our credit agreements ; and our ability to meet future capital requirements . except as otherwise required by the context , references in this annual report to : “ great american , ” “ the “ company , ” “ we , ” “ us ” or “ our ” refer to the combined business of great american group , inc. and all of its subsidiaries after giving effect to ( i ) the contribution to great american group , inc. of all of the membership interests of great american group , llc by the members of great american , which transaction is referred to herein as the “ contribution ” , and ( ii ) the merger of alternative asset management acquisition corp. ( “ aamac ” ) with and into its wholly-owned subsidiary , aamac merger sub , inc. , referred to herein as “ merger sub ” , in each case , which occurred on july 31 , 2009 , referred to herein as the “ merger ” . the contribution and merger are referred to herein collectively as the “ acquisition ” ; “ gag , llc ” refers to great american group , llc ; the “ great american members ” refers to the members of great american group , llc prior to the acquisition ; “ phantom equityholders ” refers to certain members of senior management of great american group , llc prior to the acquisition that were participants in a deferred compensation plan . 21 the acquisition on july 31 , 2009 , the company , gag , llc and aamac completed the acquisition . as a result of the acquisition , gag , llc and aamac became subsidiaries of the company . immediately following the consummation of the acquisition , the former shareholders of aamac had an approximate 63 % voting interest in the company and the great american members had an approximate 37 % voting interest in the company . we received net proceeds of $ 69.3 million from aamac as a result of the acquisition and issued 19,346,626 shares of our common stock to aamac shareholders . upon the closing of the acquisition , the great american members received 10,560,000 shares of our common stock and $ 82.4 million consisting of ( i ) cash distributions totaling $ 31.7 million from gag , llc and ( ii ) an aggregate of $ 50.7 million in unsecured subordinated promissory notes . unsecured subordinated promissory notes amounting to an aggregate of $ 9.3 million were issued to the phantom equityholders in settlement of accrued compensation payable pursuant to a deferred compensation plan . notes payable we have entered into multiple amendments to and waivers of our obligations under the unsecured subordinated promissory notes issued in connection with the acquisition . as a result of these amendments and waivers , in 2010 the interest rate was reduced to 3.75 % with respect to an aggregate of $ 52.4 million of the then-outstanding $ 55.6 million in promissory notes . in addition , the maturity date for the then-outstanding $ 47.0 million in notes payable to the great american members was extended to july 31 , 2018 , subject to annual prepayments based upon our cash flow , provided that we are not obligated to make such prepayments if our minimum adjusted cash balance is below $ 20.0 million . the 2010 amendments and waivers also permitted us to defer the payment of interest owed under $ 52.4 million of the notes until july 31 , 2011. effective july 31 , 2011 , we entered into individual amendments with the great american members that increased the principal amount of the promissory notes for the $ 1.8 million of accrued interest that was due to them on july 31 , 2011. the addition to the principal amount will accrue interest at the note rate of 3.75 % and continue to be subject to annual prepayments based upon our cash flow and the maintenance of a minimum adjusted cash balance as provided in the notes prior to the capitalization of the accrued interest . story_separator_special_tag our clients include major financial institutions such as bank of america , credit suisse , ge capital , jpmorgan chase , union bank of california , and wells fargo . our clients also include private equity firms such as apollo management , goldman sachs capital partners , laurus funds , sun capital partners and ubs capital . in september 2008 , we partnered with kelly capital to launch great american real estate , llc through which we and kelly capital conduct public auctions of foreclosed residential real estate and market residential and commercial loan sales to third parties on behalf of financial institutions and other private parties . we commenced auctions for foreclosed residential real estate properties in the fourth quarter of 2009 and we commenced residential and commercial loan sales to third parties on behalf of financial institutions and other private parties in the first quarter of 2010. during 2010 , the flow of new inventory of residential home foreclosures into the market was impacted by legislation at the state and federal levels which impacted our ability to establish new relationships as the auction broker with major financial institutions , lenders , portfolio managers and investment firms , which hold title to foreclosed homes . during the fourth quarter of 2010 , we limited operations of the joint venture with kelly capital to the sale of certain residential and commercial loan sales that the joint venture purchased through an investment with a third party and we ceased operations in the joint venture in 2013. in april 2009 , we expanded our operations into europe by opening an office in the united kingdom . in 2010 , we hired a number of key employees to increase our presence and expand the operations of our retail liquidations solutions business throughout europe . because of the difference in the legal regime in which retailers operate in the united kingdom , our business activities in the united kingdom may frequently involve lending activities that includes the acquisition of debt of distressed retailers from banks and finance companies at a discount to face value . revenues from services , fees and financing activities from our auction and liquidation segment and valuation and appraisal services segment in europe decreased to $ 9.8 million during the year ended december 31 , 2103 from $ 23.5 million during the year ended december 31 , 2012 and $ 11.6 million during the year ended december 31 , 2011. the decrease in revenues in europe in 2013 was primarily due to a decrease in the number and size of auction and liquidation engagements we conducted . during 2012 , revenues of $ 17.1 million in europe were generated from lending activities to one retailer and liquidation services we provided to another retailer in the united kingdom . during 2011 , revenues of $ 8.1 million in europe were generated from two retail liquidation service engagements conducted in the united kingdom . in october 2009 , we formed ga capital , llc ( “ ga capital ” ) , a majority owned subsidiary of the company . ga capital focuses on services to retailers that are in need of junior secured loans for growth capital , working capital , and turnaround financing as part of our auction and liquidation segment . ga capital advises borrowers and sources loans between $ 10 million and $ 100 million secured by collateral assets of the borrowers , including inventory , accounts receivable , real estate and intellectual property . during the years ended december 31 , 2013 , 2012 and 2011 , revenues from capital advisory services performed by our ga capital operations were $ 1.1 million , $ 0.4 million and $ 7.3 million , respectively . the decrease in revenues from capital advisory services in 2013 and 2012 was primarily due to a decrease in fees earned from loan origination activity and contingent fees that were earned in 2011 from the prepayment of previously originated loans where we acted as an advisor . 23 in january 2011 , the keen consultants ' real estate team joined us and is operating as ga keen realty advisors . this newly formed division provides real estate analysis , valuation and strategic planning services , brokerage , mergers and acquisition , auction services , lease restructuring services , and real estate capital market services as part of our auction and liquidation segment . ga keen realty advisors offers services to property owners , tenants , secured and unsecured creditors , attorneys , and financial advisors . during the year ended december 31 , 2013 , 2012 and 2011 , revenues from real estate services were $ 3.1 million , $ 6.7 million and $ 1.4 million , respectively . the decrease in real estate services in 2013 is primarily due to a decrease in the size and the number of real estate engagements performed in 2013 as compared to 2012. during the year ended december 31 , 2012 , we generated $ 17.1 million revenues from lending activities to tj hughes limited , a 57 store department chain , and revenues from liquidation services provided to comet , a 236 store electronics chain , both in the united kingdom . during the year ended december 31 , 2011 , we generated $ 17.1 million of revenues from the liquidation engagement for tj hughes limited and our participation in a joint venture involving the liquidation of borders group , inc. , a going-out-of-business sale for all 399 remaining borders bookstore locations . in august 2012 , we were engaged to participate in a joint venture involving the liquidation of inventory for the going-out-of-business sale of 568 stores of women 's clothing retailer fashion bug in the united states , a subsidiary of ascena retail group , inc. ( “ ascena ” ) . the joint venture provided fashion bug with a minimum guarantee of amounts to be realized from the liquidation of inventory . in connection with our portion of the guarantee , we provided a letter of credit to fashion bug in the amount of $ 6.7 million .
| results of operations the following period to period comparisons of our financial results are not necessarily indicative of future results . year ended december 31 , 2013 compared to year ended december 31 , 2012 consolidated statements of operations ( dollars in thousands ) replace_table_token_4_th revenues . total revenues decreased $ 7.8 million to $ 76.1 million during the year ended december 31 , 2013 from $ 83.9 million during the year ended december 31 , 2012. the decrease in revenues was primarily due to a ( a ) $ 5.9 million decrease in revenues in the auction and liquidation segment and ( b ) $ 4.0 million decrease in revenues in the uk retail stores segment from the operations of the ten retail stores of shoon . these decreases were offset by an increase in revenues of $ 2.1 million in the valuation and appraisal services segment . the decrease in revenues in the auction and liquidation segment in 2013 was primarily due to a decrease in revenues ( a ) from lending activities of $ 5.0 million and ( b ) of $ 3.6 million from real estate consulting services from our ga keen realty advisors division . these decreases were offset by an increase in revenues of ( a ) $ 0.7 million from capital advisory services provided by our ga capital division and ( b ) $ 1.9 million from services and fees earned on retail liquidation and consulting engagements . the decrease in revenues from financing activities was primarily due to interest income , amortization of discount , and monitoring fees earned and collected in 2012 on a loan to a retailer in the united kingdom .
| 5,004 |
53 universal electronics inc. notes to consolidated financial statements december 31 , 2015 the net book value of property , plant , and equipment located within the prc was $ 79.4 million and $ 66.0 million on december 31 , 2015 and 2014 , respectively . construction in progress was as follows : replace_table_token_26_th we expect that most of the assets under construction will story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document . overview we develop and manufacture a broad line of pre-programmed universal remote control products , av accessories , software and intelligent wireless automation components dedicated to redefining the home entertainment and automation experience . our customers operate primarily in the consumer electronics market and include subscription broadcasters , oems , international retailers , private label brands , pro-security installers and companies in the computing industry . we also sell integrated circuits , on which our software and device control database is embedded , and license our device control database to oems that manufacture televisions , digital audio and video players , streamer boxes , cable converters , satellite receivers , set-top boxes , room air conditioning equipment , game consoles , and wireless mobile phones and tablets . since our beginning in 1986 , we have compiled an extensive device control database that covers over 922,000 individual device functions and approximately 7,300 unique consumer electronic brands . quickset® , our proprietary software , can automatically detect , identify and enable the appropriate control commands for home entertainment , automation and appliances like air conditioners . our library is regularly updated with new control functions captured directly from devices , remote controls and manufacturer specifications to ensure the accuracy and integrity of our database and control engine . our universal remote control library contains device codes that are capable of controlling virtually all set-top boxes , televisions , audio components , dvd players , blu-ray players , and cd players , as well as most other remote controlled home entertainment devices and home automation control modules worldwide . with the wider adoption of more advanced control technologies , emerging rf technologies , such as rf4ce , bluetooth , and bluetooth smart have increasingly become a focus in our development efforts . several new platforms released in 2015 utilize rf to effectively implement popular features like voice search . we operate as one business segment . we have twenty-two international subsidiaries located in argentina , brazil , british virgin islands , cayman islands , france , germany , hong kong ( 3 ) , india , italy , japan , mexico , the netherlands , people 's republic of china ( 5 ) , singapore , spain and the united kingdom . to recap our results for 2015 : net sales increased 7.2 % to $ 602.8 million in 2015 from $ 562.3 million in 2014 . our gross margin percentage decreased from 29.7 % in 2014 to 27.7 % in 2015 . operating expenses , as a percent of sales , decreased from 22.4 % in 2014 to 21.8 % in 2015 operating income decreased 13.0 % to $ 35.9 million in 2015 from $ 41.3 million in 2014 , and our operating margin percentage decreased to 5.9 % in 2015 , compared to 7.3 % in 2014 . our effective tax rate decreased to 18.9 % in 2015 from 19.6 % in 2014 . our strategic business objectives for 2016 include the following : continue to develop and market the advanced remote control products and technologies our customer base is adopting ; continue to broaden our home control and automation product offerings ; further penetrate international subscription broadcasting markets ; acquire new customers in historically strong regions ; increase our share with existing customers ; and continue to seek acquisitions or strategic partners that complement and strengthen our existing business . 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 . 26 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 , allowances for sales returns and doubtful accounts , inventory valuation , our review for impairment of long-lived assets , intangible assets and goodwill , business combinations , income taxes and stock-based 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 and may have a material impact on our consolidated financial position or results of operations . 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 . in addition to the accounting policies mentioned below , see `` item 8. financial statements and supplementary data — notes to consolidated financial statements — note 2 '' for other significant accounting policies . story_separator_special_tag fair value is estimated utilizing the asset 's projected discounted future cash flows . in assessing fair value , we must make assumptions regarding estimated future cash flows , the discount rate and other factors . 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 . to evaluate whether goodwill is impaired , we conduct a two-step quantitative goodwill impairment test . in the first step 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 value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit , then we perform the second step of the impairment test in order to determine the implied fair value of the reporting unit 's goodwill . to calculate the implied fair value of the reporting unit 's goodwill , the fair value of the reporting unit is first allocated to all of the other assets and liabilities of that unit based on their fair values . the excess of the reporting unit 's fair value over the amount assigned to its other assets and liabilities is the implied fair value of goodwill . an impairment loss would be recognized equal to the amount by which the carrying value of goodwill exceeds its implied fair value . determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions . these estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows , risk-adjusted discount rates , future economic and market conditions and the determination of appropriate market comparables . in addition , we make certain judgments and assumptions in determining our reporting units . we base our fair value estimates on 28 assumptions we believe to be reasonable but that are unpredictable and inherently uncertain . actual future results may differ from those estimates . business combinations we allocate the purchase price of acquired businesses to the tangible and intangible assets and the liabilities assumed based on their estimated fair values on the acquisition date . the excess of the purchase price over the fair value of net assets acquired is recorded as goodwill . 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 and contingent consideration . management estimates the fair value of certain intangible assets and contingent consideration by utilizing the following ( but not limited to ) : future cash flow from customer contracts , customer lists , distribution agreements , acquired developed technologies , trademarks , trade names and patents ; expected costs to complete development of in-process technology 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 . in those circumstances where an acquisition involves a contingent consideration arrangement , we recognize a liability equal to the fair value of the contingent payments we expect to make as of the acquisition date . we re-measure this liability at each reporting period and record changes in the fair value within operating expenses . increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates , as well as changes in the timing and amount of earnings estimates or in the timing or likelihood of achieving earnings-based milestones . 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 . results of operations and cash flows of acquired businesses are included in our operating results from the date of acquisition . income taxes we calculate our current and deferred tax provisions based on estimates and assumptions that may differ from the actual results reflected in our income tax returns filed during the subsequent year . we record adjustments based on filed returns when we have identified and finalized them , which is in the third and fourth quarters of the subsequent year for u.s. federal and state provisions , respectively .
| 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_6_th year ended december 31 , 2015 ( `` 2015 `` ) compared to year ended december 31 , 2014 ( `` 2014 `` ) net sales . net sales for 2015 were $ 602.8 million , an increase of 7.2 % compared to $ 562.3 million in 2014 . net sales by our business and consumer lines were as follows : replace_table_token_7_th net sales in our business lines ( subscription broadcasting , oem , and computing companies ) were 91.4 % of net sales in 2015 compared to 90.2 % in 2014 . net sales in our business lines in 2015 increased by 8.7 % to $ 551.0 million from $ 507.1 million in 2014 driven primarily by strong demand and increased market share with north american subscription broadcasters as more customers transition from lower end platforms to higher end platforms . partially offsetting this improvement was a decrease in net sales to consumer electronics companies in asia . net sales in our consumer lines ( one for all ® retail and private label ) were 8.6 % of net sales in 2015 compared to 9.8 % in 2014 . net sales in our consumer lines in 2015 decreased by 6.2 % to $ 51.8 million from $ 55.2 million in 2014 . this decrease was driven primarily by the weakening of the euro and the british pound compared to the u.s. dollar , which negatively impacted sales in the current year period by $ 5.3 million . this unfavorable currency impact was partially offset by increased sales in the european market . gross profit . gross profit in 2015 was $ 166.7 million compared to $ 166.9 million in 2014 . gross profit as a percent of sales decreased to 27.7 % in 2015 from 29.7 % in 2014 .
| 5,005 |
exponent 's interdisciplinary organization of scientists , physicians , engineers , and business consultants draws from more than 90 technical disciplines to solve the most pressing and complicated challenges facing stakeholders today . the firm leverages over 50 years of experience in analyzing accidents and failures to advise clients as they innovate their technologically complex products and processes , ensure the safety and health of their users , and address the challenges of sustainability . critical accounting estimates in preparing our consolidated financial statements , we make assumptions , judgments and estimates that can have a significant impact on our revenue , operating income and net income , as well as on the value of certain assets and liabilities on our consolidated balance sheet . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . on a regular basis we evaluate our assumptions , judgments and estimates and make changes accordingly . we believe that the assumptions , judgments and estimates involved in accounting for revenue recognition and estimating the allowance for contract losses and doubtful accounts have the greatest potential impact on our consolidated financial statements , so we consider these to be our critical accounting policies . we discuss below the assumptions , judgments and estimates associated with these policies . historically , our assumptions , judgments and estimates relative to our critical accounting policies have not differed materially from actual results . for further information on our critical accounting policies , see “ note 1 : summary of significant accounting policies ” of our notes to consolidated financial statements . 20 revenue recognition . we derive our revenues primarily from professional fees earned on consulting engagements , fees earned for the use of our equipment and facilities , as well as reimbursements for outside direct expenses associated with the services that are billed to our clients . substantially all of our engagements are service contracts performed under time and material or fixed-price billing arrangements . for time and material and fixed-price service projects , revenue is generally recognized as the services are performed . for substantially all of our fixed-price service engagements , we recognize revenue based on the relationship of incurred labor hours at standard rates to our estimate of the total labor hours at standard rates we expect to incur over the term of the contract . our estimate of total labor hours we expect to incur over the term of the contract is based on the nature of the project and our past experience on similar projects . we believe this methodology achieves a reliable measure of the revenue from the consulting services we provide to our customers under fixed-price contracts . management judgments and estimates must be made and used in connection with the revenues recognized in any accounting period . these judgments and estimates include an assessment of the estimate as to the total effort required to complete fixed-price projects . if we made different judgments or utilized different estimates , the amount and timing of our revenue for any period could be materially different . all contracts are subject to review by management , which requires a positive assessment of the collectability of contract amounts . if , during the course of the contract , we determine that collection of revenue is not reasonably assured , we do not recognize the revenue until its collection becomes reasonably assured , which in those situations would generally be upon receipt of cash . we assess collectability based on a number of factors , including past transaction history with the client , as well as the credit-worthiness of the client . losses on fixed-price contracts are recognized during the period in which the loss first becomes evident . contract losses are determined to be the amount by which the estimated total costs of the contract exceeds the total fixed price of the contract . estimating the allowance for contract losses and doubtful accounts . we make estimates of our ability to collect accounts receivable and our unbilled but recognized work-in-process . in circumstances where we are aware of a specific customer 's inability to meet its financial obligations to us or for disputes with customers that affect our ability to fully collect our accounts receivable and unbilled work-in-process , we record a specific allowance to reduce the net recognized receivable to the amount we reasonably believe will be collected . for all other customers we recognize allowances for contract losses and doubtful accounts taking into consideration factors such as historical write-offs , customer concentration , customer credit-worthiness , current economic conditions , and aging of amounts due . 21 the following table sets forth , for the periods indicated , the percentage of revenues of certain items in our consolidated statements of income and the percentage increase ( decrease ) in the dollar amount of such items year to year : replace_table_token_3_th story_separator_special_tag 77 % for 2017 as compared to 73 % for 2016. technical full-time equivalents increased 4.8 % to 591 for 2017 from 564 for 2016 due to our recruiting and retention efforts . the increase in revenues from our environmental and health segment was due to an increase in billable hours . during 2017 , billable hours for this segment increased by 5.7 % to 277,000 as compared to 262,000 during 2016. utilization increased to 69 % for 2017 as compared to 63 % for 2016. during the year , the chemical regulation and food safety practice grew its proactive services to meet demand , as society remains concerned about chemicals affecting the global ecosystem and human health . our environmental health scientists provided reactive services performing human health and environmental assessments . this segment 's contribution to the large ongoing human factors assessment also contributed to the increase in billable hours and utilization . story_separator_special_tag our deferred tax assets were re-measured at the lower enacted corporate tax rate of 21 % , which contributed $ 15,137,000 to the increase in income tax associated with the new tax legislation . we also have foreign earnings that were subject to the mandatory repatriation tax . the total mandatory repatriation tax , net of the benefit of our foreign tax credits , contributed $ 1,370,000 to the increase in income tax expense associated with the tax legislation . the excess tax benefit associated with share-based payment awards increased to $ 6,528,000 during 2017 as compared to $ 4,827,000 during 2016. excluding the impact of the new tax legislation and the excess tax benefit , the effective tax rate would have been 37.8 % for 2017 as compared to 38.3 % for 2016. we expect our effective income tax rate to decrease to approximately 22 % to 23 % for the fiscal year ended december 28 , 2018 as a result of the tax legislation . fiscal years ended december 30 , 2016 , and january 1 , 2016 revenues replace_table_token_6_th the increase in revenues for our engineering and other scientific segment was due to an increase in billable hours and an increase in billing rates . during 2016 , billable hours for this segment increased by 2.5 % to 856,000 as compared to 835,000 during 2015. the increase was due to demand for services in our materials & corrosion engineering , polymer science & materials chemistry , biomedical engineering , and human factors practices . the materials & corrosion engineering practice experienced growth from the utilities industry in failure analyses of systems and proactive services in asset integrity management . the polymer science & materials chemistry practice experienced growth in battery consulting services . the biomedical engineering practice realized growth in design consulting and product liability claims support . the human factors practice realized growth in user study services for the consumer products industry . this growth was partially offset by shifts in market conditions , such as reduced spending in the oil and gas industry and a slowdown in intellectual property litigation . utilization decreased to 73 % for 2016 as compared to 75 % for 2015. technical full-time equivalents increased 5.0 % to 564 for 2016 from 537 for 2015 due to our recruiting and retention efforts . 25 the decrease in revenues from our environmental and health segment was due to a decrease in billable hours . during 2016 , billable hours for this segment decreased by 9.7 % to 262,000 as compared to 290,000 during 2015. utilization decreased to 63 % for 2016 as compared to 65 % for 2015. the decrease in billable hours and utilization was due to completion of a major project during the third quarter of 2015 and lower revenues from the oil and gas and industrial chemicals industries . technical full-time equivalents decreased 6.5 % to 200 during 2016 as compared to 214 for 2015 due to our efforts to align resources with anticipated demand . compensation and related expenses fiscal years percent ( in thousands except percentages ) 2016 2015 change compensation and related expenses $ 193,397 $ 184,502 4.8 % percentage of total revenues 61.4 % 59.0 % the increase in compensation and related expenses during 2016 was due to an increase in payroll and a change in the value of assets associated with our deferred compensation plan . during 2016 payroll increased $ 4,730,000 due to the increase in technical full-time equivalent employees and our annual salary increase . during 2016 , deferred compensation expense increased $ 4,186,000 with a corresponding increase to other income as compared with the prior year due to the change in value of assets associated with our deferred compensation plan . this increase consisted of an increase in the value of the plan assets of $ 3,861,000 during 2016 as compared to a decrease in the value of the plan assets of $ 325,000 during 2015. other operating expenses fiscal years percent ( in thousands except percentages ) 2016 2015 change other operating expenses $ 28,397 $ 26,975 5.3 % percentage of total revenues 9.0 % 8.6 % other operating expenses include facilities-related costs , technical materials , computer-related expenses and depreciation and amortization of property , equipment and leasehold improvements . the increase in other operating expenses was primarily due to an increase in depreciation expense of $ 652,000 , an increase in occupancy expense of $ 344,000 , an increase in computer expense of $ 250,000 , and several individually insignificant increases , which were associated with the increase in technical full-time equivalent employees and investments in our corporate infrastructure . reimbursable expenses fiscal years percent ( in thousands except percentages ) 2016 2015 change reimbursable expenses $ 15,879 $ 17,127 ( 7.3 ) % percentage of total revenues 5.0 % 5.5 % the decrease in reimbursable expenses was primarily due to a decrease in project-related costs in our materials & corrosion engineering , polymer science & materials chemistry , and mechanical engineering practices within our engineering and other scientific segment . the amount of reimbursable expenses will vary from year to year depending on the nature of our projects . general and administrative expenses fiscal years percent ( in thousands except percentages ) 2016 2015 change general and administrative expenses $ 15,492 $ 15,295 1.3 % percentage of total revenues 4.9 % 4.9 % the increase in general and administrative expenses during 2016 was primarily due to an increase in travel and meals and bad debt partially offset by a decrease in outside consulting . other income fiscal years percent ( in thousands except percentages ) 2016 2015 change other income $ 7,211 $ 2,200 227.8 % percentage of total revenues 2.3 % 0.7 % 26 other income consists primarily of interest income earned on available cash , cash equivalents and short-term investments , changes in the value of assets associated with our deferred compensation plan and rental income from leasing excess space in our silicon valley facility .
| executive summary revenues for 2017 increased 10 % and revenues before reimbursements also increased 10 % as compared to the prior year . the increase in revenues before reimbursements was due to an increase in billable hours and an increase in billing rates . we continue to see demand for our proactive services in the areas of design and regulatory consulting , specifically related to consumer electronics . we also continue to see demand for our reactive services in construction disputes , medical device litigations , consumer product and automobile recalls , and product liability claims . during 2017 , we had strong growth in our chemical regulation & food safety , construction consulting , human factors , mechanical engineering , and polymer science & materials chemistry practices . we have been engaged to perform human factors assessments by appliance manufacturers , consumer electronics companies , medical device firms , and video game developers , including work in augmented reality . during the year , we worked on a large human factors assessment for a client in the consumer products industry , driving increases in both revenue and profitability . this project represented approximately 6 % of our revenues before reimbursements for 2017 and leveraged staff across many of our practices and offices . during the year , we increased our international construction disputes work with current mining , gas terminal and power plant projects . we also experienced growth from lithium-ion battery consulting for clients in the consumer products , transportation , medical device , and utility industries . our interdisciplinary team of chemists , electrical engineers , materials scientists and mechanical engineers has guided clients with respect to the performance , reliability , and safety of new products , as well as with respect to recalls and litigation matters involving existing products with lithium-ion batteries .
| 5,006 |
overview we are an entrepreneurial pharmaceutical company focused on creating medicines that make a difference for patients , building value to earn the continued support of our fellow shareholders , and empowering our team to passionately pursue excellence . our core strategy is to establish a leading gastrointestinal , or gi , therapeutics company , leveraging our development and commercial capabilities in addressing gi disorders as well as our pharmacologic expertise in guanylate cyclase , or gc , pathways . 53 we have one marketed product , linaclotide , which is available in the united states , or u.s. , and mexico under the trademarked name linzess and is available in certain european countries and canada under the trademarked name constella . linaclotide is also being developed and commercialized in other parts of the world by certain of our partners . in august 2012 , the u.s. food and drug administration , or fda , approved linzess as a once-daily treatment for adult men and women suffering from irritable bowel syndrome with constipation , or ibs-c , or chronic idiopathic constipation , or cic . we and forest laboratories , inc. , or forest , began commercializing linzess in the u.s. in december 2012. in july 2014 , actavis plc , or actavis , completed its acquisition of forest . our collaboration for the development and commercialization of linaclotide in north america remains in effect . in november 2012 , the european commission granted marketing authorization to constella for the symptomatic treatment of moderate to severe ibs-c in adults . constella is the first , and to date , only drug approved in the european union , or e.u. , for ibs-c. our european partner , almirall , s.a. , or almirall , began commercializing constella in europe in the second quarter of 2013. currently , constella is commercially available in certain european countries , including the united kingdom , italy and spain . in may 2014 , almirall suspended commercialization of constella in germany following an inability to reach agreement with the german national association of statutory health insurance funds on a reimbursement price that reflects the innovation and value of constella . almirall is assessing all possibilities to facilitate continued access to constella for appropriate patients in germany . in december 2013 and february 2014 , linaclotide was approved in canada and mexico , respectively , as a treatment for adult women and men suffering from ibs-c or cic . actavis has exclusive rights to commercialize linaclotide in canada as constella and , through a sublicense from actavis , almirall has exclusive rights to commercialize linaclotide in mexico as linzess . in may 2014 , actavis began commercializing constella in canada and in june 2014 , almirall began commercializing linzess in mexico . astellas pharma inc. , or astellas , our partner in japan , is developing linaclotide for the treatment of patients with ibs-c in its territory . in october 2014 , astellas initiated a double-blind , placebo-controlled phase iii clinical trial of linaclotide in adult patients with ibs-c. in october 2012 , we entered into a collaboration agreement with astrazeneca ab , or astrazeneca , to co-develop and co-commercialize linaclotide in china , hong kong and macau , with astrazeneca having primary responsibility for the local operational execution . in the third quarter of 2013 , we and astrazeneca initiated a double-blind , placebo-controlled phase iii clinical trial of linaclotide in adult patients with ibs-c. we continue to assess alternatives to bring linaclotide to ibs-c and cic sufferers in the parts of the world outside of our partnered territories . we and actavis are also exploring development opportunities to enhance the clinical profile of linzess by seeking to expand its utility in its indicated populations , as well as studying linaclotide in additional indications and populations and in new formulations to assess its potential to treat various gi conditions . in november 2014 , as part of this strategy we and actavis initiated a phase iii clinical trial in the u.s. evaluating a 72 mcg dose of linaclotide in adult patients with cic to provide a broader range of treatment options to physicians and adult cic patients . in addition to linaclotide-based opportunities , we are advancing multiple gi development programs as well as further leveraging our pharmacological expertise in gc pathways that we established through the development of linaclotide , a guanylate cyclase type-c , or gc-c , agonists , to advance a second gc program targeting soluble guanylate cyclase , or sgc . sgc is a validated mechanism with the potential for broad therapeutic utility and multiple opportunities for product development in cardiovascular disease and other indications . 54 we were incorporated in delaware on january 5 , 1998 as microbia , inc. on april 7 , 2008 , we changed our name to ironwood pharmaceuticals , inc. we currently operate in one reportable business segmenthuman therapeutics . to date , we have dedicated substantially all of our activities to the research , development and commercialization of linaclotide , as well as to the research and development of our other product candidates . we have incurred significant operating losses since our inception in 1998. as of december 31 , 2014 , we had an accumulated deficit of approximately $ 967.5 million and we expect to continue to incur net losses for the foreseeable future . in february 2012 , we sold 6,037,500 shares of our class a common stock through a firm commitment , underwritten public offering at a price to the public of $ 15.09 per share . as a result of the offering , we received aggregate net proceeds , after underwriting discounts and commissions and other offering expenses , of approximately $ 85.2 million . on january 4 , 2013 , we closed a private placement of $ 175.0 million in aggregate principal amount of 11 % notes due on or before june 15 , 2024. as a result of the debt offering , we received aggregate net proceeds , after offering expenses , of approximately $ 167.3 million . story_separator_special_tag this write-down is more fully described in note 7 , inventory , to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. research and development expense . research and development expense consists of expenses incurred in connection with the discovery , development , manufacture and distribution of our product candidates . these expenses consist primarily of compensation , benefits and other employee-related expenses , research and development related facility costs , third-party contract costs relating to nonclinical study and clinical trial activities , development of manufacturing processes , regulatory registration of third-party manufacturing facilities and costs associated with linaclotide api prior to meeting our inventory capitalization policy , as well as licensing fees for our product candidates . we charge all research and development expenses to operations as incurred . under our actavis and astrazeneca collaboration agreements , we are reimbursed for certain research and development expenses , and we net these reimbursements against our research and development expenses as incurred . payments to actavis or astrazeneca are recorded as incremental research and development expense . the core of our research and development strategy is to leverage our development capabilities in addressing gi disorders as well as our pharmacologic expertise in gc pathways to develop new and innovative products . 56 linaclotide . our lead product is linaclotide , and it represents the largest portion of our research and development expense for our product candidates . linaclotide is the first and , to date , only fda-approved gc-c agonist . linaclotide is approved in the u.s. , e.u. , and a number of other countries . in addition , astellas initiated a phase iii clinical trial of linaclotide in adult patients with ibs-c for japan and we and astrazeneca initiated a phase iii clinical trial of linaclotide in adult patients with ibs-c for china . we and actavis are exploring development opportunities in the u.s. to enhance the clinical profile of linzess by seeking to expand its utility in its indicated populations , as well as studying linaclotide in additional indications and populations and in new formulations to assess its potential to treat various gi conditions . in november 2014 , as part of this strategy we and actavis initiated a phase iii clinical trial in the u.s. evaluating a 72 mcg dose of linaclotide in adult patients with cic , which , if approved , would provide a broader range of treatment options to physicians and adult cic patients . these development opportunities also include linaclotide colonic release , a targeted oral delivery formulation of linaclotide designed to potentially enhance lower abdominal pain relief in adult ibs-c patients , as well as providing the opportunity to investigate linaclotide as a potential treatment for multiple gi disorders with lower abdominal pain as a predominant symptom . additionally , we and actavis are studying linaclotide as a potential treatment of the gi dysfunction associated with opioid-induced constipation in adult patients and are working with the fda on a plan for clinical pediatric studies with linaclotide . early development candidates . in addition to linaclotide-based opportunities , we are advancing multiple gi development programs . this includes iw-9179 , a gc-c agonist designed to target upper gi conditions , which is being explored for the treatment of diabetic gastroparesis and functional dyspepsia . additionally , iw-3718 is a gastric retentive formulation of a bile acid sequestrant that is being evaluated for the potential treatment of gerd symptoms in patients who have not responded adequately to treatment with a proton pump inhibitor . we are also leveraging our pharmacological expertise in gc pathways that we established through the development of linaclotide , a gc-c agonist , to advance a second gc program targeting sgc , which we are exploring for utility in cardiovascular disease . we have additional non-core assets in early development that we continued to advance through 2014 , and we are currently exploring strategic options for further development of these assets . discovery research . our discovery efforts are primarily focused on identifying novel clinical candidates that draw on our proprietary and expanding expertise in gi disorders and gc . the following table sets forth our research and development expenses related to our product pipeline for the years ended december 31 , 2014 , 2013 and 2012. these expenses relate primarily to external costs associated with nonclinical studies and clinical trial costs , costs incurred to develop manufacturing processes and register manufacturing facilities with the fda , costs associated with linaclotide api that was expensed prior to meeting our inventory capitalization policy and licensing fees for our product candidates . in the third quarter of 2013 , we began to allocate costs related to facilities , depreciation , share-based compensation and research and development support services , laboratory 57 supplies and certain other costs directly to programs . prior-period amounts in the table below were reclassified to conform to the current period 's presentation . replace_table_token_5_th ( 1 ) number of compounds for early development candidates is for the year ended december 31 , 2014. since 2004 , the date we began tracking costs by program , we have incurred approximately $ 306.7 million of research and development expenses related to linaclotide . the expenses for linaclotide include both our portion of the research and development costs incurred by actavis and astrazeneca for linaclotide and invoiced to us under the cost-sharing provisions of our collaboration agreements , as well as the unreimbursed portion of research and development costs incurred by us under such cost-sharing provisions . the lengthy process of securing regulatory approvals for new drugs requires the expenditure of substantial resources . any failure by us to obtain , or any delay in obtaining , regulatory approvals would materially adversely affect our product development efforts and our business overall . in august 2012 , the fda approved our new drug applications for linzess as a once-daily treatment for adult men and women suffering from ibs-c or cic .
| results of operations the following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements . replace_table_token_6_th 66 year ended december 31 , 2014 compared to year ended december 31 , 2013 revenue years ended december 31 , change 2014 2013 $ % ( dollars in thousands ) collaborative arrangements revenue $ 76,436 $ 22,881 $ 53,555 234.1 % collaborative arrangements revenue . the increase in revenue from collaborative arrangements of approximately $ 53.6 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was primarily related to an approximately $ 44.7 million increase in our share of the net profits from the sale of linzess in the u.s. , an approximately $ 10.2 million increase in revenue recognized in connection with the achievement of a development milestone under our astellas license agreement in the fourth quarter of 2014 , an approximately $ 2.6 million increase in license revenue related to our collaboration agreement with astrazeneca recognized in connection with a modification to the initial development plan and development budget in august 2014 , which was deemed to be a material modification , an approximately $ 0.5 million increase in royalty revenue based on sales of constella in the european territory , and an approximately $ 0.4 million increase in the amortization of deferred revenue associated with the astellas license agreement due to a change in estimate in the development period in march 2013. the increases were partially offset by an approximately $ 4.7 million decrease in revenue from the shipments of linaclotide api to our licensing partners . cost and expenses replace_table_token_7_th cost of revenue .
| 5,007 |
in august 2017 , the company closed on a transaction under a purchase and sale agreement executed in june 2017 with nevada gold and the company 's wholly-owned subsidiary , u.s. gold acquisition corporation , a nevada corporation , pursuant to which nevada gold sold and u.s. gold acquisition corporation purchased all right , title and interest in the gold bar north property , a gold development project located in eureka county , nevada . the purchase price for the gold bar north property was : ( a ) cash payment in the amount of $ 20,479 which was paid in august 2017 and ( b ) 15,000 shares of common stock of the company which were issued in august 2017 valued at $ 35,850 . mr. david mathewson , the company 's former chief geologist , is a member of nevada gold . as of the date of these consolidated financial statements , the company has not established any proven or probable reserves on its mineral properties and has incurred only acquisition costs and exploration costs . mineral properties consisted of the following : replace_table_token_10_th note 5 — property property consisted of the following : april 30 , 2019 april 30 , 2018 site costs $ 81,885 $ - less : accumulated depreciation ( 6,956 ) - total $ 74,929 $ - for the years ended april 30 , 2019 and 2018 , depreciation expense amounted to $ 6,956 and $ 0 , respectively . note 6 — asset retirement obligation in conjunction with various permit approvals permitting the company to undergo exploration activities at the copper king project and keystone project , the company has recorded an asset retirement obligation based upon the reclamation plans submitted in connection with the various permits . f- 13 u.s. gold corp and story_separator_special_tag this item 7 , “ management 's discussion and analysis of financial condition and results of operations , ” and other parts of this form 10-k contain forward-looking statements , within the meaning of the private securities litigation reform act of 1995 , that involve risks and uncertainties . forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact . forward-looking statements can also be identified by words such as “ future , ” “ anticipates , ” “ believes , ” “ estimates , ” “ expects , ” “ intends , ” “ plans , ” “ predicts , ” “ will , ” “ would , ” “ could , ” “ can , ” “ may , ” and similar terms . forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a of this form 10-k under the heading “ risk factors , ” which are included herein . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references to particular years or quarters refer to our fiscal years ended in april and the associated quarters of those fiscal years . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview u.s. gold corp. , formerly known as dataram corporation ( the “ company ” ) , was originally incorporated in the state of new jersey in 1967 and was subsequently re-incorporated under the laws of the state of nevada in 2016. effective june 26 , 2017 , the company changed its legal name to u.s. gold corp. from dataram corporation . on may 23 , 2017 , the company merged with gold king corp. ( “ gold king ” ) , in a transaction treated as a reverse acquisition and recapitalization , and the business of gold king became the business of the company . we are a gold and precious metals exploration company pursuing exploration and development opportunities primarily in nevada and wyoming . none of our properties contain proven and probable reserves , and all of our activities on all of our properties are exploratory in nature . on july 6 , 2016 , the we filed a certificate of amendment to our articles of incorporation with the secretary of state of nevada in order to effectuate a reverse stock split of our issued and outstanding common stock per share on a one for three basis , effective on july 8 , 2016. subsequently , on may 3 , 2017 , we filed another certificate of amendment to our articles of incorporation , as amended , with the secretary of state of the state of nevada in order to effectuate a reverse stock split of our issued and outstanding common stock on a one for four basis . all share and per share values of our common stock for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the reverse stock splits . on july 31 , 2017 , our board of directors , or board , reviewed and approved the recommendation of management to consider strategic options for the legacy business ( “ dataram memory ” ) including the sale of the business , within the next 12 months . we sold the dataram memory business on october 13 , 2017 for a purchase price of $ 900,000. we received net proceeds from the sale of dataram memory business of $ 326,404 after payment of fees related to the sale such as legal and commission expenses and other liabilities assumed . story_separator_special_tag effective april 12 , 2019 , we entered into an agreement with ryan k. zinke pursuant to which mr. zinke will provide certain consulting services to us , including investor relations and governmental relations services . we have agreed to pay for mr. zinke 's services at a rate of $ 90,000 per year , with $ 45,000 payable in cash and $ 45,000 payable in our common stock . we may terminate the agreement at any time . mr. zinke also will be reimbursed for reasonable expenses provided that no such expenses will result in aggregate payments by us to mr. zinke in excess of $ 120,000 during any 12-month period . sale of series f preferred units ( subsequent to april 30 , 2019 ) on june 19 , 2019 , we entered into a securities purchase agreement with certain purchasers relating to the offer and sale of 1,250 series f preferred units , for $ 2,000 per unit , for an aggregate purchase price of $ 2,500,000. each unit consisting of one ( 1 ) share of 0 % series f preferred stock and 878 class x warrants on a registered basis and 1,755 class a warrants on an unregistered basis . we sold a total of 1,250 series f preferred stock , 2,193,750 class a warrants and 1,097,500 class x warrants under the agreement . each share of series f preferred stock , at the option of the holder at any time , may be converted into the number of shares of our common stock determined by dividing the $ 2,000 ( stated value per share of the series f preferred stock ) by a conversion price of $ 1.14 per share ( approximately 2,193,750 shares of common stock ) , subject to adjustment . each class x warrant is exercisable to acquire one share of our common stock and one class y warrant at an exercise price of $ 1.14 , for a period of six ( 6 ) months from the date of issuance . each class y warrant is exercisable to acquire one share of common stock at an exercise price of $ 1.14 per share , commencing six ( 6 ) months from the date of issuance ( the “ initial exercise date ” ) and will expire on a date that is the five ( 5 ) year anniversary of the initial exercise date . each class a warrant is exercisable to acquire one share of common stock at an exercise price of $ 1.14 per share , commencing six ( 6 ) months from the date of issuance and will expire on a date that is the five ( 5 ) year anniversary of the date of issuance . we received net proceeds , after estimated expenses of the offering , of approximately $ 2.4 million . 41 story_separator_special_tag primary source of our liquidity . we are anticipating raising additional capital but there can be no assurance that it will be able to do so or if the terms will be favorable . the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts of and classification of liabilities that might be necessary in the event we can not continue in existence . management has determined that additional capital will be required in the form of equity or debt securities . there are no assurances that management will be able to raise capital on terms acceptable to us . if we are unable to obtain sufficient amounts of additional capital , we may be required to reduce the scope of our planned exploration activities , which could harm our business , financial condition and operating results . if we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations , the percentage ownership of our stockholders will be reduced , stockholders may experience additional dilution , or the equity securities may have rights preferences or privileges senior to the common stock . if adequate funds are not available to us when needed on satisfactory terms , we may be required to cease operating or otherwise modify our business strategy . contractual obligations our contractual obligations at april 30 , 2019 are summarized as follows : replace_table_token_5_th financing transactions on november 2 , 2018 , we entered into an atm agreement with h.c. wainwright & co. , llc . for the year ended april 30 , 2019 , we sold 290,066 shares of common stock and raised a net proceeds of $ 219,796 , net of issuance costs including legal cost related to the sale of shares of common stock of $ 79,031 , through the atm agreement at prices per share averaging $ 1.03. see , summary of activities for the year ended april 30 , 2019 - atm sales - h.c. wainwright & co. , llc , above . subsequent to the year ended april 30 , 2019 , on june 19 , 2019 , we entered into a securities purchase agreement with certain purchasers relating to the offer and sale of 1,250 series f preferred units , for $ 2,000 per unit , for an aggregate purchase price of $ 2,500,000. we received net proceeds , after estimated expenses of the offering , of approximately $ 2.4 million . see , summary of activities for the year ended april 30 , 2019 - sale of series e preferred units , above .
| results of operations the years ended april 30 , 2019 and 2018 net revenues we are an exploration stage company with no operations , and we generated no revenues for the years ended april 30 , 2019 and 2018. operating expenses total operating expenses for the year ended april 30 , 2019 as compared to the year ended april 30 , 2018 , were approximately $ 7.6 million and $ 8.3 million , respectively . the approximate $ 651,000 decrease in operating expenses for the year ended april 30 , 2019 , as compared to april 30 , 2018 , is comprised principally of decreases in compensation expense of $ 371,000 , professional fees of $ 258,000 and general administrative expenses of $ 131,000 , offset by an increase of approximately $ 108,000 in exploration expenses on our mineral properties . the increase in exploration expenses was planned as part of our autumn drill program and resulted in significant important findings as described above in the drill results at keystone property and drill hole analysis at copper king described above in exploration activities . operating loss from operations from continuing operations we reported operating losses from continuing operations of approximately $ 7.6 million and $ 8.3 million for the years ended april 30 , 2019 and 2018 , respectively . benefit from income taxes for the year ended april 30 , 2019 and 2018 , ( expense ) benefit from income taxes was $ ( 435,345 ) and $ 435,345 , respectively . during the year ended april 30 , 2019 , we established a valuation allowance of $ 438,145 to offset any previously recognized net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized .
| 5,008 |
ffo does not necessarily represent cash provided by operating activities in accordance with gaap and should not be considered an alternative to net earnings as an indication of the partnership 's performance or to cash flow as a measure of liquidity or ability to make distributions . management considers ffo an appropriate measure of performance of an equity reit because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time , and because industry analysts have accepted it as a performance measure . the partnership 's computation of ffo may differ from the methodology for calculating ffo used by other equity reits , and therefore , may not be comparable to such other reits . affo is a non-gaap financial measure of operating performance used by many companies in the reit industry . affo adjusts ffo for certain non-cash items that reduce or increase net income in accordance with gaap . affo should not be considered an alternative to net earnings , as an indication of the partnership 's performance or to cash flow as a measure of liquidity or ability to make distributions . management considers affo a useful supplemental measure of the partnership 's performance . the partnership 's computation of affo may differ from the methodology for calculating affo used by other equity reits , and therefore , may not be comparable to such other reits . we calculate affo by starting with ffo and adjusting for general and administrative expense reimbursement , acquisition-related expenses , unrealized gain ( loss ) on derivatives , straight line rent adjustments , unit-based compensation , amortization of deferred loan costs and discount on secured notes , deferred income tax expense , amortization of above and below market rents , loss on extinguishment of debt , repayments of receivables , adjustments for investment in unconsolidated joint venture , adjustments for drop-down assets and foreign currency transaction gain ( loss ) . the gaap measures most directly comparable to ffo and affo is net income . ebitda and adjusted ebitda we define ebitda as net income before interest , income taxes , depreciation and amortization , and we define adjusted ebitda as ebitda before impairments , acquisition‑related expenses , unrealized and realized gains and losses on derivatives , loss on extinguishment of debt , gains and losses on sale of real property interests , unit-based compensation , straight line rental adjustments , amortization of above‑ and below‑market rents plus cash receipts applied toward the repayments of investments in receivable , the deemed capital contribution to fund our general and administrative expense reimbursement and adjustments for investments in unconsolidated joint ventures . during the third quarter of 2019 , we changed our definition of ebitda to exclude adjustments for investments in unconsolidated joint venture to adhere to the definition of ebitda as described in item 10 ( e ) ( 1 ) ( ii ) ( a ) of regulation s-k. during the fourth quarter 2017 , we changed our definition of adjusted ebitda by adding cash receipts applied toward the repayments of investments in receivables . we made this change to better reflect the quarterly amount 56 of operating surplus as determined by our amended and restated partnership agreement . these changes did not have a material impact on our ebitda or adjusted ebitda and prior period amounts have been recasted to conform to current presentation . ebitda and adjusted ebitda are non‑gaap supplemental financial measures that management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies , may use to assess : our operating performance as compared to other publicly traded limited partnerships , without regard to historical cost basis or , in the case of adjusted ebitda , financing methods ; the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders ; our ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and the returns on investment of various investment opportunities . we believe that the presentation of ebitda and adjusted ebitda in this annual report on form 10-k provides information useful to investors in assessing our financial condition and results of operations . the gaap measures most directly comparable to ebitda and adjusted ebitda are net income and net cash provided by operating activities . ebitda and adjusted ebitda should not be considered as an alternative to gaap net income , net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . each of ebitda and adjusted ebitda has important limitations as analytical tools because they exclude some , but not all , items that affect net income and net cash provided by operating activities , and these measures may vary from those of other companies . you should not consider ebitda and adjusted ebitda in isolation or as a substitute for analysis of our results as reported under gaap . as a result , because ebitda and adjusted ebitda may be defined differently by other companies in our industry , ebitda and adjusted ebitda as presented below may not be comparable to similarly titled measures of other companies , thereby diminishing their utility . for a further discussion of the non‑gaap financial measures of ffo , affo , ebitda and adjusted ebitda flow , and a reconciliation of ffo , affo , ebitda and adjusted ebitda to the most comparable financial measures calculated and presented in accordance with gaap , please read “ selected historical financial data – non‑gaap financial measures. story_separator_special_tag the 4.38 % senior secured notes are , and any such additional notes will be , secured by a segregated pool of renewable power generation sites and related property interests owned directly or indirectly by such subsidiary . on november 30 , 2017 , the partnership completed a securitization transaction ( the “ 2017 securitization ” ) involving a segregated pool of certain outdoor advertising sites and related property interests owned by certain special purpose subsidiaries of the partnership , through the issuance of the series 2017-1 secured tenant site contract revenue notes , class a and class b ( the “ 2017 secured notes ” ) , in an aggregate principal amount of $ 80.0 million . the class a and class b 2017 secured notes bear interest at a fixed note rate per annum of 4.10 % and 3.81 % , respectively . on june 16 , 2016 , the partnership completed a securitization transaction ( the “ 2016 securitization ” ) involving a segregated pool of wireless communication sites and related real property interests owned by certain special purpose subsidiaries of the partnership , through the issuance of the series 2016-1 secured tenant site contract revenue notes , class a and class b ( the “ 2016 secured notes ” ) , in an aggregate principal amount of $ 116.6 million . the 2016 secured notes were paid in full ( $ 108 million ) subsequent to the year ended december 31 , 2019. the secured notes described above are collectively referred to as the “ secured notes. ” see note 9 , debt to the consolidated financial statements for additional information . revolving credit facility on november 15 , 2018 , the partnership completed its third amended and restated credit facility and obtained commitments from a syndicate of banks with initial borrowing commitments of $ 450.0 million for five-years . additionally , borrowings up to $ 75.0 million may be denominated in british pound sterling ( “ gbp ” ) , euro , australian dollar and canadian dollar . as of december 31 , 2019 , the outstanding indebtedness under the revolving credit facility denominated in gbp was £40.5 million . loans under the revolving credit facility bear interest at a rate equal to the applicable libor related to the currency for which borrowings are denominated , plus a spread ranging from 1.75 % to 2.25 % ( determined based on leverage levels ) . during the three months ended december 31 , 2019 , the applicable spread was 2.25 % . additionally , under the revolving credit facility we will be subject to an annual commitment fee ( determined based on leverage levels ) associated with the available undrawn capacity subject to certain restrictions . as of december 31 , 2019 , the applicable annual commitment rate used was 0.175 % . series c preferred units on april 2 , 2018 , the partnership completed a public offering of 2,000,000 series c floating-to-fixed rate cumulative perpetual redeemable convertible preferred units ( “ series c preferred units ” ) , representing limited partner interest in the partnership , at a price of $ 25.00 per unit . we received net proceeds of approximately $ 47.5 million after deducting underwriters ' discounts and offering expenses paid by us of $ 2.5 million . we used substantially all net proceeds to repay a portion of the borrowings under our revolving credit facility . 58 holders of series c preferred units , at their option , may , at any time and from time to time , convert some or all of their series c preferred units based on an initial conversion rate of 1.3017 common units per series c preferred unit . in the event of a fundamental change , holder of the series c preferred units , at their option , may convert some or all of their series c preferred units into the greater of ( i ) a number of common units plus a make-whole premium and ( ii ) a number of common units equal to the lessor of ( a ) the liquidation preference divided by the market value of our common units on the effective date of such fundamental change and ( b ) 11.13 ( subject to adjustments ) . on may 15 , 2025 , may 15 , 2028 , and each subsequent five-year anniversary date thereafter ( each such date , a “ designated redemption date ” ) , each holder of series c preferred units shall have the right ( a “ redemption right ” ) to require the partnership to redeem any or all of the series c preferred units held by such holder outstanding on such designated redemption date at a redemption price equal to the liquidation preference of $ 25.00 , plus all accrued and unpaid distributions to , but not including , in each case out of funds legally available for such payment and to the extent not prohibited by law , the designated redemption date ( the “ put redemption price ” ) . at our option we may pay the redemption in our common units or cash , subject to certain limitations . at any time on or after may 20 , 2025 , the partnership shall have the option to redeem the series c preferred units , in whole or in part , at a redemption price of $ 25.00 per series c preferred unit plus an amount equal to all accumulated and unpaid distributions thereon to the date of redemption , whether or not declared . see note 12 , equity to the consolidated financial statements for additional information . derivative financial instruments historically we have hedged a portion of the variable interest rates under our secured debt facilities through interest rate swap agreements . we have not applied hedge accounting to these derivative financial instruments which has resulted in the change in the fair value of the interest rate
| results of operations our results of operations for all periods presented were affected by the formation of the unconsolidated jv , acquisitions and asset sales made during the years ended december 31 , 2019 and 2018. as of december 31 , 2019 and 2018 , we had 2,025 and 1,920 available tenant sites , respectively . comparison of year ended december 31 , 2019 to year ended december 31 , 2018 the following table summarizes the combined statement of operations for years ended december 31 , 2019 and 2018 ( in thousands ) : replace_table_token_11_th rental revenue rental revenue decreased $ 5.4 million primarily due to the formation of the unconsolidated jv and 2019 sales of real property interests . rental revenue for the year ended december 31 , 2018 includes $ 10.0 million of rental revenue generated from the assets contributed to the jv prior to the date of the transaction and $ 2.0 million of rental revenue generated from assets sold in 2019. the decrease in rental revenue during the year ended december 31 , 2019 was partially offset by $ 2.0 million of rental revenue attributed to assets acquired in 2019 and $ 1.9 million of rental revenue due to the full year of rental revenue in 2019 for tenant sites acquired during 2018. on september 24 , 2018 , the partnership completed the formation of the unconsolidated jv . the partnership contributed 545 wireless communication assets to the jv along with the associated liabilities . the partnership does not control the unconsolidated jv and therefore , accounts for its investment in the unconsolidated jv using the equity method of accounting prospectively upon formation of the unconsolidated jv .
| 5,009 |
in february 2013 , the company 's board of directors adopted the 2013 employee stock purchase plan ( espp ) , which was subsequently ratified by stockholders and became effective in april 2013. the purpose of the espp is to retain the services of new employees and secure the services of new and existing employees while providing incentives for such individuals to exert maximum efforts toward the company 's success and that of its affiliates . the espp initially authorized the issuance of 704,225 shares of common stock pursuant to purchase rights granted to the company 's employees or to employees of any of its designated affiliates . the number of story_separator_special_tag the following discussion and analysis should be read in conjunction with “ selected financial data ” and our financial statements and related notes included elsewhere in this annual report . this discussion and analysis and other parts of this annual report contain forward-looking statements based upon current beliefs , plans and expectations that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under “ risk factors ” and elsewhere in this annual report . you should carefully read the “ risk factors ” section of this annual report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements . please also see the section entitled “ forward-looking statements. ” overview chimerix is a biopharmaceutical company dedicated to discovering , developing and commercializing novel , oral antivirals to address unmet medical needs . we were founded in 2000 based on the promise of our proprietary lipid technology to unlock the potential of some of the most potent antivirals by enhancing their antiviral activity and safety profiles in convenient , orally administered dosing regimens . based on our lipid technology , our lead compound , brincidofovir ( cmx001 ) is in phase 3 clinical development , our second compound , cmx157 , was licensed to merck after completing a phase 1 study and we have an active discovery program focusing on viral targets for which no therapies are currently available . to date , we have devoted substantially all of our resources to our research and development efforts relating to our product candidates , including conducting clinical trials with our product candidates , providing general and administrative support for these operations and protecting our intellectual property . we do not have any products approved for sale and have not generated any revenue from product sales . from our inception through december 31 , 2013 , we have funded our operations primarily through : our ipo generating net proceeds of approximately $ 107.6 million after deducting underwriting discounts , commissions and offering expenses ; the private placement of preferred stock , common stock , and warrants to purchase preferred stock totaling $ 100.4 million ; the receipt of government grants and contracts totaling approximately $ 70.2 million ; the receipt of $ 21.0 million in loan proceeds from financial institutions ; and the receipt of $ 17.5 million of up-front proceeds under our collaboration and license agreement with merck . we have incurred net losses in each year since our inception in 2000. our net losses were approximately $ 36.4 million , $ 4.4 million , and $ 25.6 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . as of december 31 , 2013 , we had an accumulated deficit of approximately $ 162.7 million . substantially all our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . we anticipate that our expenses will increase substantially as we : continue the development of our lead product candidate , brincidofovir , for the prevention of cmv infection in transplant recipients ; seek to obtain regulatory approvals for brincidofovir ; prepare for the potential commercialization of brincidofovir ; scale up manufacturing capabilities to commercialize brincidofovir for any indications for which we receive regulatory approval ; begin outsourcing of the commercial manufacturing of brincidofovir for any indications for which we receive regulatory approval ; establish an infrastructure for the sales , marketing and distribution of brincidofovir for any indications for which we receive regulatory approval ; expand our research and development activities and advance our clinical programs ; maintain , expand and protect our intellectual property portfolio ; continue our research and development efforts and seek to discover additional product candidates ; and add operational , financial and management information systems and personnel , including personnel to support our product development and commercialization efforts and operations as a public company . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates , which we expect will take a number of years and is subject to significant uncertainty . accordingly , we anticipate that we will need to raise additional capital prior to the commercialization of brincidofovir or any of our other product candidates . until such time that we can generate substantial revenue from product sales , if ever , we expect to finance our operating activities through a combination of equity offerings , debt financings , government or other third-party funding , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements . story_separator_special_tag at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period , if any , in which material net cash inflows from these product candidates may commence . this is due to the numerous risks and uncertainties associated with the development of our product candidates , including : the uncertainty of the scope , rate of progress and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; the potential benefits of our candidates over other therapies ; the ability to market , commercialize and achieve market acceptance for any of our product candidates that we are developing or may develop in the future ; the results of future clinical trials ; the timing and receipt of any regulatory approvals ; and the filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights , and the expense of doing so . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate in the united states , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . brincidofovir the majority of our research and development resources are currently focused on our brincidofovir phase 3 clinical trial , suppress , and our other planned clinical and preclinical studies and other work needed to provide sufficient data supporting the safety , tolerability and efficacy of brincidofovir for accelerated approval in the united states and equivalent health authority approval in canada and key european countries . we have incurred significant expense in connection with these efforts , including expenses related to : phase 2 clinical testing of brincidofovir , our compassionate use and early-ind programs , manufacturing to produce , test and package our drug substance and drug product for brincidofovir ; and initiation , enrollment , and conduct of our phase 3 clinical trial , suppress . we expect to incur significant expenses related to : · manufacturing to produce , test and package our drug substance and drug product for brincidofovir ; and · initiation , enrollment , and conduct of our phase 3 clinical trial , suppress . in addition , pursuant to our contract with barda , we are evaluating brincidofovir for the treatment of smallpox . during the base performance segment of the contract , we incurred significant expense in connection with the development of orthopox virus animal models , the demonstration of efficacy and pharmacokinetics of brincidofovir in the animal models , the conduct of an open label clinical safety study for subjects with dna viral infections , and the manufacture and process validation of bulk drug substance and brincidofovir 100 mg tablets . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for employees in executive , finance , corporate development , human resources , information technology , legal and administrative support functions , including stock-based compensation expenses and benefits . other significant general and administrative expenses include accounting and legal services , expenses associated with obtaining and maintaining patents , cost of various consultants , occupancy costs and information systems . we expect that our general and administrative expenses will continue to increase as we operate as a public company and due to the potential commercialization of our product candidates . we believe that these increases will likely include increased costs for director and officer liability insurance , costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants . we also expect to incur increased costs to comply with corporate governance , internal controls , investor relations and disclosures , and similar requirements applicable to public companies . interest income ( expense ) , net interest income consists of interest earned on our cash , cash equivalents and short-term investments . 42 interest expense consists primarily of interest accrued or paid on amounts outstanding under our loan and security agreement ( lsa ) with silicon valley bank ( svb ) and midcap financial sbic , lp ( midcap ) . revaluation of warrants in conjunction with various financing transactions , we issued warrants to purchase shares of our preferred and common stock . the underlying security of the warrants related to the series f financing and to our term loan was redeemable at the option of the security holder . as a result , these warrants were classified as a liability and were marked-to-market at each reporting date . the fair value estimates of these warrants were determined using a black-scholes option-pricing model and are based , in part , on subjective assumptions . non-cash changes in the fair value of the warrant liability were recorded as fair value adjustments to warrant liability . the final revaluation of the warrants occurred immediately prior to the ipo . upon the ipo these warrants converted into warrants for common stock and therefore no longer require revaluation . stock-based compensation the financial accounting standards board ( fasb ) authoritative guidance requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period . total consolidated stock-based compensation expense of $ 3.1 million , $ 1.4 million and $ 966,000 was recognized in the years ended december 31 , 2013 , 2012 and 2011 , respectively .
| results of operations comparison of the years ended december 31 , 2013 and december 31 , 2012 the following table summarizes our results of operations for the years ended december 31 , 2013 and december 31 , 2012 , together with the changes in those items in dollars and percentage : replace_table_token_7_th * not meaningful or not calculable . contract revenue for the year ended december 31 , 2013 , contract revenue decreased to $ 4.4 million compared to $ 16.3 million for the year ended december 31 , 2012. the decrease of $ 11.9 million , or 73.1 % was related to a decline in reimbursable expenses related to our contract with barda . during the year ended december 31 , 2012 , in connection with our performance under the base segment of the barda contract , we were fully engaged in clinical trials , drug product manufacturing and animal studies . for the year ended december 31 , 2013 , we completed performance of the base segment of the barda contract in may and commenced performance under the first option segment in june . collaboration and licensing revenue for the year ended december 31 , 2013 , collaboration and licensing revenue decreased to zero compared to $ 17.4 million for the year ended december 31 , 2012. collaboration and license fee revenue for the year ended december 31 , 2012 consisted of revenue from an upfront license payment related to our collaboration and license arrangement with merck for the exclusive rights to cmx157 . the upfront license payment was fully recognized in the quarter in which execution of the definitive agreement took place .
| 5,010 |
our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those factors set forth under item 1a—risk factors of this annual report on form 10-k. background as one of the largest integrated equipment services companies in the united states focused on heavy construction and industrial equipment , we rent , sell and provide parts and services support for four core categories of specialized equipment : ( 1 ) hi-lift or aerial work platform equipment ; ( 2 ) cranes ; ( 3 ) earthmoving equipment ; and ( 4 ) industrial lift trucks . by providing equipment rental , sales , on-site parts , repair and maintenance functions under one roof , we are a one-stop provider for our customers ' varied equipment needs . this full service approach provides us with multiple points of customer contact , enables us to maintain a high quality rental fleet , as well as an effective distribution channel for fleet disposal and provides cross-selling opportunities among our new and used equipment sales , rental , parts sales and services operations . as of february 18 , 2020 , we operated 93 full-service facilities throughout the intermountain , southwest , gulf coast , west coast , southeast and mid-atlantic regions of the united states . our work force includes distinct , focused sales forces for our new and used equipment sales and rental operations , highly skilled service technicians , product specialists and regional managers . we focus our sales and rental activities on , and organize our personnel principally by , our four core equipment categories . we believe this allows us to provide specialized equipment knowledge , improve the effectiveness of our rental and sales force and strengthen our customer relationships . in addition , we have branch managers for each location who are responsible for managing their assets and financial results . we believe this fosters accountability in our business and strengthens our local and regional relationships . through our predecessor companies , we have been in the equipment services business for approximately 59 years . h & e l.l.c . was formed in june 2002 through the business combination of head & engquist , a wholly-owned subsidiary of gulf wide , and icm . head & engquist , founded in 1961 , and icm , founded in 1971 , were two leading regional , integrated equipment service companies operating in contiguous geographic markets . in the june 2002 transaction , head & engquist and icm were merged with and into gulf wide , which was renamed h & e llc . prior to the combination , head & engquist operated 25 facilities in the gulf coast region , and icm operated 16 facilities in the intermountain region of the united states . prior to our initial public offering in february 2006 , our business was conducted through h & e llc . in connection with our initial public offering , we converted h & e llc into h & e equipment services , inc. in order to have an operating delaware corporation as the issuer for our initial public offering , h & e equipment services , inc. was formed as a delaware corporation and wholly-owned subsidiary of h & e holdings , and immediately prior to the closing of our initial public offering , on february 3 , 2006 , h & e llc and h & e holdings merged with and into h & e equipment services , inc. , which survived the reincorporation merger as the operating company . effective february 3 , 2006 , h & e llc and h & e holdings no longer existed under operation of law pursuant to the reincorporation merger . effective january 1 , 2018 , we completed the acquisition of cec , a privately-held company focused on non-residential construction equipment rentals serving the greater denver , colorado area out of three branch locations . effective april 1 , 2018 , we completed the acquisition of rental , inc. , a privately-held equipment rental and distribution company with five branch locations in alabama and florida . effective february 1 , 2019 , we completed the acquisition of wri , a privately-held equipment rental company with six branch locations in central texas . 28 business segments we have five reportable segments because we derive our revenues from five principal business activities : ( 1 ) equipment rentals ; ( 2 ) new equipment sales ; ( 3 ) used equipment sales ; ( 4 ) parts sales ; and ( 5 ) repair and maintenance services . these segments are based upon how we allocate resources and assess performance . in addition , we also have non-segmented revenues and costs that relate to equipment support activities . equipment rentals . our rental operation primarily rents our four core types of construction and industrial equipment . we have a well-maintained rental fleet and our own dedicated sales force , focused by equipment type . we actively manage the size , quality , age and composition of our rental fleet based on our analysis of key measures such as time utilization ( which we analyze as equipment usage based on : ( 1 ) a percentage of original equipment cost , and ( 2 ) the number of rental equipment units available for rent ) , rental rate trends and targets , rental equipment dollar utilization and maintenance and repair costs , which we closely monitor . we maintain fleet quality through regional quality control managers and our parts and services operations . new equipment sales . our new equipment sales operation sells new equipment in all of our four core product categories . we have a retail sales force focused by equipment type that is separate from our rental sales force . manufacturer purchase terms and pricing are managed by our product specialists . used equipment sales . story_separator_special_tag principal costs and expenses our largest expenses are the costs to purchase the new equipment we sell , the costs associated with the used equipment we sell , rental expenses , rental depreciation and costs associated with parts sales and services , all of which are included in cost of revenues . for the year ended december 31 , 2019 , our total cost of revenues was approximately $ 849.2 million . our operating expenses consist principally of selling , general and administrative ( “ sg & a ” ) expenses . for the year ended december 31 , 2019 , our sg & a expenses were $ 311.0 million . in addition , we have interest expense related to our debt instruments . operating expenses and all other income and expense items below the gross profit line of our consolidated statements of income are not generally allocated to our reportable segments . we are also subject to federal and state income taxes . future income tax examinations by state and federal agencies could result in additional income tax expense based on probable outcomes of such matters . cost of revenues : rental depreciation . depreciation of rental equipment represents the depreciation costs attributable to rental equipment . estimated useful lives vary based upon type of equipment . generally , we depreciate cranes and aerial work platforms over a ten year estimated useful life , earthmoving over a five year estimated useful life with a 25 % salvage value , and industrial lift trucks over a seven year estimated useful life . attachments and other smaller type equipment are depreciated over a three year estimated useful life . we periodically evaluate the appropriateness of remaining depreciable lives assigned to rental equipment . rental expense . rental expense represents the costs associated with rental equipment , including , among other things , the cost of repairing and maintaining our rental equipment , property taxes on our fleet and other miscellaneous costs of owning rental equipment . rental other . rental other expenses consist primarily of equipment support activities that we provide our customers in connection with renting equipment , such as hauling services , damage waiver policies , environmental fees and other recovery fees . new equipment sales . cost of new equipment sold primarily consists of the equipment cost of the new equipment that is sold , net of any amount of credit given to the customer towards the equipment for trade-ins . used equipment sales . cost of used equipment sold consists of the net book value of rental equipment for used equipment sold from our rental fleet , the equipment costs for used equipment we purchase for sale or the trade-in value of used equipment that we obtain from customers in equipment sales transactions . parts sales . cost of parts sales represents costs attributable to the sale of parts directly to customers . services support . cost of services revenues represents costs attributable to service provided for the maintenance and repair of customer-owned equipment and equipment then on-rent by customers . our non-segmented other expenses include costs associated with ancillary charges associated with equipment maintenance and repair services . selling , general and administrative expenses : our sg & a expenses include sales and marketing expenses , payroll and related benefit costs , including stock compensation expense , insurance expenses , legal and professional fees , rent and other occupancy costs , property and other taxes , administrative overhead , depreciation associated with property and equipment ( other than rental equipment ) and amortization expense associated with intangible assets . these expenses are not generally allocated to our reportable segments . interest expense : interest expense for the periods presented represents the interest on our outstanding debt instruments , including aggregate amounts outstanding under our revolving credit facility , senior unsecured notes due 2025 and our finance ( capital ) lease obligations , as well as our extinguished senior unsecured notes due 2022 ( the “ old notes ” ) for the periods during which such old notes were outstanding . interest expense also includes interest on our outstanding manufacturer flooring plans payable , which are used to finance inventory and rental equipment purchases . non-cash interest expense related to the amortization cost of deferred financing costs and the accretion/amortization of note discount/premium are also included in interest expense . 31 principal cash flows we generate cash primarily from our operating activities and , historically , we have used cash flows from operating activities , manufacturer floor plan financings and available borrowings under the credit facility as the primary sources of funds to purchase inventory and to fund working capital and capital expenditures , growth and expansion opportunities ( see also “ liquidity and capital resources ” below ) . our management of our working capital is closely tied to operating cash flows , as working capital can be significantly impacted by , among other things , our accounts receivable activities , the level of new and used equipment inventories , which may increase or decrease in response to current and expected demand , and the size and timing of our trade accounts payable payment cycles . rental fleet a substantial portion of our overall value is in our rental fleet equipment . the net book value of our rental equipment at december 31 , 2019 was $ 1.2 billion , or approximately 61.7 % of our total assets . our rental fleet as of december 31 , 2019 consisted of 43,939 units having an original acquisition cost ( which we define as the cost originally paid to manufacturers ) of approximately $ 1.9 billion . as of december 31 , 2019 , our rental fleet composition was as follows ( dollars in millions ) : replace_table_token_6_th determining the optimal age and mix for our rental fleet equipment is subjective and requires considerable estimates and judgments by management . we constantly evaluate the mix , age and quality of the equipment in our rental fleet in response to current economic and market conditions , competition and customer demand .
| results of operations the tables included in the period-to-period comparisons below provide summaries of our revenues and gross profits for our business segments and non-segmented revenues for the years ended december 31 , 2019 , 2018 and 2017. the period-to-period comparisons of our financial results are not necessarily indicative of future results . as discussed further in note 2 to these consolidated financial statements , upon our adoption of topic 842 , as of january 1 , 2019 using a transition method that allowed us not to recast prior periods , certain ancillary revenues and related cost of revenues associated 36 with our rental activities , such as damage waiver income , environmental fees and other recovery fees , that have been historically presented within other revenues and other cost of revenues , are presented within rental revenues and rental other cost of revenues beginning january 1 , 2019. as a result , rental revenues , as presented in our consolidated statements of income in this report on form 10- k for the years ended december 3 1 , 2018 and 2017 , do not include these revenues and related cost of revenues , as they are included within other reven ues and other cost of revenues . prior to 2019 we presented hauling revenues and related costs of revenues associated with our equipment rental activities within other revenues and other cost of revenues . given the presentation changes required by topic 842 as described above and in note 2 to these consolidated financial statements , we reclassified equipment rental hauling revenues and related costs of revenues within rental other revenues and rental other cost of revenues in prior periods to conform to the current period presentation . we believe this presentation results in a more meaningful presentation and analysis of our equipment rental activities .
| 5,011 |
however , we may review the peer group more often should circumstances warrant such 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 report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited to , those which are not within our control . background of our company we are a specialty pharmaceutical company that is utilizing licensed and owned proprietary drug delivery technologies to develop and commercialize , either on our own or in partnerships with third parties , significant new formulations of proven therapeutics . from the founding of our predecessor in 1995 through 2002 , we were a development stage company . our first license agreement , which was in relation to our bioral ® cochleate technology , was funded in 2003 in the amount of $ 2.0 million . in 2004 , we sold a royalty stream asset utilizing the same technology to accentia for $ 2.5 million and separately acquired the bema ® drug delivery technology upon our acquisition of arius pharmaceuticals in 2004. in july 2006 , we licensed commercialization rights in europe for our lead product , the bema ® based onsolis ® , to meda and received an up-front , non-refundable payment of $ 2.5 million . in september 2007 , we entered into a definitive license and development agreement with meda for onsolis ® in the u.s. , canada and mexico . in january 2012 , we entered into a definitive license and development agreement with endo for bema ® buprenorphine and to complete u.s. development of the product for purposes of seeking fda approval . we expect to continue research and development of our drug delivery technologies , some of which will be funded by meda under specific programs as described below . we will continue to seek additional license agreements , which may include up-front payments . for all other programs and products under development , revenues and payments ( other than milestone payments under our meda and endo agreements ) in 2012 are expected to be nominal . we anticipate that funding for the next several years will come primarily from milestone payments and royalties from meda and endo , potential sale of securities , collaborative research agreements , including those with pharmaceutical companies and potential exercises of our warrants . 46 we have a very limited history of commercial operations , having focused the vast majority of our corporate effort on research and development activities . we have , since our founding , received revenue in the form of : ( i ) contract revenue from endo related to an upfront signing milestone on our bema ® buprenorphine product in 2012 , ( ii ) royalty revenue from meda from sales of onsolis ® ; ( iii ) up-front non-refundable license and milestone payments from meda in 2007 , 2008 and 2009 ( which were initially classified as deferred revenue and subsequently , a substantial amount was reclassified as recognized revenue under prevailing revenue recognition rules ) , ( iv ) revenue from the sale of a royalty stream in 2004 , ( v ) research and collaboration revenues , including research revenues in 2010 from tty biopharm co. , ltd. ( tty ) and kunwha pharmaceutical co. , ltd. ( kunwha ) and ( vi ) minimal royalty revenue from a license with accentia . most of these types of revenue are generally not repeating or predictable . therefore , we anticipate that our quarterly results of operations will fluctuate significantly for the foreseeable future . readers are cautioned that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance . our prospects must be considered in light of the risks , expenses and difficulties normally encountered by companies that are involved in the development and commercialization of their technologies , particularly companies in new and rapidly changing markets such as pharmaceuticals , drug delivery and biotechnology . for the foreseeable future , we must , among other things , invest in non-clinical and clinical trials of , and seek regulatory approval for and commercialization of , our product candidates , the outcomes of which are subject to numerous risks , many of which are beyond our control . we must also maintain our relationships with our key commercial partners and address regulatory , legal and or commercial issues and risks that relate our business from time to time , many of which could impact , perhaps negatively , our planned operations . we may not be able to appropriately address these risks and difficulties . critical accounting policies and estimates impairment testing our goodwill impairment testing is calculated at the reporting unit level . we performed an evaluation and determined that there is only one reporting unit . our annual impairment test has two steps . the first identifies potential impairments by comparing the fair value of the reporting unit with its carrying value . if the fair value exceeds the carrying amount , goodwill is not impaired and the second step is not necessary . if the carrying value exceeds the fair value , the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount . if the implied fair value of goodwill is less than the carrying amount , a write-down is recorded . the determination of goodwill impairment is highly subjective . it considers many factors both internal and external and is subject to significant changes from period to period . story_separator_special_tag 48 we have determined that upon inception of both the u.s. and eu meda arrangements all deliverables to each arrangement are to be considered one combined unit of accounting since the fair value of the undelivered license was not determinable and the research and development efforts provided do not have standalone value apart from the license . as such , all cash payments from meda related to these deliverables prior to fda approval in july 2009 were recorded as deferred revenue . all cash payments from meda for upfront and milestone payments and research and development services provided are nonrefundable . upon commencement of the license term ( date of first commercial sale in each territory ) , the license and certain research and development services deliverables are deliverable to meda . the first commercial sale in the u.s. occurred in october 2009. as a result , $ 59.7 million of the aggregate milestones and services revenue were recognized . upon first commercial sale in a european country , an estimated $ 17.6 million will be recognized , which includes an additional $ 5.0 million in milestones and approximately $ 0.5 million in research and development services . at december 31 , 2011 , there was remaining deferred revenue of $ 14.2 million , of which $ 12.5 million is related to the eu meda arrangement milestones and eu meda research and development services . we have estimated the amount of time ( based on expected man-days ) and associated dollars ( based on comparable services provided by outside third parties ) , as further noted below . as time progresses , we continue to estimate the time required for ongoing obligations , and adjust the remaining deferral accordingly as the milestone requirements are achieved and revenue recognition is permitted under gaap . upon delivery of the license to meda , we have determined that each of the undelivered obligations have stand-alone value to meda as these post-commercialization services encompass additional clinical trials on different patient groups but do not require further product development and these services and product supply obligations can be provided by third-party providers available to meda . we have also obtained third-party evidence of fair value for the non-cancer and other research and development services and other service obligations , based on hourly rates billed by unrelated third-party providers for similar services contracted by us . we have obtained third-party evidence of fair value of the product supply deliverable based on the outsourced contract manufacturing cost charged to us from the third-party supplier of the product . the arrangements do not contain any general rights of return . therefore , the remaining deliverables to the arrangements will be accounted for as three separate units of accounting to include ( 1 ) product supply , ( 2 ) research and development services for the non-cancer indication and further research and development of the first indication of the onsolis ® product and ( 3 ) the combined requirements related to the remaining other service-related obligations due meda to include participation in committees and certain other specified services . the estimated portion of the upfront payments of approximately $ 1.6 million ( under the meda u.s. agreements ) and $ 0.1 million ( under the meda eu agreements ) attributed to these other service-related obligations will be recognized as revenue as services are provided through expiration of the license terms , as defined above . in accordance with gaap , we have determined that we are acting as a principal under the meda agreements and , as such , we will record product supply revenue , research and development services revenue and other services revenue amounts on a gross basis in our consolidated financial statements . other license arrangements in october 2009 , the fasb issued accounting standards updated no . 2009-13 ( asu 2009-13 ) , which addressed the accounting for multiple-deliverable arrangements . the company chose early adoption of this standard , which is in effect for the year ended december 31 , 2010. asu-2009-13 has been applied to two similar transactions in 2010. in may 2010 , we entered into a license and supply agreement with kunwha to develop , manufacture , sell and distribute bema ® fentanyl in the republic of korea . the upfront payment from kunwha of $ 0.3 million ( net of taxes , approximating $ 0.25 million ) received in june 2010 is recorded as contract revenue in the accompanying consolidated statements of operations . in october 2010 , we entered into a license and supply agreement with tty to develop , manufacture , sell and distribute bema ® fentanyl product in taiwan . the upfront payment from tty of $ 0.3 million received in october 2010 is recorded as contract revenue in the accompanying consolidated statements of operations . the upfront payments of $ 0.3 million in october 2010 and an additional $ 0.3 million in november 2011 were both recorded as contract revenue in the accompanying consolidated statements of operations . the principal change upon the adoption of asu-2009-13 is the upfront recognition of $ 0.3 million in revenue upon signing each of the two agreements . the upfront signing milestone qualifies as a separate unit of accounting and was determined to have a standalone basis . both milestone payments are non-refundable . we are responsible for supplying onsolis ® to both tty and kunwha . we will receive a royalty payment for such supply . the adoption of asu-2009-13 is not expected to have a material impact after this initial adoption . under previous guidance , these two upfront payments would have been deferred and only recognized upon first sale , which is not expected until 2012 or 2013 . 49 in addition , asu 2009-13 has influenced the accounting treatment of our endo contract , which was signed in january 2012. as a milestone revenue recognition arrangement , the endo contract includes a $ 30 million upfront signing payment .
| results of operations for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 product royalty revenues . we recognized $ 2.7 million and $ 1.9 million in product royalty revenue during the years ended 2011 and 2010 , respectively , under our license agreement with meda . the increase in product royalty revenues can be attributed to the commercial launch of onsolis ® in canada . research revenues . we recognized $ 0.2 million and $ 0.7 million of revenue related to a research and development agreement with meda during the years ended 2011 and 2010 , respectively . sponsored research revenues . we recognized $ 0.2 million in sponsored research revenue from the u.s. government 's qualifying therapeutic discovery project during the year ended 2010. there was no sponsored research revenue received in 2011. contract revenues . we recognized $ 0.3 million in contract revenue during the year ended 2011 which related to our license agreement with tty . during 2010 , we recognized $ 0.5 million in contract revenue related to our license agreements with tty and kunwha . cost of product royalties . we recognized $ 1.8 million and $ 0.8 million in cost of product royalties during the years ended 2011 and 2010 , respectively , related to direct costs attributable to the production of onsolis ® . this includes both manufacturing costs and royalties owed to cdc and athyrium . we are required to pay royalties to cdc and athyrium under a clinical development and license agreement entered into in 2005 , and most recently amended in may 2011. research and development expenses . during the years ended december 31 , 2011 and 2010 , research and development expenses totaled $ 20.8 million and $ 10.6 million , respectively .
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2016-01 is effective for the company for annual reporting periods beginning after december 15 , 2017 , including interim periods within that reporting period . the company adopted asu no . 2016-01 effective january 1 , 2018 , which did not have a material impact on the company 's consolidated financial statements due to the company 's proportionately small portfolio of equity securities story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of northfield bancorp , inc. and the notes thereto included elsewhere in this report ( collectively , the “ financial statements ” ) . story_separator_special_tag determination of the amount of the allowance required . we believe that our allowance for loan losses is adequate to cover identifiable losses , as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable . management performs a formal quarterly evaluation of the adequacy of the allowance for loan losses . this quarterly process is performed by the accounting department , in conjunction with the credit administration department , and approved by the director of financial reporting . the chief financial officer performs a final review of the calculation . all supporting documentation with regard to the evaluation process is maintained by the accounting department . each quarter a summary of the allowance for loan losses is presented by the chief financial officer to the audit committee of the board of directors . 47 the analysis of the allowance for loan losses has a component for impaired loans held-for-investment and pci loans , and a component for loans collectively evaluated for impairment . prior to december 31 , 2016 , we maintained an amount identified as the unallocated component within the allowance for loan losses related to indicators of loan losses not fully captured in other components of the allowance for loan losses methodology , as well as the inherent imprecision of the loss estimation process . during the fourth quarter of 2016 , the company enhanced the allowance for loan losses qualitative framework to more fully capture the risks related to certain loan loss factors . these enhancements are meant to increase the level of precision in the allowance for loan losses . as a result , subsequent to 2015 , the company no longer has an unallocated reserve in its allowance for loan losses , as the risks and uncertainties meant to be captured by the unallocated allowance have been included in the qualitative framework for the respective loan portfolios . management has defined an impaired loan ( excluding pci loans ) to be a loan for which it is probable , based on current information , that we will not collect all amounts due in accordance with the contractual terms of the loan agreement . we have defined the population of impaired loans to be all non-accrual loans with an outstanding balance of $ 500,000 or greater , and all loans identified as a tdr . impaired loans are individually evaluated for impairment to determine that the loan 's carrying value is not in excess of the estimated fair value of the collateral ( less cost to sell ) , if the loan is collateral dependent , or the present value of the expected future cash flows , if the loan is not collateral dependent . management performs a detailed evaluation of each impaired loan and generally obtains updated appraisals as part of the evaluation . in addition , management adjusts estimated fair values down to appropriately consider recent market conditions , our willingness to accept , when appropriate , a lower sales price to effect a quick sale , and costs to dispose of any supporting collateral . determining the estimated fair value of underlying collateral ( and related costs to sell ) can be difficult in illiquid real estate markets and is subject to significant assumptions and estimates . management employs an independent third-party expert in appraisal preparation and review to ascertain the reasonableness of all appraisals . projecting the expected cash flows under tdrs is inherently subjective and requires , among other things , an evaluation of the borrower 's current and projected financial condition . actual results may be significantly different than our projections , and our established allowance for loan losses on these loans , and could have a material effect on our financial results . the second component of the allowance for loan losses is the allowance for loans collectively evaluated for impairment . this evaluation excludes impaired , trouble-debt restructured , and pci loans , with the remaining loans being placed into groups with similar risk characteristics , primarily loan type , loan-to-value ( if collateral dependent ) and internal credit risk rating . we apply an estimated loss rate to each loan group . the loss rates applied are based on our net loss experience ( using appropriate look-back and loss emergence periods ) as adjusted , if appropriate , for our qualitative assessment of factors which may not be fully captured in our historical quantitative net loss rates applied to : changes in lending policies and procedures ; changes in local , regional , national , and international economic and business conditions and developments that affect the collectability of our portfolio , including the condition of various market segments ; changes in the nature and volume of our portfolio and in the terms of our loans ; changes in the experience , ability and depth of lending management and other relevant staff ; changes in the volume and severity of past due loans , the volume of non-accrual loans , and the volume and severity of adversely classified or graded loans ; changes in the quality of our loan review system ; changes in the value of underlying collateral for collateral-dependent loans ; the existence and effect of any concentrations of credit , and changes in the level of such concentrations ; and the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in our existing portfolio story_separator_special_tag we consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets , including projections of future taxable income . these judgments and estimates are reviewed quarterly as regulatory and business factors change . a valuation allowance for deferred tax assets may be required if the amounts of taxes recoverable through loss carry backs decline , or if we project lower levels of future taxable income . such a valuation allowance would be established and any subsequent changes to such allowance would require an adjustment to income tax expense that could adversely affect our operating results . 49 comparison of financial condition at december 31 , 2018 and 2017 total assets increase d $ 417.0 million , or 10.4 % , to $ 4.41 billion at december 31 , 2018 , from $ 3.99 billion at december 31 , 2017 . the increase was primarily attributable to increases in our available-for-sale debt securities portfolio of $ 294.2 million , or 57.3 % , loans held-for-investment , net , of $ 104.4 million , or 3.3 % , and cash and cash equivalents of $ 19.9 million or 34.4 % . the company 's debt securities available-for-sale portfolio totaled $ 808.0 million at december 31 , 2018 , compared to $ 513.8 million at december 31 , 2017 . the increase was primarily attributable to purchases of mortgage-backed and corporate securities , partially offset by paydowns and sales . at december 31 , 2018 , $ 565.0 million of the portfolio consisted of residential mortgage-backed securities issued or guaranteed by fannie mae , freddie mac , or ginnie mae . in addition , the company held $ 242.7 million in corporate bonds , all of which were considered investment grade , and municipal bonds of $ 273,000 . the effective duration of the securities portfolio at december 31 , 2018 was 2.69 years . total loans held-for-investment , net , increase d $ 104.4 million to $ 3.25 billion at december 31 , 2018 , as compared to $ 3.14 billion at december 31 , 2017 , primarily due to an increase in originated loans held-for-investment , net , partially offset by declines in acquired and purchased credit-impaired loans . originated loans held-for-investment , net , totaled $ 2.68 billion at december 31 , 2018 , as compared to $ 2.43 billion at december 31 , 2017 . the increase was primarily due to an increase in multifamily real estate loans of $ 194.8 million , or 11.2 % , to $ 1.93 billion at december 31 , 2018 , from $ 1.74 billion at december 31 , 2017 , and to a lesser extent , a $ 54.1 million , or 12.1 % , increase in commercial real estate loans to $ 499.3 million at december 31 , 2018 , from $ 445.2 million at december 31 , 2017 . the following tables detail our multifamily real estate originations for the years ended december 31 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_24_th replace_table_token_25_th acquired loans decreased by $ 146.7 million to $ 546.2 million at december 31 , 2018 , from $ 692.8 million at december 31 , 2017 , primarily due to paydowns of lower yield one-to-four family residential and multifamily loans with weighted average interest rates ( net of the servicing fee retained by the originating bank ) ranging from 2.63 % to 2.86 % , partially offset by purchases of one-to-four family residential mortgage loan pools totaling $ 37.5 million . 50 the following table provides the details of the loans purchased during the year ended december 31 , 2018 ( dollars in thousands ) : replace_table_token_26_th ( 1 ) net of servicing fee retained by the originating bank . ( 2 ) at time of purchase . the geographic locations of the properties collateralizing the loans purchased are as follows : 32.7 % in new york , 29.9 % in california , and 27.1 % in massachusetts , with the majority of the remaining balance in new jersey . the following table provides the details of the loans purchased during the year ended december 31 , 2017 ( dollars in thousands ) : replace_table_token_27_th ( 1 ) net of servicing fee retained by the originating bank . ( 2 ) at time of purchase . the geographic locations of the properties securing the above loans are as follows : 55.3 % in new york , 15.9 % in new jersey , 9.2 % in california , and 19.6 % in other states . pci loans totaled $ 20.1 million at december 31 , 2018 , as compared to $ 22.7 million at december 31 , 2017 . the majority of the pci loan balance consists of loans acquired as part of an fdic-assisted transaction . the company accreted interest income attributable to pci loans of $ 4.2 million , $ 5.5 million , and $ 5.2 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . cash and cash equivalents increase d by $ 19.9 million , or 34.4 % , to $ 77.8 million at december 31 , 2018 , from $ 57.8 million at december 31 , 2017 . balances fluctuate based on the timing of receipt of security and loan repayments and the redeployment of cash into higher-yielding assets such as loans and securities , or the funding of deposit or borrowing obligations . bank owned life insurance increased $ 3.5 million , or 2.3 % , to $ 154.1 million at december 31 , 2018 , from $ 150.6 million at december 31 , 2017 . the increase resulted from income earned on bank owned life insurance for the year ended december 31 , 2018 .
| overview net income was $ 40.1 million , or $ 0.85 per diluted common share , and $ 24.8 million , or $ 0.53 per diluted common share , for the years ended december 31 , 2018 and 2017 , respectively . net income for the year ended december 31 , 2018 benefited from the effects of federal tax reform ( the “ tax act ” ) enacted in december 2017 , which reduced the federal corporate tax rate to 21 % from 35 % effective january 1 , 2018. net income for the year ended december 31 , 2018 also benefited from excess tax benefits of $ 2.7 million , or $ 0.06 per diluted share , related to the exercise or vesting of equity awards . net income for the year ended december 31 , 2017 , included a tax charge of $ 10.5 million , or $ 0.23 per diluted share , related to the enactment of the tax act , which resulted in the company recording an adjustment of $ 10.5 million to reduce its net deferred tax assets , with a corresponding charge to income tax expense . net income for the year ended december 31 , 2017 benefited from excess tax benefits of $ 2.3 million or $ 0.05 per diluted share , related to the exercise or vesting of equity awards , as well as $ 1.5 million , or $ 0.03 per diluted share , of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies . net income for the year ended december 31 , 2016 , included merger-related expenses of $ 4.0 million ( $ 2.4 million , after tax ) associated with the acquisition of hopewell valley community bank ( “ hopewell valley ” ) .
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overview we are one of the largest providers of highly engineered industrial process heating solutions for process industries . for over 60 years , we have served a diverse base of thousands of customers around the world in attractive and growing markets , including oil & gas , chemical processing and power generation . we are a global leader and one of the few thermal solutions providers with a global footprint . we offer a full suite of products ( heating units , heating cables , tubing bundles and control systems ) and services ( design optimization , engineering , installation and maintenance services ) required to deliver comprehensive solutions to complex projects . we serve our customers through a global network of sales and service professionals and distributors in more than 30 countries and through our ten manufacturing facilities on three continents . these global capabilities and longstanding relationships with some of the largest multinational oil & gas , chemical processing , power 28 and epc companies in the world have enabled us to diversify our revenue streams and opportunistically access high growth markets worldwide . for fiscal 2018 , approximately 63 % of our revenues were generated outside of the united states . since march 2015 , we have acquired four companies ( ths , unitemp , sumac and ipi ) , that offer complementary products and services to our core thermal solution offerings . we actively pursue both organic and inorganic growth initiatives that serve to advance our corporate strategy . revenue . our revenues are derived from providing customers with a full suite of innovative and reliable process heating solutions , including electric and steam heat tracing , tubing bundles , control systems , design optimization , engineering services , installation services and portable power solutions . additionally , ths offers a complementary suite of advanced heating and filtration solutions for industrial and hazardous area applications . historically , our sales are primarily to industrial customers for petroleum and chemical plants , oil and gas production facilities and power generation facilities . our petroleum customers represent a significant portion of our business . we serve all three major categories of customers in the petroleum industry - upstream exploration/production , midstream transportation and downstream refining . overall , demand for industrial heat tracing solutions falls into two categories : ( i ) new facility construction , which we refer to as greenfield projects , and ( ii ) recurring maintenance , repair and operations and facility upgrades or expansions , which we refer to as mro/ue . greenfield construction projects often require comprehensive heat tracing solutions . we believe that greenfield revenue consists of sales revenue by customer in excess of $ 1 million annually ( excluding sales to resellers ) , and typically includes most orders for projects related to facilities that are new or that are built independent of existing facilities . we refer to sales revenue by customer of less than $ 1 million annually , which we believe are typically derived from mro/ue , as mro/ue revenue . based on our experience , we believe that $ 1 million in annual sales is an appropriate threshold for distinguishing between greenfield revenue and mro/ue revenue . however , we often sell our products to intermediaries or subcontract our services ; accordingly , we have limited visibility into how our products or services may ultimately be used and can provide no assurance that our categorization may accurately reflect the sources of such revenue . furthermore , our customers do not typically enter into long-term forward maintenance contracts with us . in any given year , certain of our smaller greenfield projects may generate less than $ 1 million in annual sales , and certain of our larger plant expansions or upgrades may generate in excess of $ 1 million in annual sales , though we believe that such exceptions are few in number and insignificant to our overall results of operations . ths has been excluded from the greenfield and mro/ue calculations . most of ths 's revenue would be classified as mro/ue under these definitions . we believe that our pipeline of planned projects , in addition to our backlog of signed purchase orders , provides us with visibility into our future revenue . historically we have experienced few order cancellations , and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog . the small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of greenfield project construction . our backlog at march 31 , 2018 was $ 159.6 million , inclusive of $ 31.7 million for ths , as compared to $ 106.9 million at march 31 , 2017 . the timing of recognition of revenue out of backlog is not always certain , as it is subject to a variety of factors that may cause delays , many of which are beyond our control ( such as customers ' delivery schedules and levels of capital and maintenance expenditures ) . when delays occur , the recognition of revenue associated with the delayed project is likewise deferred . cost of sales . our cost of sales includes primarily the cost of raw material items used in the manufacture of our products , cost of ancillary products that are sourced from external suppliers and construction labor cost . additional costs of revenue include contract engineering cost directly associated to projects , direct labor cost , shipping and handling costs , and other costs associated with our manufacturing/fabrication operations . the other costs associated with our manufacturing/fabrication operations are primarily indirect production costs , including depreciation , indirect labor costs , and the costs of manufacturing support functions such as logistics and quality assurance . key raw material costs include polymers , copper , stainless steel , insulating material , and other miscellaneous parts related to products manufactured or assembled as part of our heat tracing solutions . story_separator_special_tag furthermore , greenfield revenue is an indicator of potential mro/ue revenue in future years . for mro/ue orders , the sale of our manufactured products typically represents a higher proportion of the overall revenue associated with such order than the provision of our services . greenfield projects , on the other hand , require a higher level of our services than mro/ue orders , and often require us to purchase materials from third party vendors . therefore , we typically realize higher margins from mro/ue revenues than greenfield revenues . large and growing installed base . customers typically use the incumbent heat tracing provider for mro/ue projects to avoid complications and compatibility problems associated with switching providers . therefore , with the significant greenfield activity we have experienced in recent years , our installed base has continued to grow , and we expect that such installed base will continue to generate ongoing high margin mro/ue revenue . for fiscal 2018 , mro/ue sales comprised approximately 63 % of our consolidated revenues ( excluding ths ) . seasonality of mro/ue revenues . revenues realized from mro/ue orders tend to be less cyclical than greenfield projects and more consistent quarter over quarter , although mro/ue revenues are impacted by seasonal factors . mro/ue revenues for the legacy heat tracing business are typically highest during the second and third fiscal quarters , as most of our customers perform preventative maintenance prior to the winter season . recent events-acquisition of cci thermal technologies inc. on october 30 , 2017 , we , through a wholly-owned subsidiary , acquired 100 % of the equity interests of cci thermal technologies , inc. and certain related real estate assets for $ 262.0 million cad ( approximately $ 204.2 million usd at the exchange rate as of october 30 , 2017 ) in cash . such subsidiary and cci thermal technologies , inc. amalgamated immediately after the closing of the acquisition to form ths , an indirect , wholly-owned subsidiary of the company . ths is engaged in industrial process heating , focused on the development and production of advanced heating and filtration solutions for industrial and hazardous area applications and is headquartered in edmonton , alberta , canada . ths markets its products through several diverse brands known for high quality , safety and reliability , and serves clients in the energy , petrochemical , electrical distribution , power , transit and industrial end markets globally . the ths transaction was funded in part by a new $ 250.0 million senior secured term loan b facility that was consummated on october 30 , 2017. recent developments-canadian and united states operations . goodwill is tested for impairment on an annual basis , and between annual tests if indicators of potential impairment exist . we perform a qualitative analysis to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . if required , we also perform a quantitative analysis using the income approach , based on discounted future cash flows , which are derived from internal forecasts and economic expectations , and the market approach based on market multiples of guideline public companies . the most significant inputs in the company 's quantitative goodwill impairment tests are projected financial information , the weighted average cost of capital and market multiples for similar transactions . our annual impairment test is performed during the fourth quarter of our fiscal year . in prior years , we experienced sizable declines in revenue and operating results within our canadian operations , and considered such to be an indication of potential goodwill and intangible asset impairment . these declines in operating results principally resulted from lower crude oil prices , which had a significant adverse impact on capital spending in canada . during fiscal 2018 , we have experienced increased revenue and operating results in canada , and project continued growth . accordingly , during the fourth quarter of fiscal 2018 , we did not conclude a triggering event existed within our canadian reporting unit requiring further analysis . we will continue to evaluate our canadian operations and assess on a quarterly basis whether it is more likely than not that the fair value of the canadian reporting unit is less than its carrying amount . similarly , based upon our qualitative analysis , we have not determined that it is more likely than not that the fair value of our u.s. reporting unit is less than its carrying amount ; however , we have experienced losses in the u.s. during fiscal 2018. if changes in estimates and assumptions used to determine whether impairment exists , or if we experience future declines in actual and forecasted operating results and or market conditions in the united states , we may be required to reevaluate the fair value of our united states reporting unit , which could ultimately result in an impairment to goodwill and or indefinite-lived intangible assets in future periods . story_separator_special_tag term loan b credit facility . at march 31 , 2018 , we had $ 225.0 million principal outstanding with variable rate interest of approximately 6 % . 33 other expense . other expense was $ 5.6 million in fiscal 2018 , compared to $ 0.4 million in fiscal 2017 , an increase of $ 5.2 million . during fiscal 2018 , we recorded approximately $ 5.6 million of foreign exchange losses related to the ths acquisition , compared to $ 0.4 million of foreign currency transaction losses in fiscal 2017. the one-time foreign currency related losses include $ 3.3 million on a $ 200.0 million cad option contract to hedge part of the ths acquisition purchase price and $ 2.3 million related to a derivative contract to hedge a $ 112.8 million long term intercompany loan between canada and the united states for the ths acquisition ( see note 2 , `` fair value measurements '' , for additional information on the acquisition foreign exchange option and the cross currency swap ) .
| results of operations 31 the following table sets forth data from our statements of operations as a percentage of sales for the periods indicated . replace_table_token_5_th ( 1 ) as part of the sumac transaction , we issued the sellers a $ 5.9 million non-interest bearing note ( `` performance note '' ) that matured on april 1 , 2016 , with the actual amount payable at maturity ranging from zero up to a maximum of $ 7.5 million cad subject to the achievement of certain performance metrics during the twelve month period ended april 1 , 2016. the terms of the performance-based note assume the continued employment of sumac 's principals and , as a result , the performance note payment is accounted for as compensation expense . the performance note was settled during the first quarter of fiscal 2017 for $ 5.8 million . ( 2 ) during fiscal 2016 , the european segment 's financial results were negatively impacted by a $ 1.7 million impairment charge to unitemp 's goodwill and other intangible assets . ( 3 ) interest expense in fiscal 2018 includes a $ 0.4 million acceleration of amortization of unamortized deferred debt costs related to the retirement of the term loan a and a $ 0.9 million acceleration of amortization of deferred debt charges in connection with the unscheduled repayment of $ 25.0 million on the term loan b. interest expense for fiscal 2016 included a $ 0.3 million acceleration of amortization of our deferred debt issuance costs in connection with the second amendment to our prior credit agreement and , during the same period , we incurred an additional $ 0.4 million in amortized debt issuance costs .
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more information regarding these risks , uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading risk factors in item 1a of this annual report on form 10-k ( the annual report ) . the company does not ordinarily make projections of its future operating results and undertakes no obligation ( and expressly disclaims any obligation ) to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . readers should carefully review this document and the other documents filed by the company with the securities and exchange commission ( the sec ) . this section should be read together with the consolidated and combined financial statements of news corporation and related notes set forth elsewhere in this annual report . introduction news corporation ( together with its subsidiaries , news corporation or the company ) is a global diversified media and information services company comprised of businesses across a range of media , including : news and information services , cable network programming in australia , digital real estate services , book publishing , digital education and pay-tv distribution in australia . the separation and distribution on june 28 , 2013 ( the distribution date ) , the company completed the separation of its businesses ( the separation ) from twenty-first century fox , inc. ( 21st century fox ) . as of the effective time of the separation , all of the outstanding shares of the company were distributed to 21st century fox stockholders based on a distribution ratio of one share of company class a or class b common stock for every four shares of 21st century fox class a or class b common stock , respectively , held of record as of june 21 , 2013. following the separation , the company 's class a and class b common stock began trading independently on nasdaq , and cdis representing the company 's class a and class b common stock began trading on the asx . in connection with the separation , the company entered into the separation and distribution agreement ( the separation and distribution agreement ) and certain other related agreements which govern the company 's relationship with 21st century fox following the separation . ( see note 11 to the consolidated and combined financial statements of news corporation ) . basis of presentation prior to the separation , the company 's combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of 21st century fox . the company 's financial statements as of june 30 , 2012 and for the fiscal years ended june 30 , 2012 and 2011 are on a combined basis and presented as carve-out financial statements as the company was not a separate consolidated group prior to the distribution date . these statements reflect the combined historical results of operations , financial position and cash flows of 21st century fox 's publishing businesses , its education division and other australian assets . subsequent to the distribution date , the company 's financial statements as of and for the year ended june 30 , 2013 are presented on a consolidated basis as the company became a separate consolidated group . 38 the company 's consolidated and combined statements of operations ( the statements of operations ) for the fiscal years ended june 30 , 2013 , 2012 and 2011 include allocations of general corporate expenses for certain support functions that were provided on a centralized basis by 21st century fox and not recorded at the business unit level , such as expenses related to finance , human resources , information technology , facilities , and legal , among others . these expenses have been allocated to the company on the basis of direct usage when identifiable , with the remainder allocated on a pro rata basis of combined or consolidated revenues , operating income , headcount or other measures of the company . management believes the assumptions underlying the combined and consolidated financial statements ( the financial statements ) , including the assumptions regarding allocating general corporate expenses from 21st century fox are reasonable . nevertheless , the financial statements may not include all of the actual expenses that would have been incurred by the company and may not reflect the company 's consolidated and combined results of operations , financial position and cash flows had it been a stand-alone company during the periods presented . actual costs that would have been incurred if the company had been a stand-alone company would depend on multiple factors , including organizational structure and strategic decisions made in various areas , including information technology and infrastructure . the company 's consolidated balance sheet as of june 30 , 2013 consists of the company 's consolidated balances , subsequent to the separation . the balances reflect the assets and liabilities that were historically included in 21st century fox 's publishing business , its education division and other australian assets , as well as assets and liabilities transferred to the company as part of the internal reorganization . all assets and liabilities included in the company 's consolidated balance sheet are recorded on a historical cost basis . the company 's combined balance sheet as of june 30 , 2012 consists of the combined balances of 21st century fox 's publishing businesses , its education division and other australian assets . the consolidated and combined balance sheets will be referred to as the balance sheets herein . the financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( gaap ) . all intracompany transactions and accounts within news corporation have been eliminated for the financial statements . for purposes of the company 's financial statements for periods prior to the separation , income tax expense has been recorded as if the company filed tax returns on a stand-alone basis separate from 21st century fox . story_separator_special_tag harpercollins includes over 60 branded publishing imprints including avon , harper , harpercollins children 's publishers , william morrow and christian publishers zondervan and thomas nelson , and publishes works by well-known authors such as j.r.r . tolkien , paulo coelho , rick warren and agatha christie and popular titles such as the hobbit , goodnight moon and to kill a mockingbird . 40 other the other segment consists of amplify , the corporate strategy and creative group , general corporate overhead expenses and costs related to the u.k. newspaper matters . amplify focuses on three areas of business : data and analytics ; digital curriculum ; and distribution platforms for education . the company 's corporate strategy and creative group has been formed to identify new products and services across its businesses to increase revenues and profitability . news and information services revenue at the news and information services segment is derived from the sale of advertising space , circulation and subscriptions , as well as licensing . adverse changes in general market conditions for advertising may continue to affect revenues . circulation and subscription revenues can be greatly affected by changes in the prices of the company 's and or competitors ' products , as well as by promotional activities . operating expenses include costs related to paper , production , distribution , editorial and commissions . selling , general and administrative expenses include promotional expenses , salaries , employee benefits , rent and other routine overhead . the news and information services segment 's advertising volume , circulation and the price of paper are the key variables whose fluctuations can have a material effect on the company 's operating results and cash flow . the company has to anticipate the level of advertising volume , circulation and paper prices in managing its businesses to maximize operating profit during expanding and contracting economic cycles . the company continues to be exposed to risks associated with paper used for printing . paper is a basic commodity and its price is sensitive to the balance of supply and demand . the company 's expenses are affected by the cyclical increases and decreases in the price of paper . the news and information services segment 's products compete for readership and advertising with local and national competitors and also compete with other media alternatives in their respective markets . competition for circulation and subscriptions is based on the content of the products provided , pricing and , from time to time , various promotions . the success of these products also depends upon advertisers ' judgments as to the most effective use of their advertising budgets . competition for advertising is based upon the reach of the products , advertising rates and advertiser results . such judgments are based on factors such as cost , availability of alternative media , distribution and quality of readership demographics . like other newspaper groups , the company faces challenges to its traditional print business model from new media formats and shifting consumer preferences . the company is also exposed to the impact of long-term structural movements in advertising spending , in particular , the move in classified advertising from print to digital . these new media formats could impact the company 's overall performance , positively or negatively . as a multi-platform news provider , the company recognizes the importance of maximizing revenues from new media , both in terms of paid-for content and in new advertising models , and continues to invest in its digital products . the development of technologies such as smartphones , tablets and similar devices and their related applications provides continued opportunities for the company to make its journalism available to a new audience of readers , introduce new or different pricing schemes , develop its products to continue to attract advertisers and or affect the relationship between publisher and consumer . the company continues to develop and implement strategies to exploit its content in new media channels , including the implementation of digital subscriptions . cable network programming the cable network programming segment consists of fox sports australia which offers the following channels : fox sports 1 , fox sports 2 , fox sports 3 , fox footy , fox sports news , fuel tv and speed . revenue is derived from monthly affiliate fees received from cable and satellite television systems , and other distribution systems based on the number of subscribers . fox sports australia competes primarily with espn , the fta channels and certain telecommunications companies in australia . 41 the most significant operating expenses of the cable network programming segment are the acquisition and production expenses related to programming and the expenses related to operating the technical facilities of the cable network . other expenses include promotional expenses related to improving the market visibility and awareness of the cable network and its programming . additional expenses include sales commissions paid to the in-house advertising sales force , as well as salaries , employee benefits , rent and other routine overhead expenses . digital real estate services the digital real estate services segment sells online advertising services on its residential real estate and commercial property sites . significant expenses associated with these sites include development costs , advertising and promotional expenses , salaries , employee benefits and other routine overhead expenses . consumers are increasingly turning to the internet and mobile devices for real estate information . the digital real estate services segment 's success depends on its continued innovation to provide products and services that make its websites and mobile applications useful for consumers and real estate and mortgage professionals and attractive to its advertisers . book publishing the book publishing segment derives revenues from the sale of general fiction , nonfiction , children 's and religious books in the u.s. and internationally . the revenues and operating results of the book publishing segment are significantly affected by the timing of releases and the number of its books in the marketplace .
| results of operations results of operationsfiscal 2013 versus fiscal 2012 the following table sets forth the company 's operating results for fiscal 2013 as compared to fiscal 2012. replace_table_token_3_th * * not meaningful 44 revenues revenues increased 3 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to the inclusion of revenues resulting from the consolidation of fox sports australia and the acquisition of thomas nelson ( the acquisitions ) of approximately $ 324 million and $ 172 million , respectively , and higher u.k. newspaper revenues of approximately $ 89 million principally due to the inclusion of revenues from the launch of the sunday edition of the sun in february 2012. also contributing to the revenue increase was higher advertising revenues at the digital real estate services segment of $ 59 million . these increases were partially offset by lower revenues at the australian newspapers of $ 350 million , primarily reflecting lower newspaper advertising revenues principally due to the continued challenging economic environment in australia , and lower revenues at dow jones of $ 76 million reflecting lower advertising revenues . operating expenses operating expenses increased 6 % for the fiscal year ended june 30 , 2013 as compared to fiscal 2012 , primarily due to the inclusion of operating expenses related to the acquisitions of $ 370 million , partially offset by a $ 96 million decrease in operating expenses at the news and information services segment primarily due to lower printing , production and distribution expenses resulting from decreased revenues .
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the warrant resulted in a debt discount of $ 0.1 million which is amortized into interest expense using the effective interest method over the life of the term a loan . in addition , the company incurred debt issuance costs of $ 0.1 million in connection with the borrowing of the term a loan . the debt issuance costs were capitalized and included in long-term debt on the condensed balance sheet at the inception of the term a loan , and are amortized to interest expense using the effective interest method over the same term . as of december 31 , 2017 , the remaining unamortized discount and debt issuance costs associated with the debt were less than $ 0.1 million and less than $ 0.1 million , respectively . estimated future principal payments due under the credit facility are as follows : years ending december 31 , ( in thousands ) 2018 $ 1,049 total $ 1,049 during the years ended december 31 , 2017 and 2016 , the company recognized $ 0.2 million and $ 0.4 million of interest expense and made cash interest payments of $ 0.1 million and $ 0.2 million related to the credit facility , respectively . 4. warrants in connection with the credit facility story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under item 1a . `` risk factors '' and under `` forward-looking statements '' in this annual report on form 10-k. overview corporate overview we are the lipid management company , a late-stage pharmaceutical company focused on developing and commercializing complementary , convenient , cost-effective , once-daily , oral therapies for the treatment of patients with elevated ldl-c. through scientific and clinical excellence , and a deep understanding of cholesterol biology , the experienced lipid management team at esperion is committed to developing new ldl-c lowering therapies that will make a substantial impact on reducing global cardiovascular disease , or cvd ; the leading cause of death around the world . bempedoic acid and our lead product candidate , the bempedoic acid / ezetimibe combination pill , are targeted therapies that have been shown to significantly reduce elevated ldl-c levels in patients with hypercholesterolemia , including patients inadequately treated with current lipid-modifying therapies . the clinical development program for the bempedoic acid / ezetimibe combination pill consists of a single pivotal phase 3 clinical study ( 1002fdc-053 ) in patients with hypercholesterolemia and with atherosclerotic cardiovascular disease , or ascvd , and or heterozygous familial hypercholesterolemia , or hefh , including high cvd risk primary prevention patients , whose ldl-c is not adequately controlled despite receiving maximally tolerated lipid-modifying background therapy . 1002fdc-053 initiated in november 2017 and we expect to report top-line results in august 2018. the global pivotal phase 3 clinical development program for bempedoic acid , consisting of four clinical studies , fully enrolled approximately 3,600 high cvd risk patients with hypercholesterolemia and ascvd and or hefh , or who are high cvd risk primary prevention , on optimized background lipid-modifying therapy and with elevated levels of ldl-c. these patients are on two distinct types of background lipid-modifying therapy : 1 ) patients on their maximally tolerated statin therapy , and 2 ) patients who are only able to tolerate less than the lowest approved daily starting dose of a statin , and can be considered statin intolerant . in march 2018 , we expect to report top-line results from the first of the phase 3 studies , study 4 ( 1002-048 ) . in may 2018 , we expect to report top-line results from the 52-week long-term safety study , study 1 ( 1002-040 ) and top-line results from study 3 ( 1002-046 ) . in september 2018 , top-line results are expected from study 2 ( 1002-047 ) . we intend to use positive results from our phase 3 bempedoic acid / ezetimibe combination pill and bempedoic acid programs with a total of 4,000 patients to support our global regulatory submissions for tandem ldl-c lowering indications in the u.s. by the first quarter of 2019 and in europe by the second quarter of 2019. we are also conducting a global cardiovascular outcomes trial , or cvot , known as c holesterol l owering via b e mpedoic acid , an a cl-inhibiting r egimen ( clear ) outcomes , for bempedoic acid in patients with hypercholesterolemia and high cvd risk and who can be considered statin intolerant . we initiated the clear outcomes cvot in december 2016 , and intend to use positive results from this cvot to support our submissions for a cv risk reduction indication in the u.s. and europe by 2022 . 64 in december 2017 , we submitted an investigational new drug , or ind , application to the food and drug administration , or fda , for a reformulated tablet of bempedoic acid for a nonalcoholic steatohepatitis , or nash , indication , which was accepted in january 2018. we were incorporated in delaware in january 2008 , and commenced our operations in april 2008. since our inception , we have focused substantially all of our efforts and financial resources on developing bempedoic acid . we have funded our operations to date primarily through proceeds from sales of preferred stock , convertible promissory notes and warrants , public offerings of common stock and the incurrence of indebtedness , and we have incurred losses in each year since our inception . story_separator_special_tag financial operations overview revenue to date , we have not generated any revenue . in the future , we may never generate revenue from the sale of the bempedoic acid / ezetimibe combination pill or bempedoic acid or other product candidates . if we fail to complete the development of the bempedoic acid / ezetimibe combination pill or bempedoic acid or any other product candidates and secure approval from regulatory authorities , our ability to generate future revenue and our results of operations and financial position will be adversely affected . research and development expenses since our inception , we have focused our resources on our research and development activities , including conducting nonclinical , preclinical and clinical studies . our research and development 66 expenses consist primarily of costs incurred in connection with the development of the bempedoic acid / ezetimibe combination pill and bempedoic acid , which include : expenses incurred under agreements with consultants , contract research organizations , or cros , and investigative sites that conduct our preclinical and clinical studies ; the cost of acquiring , developing and manufacturing clinical study materials , including the procurement of ezetimibe in our continued development of our bempedoic acid / ezetimibe combination pill ; employee-related expenses , including salaries , benefits , stock-based compensation and travel expenses ; allocated expenses for rent and maintenance of facilities , insurance and other supplies ; and costs related to compliance with regulatory requirements . we expense research and development costs as incurred . to date , substantially all of our research and development work has been related to the bempedoic acid / ezetimibe combination pill and bempedoic acid . costs for certain development activities , such as clinical studies , are recognized 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 . our direct research and development expenses consist principally of external costs , such as fees paid to investigators , consultants , central laboratories and cros in connection with our clinical studies . we do not allocate acquiring and manufacturing clinical study materials , salaries , stock-based compensation , employee benefits or other indirect costs related to our research and development function to specific programs . we expect to continue to incur significant research and development expenses in the foreseeable future . costs associated with bempedoic acid will continue to accumulate as we further its clinical development , including in connection with the continuation of our global pivotal phase 3 ldl-c lowering program and our clear outcomes cvot . we also expect to continue to incur significant research and development expenses as we pursue the clinical development of the bempedoic acid / ezetimibe combination pill . we can not determine with certainty the duration and completion costs associated with the ongoing or future clinical studies of the bempedoic acid / ezetimibe combination pill and bempedoic acid . also , we can not conclude with certainty if , or when , we will generate revenue from the commercialization and sale of the bempedoic acid / ezetimibe combination pill or bempedoic acid , if ever . we may never succeed in obtaining regulatory approval for the bempedoic acid / ezetimibe combination pill or bempedoic acid . the duration , costs and timing associated with the development and commercialization of the bempedoic acid / ezetimibe combination pill and bempedoic acid will depend on a variety of factors , including uncertainties associated with the results of our clinical studies and our ability to obtain regulatory approval . for example , if the fda or another regulatory authority were to require us to conduct clinical studies beyond those that we currently anticipate will be required for the completion of clinical development or post-commercialization clinical studies of the bempedoic acid / ezetimibe combination pill or bempedoic acid , or if we experience significant delays in enrollment in any of our clinical studies , we could be required to expend significant additional financial resources and time on the completion of clinical development or post-commercialization clinical studies of the bempedoic acid / ezetimibe combination pill and bempedoic acid . general and administrative expenses general and administrative expenses primarily consist of salaries and related costs for personnel , including stock-based compensation , associated with our executive , accounting and finance , operational and other administrative functions . other general and administrative expenses include facility-related costs , communication expenses and professional fees for legal , patent prosecution , protection and review , consulting and accounting services . 67 we anticipate that our general and administrative expenses will increase in the future in connection with the continued research and development and commercialization of the bempedoic acid / ezetimibe combination pill and bempedoic acid , increases in our headcount , expansion of our information technology infrastructure , and increased expenses associated with being a public company and complying with exchange listing and securities and exchange commission , or sec , requirements . these increases will likely include higher legal , compliance , accounting and investor and public relations expenses . interest expense interest expense consists primarily of cash interest costs associated with our credit facility and non-cash interest costs associated with the amortization of the related debt discount , deferred issuance costs and final payment fee . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . we evaluate our estimates and judgments on an ongoing basis , including those related to accrued expenses and stock-based compensation .
| results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_9_th research and development expenses research and development expenses for the year ended december 31 , 2017 , were $ 147.6 million compared to $ 57.9 million for the year ended december 31 , 2016 , an increase of $ 89.7 million . the increase in research and development expenses was primarily related to the further clinical development of the bempedoic acid / ezetimibe combination pill and bempedoic acid , including costs to support the global pivotal phase 3 studies , the cvot , and increases in our headcount and stock-based compensation expense . general and administrative expenses general and administrative expenses for the year ended december 31 , 2017 , were $ 21.4 million compared to $ 18.3 million for the year ended december 31 , 2016 , an increase of approximately $ 3.1 million . the increase in general and administrative expenses was primarily attributable to costs to support public company operations , further increases in our headcount and stock-based compensation expense , and other costs to support our growth . 70 interest expense interest expense for the year ended december 31 , 2017 , was $ 0.2 million compared to $ 0.4 million for the year ended december 31 , 2016. interest expense was related to our credit facility with oxford finance llc . other income , net other income , net for the year ended december 31 , 2017 , was $ 2.2 million compared to $ 1.5 million for the year ended december 31 , 2016. this increase was primarily related to a reduction in expense for the amortization of premiums and discounts on our investments .
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property transactions , net in all years relate to normal losses on the disposition of assets recognized during the year and fluctuate year over year based on the timing of our disposition of assets . ground lease and other reimbursable expenses . ground lease and other reimbursable expenses were $ 23.7 million and $ 119.5 million for the years ended december 31 , 2019 and 2018 , respectively . the $ 95.9 million , or 80 % , decrease for 2019 as compared to 2018 was primarily due to a $ 93.7 million decrease reflecting the adoption of asc 842 effective january 1 , 2019 , under which we no longer recognize the property taxes paid by the tenant under the mgm-mgp master lease . acquisition-related expenses . acquisition-related expenses were $ 10.2 million and $ 6.1 million for the years ended december 31 , 2019 and 2018 , respectively . the $ 4.0 million , or 65 % , increase for 2019 as compared to 2018 primarily relates to expenses related to the empire city transaction and the mgp breit venture transaction offset by expenses incurred in the prior year relating to the northfield acquisition . general and administrative expenses . general and administrative expenses for the years ended december 31 , 2019 and 2018 were $ 16.5 million and $ 16.0 million , respectively . the $ 0.5 million , or 3 % , increase for 2019 as compared to 2018 was primarily due to increased financial , administrative and operational support costs . other expenses other expenses for the years ended december 31 , 2019 and 2018 were $ 258.2 million and $ 220.2 million , respectively . the $ 38.0 million , or 17 % , increase for 2019 as compared to 2018 was primarily related to an increase of interest expense on the senior notes , which primarily related to the $ 750 million 5.75 % senior notes issued in january 2019 , the loss on extinguishment of debt of $ 6.2 million and the $ 3.9 million loss on unhedged interest rate swaps , net . 35 discontinued operations income from discontinued operations , net of tax for the years ended december 31 , 2019 and 2018 were $ 16.2 million and $ 30.6 million , respectively , and were entirely attributable to northfield opco in both years . see note 3 of the accompanying financial statements for additional discussion . provision for income taxes our effective tax rate was 2.8 % and 2.6 % for the years ended december 31 , 2019 and 2018 , respectively . variations of the effective tax rate among these periods is primarily the result of activities of the trs , which was liquidated in april 2019. refer to note 2 and note 8 of the accompanying financial statements for additional discussion . non-gaap measures funds from operations ( “ ffo ” ) is net income ( computed in accordance with u.s. gaap ) , excluding gains and losses from sales or disposals of property ( presented as property transactions , net ) , plus depreciation , as defined by the national association of real estate investment trusts . adjusted funds from operations ( “ affo ” ) is ffo as adjusted for amortization of financing costs and cash flow hedges ; non-cash compensation expense ; straight-line rent ( which is defined as the difference between contractual rent and cash rent payments , excluding lease incentive asset amortization ) ; amortization of lease incentive asset and deferred revenue relating to non-normal tenant improvements ; acquisition-related expenses ; non-cash ground lease rent , net ; other expenses ; loss on unhedged interest rate swaps , net ; provision for income taxes related to the reit and other , net - discontinued operations . adjusted ebitda is net income ( computed in accordance with u.s. gaap ) as adjusted for gains and losses from sales or disposals of property ( presented as property transactions , net ) ; real estate depreciation ; amortization of financing costs and cash flow hedges ; non-cash compensation expense ; straight-line rent ; amortization of lease incentive asset and deferred revenue relating to non-normal tenant improvements ; acquisition-related expenses ; non-cash ground lease rent , net ; other expenses ; loss on unhedged interest rate swaps , net ; other , net - discontinued operations ; interest income ; interest expense ( including amortization of financing costs and cash flow hedges ) and provision for income taxes . ffo , ffo per unit , affo , affo per unit and adjusted ebitda are supplemental performance measures that have not been prepared in conformity with u.s. gaap that management believes are useful to investors in comparing operating and financial results between periods . management believes that this is especially true since these measures exclude real estate depreciation and amortization expense and management believes that real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time . the company believes such a presentation also provides investors with a meaningful measure of the company 's operating results in comparison to the operating results of other reits . adjusted ebitda is useful to investors to further supplement affo and ffo and to provide investors a performance metric which excludes interest expense . in addition to non-cash items , the company adjusts affo and adjusted ebitda for acquisition-related expenses . story_separator_special_tag while we do not label these expenses as non-recurring , infrequent or unusual , management believes that it is helpful to adjust for these expenses when they do occur to allow for comparability of results between periods because each acquisition is ( and will be ) of varying size and complexity and may involve different types of expenses depending on the type of property being acquired and from whom . ffo , ffo per unit , affo , affo per unit and adjusted ebitda do not represent cash flow from operations as defined by u.s. gaap , should not be considered as an alternative to net income as defined by u.s. gaap and are not indicative of cash available to fund all cash flow needs . investors are also cautioned that ffo , ffo per unit , affo , affo per unit and adjusted ebitda as presented , may not be comparable to similarly titled measures reported by other reits due to the fact that not all real estate companies use the same definitions . 36 the following table provides a reconciliation of our net income to ffo , affo and adjusted ebitda : replace_table_token_11_th ( 1 ) net income , interest income and interest expense are net of intercompany interest eliminations of $ 5.6 million for the year ended december 31 , 2019 . ( 2 ) includes depreciation on mgm northfield real estate assets for the period of july 6 , 2018 through december 31 , 2018. the following table presents ffo and affo per diluted operating partnership unit : replace_table_token_12_th 37 liquidity and capital resources rental revenues and , subsequent to the close of the mgp breit venture transaction in february 2020 , distributions from the mgp breit venture are our primary sources of cash from operations and are dependent on the tenant 's ability to pay rent and the mgp breit venture 's ability to pay distributions . all of our indebtedness is held by the operating partnership and mgp does not guarantee any of the operating partnership 's indebtedness . mgp 's principal funding requirement is the payment of dividends and distributions on its class a shares , and its principal source of funding for these dividends and distributions is the distributions it receives from the operating partnership . mgp 's liquidity is therefore dependent upon the operating partnership 's ability to make sufficient distributions to it . the operating partnership 's primary uses of cash include payment of operating expenses , debt service and distributions to mgp and mgm . we believe that the operating partnership currently has sufficient liquidity to satisfy all of its commitments , including its distributions to mgp , and in turn , that we currently have sufficient liquidity to satisfy all our commitments in the form of $ 202.1 million in cash and cash equivalents held by the operating partnership as of december 31 , 2019 , expected cash flows from operations , and $ 1.4 billion of borrowing capacity under the operating partnership 's revolving credit facility as of december 31 , 2019 . see note 6 to the accompanying financial statements for a description of our principal debt arrangements as of december 31 , 2019. in connection with the mgp breit venture transaction , on february 14 , 2020 , the operating partnership amended its senior secured credit facility to , among other things , allow for the transaction to occur , permit the incurrence by the operating partnership of a nonrecourse guarantee for debt of the mgp breit venture , and permit the incurrence of a bridge loan facility . as a result of the transaction and the amendment , the operating partnership repaid its $ 1.3 billion outstanding term loan b facility in full with the proceeds of a bridge facility , which was then assumed by the mgp breit venture as partial consideration for the operating partnership 's contribution . additionally , the operating partnership used the proceeds from the settlement of the november 2019 forward equity issuance of 12.0 million class a shares for net proceeds of $ 355.9 million and of the atm program forward equity issuance of 0.6 million class a shares for net proceeds of $ 18.7 million to pay off the balance of its term loan a facility in full . also , in connection with the waiver agreement entered into in february 2020 , mgm may redeem its operating partnership units for cash . mgp and the operating partnership have sufficient liquidity to satisfy such commitment , including the $ 1.4 billion of borrowing capacity under the operating partnership 's revolving credit facility as of december 31 , 2019. in addition , we expect to incur additional indebtedness in the future to finance acquisitions or for general corporate or other purposes . story_separator_special_tag adversely affect our net income and net cash available for distribution to shareholders . unless we were entitled to relief under certain code provisions , we also would be disqualified from re-electing to be taxed as a reit for the four taxable years following the year in which we failed to qualify to be taxed as a reit . leases the lease accounting guidance under asc 842 is complex and requires the use of judgments and assumptions by management to determine the proper accounting treatment of a lease . upon entry into a lease agreement or amendment , we assess whether such agreements are accounted for as a separate or combined contract and or a lease modification or a new lease . this further determines whether the extent to which we need to perform lease classification testing to determine if the agreement is a finance or operating lease . the lease classification test may require judgments which may include , among other things , the fair value of the assets , the residual value of the assets at the end of the lease term , the estimated remaining economic life of the assets , and
| summary of cash flows net cash provided by operating activities for the years ended december 31 , 2019 and 2018 was $ 100.7 million and $ 556.8 million , respectively . the $ 456.1 million decrease in cash generated from operating activities was primarily due to the park mgm transaction , for which we paid a cash lease incentive of $ 605.6 million to a subsidiary of mgm and amended the mgm-mgp master lease , as further described in note 5 within our accompanying financial statements , and an increase in cash paid for interest under our principal debt agreements due to the issuance of the $ 750 million in aggregate principal amount of 5.75 % senior notes due 2027. this was partially offset with an increase in cash rental payments of $ 147.4 million as a result of the empire city transaction , the park mgm transaction , the northfield real estate assets being added to the mgm-mgp master lease , and the impact of the 2.0 % fixed annual rent escalator that went into effect on april 1 , 2019. net cash provided by investing activities for the year ended december 31 , 2019 was $ 3.8 million related to cash proceeds from the northfield opco transaction .
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factors that could cause or contribute to such differences include those discussed below and elsewhere in this report , as well as those discussed in other filings made by biocryst with the securities and exchange commission . the following management 's discussion and analysis ( “ md & a ” ) is intended to help the reader understand our results of operations and financial condition . md & a is provided as a supplement to , and should be read in conjunction with , our audited financial statements and the accompanying notes to the financial statements and other disclosures included in this annual report on form 10-k ( including the disclosures under “ item 1a . risk factors ” ) . cautionary statement the discussion herein contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended , which are subject to the “ safe harbor ” created in section 21e . forward looking statements regarding our financial condition and our results of operations that are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted within the united states ( “ u.s . gaap ” ) , as well as projections for the future . the preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . the results of our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . 39 we operate in a highly competitive environment that involves a number of risks , some of which are beyond our control . we are subject to risks common to biotechnology and biopharmaceutical companies , including risks inherent in our drug discovery , drug development and commercialization efforts , clinical trials , uncertainty of regulatory actions and marketing approvals , reliance on collaborative partners , enforcement of patent and proprietary rights , the need for future capital , competition associated with products , potential competition associated with our product candidates and retention of key employees . in order for any of our product candidates to be commercialized , it will be necessary for us , or our collaborative partners , to conduct clinical trials , demonstrate efficacy and safety of the product candidate to the satisfaction of regulatory authorities , obtain marketing approval , enter into manufacturing , distribution and marketing arrangements , and obtain market acceptance and adequate reimbursement from government and private insurers . we can not provide assurance that we will generate significant revenues or achieve and sustain profitability in the future . in addition , we can provide no assurance that we will have sufficient funding to meet our future capital requirements . statements contained in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report which are not historical facts are , or may constitute , forward-looking statements . forward-looking statements involve known and unknown risks that could cause our actual results to differ materially from expected results . the most significant known risks are discussed in the section entitled “ risk factors. ” although we believe the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . we caution you not to place undue reliance on any forward-looking statements . our revenues are difficult to predict and depend on numerous factors , including the prevalence and severity of influenza in regions for which peramivir has received regulatory approval , seasonality of influenza , ongoing discussions with government agencies regarding future rapivab and or bcx4430 development and stockpiling procurement , as well as entering into , or modifying , licensing agreements for our product candidates . furthermore , revenues related to our collaborative development activities are dependent upon the progress toward and the achievement of developmental milestones by us or our collaborative partners . our operating expenses are also difficult to predict and depend on several factors , including research and development expenses ( and whether these expenses are reimbursable under government contracts ) , drug manufacturing , and clinical research activities , the ongoing requirements of our development programs , and the availability of capital and direction from regulatory agencies , which are difficult to predict . management may be able to control the timing and level of research and development and general and administrative expenses , but many of these expenditures will occur irrespective of our actions due to contractually committed activities and or payments . as a result of these factors , we believe that period to period comparisons are not necessarily meaningful and you should not rely on them as an indication of future performance . due to all of the foregoing factors , it is possible that our operating results will be below the expectations of market analysts and investors . in such event , the prevailing market price of our common stock could be materially adversely affected . overview we are a biotechnology company that designs , optimizes and develops novel small molecule drugs that block key enzymes involved in the pathogenesis of diseases . we focus on the treatment of rare diseases in which significant unmet medical needs exist and align with our capabilities and expertise . we integrate the disciplines of biology , crystallography , medicinal chemistry and computer modeling to discover and develop small molecule pharmaceuticals through the process known as structure-guided drug design . critical accounting policies and estimates the accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures , which have been prepared in accordance with u.s. gaap . story_separator_special_tag accordingly , we have selected additional drug candidates that have suitable pharmacologic properties to advance into preclinical development . the development of these candidates for hae or in other therapeutic areas is ongoing and additional disclosure on these compounds will occur as we near ind filings of these compounds . bcx4430 on december 15 , 2014 , we announced the dosing of the first subject in a randomized , placebo-controlled phase 1 clinical trial to evaluate i.m . administration of bcx4430 in healthy volunteers . the main goals of this first-in-human study are to evaluate the safety , tolerability and pharmacokinetics of escalating doses of bcx4430 administered via i.m . injection in healthy subjects . this phase 1 study is expected to continue in 2016. on december 23 , 2014 , we announced results from a successful proof-of-concept study of bcx4430 for the treatment of experimental ebola virus infection in rhesus macaques , conducted at usamriid . the primary goal of the study was to assess the effect of bcx4430 treatment on survival through day 41 in animals infected with ebola virus . dosing of placebo or bcx4430 by i.m . injection was initiated 30-120 minutes after virus challenge and continued twice a day for 14 days . the overall survival rate for bcx4430 treated animals at day 41 was 10 of 12 ( 83 % , p < 0.001 compared to controls ) . preliminary evaluation of the quantity of virus in the blood showed an approximate 3-log reduction in ebola virus rna copies/ml of plasma , compared with control animals . this rhesus macaques study was conducted following the completion , in november 2014 , of a dose-ranging study of bcx4430 for the treatment of cynomolgus macaques infected with ebola virus . the cynomolgus macaques study was designed to evaluate whether bcx4430 showed a meaningful benefit for survival in ebola virus nhp disease models . in this study , bcx4430 demonstrated a statistically significant prolongation of survival for the animals at the highest dose regimen tested , but no animals survived beyond 21 days . results of operations year ended december 31 , 2015 compared to 2014 total 2015 revenues increased to $ 48.3 million as compared to 2014 revenues of $ 13.6 million . the increase in 2015 was primarily due to recognizing revenue associated with the sul out-licensing transaction , rapivab product revenue and increased collaboration revenue associated with bcx4430 development . the 2015 revenue consisted of $ 5.7 million of rapivab product revenue and $ 21.8 million of collaborative revenue related to the sul agreement , $ 2.4 million of royalty revenue from sul , shionogi and green cross associated with sales of peramivir in the united states , japan and korea , $ 16.3 million of reimbursement of collaborative expenses from barda/hhs and niaid/hhs related to the development of peramivir and bcx4430 , and $ 1.4 million associated with collaborative revenue amortization from other corporate partnerships . in addition , we recorded approximately $ 618,000 of rapivab revenue under the “ sell-through ” revenue recognition methodology , but going forward will recognize all future commercial rapivab sales as royalty revenue under one of our partnership arrangements . rapivab was available for commercial sale on december 26 , 2014. the 2014 revenue consisted of $ 3.0 million of royalty revenue from shionogi and green cross associated with sales of peramivir in japan and korea , $ 9.4 million of reimbursement of collaborative expenses from barda/hhs related to the development of peramivir , $ 1.2 million associated with collaborative revenue amortization from other corporate partnerships and $ 33,000 of rapivab revenue . with the expiration of barda/hhs peramivir contract , unless we enter into new government contracts , all significant and future reimbursement of collaborative expenses will be under the niaid/hhs and barda/hhs bcx4430 development contracts . our rapivab product revenue will be difficult to predict because of volatility in prevalence , timing and severity of influenza season to season . research and development ( “ r & d ” ) expenses increased to $ 72.8 million in 2015 from $ 51.8 million in 2014 . 2015 r & d expenses , compared with 2014 , reflect increased spending on our hae programs and slightly higher spending on our rapivab program . in addition , our 2014 equity compensation expense allocated to r & d increased due to the vesting of two underlying milestones under previously issued performance-based stock options for the successful outcome of opus-1 and rapivab approval in the u.s. the following table summarizes our r & d expenses for the periods indicated ( amounts are in thousands ) . replace_table_token_4_th 43 r & d expenses include all direct and indirect expenses and are allocated to specific programs at the point of development of a lead product candidate . direct expenses are charged directly to the program to which they relate and indirect expenses are allocated based upon internal direct labor hours dedicated to each respective program . direct expenses consist of compensation for r & d personnel and costs of outside parties to conduct laboratory studies , develop manufacturing processes , manufacture the product candidates , conduct and manage clinical trials , as well as other costs related to our clinical and preclinical studies . indirect r & d expenses consist of lab supplies and services , facility expenses , depreciation of development equipment and other overhead of our research and development efforts . r & d expenses vary according to the number of programs in clinical development and the stage of development of our clinical programs . later stage clinical programs tend to cost more than earlier stage programs due to the longer length of time of the clinical trials and the higher number of patients enrolled in these clinical trials .
| recent corporate highlights rapivab ( peramivir injection ) rapivab was approved by the fda on december 19 , 2014 for the treatment of acute uncomplicated influenza in adult patients who have been symptomatic for no more than two days . we have elected the “ sell-through ” revenue recognition methodology and recognized approximately $ 0.6 million of rapivab product sales in 2015. with the approval , commercial availability and out-licensing collaboration of rapivab , we have moved our focus to : ( 1 ) obtaining a stockpiling procurement contract with the u.s. government to realize the strategic value of this program ; ( 2 ) fulfilling our post-approval development requirements , including conducting a pediatric trial ; and ( 3 ) submitting a maa and a nds in the european union and canada , respectively , to allow sul ( defined below ) the ability to commercialize the drug in those regions . on june 16 , 2015 , we and seqirus uk limited , a limited company organized under the laws of the uk ( `` sul '' ) and a subsidiary of csl , entered into a license agreement ( the `` sul agreement '' ) granting sul and its affiliates worldwide rights to develop , manufacture and commercialize rapivab ( peramivir injection ) for the treatment of influenza except for the rights to conduct such activities in israel , japan , korea and taiwan ( the permitted geographies together constituting the `` territory '' ) . rapivab is an intravenous treatment for acute uncomplicated influenza and is currently licensed for use in the united states , japan and korea . rapivab is the first and only intravenous influenza treatment in the world .
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with operations in approximately 900 locations across six continents , we design , manufacture and service a comprehensive line of drilling and well servicing equipment ; sell and rent drilling motors , specialized downhole tools , and rig instrumentation ; perform inspection and internal coating of oilfield tubular products ; provide drill cuttings separation , management and disposal systems and services ; and provide expendables and spare parts used in conjunction with our large installed base of equipment . we also manufacture coiled tubing and high pressure fiberglass and composite tubing , and sell and rent advanced in-line inspection equipment to makers of oil country tubular goods . we have a long tradition of pioneering innovations which improve the cost-effectiveness , efficiency , safety , and environmental impact of oil and gas operations . our revenues and operating results are directly related to the level of worldwide oil and gas drilling and production activities and the profitability and cash flow of oil and gas companies and drilling contractors , which in turn are affected by current and anticipated prices of oil and gas . oil and gas prices have been and are likely to continue to be volatile . see item 1a . risk factors . we conduct our operations through four business segments : rig systems , rig aftermarket , wellbore technologies and completion & production solutions . see item 1 . business , for a discussion of each of these business segments . unless indicated otherwise , results of operations are presented in accordance with accounting principles generally accepted in the united states ( gaap ) . in an effort to provide investors with additional information regarding our results of operations , certain non-gaap financial measures , including operating profit excluding other items , operating profit percentage excluding other items , diluted earnings per share excluding other items and operating ( non-gaap ) earnings , are provided . see non-gaap financial measures and reconciliations in results of operations for an explanation of our use of non-gaap financial measures and reconciliations to their corresponding measures calculated in accordance with gaap . operating environment overview our results are dependent on , among other things , the level of worldwide oil and gas drilling , well remediation activity , the price of crude oil and natural gas , capital spending by exploration and production companies and drilling contractors , and worldwide oil and gas inventory levels . key industry indicators for the past three years include the following : replace_table_token_6_th * averages for the years indicated . see sources below . 32 the following table details the u.s. , canadian , and international rig activity and west texas intermediate oil prices for the past nine quarters ended december 31 , 2014 on a quarterly basis : source : rig count : baker hughes , inc. ( www.bakerhughes.com ) ; west texas intermediate crude price : department of energy , energy information administration ( www.eia.doe.gov ) . the average price per barrel of west texas intermediate crude was $ 93.26 in 2014 , a decrease of 5 % over the average price for 2013 of $ 97.91 per barrel . the average natural gas price was $ 4.38 per mmbtu , an increase of 18 % compared to the 2013 average of $ 3.72 per mmbtu . average rig activity worldwide increased 5 % for the full year in 2014 compared to 2013. the average crude oil price for the fourth quarter of 2014 was $ 73.16 per barrel , and natural gas was $ 3.77 per mmbtu . at february 6 , 2015 , there were 1,456 rigs actively drilling in north america , compared to 1,840 rigs at december 31 , 2014 ; a decrease of 21 % from year end 2014 levels . the price of oil decreased to $ 51.69 per barrel and gas decreased to $ 2.63 per mmbtu at february 6 , 2015 , representing a 3 % decrease in oil prices and a 12 % decrease in gas prices from the end of 2014 . 33 story_separator_special_tag with higher levels of worldwide drilling activity , which required and consumed more of the segment 's services and product offerings . year-over-year operating margins declined mainly due to the $ 104 million impairment charge related to certain indefinite-lived trade names . completion & production solutions the company 's completion & production solutions segment generated $ 4.6 billion in revenue and $ 690 million in operating profit , or 14.9 % of sales , for the full year 2014. compared to the prior year , revenue increased 8 % and operating profit increased $ 77 million . year-over-year revenue increases were attributable to deliveries of intervention and stimulation equipment , floating production equipment , subsea equipment as well as higher incremental sales of fiberglass and composite pipe . for the fourth quarter of 2014 , the segment generated $ 1.3 billion in revenue and $ 214 million in operating profit , or 16.2 % of sales . compared to the prior quarter , revenue increased $ 134 million or 11 % , and operating profit increased $ 31 million or 17 % . sequentially , revenues grew on the progression of major floating production projects and increased drilling activity in north america , which enabled record quarterly sales of fiberglass and composite pipe and near record sales of intervention and stimulation equipment . compared to the fourth quarter of 2013 , revenues increased $ 170 million and operating profit increased $ 31 million as higher levels of worldwide drilling activity resulted in additional sales in most product lines . for the fourth quarter of 2014 , approximately 47 % of the segment 's sales were into north american markets , and 53 % of sales were into international markets . outlook beginning in the latter half of 2014 , lower commodity prices and lower rig counts presented increasingly challenging prospects to our business as declining dayrates stressed drilling contractors ' and well service firms ' ability to deliver a strong return on invested capital . story_separator_special_tag operating profit percentage decreased to 16.4 % from 17.6 % in 2013. operating profit decreased mainly due to a $ 104 million impairment charge incurred on the carrying value of certain indefinite-lived trade names associated with this segment in the fourth quarter of 2014. included in operating profit are certain other items which include items such as impairment charges , transaction costs and the amortization of inventory that was stepped up during purchase accounting . other items included in operating profit for wellbore technologies were $ 110 million for the year ended december 31 , 2014 and $ 41 million for the year ended december 31 , 2013. completion & production solutions revenue from completion & production solutions for the year ended december 31 , 2014 was $ 4,645 million , an increase of $ 336 million ( 7.8 % ) compared to the year ended december 31 , 2013. the increase in revenue was primarily driven by increased demand for well intervention and stimulation equipment , fiberglass pipe , and continued growth in both our floating production and subsea businesses . operating profit from completion & production solutions was $ 690 million for the year ended december 31 , 2014 compared to $ 613 million for 2013 , an increase of $ 77 million ( 12.6 % ) . operating profit percentage increased to 14.9 % from 14.2 % in 2013. this increase was primarily related to lower integration costs during 2014 compared to 2013 offset by a decrease in operating profit percentage due to product mix with increased revenues from floating production and subsea products . included in operating profit are certain other items which include items such as transaction costs and the amortization of assets that were stepped up during purchase accounting . other items included in operating profit for completion & production solutions were $ 10 million for the year ended december 31 , 2014 and $ 82 million for the year ended december 31 , 2013. completion & production solutions monitors its capital equipment backlog to plan its business . new orders are added to backlog only when the company receives a firm written order for major components or a signed contract related to a construction project . the capital equipment backlog was $ 1.8 billion at december 31 , 2014 , an increase of $ 0.2 million ( 12 % ) from backlog of $ 1.6 billion at december 31 , 2013. eliminations eliminations in operating profit were $ 892 million for the year ended december 31 , 2014 compared to $ 652 million for the year ended december 31 , 2013. this increase was primarily due to increased intercompany sales activity for all segments resulting in higher intersegment eliminations . sales from one segment to another generally are priced at estimated equivalent commercial selling prices ; however , segments originating an external sale are credited with the full profit to the company . eliminations include intercompany transactions conducted between the four reporting segments that are eliminated in consolidation . intercompany transactions within each reporting segment are eliminated within each reporting segment . other income ( expense ) , net other income ( expense ) , net were expenses of $ 90 million for the year ended december 31 , 2014 compared to expenses of $ 39 million for the year ended december 31 , 2013. the increase was primarily due to losses on the sale of certain non-core industrial assets as well as increased bank fees , partially offset by foreign exchange gains . provision for income taxes the effective tax rate for the year ended december 31 , 2014 was 29.7 % , compared to 30.2 % for 2013. compared to the u.s. statutory rate , the effective tax rate was positively impacted in the period by the effect of lower tax rates on income earned in foreign jurisdictions , a reduction in valuation allowance on deferred taxes , and the deduction in the u.s. for manufacturing activities . the effective tax rate was negatively impacted by foreign dividends net of foreign tax credits , and nondeductible expenses . 38 years ended december 31 , 2013 and december 31 , 2012 the following table summarizes the company 's revenue and operating profit by operating segment in 2013 and 2012 ( in millions ) : replace_table_token_8_th rig systems revenue from rig systems for the year ended december 31 , 2013 was $ 8,450 million , an increase of $ 1,373 million ( 19.4 % ) compared to the year ended december 31 , 2012. deepwater offshore demand as well as demand in international markets continues to be a driving force for the increase in revenue for rig systems as revenue out of backlog contributed $ 7,385 million in 2013. increased sales of individual capital components and the acquisition of robbins & myers also contributed to the increase in revenue for rig systems . north american markets continue to see a decrease in demand for land drilling equipment . this is evidenced by a decrease in rig count in north america from 2012 and has resulted in a steady decline in sales of land rigs in the u.s. and canada . the average rig count in the u.s. for the year ended 2013 decreased over 8 % compared to the year ended 2012 and decreased 3 % in canada over the same period . operating profit from rig systems was $ 1,594 million for the year ended december 31 , 2013 , a decrease of $ 91 million ( 5.4 % ) compared to 2012. operating profit percentage decreased to 18.9 % , from 23.8 % in 2013. the decrease in operating profit percentage continues to be primarily due to a shift in product mix as lower priced offshore projects replace projects contracted at higher prices in 2007 and 2008. in addition , our shipyard customers are compressing delivery schedules which have been leading to increased freight and personnel costs .
| executive summary during 2014 national oilwell varco , inc. earned $ 2.5 billion in income from continuing operations , or $ 5.70 per fully diluted share . earnings from continuing operations per diluted share increased 12 % from prior year levels of $ 2.2 billion or $ 5.09 per fully diluted share . excluding other items ( as defined in the non-gaap financial measures and reconciliations in results of operations ) from both years , diluted earnings per share of $ 6.07 in 2014 increased 17 % from $ 5.17 per share in 2013. during 2014 revenue grew 12 % from 2013 , to $ 21.4 billion , and operating profit increased 13 % from 2013 , to $ 3.6 billion . generally , 2014 benefitted from higher international drilling activity , which saw international rig counts ( as measured by baker hughes ) increase 3 % from 2013. this enabled all four of the company 's reporting segments to post higher year-over-year revenues in 2014. for its fourth quarter ended december 31 , 2014 , the company generated $ 597 million in net income from continuing operations , or $ 1.39 per fully diluted share , on $ 5.7 billion in revenue . compared to the third quarter of 2014 revenue increased $ 122 million or 2 % and net income from continuing operations decreased $ 104 million . compared to the fourth quarter of 2013 , revenue increased $ 407 million or 8 % , and net income from continuing operations decreased $ 33 million or 5 % . during the fourth quarter of 2014 , third quarter of 2014 , and fourth quarter of 2013 , pre-tax other items were $ 105 million , $ 1 million and $ 16 million , respectively .
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future minimum lease payments for its operating leases as of december 31 , 2015 were as follows : replace_table_token_38_th during the years ended december 31 , 2015 , 2014 and 2013 , the company story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our selected financial data and our consolidated financial statements , related notes , and other financial information included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those described in , or implied by , the forward-looking statements . factors that could cause or contribute to those differences include , but are not limited to , those identified below and those discussed above in the section entitled risk factors. overview we are a biopharmaceutical company dedicated to significantly improving the health and well-being of patients affected by obesity and complex metabolic disorders . beloranib , our lead product candidate , is a novel , first-in-class , twice-weekly subcutaneous injection being developed for the treatment of multiple indications , including severe obesity in two rare diseases , prader-willi syndrome , or pws , and hypothalamic injury-associated obesity , or hiao , including craniopharyngioma-associated obesity . we are also developing zgn-839 , a liver-targeted methionine aminopeptidase 2 , or metap2 , inhibitor , for the treatment of nonalcoholic steatohepatitis , or nash , and abdominal obesity , as well as other second-generation methionine aminopeptidase 2 , or metap2 , inhibitors for the treatment of severe obesity . in december 2015 , the u.s. food and drug administration , or fda , placed a full clinical hold on our investigational new drug application , or ind , for beloranib , as a result of the number of thrombotic events observed in patients treated with beloranib in our clinical trials . we plan to present to the fda data from our recently completed phase 3 clinical trial evaluating beloranib as a treatment for pws and our recently completed phase 2b clinical trial evaluating beloranib in severe obesity complicated by type 2 diabetes , a proposal for a risk mitigation strategy for beloranib in pws , and other requested data , in an effort to resolve the full clinical hold . obesity is a complex medical disorder involving appetite dysregulation and altered lipid and energy metabolism that results in excessive accumulation of fat tissue . weight loss and hunger control are urgently needed for certain subpopulations of obese patients , in which obesity is life-threatening and a co-morbidity of an underlying condition such as pws and hiao that , while rare , occurs most commonly as a consequence of treatment for craniopharyngioma and other mid-brain tumors . pws and hiao are characterized by severe and intractable obesity resulting from damage to or impaired functioning of the hypothalamus , an area of the brain responsible for many functions including the neurophysiological drive to eat . since our inception in november 2005 , we have devoted substantially all of our resources to developing beloranib , zgn-839 , and our second-generation molecules , building our intellectual property portfolio , developing our supply chain , business planning , raising capital , and providing general and administrative support for these operations . prior to our initial public offering , or ipo , in june 2014 , we funded our operations primarily through sales of redeemable convertible preferred stock and , to a lesser extent , through the issuances of convertible promissory notes . from our inception through our ipo in june 2014 , we have received gross proceeds of $ 104.0 million from such transactions . during june 2014 , we completed our ipo with net proceeds of $ 102.7 million after deducting underwriting discounts and commissions paid by us . we also incurred offering costs of $ 2.5 million related to the ipo . on january 28 , 2015 , we completed a follow-on offering of our common stock , which resulted in the sale of 3,942,200 shares at a price of $ 35.00 per share . we received net proceeds from the follow-on offering of approximately $ 129.6 million based upon the price of $ 35.00 per share and after deducting underwriting discounts and commissions , and offering expenses . we have never generated any revenue and have incurred net losses in each year since our inception . we have an accumulated deficit of $ 179.7 million as of december 31 , 2015. our net loss was $ 74.3 million , $ 36.5 million and $ 14.0 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . these losses have resulted principally from costs incurred in connection with in-licensing our product candidates , research and 77 development activities and general and administrative costs associated with our operations . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we expect that our expenses will continue to increase in connection with our ongoing activities , as we : advance the clinical development of beloranib as a treatment for obesity and hyperphagia in patients with pws following resolution of the full clinical hold on the beloranib ind ; advance the clinical development of beloranib as a treatment for patients with hiao following resolution of the full clinical hold on the beloranib ind ; conduct ind enabling studies and clinical development of zgn-839 and our second-generation metap2 inhibitors ; seek to identify additional indications for our product candidates ; seek to obtain regulatory approvals for our product candidates ; add operational , financial and management information systems ; add personnel , including personnel to support our product development and future commercialization ; and maintain , leverage and expand our intellectual property portfolio . as a result , we will need additional financing to support our continuing operations . story_separator_special_tag these public company related increases will likely include additional costs related to personnel ; legal , accounting and audit services ; directors ' and officers ' liability insurance premiums and deductibles to these policies ; and investor relations . in addition , if we obtain marketing approval for beloranib or our other product candidates , we will incur significant sales and marketing expenses . other income ( expense ) interest income . interest income consists of interest earned on our cash equivalents and marketable securities . our interest income has not been significant due to low interest earned on invested balances . we anticipate that our interest income will decrease as we incur operating losses . interest expense . interest expense relates to outstanding borrowings under a credit facility that we entered into on march 31 , 2014 , consisting of the stated interest of 8.1 % per year due on outstanding borrowings , a final payment of 6 % of amounts drawn down that is being recorded as interest expense over the term through the maturity date using the effective-interest method , the amortization of deferred financing costs , the accretion of debt discount relating to the credit facility , and a fee which was paid to the lender upon the completion of our ipo . foreign currency transaction gains ( losses ) , net . foreign currency transaction gains ( losses ) , net consists of the realized and unrealized gains and losses from foreign currency-denominated cash balances , vendor payables and tax-related receivables from the australian government . we currently do not engage in hedging activities related to our foreign currency-denominated receivables and payables ; as such , we can not predict the impact of future foreign currency transaction gains and losses on our operating results . see quantitative and qualitative disclosures about market risk. income taxes since our inception in 2005 , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in each year or our earned tax credits , due to our uncertainty of realizing a benefit from those items . as of december 31 , 2015 , we had net operating loss carryforwards for federal and state income tax purposes of $ 42.5 million and $ 31.2 million , respectively , which begin to expire in 2026 and 2030 , respectively . included within these net operating loss carryforwards are amounts of $ 12.8 million and $ 10.6 million , respectively , that were attributable to stock option exercises , which will be recorded as an increase in additional paid-in capital once they are realized in accordance with accounting for stock-based compensation awards . as of december 31 , 2015 , we also had available tax credit carryforwards for federal and state income tax purposes of $ 10.6 million and $ 1.5 million , respectively , which begin to expire in 2026 and 2021 , respectively . 80 critical accounting policies and significant judgments and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states of america . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets , liabilities , revenue , costs and expenses , and related disclosures . we believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and , therefore , consider these to be our critical accounting policies . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions and conditions . see also note 2 of our consolidated financial statements included elsewhere in this annual report for information about these critical accounting policies as well as a description of our other significant accounting policies . jobs act on april 5 , 2012 , the jumpstart our business startups act , or the jobs act , was signed into law . the jobs act contains provisions that , among other things , reduce certain reporting requirements for an emerging growth company. as an emerging growth company , we are electing not to take advantage of the extended transition period afforded by the jobs act for the implementation of new or revised accounting standards and , as a result , we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies . section 107 of the jobs act provides that our decision not to take advantage of the extended transition period is irrevocable . as an emerging growth company we are relying on other exemptions and reduced reporting requirements provided by the jobs act . as such , we have elected not to ( i ) provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 , ( ii ) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the dodd-frank wall street reform and consumer protection act , ( iii ) comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) , and ( iv ) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer 's compensation to median employee compensation . these exemptions apply for a period of five years following the completion of our ipo in june 2014 or until we no longer meet the requirements of being an emerging growth company , whichever is earlier . research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses .
| results of operations comparison of years ended december 31 , 2015 and 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 : replace_table_token_13_th 83 research and development expenses replace_table_token_14_th research and development expenses for the year ended december 31 , 2015 increased $ 27.2 million compared to the year ended december 31 , 2014. the increase was primarily due to increased costs of $ 9.8 million associated with our beloranib program , $ 8.3 million in our unallocated expenses , $ 5.4 million associated with our work on second-generation metap2 inhibitors and $ 3.8 million associated with our zgn-839 program . of the increase in our beloranib program , clinical trial expenses for beloranib increased by $ 13.3 million period over period as a result of timing of our clinical trials in 2015 and 2014. during the year ended december 31 , 2015 , we had two ongoing clinical trials , our phase 2b trial in patients with severe obesity complicated by type 2 diabetes ( which achieved full enrollment of 152 patients in august 2015 ) and our u.s. phase 3 trial in patients with pws ( which achieved full enrollment of 108 patients in may 2015 ) . prior to the fda placing the ind for beloranib on full clinical hold in december 2015 , we suspended dosing of patients in the randomized portion of both of these trials in october 2015 , following the partial clinical hold .
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should one or more of these risks or uncertainties materialize , actual results may differ materially from those expressed or implied by the forward-looking statements . please see `` forward-looking statements '' elsewhere in this report for a description of these risks and uncertainties . overview we were incorporated on july 13 , 2011 , as a maryland corporation , that intends to elect and qualify to be taxed as a real estate investment trust ( `` reit '' ) for u.s. federal income tax purposes beginning with the taxable year ended december 31 , 2013. on april 20 , 2012 , we commenced our initial public offering ( `` ipo '' ) on a `` reasonable best efforts '' basis . on august 23 , 2012 , we filed a new prospectus offering up to 150.0 million shares of common stock , $ 0.01 par value per share , at a price of $ 10.00 per share , subject to certain volume and other discounts , pursuant to a registration statement on form s-11 ( file no . 333-177563 ) ( the `` registration statement '' ) filed with the securities and exchange commission ( `` sec '' ) under the securities act of 1933 , as amended ( the `` securities act '' ) . the registration statement also covers up to 25.0 million shares of common stock pursuant to a distribution reinvestment plan ( the `` drip '' ) under which our common stockholders may elect to have their distributions reinvested in additional shares of our common stock . on october 24 , 2012 , we received and accepted subscriptions in excess of the minimum offering amount of $ 2.0 million in shares , broke escrow and issued shares of common stock to initial investors who were admitted as stockholders . as of december 31 , 2013 , we had 15.7 million shares of stock outstanding , including unvested restricted shares and had received total gross proceeds from the ipo of $ 154.2 million , including shares issued under the drip . until the filing of our second quarterly financial filing with the sec , pursuant to the exchange act , following our acquisition of at least $ 1.2 billion in total investment portfolio assets ( the `` nav pricing date '' ) , the per share purchase price in the ipo will be up to $ 10.00 per share ( including the maximum allowed to be charged for commissions and fees ) and shares issued under the drip will be initially equal to $ 9.50 per share , which is 95 % of the initial offering price in the ipo . thereafter , the per share purchase price will vary quarterly and will be equal to the net asset value ( `` nav '' ) per share plus applicable commissions and fees , and the per share purchase price of the drip will be equal to the nav per share . we were formed to primarily acquire a diversified portfolio of commercial properties , with an emphasis on sale-leaseback transactions involving single tenant net-leased commercial properties . our primary geographic target will be the united states , although up to 40 % of our portfolio may consist of properties purchased in europe and up to an additional 10 % may consist of properties purchased elsewhere internationally . all such properties may be acquired and operated by us alone or jointly with another party . we may also originate or acquire first mortgage loans secured by real estate . we purchased our first property and commenced active operations in october 2012. as of december 31 , 2013 , we owned 37 properties located in the united states , the united kingdom and the commonwealth of puerto rico consisting of 1.4 million rentable square feet , which were 100 % leased , with a weighted average remaining lease term of 10.2 years . substantially all of our business is conducted through american realty capital global operating partnership , l.p. ( the `` op '' ) , a delaware limited partnership . we are the sole general partner and hold substantially all of the units of limited partner interests in the op ( `` op units '' ) . american realty capital global special limited partner , llc ( the `` special limited partner '' ) , an entity wholly owned by ar capital global holdings , llc ( the `` sponsor '' ) , contributed $ 200 to the op in exchange for 22 op units , which represents a nominal percentage of the aggregate op ownership . a holder of op units has the right to convert op units for the cash value of a corresponding number of shares of common stock or , at the option of the op , a corresponding number of shares of common stock , in accordance with the limited partnership agreement of the op . the remaining rights of the limited partner interests are limited , however , and do not include the ability to replace the general partner or to approve the sale , purchase or refinancing of the op 's assets . we have no employees . american realty capital global advisors , llc ( the `` advisor '' ) is our affiliated advisor , which has been retained to manage our affairs on a day-to-day basis . the properties are managed and leased by american realty capital global properties , llc ( the `` property manager '' ) . realty capital securities , llc ( the `` dealer manager '' ) serves as the dealer manager of the ipo . the advisor , property manager and dealer manager are affiliates of the sponsor and special limited partner . these related parties have received or will receive compensation and fees for services related to the ipo and for the investment and management of our assets . story_separator_special_tag valuation of real estate is considered a `` critical accounting estimate '' because the evaluation of impairment and the determination of fair values involve a number of management assumptions relating to future economic events that could materially affect the determination of the ultimate value , and therefore , the carrying amounts of our real estate . additionally , decisions regarding when a property should be classified as held for sale are also highly subjective and require significant management judgment . 57 events or changes in circumstances that could cause an evaluation for impairment include the following : a significant decrease in the market price of a long-lived asset ; a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition ; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset , including an adverse action or assessment by a regulator ; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ; and a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset . we review our portfolio on an ongoing basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability . in general , our review of recoverability is based on an estimate of the future undiscounted cash flows , excluding interest charges , expected to result from the property 's use and eventual disposition . these estimates consider factors such as expected future operating income , market and other applicable trends and residual value expected , as well as the effects of leasing demand , competition and other factors . if impairment exists due to the inability to recover the carrying value of a property , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property . we are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate . these assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income . purchase price allocation we allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values . tangible assets include land , land improvements , buildings , fixtures and tenant improvements on an as-if vacant basis . we utilize various estimates , processes and information to determine the as-if vacant property value . estimates of value are made using customary methods , including data from appraisals , comparable sales , discounted cash flow analysis and other methods . amounts allocated to land , land improvements , buildings and fixtures are based on cost segregation studies performed by independent third-parties or on our analysis of comparable properties in our portfolio . identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates , the value of in-place leases , and the value of customer relationships , as applicable . the aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant . factors considered by us in our analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property , taking into account current market conditions and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period , which typically ranges from six to 12 months . we also estimate costs to execute similar leases including leasing commissions , legal and other related expenses . above-market and below-market in-place lease values for owned properties are recorded based on the present value ( using an interest rate which reflects the risks associated with the leases acquired ) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management 's estimate of fair market lease rates for the corresponding in-place leases , measured over a period equal to the remaining non-cancelable term of the lease . the capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease . the capitalized below-market lease values are amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases . in determining the amortization period for below-market lease intangibles , we initially will consider , and periodically evaluate on a quarterly basis , the likelihood that a lessee will execute the renewal option . the likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant 's payment history , the financial condition of the tenant , business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located . the aggregate value of intangible assets related to customer relationship is measured based on our evaluation of the specific characteristics of each tenant 's lease and our overall relationship with the tenant . characteristics considered by us in determining these values include the nature and extent of our existing business relationships with the tenant , growth prospects for developing new business with the tenant , the tenant 's credit quality and expectations of lease renewals , among other factors . 58 the value of in-place leases is amortized to expense over the initial term of the respective leases , which ranges from seven to 15 years .
| results of operations we purchased our first property and commenced our real estate operations in october 2012 , and as such our results of operations for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 reflect significant increases in most categories . comparison of the year ended december 31 , 2013 to the year ended december 31 , 2012 rental income rental income was $ 3.9 million for the year ended december 31 , 2013 , compared to $ 30,000 for the year ended december 31 , 2012 . the increase in rental income was driven by our acquisition of 36 properties since december 31 , 2012 for an aggregate purchase price of $ 182.3 million , as of the respective acquisition dates , as well as revenue for a full year from the one property held as of december 31 , 2012 . operating expense reimbursements operating expense reimbursements were $ 0.1 million for the year ended december 31 , 2013 . we had no operating expense reimbursements for the year ended december 31 , 2012 . operating expense reimbursements of $ 0.1 million related to our acquisition of 36 properties since december 31 , 2012 as well as a full year of operations from the one property held as of december 31 , 2012 . pursuant to many of our lease agreements , tenants are required to reimburse us for property operating expenses , in addition to base rent , whereas under certain other lease agreements , the tenants are directly responsible for all operating costs of the respective properties . the operating expense reimbursement primarily reflects insurance expense incurred by us and reimbursed by the tenant . property operating expense property operating expenses were $ 42,000 for the year ended december 31 , 2013 . we had no operating expenses for the year ended december 31 , 2012 .
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factors that could cause or contribute to such differences include , but are not limited to , those discussed in “ risk factors ” of this annual report on form 10-k. overview we develop , manufacture and sell optelectronic products that transmit and receive high-speed digital optical signals for cloud and hyperscale data center internet content provider and telecom networks . we are the world 's primary supplier of tunable lasers that emit the ultra-pure light that is required for the highest speed over distance fiber optic communications links . our products operate at the highest speed over distance , at speeds of 400 gigabits per second ( `` g '' ) , 600g and 800g and beyond data rates . versions of these products have the speed , size and low power consumption that enable interoperable pluggable transceivers in standard form factors which directly transmit data using industry standard internet protocol coding , or ip over dwdm wavelengths , greatly simplifying data networks , thereby lowering costs and reducing power consumption . we integrate our lasers and our high performance coherent optical components into transmit/receive modules , or transceivers . our high speed transceiver modules , which can operate at data rates including 400g , for example our 400zr and 400zr+ pluggable modules , enable new , lower cost network architectures using ip over dwdm protocols . the emergence of such 400zr and 400zr+ pluggable modules extends our capabilities to a new , rapidly expanding market segment . such modules put full coherent transmission capabilities of a line card into the same form factor as a pluggable client side transceiver , enabling interconnects between data centers to be as simple as interconnects within a data center , thereby substantially reducing costs . over the past decade we have been first to deliver commercial mass production volumes for each of the highest speed advances in coherent optical components , as maximum speeds have advanced for each wavelength , or color , from 100g to 200g , 400g , 600g and now 800g . we are a specialist in developing and producing products for the highest speed over distance applications , where high baud rate and high sensitivity are keys to achieving longer distances for a given speed . we believe we are well positioned to continue world market leadership in these lasers , component and module solutions based on our leadership in the ultra-pure light lasers which power them and our comprehensive silicon photonics and indium phosphide technologies for optical ics . coherent is the technology of choice for high speed over distance data transmission in cloud infrastructure and data center interconnection , in addition to telecom networks . the move to 400g and above transmission is a fulcrum for the industry as it marks the next major step-up in speed . 400g is the basic building block for network deployments for all reaches from 40km to long haul distances , all of which require coherent transmission technology . we believe we are a global leader in coherent transmission technology , based on our leadership in ultra-pure light lasers and optical integration for miniaturization and low power consumption . we sell to virtually all of the leading telecom network equipment companies such as acacia communications , adva , ciena , cisco systems , fiberhome , fujitsu , huawei , infinera , nec , nokia and zte . note that due to the bis restrictions on huawei , there was no shipment to huawei in the fourth quarter of 2020. furthermore , we believe that use cases for 400zr and 400zr+ system-level modules will extend across data center interconnect , backhaul for 5g wireless networks and metro networks . key attributes of power and power density , and interoperability of pluggable solutions , drive this forecast . these architectures are driven by hyperscale operators and will be adopted in metro telecom networks using 400zr+ pluggable modules in areas where reach and density make it the clear economic winner with much lower total costs . furthermore , we believe that our high performance optics combined with next generation dsps will enable 800zr and 800zr+ pluggable modules with the next few years . extension of coherent modules into metro networks will be driven by substantially lower costs achieved through elimination of network equipment proprietary chassis , and the reduction in the number of roadms required , compared to current network architectures . with 400g as a fulcrum in the path of growth in the market at the highest speeds , we believe we are well positioned to take advantage of this rapidly developing , high growth market . our high speed products for data rates of 100g and above , including 800g , were 92 % of our 2020 revenues and were 91 % of our 2019 revenues . our sales concentration in high speed products has been increasing each year for more than 10 years . products capable of data rates of 400g and above have accounted for more than 10 percent of our revenue since 2018 and have nearly doubled from $ 44 million in 2019 to $ 86 million in 2020 , such that revenue from products for 400g and above applications have now reached 46 % of revenues in the fourth quarter of 2020. we believe that the market for 400g and above 35 products will grow at a 5-year compound annual growth rate of 70 percent through 2024. we therefore expect our 400g and above revenues will continue to grow at an accelerated rate over the immediate and longer term . with adoption of coherent transmission using pluggable high speed optical modules in cloud and hyperscale data centers , we believe our total addressable market is rapidly expanding . the covid-19 pandemic is impacting our business , the business of our customers and suppliers and how we execute our business . however , despite the lasting impact , our global operations including our china-based supply chain partners have executed well and have largely recovered . story_separator_special_tag there was no revenue from huawei in the company 's fourth quarter of 2020. we have taken actions to better align capacity and production infrastructure with expected demand levels , with the goal of returning to profitability . we have taken steps to tighten production operations , account for huawei-specific assets and inventory , consolidate indium phosphide production and implement an approximately 4 % reduction in force . the costs to implement these changes are expected to be approximately $ 10.9 million , with $ 1.1 million in severance costs and $ 9.8 million in inventory and idle asset charges . we have taken a charge of approximately $ 9.4 million of these costs in the third quarter of 2020 , and an additional $ 0.7 million in the fourth quarter of 2020 , with the remainder to be taken as accelerated depreciation charges through 2021. the actions taken are expected to reduce expenses with immediate impact and achieve an approximately $ 2 million in quarterly operating expense reductions when fully implemented by the second quarter of 2021. revenue was $ 371.2 million in the year ended december 31 , 2020 , compared to $ 356.8 million in 2019 , a 4 % increase despite no shipments to huawei in the fourth quarter of 2020 , due to growth from china and european based customers , including shipments through their off-shore contract manufacturers . our gross profit was 27.8 % of revenue in the year ended december 31 , 2020 , compared to 24.9 % of revenue in 2019. the improvement in gross profit resulted from favorable product mix , increased volume and cost reductions . in the year ended december 31 , 2020 , high speed products represented approximately 92 % of total revenue , or $ 340.0 million and network products and solutions represented approximately 8 % of total revenue , or $ 31.1 million . in the year ended december 31 , 2019 high speed products were 91 % of total revenue , or $ 323.8 million and network products and solutions represented approximately 9 % of total revenue , or $ 33.0 million . we expect our high speed product market group will continue to grow with accelerating market adoption and deployments , and related market share gains operating at 400g and beyond data rates . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( “ u.s . gaap ” ) . these principles require us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses and cash flow , and related disclosure of contingent assets and liabilities . our estimates include those related to revenue recognition , stock-based compensation expense , impairment analysis of goodwill and long-lived assets , valuation of inventory , purchased intangibles , warranty liabilities and accounting for income taxes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . to the extent that there are material differences between these estimates and our actual results , our future financial statements will be affected . we believe that of our significant accounting policies , which are described in note 2 of notes to consolidated financial statements , the following accounting policies involve a greater degree of judgment and complexity . accordingly , we believe these are the most critical to fully understand and evaluate our financial condition and results of operations . revenue recognition 37 revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . we generally bears all cost , risk of loss or damage and retains title to the goods up to the point of transfer of control of promised products to customer . revenue related to the sale of consignment inventories at customer vendor managed locations is not recognized until the products are pulled from consignment inventories by customers . in instances where acceptance of the product or solutions is specified by the customer , revenue is deferred until such required acceptance criteria have been met . shipping and handling costs are included in the cost of goods sold . we present revenue net of sales taxes and any similar assessments . long-lived assets we assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . an impairment loss would be recognized when the sum of the future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount . the estimated future cash flows are based upon , among other things , assumptions about expected future operating performance and may differ from actual cash flows . if our estimates regarding future cash flows derived from such assets were to change , we may record an impairment to the value of these assets . inventories our inventories consist of on-hand raw materials , work-in-progress inventories and finished goods . raw materials and work-in-progress inventories are stored mainly on our premises . finished goods are stored on our premises as well as on consignment at certain customer sites . inventories are stated at the lower of standard cost , which approximates actual cost determined on the weighted average basis , or net realizable value . inventories are recorded using the first-in , first-out method . we routinely evaluate quantities and values of inventories in light of current market conditions and market trends , and records a write-down for quantities in excess of demand and product obsolescence .
| results of operations our business is focused on the highest speed digital optics and signal processing communications applications . in 2020 , our high speed products for data rates of 100g and beyond comprised 92 % of our revenues , increased from 91 % in 2019 and 86 % in 2018. the following table presents certain consolidated statements of operations data for the periods indicated as a percentage of total revenue : replace_table_token_4_th revenue replace_table_token_5_th we sell substantially all of our products to original equipment manufacturers ( `` oems '' ) and their contract manufacturers . revenue is recognized upon transfer of control of the product to the buyer . we price our products based on market and competitive conditions and may periodically reduce the price of our products as market and competitive conditions change or as manufacturing costs are reduced . our first quarter revenue is typically seasonally lower than the rest of the year primarily due to the impact of annual price negotiations with customers that occur at the end of the prior year and lower capacity utilization during the holidays in china . our sales transactions to customers are denominated primarily in u.s. dollars . customers accounting for more than 10 % of our total revenue and revenue from our top five customers for the years ended december 31 , 2020 , 2019 and 2018 were as follows : replace_table_token_6_th the following tables present share of revenue by product group and geographical region : replace_table_token_7_th replace_table_token_8_th total revenue increased by $ 14.4 million , or 4 % , in 2020 compared to 2019 , led by the solid growth in our tunable laser and coherent modulators businesses offset by a decrease in our integrated coherent receiver business in the u.s. market . 39 huawei was a significant customer in the first three quarters of 2020 , but as a result of the additional bis restrictions , there was no revenue from huawei in the fourth quarter .
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forward-looking statements include , among other things , statements or information concerning our plans , objectives , capital resources , portfolio performance , results of operations , projected future occupancy and rental rates , lease expirations , debt maturities , potential investments , strategies such as capital recycling , development and redevelopment activity , projected construction costs , projected construction commencement and completion dates , projected square footage of space that could be constructed on undeveloped land that we own , projected rentable square footage of or number of units in properties under construction or in the development pipeline , anticipated proceeds from capital recycling activity or other dispositions and anticipated dates of those activities or dispositions , projected increases in the value of properties , dispositions , future executive incentive compensation , pending , potential or proposed acquisitions , plans to grow our net operating income and ffo , our ability to re-lease properties at or above current market rates , anticipated market conditions and demographics and other forward-looking financial data , as well as the discussion in “ —factors that may influence future results of operations , ” “ —liquidity and capital resource of the company , ” and “ —liquidity and capital resources of the operating partnership. ” forward-looking statements can be identified by the use of words such as “ believes , ” “ expects , ” “ projects , ” “ may , ” “ will , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ pro forma , ” “ estimates ” or “ anticipates ” and the negative of these words and phrases and similar expressions that do not relate to historical matters . forward-looking statements are based on our current expectations , beliefs and assumptions , and are not guarantees of future performance . forward-looking statements are inherently subject to uncertainties , risks , changes in circumstances , trends and factors that are difficult to predict , many of which are outside of our control . accordingly , actual performance , results and events may vary materially from those indicated or implied in the forward-looking statements , and you should not rely on the forward-looking statements as predictions of future performance , results or events . numerous factors could cause actual future performance , results and events to differ materially from those indicated in the forward-looking statements , including , among others : global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants ; adverse economic or real estate conditions generally , and specifically , in the states of california and washington ; risks associated with our investment in real estate assets , which are illiquid , and with trends in the real estate industry ; defaults on or non-renewal of leases by tenants ; any significant downturn in tenants ' businesses ; our ability to re-lease property at or above current market rates ; costs to comply with government regulations , including environmental remediations ; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations ; 56 increases in interest rates and our ability to manage interest rate exposure ; the availability of financing on attractive terms or at all , which may adversely impact our future interest expense and our ability to pursue development , redevelopment and acquisition opportunities and refinance existing debt ; a decline in real estate asset valuations , which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing , and which may result in write-offs or impairment charges ; significant competition , which may decrease the occupancy and rental rates of properties ; potential losses that may not be covered by insurance ; the ability to successfully complete acquisitions and dispositions on announced terms ; the ability to successfully operate acquired , developed and redeveloped properties ; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts ; delays or refusals in obtaining all necessary zoning , land use and other required entitlements , governmental permits and authorizations for our development and redevelopment properties ; increases in anticipated capital expenditures , tenant improvement and or leasing costs ; defaults on leases for land on which some of our properties are located ; adverse changes to , or enactment or implementations of , tax laws or other applicable laws , regulations or legislation , as well as business and consumer reactions to such changes ; risks associated with joint venture investments , including our lack of sole decision-making authority , our reliance on co-venturers ' financial condition and disputes between us and our co-venturers ; environmental uncertainties and risks related to natural disasters ; our ability to maintain our status as a reit ; and uncertainties regarding the impact of the covid-19 pandemic , and restrictions intended to prevent its spread , on our business and the economy generally . the factors included in this report are not exhaustive and additional factors could adversely affect our business and financial performance . for a discussion of additional factors that could materially adversely affect the company 's and the operating partnership 's business and financial performance , see the discussion below as well as “ item 1a . risk factors , ” and in our other filings with the sec . all forward-looking statements are based on information that was available and speak only as of the dates on which they were made . we assume no obligation to update any forward-looking statement that becomes untrue because of subsequent events , new information or otherwise , except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws . 57 company overview we are a self-administered reit active in premier office and mixed-use submarkets along the west coast . story_separator_special_tag not all tenant relief requests will ultimately result in lease amendments and we have not relinquished our contractual rights under our lease agreements where rent concessions have not yet been granted . our rent collections for the periods above and rent relief requests to-date may not be indicative of collections , concessions or requests in future periods . as of february 1 , 2021 , across all property types , we had collected approximately 95 % of our january 2021 gross rent billings , including 100 % from all of our top 15 tenants . excluding rent relief provided to certain tenants , across all property types , we collected 96 % of our january 2021 gross rent billings . we are continuing to monitor the potential impact of the covid-19 pandemic , and restrictions intended to prevent its spread , on occupancy , rental rates and rent collections . although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent for such period , as well as working with certain tenants who have requested rent deferrals , we can provide no assurance that such efforts or our efforts in future periods will be successful , particularly in the event that the covid-19 pandemic , and restrictions intended to prevent its spread , continue for a prolonged period . refer to “ part i , item ia . risk factors ” included in this report for additional information about the potential impact of the covid-19 pandemic , and restrictions intended to prevent its spread , on our business , financial condition , results of operations , cash flows , liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders . 60 critical accounting policies the preparation of financial statements in conformity with gaap requires us to make estimates , assumptions , and judgments that affect the reported amounts of assets , liabilities , and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods . certain accounting policies are considered to be critical accounting policies . critical accounting policies are those policies that require our management team to make significant estimates and or assumptions about matters that are uncertain at the time the estimates and or assumptions are made or where we are required to make significant judgments and assumptions with respect to the practical application of accounting principles in our business operations . critical accounting policies are by definition those policies that are material to our financial statements and for which the impact of changes in estimates , assumptions , and judgments could have a material impact to our financial statements . the following critical accounting policies discussion reflects what we believe are the most significant estimates , assumptions , and judgments used in the preparation of our consolidated financial statements . this discussion of our critical accounting policies is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates , assumptions , and judgments . for further discussion of our significant accounting policies , see note 2 “ basis of presentation and significant accounting policies ” to our consolidated financial statements included in this report . revenue recognition rental revenue for office and retail operating properties is our principal source of revenue . we recognize revenue from base rent , additional rent ( which consists of amounts due from tenants for common area maintenance , real estate taxes and other recoverable costs ) , parking and other lease-related revenue once all of the following criteria are met : ( i ) the agreement has been fully executed and delivered , ( ii ) services have been rendered , ( iii ) the amount is fixed or determinable and ( iv ) payment has been received or the collectability of the amount due is probable . lease termination fees are amortized over the remaining lease term , if applicable . if there is no remaining lease term , they are recognized when received and realized . minimum annual rental revenues are recognized in rental revenues on a straight-line basis over the non-cancellable term of the related lease . base rent the timing of when we commence rental revenue recognition for office , life science and retail properties depends largely on our conclusion as to whether we are or the tenant is the owner for accounting purposes of tenant improvements at the leased property . when we conclude that we are the owner of tenant improvements for accounting purposes , we record the cost to construct the tenant improvements as an asset and commence rental revenue recognition when the tenant takes possession of or controls the finished space , which is generally when tenant improvements being recorded as our assets are substantially complete . in certain instances , when we conclude that the tenant is the owner of certain tenant improvements for accounting purposes , rental revenue recognition begins when the tenant takes possession or controls the physical use of the leased space , which may occur in phases or for an entire building or project . the determination of who owns the tenant improvements is made on a lease-by-lease basis and has a significant effect on the timing of commencement of revenue recognition . the determination of whether we are or the tenant is the owner of tenant improvements for accounting purposes is subject to significant judgment . in making that determination , we consider numerous factors and perform a detailed evaluation of each individual lease . no one factor is determinative in reaching a conclusion .
| 2020 financing highlights in 2020 , we raised approximately $ 775.0 million in new debt at a weighted average interest rate of 3.30 % , settled all 2019 forward equity sale agreements by issuing 3,147,110 shares of common stock for net proceeds of $ 247.3 million and entered into and settled forward equity sale agreements in connection with an offering of 5,750,000 shares of common stock for net proceeds of $ 474.9 million . refer to our 2020 financing highlights in “ —liquidity and capital resources of the operating partnership ” for a list of financing transactions completed in 2020 and notes 9 and 13 , “ secured and unsecured debt of the operating partnership ” and “ stockholders ' equity of the company , ” respectively , to our consolidated financial statements included in this report for additional information regarding our debt and capital market activity . 58 covid-19 response in accordance with local and state government guidance and social distancing recommendations , the majority of our employees have worked remotely since march 2020. our robust technology infrastructure was capable of supporting this model . we implemented rigorous protocols for remote work across the company , including increased frequency of team update calls and frequent communication across leadership and working levels . we are leveraging technology to ensure our teams stay connected and productive , and that our culture remains strong even in these unusual circumstances . since march 2020 , we have been highly focused on planning for the health and safety of our tenants and employees and preparing our buildings in accordance with the policies , protocols and applicable legal requirements in our regions .
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the effect on deferred taxes of changes in tax rates is recognized in the period in which the revised tax rate is enacted . the company records valuation allowances to reduce deferred tax assets to the extent it believes it is more likely than not that a portion of such assets will not be realized . in making such determinations , the company considers all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies , and the ability to carry back losses to prior years . realization is dependent upon generating sufficient taxable income prior to expiration story_separator_special_tag overview we are a leading global chemical and ingredients distributor and provider of specialty services . we purchase chemicals from thousands of chemical producers worldwide and warehouse , repackage , blend , dilute , transport and sell those chemicals to more than 100,000 customer locations across approximately 150 countries . our scale and broad geographic reach , combined with our deep product knowledge and end market expertise and our specialty services , provide us with a distinct competitive advantage and enable us to offer customers a “ one-stop shop ” for their chemical needs . as a result , we believe we are strategically positioned for growth . our operations are structured into four operating segments that represent the geographic areas under which we operate and manage our business . these segments are univar usa ( “ usa ” ) , univar canada ( “ canada ” ) , univar europe and the middle east and africa ( “ emea ” ) , and rest of world ( “ rest of world ” ) , which includes developing businesses in latin america ( including brazil and mexico ) and the asia-pacific region . 42 we monitor the results of our operating segments separately for the purposes of making decisions about resource allocation and performance assessment . we evaluate performance on the basis of adjusted ebitda , which we define as our consolidated net income ( loss ) , plus the sum of interest expense , net of interest income , income tax expense ( benefit ) , depreciation , amortization , other operating expenses , net ( which primarily consists of pension mark to market adjustments , acquisition and integration related expenses , employee stock-based compensation expense , restructuring charges , advisory fees paid to stockholders , and other unusual or non-recurring expenses ) , impairment charges , loss on extinguishment of debt and other ( expense ) income , net ( which consists of gains and losses on foreign currency transactions and undesignated derivative instruments , ineffective portion of cash flow hedges , debt refinancing costs , and other nonoperating activity ) . we believe that adjusted ebitda is an important indicator of operating performance because : adjusted ebitda excludes the effects of income taxes , as well as the effects of financing and investing activities by eliminating the effects of interest , depreciation and amortization expenses ; we use adjusted ebitda in setting performance incentive targets ; we consider gains ( losses ) on the acquisition , disposal and impairment of assets as resulting from investing decisions rather than ongoing operations ; and other significant items , while periodically affecting our results , may vary significantly from period to period and have a disproportionate effect in a given period , which affects comparability of our results . we set transfer prices between operating segments on an arms-length basis in a similar manner to transactions with third parties . we allocate corporate operating expenses that directly benefit our operating segments on a basis that reasonably approximates our estimates of the use of these services . other/eliminations represents the elimination of inter-segment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments , either individually or collectively . in the analysis of our results of operations , we discuss operating segment results for the current reporting period following our consolidated results of operations period-to-period comparison . the following is management 's discussion and analysis of the financial condition and results of operations for the years ended december 31 , 2016 , 2015 and 2014 . this discussion should be read in conjunction with the consolidated financial statements , including the related notes , see item 8 “ financial statements ” of this annual report on form 10-k. for reconciliations of adjusted ebitda to net income ( loss ) , see “ selected financial data selected ” in item 6 of this annual report on form 10-k. key factors affecting operating results and financial condition key factors impacting our operating results and financial condition include the following : economic conditions and industry trends chemical prices acquisitions volume based pricing cost savings working capital requirements foreign currencies for a detailed overview of our business and how the above factors impact us , refer to item 1 “ business ” and item 1a “ risk factors ” of this annual report on form 10-k. in addition to the factors listed above , seasonal changes may affect our business and results of operations . our net sales are affected by the level of industrial production , which tends to decline in the fourth quarter of each year . certain of our end markets also experience seasonal fluctuations , which also affect our net sales and results of operations . for example , our sales to the agricultural end market , particularly in canada , tend to peak in the second and third quarters in each year , depending in part on weather-related variations in demand for agricultural chemicals . sales to other end markets such as paints and coatings or water treatment may also be affected by changing seasonal weather conditions . story_separator_special_tag the $ 13.2 million increase was primarily driven by $ 16.4 million of incremental operating expenses from acquisitions , $ 10.4 million in higher personnel expenses primarily due annual compensation increases , and a reduction of $ 7.9 million of gains from the medical retiree benefit plan have now been fully amortized from accumulated other comprehensive income . partially offsetting the increases were $ 12.1 million of lower variable compensation expense and cost reductions of $ 3.5 million of lower contract labor expenses , $ 3.1 million of lower travel and entertainment expenses , and $ 3.0 million of lower information technology expenses driven by efforts to control costs . the remaining $ 0.2 million increase related to several insignificant components . refer to the “ segment results ” for the year ended december 31 , 2016 discussion for additional information . other operating expenses , net other operating expenses , net decreased $ 1.6 million , or 1.5 % , to $ 104.5 million for the year ended december 31 , 2016 . the decrease was primarily related to a reduction of $ 26.2 million in fees paid to our pre-initial public offering significant stockholders , cvc capital partners ( “ cvc ” ) and clayton , dubilier & rice , llc ( “ cd & r ” ) resulting from the termination of the management contracts with cvc and cd & r as part of our june 2015 ipo . also contributing to the decrease was $ 25.8 million of lower redundancy and restructuring charges ( primarily severance costs ) in the year ended december 31 , 2016 compared to the year ended december 31 , 2015 . the cost savings from the prior redundancy and restructuring programs have been largely completed as of december 31 , 2016 and represent $ 10.0 million of annual savings . approximately 85 percent of the savings are within warehouse , selling and administrative expenses and 15 percent within cost of goods sold . just over half of these cost savings were achieved this year and were primarily within the usa and emea segments . cost savings from these programs will help offset other investments we make in our business and the impact of inflation . these estimated cost savings are based on information currently available to us . there can be no guarantee that all or any of these cost savings will actually be achieved . the actual amount of costs savings , if any , may differ materially from the above estimates . refer to “ note 5 : restructuring charges ” in item 8 of this annual report on form 10-k for additional information . the decrease in costs was primarily offset by a pension mark to market and related adjustments of $ 67.3 million which was $ 50.2 million higher than the year ended december 31 , 2015 , and $ 2.9 million of stock based compensation primarily due to incremental expenses related to awards made in 2016 . the remaining decrease was driven by lower consulting fees incurred of 46 $ 2.8 million and decreased acquisition and integration expenses of $ 1.6 million during the year ended december 31 , 2016 . the remaining $ 1.7 million increase related to several insignificant components . foreign currency translation decreased other operating expenses , net by $ 6.4 million , or 6.0 % . refer to “ note 4 : other operating expenses , net ” in item 8 of this annual report on form 10-k for additional information . depreciation and amortization depreciation expense increased $ 15.8 million , or 11.6 % , to $ 152.3 million for the year ended december 31 , 2016 . foreign currency translation decreased depreciation expense by $ 2.3 million , or 1.7 % . on a constant currency basis , the increase of $ 18.1 million , or 13.3 % , was primarily related to accelerated depreciation for facility closures and the reassessment of useful lives of certain internally developed software in conjunction with reevaluating our overall information technology enhancement efforts . amortization expense decreased $ 2.9 million , or 3.3 % , to $ 85.6 million for the year ended december 31 , 2016 . amortization expense decreased $ 1.2 million , or 1.4 % , due to foreign currency translation . on a constant currency basis , the decrease of $ 1.7 million , or 1.9 % , was primarily driven by third quarter 2016 impairment charge which reduced the intangible asset base , which was partially offset by additional intangible assets related to our recent business acquisitions . impairment charges impairment charges of $ 133.9 million were recorded in the year ended december 31 , 2016 due to the impairment of certain intangible assets and fixed assets related to the upstream oil and gas customers in the usa segment . refer to “ note 13 : impairment charges ” in item 8 of this annual report on form 10-k for additional information . there were no impairment charges in the year ended december 31 , 2015 . during year ended december 31 , 2016 , the company recorded a non-cash , long-lived asset impairment charge of $ 113.7 million related to intangible assets and $ 16.5 million related to property , plant and equipment within its condensed consolidated statements of operations . the company also recorded a non-cash , long-lived asset impairment charge of $ 0.3 million related to assets held-for-sale . in addition , the company also impaired $ 3.4 million of inventory deemed to be unsaleable in connection with the facility closures . interest expense interest expense decreased $ 47.5 million , or 22.5 % , to $ 163.8 million for the year ended december 31 , 2016 primarily due to the june 2015 and july 2015 debt refinancing activity . foreign currency translation decreased interest expense by 0.7 % or $ 1.4 million . refer to “ note 15 : debt ” in item 8 of our annual report on form 10-k for additional information .
| segment results our adjusted ebitda by operating segment and in aggregate is summarized in the following tables : replace_table_token_4_th 48 replace_table_token_5_th ( 1 ) other/eliminations represents the elimination of intersegment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments , either individually or collectively . usa . replace_table_token_6_th external sales in the usa segment were $ 4,706.7 million , a decrease of $ 644.8 million , or 12.0 % , in the year ended december 31 , 2016 . the increase in external net sales from acquisitions was primarily due to the november 2015 weavertown , march 2016 bodine , and july 2015 chemical associates acquisitions . the decrease in external net sales from reported sales volumes was primarily due to a reduction in sales of upstream oil and gas products driven by reduced market demand . the decrease in external net sales from changes in sales pricing and product mix was primarily driven by lower average selling prices resulting from market driven deflationary pressures . gross profit decreased $ 56.9 million , or 5.2 % , to $ 1,041.4 million in the year ended december 31 , 2016 . the increase in gross profit from acquisitions was primarily due to the november 2015 weavertown , march 2016 bodine , and july 2015 chemical associates acquisitions . gross profit decreased due to changes in sales pricing , product costs and other adjustments primarily due to market deflationary pressures and sluggish industrial demand across several end markets . gross margin increased from 20.5 % in the year ended december 31 , 2015 to 22.1 % during the year ended december 31 , 2016 primarily due to favorable product and end market mix .
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depreciation and amortization are calculated using the straight-line method over the following estimated useful lives : satellite system 2 - 15 years terrestrial repeater network 5 - 15 years broadcast studio equipment 3 - 15 years capitalized software and hardware 3 - 7 years satellite telemetry , tracking and control facilities 3 - 17.5 years furniture , fixtures , equipment and other 2 - 7 years building 20 or 30 years leasehold improvements lesser of useful life or remaining lease term we review long-lived assets , such as property and equipment , and purchased intangibles subject to amortization for impairment whenever events or changes in circumstances indicate the carrying amount may not be story_separator_special_tag this annual report on form 10-k contains forward-looking statements within the meaning of the federal securities laws . actual results and the timing of events could differ materially from those projected in forward-looking statements due to a number of factors , including those described under item 1a risk factors and elsewhere in this annual report . see special note regarding forward-looking statements. ( all dollar amounts referenced in this item 7 are in thousands , unless otherwise stated ) executive summary we broadcast our music , sports , news , talk , entertainment , traffic and weather channels in the united states on a subscription fee basis through two proprietary satellite radio systems . subscribers can also receive certain of our music and other channels over the internet , including through an application on apple , blackberry and android-powered mobile devices . we have agreements with every major automaker ( oems ) to offer satellite radios as factory- or dealer-installed equipment in their vehicles . we also distribute our satellite radios through retail locations nationwide and through our websites . satellite radio services are also offered to customers of certain daily rental car companies . as of december 31 , 2010 , we had 20,190,964 subscribers . our subscriber totals include subscribers under our regular pricing plans ; discounted pricing plans ; subscribers that have prepaid , including payments either made or due from automakers and dealers for subscriptions included in the sale or lease price of a vehicle ; activated radios in daily rental fleet vehicles ; certain subscribers to our internet services ; and certain subscribers to our weather , traffic , data and video services . our primary source of revenue is subscription fees , with most of our customers subscribing on an annual , semi-annual , quarterly or monthly basis . we offer discounts for prepaid and long-term subscription plans , as well as discounts for multiple subscriptions on each platform . we also derive revenue from activation and other subscription-related fees , the sale of advertising on select non-music channels , the direct sale of satellite radios , components and accessories , and other ancillary services , such as our backseat tv , data and weather services . in certain cases , automakers include a subscription to our radio services in the sale or lease price of new and certified pre-owned vehicles . the length of these prepaid subscriptions varies , but is typically three to twelve months . in many cases , we receive subscription payments from automakers in advance of the activation of our service . we also reimburse various automakers for certain costs associated with satellite radios installed in their vehicles . we also have an interest in the satellite radio services offered in canada . subscribers to the sirius canada service and the xm canada service are not included in our subscriber count . 25 story_separator_special_tag width= '' 100 % '' > 2010 vs. 2009 : for the years ended december 31 , 2010 and 2009 , other revenue was $ 266,946 and $ 83,029 , respectively . the $ 183,917 increase was primarily due to the full year impact of the u.s. music royalty fee introduced in the third quarter of 2009 . 2009 vs. 2008 : for the years ended december 31 , 2009 and 2008 , other revenue was $ 83,029 and $ 11,882 , respectively , an increase of 599 % , or $ 71,147. the increase was primarily due to the introduction of the u.s. music royalty fee in the third quarter of 2009 and the inclusion of xm revenue for a full year . future other revenues will be dependent upon revenues from affiliates , content and syndication fees , and the monthly fee assessed for the u.s. music royalty fee . the fcc 's order approving the merger allows us to pass through cost increases incurred since the filing of our fcc merger application as a result of statutorily or contractually required payments to the music , recording and publishing industries for the performance of musical works and sound recordings or for device recording fees . operating expenses revenue share and royalties include distribution and content provider revenue share , advertising revenue share , residuals and broadcast and web streaming royalties . residuals are monthly fees paid based upon the number of subscribers using satellite radios purchased from retailers . advertising revenue share is recognized as a component of revenue share and royalties in the period in which the advertising is broadcast . 2010 vs. 2009 : for the years ended december 31 , 2010 and 2009 , revenue share and royalties were $ 435,410 and $ 397,210 , respectively , an increase of 10 % , or $ 38,200. for the year ended december 31 , 2010 , revenue share and royalties decreased as a percentage of total revenue . the increase was primarily attributable to a 12 % increase in our revenues subject to royalty and or revenue sharing arrangements and an 8 % increase in the statutory royalty rate for the performance of sound recordings , partially offset by a decrease in the revenue sharing rate with an automaker and a $ 18,187 increase in the benefit to earnings from the amortization of deferred credits on executory contracts initially recognized in purchase price accounting associated with the merger . story_separator_special_tag 2010 vs. 2009 : for the years ended december 31 , 2010 and 2009 , cost of equipment was $ 35,281 and $ 40,188 , respectively , a decrease of 12 % , or $ 4,907 and decreased as a percentage of total revenue . the decrease was primarily due to lower inventory write-downs , lower sales through distributors and reduced costs to produce aftermarket radios . 2009 vs. 2008 : for the years ended december 31 , 2009 and 2008 , cost of equipment was $ 40,188 and $ 46,091 , respectively , a decrease of 13 % , or $ 5,903 and decreased as a percentage of total revenue . the decrease was primarily due to lower sales volume through our direct to consumer channel , lower inventory related charges and lower product and component sales , partially offset by the inclusion of xm 's cost of equipment expense as a result of the merger . 29 we expect cost of equipment to vary with changes in sales , supply chain management , and inventory valuations . subscriber acquisition costs include hardware subsidies paid to radio manufacturers , distributors and automakers , including subsidies paid to automakers who include a satellite radio and subscription to our service in the sale or lease price of a new or certified pre-owned vehicle ; subsidies paid for chip sets and certain other components used in manufacturing radios ; device royalties for certain radios ; commissions paid to retailers and automakers as incentives to purchase , install and activate satellite radios ; product warranty obligations ; and provisions for inventory allowances attributable to inventory consumed in our oem and retail distribution channels . the majority of subscriber acquisition costs are incurred and expensed in advance of , or concurrent with , acquiring a subscriber . subscriber acquisition costs do not include advertising , loyalty payments to distributors and dealers of satellite radios and revenue share payments to automakers and retailers of satellite radios . 2010 vs. 2009 : for the years ended december 31 , 2010 and 2009 , subscriber acquisition costs were $ 413,041 and $ 340,506 , respectively , an increase of 21 % , or $ 72,535 and increased as a percentage of total revenue . the increase was primarily a result of the 25 % increase in gross subscriber additions and higher subsidies related to the 49 % increase in oem installations , partially offset by lower oem subsidies per vehicle and an $ 18,275 increase in the benefit to earnings from the amortization of the deferred credit for acquired executory contracts recognized in purchase price accounting associated with the merger . 2009 vs. 2008 : for the years ended december 31 , 2009 and 2008 , subscriber acquisition costs were $ 340,506 and $ 371,343 , respectively , a decrease of 8 % , or $ 30,837 and decreased as a percentage of total revenue . the decrease was primarily a result of lower oem subsidies and chip set costs , decreases in production of certain radios and lower aftermarket inventory charges in the year ended december 31 , 2009 compared to the year ended december 31 , 2008 , partially offset by the inclusion of xm 's subscriber acquisition costs as a result of the merger . we expect total subscriber acquisition costs to fluctuate with increases or decreases in oem installations , which are driven by oem manufacturing and penetration rates , and changes in our gross subscriber additions . declines in the cost of subsidized radio components will also impact total subscriber acquisition costs . the impact of purchase price accounting adjustments associated with the merger attributable to the amortization of the deferred credit for acquired executory contracts will vary , in absolute amount and as a percentage of reported subscriber acquisition costs , through the expiration of the acquired contracts , primarily in 2013. we intend to continue to offer subsidies , commissions and other incentives to acquire subscribers . sales and marketing includes costs for advertising , media and production , including promotional events and sponsorships ; cooperative marketing ; customer retention and personnel . cooperative marketing costs include fixed and variable payments to reimburse retailers and automakers for the cost of advertising and other product awareness activities performed on our behalf . 2010 vs. 2009 : for the years ended december 31 , 2010 and 2009 , sales and marketing expenses were $ 215,454 and $ 228,956 , respectively , a decrease of 6 % , or $ 13,502 and decreased as a percentage of total revenue . the decrease was primarily due to reductions in consumer advertising , event marketing and third party distribution support expenses , partially offset by additional cooperative marketing and personnel costs . 2009 vs. 2008 : for the years ended december 31 , 2009 and 2008 , sales and marketing expenses were $ 228,956 and $ 231,937 , respectively , a decrease of 1 % , or $ 2,981 and decreased as a percentage of total revenue . the decrease was due to reductions in consumer advertising and cooperative marketing , personnel costs and third party distribution support expenses , partially offset by the inclusion of xm 's sales and marketing expense . we expect sales and marketing expenses to increase as we increase advertising and promotional initiatives to attract new subscribers in existing and new distribution channels , and launch and expand programs to retain our subscribers . 30 engineering , design and development includes costs to develop chip sets and new products , research and development for broadcast information systems and costs associated with the incorporation of our radios into vehicles manufactured by automakers . 2010 vs. 2009 : for the years ended december 31 , 2010 and 2009 , engineering , design and development expenses were $ 45,390 and $ 41,031 , respectively , an increase of 11 % , or $ 4,359 but remained flat as a percentage of total revenue . the increase was primarily due to higher personnel , overhead and aftermarket product development costs .
| actual results of operations set forth below are our results of operations for the year ended december 31 , 2010 compared with the year ended december 31 , 2009 and the year ended december 31 , 2009 compared with the year ended december 31 , 2008. replace_table_token_6_th nm not meaningful 26 total revenue subscriber revenue includes subscription fees , activation and other fees and the effects of rebates . 2010 vs. 2009 : for the years ended december 31 , 2010 and 2009 , subscriber revenue was $ 2,414,174 and $ 2,287,503 , respectively , an increase of 6 % , or $ 126,671. the increase was primarily attributable to a 5 % increase in daily weighted average subscribers , an increase in the sale of best of programming , decreases in discounts on multi-subscription and internet packages and a $ 32,159 decrease in the impact of purchase price accounting adjustments attributable to acquired deferred subscriber revenues , partially offset by an increase in the number of subscribers on promotional plans . 2009 vs. 2008 : for the years ended december 31 , 2009 and 2008 , subscriber revenue was $ 2,287,503 and $ 1,548,919 , respectively , an increase of 48 % , or $ 738,584. the merger was responsible for approximately $ 670,870 of the increase and the remaining increase was primarily attributable to the sale of best of programming , decreases in discounts on multi-subscription packages , increased sales of internet packages and higher average subscribers . future subscriber revenue will be dependent , among other things , upon the growth of our subscriber base , conversion and churn rates , promotions , rebates offered to subscribers and corresponding take-rates , plan mix , subscription prices and the identification of additional revenue streams from subscribers .
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as part of our solution , we also develop cloud-based , real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency . although we operate as a single unit through our subsidiaries , we approach our development through two divisions , automotive and aviation . we are currently focused on our core competency of bringing the n-gen electric cargo van to market and fulfilling our existing backlog of orders . we are also exploring other opportunities in monetizing our intellectual property which could include a sale , license or other arrangement of assets that are outside of our core focus . workhorse electric delivery vans are currently in production and are in use by our customers on u.s. roads . our delivery customers include companies such as ups , fedex express , alpha baking and w.b . mason . data from our in-house developed telematics system demonstrates our vehicles on the road are averaging approximately a 500 % increase in fuel economy as compared to conventional gasoline-based trucks of the same size and duty cycle . in addition to improved fuel economy , we anticipate that the performance of our vehicles on-route will reduce long-term vehicle maintenance expense by approximately 50 % as compared to fossil-fueled trucks . we are an oem capable of manufacturing class 3-6 commercial-grade , medium-duty truck chassis at our union city , indiana facility , marketed under the workhorse® brand . all workhorse last mile delivery vans are assembled in the union city assembly facility . from our development modeling and the existing performance of our electric vehicles on american roads , we estimate that our e-gen range-extended electric delivery vans will save over $ 150,000 in fuel and maintenance savings over the 20-year life of the vehicle . due to the positive return-on-investment , we place a premium price for our vehicles when selling to major fleet buyers . we expect that fleet buyers will be able to achieve a four-year or better return-on-investment ( without government incentives ) , which we believe justifies the higher acquisition cost of our vehicles . our goal is to continue to increase sales and production , while executing on our cost-down strategy to a point that will enable us to achieve gross margin profitability of the last mile-delivery van platform . as a key strategy , we have developed the workhorse n-gen platform , which has been accelerated from our development efforts on the usps ngdv program . 27 the workhorse n-gen electric cargo van platform will be available in multiple size configurations , 450 , 700 and 1,000 cubic feet . we intend to initiate the launch with the 450 cubic foot configuration where it is designed to compete with the sprinter , transit and ram gasoline/diesel trucks in the commercial sector with an emphasis on last-mile delivery and other service-oriented businesses , such as telecom . this ultra-low floor platform incorporates state-of-the-art safety features , economy and performance : we expect these vehicles to achieve a fuel economy of approximately 60 mpge and offer fleet operators the most favorable total cost-of-ownership of any comparable vehicle available today . we believe we are the first american oem to market a u.s. built electric cargo van , and early indications of fleet interest are significant . we expect the n-gen trucks will be supported by our ryder systems partnership . using n-gen light duty prototypes , we delivered over 100,000 packages in san francisco and ohio during our testing . during the period we achieved 50 mpge and successfully demonstrated the role the vehicle can have in last mile delivery . as a direct result of the usps award and development efforts , workhorse has begun development on the workhorse w-15 , a medium- and light-duty pickup truck platform aimed at commercial fleets . the w-15 pickup truck powertrain is a smaller version of its sister vehicle , the medium-duty battery electric powertrain , and will have two purpose-built variants , a w-15 work truck ( pickup ) and an n-gen cargo van . either of these two variants will appeal to delivery fleets , utility companies , telecom companies , municipalities and more . our horsefly delivery drone is a custom designed , purpose-built drone that is fully integrated in our electric trucks . horsefly is an octocopter designed with a maximum gross weight of 30 lbs. , a 10 lb . payload and a maximum air speed of 50 mph . it is designed and built to be rugged and consisting of redundant systems to further meet the faa 's required rules and regulations . surefly is our entry into the emerging vtol market . it is designed to be a two-person , 400-pound payload aircraft with a hybrid internal combustion/electric power generation system . our approach in the design is to build the safest and simplest way to fly rotary wing aircraft in the world . we believe it is a practical answer to personal flight , as well as , commercial transportation segments , including air taxi series , agriculture and beyond . the faa to-date has granted 14 separate experimental airworthiness certifications , registered as n834lw , for the aircraft . these certifications come after an extensive design review and inspection of the aircraft with each renewed certificate . in november 2018 , workhorse signed cooperative research and development agreement with a branch of the u.s. military to test surefly with a specific focus on military applications . this further expands the potential market for the aircraft . we are continuing with our efforts to consummate a sale of the surefly business although we can not guarantee that we will be successful in such efforts . executive team changes on january 30 , 2019 , stephen s. burns , chief executive officer and a member of the board of directors ( the “ board ” ) of the company , resigned as chief executive officer and as a member of the board , effective immediately . story_separator_special_tag subject to the approval by the company 's shareholders of the company 's 2019 stock incentive plan , the company will grant an option to purchase 400,000 shares of the company 's common stock that will vest over a four-year period in equal quarterly installments commencing in the quarter in which the 2019 stock incentive plan is approved . the stock option award will be granted under the company 's 2019 incentive stock plan with an exercise price equal to the closing price of the company 's common stock on the date of shareholder approval of the 2019 incentive stock plan . in the event mr. willison is terminated without cause or resigns for good reason ( as such terms are defined in the retention agreement ) , he will be entitled to severance payments in an amount equal to his base salary plus a prorated portion of his target performance bonus . in addition , any outstanding equity awards will immediately accelerate and vest . the company will also continue to pay the employer portion of the cobra premium cost for up to twelve months . in the event mr. willison is terminated without cause or resigns for good reason within twelve months following a change in control of the company ( as such term is defined in the retention agreement ) he shall be entitled to severance benefits described above . the foregoing summary description of the retention agreement does not purport to be complete and is subject to , and qualified in its entirety by , the full text of the agreement , a copy of which is filed as exhibit 10.1 hereto and incorporated by reference herein . on february 19 , 2019 the company issued a press release regarding mr. willison 's appointment . the press release is filed with this report on form 8-k as exhibit 99.1 and is incorporated herein by reference . 29 story_separator_special_tag ( the “ tranche one loans ” ) which may not be re-borrowed following repayment and ( ii ) a $ 25 million tranche of term loans which may be re-borrowed following repayment ( the “ tranche two loans ” together with the tranche one loans , the “ loans ” ) . the company used the proceeds for the tranche one loans ( x ) to pay off a loan provided by arosa opportunistic fund lp ( “ arosa ” ) in the principal amount of $ 7.8 million plus interest and ( y ) for working capital purposes . draws from the tranche two loans will be used in connection with vehicle production and are subject to the company 's receipt of purchase orders . the company 's ability to borrow amounts under the credit agreement is conditioned upon its compliance with specified covenants , including certain reporting covenants and financial covenants that , in addition to other items , require the company to maintain ( i ) minimum liquidity of at least $ 4 million at all times on or after march 31 , 2019 , ( ii ) a maximum total leverage ratio ( ratio of total debt borrowed by the company to ebitda for the four consecutive fiscal quarters most recently ended , subject to certain adjustments set forth in the credit agreement ) not to exceed 4.50:1.00 on the last day of the quarter ended september 30 , 2019 , which total leverage ratio is adjusted for subsequent quarters as set forth in the credit agreement and ( iii ) a maximum debt service coverage ratio ( ratio of ebitda ( for the four consecutive fiscal quarters most recently ended , subject to certain adjustments set forth in the credit agreement ) to interest expense and payments for operating leases ) not to exceed 1.25:1.00 on the last day of the quarter ended september 30 , 2019 , which debt service coverage ratio is adjusted for subsequent quarters as set forth in the credit agreement . in the event the company breaches the total leverage ratio or the debt service coverage ratio covenants , the company may cure such breach by raising capital through the sale of equity , which capital will be added on a dollar-for-dollar basis to the calculation of ebitda for purposes of such test period to determine compliance with the financial covenant . in each consecutive four fiscal quarter period , equity cures can only be made for two fiscal quarters , and only four equity cures are allowed during the term of the credit agreement . the capital raised in connection with such equity cure must be used to repay the loans . in addition , the credit agreement contains customary representations and warranties and customary affirmative and negative covenants . the tranche one loans , and both the drawn and undrawn portions of the tranche two loan , will bear interest at a rate per annum ( based on a year of 360 days ) equal to libor ( as defined in the credit agreement ) plus 7.625 % , which interest is payable quarterly commencing april 5 , 2019 , as amended . the credit agreement contains customary events of default , including for non-payment , misrepresentation , breach of covenants , defaults under other material indebtedness , material adverse change , bankruptcy , change of control and material judgments . the loans mature on the third anniversary of the closing date . the company is required to repay a portion of the tranche one loans with $ 500,000 installment payments on each of june 30 , 2020 , december 31 , 2020 and june 30 , 2021. upon the occurrence and during the continuance of an event of default , the lenders may declare all outstanding amounts thereunder immediately due and payable and may terminate commitments to make any additional advances under the tranche two loans . the tranche two loans are required to be prepaid in an amount equal to the payments received from the subject purchase orders .
| results of operations our condensed consolidated statement of operations data for the period presented follows : replace_table_token_3_th revenue sales for the years ended december 31 , 2018 and 2017 were $ 0.8 million and $ 10.0 million , respectively . the net sales decrease was primarily due to a decrease in volume of trucks sold due to strategic shift to development of the n-gen platform . cost of sales cost of sales for the years ended december 31 , 2018 and 2017 were $ 8.0 million and $ 24.4 million , respectively . the cost of sales decrease was primarily due to a decrease in volume of trucks sold due to strategic shift to development of the n-gen platform . warranty expense warranty expenses for the years ended december 31 , 2018 and 2017 were $ 8.0 million and $ 0.1 million , respectively . the increase during the current year relates to issues with certain battery packs in our 2016 and 2017 e-series trucks . during the fourth quarter of 2018 , the battery pack monitoring software indicated that some of the battery packs were not performing at expected levels . some vehicles have undergone replacement of battery pack components . the company is continuing to investigate the issue and has found specific quality issues with components from certain vendors . $ 6.9 million of the expense was recorded in the fourth quarter to increase the warranty accrual at year-end . the accrual includes coverage for labor and transportation and excludes any contribution from related vendors . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses during year ended december 31 , 2018 were $ 11.5 million , an increase from $ 8.8 million for the year ended december 31 , 2017. the sg & a expense increase primarily related to higher marketing and advertising costs of approximately $ 1.6 million , investment banking related fees of approximately $ 0.7 million and legal settlement costs of $ 0.4 million .
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the bank sold 25,702 shares of visa class b common stock in the first quarter of 2019 and recorded a gain of $ 295,000 . the company had no marketable securities as of december 31 , 2020 . 45 bankfinancial corporation notes to consolidated financial statements ( table amounts in thousands , except share and per share data ) note 4 – loans receivable loans receivable are as follows : story_separator_special_tag the discussion and analysis that follows focuses on certain factors affecting our consolidated financial condition at december 31 , 2020 and 2019 , and our consolidated results of operations for the two years ended december 31 , 2020. our consolidated financial statements , the related notes and the discussion of our critical accounting policies appearing elsewhere in this annual report should be read in conjunction with this discussion and analysis . overview 2020 in review in 2020 , the covid-19 global pandemic and periodic local civil unrest events required rapid innovation in our operations and the adaptation of our business plan to the significant changes in market conditions that occured and are now expected to continue for the foreseeable future . as our first priority , we implemented extensive health security protocols in february 2020 for our customers and our associates in all facilities . to ensure continuity of operations within new health security protocols , we developed and deployed new electronic transaction processing capabilities and revised operating procedures . we also implemented additional physical security measures in response to civil unrest events in the vicinity of certain branch offices . beginning in march 2020 , state and local government restrictions on business activity resulted in material reductions in national and local economic activity , including a sharp increase in unemployment . to ensure appropriate credit discipline in a highly uncertain environment , we implemented revised underwriting standards and enhanced reserve requirements for multi-family and nonresidential real estate loans . similarly , we temporarily made the financial qualification parameters for commercial loans and leases more stringent to adjust historical financial performance and repayment capacity for the possibility of significant declines in revenues and maximum usage of working capital credit facilities . in april and may of 2020 , we provided loan payment forbearance arrangements to 182 borrowers with a total of $ 98.1 million in outstanding principal balance . at december 31 , 2020 , all borrowers with a covid-19 loan forbearance agreement were current on all scheduled loan payments , with $ 53,000 in remaining deferred principal payments scheduled for repayment by june , 2021. we also extended $ 11.2 million in paycheck protection program loans to 315 small businesses with over 2,400 employees . in response to substantial growth in core deposits resulting from the liquidity provided by the cares act of 2020 fiscal stimulus and federal reserve board monetary stimulus , we took various steps to reduce retail and wholesale certificate of deposit balances . as economic activity recovered in the third quarter of 2020 , we focused our credit origination activities on our highest-quality borrowers , with a special emphasis on originations of federal , state and local government commercial lease and commercial finance transactions . in the fourth quarter , 2020 , we continued to restore our standard commercial credit underwriting criteria , released new credit products in the equipment finance division , expanded multi-family lending operations , and commenced the expansion of commercial finance division and treasury services products for release in 2021. the company ended 2020 in strong financial and operational condition . we gained momentum in our commercial credit originations and maintained our historical asset quality and credit discipline . we also maintained operating expense discipline notwithstanding investments in the further expansion of our commercial credit origination capabilities and the necessary expenditures for health security , physical security and information security . goals for 2021 despite the adverse impacts of the coronavirus pandemic and rapid changes in market conditions during 2020 , the actions we took in 2020 to expand our commercial credit capabilities further strengthen our ability to achieve the asset generation necessary to meet our financial objectives . we will incur some additional expenses in 2021 for personnel , marketing and technology to support these credit , business deposit and noninterest income generation activities , but will seek to offset these costs as much as possible within our consistent operating expense discipline . in anticipation of the gradual dissipation of covid-19-stimulus related deposits , we will also increase our focus on the origination of core business deposit accounts balances and related noninterest income as part of our investment in treasury services capabilities for equipment finance , commercial finance and nonresidential real estate borrowers . with cautious optimism concerning recovery in both public health and economic condition in 2021 , we look forward to building upon the company 's manifest strengths and achieving its potential in 2021 and future years . story_separator_special_tag cellpadding= '' 0 '' cellspacing= '' 0 '' style='width : 100 % ; text-indent : 0px ; font-family : `` times new roman '' , times , serif ; font-size : 9pt ; margin-left : 0pt ; margin-right : 0pt ; ' > ( 3 ) net interest margin represents net interest income divided by average total interest-earning assets . net interest income decreased by $ 6.3 million , or 12.1 % , to $ 45.9 million for the year ended december 31 , 2020 , from $ 52.2 million for the year ended december 31 , 2019. loan interest income for the year ended december 31 , 2020 includes amortized fees of $ 162,000 from paycheck protection program loans . the decrease in net interest income was primarily attributable to a decrease in the average yield on interest-earning assets , which was partially offset by a decrease in the cost of interest-bearing liabilities and an increase in total average interest-earning assets . story_separator_special_tag loan servicing fees increased $ 101,000 , or 22.4 % , to $ 552,000 for the year ended december 31 , 2020 , from $ 451,000 in 2019 , primarily due to increased commercial credit facilities fees of $ 133,000. we recorded a gain on sale of equity securities for the year ended december 31 , 2019 of $ 295,000. trust and insurance commissions and annuities income increased by $ 117,000 , or 13.9 % , to $ 961,000 for the year ended december 31 , 2020 , from $ 844,000 for the year ended december 31 , 2019 due to increased assets under management . noninterest expense replace_table_token_5_th noninterest expense decreased by $ 203,000 , or 0.5 % , to $ 38.4 million , for the year ended december 31 , 2020 , from $ 38.6 million , for the year ended december 31 , 2019. the decrease in noninterest expense was due in substantial part to decreases in expense for advertising and public relations , information technology , supplies , telephone and postage and other noninterest expense , offset by increases in expense for compensation and benefits and office occupancy and equipment . office occupancy and equipment increased $ 286,000 , or 4.0 % , to $ 7.4 million for the year ended december 31 , 2020 , compared to $ 7.1 million in 2019 , due primarily to increased office building expense , real estate taxes and covid-19 cleaning and sanitation costs , partially offset by decreased snow removal costs . information technology expense decreased $ 78,000 , or 2.4 % , to $ 3.2 million for the year ended december 31 , 2020 , compared to $ 3.3 million in 2019 , primarily due to the renegotiation of contracts relating to system upgrades and cybersecurity prevention . fdic insurance expense increased by $ 221,000 to $ 348,000 for the year ended december 31 , 2020 , compared to $ 127,000 in 2019 due to the receipt of the fdic 's small bank assessment credit in 2019. other noninterest expense decreased $ 528,000 , or 15.6 % , to $ 2.9 million for the year ended december 31 , 2020 , from $ 3.4 million for the year ended december 31 , 2019 , due to the reversal of a $ 116,000 reserve established for the open letters of credit related to a loan charge-off that was recorded in the second quarter 2019 , combined with a decrease in organization dues and subscriptions and supervisory assessments . supplies and office occupancy expense for the year ended december 31,2020 included $ 451,000 in expenses related to damage and enhanced security relating to civil unrest and additional cleaning and sanitation costs related to covid-19 . income taxes for the year ended december 31 , 2020 we recorded income tax expense of $ 3.6 million , compared to $ 4.2 million recorded in 2019. the effective tax rate for the year ended december 31 , 2020 was 28.18 % , compared to 26.57 % for the same period in 2019. comparison of financial condition at december 31 , 2020 and december 31 , 2019 total assets increased $ 108.8 million , or 7.3 % , to $ 1.597 billion at december 31 , 2020 , from $ 1.488 billion at december 31 , 2019. the increase in total assets was primarily due to an increase in cash and cash equivalents which were partially offset by decreases in loans receivable and securities . net loans decreased $ 165.4 million , or 14.2 % , to $ 1.003 billion at december 31 , 2020 , from $ 1.168 billion at december 31 , 2019. securities decreased by $ 36.4 million , or 60.4 % , to $ 23.8 million at december 31 , 2020 , from $ 60.2 million at december 31 , 2019 , primarily due to the decrease of $ 33.5 million of investments in certificates of deposit . cash and cash equivalents increased $ 313.2 million to $ 503.5 million at december 31 , 2020 , from $ 190.3 million at december 31 , 2019 . 21 our loan portfolio consists primarily of multi-family real estate , nonresidential real estate , construction and land loans , commercial loans and commercial leases , which together totaled 95.7 % of gross loans at december 31 , 2020 from $ 1.168 billion at december 31 , 2019. net loans receivable decreased $ 165.4 million , or 14.2 % , to $ 1.003 billion at december 31 , 2020. multi-family mortgage loans decreased by $ 111.5 million , or 19.8 % ; nonresidential real estate loans decreased $ 26.0 million , or 19.3 % ; commercial loans and leases decreased $ 13.3 million , or 3.2 % ; and one-to-four family residential mortgage loans decreased by $ 14.1 million , or 25.2 % . the decrease in multi-family loans was primarily due to a significant amount of loan prepayments . the loan prepayments generated $ 605,000 of prepayment penalty income for the year ended december 31 , 2020 , compared to $ 568,000 of prepayment income for 2019. our allowance for loan losses increased by $ 119,000 , or 1.6 % , to $ 7.8 million at december 31 , 2020 , from $ 7.6 million at december 31 , 2019. the increase reflected net recoveries of $ 64,000 in 2020 , and a $ 55,000 provision for loan losses in 2020. securities decreased $ 36.4 million , or 60.4 % , to $ 23.8 million at december 31 , 2020 , from $ 60.2 million at december 31 , 2019 , due primarily to proceeds from maturities of $ 77.8 million and repayments of $ 2.7 million on residential mortgage-backed securities and collateralized mortgage obligations . these repayments were partially offset by investments in fdic-insured certificates of deposit issued by other insured depository institutions of $ 44.1 million .
| financial results of operations we recorded net income of $ 9.2 million for the year ended december 31 , 2020 and basic and diluted earnings per common share for the year ended december 31 , 2020 were $ 0.61. total loans declined by $ 165.4 million for the year ended december 31 , 2020 , primarily due to a $ 111.5 million decline in multi-family mortgage loans and a $ 56.3 million decline in commercial line of credit balances resulting from covid-19 fiscal stimulus payments to healthcare providers . total deposits increased by $ 108.8 million , primarily due to a $ 257.8 million increase in core retail and business deposits , partially offset by a $ 93.9 million decrease in retail certificates of deposit , and a $ 55.2 million decrease in wholesale certificates of deposits . as a result of the changes in the loan and deposit portfolios , the company 's liquid assets were 31.5 % of total assets at december 31 , 2020. asset quality and capital adequacy our asset quality remained stable in 2020. the ratio of nonperforming loans to total loans was 0.12 % and the ratio of nonperforming assets to total assets was 0.09 % at december 31 , 2020. nonperforming commercial-related loans represented 0.03 % of total commercial-related loans at december 31 , 2020. our allowance for losses on loans and leases increased to 0.77 % of total loans as of december 31 , 2020 , compared to 0.65 % at december 31 , 2019 , reflecting the increased inherent credit risks arising from the covid-19 pandemic . our capital position remained strong with a tier 1 leverage ratio of 10.79 % . throughout 2020 , the company maintained its quarterly dividend rate at $ 0.10 per common share . the company repurchased 508,699 common shares during the year ended december 31 , 2020 , which represented 3.3 % of the company 's common shares that were outstanding on december 31 , 2019.
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” overview mbi is a clinical-stage pharmaceutical company organized as a delaware corporation in july 2015 to focus on the development of oncology drug candidates , all of which are based on license agreements with the university of texas system on behalf of the m.d . anderson cancer center , which we refer to as “ md anderson ” . mbi has three core drug technologies : a uniquely designed anthracycline ( annamycin ) , a portfolio of stat3 inhibitors ( wp1066 portfolio ) and a collection of inhibitors of glycolysis ( wp1122 portfolio ) . our clinical stage drugs are annamycin , an anthracycline designed to avoid multidrug resistance mechanisms with little to no cardiotoxicity being studied for the treatment of relapsed or refractory acute myeloid leukemia , more commonly referred to as aml , and wp1066 , an immuno-stimulating stat3 inhibitor targeting brain tumors , pancreatic cancer and aml . we are also engaged in preclinical development of additional drug candidates , including additional stat3 inhibitors and compounds targeting the metabolism of tumors through the inhibition of glycolysis . our lead drug candidate is liposomal annamycin , which we refer to as annamycin , an anthracycline being studied for the treatment of relapsed or refractory acute myeloid leukemia , or aml . annamycin has been in clinical trials pursuant to an ind , that had been filed with the fda . due to a lack of development activity by a prior drug developer , this ind was terminated . to permit the renewed investigation of annamycin , we submitted a new ind for a phase i/ii trial for the treatment of relapsed or refractory aml in august 2017 , which was subsequently allowed by the fda in september 2017. we have two other drug development projects : ( i ) one involving a library of small molecules , which we refer to as the wp1066 portfolio , a collection of stat3 inhibitors , some of which also have immuno-stimulating capability , targeting brain tumors , pancreatic cancer and aml , and ( ii ) the wp1122 portfolio , a library of small molecules targeting the metabolic processes involved in cancer in general and glioblastoma ( the most aggressive and most common form of brain tumor ) and pancreatic cancer in particular through the inhibition of glycolysis . a physician-sponsored ind for a phase i trial of wp1066 in patients with recurrent malignant glioma and brain metastasis from melanoma was allowed by the fda in december 2017. we also continue to sponsor ongoing research at md anderson in order to improve and expand our drug development pipeline . we have been granted royalty-bearing , worldwide , exclusive licenses for the patent and technology rights related to all of our drug technologies , as these patent rights are owned by md anderson . the annamycin drug substance is no longer covered by any existing patent protection , however , we intend to submit patent applications for formulation , synthetic process and reconstitution related to our annamycin drug product candidate , although there is no assurance that we will be successful in obtaining such patent protection . independently from potential patent protection , we have received orphan drug designation from the fda for annamycin for the treatment of aml , which would entitle us to market exclusivity of 7 years from the date of approval of a new drug application ( “ nda ” ) in the united states . we may then benefit from orphan drug exclusivity , during which period fda generally could not approve another annamycin product for the same use . we also intend to apply for similar status in the european union ( “ eu ” ) where market exclusivity extends to 10 years from the date of marketing authorization application ( “ maa ” ) . separately , the fda may also grant market exclusivity of 5 years for newly approved new chemical entities ( of which annamycin would be one ) , but there can be no assurance that such exclusivity will be granted . with regard to additional potential clinical activity , we submitted in october 2017 a request for clinical trial authorization ( “ cta ” ) in poland which , if allowed , will enable a phase i/ii clinical trial to study annamycin for the treatment of relapsed or refractory aml in poland . this will be in addition to the previously announced allowance of our ind in the united states . in december 2017 , the ethics committee in poland approved our phase i/ii clinical trial of annamycin . the cta remains subject to final approval by the polish national office . furthermore , in september 2017 we engaged a contract research organization ( “ cro ” ) to prepare for a proof-of-concept clinical trial in poland to study our drug candidate wp1220 , a part of the wp1066 portfolio , for the treatment of cutaneous t-cell lymphoma ( “ ctcl ” ) . our drug candidates annamycin 44 our lead product candidate is annamycin , for which fda has allowed an ind for a phase i/ii trial for the treatment of relapsed or refractory aml and granted orphan drug designation for the treatment of aml . we intend to conduct phase i/ii clinical trials for annamycin as a monotherapy for the treatment of relapsed or refractory aml in the united states and in poland . planned clinical trials for annamycin in october 2016 , we adjusted our clinical strategy for annamycin by adding in a phase i arm to our trial , which will add expense to our development effort . we believe this change in strategy will add several months to the eventual final approval of the drug , if the drug is approved . because the prior developer of annamycin allowed their ind to lapse , we were required to submit a new ind for continued clinical trials with annamycin . story_separator_special_tag based on this data , we are collaborating with a polish drug development company , dermin , which has received polish government grant money to develop wp1220 in poland for the topical treatment of early stage ctcl patients . ctcl is a potentially deadly form of skin cancer for which there are limited treatment options . in september 2017 , we engaged a cro to prepare a proof-of-concept clinical trial in poland to study wp1220 for the topical treatment of ctcl . we also conducted a phase ii clinical trial for wp1066 for the topical treatment of psoriasis using a longer treatment period as compared with the wp1220 psoriasis trial , however this trial was terminated early as a significant number of patients experienced a non-permanent worsening of their psoriatic plaques after extended use of the drug , suggesting that its use as a topical agent for non-life-threatening diseases such as psoriasis will require further study to optimize dosing and scheduling regimens . the wp1122 portfolio we have a license agreement with md anderson pursuant to which we have been granted a royalty-bearing , worldwide , exclusive license for the patent and technology rights related to our wp1122 portfolio and similar molecules targeting the treatment of glioblastoma multiforme ( “ gbm ” ) and related central nervous system malignancies . we believe this technology has the potential to target a wide variety of solid tumors , which eventually become resistant to all treatments , and thereby provide a large and important opportunity for novel drugs . notwithstanding this potential , we are focused on the treatment of central nervous system malignancies and especially gbm . although less prevalent than some larger categories of solid tumors , cancers of the central nervous system are particularly aggressive and resistant to treatment . the prognosis for such patients can be particularly grim and the treatment options available to their physicians are among the most limited of any cancer . we have preliminary preclinical data for wp1122 , including in vitro activity against cancer cell lines , as well as data on survival of animals subjected to xenografts of human brain tumors , including data regarding biodistribution and pharmacokinetics . in non-optimal doses and treatment regimes , wp1122 performed equal to or better than the current market leader , temozolomide and provided for superior survival for animals treated in combination with temozolomide . notwithstanding these early results , we recognize that substantial additional preclinical and clinical research remains to be done and may not support these initial findings or their translation into activity in humans . we have begun planning and performing the necessary pre-clinical work required to submit an ind for wp1122 . subsequent events $ 9 million registered direct offering on february 16 , 2018 , we entered into a securities purchase agreement ( the “ purchase agreement ” ) with certain institutional investors for the sale by us of 4,290,000 shares of our common stock , at a purchase price of $ 2.10 per share . concurrently with the sale of the common shares , pursuant to the purchase agreement , we also sold warrants to purchase 46 2,145,000 shares of common stock . we sold the common shares and warrants for aggregate gross proceeds of approximately $ 9.0 million with net proceed approximating $ 8.3 million . subject to certain beneficial ownership limitations , the warrants will be initially exercisable on the six-month anniversary of the issuance date at an exercise price equal to $ 2.80 per share of common stock , subject to adjustments as provided under the terms of the warrants . the warrants are exercisable for five years from the initial exercise date . the closing of the sales of these securities under the purchase agreement closed on february 21 , 2018. announcement of stat3 inhibitors and wp1732 in february 2018 , we announced that , pursuant to our continued collaboration with md anderson we had developed and licensed what we believe , based on preclinical testing , is a potential breakthrough - wp1732 , a new molecule in the wp1066 portfolio - in our effort to develop a new cancer treatment that selectively kills highly resistant tumors . we believe this new discovery could improve our ability to treat a broader range of the most difficult cancers , and especially pancreatic cancer . specifically , we have preclinical evidence to suggest this new molecule is capable of controlling a process known as 'ubiquitination ' to block the activated form of stat3 , an important oncogenic transcription factor . we have begun planning and performing the necessary pre-clinical work required to submit an ind for wp1732 lease agreement on march 22 , 2018 , we entered into a lease agreement ( the “ lease ” ) with ipx memorial drive investors , llc ( the “ landlord ” ) for the lease of 2,333 rentable square feet “ rsf ” , which we will use for corporate office space and meetings . the term of the lease is estimated to begin in may 2018 , depending on construction , and continue for an initial term of 66 months , which may be renewed for an additional 5 years . we are required to remit base monthly rent of approximately $ 4,300 which will increase at an average approximate rate of 3 % each year . we are also required to pay additional rent in the form of our pro-rata share of certain specified operating expenses of the landlord . the newly leased space is located in houston , texas . moleculin biotech , inc. results of operations for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 the following table is data derived from the statement of operations ( in thousands ) : replace_table_token_1_th research and development expense . research and development ( “ r & d ” ) expense was $ 4.5 million and $ 1.5 million for the years ended december 31 , 2017 and 2016 , respectively .
| general and administrative expense . general and administrative ( “ g & a ” ) expense was $ 4.1 million and $ 2.4 million for the years ended december 31 , 2017 and 2016 , respectively . the increase in g & a of approximately $ 1.7 million was mainly attributable to : ( a ) the increase in headcount and associated payroll costs including additional stock-based compensation expense of $ 1.0 million ; ( b ) approximately $ 0.4 million in legal , accounting , consulting , and other professional expenses ; ( c ) $ 0.2 million in insurance expense ; and ( d ) approximately $ 0.1 million in occupancy , office and other costs . these increases reflect the increase in support of our clinical activity described above as compared to 2016. we utilize outside consultants , both in r & d and g & a , to a large extent to leverage the work of our employees . total wages paid to our employees , including our ceo , cfo , coo , cmos plus three other employees , were approximately $ 1.5 million . change in fair value of warrant liability . loss from change in fair value of warrant liability was $ 2.5 million for the twelve months ended december 31 , 2017. the non-cash loss in 2017 was associated with an increased fair value calculation . we record the change ( income or expense ) in fair value on revaluation of our warrant liability associated with the warrants we issued in conjunction with our stock offering in february 2017 ( the “ february 2017 offering ” ) . we are required to revalue certain of our 2017 warrants at the time of each warrant exercise and at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred .
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the amendment restates our financial covenants beginning with the quarter ending march 31 , 2016 as follows : ( i ) minimum net worth requirement of not less than $ 250.0 million plus a ) 50 % of net income earned in each quarter beginning march 31 , 2016 and b ) 100 % of proceeds from any issuance of common stock ; ( ii ) debt to ebitda ratio not greater than 3.0 to 1.0 ; and ( iii ) interest coverage ratio not less than 2.0 to 1.0. the amendment also ( i ) extends the term of the credit facility from february 29 , 2016 to january 2 , 2017 ; ( ii ) increases the commitment fee on undrawn amounts from 0.25 % to 0.50 % per annum ; ( iii ) increases the letter of credit fee , subject to certain limited exceptions , to 2.0 % per annum on undrawn stated amounts under letters of credit issued by the lenders ; and ( iv ) limits the maximum amount of loans outstanding at any time for general corporate purposes to $ 20.0 million . at december 31 , 2015 we had no outstanding borrowings under the credit agreement , and we had outstanding letters of credit totaling $ 20.5 million . after consideration of outstanding letters of credit , the availability of the unused portion of the revolving credit agreement ( as amended ) for additional letters of credit and for general corporate purposes was $ 59.5 million f-13 gulf island fabrication , inc. notes to consolidated financial statements- ( continued ) and $ 20.0 million , respectively . amounts borrowed under our the credit story_separator_special_tag executive overview and summary our business we are a leading fabricator of offshore drilling and production platforms and other steel structures for customers in the oil and gas and marine industries , including jackets and deck sections of fixed production platforms , hull , tendon , and or deck sections of floating production platforms ( such as tlps , spars , fpsos and mindocs ) , piles , wellhead protectors , subsea templates , and various production , compressor , and utility modules . in addition . we also perform onshore and offshore construction services as well the repair , fabrication and construction of marine vessels . we use modern welding and fabrication technology , and all of our projects are manufactured in accordance with industry standards , specifications and regulations , including those published by the american petroleum institute , the american welding society , the american society of mechanical engineers , the american bureau of shipping and the united states coast guard . the quality management systems of our operating subsidiaries are certified as iso 9001-2008 quality assurance programs . operational achievements during the year include : we fabricated a 1,200 foot jacket , piles , and an approximate 4,500 short ton topside for a deepwater gulf of mexico project , which commenced in the second quarter of 2013 and was successfully completed and delivered on time to our customer during the fourth quarter of 2015. we completed five jackets and piles for a shallow water wind turbine project located off the coast of rhode island , that commenced in the fourth quarter of 2014 and were completed and delivered on time to our customer during the second and third quarters of 2015. we completed one of three tow boats for an inland towing customer that commenced in the third quarter of 2014. the first tow boat was completed during the fourth quarter of 2015. the second tow boat is expected to be completed during the first quarter of 2016 , and the third tow boat is expected to be completed during the third quarter of 2016. known trends and uncertainties our results of operations are affected primarily by ( i ) the level of exploration and development activity maintained by oil and gas exploration and production companies in the gulf of mexico , and to a lesser extent , overseas locations , ( ii ) our ability to win contracts through competitive bidding or alliance/partnering arrangements , and ( iii ) our ability to effectively manage contracts to successful completion . the level of exploration and development activity throughout the energy industry is related to several factors , including trends in oil and gas prices , expectations of future oil and gas prices , changes in technology and changes in the regulatory environment . the slowdown in our industry as a result of crude oil price volatility has created significant uncertainty in global equity prices and overall market fundamentals within the energy industry in general . this uncertainty is the result of several factors including a global supply/demand imbalance for oil and an oversupply of natural gas in the united states ; robust non-opec supply growth led by expanding unconventional production in the united states ; weakening growth in emerging markets ; and the decision by opec to maintain its current production ceiling . the downturn in oil and gas prices presents challenges in the near term , particularly as it relates to shallow water activity . the further reductions in capital spending by our customers in the global oil and gas industry , relative to the already reduced spending levels in the prior year for exploration and production , introduces additional uncertainty to short- and long-term demand in offshore oil and gas project activity . the result of these actions have had an adverse effect on our overall backlog levels and has created challenges with respect to our ability to operate our fabrication facilities at desired utilization levels . we anticipate that crude oil prices will increase in the future , as continued growth in demand and a slowing in supply growth should bring global markets into balance ; however , the timing of any such increase is unknown . we continue to respond to expected near-term decreases in capital spending by our customers by reducing our own discretionary and capital spending . story_separator_special_tag for additional information , see note 1 in the notes to consolidated financial statements “ assets held for sale ” and item 1a . risk factors – “ our backlog is subject to change as a result of changes to management 's estimates , suspension or termination of projects currently in our backlog or our failure to secure additional projects . our revenue , net income and cash flow could be adversely affected as a result of changes to our backlog. ” workforce our workforce varies based on the level of ongoing fabrication activity at any particular time . during 2015 we made reductions in our workforce at our houma , la and ingleside , tx facilities in response to decreases in the amount of fabrication work . as of december 31 , 2015 and 2014 , we had approximately 1,255 and 1,700 employees , respectively . on january 1 , 2016 , we hired 380 employees with the leevac acquisition representing substantially all of the former leevac employees . we use contract labor when required to meet customer demand . the number of contract laborers we used decreased to 71 in 2015 as compared to 247 in 2014. none of our employees are employed pursuant to a collective bargaining agreement , and we believe our relationship with our employees is good . in an effort to maintain our current workforce and attract new employees in period of high activity , we have enhanced several incentive programs and expanded our training facility . labor hours worked were 2.7 million , 3.6 million and 4.1 million for the years ending december 31 , 2015 , 2014 and 2013 respectively . the decrease in labor hours worked in 2015 relative to 2014 was primarily attributable to overall decreased levels of activity as a result of a decline in our oil and gas fabrication activity due to the steep decline in oil and gas prices as well as the completion of a jacket , piles , and topsides for a deepwater gulf of mexico project , and the completion of five jackets and piles for a shallow water wind turbine project located off the coast of rhode island , that commenced in the fourth quarter of 2014. critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states , which require us to make estimates and assumptions . we believe that of our significant accounting policies ( see note 1 in the notes to consolidated financial statements ) , the following involves a higher degree of judgment and complexity : revenue recognition the majority of our revenue is recognized on a percentage-of-completion basis based on the ratio of direct labor hours actually performed to date compared to the total estimated direct labor hours required for completion . accordingly , contract price and cost estimates are reviewed monthly as the work progresses , and adjustments proportionate to the percentage of 25 completion are reflected in revenue for the period when such estimates are revised . if these adjustments were to result in a reduction of previously reported profits , we would recognize a charge against current earnings , which may be significant depending on the size of the project or the adjustment . profit incentives are included in revenue when their realization is probable . claims for extra work or changes in scope of work are included in revenue when the amount can be reliably estimated and collection is probable . changes in job performance , job conditions , and estimated profitability , including those arising from contract penalty provisions , and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined . for the years ended december 31 , 2015 , 2014 and 2013 , there was no significant revenue related to unapproved change orders or claims . contract costs include all direct material , labor and subcontract costs and those indirect costs related to contract performance , such as indirect labor , supplies and tools . also included in contract costs are a portion of those indirect contract costs related to plant capacity , such as depreciation , insurance and repairs and maintenance . these indirect costs are allocated to jobs based on actual direct labor hours worked . some contracts include a total or partial reimbursement to us of any costs associated with specific capital projects required by the fabrication process . if a particular capital project provides future benefits to us , the cost to build the capital project will be capitalized , and the revenue for the capital project will increase the estimated profit in the contract . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . we recognized contract losses of $ 33.9 million , $ 6.6 million , and $ 30.8 million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . contract losses for the year ended december 31 , 2015 were primarily related to $ 24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project which was recently delivered . in addition we accrued contract losses of approximately $ 9.4 million resulting from increases in our projected unit labor rates of our fabrication facilities . our increases in unit labor rates were driven by our inability to absorb fixed costs due to decreases in expected oil and gas fabrication activity . contract losses for the year ended december 31 , 2014 of $ 6.6 million were primarily related to two tank barge projects for a marine transportation company , platform supply vessels for an offshore marine company and a production platform jacket for a deepwater customer .
| results of operations loss provision - during the year ended december 31 , 2015 , we incurred contract losses of $ 24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project which was recently delivered . we are currently in negotiations with this customer concerning change orders with respect to the adjusted amounts due under this contract which are not included in contract revenues at december 31 , 2015. our intention is to resolve the disputed cost amounts and finalize the change orders with our customer as quickly as possible ; however , we can give no assurance that these negotiations will conclude or that the change orders will be finalized in the near term . in addition , we accrued contract losses of approximately $ 9.4 million resulting from increases in our projected unit labor rates of our fabrication facilities . our increases in unit labor rates were driven by our inability to absorb fixed costs due to decreases in expected oil and gas fabrication activity . 27 comparison of the years ended december 31 , 2015 and 2014 ( in thousands , except for percentages ) : replace_table_token_7_th revenues - our revenues for years ended december 31 , 2015 and 2014 were $ 306.1 million and $ 506.6 million , respectively , representing a decrease of 39.6 % . the decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards as a result of depressed oil and gas prices and the corresponding reduction in activity in the gulf of mexico .
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all significant inter-company transactions and balances have been eliminated in consolidation . the consolidated financial statements of the company are prepared in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) and general practices within the banking industry . organization and background . the business activities of the bancorp consist primarily of the operations of the bank , which owns 100 % of the common securities of the following subsidiaries : gbc real estate investments , inc. , cathay holdings llc , cathay holdings 2 , llc , cathay holdings 3 , llc , cathay community development corporation , and its wholly owned subsidiary , cathay new asia community development corporation . there are limited operating business activities currently at the bancorp . the bank is a commercial bank , servicing primarily the individuals , professionals , and small to medium-sized businesses in the local markets in which its branches are located . its operations include the acceptance of checking , savings , and time deposits , and the making of commercial , real estate , and consumer loans . the bank also offers trade financing , letters of credit , wire transfer , foreign currency spot and forward contracts , internet banking , investment services , and other customary banking services to its customers . use of estimates . the preparation of the consolidated financial story_separator_special_tag . general the following discussion is intended to provide information to facilitate the understanding and assessment of the consolidated financial condition and results of operations of the bancorp and its subsidiaries . it should be read in conjunction with the audited consolidated financial statements and notes appearing elsewhere in this annual report on form 10-k. the bank offers a wide range of financial services . it currently operates 21 branches in southern california , 12 branches in northern california , 12 branches in new york state , one branch in massachusetts , two branches in texas , three branches in washington state , three branches in illinois , one branch in new jersey , one branch in maryland , one branch in nevada , one branch in hong kong and two representative offices ( one in shanghai , china , and one in taipei , taiwan ) . the bank is a commercial bank , servicing primarily individuals , professionals , and small to medium-sized businesses in the local markets in which its branches are located . the financial information presented herein includes the accounts of the bancorp , its subsidiaries , including the bank , and the bank 's consolidated subsidiaries . all material transactions between these entities are eliminated . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities at the date of our consolidated financial statements . actual results may differ from these estimates under different assumptions or conditions . certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . management believes the following are critical accounting policies that require the most significant judgments and estimates used in the preparation of the consolidated financial statements : a llowance for credit l osses the determination of the amount of the provision for credit losses charged to operations reflects management 's current judgment about the credit quality of the loan portfolio and takes into consideration changes in lending policies and procedures , changes in economic and business conditions , changes in the nature and volume of the portfolio and in the terms of loans , changes in the experience , ability , and depth of lending management , changes in the volume and severity of past due , non-accrual , and adversely classified or graded loans , changes in the quality of the loan review system , changes in the value of underlying collateral for collateral-dependent loans , the existence and effect of any concentrations of credit and the effect of competition , legal and regulatory requirements , and other external factors . the nature of the process by which we determine the appropriate allowance for loan losses requires the exercise of considerable judgment . the allowance is increased by the provision for loan losses and decreased by charge-offs when management believes the uncollectibility of a loan is confirmed . subsequent recoveries , if any , are credited to the allowance . a weakening of the economy or other factors that adversely affect asset quality could result in an increase in the number of delinquencies , bankruptcies , or defaults , and a higher level of non-performing assets , net charge-offs , and provision for loan losses in future periods . 40 the total allowance for credit losses consists of two components : specific allowances and general allowances . to determine the adequacy of the allowance in each of these two components , we employ two primary methodologies , the individual loan review analysis methodology and the classification migration methodology . these methodologies support the basis for determining allocations between the various loan categories and the overall adequacy of our allowance to provide for probable losses inherent in the loan portfolio . story_separator_special_tag the company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in asc topic 350. the two-step impairment testing process conducted by us , if needed , begins by assigning net assets and goodwill to our reporting units . we then complete “ step one ” of the impairment test by comparing the fair value of each reporting unit ( as determined in note 1 to the consolidated financial statements ) with the recorded book value ( or “ carrying amount ” ) of its net assets , with goodwill included in the computation of the carrying amount . if the fair value of a reporting unit exceeds its carrying amount , goodwill of that reporting unit is not considered impaired , and “ step two ” of the impairment test is not necessary . if the carrying amount of a reporting unit exceeds its fair value , step two of the impairment test is performed to determine the amount of impairment . step two of the impairment test compares the carrying amount of the reporting unit 's goodwill to the “ implied fair value ” of that goodwill . the implied fair value of goodwill is computed by assuming all assets and liabilities of the reporting unit would be adjusted to the current fair value , with the offset as an adjustment to goodwill . this adjusted goodwill balance is the implied fair value used in step two . an impairment charge is recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value . valuation of other real estate owned ( oreo ) real estate acquired in the settlement of loans is initially recorded at fair value , less estimated costs to sell . specific valuation allowances on other real estate owned are recorded through charges to operations to recognize declines in fair value subsequent to foreclosure . gains on sales are recognized when certain criteria relating to the buyer 's initial and continuing investment in the property are met . story_separator_special_tag serif '' > ● change in the mix of interest-bearing liabilities : average interest bearing deposits of $ 7.80 billion increased to 92.6 % of total interest-bearing liabilities in 2015 compared to 88.5 % in 2014. offsetting the increase , average securities sold under agreements to repurchase decreased to 4.8 % of total interest-bearing liabilities in 2015 compared to 8.1 % in 2014. net interest margin , defined as net interest income to average interest-earning assets , increased to 3.39 % in 2015 from 3.35 % in 2014. the increase in the net interest margin was primarily due to the impact from the increase in loans and the decrease in securities sold under agreements to repurchase offset by the increase in time deposits and money market deposits . 44 net interest income increased $ 18.1 million , or 5.6 % , from $ 324.7 million in 2013 to $ 342.8 million in 2014. interest income on tax-exempt securities was zero in 2014 compared to $ 1.0 million , or $ 1.5 million on a tax-equivalent basis , in 2013. the increase in net interest income was due primarily to the increase in loan interest income and the decrease in interest expense from securities sold under agreements to repurchase , offset by the decrease in interest income from available-for-sale securities . average loans for 2014 were $ 8.53 billion , a $ 901.7 million , or 11.8 % , increase from $ 7.63 billion in 2013. compared with 2013 , average commercial mortgage loans increased $ 411.4 million , or 10.6 % , average residential mortgage loans increased $ 222.8 million , or 15.7 % , average commercial loans increased $ 173.8 million , or 8.1 % , and average real estate construction loans increased $ 95.4 million , or 53.9 % . average investment securities were $ 1.42 billion in 2014 , a decrease of $ 515.6 million , or 26.7 % , from 2013 , due primarily to decreases in agency mortgage-backed securities of $ 483.4 million , or 38.6 % . average interest bearing deposits were $ 6.92 billion in 2014 , an increase of $ 586.1 million , or 9.3 % , from $ 6.33 billion in 2013 , primarily due to increases of $ 264.2 million , or 6.6 % , in time deposits , $ 191.7 million , or 15.8 % , in money market deposits , $ 86.9 million , or 13.7 % , in interest bearing demand deposits , and $ 43.3 million , or 8.9 % , in savings deposits . average securities sold under agreements to repurchase decreased $ 343.0 million , or 35.3 % , to $ 629.3 million in 2014 from $ 972.3 million in 2013 , primarily due to maturities and prepayments of securities sold under agreements to repurchase in 2014. average other borrowings increased $ 73.4 million , or 101 % , to $ 146.1 million in 2014 from $ 72.7 million in 2013 , primarily due to increases in fhlb advances . average long term debt decreased $ 49.7 million , or 29.3 % , to $ 119.8 million in 2014 from $ 169.5 million in 2013. taxable-equivalent interest income increased $ 11.1 million , or 2.7 % , to $ 418.6 million in 2014 from $ 407.5 million in 2013 , primarily due to increases in volume of loans offset by a decline in volume of investment securities and by a change in the mix of interest-earning assets as discussed below : ● changes in volume : average interest-earning assets increased $ 439.5 million , or 4.5 % , to $ 10.22 billion in 2014 , compared with average interest-earning assets of $ 9.78 billion in 2013. the increase in average loans of $ 901.7 million in 2014 offset by a decrease in average investment securities of $ 515.6 million primarily contributed
| results of operations overview for the year ended december 31 , 2015 , we reported net income attributable to common stockholders of $ 161.1 million , or $ 1.98 per diluted share , compared to net income attributable to common stockholders of $ 137.8 million , or $ 1.72 per share , in 2014 , and net income attributable to common stockholders of $ 113.5 million , or $ 1.43 per share , in 2013. the $ 23.3 million increase in net income from 2014 to 2015 was primarily the result of increases in net interest income , and decreases in costs associated with debt redemption , partially offset by decreases in securities gains , increases in operation expenses from amortization of investments in affordable housing and alternative energy partnerships and in occupancy expenses and professional expenses . the return on average assets in 2015 was 1.34 % , compared to 1.26 % in 2014 , and to 1.17 % in 2013. the return on average stockholders ' equity was 9.52 % in 2015 , compared to 8.95 % in 2014 , and to 8.00 % in 2013 . 42 highlights ● diluted earnings per share increased 15.1 % to $ 1.98 per share for the year ended december 31 , 2015 compared to $ 1.72 per share for the year ended december 31 , 2014 .
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in january 2017 , the story_separator_special_tag the following should be read in conjunction with the sections of this annual report on form 10-k entitled “ risk factors , ” “ cautionary note concerning forward-looking statements , ” “ selected financial data , ” “ business ” and our consolidated financial statements and related notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors , including those discussed in the sections entitled “ risk factors ” and “ legal proceedings ” elsewhere in this annual report on form 10-k. overview and outlook we continue to be encouraged by the strength of the overall u.s. new-home market , which continues to be supported by strong general economic conditions , low unemployment levels , modest wage gains , and favorable interest rates , combined with a limited supply of new and existing homes . the recently enacted tax cuts and jobs act is expected to provide an additional boost to the already favorable market , and we expect sustained momentum as we move through 2018. we believe demand will continue to be strong across the u.s. in general and in a majority of the markets in which we operate over the next several years . nevertheless , we continue to see variability from market to market with demand mostly driven by general local economic conditions . in certain markets , price and affordability issues are potentially limiting demand . additionally , homebuilding activity in many markets continues to be constrained by land and labor availability , as well as fee increases and delays imposed by local municipalities , which we expect will continue to constrict supply . while the limited supply and production deficits have supported price appreciation in many markets , these increases have been partially or sometimes fully offset by increases in labor and material costs and we expect that these construction cost pressures will continue . we believe these demand and supply trends will result in a continued growth trajectory in the homebuilding market , with consumer , job and household formation growth serving as leading indicators of positive demand , offset by certain downward pressures . our full year 2017 results support our positive outlook , despite challenges presented to our operations in the houston area , which was impacted by hurricane harvey . new home deliveries increased 12 % from the prior year , fueling a 17 % increase in home sales revenue . the increase in new home deliveries was accompanied by an 8 % increase in average selling communities . new home orders were up 19 % compared to the prior year , and ending backlog units were up 32 % compared to the prior year , providing a very solid foundation as we move into 2018 . - 46 - consolidated financial data ( in thousands , except share and per share amounts ) : replace_table_token_14_th year ended december 31 , 2017 compared to year ended december 31 , 2016 net new home orders , average selling communities and monthly absorption rates by segment replace_table_token_15_th - 47 - net new home orders for the year ended december 31 , 2017 increased 19 % to 5,075 , compared to 4,248 for the prior year . the increase in net new home orders was due to an overall 10 % increase in monthly absorption rates and an 8 % increase in average selling communities . overall , the markets in which we operate continue to have strong demand , which is demonstrated by increased absorption rates in all but one of our reportable segments for the year ended december 31 , 2017. maracay homes reported an 11 % decrease in net new home orders driven by an 18 % decrease in average selling communities offset by a 10 % increase in monthly absorption rate . the increase in monthly absorption rate was the result of strong market fundamentals in our arizona markets and successful new product offerings during the year . the decrease in average selling communities was due to the timing of community openings and closings compared to the prior year . pardee homes increased net new home orders by 31 % mainly due to a 27 % increase in average selling communities along with a 2 % increase in monthly absorption rate . demand remained strong in all of the markets in which pardee homes operates . net new home orders increased by 16 % at quadrant homes largely due to the 22 % increase in monthly absorption rate . the increase in monthly absorption rate was the result of our well located communities and continued strong market fundamentals . trendmaker homes increased net new home orders by 3 % due to a 9 % increase in average selling communities offset by a 7 % decrease in monthly absorption rate , partly due to the loss of two weeks of selling due to the impact of hurricane harvey . the houston market continues to experience softer market conditions due to the volatility in oil prices in recent years and the related impact on job growth . tri pointe homes ' net new home orders increased by 36 % on a year over year basis due to an 18 % increase in monthly absorption rate and a 16 % increase in average selling communities . demand remains strong in the markets in which tri pointe homes operates , as evidenced by absorptions of 3.9 homes per community , per month , at average selling prices above the company average . winchester homes experienced a 14 % growth in net new home orders as a result of a 19 % increase in monthly absorption rate offset by a slight decrease in average selling communities . the increase in monthly absorption rate was due to strong customer demand in some of our larger master plan communities . story_separator_special_tag approximately 30 deliveries that would have occurred in 2017 will instead deliver in early 2018 at trendmaker homes . tri pointe homes reported a 28 % increase in home sales revenue as a result of a 21 % increase in new homes delivered and a 6 % increase in average sales price . the increase in new homes delivered was driven by the 36 % increase in net new home orders during the year . home sales revenue increased at winchester homes by 9 % due to an increase in new homes delivered as a result of the 14 % increase in net new home orders during the year . - 49 - homebuilding gross margins ( dollars in thousands ) replace_table_token_18_th ( 1 ) non-gaap financial measure ( as discussed below ) . our homebuilding gross margin percentage decreased to 20.5 % for the year ended december 31 , 2017 , as compared to 21.2 % for the year ended december 31 , 2016 . the decrease in gross margin percentage was primarily due to the mix of homes delivered and increased labor and materials cost . excluding interest and impairments and lot option abandonments in cost of home sales , adjusted homebuilding gross margin percentage was 22.9 % for the year ended december 31 , 2017 compared to 23.4 % for the prior year period . adjusted homebuilding gross margin is a non-gaap financial measure . we believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors , who adjust gross margins in a similar fashion . see the table above reconciling this non-gaap financial measure to homebuilding gross margin , the nearest gaap equivalent . land and lot gross margins ( dollars in thousands ) replace_table_token_19_th our land and lot gross margin percentage increased to 80.0 % for the year ended december 31 , 2017 as compared to 76.0 % for the prior year period , in part , owing to the following . during the year ended december 31 , 2017 , pardee homes sold a parcel consisting of 69 homebuilding lots , located in the pacific highlands ranch community in san diego , california , representing $ 66.8 million in land and lot sales revenue and $ 56.1 million in land and lot gross margin . during the year ended december 31 , 2016 , pardee homes sold two parcels , totaling 102 homebuilding lots , located in the pacific highlands ranch community . pardee homes received $ 61.6 million in cash proceeds from the related sales in 2016. these sales resulted in significant gross margin due to the low land basis of the pacific highlands ranch community , which was acquired in 1981. land and lot sales gross margin percentage can vary significantly due to the type of land and its related cost basis . additionally , we expect land and lot sales revenue to vary significantly between reporting periods based on our business decisions to maintain or decrease our land ownership in various markets . our land and lot sale decisions will be based on a variety of factors , including , without limitation , prevailing market conditions . - 50 - sales and marketing , general and administrative expense ( dollars in thousands ) replace_table_token_20_th sales and marketing expense as a percentage of home sales revenue decreased to 5.0 % for the year ended december 31 , 2017 from 5.5 % for the year ended december 31 , 2016 . the decrease was primarily the result of higher operating leverage on the fixed components of sales and marketing expenses as a result of the 17 % increase in homes sales revenue . sales and marketing expense increased $ 9.2 million , or 7 % , to $ 137.1 million for the year ended december 31 , 2017 from $ 127.9 million for the prior year period . the increase was due primarily to the additional selling expenses and commissions associated with the 17 % increase in home sales revenue during the year . general and administrative expense as a percentage of home sales revenue decreased to 5.1 % for the year ended december 31 , 2017 from 5.3 % in the prior year . the decrease was primarily the result of higher operating leverage as a result of the 17 % increase in homes sales revenue during the year . general and administrative expense increased by $ 13.6 million to $ 137.8 million for the year ended december 31 , 2017 from $ 124.1 million for the prior year ended december 31 , 2016. the increase in general and administrative expenses is primarily related to incremental costs associated with the additional headcount to support future growth , along with our continued expansion into austin , texas and los angeles , california and the recently announced expansion into the sacramento , california market . total sales and marketing and g & a ( “ sg & a ” ) expense increased $ 22.8 million , or 9 % , to $ 274.8 million for the year ended december 31 , 2017 from $ 252.0 million in the prior year period . sg & a decreased to 10.1 % of home sales revenue from 10.8 % for the years ended december 31 , 2017 and 2016 , respectively . interest interest , which was incurred principally to finance land acquisitions , land development and home construction , totaled $ 84.3 million and $ 68.3 million for the years ended december 31 , 2017 and 2016 , respectively . all interest incurred in both periods was capitalized .
| overview our principal uses of capital for the year ended december 31 , 2017 were operating expenses , share repurchases , land purchases , land development and home construction . we used funds generated by our operations and available borrowings under the credit facility to meet our short-term working capital requirements . we remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth . as of december 31 , 2017 , we had $ 282.9 million of cash and cash equivalents . we believe that we have sufficient cash and sources of financing for at least the next twelve months . our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness , including the purchase price of assets to be acquired with debt financing , the estimated market value of our assets and the ability of particular assets , and our company as a whole , to generate cash flow to cover the expected debt service . senior notes in june 2017 , tri pointe group issued $ 300.0 million aggregate principal amount of 2027 notes at 100.00 % of their aggregate principal amount . net proceeds of this issuance were $ 296.3 million , after debt issuance costs and discounts . the 2027 notes mature on june 1 , 2027 and interest is paid semiannually in arrears on june 1 and december 1 of each year until maturity , beginning on december 1 , 2017 . - 57 - in may 2016 , tri pointe group issued $ 300.0 million aggregate principal amount of 2021 notes at 99.44 % of their aggregate principal amount . net proceeds of this issuance were $ 293.9 million , after debt issuance costs and discounts .
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you should carefully read “ special note regarding forward-looking statements ” in this form 10-k. we conduct substantially all of our activities through our direct wholly-owned subsidiary , nvi , and its subsidiaries . we operate on a retail fiscal calendar that results in a given fiscal year consisting of a 52- or 53-week period ending on the saturday closest to december 31. in a 52-week fiscal year , each quarter contains 13 weeks of operations ; in a 53-week fiscal year , each of the first , second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations . references herein to “ fiscal year 2018 ” relate to the 52 weeks ended december 29 , 2018 , references herein to “ fiscal year 2017 ” relate to the 52 weeks ended december 30 , 2017 and references herein to “ fiscal year 2016 ” relate to the 52 weeks ended december 31 , 2016 . revision of prior period financial statements during the fourth quarter of 2018 , we identified and corrected immaterial errors related to lease accounting for all periods presented in our consolidated financial statements . for further details , refer to note 1. business and significant accounting policies : correction of errors in previously issued financial statements in our consolidated financial statements included in part ii . item 8. of this form 10-k. accordingly , we have revised prior period financial results contained in this form 10-k to correct the effect of these errors for the corresponding periods . management 's discussion and analysis included herein is based on the revised financial results for the years ended december 30 , 2017 and december 31 , 2016. overview we are one of the largest and fastest growing optical retailers in the united states and a leader in the attractive value segment of the u.s. optical retail industry . we believe that vision is central to quality of life and that people deserve to see their best to live their best , no matter what their budget . our mission is to make quality eye care and eyewear affordable and accessible to all americans . we achieve this by providing eye exams , eyeglasses and contact lenses to cost-conscious and low-income consumers . we deliver exceptional value and convenience to our customers , with an opening price point that strives to be among the lowest in the industry , enabled by our low-cost operating platform . we reach our customers through a diverse portfolio of 1,082 retail stores across five brands and 19 consumer websites as of fiscal year end 2018 . our operations consist of two reportable segments : owned & host – as of fiscal year end 2018 , our owned brands consisted of 657 america 's best contacts and eyeglasses ( “ america 's best ” ) retail stores and 115 eyeglass world retail stores . in america 's best stores , vision care services are provided by optometrists employed by us or by independent professional corporations . america 's best stores are primarily located in high-traffic strip centers next to similar nationally-known discount retailers . eyeglass world locations primarily feature independent optometrists who perform eye exams and on-site optical laboratories that enable stores to quickly fulfill many customer orders and make repairs on site . eyeglass world stores are primarily located in freestanding or in-suite locations near high-foot-traffic shopping centers . our two host brands consisted of 54 vista optical locations on military bases and 29 vista optical locations within fred meyer stores as of fiscal year end 2018 . we have strong , long-standing relationships with our host partners and have maintained each partnership for over 19 years . both host brands compete within the value segment of the u.s. optical retail industry . these brands provide eye exams principally by independent optometrists in nearly all locations . all brands utilize our centralized laboratories . this segment also includes sales from our three store omni-channel brand websites . 45 legacy – we manage the operations of , and supply inventory and laboratory processing services to , 227 vision centers in walmart retail locations as of fiscal year end 2018 . under our management & services agreement with walmart , our responsibilities include ordering and maintaining merchandise inventory , arranging the provision of optometry services , providing managers and staff at each location , training personnel , providing sales receipts to customers , maintaining necessary insurance , obtaining and holding required licenses , permits and accreditations , owning and maintaining store furniture , fixtures and equipment and developing annual operating budgets and reporting . we earn management fees as a result of providing such services and therefore we record revenue related to sales of products and product protection plans to our legacy partner 's customers on a net basis . our management & services agreement also allows our legacy partner to collect penalties if the vision centers do not generate a requisite amount of revenues . no such penalties have been assessed under our current arrangement , which began in 2012. we also sell to our legacy partner merchandise that is stocked in retail locations we manage pursuant to a separate supplier agreement , and provide centralized laboratory services for the finished eyeglasses for our legacy partner 's customers in stores that we manage . we lease space from walmart within or adjacent to each of the locations we manage and use this space for the provision of optometric examination services . during the fiscal year 2018 , sales associated with our legacy partner arrangement represented 10.0 % of consolidated net revenue . this exposes us to concentration of customer risk . our agreements with our legacy partner expire on august 23 , 2020 , and will automatically renew for a three-year period unless a party elects not to renew . story_separator_special_tag store closures . a new store is included in the comparable store sales calculation during the thirteenth full fiscal month following the store 's opening . closed stores are removed from the calculation for time periods that are not comparable . in the past , we have closed our stores as a result of poor store performance , lease expiration or non-renewal and or the terms of our arrangements with our host and legacy partners . managed care and insurance our managed care business relates to vision care programs and associated benefits ( i ) sponsored by employers or other groups , ( ii ) provided by insurers and managed care entities , such as health maintenance organizations to individuals , and ( iii ) delivered , typically on a fee-for-service or capitated basis , by health care providers , such as ophthalmologists , optometrists and opticians . managed care has become increasingly important to the optical retail industry . an increasing percentage of our customers receive vision insurance coverage through managed care payors . these payors represent an increasingly significant portion of our overall revenues and our revenue growth . while we have relationships with almost all vision care insurers in the united states and with all of the major carriers , currently , a relatively small number of payors comprise the majority of our managed care revenues , subjecting us to concentration risk . as our managed care business continues to expand , we have incurred and expect to incur additional costs related to this area of our business . our future operational success could depend on our ability to negotiate , maintain and extend contracts with managed vision care companies , vision insurance providers and other third-party payors , several of whom have significant market share . in addition , as our managed care business continues to grow closer to overall industry penetration levels , we expect our associated revenue growth rate to slow over time . vision care professional recruitment and coverage our ability to continue to attract and retain qualified vision care professionals is key to store operations , as well as maintaining our relationships with independent optometrists and professional corporations owned by eye care practitioners that provide vision care services in our stores . 47 overall economic trends macroeconomic factors that may affect customer spending patterns , and thereby our results of operations , include employment rates , business conditions , changes in the housing market , the availability of credit , interest rates , tax rates and fuel and energy costs . however , eye care purchases are predominantly a medical necessity and are considered non-discretionary in nature . therefore , the overall economic environment and related changes in consumer behavior may have less of an impact on our business than for retailers in other industries . our customers also benefit from our low prices during periods of economic downturn and uncertainty . consumer preferences and demand our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate , develop and offer a compelling product assortment responsive to customer preferences and design trends . we estimate that optical consumers typically replace their eyeglasses every two to three years , while contact lens customers typically order new lenses every six to twelve months , reflecting the predictability of these recurring purchase behaviors . infrastructure investment our historical results of operations reflect the impact of our ongoing investments in infrastructure to support our growth . we have made significant investments in information technology systems , supply chain systems and marketing . these investments include significant additions to our personnel , including experienced industry executives , and management and merchandising teams to support our long-term growth objectives . we intend to continue making targeted investments in our infrastructure as necessary to support our growth . pricing strategy we are committed to providing our products to our customers at low prices . we generally employ a simple low price/high value strategy that consistently delivers savings to our customers without the need for extensive promotions . our ability to source and distribute products effectively our revenue and operating income are affected by our ability to purchase our products in sufficient quantities at competitive prices . while we believe our vendors have adequate capacity to meet our current and anticipated demand , our level of revenue could be adversely affected in the event we face constraints in our supply chain , including the inability of our vendors to produce sufficient quantities of merchandise in a manner that is able to match market demand from our customers , leading to lost revenue . we rely on a limited number of vendors to supply the majority of our eyeglass frames , eyeglass lenses and contact lenses , and are thus exposed to concentration of supplier risk . in particular , we have agreed to exclusively purchase almost all of our spectacle lenses from one supplier . during fiscal year 2018 , 90 % of lens expenditures were from this vendor , 93 % of contact lens expenditures were with three vendors and 52 % of frame expenditures were with two vendors . in addition , if the presidential administration imposes significant tariffs or other restrictions on imports from china , it could have an adverse impact on our business . we source merchandise from suppliers located in china , a significant amount of our domestically-purchased merchandise is manufactured abroad , including in china , and one of our outsourced optometric labs is located in china . any such tariffs , restrictions or other changes could lead to additional costs , delays in shipments , embargos and other uncertainties that could negatively impact our relationships with our international vendors and labs and materially adversely affect our business , including by requiring us to increase our prices and identify alternative sources for merchandise and labs .
| results of operations the following table summarizes key components of our results of operations for the periods indicated , both in dollars and as a percentage of our net revenue . replace_table_token_2_th replace_table_token_3_th 52 fiscal year 2018 compared to fiscal year 2017 net revenue the following presents , by segment and by brand , comparable store sales growth , stores open at the end of the period and net revenue for fiscal year 2018 compared to fiscal year 2017 . replace_table_token_4_th _ ( 1 ) we calculate total comparable store sales based on consolidated net revenue excluding the impact of ( i ) corporate/other segment net revenue , ( ii ) sales from stores opened less than 13 months , ( iii ) stores closed in the periods presented , ( iv ) sales from partial months of operation when stores do not open or close on the first day of the month and ( v ) if applicable , the impact of a 53rd week in a fiscal year . brand-level comparable store sales growth is calculated based on cash basis revenues consistent with what the codm reviews , and consistent with reportable segment revenues presented in note 15 . `` segment reporting '' in our consolidated financial statements included in part ii . item 8. of this form 10-k , with the exception of the legacy segment , which is adjusted as noted in clause ( ii ) of footnote ( 3 ) below . ( 2 ) percentages reflect line item as a percentage of net revenue .
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the preferred units are considered to be equivalent units for the purpose of calculating diluted income or loss per lp unit prior to their redemption on march 31 , 2010. for accounting purposes relating to acquisitions of entities under common control , earnings from ari story_separator_special_tag the following discussion is intended to assist you in understanding our present business and the results of operations together with our present financial condition . this section should be read in conjunction with our consolidated financial statements and the accompanying notes contained in this annual report on form 10-k for the fiscal year ended december 31 , 2011 , or our 2011 form 10-k. overview introduction icahn enterprises l.p. , or icahn enterprises , is a master limited partnership formed in delaware on february 17 , 1987. we own a 99 % limited partner interest in icahn enterprises holdings l.p. , or icahn enterprises holdings . icahn enterprises holdings and its subsidiaries own substantially all of our assets and liabilities and conduct substantially all of our operations . icahn enterprises g.p . inc. , or icahn enterprises gp , our sole general partner , which is owned and controlled by mr. icahn , owns a 1 % general partner interest in both us and icahn enterprises holdings , representing an aggregate 1.99 % general partner interest in us and icahn enterprises holdings . as of december 31 , 2011 , affiliates of mr. icahn owned 79,238,262 of our depositary units which represented approximately 92.6 % of our outstanding depositary units . in connection with a rights offering registered on form s-3 , which was declared effective on december 27 , 2011 , mr. icahn and his affiliates fully exercised their basic subscription rights and over-subscription rights to subscribe for our depositary units allocated to them in january 2012. upon expiration of the rights offering , mr. icahn and his affiliates owned 92,233,846 , or approximately 93.0 % , of our outstanding depositary units . refer to note 19 , `` subsequent events , '' to our consolidated financial statements for further discussion . we are a diversified holding company owning subsidiaries engaged in the following operating businesses : investment , automotive , gaming , railcar , food packaging , metals , real estate and home fashion . in addition to our operating businesses , we discuss the holding company , which includes the unconsolidated results of icahn enterprises and icahn enterprises holdings , and investment activity and expenses associated with the activities of the holding company . significant events distributions-in-kind on april 29 , 2011 , the investment funds made a distribution-in-kind of 13,538,446 shares of tropicana common stock with a value of $ 216 million to us in redemption of $ 216 million of our limited and general partner interests in the investment funds . the distribution transferred the ownership of the tropicana common stock held by the investment funds to us . as a result of this transaction , we directly owned 51.5 % of the total outstanding common stock of tropicana . this distribution increased equity attributable to icahn enterprises by $ 27 million and decreased equity attributable to non-controlling interests by $ 27 million , representing the basis difference between the redemption value determined as of april 29 , 2011 and the application of purchase accounting to the controlling interest in tropicana pursuant to asc topic 805 , business combinations , on november 15 , 2010. in addition , on june 30 , 2011 , the investment funds made a distribution-in-kind of the loans under the exit facility with a value of $ 71 million to us in redemption of $ 71 million of our limited and general partner interests in the investment funds . the distribution transferred the ownership of the loans under the exit facility held by the investment funds directly to us . as a result of this transaction , we currently directly own over 50 % of the loans under the exit facility . 60 results of operations consolidated financial results the following tables summarize total revenues , net income ( loss ) and net income ( loss ) attributable to icahn enterprises for each of our reportable segments and our holding company for the years ended december 31 , 2011 , 2010 and 2009. we consolidated the results of our gaming segment effective as of november 15 , 2010 and , therefore , our consolidated results of operations for the year ended december 31 , 2010 includes the results of operations from our gaming segment for the period november 15 , 2010 through december 31 , 2010. eliminations relate to the unrealized gains recorded by our investment segment for its investment in tropicana from the date of its acquisition of a controlling interest in tropicana through the date that its investment in tropicana was transferred to us . refer to `` distributions-in-kind '' above and note 3 , “ operating units - gaming , ” to the consolidated financial statements for further discussion . replace_table_token_6_th overview our operating businesses are managed on a decentralized basis . due to the structure of our business , we discuss the results of operations below by individual reportable segments . please refer to note 14 , `` segment and geographic reporting , '' to the consolidated financial statements for a reconciliation of each of our reporting segment 's results of operations to our consolidated results . please refer to note 3 , “ operating units , ” to the consolidated financial statements for a description of each of our reportable segments . investment icahn onshore lp , or the onshore gp , and icahn offshore lp ( or the offshore gp and , together with the onshore gp , the general partners ) act as general partner of icahn partners lp , or the onshore fund , and the offshore master funds ( as defined herein ) , respectively . the general partners do not provide such services to any other entities , individuals or accounts . interests in the investment funds ( as defined below ) are not offered to outside investors . story_separator_special_tag since inception in november 2004 , the investment funds ' gross return is 156 % , representing an annualized rate of return of 14 % through december 31 , 2011 . year ended december 31 , 2011 compared to the year ended december 31 , 2010 net gain from investment activities net realized and unrealized gains on the investment activities of the investment funds were $ 1,887 million for fiscal 2011 as compared to $ 756 million for fiscal 2010. the increase relates to a higher rate of return in the investment funds during fiscal 2011 as compared to fiscal 2010. interest and dividend income interest and dividend income was $ 110 million for fiscal 2011 and $ 178 million for fiscal 2010. the decrease was primarily due to a decrease in interest income resulting from a reduction in fixed-income investments in our investment segment during fiscal 2011 as compared to fiscal 2010. selling , general and administrative selling , general and administrative , or sg & a , for fiscal 2011 decreased by $ 9 million ( 15 % ) as compared to fiscal 2010. the decrease was primarily due to a decrease in deferred management fee expense as a result of deconsolidation of icahn fund ltd. on march 31 , 2011 ( see note 5 , `` investments and related matters-investment , '' for a detailed discussion ) , lower investment administrative expenses , including shareholder actions , offset in part by higher compensation expense as a result of certain fund performance during fiscal 2011 as compared to fiscal 2010. year ended december 31 , 2010 compared to the year ended december 31 , 2009 net gain from investment activities net realized and unrealized gains on investment activities of the investment funds were $ 756 million for fiscal 2010 as compared to $ 1,379 million for fiscal 2009. the decrease relates to a lower rate of return in the investment funds during fiscal 2010 compared to fiscal 2009. interest and dividend income interest and dividend income was $ 178 million for fiscal 2010 and $ 217 million for fiscal 2009. the decrease was primarily due to decreased interest income resulting from a reduction in fixed-income investments during fiscal 2010 as compared to fiscal 2009 . 63 selling , general and administrative sg & a for fiscal 2010 decreased by $ 21 million ( 26 % ) as compared to the corresponding prior year period . this decrease was primarily attributable to lower appreciation of the deferred management fee payable by the consolidated offshore fund and lower compensation expense , offset in part by higher investment administrative expenses during fiscal 2010 as compared to fiscal 2009. automotive replace_table_token_9_th federal-mogul 's annual report on form 10-k and quarterly reports on form 10-q contain a detailed description of its business , products , industry , operating strategy and associated risks . federal-mogul 's filings with the sec are available on the sec 's website at www.sec.gov . during fiscal 2011 , we acquired additional shares of federal-mogul common stock . as of december 31 , 2011 , we owned approximately 77.2 % of the total outstanding common stock of federal-mogul . during fiscal 2011 , federal-mogul derived 66 % of its net sales from the original equipment manufacturer and servicers , or oe , market and 34 % from the aftermarket . federal-mogul is a leading global supplier of a broad range of components , accessories and systems to the automotive , small engine , heavy-duty , marine , railroad , agricultural , off-road , aerospace and energy , industrial and transport markets , including customers in both the original equipment manufacturers and servicers , or oe , market and the replacement market , or aftermarket . federal-mogul 's customers include the world 's largest automotive oes and major distributors and retailers in the independent aftermarket . geographically , federal-mogul derived 36 % of its sales in the united states during fiscal 2011 and 64 % internationally . federal-mogul has operations in established markets including canada , france , germany , italy , japan , spain , sweden , the united kingdom and the united states , and emerging markets including argentina , brazil , china , czech republic , hungary , india , korea , mexico , poland , russia , south africa , thailand , turkey and venezuela . the attendant risks of federal-mogul 's international operations are primarily related to currency fluctuations , changes in local economic and political conditions , and changes in laws and regulations . federal-mogul operates in an extremely competitive industry , driven by global vehicle production volumes and part replacement trends . business is typically awarded to the supplier offering the most favorable combination of cost , quality , technology and service . customers continue to require periodic cost reductions that require federal-mogul to continually assess , redefine and improve its operations , products , and manufacturing capabilities to maintain and improve profitability . management continues to develop and execute initiatives to meet the challenges of the industry and to achieve its strategy for sustainable global profitable growth . year ended december 31 , 2011 compared to the year ended december 31 , 2010 net sales for fiscal 2011 increased by $ 691 million ( 11 % ) as compared to fiscal 2010. the impact of the u.s. dollar weakening , primarily against the euro , increased reported sales by $ 157 million . in general , light and commercial vehicle oe production increased in most regions and , when combined with market share gains in all major regions across all three manufacturing business units , resulted in increased oe sales of $ 531 million for fiscal 2011 , inclusive of $ 17 million due to acquisitions , as compared to fiscal 2010. aftermarket sales for fiscal 2011 decreased by $ 22 million due to sales decreases in north america , partially offset by sales increases in other major regions as compared to fiscal 2010. net changes in customer pricing for fiscal 2011 increased sales by $ 25 million as compared to fiscal 2010 .
| other consolidated results of operations interest expense year ended december 31 , 2011 compared to the year ended december 31 , 2010 interest expense for fiscal 2011 increased by $ 47 million ( 12 % ) as compared to fiscal 2010. the increase over the comparable period was primarily due to higher interest expense incurred on certain debt issued on january 15 , 2010 and november 12 , 2010 and interest incurred on our due to broker balances . included in the increase in interest expense is interest expense related to our gaming segment for which no comparable prior year amount exists because , as discussed elsewhere , we consolidated tropicana effective november 15 , 2010. year ended december 31 , 2010 compared to the year ended december 31 , 2009 interest expense for fiscal 2010 increased by $ 70 million ( 22 % ) as compared to fiscal 2009. the increase was primarily due to higher interest expense incurred on our debt offerings during fiscal 2010 as compared to fiscal 2009. income tax expense year ended december 31 , 2011 compared to the year ended december 31 , 2010 for fiscal 2011 , we recorded an income tax provision of $ 34 million on pre-tax income of $ 1,798 million compared to an income tax provision of $ 9 million on pre-tax income of $ 753 million for fiscal 2010. our effective income tax rate was 1.9 % and 1.2 % for fiscal 2011 and fiscal 2010 , respectively . the difference between the effective tax rate and statutory federal rate of 35 % is principally due to changes in valuation allowances and partnership income not subject to taxation , as such taxes are the responsibility of the partners .
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biometrics systems are used in applications such as law enforcement , border control , national defense , secure credentialing , access control and background checks . we typically sell our biometrics software and services to : i ) systems integrators that incorporate our software products into biometrics systems that they are developing on behalf of their customers ; ii ) oems that incorporate our products into their biometrics hardware and software solutions ; and iii ) directly to government agencies that are deploying biometrics systems . our imaging software is primarily sold to oems and systems integrators that incorporate our software into their medical and imaging products . dsl service assurance . our dsl service assurance products , which we previously called dsl test and diagnostics , consist of dsl software and hardware products that are used by telephone companies to improve the quality of their dsl service offerings . we sell our dsl service assurance software products through oems and directly to telephone companies . our dsl service assurance hardware products are typically sold to oems that incorporate our modules into their automated testhead and handheld test equipment . our oem customers sell their equipment to telephone companies . 25 on january 18 , 2012 , our board of directors approved the shutdown of aware 's dsl service assurance hardware product line . this decision was made to position aware better strategically and to reduce costs . this decision had no impact on our results of operations for the three years ended december 31 , 2011 , 2010 , or 2009. in the year ended december 31 , 2011 , revenue and expenses directly attributable to the dsl service assurance hardware product line were $ 5.1 million and $ 5.7 million , respectively . direct expenses include cost of goods sold , engineering and sales expenses . in 2012 , we will continue to build and ship dsl service assurance hardware products to fulfill customer orders that were received as of the date of the shutdown notice . therefore , dsl hardware revenue and expenses will continue in 2012 until we complete the shutdown , which we anticipate will be on or about june 30 , 2012. we estimate that exiting this product line will produce an insignificant gain during the first half of 2012. the estimated gain consists of revenue from final hardware shipments less the following costs : i ) cost of goods sold , ii ) engineering and sales expenses to support final product shipments , and iii ) one-time costs related to the shutdown of approximately $ 282,000 , the majority of which are severance and employee-related costs . patent management . the objective of our patent management operations , which we previously called patent licensing operations , is to develop patents and to license or sell them to third parties interested in acquiring such patent rights . there were no patent related fees in revenue in the years ended december 31 , 2011 and 2009. there were $ 330,000 of such fees in services revenue for the year ended december 31 , 2010. as of the date of this report , our board is reviewing strategic options with respect to our patent management operations , including a potential spin-off , sale , or licensing of patents . dsl silicon intellectual property . in november 2009 , we completed a transaction with lantiq deutschland gmbh ( “ lantiq ” ) involving the sale and transfer of : i ) our dsl and home networking technology assets , ii ) certain patents and patent applications related to those technology assets , and iii ) 41 aware employees . after this sale , we no longer offered dsl or home networking silicon ip products ; however , we continued to receive dsl chipset royalties from lantiq and ikanos communications , inc. ( “ ikanos ' ) and provide a minor amount of engineering support services to ikanos . our results of operations for the years ended december 31 , 2011 , 2010 , and 2009 include the following elements of dsl silicon intellectual property revenue : i ) royalty revenue from lantiq and ikanos in 2011 , 2010 , and 2009 ; ii ) engineering services to ikanos in 2011 , 2010 , and 2009 ; and iii ) engineering services to lantiq in 2009. story_separator_special_tag unable to predict whether services revenue will trend upward or downward in future periods as we continue to develop this business . the increase in service revenue from biometrics engineering services was partially offset by a $ 0.3 million decrease in service revenue from patent licensing activities . services decreased 57 % from $ 4.6 million in 2009 to $ 2.0 million in 2010. as a percentage of total revenue , services decreased from 21 % in 2009 to 9 % in 2010. the services dollar decrease was primarily due to a $ 2.9 million reduction of service revenue from dsl silicon ip contracts as a result of the sale of our dsl silicon ip product line to lantiq in november 2009. the decrease in service revenue from dsl silicon contracts was partially offset by a $ 0.3 million increase in service revenue from patent licensing activities . 27 royalties substantially all of our royalties are derived from royalty payments we receive under dsl silicon ip contracts with ikanos and lantiq . each customer pays us royalties for the right to incorporate our silicon ip in their dsl chipsets . the sale of our dsl silicon ip assets in november 2009 did not alter the royalty obligations of ikanos or lantiq . we are uncertain as to whether these licensees will be able to maintain their market shares and chipset prices in the face of intense competition , and whether our relationships with them will contribute meaningful royalties to us in the future . accordingly , we are unable to predict whether royalties reported by our licensees will trend upward or downward in future periods . story_separator_special_tag research and development expense decreased 32 % from $ 11.9 million in 2009 to $ 8.1 million in 2010. as a percentage of total revenue , research and development expense decreased from 54 % in 2009 to 34 % in 2010. the $ 3.8 million decrease in research and development expense was primarily due to a $ 4.4 million reduction of engineering expenses as a result of the sale of our dsl silicon ip product line to lantiq , which was partially offset by slightly higher spending in our biometrics and dsl service assurance engineering organizations . our research and development activities are focused primarily on developing biometrics and imaging software ; and dsl service assurance software . selling and marketing expense selling and marketing expense primarily consists of costs for : i ) sales and marketing personnel , including salaries , sales commissions , stock-based compensation , fringe benefits , travel , and facilities ; and ii ) advertising and promotion expenses . selling and marketing expense increased 4 % from $ 4.3 million in 2010 to $ 4.4 million in 2011. as a percentage of total revenue , selling and marketing expense was 18 % in 2010 and 2011. the $ 0.1 million increase in selling and marketing expense reflected : 1 ) a stable sales and marketing organization ; and 2 ) consistent levels of promotional activities . selling and marketing expense decreased 9 % from $ 4.7 million in 2009 to $ 4.3 million in 2010. as a percentage of total revenue , selling and marketing expense decreased from 21 % in 2009 to 18 % in 2010. the dollar decrease in selling and marketing expense was primarily due to lower headcount in our sales and marketing organization as well as lower stock-based compensation expenses . lower spending attributable to these factors was partially offset by higher spending on tradeshows . general and administrative expense general and administrative expense consists primarily of costs for : i ) officers , directors and administrative personnel , including salaries , bonuses , director compensation , stock-based compensation , fringe benefits , and facilities ; ii ) professional fees , including legal and audit fees ; iii ) public company expenses ; and iv ) other administrative expenses , such as insurance costs and bad debt provisions . general and administrative expense decreased 22 % from $ 6.4 million in 2010 to $ 5.0 million in 2011. as a percentage of total revenue , general and administrative expense decreased from 27 % in 2010 to 20 % in 2011. the dollar decrease in general and administrative expense was mainly attributable to : i ) lower legal fees related to patents and patent monetization activities of $ 1.0 million ; ii ) lower compensation expenses for directors and officers of $ 0.8 million ; and iii ) various other administrative spending decreases of $ 0.2 million . these spending decreases were partially offset by $ 0.6 million of severance costs paid in 2011 to our former ceo upon his departure from the company . 29 general and administrative expense increased 26 % from $ 5.1 million in 2009 to $ 6.4 million in 2010. as a percentage of total revenue , general and administrative expense increased from 23 % in 2009 to 27 % in 2010. the dollar increase in general and administrative expense was mainly attributable to higher spending on : i ) legal fees related to patents and patent monetization activities of $ 1.3 million ; and ii ) stock-based compensation of $ 0.2 million . gain on sale of assets in 2009 , we sold substantially all of the assets associated with our home networking and dsl technology to lantiq for $ 6.75 million . we recorded a gain on the sale of assets of $ 6.2 million in the year ended december 31 , 2009. the gain reflects $ 6.75 million of proceeds from lantiq less the following items : i ) the net book value of assets transferred to lantiq ; ii ) the write-off of certain prepaid assets that had no economic value after the sale ; and iii ) transaction costs . other income we recorded $ 425,000 of other income in the year ended december 31 , 2010. this amount represents proceeds from a legal settlement with a former customer . interest income interest income decreased 8 % , or $ 7,000 , from $ 90,000 in 2010 to $ 83,000 in 2011. the dollar decrease in interest income was primarily due to a continued decline in money market interest rates during 2011. interest income decreased 62 % , or $ 148,000 , from $ 238,000 in 2009 to $ 90,000 in 2010. the dollar decrease in interest income was primarily due to a continued decline in money market interest rates during 2010. income taxes we are subject to income taxes in the united states and we use estimates in determining our provisions for income taxes . we account for income taxes using the asset and liability method for accounting and reporting income taxes . deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates . we made no provision for income taxes in the years ended 2011 , 2010 and 2009 , except for $ 2,000 , $ 2,000 , and $ 4,000 of state excise taxes paid in each year , respectively .
| summary of financial results . for the year ended december 31 , 2011 , we had net income of $ 2.6 million , or $ 0.12 per share . for the year ended december 31 , 2010 , we had net income of net income of $ 180,000 , or $ 0.01 per share . for the year ended december 31 , 2009 , we had net income of $ 982,000 , or $ 0.05 per share . 2011 compared to 2010 . there was a significant improvement in operating income and net income in 2011 compared to 2010. operating income increased from a loss of $ 333,000 in 2010 to income of $ 2.5 million in 2011 ; and net income increased from $ 180,000 in 2010 to $ 2.6 million in 2011. higher earnings in 2011 were primarily a result of the following factors : i ) growth of our services business ; ii ) a greater proportion of software revenue versus hardware revenue in product sales during 2011 ; iii ) lower legal fees related to patents and patent monetization activities ; and iv ) lower director and officer compensation expenses . 2010 compared to 2009 . there was also a significant improvement in operating income in 2010 compared to 2009 , although net income declined . net income for the year ended december 31 , 2009 included a $ 6.2 million gain on the sale of assets , which was the primary reason for our profitability in 2009. however , operating losses were reduced from a loss of $ 5.5 million in 2009 to a loss of $ 333,000 in 2010. the $ 5.1 million improvement was primarily attributable to : i ) the cessation of operating losses from our dsl silicon ip product line as a result of the sale to lantiq in 2009 , and ii ) improved profitability in our dsl service assurance product line .
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if story_separator_special_tag the following is a discussion of kansas city southern 's results of operations , certain changes in its financial position , liquidity , capital structure and business developments for the periods covered by the consolidated financial statements included under item 8 of this form 10-k. this discussion should be read in conjunction with the included consolidated financial statements , the related notes , and other information included in this report . cautionary information the discussions set forth in this annual report on form 10-k may contain forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . in addition , management may make forward-looking statements orally or in other writings , including , but not limited to , in press releases , quarterly earnings calls , executive presentations , in the annual report to stockholders and in other filings with the securities and exchange commission . readers can usually identify these forward-looking statements by the use of such verbs as “ expects , ” “ anticipates , ” “ believes ” or similar verbs or conjugations of such verbs . these statements involve a number of risks and uncertainties . actual results could materially differ from those anticipated by such forward-looking statements . such differences could be caused by a number of factors or combination of factors including , but not limited to , the factors identified below and those discussed under item 1a of this form 10-k , “ risk factors. ” readers are strongly encouraged to consider these factors and the following factors when evaluating any forward-looking statements concerning the company : fluctuations in the market price for the company 's common stock ; kcs 's dividend policy and limitations on its ability to pay dividends on its common stock ; kcs 's potential need for and ability to obtain additional financing ; kcs 's ability to successfully implement its business strategy , including the strategy to convert customers from using trucking services to rail transportation services ; the impact of competition , including competition from other rail carriers , trucking companies and maritime shippers in the united states and mexico ; united states , mexican and global economic , political and social conditions ; the effects of the north american free trade agreement , or nafta , on the level of trade among the united states , mexico and canada ; uncertainties regarding the litigation kcs faces and any future claims and litigation ; the effects of employee training , stability of the existing information technology systems , technological improvements and capital expenditures on labor productivity , operating efficiencies and service reliability ; the adverse impact of any termination or revocation of kcsm 's concession by the mexican government ; legal or regulatory developments in the united states , mexico or canada ; kcs 's ability to generate sufficient cash , including its ability to collect on its customer receivables , to pay principal and interest on its debt , meet its obligations and fund its other liquidity needs ; the effects of adverse general economic conditions affecting customer demand and the industries and geographic areas that produce and consume the commodities kcs carries ; material adverse changes in economic and industry conditions , including the availability of short and long-term financing , both within the united states and mexico and globally ; natural events such as severe weather , fire , floods , hurricanes , earthquakes or other disruptions to the company 's operating systems , structures and equipment or the ability of customers to produce or deliver their products ; market and regulatory responses to climate change ; disruption in fuel supplies , changes in fuel prices and the company 's ability to assess fuel surcharges ; the effect of demand for kcs 's services exceeding network capacity or traffic congestion on operating efficiencies and service reliability ; availability of qualified personnel ; 26 changes in labor costs and labor difficulties , including work stoppages affecting either operations or customers ' abilities to deliver goods for shipment ; credit risk of customers and counterparties and their failure to meet their financial obligations ; the outcome of claims and litigation , including those related to environmental contamination , personal injuries , and occupational illnesses arising from hearing loss , repetitive motion and exposure to asbestos and diesel fumes ; acts of terrorism , violence or crime or risk of such activities ; war or risk of war ; political and economic conditions in mexico and the level of trade between the united states and mexico ; and legislative , regulatory , or legal developments involving taxation , including enactment of new foreign , federal or state income or other tax rates , revisions of controlling authority , and the outcome of tax claims and litigation . forward-looking statements reflect the information only as of the date on which they are made . the company does not undertake any obligation to update any forward-looking statements to reflect future events , developments , or other information . if kcs does update one or more forward-looking statements , no inference should be drawn that additional updates will be made regarding that statement or any other forward-looking statements . corporate overview kansas city southern , a delaware corporation , is a transportation holding company that has railroad investments in the u.s. , mexico and panama . in the u.s. , the company serves the central and south central u.s. its international holdings serve northeastern and central mexico and the port cities of lazaro cardenas , tampico and veracruz , and a fifty percent interest in panama canal railway company provides ocean-to-ocean freight and passenger service along the panama canal . kcs 's north american rail holdings and strategic alliances are primary components of a nafta railway system , linking the commercial and industrial centers of the u.s. , canada and mexico . story_separator_special_tag the average price per gallon , including the effects of the weakening of the mexican peso against the u.s. dollar , was $ 3.03 in 2014 , compared to $ 3.05 in 2013 . equipment costs . equipment costs decreased $ 41.3 million for the year ended december 31 , 2014 , compared to 2013 , due to lower lease expense as a result of the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired . in addition , equipment costs decreased due to lower net car hire expense as a result of the increase in owned equipment . depreciation and amortization . depreciation and amortization increased $ 34.8 million for the year ended december 31 , 2014 , compared to 2013 , due to a larger asset base , including the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired . materials and other . materials and other increased $ 18.7 million for the year ended december 31 , 2014 , compared to 2013 , due to increases in casualty expense , materials and supplies expense , and employee expenses . in addition , the company recognized a recovery from a legal dispute in the first quarter of 2013. lease termination costs . lease termination costs were $ 38.3 million for the year ended december 31 , 2014 , due to the early termination of certain operating leases and the related purchase of the equipment . the company did not incur lease termination costs during 2013. non-operating expenses equity in net earnings of unconsolidated affiliates . equity in net earnings from unconsolidated affiliates increased $ 2.3 million for the year ended december 31 , 2014 , compared to 2013 . equity in earnings from the operations of panama canal railway company ( “ pcrc ” ) increased as pcrc 's volumes were adversely affected during the first half of 2013 as the movement of containers was either trucked or rerouted to other destinations as a result of delays caused by a system implementation at the port of balboa . 32 interest expense . interest expense decreased $ 7.8 million for the year ended december 31 , 2014 , compared to 2013 , due to lower average interest rates as a result of the company 's refinancing activities during 2013 and the utilization of the commercial paper program during 2014. these decreases were partially offset by higher average debt balances driven by financing incurred during 2013. the average interest rate for the year ended december 31 , 2014 was 3.3 % , compared to 4.2 % in 2013 . for the year ended december 31 , 2014 , the average debt and short-term borrowing balances were $ 2,174.7 million , compared to $ 1,852.3 million in 2013. debt retirement costs . debt retirement costs were $ 6.6 million and $ 119.2 million for the years ended december 31 , 2014 and 2013 , respectively . the debt retirement costs include tender and call premiums , original issue discounts and the write-off of unamortized debt issuance costs associated with the company 's various debt refinancing and redemption activities . foreign exchange gain ( loss ) . for the years ended december 31 , 2014 and 2013 , foreign exchange loss was $ 35.5 million and $ 5.2 million , respectively . foreign exchange gain ( loss ) includes the re-measurement and settlement of monetary assets and liabilities denominated in mexican pesos and the gain ( loss ) on foreign currency forward contracts . for the years ended december 31 , 2014 and 2013 , the re-measurement and settlement of monetary assets and liabilities denominated in mexican pesos resulted in a foreign exchange loss of $ 7.6 million and $ 4.5 million , respectively . the company enters into foreign currency forward contracts to hedge its net exposure to fluctuations in the mexican cash tax obligation due to changes in the value of the mexican peso against the u.s. dollar . for the years ended december 31 , 2014 and 2013 , foreign exchange loss on foreign currency forward contracts was $ 27.9 million and $ 0.7 million , respectively . other expense , net . other expense , net , increased $ 1.4 million for the year ended december 31 , 2014 compared to 2013 , due to higher miscellaneous fees . income tax expense . income tax expense increased $ 10.5 million for the year ended december 31 , 2014 , compared to 2013 , due to higher pre-tax income , offset by a lower effective tax rate . the effective tax rate was 29.3 % and 35.9 % for the years ended december 31 , 2014 and 2013 , respectively . the decrease in the effective tax rate was primarily due to the significant weakening of the mexican peso against the u.s. dollar in 2014 . the company enters into foreign currency forward contracts to hedge its net exposure to fluctuations in the mexican cash tax obligation due to changes in the value of the mexican peso against the u.s. dollar , and gains ( losses ) on these foreign currency forward contracts are recorded in foreign exchange gain ( loss ) . further information on the components of the effective tax rates for the years ended december 31 , 2014 and 2013 , is presented in note 11 to the consolidated financial statements in item 8 . 33 year ended december 31 , 2013 , compared with the year ended december 31 , 2012 the following summarizes kcs 's consolidated income statement components ( in millions ) : replace_table_token_8_th revenues the following summarizes revenues ( in millions ) , carload/unit statistics ( in thousands ) and revenue per carload/unit : replace_table_token_9_th freight revenues include both revenue for transportation services and fuel surcharges . for the year ended december 31 , 2013 , revenues and carload/unit volumes increased 6 % and 2 % , respectively , compared to the prior year , driven by strong growth in intermodal , automotive and industrial and consumer products .
| results of operations year ended december 31 , 2014 , compared with the year ended december 31 , 2013 the following summarizes kcs 's consolidated income statement components ( in millions ) : replace_table_token_5_th revenues the following summarizes revenues ( in millions ) , carload/unit statistics ( in thousands ) and revenue per carload/unit : replace_table_token_6_th freight revenues include revenue for transportation services and fuel surcharges . for the year ended december 31 , 2014 , revenues and carload/unit volumes increased 9 % and 5 % , respectively , compared to the prior year . agriculture and minerals revenues increased $ 62.7 million for the year ended december 31 , 2014 , compared to the prior year , due to an increase of $ 57.4 million in grain revenues . during the first half of 2013 , grain volumes and average length of haul were adversely affected as a result of the severe drought conditions experienced in the midwest region of the united states during 2012. revenue per carload/unit increased by 4 % for the year ended december 31 , 2014 , compared to the prior year , due to positive pricing impacts . 29 kcs 's fuel surcharge is a mechanism to adjust revenue based upon changing fuel prices . fuel surcharges are calculated differently depending on the type of commodity transported . for most commodities , fuel surcharge is calculated using a fuel price from a prior time period that can be up to 60 days earlier . in a period of volatile fuel prices or changing customer business mix , changes in fuel expense and fuel surcharge may differ . the following discussion provides an analysis of revenues by commodity group : revenues by commodity group for 2014 chemical and petroleum . revenues increased $ 26.3 million for the year ended december 31 , 2014 , compared to 2013 , due to a 5 % increase in revenue per carload/unit and a 1 % increase in carload/unit volumes .
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our business we sell home furnishings in our retail stores and via our website and record revenue when the products are delivered to our customer . our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles . our commissioned sales associates receive a high level of product training and are provided a number of tools with which to serve our customers . we also have over 100 in-home designers serving most of our stores . these individuals work with our sales associates to provide customers additional confidence and inspiration . we do not outsource the delivery function , something common in the industry , but instead ensure that the `` last contact '' is handled by a customer-oriented havertys delivery team . we are recognized as a provider of high quality fashionable products and service in the markets we serve . story_separator_special_tag nowrap= '' nowrap '' style= '' width : 1 % ; vertical-align : bottom ; padding-bottom : 2px ; text-align : left ; background-color : # ffffff '' valign= '' bottom '' > ) adjusted ebit $ 47,564 $ 47,931 $ 52,759 adjusted ebit as a percent of net sales 5.9 % 6.2 % 7.1 % adjusted ebit $ 47,564 $ 47,931 $ 52,759 interest expense , net 2,289 1,051 1,107 adjusted income before income taxes $ 45,275 $ 46,880 $ 51,652 net income $ 27,789 $ 8,589 32,265 pension settlement expense , net of tax — 20,725 — out-of-period adjustment , net of tax — — ( 518 ) adjusted net income $ 27,789 $ 29,314 $ 31,747 earnings per diluted share $ 1.22 $ 0.37 $ 1.41 non-cash pension settlement expense — 0.90 — out-of-period adjustment — — ( 0.02 ) adjusted earnings per diluted share $ 1.22 $ 1.28 $ 1.39 due to rounding amounts may not add to the totals . 16 net sales comparable-store or `` comp-store '' sales is a measure which indicates the performance of our existing stores by comparing the growth in sales for these stores for a particular period over the corresponding period in the prior year . stores are considered non-comparable if open for less than 12 full calendar months or if the selling square footage has been changed significantly during the past 12 full calendar months . large clearance sales events from warehouses or temporary locations are also excluded from comparable store sales , as are periods when stores are closed or being remodeled . as a retailer , comp‑store sales is an indicator of relative customer spending and store performance . total sales increased $ 36.5 million or 4.7 % in 2015 and $ 22.3 million or 3.0 % in 2014. comparable store sales increased 2.5 % or $ 18.9 in 2015 and 3.6 % or $ 26.2 million in 2014. the remaining $ 17.6 in 2015 and $ 3.9 million in 2014 of the changes were from closed , new and otherwise non-comparable stores . the following outlines our sales and comp-store sales increases and decreases for the periods indicated . ( amounts and percentages may not always add to totals due to rounding . ) december 31 , 2015 2014 2013 net sales comp-store sales net sales comp-store sales net sales comp-store sales period ended dollars in millions % increase ( decrease ) over prior period % increase ( decrease ) over prior period dollars in millions % increase ( decrease ) over prior period % increase ( decrease ) over prior period dollars in millions % increase ( decrease ) over prior period % increase ( decrease ) over prior period q1 $ 191.3 5.3 % 3.8 % $ 181.7 ( 2.3 ) % ( 0.9 ) % $ 186.1 13.8 % 11.5 % q2 187.7 7.2 4.8 175.1 2.4 3.2 171.1 12.9 11.2 q3 209.9 5.7 3.0 198.5 3.0 3.5 192.7 11.6 11.8 q4 215.9 1.4 ( 0.9 ) 213.0 8.6 8.3 196.2 7.6 9.5 year $ 804.9 4.7 2.5 % $ 768.4 3.0 % 3.6 % $ 746.1 11.3 % 11.0 % sales in 2015 increased at a modest pace during the first nine months of the year . we did have some product availability issues during the first quarter resulting from the impact of the west coast port slowdown . we experienced a softening in our business in the fourth quarter , more prevalent in texas but also across many of our markets . our average ticket increased 4.7 % as our custom upholstery sales increased 11.8 % over 2014 as more business involved a member of our in-home design team . sales in 2014 were challenged by weather in the first quarter and case goods vendor supply and import flow issues through much of the remainder of the year . the store displays in this important category were not as robust as our merchandise team had planned and began to recover in the fourth quarter . our improved custom order configurator web based tool helped our specialty upholstery sales to continue to grow with a 10.8 % increase over 2013 including a 19.3 % growth rate in the fourth quarter . we also expanded our in-home-design service in 2014 which has yielded higher average tickets . sales in 2013 increased as the fundamental drivers of home furnishings purchases continued to recover . we capitalized on this trend with improved merchandising and expansion of our complimentary in-home design service . these generated an increase in our average ticket of 7.8 % and a 19.8 % increase in our custom order upholstery business . 2016 outlook we believe as the general economy improves and consumer spending and the housing market strengthens , our business will benefit . our comparable store sales will begin to anniversary the impact of new competition in the dallas , texas market in the second quarter . story_separator_special_tag for 2015 these expenses averaged $ 58.2 million per quarter in the first half and $ 62.3 million in the second half . variable costs within sg & a for 2016 are expected to remain at the 2015 rate of 17.9 % as a percent of sales . pension settlement we terminated our qualified defined benefit pension plan ( the `` plan '' ) in 2014 as reported more fully in note 10 to the notes to consolidated financial statements . the settlement of the plan 's obligations required the recognition of pension settlement expenses in the fourth quarter of 2014. we recognized termination and settlement expense of $ 21.6 million and a related tax benefit of $ 0.9 million for a total impact on consolidated net income of $ 20.7 million or $ 0.90 per diluted earnings per share . we had approximately $ 6.8 million of unamortized costs net of $ 4.2 million of tax related to the plan included on our balance sheet in accumulated other comprehensive income ( loss ) ( `` aoci '' ) prior to settlement . also included in aoci was a debit of $ 6.9 million resulting from the 'backward-tracing '' prohibition related to changes in a valuation allowance from previous periods . see additional discussion in `` provision for income taxes '' which follows . the settlement of the plan caused these amounts totaling $ 13.6 million to be reclassified from aoci to income . the termination and settlement of the plan did not impact cash flow and resulted in a net reduction of approximately $ 7.1 million in our total stockholders equity . 18 interest expense our interest expense for the years 2013 to 2015 is primarily driven by amounts related to our lease obligations . for leases accounted for as capital and financing lease obligations , we record straight-line rent expense for the land portion in occupancy costs in sg & a along with amortization on the additional asset recorded . rental payments are recognized as a reduction of the obligations and as interest expense . the number of stores , including those under construction , which are accounted for in this manner has increased from eight in 2013 , to 17 in 2015. we expect interest expense for lease obligations will be $ 2.4 million in 2016. provision for income taxes our effective tax rate was 38.6 % , 66.0 % and 38.5 % for 2015 , 2014 and 2013 , respectively . refer to note 7 of the notes to the consolidated financial statements for a reconciliation of our income tax expense to the federal income tax rate . our 2015 rate varies from the 35 % u.s. federal statutory rate primarily due to state income taxes . our 2014 rate includes the reversal of $ 6.9 million from aoci to income tax expense . we established a valuation allowance in 2008 against virtually all of our deferred tax assets due to our operating loss in that year and projected loss in 2009. a portion of the allowance was charged to aoci and was increased in 2009. our profitability in 2011 was sufficient for us to release the valuation allowance . the `` backward-tracing '' prohibition in asc 740 , income taxes required us to record the total amount of the release as a tax benefit in net income including the portion originally charged to aoci . this resulted in a debit of $ 6.9 million remaining in aoci which would remain until the settlement of the plan 's pension obligations when it was reversed and included in total tax expense . the 2014 rate , excluding this reversal , varies from the 35 % u.s federal statutory rate primarily due to state income taxes . our 2013 rate varies from the 35 % u.s. federal statutory rate primarily due to state income taxes . liquidity and capital resources overview of liquidity our primary cash requirements include working capital needs , contractual obligations , benefit plan contributions , income tax obligations and capital expenditures . we have funded these requirements exclusively through cash generated from operations and have not used our credit facility since 2008. we believe funds generated from our expected results of operations and available cash and cash equivalents will be sufficient to fund our primary obligations and complete projects that we have underway or currently contemplate for the next fiscal and foreseeable future years . at december 31 , 2015 , our cash and cash equivalents balance was $ 70.7 million , an increase of $ 5.2 million compared to december 31 , 2014. this increase in cash primarily resulted from strong operating results offset by purchases of property and equipment , the acquisition of treasury stock and dividends paid to stockholders . additional discussion of our cash flow results , including the comparison of 2015 activity to 2014 , is set forth in the analysis of cash flows section . at december 31 , 2015 , our outstanding indebtedness was $ 53.1 million in lease obligations required to be recorded on our balance sheet . we had no amounts outstanding and $ 43.8 million available under our revolving credit facility . capital expenditures our primary capital requirements have been focused on our stores and the development of both proprietary and purchased information systems . our capital expenditures were $ 27.1 million in 2015 , $ 3.7 million less than in 2014. our future capital requirements will depend in large part on the number of and timing for new stores we open within a given year , the investments we make to the improvement and maintenance of our existing stores , and our investment in distribution improvements and new information systems to support our key strategies . in 2016 , we anticipate that our capital expenditures will be approximately $ 33.0 million , refer to our store expansion and capital expenditures discussion below .
| 2015 highlights sales for 2015 grew 4.7 % or $ 36.5 million over 2014. gross profit as a percent of net sales decreased 20 basis points , and sg & a increased 30 basis points . our pre-tax income was $ 45.3 million , and excluding the $ 21.6 million pre-tax pension termination charge in 2014 , decreased 3.4 % or $ 1.6 million . our fourth quarter results were pre-tax income of $ 15.1 million down 9.3 % from $ 16.6 million over the prior year period excluding the pension charge . we made $ 27.1 million in important capital expenditure investments in our business and $ 14.0 million in purchases of treasury stock . our debt is comprised completely of lease obligations . we did not use our credit facility during the year and our total debt to total capital was 15.0 % at december 31 , 2015. management objectives management is focused on capturing more market share and increasing sales per square foot of showroom space . this organic growth will be driven by concentrating our efforts on our customers with improved interactions highlighted by new products , enhanced stores and better technology . the company 's strategies for profitability include targeted marketing initiatives , productivity and process improvements , and efficiency and cost-saving measures . our focus is to serve our customers better and distinguish ourselves in the marketplace .
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we have not entered into an employment agreements with messrs. bachman , despirito and peterson . the following is a description of certain restrictive covenants by which our executive officers , as well as other employee members , have agreed story_separator_special_tag overview we are a public-equity investment management firm that utilizes a classic value investment approach across all of our investment strategies . we currently manage assets in a variety of value-oriented investment strategies across a wide range of market capitalizations in both u.s. and non-u.s. capital markets . at december 31 , 2012 , our assets under management , or aum , was $ 17.1 billion . we manage separate accounts on behalf of institutions and high net worth individuals , and act as sub-investment adviser for a variety of sec-registered mutual funds and non-u.s. funds . we function as the sole managing member of our operating company , pzena investment management , llc ( the operating company ) . as a result , we : ( i ) consolidate the financial results of our operating company with our own , and reflect the membership interest in it that we do not own as a non-controlling interest in our consolidated financial statements ; and ( ii ) recognize income generated from our economic interest in our operating company 's net income . as of december 31 , 2012 , the holders of class a common stock ( through the company ) and the holders of class b units of our operating company held approximately 17.2 % and 82.8 % , respectively , of the economic interests in the operations of our business . non-gaap net income our results for the years ended december 31 , 2012 , 2011 , and 2010 included recurring adjustments related to the company 's tax receivable agreement and the associated liability to its selling and converting shareholders , in addition to adjustments related to certain one-time charges recognized in operating expense in the fourth quarter of 2011. we believe that these accounting adjustments add a measure of non-operational complexity which partially obscures the underlying performance of our business . in evaluating our financial condition and results of operations , we also review certain non-gaap measures of earnings , which exclude these items . excluding these adjustments , non-gaap diluted net income and non-gaap diluted earnings per share were $ 20.4 million and $ 0.31 , respectively , for the year ended december 31 , 2012 , $ 23.2 million and $ 0.36 , respectively , for the year ended december 31 , 2011 , and $ 21.7 million and $ 0.33 , respectively , for the year ended december 31 , 2010. gaap and non-gaap net income for diluted earnings per share generally assumes all operating company membership units are converted into company stock at the beginning of the reporting period , and the resulting change to our net income associated with our increased interest in the operating company is taxed at our historical effective tax rate , exclusive of prior period and other adjustments , the adjustments related to our tax receivable agreement and the associated liability to selling and converting shareholders , and adjustments related to the one-time charges recognized in operating expense in the fourth quarter of 2011. our effective tax rate , exclusive of these adjustments , was approximately 42.9 % for the years ended december 31 , 2012 and 2011 , respectively , and was approximately 42.7 % for the year ended december 31 , 2010. see operating results income tax expense below . we use these non-gaap measures to assess the strength of the underlying operations of the business . we believe that these adjustments , and the non-gaap measures derived from them , provide information to better analyze our operations between periods , and over time . investors should consider these non-gaap measures in addition to , and not as a substitute for , financial measures prepared in accordance with gaap . 28 a reconciliation of the non-gaap measures to the most comparable gaap measures is included below : replace_table_token_6_th revenue we generate revenue primarily from management fees and performance fees , which we collectively refer to as our advisory fees , by managing assets on behalf of institutional accounts and for retail clients , which are generally open-end mutual funds catering primarily to retail investors . our advisory fee income is recognized over the period in which investment management services are provided . following the preferred method identified in the revenue recognition topic of the financial accounting standards board accounting standards codification ( fasb asc ) , income from performance fees is recorded at the conclusion of the contractual performance period , when all contingencies are resolved . our advisory fees are primarily driven by the level of our aum . our aum increases or decreases with the net inflows or outflows of funds into our various investment strategies and with the investment performance thereof . in order to increase our aum and expand our business , we must develop and market investment strategies that suit the investment needs of our target clients , and provide attractive returns over the long term . the value and composition of our aum , and our ability to continue to attract clients , will depend on a variety of factors including , among other things : our ability to educate our target clients about our classic value investment strategies and provide them with exceptional client service ; the relative investment performance of our investment strategies , as compared to competing products and market indices ; 29 competitive conditions in the investment management and broader financial services sectors ; general economic conditions ; investor sentiment and confidence ; and our decision to close strategies when we deem it to be in the best interests of our clients . for our institutional accounts , we are paid fees according to a schedule , which varies by investment strategy . story_separator_special_tag as of december 31 , 2012 , the holders of class a common stock ( through the company ) and the holders of class b units of the operating company held approximately 17.2 % and 82.8 % , respectively , of the economic interests in the operations of the business . story_separator_special_tag margin-left : 0mm ; padding-left : 0mm ; padding-right : 0mm '' > replace_table_token_8_th the following table describes the allocation of our aum among our investment strategies , as of december 31 , 2012 , 2011 , and 2010 : replace_table_token_9_th during the year ended december 31 , 2012 , our aum increased $ 3.6 billion , or 26.7 % , from $ 13.5 billion at december 30 , 2011. this increase is primarily due to inflows in our retail large cap expanded value strategy and market appreciation during the year ended december 31 , 2012. at december 31 , 2012 , we managed $ 11.2 billion in institutional accounts and $ 5.9 billion in retail accounts , for a total of $ 17.1 billion in assets . for the year ended december 31 , 2012 , we experienced total gross inflows of $ 4.7 billion and $ 2.7 billion in market appreciation , which were partially offset by total gross outflows of $ 3.8 billion . assets in institutional accounts decreased by $ 0.1 billion , or 0.9 % , from $ 11.3 billion at december 31 , 2011 , due to $ 2.8 billion in gross outflows partially offset by $ 2.0 billion in market appreciation and $ 0.7 billion in gross inflows . assets in retail accounts increased by $ 3.7 billion , or 168 % , from $ 2.2 billion at december 31 , 2011 as a result of $ 4.0 billion in gross inflows and $ 0.7 billion in market appreciation , partially offset by $ 1.0 billion in gross outflows . retail inflows are primarily associated with our assignment to manage 28 % of the vanguard windsor fund as of the beginning of august 2012 . 34 at december 31 , 2011 , we managed $ 11.3 billion in institutional accounts and $ 2.2 billion in retail accounts , for a total of $ 13.5 billion in assets . for the year ended december 31 , 2011 , we experienced total gross outflows of $ 3.8 billion , which were partially offset by total gross inflows of $ 3.0 billion . assets in institutional accounts decreased by $ 1.2 billion , or 9.6 % , from $ 12.5 billion at december 31 , 2010 , due to $ 2.2 billion in gross outflows and $ 1.1 billion in market depreciation , partially offset by $ 2.1 billion in gross inflows . assets in retail accounts decreased by $ 0.9 billion , or 29 % , from $ 3.1 billion at december 31 , 2010 , as a result of $ 1.6 billion in gross outflows and $ 0.2 billion in market depreciation , partially offset by $ 0.9 billion in gross inflows . at december 31 , 2010 , we managed $ 12.5 billion in institutional accounts and $ 3.1 billion in retail accounts , for a total of $ 15.6 billion in assets . for the year ended december 31 , 2010 , we experienced total gross inflows of $ 3.1 billion , which were offset by total gross outflows of $ 3.9 billion . assets in institutional accounts increased by $ 1.8 billion , or 16.8 % , from $ 10.7 billion at december 31 , 2009 , due to $ 1.8 billion in gross inflows and $ 1.7 billion in market appreciation , partially offset by $ 1.7 billion in gross outflows . assets in retail accounts decreased by $ 0.5 billion , or 13.9 % , from $ 3.6 billion at december 31 , 2009 , as a result of $ 2.2 billion in gross outflows , partially offset by $ 1.3 billion in gross inflows and $ 0.4 billion in market appreciation . our revenues are generally correlated with the levels of our weighted average aum . our weighted average aum fluctuates based on changes in the market value of accounts advised and managed by us , and on our fund flows . since we are long-term fundamental investors , we believe that our investment strategies yield the most benefits , and are best evaluated , over a long-term timeframe . we believe that our investment strategies are generally evaluated by our clients and our potential future clients based on their relative performance since inception , and the previous one-year , three-year , and five-year periods . there has typically been a correlation between our strategies ' investment performance and the size and direction of asset flows over the long-term . to the extent that our returns for these periods outperform client benchmarks , we would generally anticipate increased asset flows over the long term . correspondingly , negative returns relative to client benchmarks could cause existing clients to reduce their exposure to our products , or hinder new client acquisition . in addition , an increase in weighted average aum and in revenues typically results in higher operating income and net income , while a decrease in weighted average aum and in revenues typically results in lower operating income , net income , and operating margins . we would expect pressure on our operating income , net income and operating margins in the future if average aum and revenues were to decline .
| operating results assets under management and flows as of december 31 , 2012 , our approximately $ 17.1 billion of aum was invested in a variety of value-oriented investment strategies , representing distinct capitalization segments of u.s. and non-u.s. equity markets . the performance of our largest investment strategies as of december 31 , 2012 is further described below . as of july 1 , 2012 , we launched a large cap expanded value strategy which , by asset size , is now one of our largest investment strategies . we follow the same investment process for each of these strategies . our investment strategies are distinguished by the market capitalization ranges from which we select securities for their portfolios , which we refer to as each strategy 's investment universe , as well as the regions in which we invest and the degree to which we concentrate on a limited number of holdings . while our investment process includes ongoing review of companies in the investment universes described below , our actual investments may include companies outside of the relevant market capitalization range at the time of our investment . in addition , the number of holdings typically found in the portfolios of each of our investment strategies may vary , as described below . 31 the following table indicates the annualized returns , gross and net ( which represents annualized returns prior to , and after , payment of advisory fees , respectively ) , of our six largest investment strategies from their inception to december 31 , 2012 , and in the five-year , three-year , and one-year periods ended december 31 , 2012 , relative to the performance of : ( i ) the market index which is most commonly used by our clients to compare the performance of the relevant investment strategy , and ( ii ) the s & p 500® index , which is provided for the limited purpose of providing a comparison to the broader equity market .
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gross profit as a result of the foregoing , our gross profit was us $ 5.50 million for the year ended december 31 , 2019 , compared with us $ 2.42 million for the year ended december 31 , 2018. our overall gross margin rate for the years ended december 31 , 2019 and 2018 was approximately 9 % and 4 % , respectively . the increase in our overall gross margin rate was primarily due to an increase in gross margin rates of both of our core business categories , internet advertising and data service and distribution of the right to use search engine marketing service to 7 % and 6 % , respectively , compared with 5 % and 4 % for the year ended december 31 , 2018 , respectively , and the revenues from technical services and software sales generated for the year ended december 31 , 2019 , as discussed above . operating expenses our operating expenses consist of sales and marketing expenses , general and administrative expenses , research and development expenses and impairment losses on intangible assets and goodwill . the following tables set forth our operating expenses , divided into their major categories by amount and as a percentage of our total revenues for the periods indicated . replace_table_token_7_th operating expenses : our operating expenses decreased to approximately us $ 7.19 million for the year ended december 31 , 2019 from us $ 16.93 million for the year ended december 31 , 2018. excluding the non-recurring impairment losses charged on intangible assets and goodwill of approximately us $ 3.33 million and us $ 5.21 million , respectively , for the year ended december 31 , 2018 , our general operating expenses decreased to us $ 7.19 million for the year ended december 31 , 2019 , compared with us $ 8.39 million for the year ended december 31 , 2018 . · sales and marketing expenses : for the year ended december 31 , 2019 , our sales and marketing expenses decreased to us $ 0.54 million from us $ 1.97 million for the year ended december 31 , 2018. our sales and marketing expenses primarily consist of advertising expenses for brand development that we pay to different media outlets for the promotion and marketing of our advertising web portals , other advertising and promotional expenses , staff salaries , staff benefits , performance bonuses , travelling expenses , communication expenses and other general office expenses of our sales department . due to certain aspects of our business nature , the fluctuation of our sales and marketing expenses usually does not have a direct linear relationship with the fluctuation of our net revenues . for the year ended december 31 , 2019 , the decrease in our sales and marketing expenses was primarily due to the following reasons : ( 1 ) the decrease in advertising expenses for brand development of approximately us $ 1.10 million ; and ( 2 ) the decrease in staff salaries and benefit and other general expenses of our sales department of approximately us $ 0.33 million , due to the cost reduction plan executed by management . 42 · general and administrative expenses : general and administrative expenses increased to approximately us $ 5.78 million for the year ended december 31 , 2019 from us $ 5.49 million for the year ended december 31 , 2018. our general and administrative expenses primarily consist of salaries and benefits of management , accounting and administrative personnel , office rentals , depreciation of office equipment , allowance for doubtful accounts , professional service fees , maintenance , utilities and other office expenses . for the year ended december 31 , 2019 , the change in our general and administrative expenses was primarily due to the following reasons : ( 1 ) the decrease in general administrative expenses , such as : professional service expenses , salary and benefit expenses and other general office expenses of approximately us $ 0.76 million , due to cost reduction plan executed by management ; ( 2 ) the increase in allowance for doubtful accounts of approximately us $ 0.81 million , due to uncertainties surrounding future collection , as a result of the outbreak of covid-19 in the first fiscal quarter of 2020 in china ; and ( 3 ) the increase in share-based compensation expenses of approximately us $ 0.24 million . · research and development expenses : research and development expenses were approximately us $ 0.87 million and us $ 0.93 million for the years ended december 31 , 2019 and 2018 , respectively . our research and development expenses primarily consist of salaries and benefits of our research and development staff , equipment depreciation expenses , and office utilities and supplies allocated to our research and development department etc . the decrease in research and development expenses for the year ended december 31 , 2019 , compared with that in last year , was primarily due to the cost reduction plan executed by the management . · impairment on intangible assets : for the year ended december 31 , 2018 , we recognized in the aggregate of approximately us $ 3.33 million impairment loss associated with intangible assets of our internet advertising and data service business segment . due to insufficient estimated future cash flows expected to be generated by the these assets , the respective carrying value of these assets were not expected to be recoverable and exceeded its fair value . story_separator_special_tag · impairment on goodwill : due to the decrease in overall gross profit margin and continued operating losses incurred from our internet advertising and data services reporting unit , we performed an interim goodwill impairment test as of june 30 , 2018. as a result , for the year ended december 31 , 2018 , we recognized an approximately us $ 5.21 million full impairment loss on our goodwill of this reporting unit . loss from operations : as a result of the foregoing , we incurred a net loss from operations of approximately us $ 1.69 million and us $ 14.51 million for the years ended december 31 , 2019 and 2018 , respectively . change in fair value of warrant liabilities : we issued warrants in the financing we consummated in january 2018. we determined that the warrants should be accounted for as derivative liabilities , as the warrants are dominated in a currency ( u.s. dollar ) other than our functional currency ( renminbi or yuan ) . as a result , a gain of change in fair value of approximately us $ 0.50 million and us $ 1.67 million was recorded in earnings for the years ended december 31 , 2019 and 2018 , respectively . impairment on long-term investments : we recognized an approximately us $ 0.45 million other-than temporary impairment loss on our long-term investment to chinanet chuang tou for the year ended december 31 , 2018 , representing the amount not recoverable upon termination of the entity . interest expense , net : for each of the years ended december 31 , 2019 and 2018 , interest income we earned was approximately us $ 0.01 million . for the years ended december 31 , 2019 and 2018 , interest expense of approximately us $ 0.04 million and us $ 0.05 million , respectively , was primarily related to the short-term bank loans we borrowed from major financial institutions in the prc to supplement our short-term working capital needs . loss before income tax expense and noncontrolling interest : as a result of the foregoing , our loss before income tax expense and noncontrolling interest was approximately us $ 1.22 million and us $ 13.36 million for the years ended december 31 , 2019 and 2018 , respectively . 43 income tax expense : we recognized an income tax expense of approximately us $ 0.05 million and us0.76 million for the years ended december 31 , 2019 and 2018 , respectively . for the year ended december 31 , 2019 , we provided approximately us $ 0.22 million current income tax expense , related to profit generated by one of our operating subsidiaries , which amount was offset by the approximately us $ 0.17 million deferred income tax benefit related to additional deferred tax assets recognized during the year . for the year ended december 31 , 2018 , deferred income tax expense recorded was primarily related to the additional deferred tax assets valuation allowance provided during the year . net loss : as a result of the foregoing , for the years ended december 31 , 2019 and 2018 , we incurred a net loss of approximately us $ 1.27 million and us $ 14.13 million , respectively . loss attributable to noncontrolling interest : chuang fu tian xia was 51 % owned by business opportunity online upon incorporation and the company purchased the remaining 49 % equity interest in it in may 2018. in may 2018 , the company incorporated a new majority-owned subsidiary , business opportunity chain and beneficially owns 51 % equity interest in it . for the year ended december 31 , 2019 , net loss allocated to the noncontrolling interest of business opportunity chain was approximately us $ 0.01 million . for the year ended december 31 , 2018 , net loss allocated to the noncontrolling interest of beijing chuang fu tian xia before it became our wholly-owned subsidiary and the noncontrolling interest of business opportunity chain was approximately us $ 0.10 million in the aggregate . net loss attributable to chinanet online holdings , inc. : total net loss as adjusted by net loss attributable to the noncontrolling interest shareholders as discussed above yields the net loss attributable to chinanet online holdings , inc. net loss attributable to chinanet online holdings , inc. was approximately us $ 1.26 million and us $ 14.03 million for the years ended december 31 , 2019 and 2018 , respectively . b. liquidity and capital resources cash and cash equivalents represent cash on hand and deposits held at call with banks . we consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents . as of december 31 , 2019 , we had cash and cash equivalents of approximately us $ 1.60 million . our liquidity needs include ( i ) net cash used in operating activities that consists of ( a ) cash required to fund the initial build-out , continued expansion of our network and new services and ( b ) our working capital needs , which include deposits and advance payments to search engine resource and other advertising resource providers , payment of our operating expenses and financing of
| overview our company was incorporated in the state of texas in april 2006 and re-domiciled to become a nevada corporation in october 2006. as a result of a share exchange transaction we consummated with china net bvi in june 2009 , we are now a holding company , which through certain contractual arrangements with operating companies in the prc , is engaged in providing advertising , precision marketing , online to offline sales channel expansion and the related data and technical services to smes in the prc . through our prc operating subsidiaries and vies , we primarily operate a one-stop services for our clients on our omni-channel advertising , precision marketing and data analysis management system . we offer a variety channels of advertising and marketing services through this system , which primarily include distribution of the right to use search engine marketing services we purchased from key search engines , provision of online advertising placements on our web portals , sales of effective sale lead information as well as sell provision of tv advertising service to maximize market exposure and effectiveness for our clients . 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 .
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this was done in an effort to enable us to focus on the strategies that support our core energy delivery business . we executed four separate transactions associated with the sale of pesco 's assets and contracts : pesco 's florida retail operations were sold to gas south . the initial closing for the transaction was completed in november 2019 with subsequent closings occurring in december 2019 . pesco 's other non-florida retail operations and contracts were sold to uet in october 2019. pesco 's mid-atlantic wholesale contracts and chesapeake utilities ' delaware division , maryland division and sandpiper energy asset management agreements were sold to njres in october 2019. pesco 's producer services portfolio was sold to dfs in december 2019. as a result of the sales agreements , we began to report pesco as discontinued operations during the third quarter of 2019 and excluded pesco 's performance f rom continuing operations for all periods presented and classified its assets and liabilities as held for sale , where applicable . pesco 's results for the year ended december 31 , 2018 compared to 2017 are described in item 7 , management 's discussion and analysis of financial condition and results of operations of our annual report on form 10-k for the year ended december 31 , 2018. we received a total of $ 22.9 million in cash consideration from the aforementioned buyers that was inclusive of working capital of $ 8.0 million from uet . we recognized a pre-tax gain of $ 7.3 million ( $ 5.4 million after tax ) in connection with the closing of these transactions during the fourth quarter of 2019. the final working capital true up , and sale of certain contracts , to uet is expected to be finalized in the first quarter of 2020. chesapeake utilities corporation 2019 form 10-k page 32 o ther e xpense , net other expense , net was $ 1.8 million and $ 0.6 million for 2019 and 2018 , respectively . other expense , net includes non-operating investment income ( expense ) , interest income , late fees charged to customers , gains or losses from the sale of assets for our unregulated businesses and pension and other benefits expense . the increase in other expense , net in 2019 was due to higher pension expense as well as pension settlement expense associated with the de-risking of the chesapeake pension plan see note 17 , employee benefit plans , for additional information . i nterest c harges 2019 compared to 2018 interest charges for 2019 increased by approximately $ 6.1 million , compared to 2018 attributable primarily to : ( in thousands ) long-term debt - largely for the nyl shelf notes issued in november 2018 and prudential shelf notes issued in august 2019 $ 3,007 lower capitalization of interest largely as a result of eastern shore 's 2017 system expansion project being fully completed 1,309 higher short-term borrowings to support growth 1,186 term notes - issued in connection with hurricane michael 383 other 193 year-over-year increase $ 6,078 i ncome t axes 2019 compared to 2018 income tax expense was $ 21.1 million for 2019 compared to $ 21.2 million for 2018 . our effective income tax rate was 25.6 percent and 27.1 percent for the year ended december 31 , 2019 and 2018 , respectively . l iquidity and c apital r esources our capital requirements reflect the capital-intensive and seasonal nature of our business and are principally attributable to investment in new plant and equipment , retirement of outstanding debt and seasonal variability in working capital . we rely on cash generated from operations , short-term borrowings , and other sources to meet normal working capital requirements and to temporarily finance capital expenditures . we may also issue long-term debt and equity to fund capital expenditures and to more closely align our capital structure with our target capital structure . our energy businesses are weather-sensitive and seasonal . we normally generate a large portion of our annual net income and subsequent increases in our accounts receivable in the first and fourth quarters of each year due to significant volumes of natural gas , electricity , and propane delivered by our distribution operations , and our natural gas transmission operations to customers during the peak heating season . in addition , our natural gas and propane inventories , which usually peak in the fall months , are largely drawn down in the heating season and provide a source of cash as the inventory is used to satisfy winter sales demand . capital expenditures for investments in new or acquired plant and equipment are our largest capital requirements . our capital expenditures were $ 199.0 million ( including the purchase of certain propane assets of boulden ) in 2019 and $ 282.9 million in 2018 ( including the purchase of certain assets from marlin gas services and ohl ) . the 2018 capital expenditures also includes over $ 60.0 million of restoration costs associated with repairing damages caused by hurricane michael to our electric distribution operations ' service territory in northwest florida . chesapeake utilities corporation 2019 form 10-k page 33 the following table shows total capital expenditures for the year ended december 31 , 2019 by segment and by business line : replace_table_token_19_th ( 1 ) this amount includes $ 24.5 million for the acquisition of certain propane operating assets of boulden completed in december 2019. the following table story_separator_special_tag of this report for an additional discussion of these and other related factors that affect our operations and or financial performance . story_separator_special_tag if such a failure , attack , or security breach were to occur , our business , our earnings , results of operation and financial condition could be adversely affected . in addition , the protection of customer , employee and company data is crucial to our operational security . a breach or breakdown of our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could have an adverse effect on our reputation , results of operations and financial condition and could also materially increase our costs of maintaining our system and protecting it against future breakdowns or breaches . we take reasonable precautions to safeguard our information systems from cyber-attacks and security breaches ; however , there is no guarantee that the procedures implemented to protect against unauthorized access to our information systems are adequate to safeguard against all attacks and breaches . we also can not assure that any redundancies built into our networks and technology , or the procedures we have implemented to protect against cyber-attacks and other unauthorized access to secured data , are adequate to safeguard against all failures of technology or security breaches . failure to attract and retain an appropriately qualified employee workforce could adversely affect operations . our ability to implement our business strategy and serve our customers depends upon our continuing ability to attract , develop and retain talented professionals and a technically skilled workforce , and transfer the knowledge and expertise of our workforce to new employees as our existing employees retire . failure to hire and adequately train replacement employees , including the transfer of significant internal historical knowledge and expertise to new employees , or the future availability and cost of contract labor could adversely affect our ability to manage and operate our business . if we were unable to hire , train and retain appropriately qualified personnel , our results of operations could be adversely affected . a strike , work stoppage or a labor dispute could adversely affect our operations . we are party to collective bargaining agreements with labor unions at some of our florida operations . a strike , work stoppage or a labor dispute with a union or employees represented by a union could cause interruption to our operations and our results could be adversely affected . our businesses are capital-intensive , and the increased costs and or delays of capital projects may adversely affect our future earnings . our businesses are capital-intensive and require significant investments in ongoing infrastructure projects . our ability to complete our infrastructure projects on a timely basis and manage the overall cost of those projects may be affected by the availability of the necessary materials and qualified vendors . our future earnings could be adversely affected if we are unable to manage such capital projects effectively , or if full recovery of such capital costs is not permitted in future regulatory proceedings . our regulated energy business may be at risk if franchise agreements are not renewed , or new franchise agreements are not obtained , which could adversely affect our future results or operating cash flows and financial condition . our regulated natural gas and electric distribution operations hold franchises in each of the incorporated municipalities that require franchise agreements in order to provide natural gas and electricity . ongoing financial results would be adversely impacted in the event that franchise agreements were not renewed . if we are unable to obtain franchise agreements for new service areas , growth in our future earnings could be negatively impacted . slowdowns in customer growth may adversely affect earnings and cash flows . our ability to increase gross margins in our natural gas , propane and electric distribution businesses is dependent upon growth in the residential construction market , adding new commercial and industrial customers and conversion of customers to natural gas , electricity or propane from other energy sources . slowdowns in growth may adversely affect our results of operations , cash flows and financial condition . energy conservation could lower energy consumption , which would adversely affect our earnings . federal and state legislative and regulatory initiatives to promote energy efficiency , conservation and the use of alternative energy sources could lower energy consumption by our customers . in addition , higher costs of natural gas , propane and electricity may cause customers to conserve fuel . to the extent a psc or the ferc does not allow the recovery through customer rates of higher costs or lower consumption from energy efficiency or conservation , and our propane margins can not be increased due to market conditions , our results of operations , cash flows and financial condition may be adversely affected . chesapeake utilities corporation 2019 form 10-k page 13 commodity price increases may adversely affect the operating costs and competitive positions of our natural gas , electric and propane operations , which may adversely affect our results of operations , cash flows and financial condition . natural gas/electricity . higher natural gas prices can significantly increase the cost of gas billed to our natural gas customers . increases in the cost of natural gas and other fuels used to generate electricity can significantly increase the cost of electricity billed to our electric customers . damage to the production or transportation facilities of our suppliers , which decreases their supply of natural gas and electricity , could result in increased supply costs and higher prices for our customers . such cost increases generally have no immediate effect on our revenues and net income because of our regulated fuel cost recovery mechanisms . however , our net income may be reduced by higher expenses that we may incur for uncollectible customer accounts and by lower volumes of natural gas and electricity deliveries when customers reduce their consumption . therefore , increases in the price of natural gas and other fuels can adversely affect our operating cash flows , results of
| fluctuations in propane gas prices could negatively affect results of operations . we adjust the price of the propane we sell based on changes in our cost of purchasing propane . however , if the market does not allow us to increase propane sales prices to compensate fully for fluctuations in purchased propane costs , our results of operations and earnings could be negatively affected . if we fail to comply with our debt covenant obligations , we could experience adverse financial consequences that could affect our liquidity and ability to borrow funds . our long-term debt obligations , term loans , the revolver and our committed short-term lines of credit contain financial covenants related to debt-to-capital ratios and interest-coverage ratios . failure to comply with any of these covenants could result in an event of default which , if not cured or waived , could result in the acceleration of outstanding debt obligations or the inability to borrow under certain credit agreements . any such acceleration could cause a material adverse change in our financial condition . increases in interest rates may adversely affect our results of operations and cash flows . increases in interest rates could increase the cost of future debt issuances . absent recovery of the higher debt cost in the rates we charge our utility customers , our earnings could be adversely affected . increases in short-term interest rates could negatively affect our results of operations , which depend on short-term lines of credit to finance accounts receivable and storage gas inventories and to temporarily finance capital expenditures . reference should be made to item 7a , quantitative and qualitative disclosures about market risk for additional information . current market conditions could adversely impact the return on plan assets for our pension plans , which may require significant additional funding . our pension plans are closed to new employees , and the future benefits are frozen .
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in fiscal 2017 , in three separate transactions , we acquired ( 1 ) substantially all of the net assets of taylor brands , llc , ( 2 ) substantially all of the assets of ultimate survival technologies , inc. ( now referred to as ultimate survival technologies , llc , or ust ) , and ( 3 ) all of the issued and outstanding stock of crimson trace corporation for an aggregate purchase price of $ 211.1 million , net of cash acquired , subject to certain adjustments , utilizing cash on hand . taylor brands , llc , which has been integrated into our battenfeld technologies business and operates from columbia , missouri , is a leading provider of high-quality knives , specialty tools , and accessories . crimson trace corporation , based in wilsonville , oregon , is a leading provider of laser sight and tactical light products for consumers , law enforcement , security agencies , and military agencies worldwide . ust , based in jacksonville , florida , is a provider of high-quality survival and camping equipment , including led lights , all-weather fire starters , unbreakable signal mirrors , premium outdoor cutting tools , first aid kits , survival kits , and camp kitchen products . results of operations for the fiscal year ended april 30 , 2017 include activity for the period subsequent to the respective acquisition dates of taylor brands , llc , crimson trace corporation , and ust . we collectively refer to the acquisitions of taylor brands , llc , crimson trace corporation , and ust as the 2017 acquisitions . in fiscal 2018 , in two separate transactions , we acquired substantially all of the net assets of gemini technologies , incorporated , or gemtech , and bubba blade branded products and other assets from fish tales , llc . the aggregate purchase price for the two acquisitions was $ 23.1 million , subject to certain adjustments , utilizing a combination of cash on hand and borrowings under our revolving line of credit . gemtech , which has been integrated into our smith & wesson business and operates from springfield , massachusetts , is a provider of quality suppressors and accessories for the consumer , law enforcement , and military markets . fish tales , llc , which has been fully integrated into our battenfeld technologies business and operates out of our columbia , missouri facility , was a provider of premium sportsman knives and tools for fishing and hunting , including the premium knife brand bubba blade . we collectively refer to the acquisitions of gemtech and bubba blade branded products as the 2018 acquisitions . in january 2019 , we acquired substantially all of the laserlyte branded products and other assets , or laserlyte , from p & l industries inc. , for a purchase price of $ 2.0 million , subject to certain adjustments , utilizing cash on hand . p & l industries was a provider of laser training and sighting products for the consumer market . the laserlyte business has been fully integrated into our crimson trace business and operates out of our wilsonville , oregon facility . this acquisition did not have a material impact on our condensed consolidated financial statements for any period presented . we report our results of operations in two segments : ( 1 ) firearms and ( 2 ) outdoor products & accessories . story_separator_special_tag style= '' font-size:8pt ; '' > million , or 19.4 % , over fiscal 2018 , partially because of replenishment of inventory , specifically for our sport model modern sporting rifle , in the sporting goods channel and several successful promotional programs , including a promotion that bundled a firearm with shooting accessory products . as a result , we believe we increased our market share for long guns . other products and services revenue increased $ 1.4 million , or 4.3 % , over the prior year , primarily because of higher sales of parts and handcuffs . new products , defined as any new sku not shipped in the prior year , represented 20.1 % of firearm revenue for fiscal 2019 and included our new concealed carry performance center m & p branded polymer pistol and many other new product line extensions for our m & p and thompson/center arms branded products . the increase in the number of units sold favorably impacted firearm revenue by 1.0 % . our firearm inventory levels decreased during fiscal 2019 as a result of increased shipments to fulfill seasonal promotional programs and increased demand for our modern sporting rifles , offset by increased inventory to reduce the risk of potential shipping disruptions when our national logistics facility in boone county , missouri becomes fully operational for firearms in fiscal 2020. while inventory levels , both internally and in the distribution channel , in excess of demand may negatively impact future operating results , it is difficult to forecast the potential impact of distributor inventories on future revenue and income since demand is impacted by many factors , including seasonality , new product introductions , news events , political events , and consumer tastes . our firearms segment order backlog as of april 30 , 2019 and 2018 was $ 39.2 million and $ 96.1 million , respectively . the decrease in order backlog from the prior fiscal year was primarily because of the normalization of channel inventories and the timing of order fulfillment . we allow orders received that have not yet shipped to be cancelled , and therefore , our backlog may not be indicative of future sales . outdoor products & accessories net sales for our outdoor products & accessories segment for fiscal 2019 increased $ 1.9 million , or 1.2 % , over fiscal 2018. net sales increased primarily because of market acceptance of newly introduced accessories products over the past several years and increased revenue from strategic retailers , including internet retailers , partially offset from lower electro-optics products revenue as a result of a general decline in firearm market conditions mentioned above . story_separator_special_tag our outdoor products & accessories segment favorably impacted total company gross margin by 3.5 % for fiscal 2019. fiscal 2018 cost of sales and gross profit compared with fiscal 2017 gross margin for fiscal 2018 for our firearms segment decreased by 13.3 % from fiscal 2017 , primarily because of a combination of reduced sales volumes across nearly all product categories , additional promotional product discounts , unfavorable manufacturing fixed-cost absorption , and inventory valuation adjustments . the unfavorable manufacturing fixed-cost absorption from lower sales volumes , inventory valuation adjustments , and additional promotional product discounts negatively impacted gross margin by 18.5 % , partially offset by favorable manufacturing spending , which favorably impacted gross margin by 5.9 % . gross margin for fiscal 2018 for our outdoor products & accessories segment decreased 0.7 % from fiscal 2017. fiscal 2017 included $ 4.7 million of increased cost of goods sold from the fair value step-up in inventory and backlog expense as a result of the 2017 acquisitions , which yielded a 3.6 % unfavorable impact on gross margin on that segment . excluding this expense in fiscal 2017 , gross margin decreased 4.3 % for fiscal 2018. inorganic gross margin negatively impacted our outdoor products & accessories segment gross margin by 1.0 % , primarily because the gross margin of our survival products are generally lower than other products in this segment , partially offset by the higher gross margin for our electro-optic products . organic gross margins decreased 3.3 % from fiscal 2017 , resulting from costs related to a recall of certain electro-optics products , which yielded a 1.0 % unfavorable impact to gross margin , combined with a change in product mix and promotional activity . our outdoor products & accessories segment favorably impacted total company gross margin by 4.9 % for fiscal 2018 . 47 operating expenses the following table sets forth certain information regarding operating expenses for the fiscal years ended april 30 , 2019 , 2018 , and 2017 ( dollars in thousands ) : replace_table_token_9_th fiscal 2019 operating expenses compared with fiscal 2018 excluding the impact of the goodwill impairment described above , operating expenses increased $ 9.1 million over fiscal 2018. research & development expenses increased $ 1.5 million as a result of increased compensation-related expenses and professional fees . selling and marketing expenses increased primarily as a result of $ 1.9 million of increased compensation-related expenses and increased travel and entertainment expenses , partially offset by decreased advertising expenses , commission costs , and professional fees . general and administrative expenses increased $ 6.1 million because of $ 8.9 million of increased compensation-related expenses as well as increased depreciation expenses related to our national logistics facility . these increases were partially offset by $ 2.3 million of decreased professional fees , lower donations to the national rifle association of $ 950,000 , decreased travel and entertainment related expenses , and decreased acquisition-related costs . fiscal 2018 operating expenses compared with fiscal 2017 operating expenses decreased $ 6.6 million from fiscal 2017. research and development expenses increased primarily because of $ 1.1 million of additional operating expenses relating to the acquired companies . selling and marketing expenses increased because of $ 4.7 million of additional operating expenses relating to acquired companies , $ 4.4 million of increased advertising expenses related to co-op advertising and rebate expenses , and $ 2.1 million of increased sales representative commission expenses , partially offset by $ 2.1 million of decreased management incentives and travel and entertainment expenses . general and administrative expenses decreased primarily because of an $ 18.5 million decrease in profit-related compensation costs and a $ 3.1 million decrease in acquisition-related costs , as well as due to other cost reduction initiatives , partially offset by $ 10.6 million of additional operating expenses relating to acquired companies and $ 1.3 million of increased professional fees and travel and entertainment expenses . operating income the following table sets forth certain information regarding operating income for the fiscal years ended april 30 , 2019 , 2018 , and 2017 ( dollars in thousands ) : replace_table_token_10_th fiscal 2019 operating income compared with fiscal 2018 excluding the impact of the goodwill impairment described above , operating income for fiscal 2019 was $ 48.5 million , an increase of $ 21.4 million , or 79.1 % over fiscal 2018 , primarily because of a combination of lower promotional product discounts , lower consumer rebates , lower manufacturing spending , decreased professional fees , lower donations to the national rifle association , decreased travel and entertainment related expenses , and decreased acquisition-related costs . these increases to operating income were partially offset by unfavorable inventory valuation adjustments and manufacturing fixed-cost absorption , increased compensation-related expenses , and increased depreciation expenses related to our national logistics facility . 48 fiscal 2018 operating income compared with fiscal 2017 for fiscal 2018 , operating income was $ 27.0 million , a decrease of $ 172.9 million from fiscal 2017 , primarily because of reduced sales volumes of our firearm products and the related operating profit impacts from unfavorable manufacturing fixed-cost absorption , additional operating expenses related to the 2017 acquisitions and 2018 acquisitions , and increased advertising , rebate , and sales representative commission expenses , partially offset by reduced general and administrative expenses related to profit-related compensation expense and lower acquisition-related costs .
| 2019 highlights our operating results for fiscal 2019 included the following : total net sales of $ 638.3 million , was an increase of $ 31.4 million , or 5.2 % , over the prior fiscal year . firearms segment gross sales of $ 481.3 million , which included $ 2.9 million of intersegment revenue , an increase of $ 28.5 million , or 6.3 % , over the prior fiscal year . outdoor products & accessories segment gross sales of $ 177.3 million , which included $ 17.5 million of intersegment revenue , an increase of $ 5.6 million , or 3.3 % , over the prior fiscal . gross margin of 35.4 % increased 310 basis points over the prior fiscal year . 42 a combination of factors occurring in the firearms industry during the last few years , including changes in the political environment and reduced overall demand for both firearms and the accessories that are attached to firearms , such as laser sights , resulted in us lower ing our long-range sales volume , operating profit , and cash flow forecasts in our former electro-optics operating unit . based on those for ecasts , we felt it important to seek out efficiencies in that operating unit to increase operating performance and as a result decided to combine that operating unit with our outdoor products & accessories operating unit . the lowered forecasts and the deci sion to reorganize those operating units caused us to evaluate the fair value of our operating units . based on the results of this evaluation , we recorded a $ 10.4 million non-cash impairment of goodwill in our outdoor products & accessories segment . net income in fiscal 2019 was negatively impacted by a $ 10.4 million impairment of goodwill and in fiscal 2018 net income was positively impacted by a one-time tax reform benefit of $ 8.7 million .
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” the following is a list of the sections of this md & a , together with our perspective on their contents , which we hope will assist in reading these pages : business considerations — a general description of our business ; the value drivers of our business ; fiscal 2016 results of operations and liquidity and capital resources key indicators ; and industry-wide opportunities , challenges and risks that are relevant to us in the defense , government and commercial markets . in this section of this md & a , “ income from continuing operations ” refers to income from continuing operations attributable to harris corporation common shareholders . operations review — an analysis of our consolidated results of operations and of the results in each of our four business segments , to the extent the segment operating results are helpful to an understanding of our business as a whole , for the three years presented in our financial statements . in this section of this md & a , “ income from continuing operations ” refers to income from continuing operations attributable to harris corporation common shareholders . liquidity , capital resources and financial strategies — an analysis of cash flows , funding of pension plans , common stock repurchases , dividends , capital structure and resources , contractual obligations , off-balance sheet arrangements , commercial commitments , financial risk management , impact of foreign exchange and impact of inflation . critical accounting policies and estimates — a discussion of accounting policies and estimates that require the most judgment and a discussion of accounting pronouncements that have been issued but not yet implemented by us and their potential impact on our financial position , results of operations and cash flows . forward-looking statements and factors that may affect future results — cautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results or our current expectations or projections . business considerations general we generate revenue , income and cash flows by developing , manufacturing or providing , and selling advanced , technology-based solutions that solve government and commercial customers ' mission-critical challenges . as of the end of fiscal 2016 , we supported customers in more than 100 countries and had approximately 21,000 employees , including approximately 9,000 engineers and scientists . we generally sell directly to our customers , the largest of which are u.s. government customers and their prime contractors , and we utilize agents and intermediaries to sell and market some products and services , especially in international markets . we structure our operations primarily around the products and services we sell and the markets we serve . we implemented a new organizational structure effective at the beginning of fiscal 2016 , which resulted in changes to our operating segments , which are also our reportable segments and are referred to as business segments . as a result , for fiscal 2016 , we reported the financial results of our continuing operations in the following four business segments : communication systems , serving markets in tactical communications and defense and public safety networks ; space and intelligence systems , providing complete earth observation , environmental , geospatial , space protection , and intelligence solutions from advanced sensors and payloads , as well as ground processing and information analytics ; electronic systems , offering an extensive portfolio of solutions in electronic warfare , avionics , wireless technology , c4i and undersea systems ; and critical networks , providing managed services supporting air traffic management , energy and maritime communications , and ground network operation and sustainment , as well as high-value it and engineering services . 37 the historical results , discussion and presentation of our business segments as set forth in this report reflect the impact of these changes for all periods presented in order to present all segment information on a comparable basis . there is no impact on our previously reported consolidated statements of income , balance sheet or statements of cash flows resulting from these changes financial information with respect to all of our other activities , including corporate costs not allocated to our business segments or discontinued operations , is reported as part of the “ engineering , selling and administrative expenses , ” “ non-operating income ( loss ) , ” “ interest income , ” “ interest expense ” or “ discontinued operations , net of income taxes ” line items in our consolidated financial statements and accompanying notes . value drivers of our business in fiscal 2016 , our ability to drive our business ' performance in the near-term and position the company to create long-term value centered upon successfully integrating exelis to maximize the benefits of the transformative acquisition while continuing to focus on our core values of operational excellence and leading through innovation , both of which are embedded in everything we do at harris . our strategic focus includes : capture exelis synergies ; drive operational excellence ; optimize our portfolio to focus where technology differentiates ; grow our core franchises and extend into close adjacencies ; invest in research and development ( “ r & d ” ) to drive discriminating technology ; and balance capital deployment . our first priority is the successful integration of exelis and we are capturing synergy savings . as a result of our disciplined execution , our synergy savings are a full year ahead of our original plan . as our integration efforts focus on driving greater cost and operational efficiencies and capturing opportunities to drive revenue growth , we continue to execute against our strategic priorities and focus on maintaining our deep customer relationships , commercializing our technology and driving operational excellence . our operational excellence program , harris business excellence ( “ hbx ” ) , is focused on streamlining processes , optimizing program execution , and increasing customer satisfaction . hbx incorporates standardized , industry-proven processes and tools based on the principles of lean and six sigma . story_separator_special_tag income from continuing operations per diluted common share decreased 12 percent to $ 2.75 in fiscal 2016 from $ 3.11 in fiscal 2015 , primarily due to the increase in the diluted common shares outstanding from shares issued in connection with our acquisition of exelis and recording in the second quarter of fiscal 2016 the non-cash impairment charge related to harris caprock communications as noted above ; and income from continuing operations as a percentage of revenue decreased to 5 percent in fiscal 2016 from 7 percent in fiscal 2015 , primarily due to recording in the second quarter of fiscal 2016 the non-cash impairment charge related to harris caprock communications as noted above . refer to md & a heading “ operations review ” below in this report for more information . liquidity and capital resources key indicators : net cash provided by operating activities , return on invested capital , return on average equity and our consolidated total indebtedness to total capital ratio also represent key measurements of our value drivers : net cash provided by operating activities increased to $ 924 million in fiscal 2016 from $ 854 million in fiscal 2015 ; return on invested capital ( defined as after-tax operating income from continuing operations divided by the two-point average of invested capital at the beginning and end of the fiscal year , where invested capital equals equity plus debt , less cash and cash equivalents ) decreased to 6 percent in fiscal 2016 from 9 percent in fiscal 2015 , primarily due to recording in the second quarter of fiscal 2016 the non-cash impairment charge related to harris caprock communications as noted above and an increase in the denominator from debt and equity issued in connection with our acquisition of exelis in the fourth quarter of fiscal 2015 ; return on average equity ( defined as income from continuing operations divided by the two-point average of equity at the beginning and end of the fiscal year ) decreased to 11 percent in fiscal 2016 from 13 percent in fiscal 2015 , primarily due to higher average equity from shares issued in connection with our acquisition of exelis in the fourth quarter of fiscal 2015 ; our consolidated total indebtedness to total capital ratio at july 1 , 2016 was 60 percent , compared to our 65 percent covenant limitation under our senior unsecured revolving credit facility ; and net cash used to repay borrowings decreased to $ 730 million in fiscal 2016 from fiscal 2015 when $ 954 million of net cash was used to repay borrowings including the redemption of two series of our notes . 39 refer to md & a heading “ liquidity , capital resources and financial strategies ” below in this report for more information on net cash provided by operating activities and net cash provided by ( used in ) financing activities . industry-wide opportunities , challenges and risks department of defense and other u.s. federal markets : u.s. government budgets remained constrained in fiscal 2016 , and we anticipate a similarly constrained spending environment in fiscal 2017 . in response to fiscal and economic challenges such as rising levels of debt , an economy with restrained growth , budget uncertainty and financial deficits , the u.s. government continues to focus on discretionary spending , entitlement programs and other fiscal and monetary policy initiatives to stimulate the economy , create jobs and reduce the deficit . in particular , the budget control act of 2011 ( “ bca ” ) established limits on discretionary spending and reduced planned defense spending by $ 487 billion over a ten-year period which began with government fiscal year ( “ gfy ” ) 2012 ( u.s. government fiscal years begin october 1 and end september 30 ) . in addition , the bca provided for additional automatic spending reductions , known as sequestration , that went into effect march 1 , 2013 , that would have resulted in an additional $ 500 billion reduction to planned defense spending over a nine-year period beginning with gfy 2013. in november 2015 , the president signed into law the bipartisan budget act of 2015 ( “ bba 2015 ” ) , which raised the limit on the u.s. government 's debt through march 2017 and increased the sequester caps on discretionary spending imposed by the bca by $ 80 billion over gfy 2016 - 2017 , providing more certainty in the near-term budget planning process . the cap on discretionary defense spending was increased by $ 25 billion for gfy 2016 and $ 15 billion for gfy 2017. in december 2015 , the president signed into law the consolidated appropriations act of 2016 , which funded the u.s. government through the end of september 2016. in addition , the president 's budget proposal for gfy 2017 is consistent with bba 2015 funding which includes discretionary dod funding of approximately $ 521 million in gfy 2016 and $ 524 million in gfy 2017 as well as an approximate $ 59 billion for dod overseas contingency operations ( “ oco ” ) spending in both gfy 2016 and gfy 2017. passing the 2-year , bba 2015 has provided more certainty in the budget planning process for both gfy 2016 and gfy 2017 and has given the dod flexibility in determining priorities . budget caps for gfys 2018 through 2022 , however , remain after the enactment of bba 2015 as well as the across-the-board spending reduction methodology as provided under the bca . absent any new legislation modifying the sequester caps , there remains uncertainty regarding how , or if , sequestration cuts will be applied in gfy 2018 through gfy 2022. dod and other agencies may have significantly less flexibility in determining priorities in these years .
| operations review consolidated results of operations replace_table_token_5_th * not meaningful ( a ) for fiscal 2015 , $ 32 million and $ 14 million of “ engineering , selling and administrative expenses ” and “ cost of services , ” respectively , have been reclassified to the “ impairment of goodwill and other assets ” line to conform with current year classification . 41 revenue fiscal 2016 compared with fiscal 2015 : the increase in revenue in fiscal 2016 compared with fiscal 2015 was primarily due to the inclusion in our operating results of revenue from a full year of exelis operations as a result of our acquisition of exelis in the fourth quarter of fiscal 2015. revenue in fiscal 2016 also reflected weakness in our communication systems segment related to dod and international tactical radio markets and our critical networks segment , primarily in it services and harris caprock communications energy services due to the downturn in the energy market and its impact on customer operations . fiscal 2015 compared with fiscal 2014 : the increase in revenue in fiscal 2015 compared with fiscal 2014 was primarily due to our acquisition of exelis in the fourth quarter of fiscal 2015. revenue in fiscal 2015 also reflected weakness in our critical networks segment . the $ 106 million decrease in revenue in our critical networks segment was primarily due to lower revenue from u.s. government customers , primarily on the navy/marine corps intranet ( “ nmci ” ) and u.s. air force network centric solutions programs . see the “ discussion of business segment results of operations ” discussion below in this md & a for further information .
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our credit investments include residential investments and commercial investments . we are a maryland corporation and are externally managed by our manager , a wholly-owned subsidiary of angelo gordon , pursuant to a management agreement . our manager , pursuant to a delegation agreement dated as of june 29 , 2011 , has delegated to angelo gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement . we conduct our operations to qualify and be taxed as a reit , for u.s. federal income tax purposes . accordingly , we generally will not be subject to u.s. federal income taxes on our taxable income that we distribute currently to our stockholders as long as we maintain our intended qualification as a reit . we also operate our business in a manner that permits us to maintain our exemption from registration under the investment company act of 1940 , as amended , or the investment company act . prior to december 31 , 2019 , we conducted our business through the following segments ; ( i ) securities and loans and ( ii ) single-family rental properties . on november 15 , 2019 , we sold our portfolio of single-family rental properties and no longer separate our business into segments . we reclassified the operating results of our single-family rental properties segment to discontinued operations and excluded the income associated with the portfolio from continuing operations for all periods presented . see note 13 to the `` notes to consolidated financial statements '' for additional financial information regarding our discontinued operations . covid-19 impact on march 11 , 2020 , the world health organization declared the outbreak of the novel coronavirus ( `` covid-19 '' ) a pandemic . on march 13 , 2020 , the u.s. declared a national emergency concerning the covid-19 pandemic , and several states and municipalities have subsequently declared public health emergencies . these conditions have caused , and continue to cause , a significant disruption in the u.s. and world economies . to slow the spread of covid-19 , many countries , including the u.s. , have implemented social distancing measures , which have substantially prohibited large gatherings , including at sporting events , religious services and schools . further , many regions , including the majority of u.s. states , implemented additional measures , such as shelter-in-place and stay-at-home orders . many businesses moved to a remote working environment , temporarily suspended operations , laid off a significant percentage of their workforce and or shut down completely . moreover , the covid-19 pandemic and certain of the actions taken to reduce its spread have resulted in lost business revenue , rapid and significant increases in unemployment , changes in consumer behavior and significant reductions in liquidity and the fair value of many assets , including those in which the company invests . although many of the government restrictions were relaxed over the summer and early fall of 2020 , these conditions , or some level thereof , are expected to continue over the near term and may continue throughout 2021 , depending on state and local outbreaks and the success of availability of an effective vaccine . beginning in mid-march 2020 , the global pandemic associated with covid-19 and related economic conditions caused financial and mortgage-related asset markets to come under extreme duress , resulting in credit spread widening , a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and mbs markets . the illiquidity was exacerbated by inadequate demand for mbs among primary dealers due to balance sheet constraints . these events , in turn , resulted in falling prices of our assets and increased margin calls from our repurchase agreement counterparties . to conserve capital , protect assets and to pause the escalating negative impacts caused by the market dislocation and allow the markets for many of our assets to stabilize , on march 20 , 2020 , we notified our repurchase agreement counterparties that we did not expect to fund the existing and anticipated future margin calls under our repurchase agreements and commenced discussions with our counterparties with regard to entering into forbearance agreements . we entered into three consecutive forbearance agreements , pursuant to which the forbearing counterparties agreed not to exercise any of their rights or remedies under their applicable financing arrangement with us through june 15 , 2020. on june 10 , 2020 , we exited forbearance , terminating the last remaining forbearance agreement , and entered into a reinstatement agreement , pursuant to which each participating counterparty agreed to permanently waive all existing and prior events of default under our financing agreements and reinstate our financing arrangements described in more detail below under the `` financing arrangements '' heading of this part ii , item 7 . 42 in an effort to manage our portfolio through this unprecedented turmoil in the financial markets , to improve liquidity , and preserve capital , we executed the following during the year ended december 31 , 2020. reduced gaap investment portfolio from $ 4.0 billion at december 31 , 2019 to $ 1.2 billion at december 31 , 2020 and investment portfolio on a non-gaap basis from $ 4.4 billion at december 31 , 2019 to $ 1.4 billion at december 31 , 2020 through sales , directly or as a result of financing counterparty seizures . reduced financing arrangement balance on a gaap basis from $ 3.2 billion at december 31 , 2019 to $ 564.0 million at december 31 , 2020 and financing arrangements on a non-gaap basis from $ 3.5 billion at december 31 , 2019 to $ 680.8 million at december 31 , 2020. reduced mark-to-market recourse financing from $ 3.5 billion at december 31 , 2019 to $ 580.1 million at december 31 , 2020 . story_separator_special_tag for example , credit risk transfer ( `` crt '' ) mezzanine spreads were around 15 basis points tighter while subordinate spreads tightened around 100 basis points . benchmark new-issue triple-a spreads mostly tightened around 10 basis points , except for non-qm triple-a rated tranches which were roughly 40 basis points tighter . as a result , primary spreads are approaching pre-pandemic levels for several sectors , including non-qm rmbs , which ended the year around five basis points tighter than february 2020 spreads . limited supply contributed to the strong oversubscription levels for newly issued rmbs , which fell 26 % compared to the prior quarter as the election likely sidelined some issuers . overall , issuance in the fourth quarter brought full-year 2020 rmbs volumes to around $ 95 billion , which was around 25 % lower compared to 2019. agency mbs . agency mbs continued their strong performance in the fourth quarter , with generic current coupon mbs spreads versus the 10-year treasury rate tightening 29 basis points on the quarter and tightening 37 basis points over the full year , to spreads not seen since the third round of quantitative easing from the federal reserve in 2012. specified pools have also continued to perform well as demand for protection from refinancing-driven prepayments remains elevated given historically low mortgage rates . federal reserve buying , strong bank deposit growth , broad demand for yield and low interest rate volatility continue to result in a supportive backdrop for valuations despite elevated gross issuance . while structured credit spreads have rallied from their march extremes , spreads for most rmbs and some abs sub-sectors remain wide of pre-pandemic levels as ongoing risks over the implications of high unemployment due to covid-19 hang over the market . cmbs . with respect to the cmbs market , markets conditions varied throughout the year . in september and october of 2020 the significant rally in cmbs prices experienced earlier in the year seemed to be losing momentum , likely due to concerns regarding covid-19 infections and political uncertainties . conditions improved in november of 2020 , likely due to positive news regarding a covid-19 vaccine and the broad election results . later in the month , the cmbs market experience significant pressure based on guidance provided by the national association of insurance commissioners . however , there was significant demand to absorb these sales , permitting the cmbs market to end the year on a positive note . regarding cmbs valuations over the course of 2020 , we estimate that cmbs conduit aaa bonds started the year at approximately swaps plus 95 basis points , tightened to the mid-80s by february 2020 before widening into the mid-300s at the height of the pandemic-related panic , and subsequently tightened back to around swaps plus 80 to end the year . the moves in bbb- bonds were even more dramatic , starting the year in the mid-300s , tightening to the low 300s before gapping out to well over swaps plus 1,000 basis points , and then ending the year in the low 400s range . delinquency data by property type also provides an interesting perspective on this difficult year . the industrial sector fared best , with delinquencies rising from 1.4 % to a peak of just 1.8 % and then falling to 1.2 % at year-end . office and multifamily properties largely followed similar patterns , with delinquencies ending the year around 2.2 % and 2.9 % , respectively . retail was negatively affected , with delinquencies rising from 4.4 % to as high as 18 % and ending the year at 13 % . hotels were most impacted , with delinquencies rising from 1.5 % to 24 % and ending the year at 20 % . notably , when hotel loans in special servicing or on servicer watchlists are included in this metric , approximately 70 % of all securitized loans in that space showed some level of distress at their peak in 2020. in light of various market uncertainties , in particular the pervasive uncertainties of the covid-19 pandemic for the u.s. and global economy , there can be no assurance that the trends and conditions described above will not change in a manner materially adverse to the mortgage reit industry and or our company . 44 story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > net interest component of interest rate swaps represents the net interest income received or expense paid on our interest rate swaps . net interest component of interest rate swaps decreased from december 31 , 2019 to december 31 , 2020 , primarily due to the significant reduction in the size of our investment portfolio and related financing as a result of the global covid-19 pandemic . unrealized gain/ ( loss ) on real estate securities and loans , net for the year ended december 31 , 2020 , the loss of $ 159.5 million consisted of unrealized losses on securities of $ 136.8 million and unrealized losses on loans of $ 22.7 million during the year . unrealized gain/ ( loss ) on derivative and other instruments , net for the year ended december 31 , 2020 , the $ 10.3 million loss consisted of unrealized losses on certain derivatives and securitized debt , offset by unrealized gains on excess msrs . foreign currency gain/ ( loss ) , net foreign currency gain/ ( loss ) , net pertains to the effects of remeasuring the monetary assets and liabilities of our foreign 47 investments into u.s. dollars using foreign currency exchange rates at the end of the reporting period . during the year ended december 31 , 2020 , our liabilities held in foreign currencies generated gains as the result of a decrease in the value of gbp relative to usd . other income other income currently includes certain fees we receive on our loans and cmbs portfolios .
| results of operations for the fiscal year 2020 and 2019 our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio , the level of our net interest income , the fair value of our assets and the supply of , and demand for , our target assets in the marketplace , among other things , which can be impacted by unanticipated credit events , such as defaults , liquidations or delinquencies , experienced by borrowers whose mortgage loans are included in our investment portfolio and other unanticipated events in our markets . our primary source of net income or loss available to common stockholders is our net interest income , less our cost of hedging , which represents the difference between the interest earned on our investment portfolio and the costs of financing and hedging our investment portfolio , as well as any income or losses from our equity investments in affiliates . in particular , our results of operations for 2020 were significantly impacted by the conditions created by the covid-19 pandemic . prior to the pandemic , our net interest income varied primarily as a result of changes in market interest rates , prepayment speeds , as measured by the constant prepayment rate ( `` cpr '' ) on the agency rmbs in our investment portfolio , and our funding and hedging costs . however , we sold our 30 year fixed rate agency rmbs portfolio in march 2020 to raise liquidity . as a result , we incurred large realized losses in 2020 and a sharp decline in book value . additionally , we believe the significant reduction in the size of our investment portfolio will materially limit our earnings going forward .
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mr. newby 's employment agreement provides that , if any portion of the payments or benefits provided to mr. newby would be subject to the excise tax imposed in connection with section 280g of the internal revenue code , then the payments and benefits will be reduced if such reduction would result in a greater after-tax payment to mr. newby . mr. harrison 's employment agreement , dated september 15 , 2011 , has an initial term of two years , and is then automatically extended for successive one-year periods , unless either party gives notice of non-extension to the other no later than 90 days prior to the expiration of the then-applicable term . mr. harrison ' s employment agreement provides for an annual base story_separator_special_tag md & a is intended to inform the reader about matters affecting the financial condition and results of operations of smlp and its subsidiaries and its predecessor for the three-year period ended december 31 , 2012. as a result , the following discussion should be read in conjunction with the audited consolidated financial statements and related notes that are included herein . among other things , those 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 `` risk factors . '' actual results may differ materially from those contained in any forward-looking statements . overview we are a growth-oriented limited partnership focused on owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins , primarily shale formations , in north america . we currently provide fee-based natural gas gathering and compression services in two unconventional resource basins : ( i ) the piceance basin , which includes the mesaverde formation and the mancos and niobrara shale formations in western colorado ; and ( ii ) the fort worth basin , which includes the barnett shale formation in north-central texas . we generate a substantial majority of our revenue under long-term , fee-based natural gas gathering agreements . substantially all of our gas gathering agreements are underpinned by areas of mutual interest and minimum volume commitments . our areas of mutual interest cover approximately 330,000 acres in the aggregate , have original terms that range from six years to 24 years , and provide that any natural gas producing wells drilled by our customers within the areas of mutual interest will be shipped on our gathering systems . the minimum volume commitments , which totaled 2.4 tcf at december 31 , 2012 and average approximately 639 mmcf/d through 2020 , are designed to ensure that we will generate a certain amount of revenue from each customer over the life of the respective gas gathering agreement , whether by collecting gathering fees on actual throughput or from cash payments to cover any minimum volume commitment shortfall . our minimum volume commitments have remaining terms that range 53 from seven years to 15 years and , as of december 31 , 2012 , had a weighted average remaining life of 11.1 years , assuming minimum throughput volumes for the remainder of the term . the fee-based nature of these agreements enhances the stability of our cash flows by limiting our direct commodity price exposure . our operations our results are driven primarily by the volumes of natural gas that we gather and compress across our systems . during the year ended december 31 , 2012 , we generated approximately 89 % of our revenue from fee-based gathering services that we provided to our customers . during the same period , we generated approximately 11 % of our revenue from ( i ) the sale of physical natural gas that we retained from our dfw midstream customers to offset our power expense associated with the operation of our electric-drive compression and ( ii ) the sale of condensate volumes that we collected on our grand river system . we also earn revenue by charging certain customers with respect to costs we incur on their behalf for carbon dioxide treating to deliver pipeline quality natural gas to third-party pipelines and costs we incur to operate electric-drive compression on the grand river system . we contract with producers to gather natural gas from pad sites and central receipt points connected to the grand river and dfw midstream systems . these receipt points are connected to our gathering pipelines through which we compress and dehydrate natural gas and deliver it to downstream pipelines for ultimate delivery to end users or third-party processing plants . we currently provide substantially all of our gathering and compression services under long-term , fee-based gas gathering agreements , which limit our direct commodity price exposure . under these agreements , we are paid a fixed fee based on the volume and thermal content of the natural gas we gather . we are party to eight long-term gas gathering agreements with producers in the barnett shale . in the piceance basin , we are a party to three long-term gas gathering agreements with encana and six gas gathering agreements with five other producers , three of which are long-term agreements . these agreements provide us with a revenue stream that is not subject to direct commodity price risk , with the exception of the natural gas that we retain in-kind to offset the power costs we incur to operate our electric-drive compression assets on the dfw midstream system . we also have indirect exposure to changes in commodity prices in that persistent low commodity prices may cause our customers to delay drilling or temporarily shut in production , which would reduce the volumes of natural gas that we gather . story_separator_special_tag tcf in 2009 to approximately 26.6 tcf in 2035. consistent with the rise in consumption , the eia projects that total domestic natural gas production will continue to grow through 2035 to 27.9 tcf . we believe that increasing consumption of natural gas will continue to drive natural gas drilling and production over the long term throughout the united states . growth in production from u.s. shale plays . over the past several years , a fundamental shift in production has emerged with the growth of natural gas production from unconventional resources ( defined by the eia as natural gas produced from shale formations and coalbeds ) . while the eia expects total domestic natural gas production to grow from 20.6 tcf in 2009 to 27.9 tcf in 2035 , it expects shale gas production to grow to 13.6 tcf in 2035 , or 49 % of total u.s. dry gas production . most of this increase is due to the emergence of unconventional natural gas plays and advances in technology that have allowed producers to extract significant volumes of natural gas from these plays at cost-advantaged per unit economics as compared to most conventional plays . in recent years , well-capitalized producers have leased large acreage positions in the piceance basin , the barnett shale and other unconventional resource plays . to help fund their drilling program in many of these areas , including in the piceance basin and the barnett shale , a number of producers have also entered into joint venture arrangements with large international operators , industrial manufacturers and private equity sponsors . these producers and their joint venture partners have committed significant capital to the development of the piceance basin , the barnett shale and other unconventional resource plays , which we believe will result in sustained drilling activity . as a result of the current low natural gas price environment , some natural gas producers have cut back or suspended their drilling operations in certain dry gas regions where the economics of natural gas production are less favorable . drilling activities focused in liquids-rich regions have continued and , in some cases , have increased , as the high btu content associated with liquids-rich production enhances overall drilling economics , even in a low natural gas price environment . interest rate environment . the credit markets recently have experienced near-record lows in interest rates . as the overall economy strengthens , it is likely that monetary policy will tighten , resulting in higher interest rates to counter possible inflation . this could affect our ability to access the debt capital markets to the extent we may need to in the 55 future to fund our growth . in addition , interest rates on future credit facilities and debt offerings could be higher than current levels , causing our financing costs to increase accordingly . although this could limit our ability to raise funds in the debt capital markets , we expect to remain competitive with respect to acquisitions and capital projects , as our competitors would face similar circumstances . rising operating costs and inflation . the current high level of crude oil and natural gas exploration , development and production activities across the united states has resulted in increased competition for personnel and equipment . this is causing increases in the prices we pay for labor , supplies and property , plant and equipment . an increase in the general level of prices in the economy could have a similar effect . we attempt to recover increased costs from our customers , but there may be a delay in doing so or we may be unable to recover all of these costs . to the extent we are unable to procure necessary supplies or recover higher costs , our operating results will be negatively impacted . how we evaluate our operations we manage our business and analyze our results of operations as a single business segment . our management uses a variety of financial and operational metrics to analyze our performance . we view these metrics as important factors in evaluating our profitability and review these measurements on a regular basis for consistency and trend analysis . these metrics include : throughput volume ; operations and maintenance expenses ; ebitda and adjusted ebitda ; and distributable cash flow . throughput volume the volume of natural gas that we gather depends on the level of production from natural gas wells connected to the grand river and dfw midstream systems . aggregate production volumes are impacted by the overall amount of drilling and completion activity , as production must be maintained or increased by new drilling or other activity , because the production rate of a natural gas well declines over time . as a result , we must continually obtain new supplies of natural gas to maintain or increase the throughput volume on our systems . our ability to maintain or increase throughput volumes from existing customers and obtain new supplies of natural gas is impacted by : successful drilling activity within our areas of mutual interest ; the level of work-overs and recompletions of wells on existing pad sites to which our gathering systems are connected ; the number of new pad sites in our areas of mutual interest awaiting connections ; our ability to compete for volumes from successful new wells in the areas in which we operate outside of our existing areas of mutual interest ; and our ability to gather natural gas that has been released from commitments with our competitors . operations and maintenance expenses we seek to maximize the profitability of our operations in part by minimizing , to the extent appropriate , expenses directly tied to operating and maintaining our assets . direct labor costs , compression costs , insurance costs , ad valorem and property taxes , repair and non-capitalized maintenance costs , integrity management costs , utilities and contract services comprise the most significant portion of our operations and maintenance expense .
| results of operations items affecting the comparability of our financial results smlp 's future results of operations may not be comparable to the historical results of operations for the reasons described below : based on the terms of our partnership agreement , we expect that we will distribute to our unitholders most of the cash generated by our operations . as a result , we expect to fund future capital expenditures from cash and cash equivalents on hand , cash flow generated from our operations , borrowings under our amended and restated revolving credit facility and future issuances of equity and debt securities . prior to the ipo , we largely relied on internally generated cash flows and capital contributions from the sponsors to satisfy our capital expenditure requirements . the historical results of operations may not be comparable to our future results of operations largely due to our ipo , which was completed on october 3 , 2012. we anticipate incurring approximately $ 2.5 million ( annualized ) of general and administrative expenses attributable to operating as a publicly traded partnership . incremental public entity costs include : ( i ) expenses associated with annual and quarterly reporting ; 57 ( ii ) tax return and schedule k-1 preparation and distribution expenses ; ( iii ) sarbanes-oxley compliance expenses ; ( iv ) expenses associated with listing on the nyse ; ( v ) independent auditor fees ; ( vi ) legal fees ; ( vii ) investor relations expenses ; ( viii ) registrar and transfer agent fees ; ( ix ) director and officer liability insurance costs ; and ( x ) director compensation . these incremental general and administrative expenses are not reflected in the historical consolidated financial statements prior to the ipo .
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stock-based compensation – the company measures stock-based compensation awards at fair value at the date of grant and recognizes the compensation cost of the story_separator_special_tag ( $ in millions , except for per share amounts ) the laclede group , inc. introduction this section analyzes the financial condition and results of operations of laclede group and laclede gas , a 100 % owned subsidiary of the company . it includes management 's view of factors that affect its business , explanations of past financial results including changes in earnings and costs from the prior year periods , and their effects on the company 's and laclede gas ' overall financial condition and liquidity . reference is made to “ part i. item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements , ” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . in addition , the following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto of laclede group and laclede gas included in “ item 8. financial statements and supplementary data. ” the management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the company 's consolidated financial statements , laclede gas financial statements and the notes thereto . story_separator_special_tag style= '' padding-bottom:6px ; font-family : times new roman ; font-size:10pt ; '' > the impact of weather and other factors , such as customer conservation , on revenues and expenses ; changes in the regulatory environment at the federal , state , and local levels , as well as decisions by regulators , that impact the utilities ' ability to earn its authorized rate of return in all service territories they serve ; the utilities ' ability to access credit markets and maintain working capital sufficient to meet operating requirements ; the effect of natural gas price volatility on the business ; and the ability to integrate the operations of all acquisitions . gas marketing segment : the risks of competition ; fluctuations in natural gas prices ; new national pipeline infrastructure projects ; the ability to procure firm transportation and storage services at reasonable rates ; credit and or capital market access ; counterparty risks ; and the effect of natural gas price volatility on the business . further information regarding how management seeks to manage these key variables is discussed below . gas utility the utilities provide reliable natural gas services at a reasonable cost , while maintaining and building secure and dependable infrastructures . the utilities ' strategies focus on improving both performance and the ability to recover their authorized distribution costs and rates of return . the utilities ' distribution costs are the essential , primarily fixed , expenditures it must incur to operate and maintain more than 53,000 miles of mains and services comprising the natural gas distribution systems and related storage facilities for laclede gas and alagasco . 28 the utilities ' distribution costs include wages and employee benefit costs , depreciation and maintenance expenses , and other regulated utility operating expenses , excluding natural and propane gas expense . distribution costs are considered in the rate-making process , and recovery of these types of costs is included in revenues generated through the utilities ' tariff rates . laclede gas ' tariff rates are approved by the mopsc , whereas alagasco 's tariff rates are approved by the apsc . laclede gas also has an off-system sales and capacity release income stream that is regulated by tariff . laclede gas ' income from off-system sales and capacity release remains subject to fluctuations in market conditions . laclede gas is allowed to retain the following annual income ( shown by legacy business ) : replace_table_token_9_th some of the factors impacting the level of off-system sales include the availability and cost of laclede gas ' natural gas supply , the weather in its service area , and the weather in other markets . when laclede gas ' service area experiences warmer-than-normal weather , while other markets experience colder weather or supply constraints , some of the utility 's natural gas supply is available for off-system sales . see the regulatory and other matters section on page 42 of this report for additional information on laclede gas ' off-system sales . laclede gas and alagasco work actively to reduce the impact of wholesale natural gas price volatility on their costs by strategically structuring their natural gas supply portfolios to increase their gas supply availability and pricing alternatives and through the use of derivative instruments to protect their customers from significant changes in the commodity price of natural gas . nevertheless , the overall cost of purchased gas remains subject to fluctuations in market conditions . laclede gas ' purchased gas adjustment ( pga ) clause and alagasco 's gsa rider allows the utilities to flow through to customers , subject to prudence review by the mopsc and apsc , the cost of purchased gas supplies , including costs , cost reductions , and related carrying costs associated with the use of derivative instruments to hedge the purchase price of natural gas , as well as gas inventory carrying costs . as of september 30 , 2014 , laclede gas had active derivative positions , but alagasco has had no derivative instrument activity since 2010. the utilities believe they will continue to be able to obtain sufficient gas supply . the price of natural gas supplies and other economic conditions may affect sales volumes , due to the conservation efforts of customers , and cash flows associated with the timing of collection of gas costs and related accounts receivable from customers . both laclede gas and alagasco rely on both short-term credit and long-term capital markets , as well as cash flows from operations , to satisfy their seasonal cash requirements and fund their capital expenditures . story_separator_special_tag these unrealized gains and losses result primarily from two sources : 1 ) changes in the fair values of physical and or financial derivatives prior to the period of settlement ; and , 2 ) ineffective portions of accounting hedges , required to be recorded in earnings prior to settlement , due to differences in commodity price changes between the locations of the forecasted physical purchase or sale transactions and the locations of the underlying hedge instruments ; lower of cost or market adjustments to the carrying value of commodity inventories resulting when the market price of the commodity falls below its original cost , to the extent that those commodities are economically hedged ; and realized gains and losses resulting from the settlement of economic hedges prior to the sale of the physical commodity . additionally , management excludes acquisition , divestiture , and restructuring activities when evaluating on-going performance . these adjustments eliminate the impact of timing differences and the impact of current changes in the fair value of financial and physical transactions prior to their completion and settlement . unrealized gains or losses are recorded in each period until being replaced with the actual gains or losses realized when the associated physical transaction ( s ) occur . while management uses these non-gaap measures to evaluate both the utilities and ler , the net effect of adjustments on the utilities ' earnings are minimal . this is due to gains or losses on laclede gas ' natural gas derivative instruments being deferred pursuant to its pga clause , as authorized by the mopsc ; and gains or losses on any alagasco natural gas derivative instruments being deferred pursuant to its gsa rider , as authorized by the apsc . management believes that excluding the earnings volatility caused by recognizing changes in fair value prior to settlement and other timing differences associated with related purchase and sale transactions provides a useful representation of the economic effects of only the actual settled transactions and their effects on results of operations . in addition , management excludes the impact related to unique acquisition , divestiture , and restructuring activities when evaluating on-going performance , and therefore excludes these impacts from net economic earnings . net economic earnings per share also excludes the impact of the may 2013 and june 2014 equity offerings to fund the acquisitions of mge and alagasco . management believes that this presentation provides a useful representation of operating performance by facilitating comparisons of year-over-year results . the definition and measurement of net economic earnings provided above is consistent with that used by management and the board of directors in assessing the company 's and laclede gas ' performance as well as determining performance under the company 's and laclede gas ' incentive compensation plans . further , the company believes this better enables an investor to view the company 's and laclede gas ' performance in that period on a basis that would be comparable to prior periods . reconciliations of net economic earnings and net economic earnings per share to the company 's most directly comparable gaap measures are provided on the following pages . non-gaap measure - operating margin in addition to operating revenues and operating expenses , management also uses the non-gaap measure of operating margin when evaluating result of operations , as shown in the table below . the utilities pass on to their customers ( subject to prudence review by the mopsc and apsc ) increases and decreases in the wholesale cost of natural gas in accordance with their pga clauses ( missouri utility ) and gsa rider ( alabama utility ) . the volatility of the wholesale natural gas market results in fluctuations from period to period in the recorded levels of , among other items , revenues and natural gas cost expense . nevertheless , increases and decreases in the cost of gas associated with system gas sales volumes and gross receipts tax expense , which are calculated as a percentage of revenues , with the same amount , excluding immaterial timing differences , 31 included in revenues , has no direct effect on operating income . as these costs are included in revenue and operating expenses and management does not have any control over these amounts for the utilities , management believes that beginning with operating margins is a more useful measure . in addition , it is management 's belief that operating margins and the remaining operating expenses that calculate operating income is a more useful measure in assessing the company 's and the utilities ' performance as management has more ability to influence control over these revenues and expenses . 32 overview – net income ( loss ) replace_table_token_10_th * amounts presented net of income taxes . income taxes are calculated by applying federal , state , and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items . * * 2014 net economic earnings per share exclude the impact of the june 2014 equity offerings to fund the acquisition of alagasco , but includes the may 2013 equity offering to fund the mge acquisition . the weighted-average diluted shares used in the net economic earnings per share calculation for the fiscal year ended september 30 , 2014 was 32.7 compared to 35.9 in the gaap eps calculation . * * * 2013 net economic earnings per share excludes the impact of the may 2013 equity offering to fund the acquisition of mge . the weighted-average diluted shares used in the net economic earnings per share calculation for the fiscal year ended september 30 , 2013 was 22.5 compared to 26.0 in the gaap eps calculation . 2014 vs. 2013 consolidated laclede group 's net income was $ 84.6 in fiscal year 2014 , including a net loss of $ 2.9 relating to alagasco 's operations for the month ended september30 , 2014 , compared with $ 52.8 in fiscal year 2013 .
| results of operations overview the company has two key business segments : gas utility and gas marketing . laclede group 's earnings are primarily derived from its gas utility segment , which reflects the regulated activities of the utilities . the gas utility segment consists of the regulated businesses of laclede gas and alagasco . gas utility - laclede gas laclede gas is missouri 's largest natural gas distribution company . laclede gas is regulated by the missouri public service commission and serves st. louis and eastern missouri through its legacy laclede gas assets and serves kansas city and western missouri through its mge assets , which were acquired on september 1 , 2013. laclede gas delivers natural gas to retail customers at rates and in accordance with tariffs authorized by the mopsc . the earnings of laclede gas are primarily generated by the sale of heating energy . laclede gas ' weather mitigation rate design and mge 's straight fixed variable rate design lessen the impact of weather volatility on its customers during cold winters and stabilizes laclede gas ' earnings . due to the seasonal nature of the business of laclede gas , laclede group 's earnings are typically concentrated during the heating season of november through april each fiscal year , although earnings for mge are less seasonal than earnings from laclede gas due to mge 's rate design , which recovers fixed costs more evenly throughout the year . on december 14 , 2012 , laclede group , through two 100 % owned subsidiaries , plaza missouri acquisition , inc. ( plaza missouri ) and plaza massachusetts acquisition , inc. ( plaza mass ) , entered into acquisition agreements to acquire from southern union company ( sug ) substantially all of the assets and liabilities of mge and new england gas company ( neg ) .
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69 castlight health , inc. notes to consolidated financial statements the company 's board appointed a special committee ( comprised solely of disinterested directors ) to which it delegated the full and exclusive power , authority and discretion of the castlight board to evaluate , assess , and approve the jiff transaction on its behalf , including retaining a financial advisor for an opinion on the fairness of the financial conditions of the transaction . the transaction was approved solely by the special committee which concluded that the transaction terms were fair to castlight , and the transaction was in the best interests of castlight and its stockholders . as part of the merger , certain stockholders and option holders were to receive an aggregate of 1,000,000 shares of the company 's class b common stock or options if the jiff business achieved at least $ 25 million in revenue in 2017 and an aggregate of 3,000,000 shares of class b common stock or options if the jiff business achieved at least $ 25 million in net new bookings during 2017 ( “ the milestones ” ) . as of december 31 , 2017 , the company evaluated and determined that both the milestones were not met . additionally , all options for jiff common stock held by jiff employees who became employees of the combined company were converted into options to purchase the company 's class b common stock . the following table summarizes the components of the purchase consideration transferred based on the closing price of the company 's stock as of the acquisition date ( in thousands ) : fair value fair value of company class b common stock ( 25,054,049 shares @ $ 3.65 per share ) $ 91,447 fair value of contingent consideration 671 fair value of assumed jiff options attributable to pre-combination services 9,574 transaction costs paid on behalf of jiff 4,498 estimated purchase price consideration $ 106,190 for the jiff options assumed as part of the acquisition , the company applied the ratio of pre-combination service provided , on a grant-by-grant basis , to the total service period and applied this ratio to the acquisition date fair value of the jiff awards . the company determined that the contingent consideration shares associated with the milestones are one unit of account , and the company classified the contingent consideration as a liability as the arrangement can be settled in a variable number of shares and is not considered fixed-for-fixed . based on the probability of completing the milestones and changes in the fair value of the company 's common stock , the company used a monte carlo simulation model to determine the fair value of the contingent consideration liability which was $ 0.7 million at the date of acquisition . as of december 31 , 2017 , the company reversed the contingent consideration liability as the milestones were not met . as a result , $ 0.7 million of income was recorded in general and administrative expenses for the year ended december 31 , 2017. see note 6 – fair value measurements for the fair value measurement disclosure on the contingent consideration liability . the company has accounted for this acquisition as a business combination . the method requires , among other things , that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date . the allocation of purchase consideration to assets and liabilities is not yet finalized . the company continues to evaluate the fair value of certain assets and liabilities related to the acquisition of jiff . additional information , which existed as of the acquisition date but was at that time unknown to us , may become known to us during the remainder of the measurement period . changes to amounts recorded as assets or liabilities may result in a corresponding adjustment to goodwill . the preliminary estimated fair values of assets acquired and liabilities assumed may be subject to change as additional information is received . the fair values of the assets acquired and liabilities assumed by major class in the acquisition of jiff as of december 31 , 2017 were recognized as follows ( in thousands ) : 70 castlight health , inc. notes to consolidated financial statements replace_table_token_28_th the fair values assigned to tangible assets acquired , liabilities assumed and identifiable intangible assets are based on management 's estimates and assumptions . the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill . the goodwill balance is primarily attributed to the cross-selling opportunities , cost synergies , and a knowledgeable and experienced workforce which play an important role in the integration of the acquired customers and technology . the goodwill balance is not deductible for u.s. income tax purposes . the following table sets forth the fair value components of identifiable acquired intangible assets ( in thousands ) and their estimated useful lives ( in years ) : replace_table_token_29_th customer relationships represent the fair value of projected cash flows that will be derived from the sale of products to jiff 's existing customers based on existing , in-process , and future versions of the underlying technology . developed technology represents jiff 's benefits platform . the company used the relief from royalty method to value the developed technology . to determine the net cash flow that a market participant would expect to realize from licensing the company 's technology , the company estimated a net royalty rate , which excludes any expenses that would be incurred to maintain the current functionality of the technology . the company has included the financial results of jiff in the consolidated statements of operations from the date of acquisition . for the year ended december 31 , 2017 , $ 10.9 million revenue attributable to jiff was included in the consolidated results of operations , and the associated operating income story_separator_special_tag 69 castlight health , inc. notes to consolidated financial statements the company 's board appointed a special committee ( comprised solely of disinterested directors ) to which it delegated the full and exclusive power , authority and discretion of the castlight board to evaluate , assess , and approve the jiff transaction on its behalf , including retaining a financial advisor for an opinion on the fairness of the financial conditions of the transaction . the transaction was approved solely by the special committee which concluded that the transaction terms were fair to castlight , and the transaction was in the best interests of castlight and its stockholders . as part of the merger , certain stockholders and option holders were to receive an aggregate of 1,000,000 shares of the company 's class b common stock or options if the jiff business achieved at least $ 25 million in revenue in 2017 and an aggregate of 3,000,000 shares of class b common stock or options if the jiff business achieved at least $ 25 million in net new bookings during 2017 ( “ the milestones ” ) . as of december 31 , 2017 , the company evaluated and determined that both the milestones were not met . additionally , all options for jiff common stock held by jiff employees who became employees of the combined company were converted into options to purchase the company 's class b common stock . the following table summarizes the components of the purchase consideration transferred based on the closing price of the company 's stock as of the acquisition date ( in thousands ) : fair value fair value of company class b common stock ( 25,054,049 shares @ $ 3.65 per share ) $ 91,447 fair value of contingent consideration 671 fair value of assumed jiff options attributable to pre-combination services 9,574 transaction costs paid on behalf of jiff 4,498 estimated purchase price consideration $ 106,190 for the jiff options assumed as part of the acquisition , the company applied the ratio of pre-combination service provided , on a grant-by-grant basis , to the total service period and applied this ratio to the acquisition date fair value of the jiff awards . the company determined that the contingent consideration shares associated with the milestones are one unit of account , and the company classified the contingent consideration as a liability as the arrangement can be settled in a variable number of shares and is not considered fixed-for-fixed . based on the probability of completing the milestones and changes in the fair value of the company 's common stock , the company used a monte carlo simulation model to determine the fair value of the contingent consideration liability which was $ 0.7 million at the date of acquisition . as of december 31 , 2017 , the company reversed the contingent consideration liability as the milestones were not met . as a result , $ 0.7 million of income was recorded in general and administrative expenses for the year ended december 31 , 2017. see note 6 – fair value measurements for the fair value measurement disclosure on the contingent consideration liability . the company has accounted for this acquisition as a business combination . the method requires , among other things , that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date . the allocation of purchase consideration to assets and liabilities is not yet finalized . the company continues to evaluate the fair value of certain assets and liabilities related to the acquisition of jiff . additional information , which existed as of the acquisition date but was at that time unknown to us , may become known to us during the remainder of the measurement period . changes to amounts recorded as assets or liabilities may result in a corresponding adjustment to goodwill . the preliminary estimated fair values of assets acquired and liabilities assumed may be subject to change as additional information is received . the fair values of the assets acquired and liabilities assumed by major class in the acquisition of jiff as of december 31 , 2017 were recognized as follows ( in thousands ) : 70 castlight health , inc. notes to consolidated financial statements replace_table_token_28_th the fair values assigned to tangible assets acquired , liabilities assumed and identifiable intangible assets are based on management 's estimates and assumptions . the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill . the goodwill balance is primarily attributed to the cross-selling opportunities , cost synergies , and a knowledgeable and experienced workforce which play an important role in the integration of the acquired customers and technology . the goodwill balance is not deductible for u.s. income tax purposes . the following table sets forth the fair value components of identifiable acquired intangible assets ( in thousands ) and their estimated useful lives ( in years ) : replace_table_token_29_th customer relationships represent the fair value of projected cash flows that will be derived from the sale of products to jiff 's existing customers based on existing , in-process , and future versions of the underlying technology . developed technology represents jiff 's benefits platform . the company used the relief from royalty method to value the developed technology . to determine the net cash flow that a market participant would expect to realize from licensing the company 's technology , the company estimated a net royalty rate , which excludes any expenses that would be incurred to maintain the current functionality of the technology . the company has included the financial results of jiff in the consolidated statements of operations from the date of acquisition . for the year ended december 31 , 2017 , $ 10.9 million revenue attributable to jiff was included in the consolidated results of operations , and the associated operating income
| and results of operations stock-based compensation compensation expense related to stock-based transactions , including employee , consultant and non-employee director stock option awards , is measured and recognized in the financial statements based on fair value . the options assumed and awarded in connection with the acquisition of jiff were valued using the monte carlo simulation model . t he fair value of each option award , other than the options assumed and awarded in connection with the jiff acquisition , is estimated on the grant date using the black-scholes option-pricing model . the stock-based compensation expense , net of forfeitures , is recognized using a straight-line basis over the requisite service periods of the awards , which is generally four years . for restricted stock units , fair value is based on the closing price of our class b common stock on the grant date . for awards with performance based and service vesting conditions , compensation cost is recognized over the requisite service period if it is probablethat the performance condition will be satisfied based on the accelerated attribution method .
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our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth in part i , item 1a , “ risk factors ” in this annual report on form 10-k. see the sections entitled “ risk factors ” and “ cautionary note regarding forward-looking statements. ” company overview we are a clinical-stage biopharmaceutical company engaged in the discovery and development of orally administered small molecule drug candidates to fill significant unmet medical needs . we have a pipeline of clinical drug candidates , led by our programs for the treatment of ad and type 2 diabetes . our drug candidate for the treatment of ad , azeliragon , is an orally administered , small molecule antagonist targeting the receptor for advanced glycation endproducts ( “ rage ” ) , and we have commenced patient 61 enrollment in the steadfast study under an fda-agreed special protocol assessment ( “ spa ” ) . our type 2 d iabetes drug candidates include ttp399 , an orally administered , liver-selective gka , for which we have completed the enrollment of patients in the agata study , and ttp273 , an orally administered , non-peptide agonist that targets the glp-1r , which we commen ced a phase 2 clinical trial in early 2016. we have three additional programs in various stages of clinical development for the prevention of muscle weakness and the treatment of inflammatory disorders . subsequent to our initial public offering ( the “ ipo ” ) and the related reorganization transactions ( the “ reorganization transactions ” ) , vtv therapeutics inc. ( the “ company ” , the “ registrant ” , “ we ” or “ us ” ) is a holding company , and its principal asset is a controlling equity interest in vtv therapeutics llc ( “ vtv llc ” ) , the company 's principal operating subsidiary . the company has determined that vtv llc is a variable-interest entity ( “ vie ” ) for accounting purposes and that vtv therapeutics inc. is the primary beneficiary of vtv llc because ( through its managing member interest in vtv llc and the fact that the senior management of vtv therapeutics inc. is also the senior management of vtv llc ) it has the power to direct all of the activities of vtv llc , which include those that most significantly impact vtv llc 's economic performance . vtv therapeutics inc. has therefore consolidated vtv llc 's results under the vie accounting model in its consolidated financial statements . as the reorganization transactions were considered to be among entities under common control , the consolidated financial statements for periods prior to the ipo and reorganization transactions have been adjusted to combine vtvx holdings i llc ( formerly known as transtech pharma , llc , “ ttp ” or “ vtvx holdings i ” ) and vtvx holdings ii llc ( formerly known as and high point pharmaceuticals , llc , “ hpp ” or “ vtvx holdings ii ” and , collectively with ttp or vtvx holdings i , the “ predecessors ” ) for presentation purposes . to date , we have devoted substantially all of our resources to our research and development efforts relating to our drug candidates , including conducting clinical trials with our drug candidates , providing general and administrative support for these operations and protecting our intellectual property . we do not have any products approved for sale and have not generated any revenue from drug sales . from our inception through december 31 , 2015 , we ( including our predecessors ) have funded our operations primarily through : · a series of private placements of preferred equity from 1999 through 2006 totaling $ 109.3 million ; · the receipt of $ 23.4 million from completed research collaborations with novo nordisk , a/s merck and boehringher ingelheim from 2001 to 2006 ; · the receipt of $ 169.2 million of upfront , milestone and research fees during 2006 to 2010 under a license and research agreement with pfizer , inc. , which was terminated in 2011 ; · the receipt of $ 55.7 million of upfront , milestone and research expense reimbursements from 2010 to 2013 under a license agreement for our gka programs with an affiliate of forest laboratories , inc. , which was terminated in 2013 ; · various borrowings totaling $ 114.7 million from november 2011 through march 2014 from entities affiliated with macandrews & forbes incorporated ( “ macandrews ” ) , which were converted to series f and series b preferred units of ttp and hpp , our predecessors ; · borrowings of $ 46.6 million from april 2014 through june 2015 from entities affiliated with macandrews ; and · the completion of the ipo in august 2015 , which raised proceeds of $ 104.4 million from the sale of our class a common stock , par value $ 0.01 per share ( the “ class a common stock ” ) , net of offering costs . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . we anticipate that our expenses will increase substantially as we : · continue the development of our lead drug candidate , azeliragon , for the treatment of ad ; · seek to obtain regulatory approvals for azeliragon ; · prepare for the potential commercialization of azeliragon ; · begin outsourcing of the commercial manufacturing of azeliragon for any indications for which we receive regulatory approval ; · expand our research and development activities and advance our clinical programs , including our type 2 diabetes programs ttp399 and ttp273 ; · maintain , expand and protect our intellectual property portfolio ; and · add operational , financial and management systems and personnel , including personnel to support our obligations as a public company . story_separator_special_tag other significant general and administrative expenses include accounting and legal services , expenses associated with obtaining and maintaining patents , cost of various consultants , occupancy costs and information systems . our general and administrative expenses have increased and will continue to increase as we operate as a public company and commercialize our drug candidates . such increases have been driven by higher costs for director and officer liability insurance , costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants . we also expect to incur additional costs in future periods as we continue to establish our investor relations function , implement a system of internal control over financial reporting and a system of disclosure controls and procedures that are compliant with applicable requirements and with corporate governance requirements and other rules of the stock exchange on which we are listed and other similar requirements applicable to public companies . other income ( expense ) , net other income ( expense ) , net primarily consists of expenses related to our capital structure prior to the ipo and reorganization transactions , such as interest expense and other expense related to the change in the fair value of an obligation to make distributions to a former officer in exchange for the repurchase of the officer 's predecessor company units ( the “ contingent distributions ” ) . such expenses will no longer be recognized by us after fiscal 2015 as the related instruments were not assumed by vtv therapeutics inc. through the reorganization transactions . 64 story_separator_special_tag style= '' font-family : 'symbol ' ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > · an increase in severance related compensation of $ 4.0 million in 2014 primarily related to the departure of a former officer and director , and · partially offset by one time stock compensation expense of $ 2.9 million recognized in 2013 attributable to a former officer and director associated with a note and equity issuance agreement entered into by us in 2013 . 66 other expense , net other expense , net was primarily comprised of net interest expense . during the years ended december 31 , 2014 and 2013 , our interest expense , net was $ 6.0 million and $ 11.8 million , respectively , representing a decrease of $ 5.8 million . during the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , the net interest expense decreased primarily due to a $ 5.4 million decrease in the amount of amortization of debt discount recognized during the years ending december 31 , 2013 and 2014 , respectively . liquidity and capital resources we believe that , with the proceeds from our ipo ( which we completed on august 4 , 2015 ) , we will continue to meet our liquidity requirements over at least the next 12 months . we anticipate that we will continue to incur losses for at least the next several years . we expect that our research and development and general and administrative expenses will continue to increase and , as a result , we may need additional capital to fund our operations , which we may obtain through one or more of equity offerings , debt financings , strategic alliances and licensing or collaboration arrangements . cash flows replace_table_token_9_th operating activities for the year ended december 31 , 2015 , our net cash used in operating activities increased $ 6.1 million from the prior year . the increased use of cash was primarily driven by the increased spending on our clinical trials and the related compound manufacturing costs for azeliragon , ttp399 and ttp273 as we initiated the related phase 3 and phase 2 studies . these increased uses of cash were offset by changes in working capital , which were primarily driven by increases in accounts payable balances due to the timing of payments related to our clinical trial expenses . investing activities for the year ended december 31 , 2015 , we experienced a shift to a use of cash in investing activities driven primarily by lower proceeds from the sale of property and equipment , coupled with increased purchases of property and equipment during 2015. financing activities for the year ended december 31 , 2015 , net cash provided by financing activities was $ 123.6 million compared to net cash provided by financing activities of $ 30.9 million for the year ended december 31 , 2014 , resulting in an increase of $ 92.7 million , which was primarily driven by the receipt of proceeds from the ipo . future funding requirements to date , we have not generated any revenue from drug product sales . we do not know when , or if , we will generate any revenue from drug product sales . we do not expect to generate significant revenue from drug sales unless and until we obtain regulatory approval of and commercialize azeliragon or any of our other drug candidates . at the same time , we expect our expenses to increase in connection with our ongoing development activities , particularly as we continue the research , development and clinical trials of , and seek regulatory approval for , our drug candidates . we expect to incur additional costs associated with operating as a public company . in addition , subject to obtaining regulatory approval of any of our drug candidates , we expect to incur significant commercialization expenses for product sales , marketing , manufacturing and distribution . we anticipate that we will need substantial additional funding in connection with our continuing operations .
| results of operations comparison of the year ended december 31 , 2015 and 2014 the following table sets forth certain information concerning our results of operations for the periods shown : replace_table_token_7_th revenues revenues were $ 0.5 million and $ 1.5 million for the years ended december 31 , 2015 and 2014 , respectively . the revenue earned during the year ended december 31 , 2015 was attributable to the global license agreement that we entered into with a third party customer in march 2015. the revenue earned during the year ended december 31 , 2014 primarily related to clinical trial services provided by high point clinical trials center , llc ( “ hpctc ” ) , a wholly-owned subsidiary ( prior to december 31 , 2014 ) to outside third party customers . hpctc was transferred to a former officer and director on december 30 , 2014. research and development expenses research and development expenses were $ 29.6 million and $ 18.7 million for the years ended december 31 , 2015 and 2014 , respectively . the increase in research and development expenses during the period of $ 10.9 million , or 58.0 % , was primarily due to : · an increase in clinical trial costs of $ 10.6 million for azeliragon in 2015 , which was mainly driven by the increase cost due to the initiation of the phase 3 steadfast study ; · an increase in clinical trial costs of $ 3.3 million for ttp399 in 2015 , which was mainly driven the initiation of the agata study in 2015 , coupled with the costs to manufacture the related compounds for use in such trial ; · an increase in clinical trial costs of $ 2.5 million for ttp273 in 2015 , which was mainly driven by both compound manufacturing costs and other costs incurred in preparation for the initiation of the logra study in january 2016 ; and · a
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on october 25 , 2013 , plaintiff laborers ' district council industry pension fund filed a books-and-records action entitled laborers ' district council construction industry pension fund v. lululemon athletica inc. , no . 9039 ( del . ch . ) under 7 del . c. sec . 220 based on a demand story_separator_special_tag this discussion summarizes our consolidated operating results , financial condition and liquidity during the three-year period ending february 2 , 2014 . our fiscal year ends on the sunday closest to january 31 of the following year , typically resulting in a 52 week year , but occasionally giving rise to an additional week , resulting in a 53 week year . fiscal 2013 is a 52 week year whereas fiscal 2012 was a 53 week year . net sales numbers for fiscal 2012 include results from the 53rd week ; however , comparable stores sales calculations exclude the 53rd week . fiscal 2013 , 2012 and 2011 ended on february 2 , 2014 , february 3 , 2013 and january 29 , 2012 , respectively . the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based on current expectations that involve risks , uncertainties and assumptions , such as our plans , objectives , expectations and intentions set forth in the `` 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 as a result of various factors , including those set forth in the `` item 1a—risk factors '' section and elsewhere in this annual report on form 10-k. overview fiscal 2013 was a year of challenges for lululemon . while we were able to grow year over year revenue across all of our selling channels , we also faced challenges with product quality and brand perception . we remain committed to our brand and core values , and have continued to invest in our product engine and supply chain throughout fiscal 2013. in addition , we recently hired a new chief executive officer and a new chief product officer , who we believe will lead our continued profitable growth . in mid-march 2013 , we determined that certain shipments of women 's black luon bottoms received from our factories and available in our stores from march 1 , 2013 , did not meet our specifications . as we became aware of this issue , we pulled what we believe to be all of the affected items from our stores , showrooms and e-commerce sites and began working with our supplier to replace the fabric and with our other manufacturers to replace these items as quickly as possible . as we previously disclosed , the lost revenue , as well as additional costs incurred and the write down of affected product on hand from this issue , negatively impacted our results from operations in fiscal 2013. however , we are proud of our organization 's ability to get luon delivered back into our stores within 90 days of having pulled it from our line . we believe our brand is recognized as premium in our offerings of women and men 's run and yoga assortment , as well as a leader in technical fabrics and functionality . delivering quality to our customers is a critical factor in our market place differentiation . we believe removing items that do not meet our standards is key to maintaining our brand reputation and that the pull-back of black luon pants reiterates our commitment to quality . we have continued to invest in new and legacy information technology systems to develop new capabilities to support our vertical retail strategy . in addition , we have continued to strengthen our senior management team in the areas of sourcing , quality and commercialization with key hires during the year . throughout fiscal 2013 , we were able to grow our e-commerce business which we believe has further increased our brand awareness and has made our product available in new markets , including those outside of north america . while the pull-back of black luon pants from our e-commerce sites negatively affected sales , net revenue from our direct to consumer channel increased 33 % and represented 16.5 % of total revenue in fiscal 2013 compared to 14.4 % of total revenue in fiscal 2012 and 10.6 % of total revenue in fiscal 2011 . continuing increases in traffic on our e-commerce website lead us to believe that there is potential for our direct to consumer segment to become an increasingly substantial part of our business and we plan to continue to commit a significant portion of our resources to further developing this channel . we increased our store base through execution of our real estate strategy , when and where we saw opportunities for success . for example , we opened 43 net new corporate-owned stores in north america and australia during fiscal 2013 . where we find opportunities for growth through opening showrooms , or other community presence efforts , we expect to expand our store base and therefore our business . our growth strategy relies on expansion in north america , particularly in the united states . we also believe that international growth is an opportunity and are expanding our foothold in markets by establishing local community connections , distributing to strategic sales partners and opening showrooms where we believe our guests are shopping . fiscal 2014 will be an investment year , as we refocus on building a solid foundation to drive growth and expand our business . in addition to our plans for domestic and international expansion , we are also focused on initiatives related to rebuilding our brand experience , connecting with our guests and communities , and creating innovative , technical and beautiful product . story_separator_special_tag we believe that our athletic apparel has and will continue to appeal to consumers outside of north america who value its technical attributes as well as its function and style . in 2004 , we opened our first store in australia which was operated under a franchise license . in fiscal 2009 we made a 13 % equity investment in lululemon athletica australia pty , our franchise operator . during fiscal 2010 we increased our investment to 80 % which provided us with control over lululemon athletica australia pty . during fiscal 2012 we purchased the remaining non-controlling interest in lululemon athletica australia pty . in fiscal 2008 , we 21 opened our first company-operated showroom in hong kong and in fiscal 2012 we opened our first company-operated showroom in the united kingdom . in fiscal 2013 we opened additional showrooms in hong kong and the united kingdom , and opened showrooms for the first time in germany , singapore , the netherlands , and china . basis of presentation net revenue is comprised of : corporate-owned store net revenue , which includes sales to customers through corporate-owned stores in the united states , canada , australia and new zealand ; direct to consumer revenue , which includes sales from our e-commerce websites ; and other net revenue , which includes wholesale accounts , franchise sales , warehouse sales , outlets and sales from company-operated showrooms . in each case , net of an estimated allowance for sales returns and discounts . in addition , we separately track comparable store sales , which reflect net revenue at corporate-owned stores that have been open for at least 12 months . therefore , net revenue from a store is included in comparable store sales beginning with the first month for which the store has a full month of comparable prior year sales . non-comparable store sales include sales from new stores that have not been open or otherwise not operated by us for 12 months or from stores which have been significantly remodeled or relocated . also included in non-comparable stores sales are sales from direct to consumer sales , outlets , wholesale , warehouse sales , showrooms , temporary locations , franchises , and sales from corporate-owned stores which we have closed . the 53rd week of fiscal 2012 is excluded from the calculation of comparable store sales . we began to report total comparable sales in fiscal 2013 , which combines comparable store sales and direct to consumer sales , excluding the 53rd week of sales from fiscal 2012. our direct to consumer segment represents a growing portion of our net revenue as the shopping behavior of our guests evolves . our approach to our guests supports this as it involves country and region specific websites , mobile/tablet devices in stores , social networks , and product notification emails . we therefore believe that reporting total comparable sales with comparable store sales and direct to consumer sales combined provides a more relevant metric , and we intend to continue reporting this in fiscal 2014. by measuring the change in year-over-year net revenue in stores that have been open for 12 months or more as well as direct to consumer sales , total comparable sales allow us to evaluate our performance eliminating the impact of newly opened stores . various factors affect comparable sales , including : the location of new stores relative to existing stores ; consumer preferences , buying trends and overall economic trends ; our ability to anticipate and respond effectively to customer preferences for technical athletic apparel ; competition ; changes in our merchandise mix ; pricing ; the timing of our releases of new merchandise and promotional events ; the effectiveness of our grassroots marketing efforts ; the level of customer service that we provide in our stores and on our websites ; our ability to source and distribute products efficiently ; and the number of stores we open , close ( including for temporary renovations ) and expand in any period . opening new stores is an important part of our growth strategy . accordingly , total comparable sales has limited utility for assessing the success of our growth strategy insofar as comparable sales do not reflect the performance of stores open less than 12 months . cost of goods sold includes : the cost of purchased merchandise , which includes acquisition and production costs including raw material and labor , as applicable ; 22 the cost incurred to deliver inventory to our distribution centers including freight , non-refundable taxes , duty and other landing costs ; the cost of our distribution centers ( such as labor , rent and utilities ) and the depreciation related to our distribution centers ; the cost of our production , merchandise and design departments including salaries , stock-based compensation and benefits , and operating expenses ; the cost of occupancy related to store operations ( such as rent and utilities ) and the depreciation related to store-level capital expenditures ; hemming ; and shrink and valuation reserves . cost of goods sold also may change as we open or close stores because of the resulting change in related occupancy costs . the primary drivers of the costs of individual goods are the costs of raw materials and labor in the countries where we source our merchandise . selling , general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold . our selling , general and administrative expenses include marketing costs , accounting costs , information technology costs , human resource costs , professional fees , corporate facility costs , corporate and store-level payroll and benefits expenses , stock-based compensation and occupancy , depreciation and amortization expense for all assets other than depreciation expenses related to store-level capital expenditures and our distribution centers , each of which are included in cost of goods sold .
| results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of net revenue : replace_table_token_9_th replace_table_token_10_th comparison of fiscal 2013 to fiscal 2012 net revenue net revenue increased $ 220.8 million , or 16 % , to $ 1.591 billion in fiscal 2013 from $ 1.370 billion in fiscal 2012 . assuming the average exchange rates in fiscal 2013 remained constant with the average exchange rates in fiscal 2012 , our net revenue would have increase d $ 247.0 million , or 18 % . total comparable sales , including comparable stores and direct to consumer , increased 7 % in fiscal 2013 , or 9 % excluding the effect of foreign currency fluctuations . the net revenue increase was driven by sales from new stores opened , the growth of our direct to consumer segment , and increased sales at locations in our comparable stores base . the constant dollar increase in comparable store sales was driven primarily by the strength of our existing product lines , successful introduction of new products and increasing recognition of the lululemon athletica brand name , especially at our u.s. stores , that drove higher transactions per store in the united states . 24 our net revenue on a segment basis for fiscal 2013 and fiscal 2012 are expressed in dollar amounts as well as relevant percentages , presented as a percentage of total net revenue below . replace_table_token_11_th corporate-owned stores . net revenue from our corporate-owned stores segment increased $ 138.8 million , or 13 % , to $ 1.229 billion in fiscal 2013 from $ 1.090 billion in fiscal 2012 .
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words such as “ may ” , “ will ” , “ should ” , “ would ” , “ anticipates ” , “ expects ” , “ intends ” , “ plans ” , “ believes ” , “ seeks ” , “ estimates ” and similar expressions identify such forward-looking statements . the forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements . factors that might cause such a difference include , among other things , those set forth under “ risk factors ” and those appearing elsewhere in this form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date hereof . we assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements . readers are cautioned that any forward-looking statements are not guarantees of future performance . overview intl fcstone inc. is a diversified global financial services organization providing execution , risk management and advisory services , market intelligence , and clearing services across assets classes and markets around the world . we help our customers access market liquidity , maximize profits and manage risk . we are a leader in the development of specialized financial services in commodities , securities , global payments , foreign exchange and other markets . our revenues are derived primarily from financial products and advisory services that fulfill our customers ' real needs and provide bottom-line benefits to their businesses . we create added value for our customers by providing access to global financial markets using our industry and financial expertise , deep partner and network relationships , insight and guidance , and integrity and transparency . our customer-first approach differentiates us from large banking institutions , engenders trust , and has enabled us to establish leadership positions in a number of complex fields in financial markets around the world . 28 our leadership positions span markets such as commodity risk management advisory services ; global payments ; market-making in international equities and other securities ; fixed income ; correspondent securities clearing and independent wealth management ; physical trading and hedging of precious metals and select other commodities ; execution of listed futures and options on futures contracts on all major commodity exchanges and foreign currency trading , among others . these businesses are supported by our global infrastructure of regulated operating subsidiaries , advanced technology platform and team of more than 1,600 employees . we currently serve more than 20,000 customers , located in more than 130 countries on five continents . our recent acquisition of the sterne agee correspondent clearing and independent wealth management businesses added approximately 50 correspondent clearing relationships with more than 120,000 accounts of which 65,000 are related to the independent wealth management business acquired . our customers include producers , processors and end-users of nearly all widely traded physical commodities ; commercial counterparties who are end-users of our products and services ; governmental and non-governmental organizations ; and commercial banks , asset managers , introducing broker-dealers , insurance companies , brokers , institutional investors and major investment banks . we believe our customers value us for our focus on their needs , our expertise and flexibility , our global reach , our ability to provide access to hard-to-reach markets and opportunities , and our status as a well-capitalized and regulatory-compliant organization . we believe we are well positioned to capitalize on key trends impacting the financial services sector . among others , these trends include the impact of increased regulation on banking institutions and other financial services providers ; increased consolidation , especially of smaller sub-scale financial services providers and independent securities clearing firms ; the growing importance and complexity of conducting secure cross-border transactions ; and the demand among financial institutions to transact with well-capitalized counterparties . we focus on mitigating exposure to market risk , ensuring adequate liquidity to maintain daily operations and making non-interest expenses variable , to the greatest extent possible . we report our operating segments based on services provided to customers . our business activities are managed as operating segments and organized into reportable segments consisting of commercial hedging , global payments , securities , physical commodities , and clearing and execution services ( “ ces ” ) . see segment information for a listing of our operating segment components . recent events affecting the financial services industry the dodd-frank act created a comprehensive new regulatory regime governing the over-the-counter ( “ otc ” ) and listed derivatives markets . most of the rules related to this regime have came into effect , however some important rules , such as those setting capital and margin requirements , have not been finalized or fully implemented . effective september 2016 , cftc margin rules came into effect , imposing new requirements to exchange initial and variation margin , depending upon aggregate daily notional transactions outstanding , with an implementation period ending in 2020. cftc capital rules have not been finalized and therefore it is too early to predict with any degree of certainty how we will be affected . we will continue to monitor all applicable developments in the ongoing implementation of the dodd-frank act . the legislation and implementing regulations affect not only us , but also our customers and counterparties . the european markets infrastructure regulation ( “ emir ” ) is the european regulations on otc derivatives , central counterparties and trade repositories . the emir has been implemented across the european economic area member states by the european banking authority ( “ eba ” ) and markets authority ( “ esma ” ) . esma is continuing to evaluate and set clearing obligations for certain otc derivatives . we will continue to monitor all applicable developments in the ongoing implementation of emir . story_separator_special_tag while the acquired correspondent securities clearing and independent wealth management business added $ 12.4 million in incremental segment income , the additional corporate unallocated expenses in these acquired businesses , resulted in a $ 1.0 million pre-tax net loss in the current year . the acquired oil voice brokerage business , recognized segment income of $ 4.6 million in fiscal 2017 with $ 1.2 million of acquired corporate unallocated expenses . 30 bad debt on physical coal during the fourth quarter of fiscal 2017 , we recorded a charge to earnings of $ 47.0 million , to record an allowance for doubtful accounts related to a bad debt incurred in our physical coal business , conducted solely in our singapore subsidiary , intl asia pte . ltd. , with a coal supplier . components of the bad debt on physical coal include allowances on amounts due to us from our supplier related to : coal paid for but not delivered to customers ; reimbursement of demurrage claims , dead freight and other charges paid by intl asia pte . ltd. to its customers ; reimbursement due for deficiencies in the quality of coal delivered to customers ; and losses incurred related to the cancellation of open sales contracts . we purchased coal delivered onto barges and paid 80 % of the value against bills of lading and purchase invoices , with the remaining 20 % payable following inspection upon delivery to customers ' vessels . we took title of the coal when it was loaded onto barges and maintained title until it was offloaded onto customers ' vessels . the logistics related to the delivery of coal to the customers ' vessels was out-sourced to our coal supplier , and we determined that certain purchased coal was not delivered to our customers ' vessels during the fourth quarter ended september 30 , 2017. furthermore , we determined that our supplier was unable to deliver such purchased coal to our customers . demurrage claims , dead freight , and other penalty charges paid by intl asia pte . ltd. to its customers were due to be reimbursed by our supplier based on transaction agreements with our supplier . subsequent to the end of the fourth quarter ended september 30 , 2017 , we determined our supplier was unable to make this reimbursement . we received an acknowledgment of debt and a note from the supplier in our first quarter ending december 31 , 2017. however , there is substantial uncertainty as to whether the supplier will be able to meet its financial obligations to us and as to the timing of any recovery . we are continuing our investigation into this matter and will pursue all legal avenues available to us . we have presented the bad debt on physical coal separately as a component of income from operations in our consolidated income statements . we have exited the physical coal business . all remaining open sales contracts have been canceled . in our first quarter ending december 31 , 2017 , we expect to record an additional bad debt expense of $ 1.0 million related to reimbursement due to us from the supplier for demurrage and other charges related to contracts with delivery dates subsequent to september 30 , 2017. we do not anticipate any additional bad debt expense in connection with the physical coal business . we have no long-lived or intangible assets related to the physical coal business , and accordingly have recorded no impairment charges . we do not believe that the loss will adversely affect our on-going profitability as the physical coal business had not contributed significantly to income from operations . we believe any additional exit costs will not be material to our consolidated financial statements . intl asia pte . ltd. has been recapitalized following the bad debt in order for its other businesses to operate in normal course . 31 selected summary financial information results of operations set forth below is our discussion of the results of our operations , as viewed by management , for the fiscal years ended september 30 , 2017 , 2016 , and 2015 . financial overview the following table shows an overview of our financial results : financial overview ( unaudited ) replace_table_token_5_th the selected data table below reflects key operating metrics used by management in evaluating our product lines , for the periods indicated : replace_table_token_6_th 32 operating revenues year ended september 30 , 2017 compared to year ended september 30 , 2016 operating revenues increased approximately 17 % to $ 784.0 million in fiscal 2017 compared to $ 671.0 million in the prior year . operating revenue growth was driven by a $ 108.7 million increase in our ces segment , primarily as a result of incremental operating revenues from our recent acquisitions . in addition , global payments and commercial hedging operating revenues increased $ 16.0 million and $ 8.5 million , respectively . physical commodities segment operating revenues increased $ 8.2 million versus the prior year . offsetting this revenue growth was a $ 23.5 million decline in operating revenues within our securities segment . operating revenues for fiscal 2017 include a $ 5.9 million pre-tax unrealized loss on interest rate swaps and u.s. treasury notes held as part of our interest rate management strategy . the prior year period included a $ 0.7 million pre-tax unrealized loss on interest rate swaps and u.s. treasury notes held as part of our interest rate management strategy . on a segment basis , these unrealized losses are reported in the corporate unallocated segment , while the amortized earnings on these investments are included in the commercial hedging and ces segments . during fiscal 2017 , we liquidated our interest rate swap and u.s. treasury note positions , held as part of the strategy , due to scheduled maturities as well as the close-outs of profitable positions as we determined there was no longer a sufficient interest rate spread between short-term and medium term rates .
| total segment results the following table shows summary information concerning all of our business segments combined . replace_table_token_10_th year ended september 30 , 2017 compared to year ended september 30 , 2016 the net contribution of all our business segments increased 12 % to $ 387.0 million in fiscal 2017 compared to $ 347.0 million in fiscal 2016 . segment income decreased ( 18 ) % to $ 169.0 million in fiscal 2017 compared to $ 206.0 million in fiscal 2016 . year ended september 30 , 2016 compared to year ended september 30 , 2015 the net contribution of all our business segments increased 8 % to $ 347.0 million in fiscal 2016 compared to $ 320.6 million in fiscal 2015. segment income increased 10 % to $ 206.0 million in fiscal 2016 compared to $ 188.1 million in fiscal 2015. commercial hedging we serve our commercial customers through our team of risk management consultants , providing a high-value-added service that we believe differentiates us from our competitors and maximizes the opportunity to retain our customers . our risk management consulting services are designed to quantify and monitor commercial entities ' exposure to commodity and financial risk . upon assessing this exposure , we develop a plan to control and hedge these risks with post-trade reporting against specific customer objectives . our customers are assisted in the execution of their hedging strategies through a wide range of products from listed exchange-traded futures and options , to basic otc instruments that offer greater flexibility , to structured otc products designed for customized solutions . our services span virtually all traded commodity markets , with the largest concentrations in agricultural and energy commodities ( consisting primarily of grains , energy and renewable fuels , coffee , sugar , cotton , and food service ) and base metals products listed on the lme .
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each of the iroquois funds and the reporting individuals hereby disclaims any beneficial ownership story_separator_special_tag the following discussion and analysis of our results of operations , financial condition and liquidity and capital resources should be read in conjunction with our audited financial statements and related notes for the years ended december 31 , 2017 and 2016. certain statements made or incorporated by reference in this report and our other filings with the securities and exchange commission , in our press releases and in statements made by or with the approval of authorized personnel constitute forward looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended , or the exchange act , and are subject to the safe harbor created thereby . forward looking statements reflect intent , belief , current expectations , estimates or projections about , among other things , our industry , management 's beliefs , and future events and financial trends affecting us . words such as “ anticipates , ” “ expects , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” “ may , ” “ will ” and variations of these words or similar expressions are intended to identify forward looking statements . in addition , any statements that refer to expectations , projections or other characterizations of future events or circumstances , including any underlying assumptions , are forward looking statements . although we believe the expectations reflected in any forward-looking statements are reasonable , such statements are not guarantees of future performance and are subject to certain risks , uncertainties and assumptions that are difficult to predict . therefore , our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors . these differences can arise as a result of the risks described above in the section entitled “ item 1a . risk factors ” and elsewhere in this report , as well as other factors that may affect our business , results of operations , or financial condition . forward looking statements in this report speak only as of the date hereof , and forward-looking statements in documents incorporated by reference speak only as of the date of those documents . unless otherwise required by law , we undertake no obligation to publicly update or revise these forward-looking statements , whether as a result of new information , future events or otherwise . in light of these risks and uncertainties , we can not assure you that the forward-looking statements contained in this report will , in fact , transpire . overview the management 's discussion and analysis is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets , liabilities and expenses and related disclosure of contingent assets and liabilities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . our business genius brands international , inc. ( “ we ” , “ us ” , “ our ” , or the “ company ” ) is a global content and brand management company that creates and licenses multimedia content . led by industry veterans , we distribute our content in all formats as well as a broad range of consumer products based on the characters that we have created or licensed . in the children 's media sector , our portfolio features “ content with a purpose ” for toddlers to tweens , which provides enrichment as well as entertainment including the award-winning baby genius ; new preschool property rainbow rangers ; preschool property llama llama that debuted on netflix ; tween music-driven brand spacepop ; adventure comedy thomas edison 's secret lab® available on public broadcast stations and our genius brands network on comcast 's xfinity on demand , roku , appletv , and amazon prime ; warren buffett 's secret millionaires club , created with and starring iconic investor warren buffett . we are also developing an all-new adult-themed animated series , stan lee 's cosmic crusaders , with stan lee 's pow ! entertainment and the hollywood reporter . 14 in addition to the wholly-owned or partially-owned properties listed above , we represent llama llama in the licensing and merchandising space . on november 4 , 2016 , we effected a reverse stock split on a one-to-three basis . the reverse stock split became effective on november 9 , 2016. the reverse stock split was implemented to facilitate our successful uplisting on the nasdaq capital market . unless otherwise noted , all share and per share data give effect to such reverse stock split of our common stock . recent developments january 2018 private placement on january 8 , 2018 , we entered into a securities purchase agreement with certain accredited investors pursuant to which we sold approximately $ 1,800,000 of common stock and warrants to such investors ( the “ january 2018 private placement ” ) . we issued and sold warrants to purchase 592,000 shares of common stock at an exercise price of $ 3.00 per share . in addition , we issued to chardan capital markets , llc , as placement agent , warrants to purchase 93,000 shares of common stock at an exercise price of $ 3.00 per share . story_separator_special_tag exercise price of $ 5.30 per share . story_separator_special_tag we estimate future cash flows and allocations of certain assets using estimates for future growth rates and our judgment regarding the applicable discount rates . changes to our judgments and estimates could result in a significantly different estimate of the fair market value of the reporting units , which could result in an impairment of goodwill or indefinite lived intangible assets in future periods . other intangible assets have been acquired , either individually or with a group of other assets , and were initially recognized and measured based on fair value . in accordance with fasb asc 350 intangible assets , the costs of new product development and significant improvement to existing products are capitalized while routine and periodic alterations to existing products are expensed as incurred . annual amortization of these intangible assets is computed based on the straight-line method over the remaining economic life of the asset . 17 film and television costs we capitalize production costs for episodic series produced in accordance with fasb asc 926-20 entertainment-films - other assets - film costs . accordingly , production costs are capitalized at actual cost and then charged against revenue based on the initial market revenue evidenced by a firm commitment over the period of commitment . we expense all capitalized costs that exceed the initial market firm commitment revenue in the period of delivery of the episodes . we capitalize production costs for films produced in accordance with fasb asc 926-20 entertainment-films - other assets - film costs . accordingly , production costs are capitalized at actual cost and then charged against revenue quarterly as a cost of production based on the relative fair value of the film ( s ) delivered and recognized as revenue . we evaluate our capitalized production costs annually and limit recorded amounts by our ability to recover such costs through expected future sales . additionally , for both episodic series and films , from time to time , we develop additional content , improved animation and bonus songs/features for our existing content . after the initial release of the film or episodic series , the costs of significant improvement to existing products are capitalized while routine and periodic alterations to existing products are expensed as incurred . revenue recognition we recognize revenue in accordance with fasb asc 926-605 entertainment-films - revenue recognition . accordingly , we recognize revenue when ( i ) persuasive evidence of a sale with a customer exists , ( ii ) the film is complete and has been delivered or is available for delivery , ( iii ) the license period of the arrangement has begun and the customer can begin its exploitation , exhibition , or sale , ( iv ) the arrangement fee is fixed or determinable , and ( v ) collection of the arrangement fee is reasonably assured . our licensing and royalty revenue represents revenue generated from license agreements that are held in conjunction with third parties that are responsible for collecting fees due and remitting to us our share after expenses . revenue from licensed products is recognized when realized or realizable based on royalty reporting received from licensees . licensing income that we recognize as an agent is in accordance with fasb asc 605-45 revenue recognition - principal agent . accordingly , our revenue is our gross billings to our customers less the amounts we pay to suppliers for their products and services . we sell advertising on our genius brands network in the form of either flat rate promotions or impressions served . for flat rate promotions with a fixed term , we recognize revenue when all five revenue recognition criteria under fasb asc 605 are met . for impressions served , we deliver a certain minimum number of impressions on the channel to the advertiser for which the advertiser pays a contractual cpm per impression . impressions served are reported to us on a monthly basis , and revenue is reported in the month the impressions are served . we recognize revenue related to product sales when ( i ) the seller 's price is substantially fixed , ( ii ) shipment has occurred causing the buyer to be obligated to pay for product , ( iii ) the buyer has economic substance apart from the seller , and ( iv ) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by fasb asc 605 revenue recognition . use of estimates the preparation of financial statements in conformity with generally accepted accounting principles in the united states of america ( “ u.s . 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 financial statements and the reported amounts of revenues and expenses during the reporting periods . 18 recent accounting pronouncements in may 2014 , the fasb issued accounting standards update 2014-09 , “ revenue from contracts with customers ” ( “ asu 2014-09 ” ) . asu 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards ( e.g . insurance contracts ) . this asu will supersede all revenue recognition requirements in topic 605 , revenue recognition , and industry-specific guidance throughout the industry topics of the codification . the guidance 's core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services .
| results of operations years ended december 31 , 2017 and 2016 our summary results for the years ended december 31 , 2017 and 2016 are below . revenues replace_table_token_3_th television & home entertainment revenue is generated from distribution of our properties for broadcast on television , vod , or svod in domestic and international markets and the sale of dvds for home entertainment through our partners . fluctuations in television & home entertainment revenue occur period over period based on the achievement of revenue recognition criteria such as the start of a license period and the delivery of the content to the customer . during the year ended december 31 , 2017 compared to december 31 , 2016 , television & home entertainment revenue increased $ 4,459,341 or 1252 % due to the delivery of llama llama to netflix in december 2017 without comparable activity in the prior period . licensing and royalty revenue includes items for which we license the rights to our copyrights and trademarks of our brands and those of the brands for which we act as a licensing agent . during the year ended december 31 , 2017 compared to december 31 , 2016 , this category increased $ 8,921 or 2 % primarily due to increases in revenues from our spacepop property . the genius brands network generates revenue in the form of either flat rate promotions , advertising impressions served , or our share of subscriptions to our channels . revenues from the genius brands network increased 15 % over the prior year as the network 's household reach grew thus increasing the number of impressions served as well as the introduction of the svod platform on amazon prime . product sales represent physical products in which we hold intellectual property rights such as trademarks and copyrights to the characters and which are manufactured and sold by us directly .
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the following discussion also includes four non-gaap financial measures , adjusted comprehensive income , adjusted book value per share , consolidated portfolio returns excluding symetra and common equity securities and other long-term investment returns excluding symetra , and the return on common equity and other long-term investments including high-yield fixed maturity investments that have been reconciled to their most comparable gaap financial measures on page 64. white mountains believes these measures to be useful in evaluating white mountains 's financial performance and condition . story_separator_special_tag repurchased and retired 387,495 of its common shares for $ 284 million at an average share price of $ 733 , approximately 105 % of white mountains 's december 31 , 2015 adjusted book value per share . the average share price paid was approximately 94 % of white mountains 's december 31 , 2015 adjusted book value per share including the estimated gain on the sirius group transaction , which was announced previous to when the vast majority of the 2015 share repurchases were completed but prior to the recording of the gain in adjusted book value per share , which occurred at closing on april 18 , 2016. onebeacon 's book value per share increased 3.8 % during 2015 , including dividends , compared to an increase of 2.1 % during 2014 , including dividends . onebeacon 's gaap combined ratio was 96 % for 2015 compared to 102 % for 2014. the lower combined ratio was primarily the result of the $ 109 million loss reserve charge in the fourth quarter of 2014 , partially offset by higher expense ratios driven by higher incentive compensation expense , changes in business mix and the impact of exiting the crop business . onebeacon 's net written premiums decreased 7 % to $ 1.1 billion in 2015 , primarily due to the exit from the crop business and lawyers liability business , a decrease in the healthcare business and the termination of an affiliated reinsurance treaty , partially offset by increases in onebeacon 's newer programs and surety businesses . sirius group 's gaap combined ratio was 85 % for 2015 compared to 76 % for 2014. the increase was primarily due to lower favorable net loss reserve development and a significantly higher frequency of non-catastrophe per risk and pro rata loss events , including $ 18 million in losses from the tianjin port explosions , partially offset by lower catastrophe losses . additionally , the combined ratio for the year ended december 31 , 2015 included 1 point from the cost of ilw covers purchased to mitigate the potential impact of major events on sirius group 's balance sheet pending the close of the sale to cmi . bam insured municipal bonds with par value of $ 10.6 billion in 2015 , compared to $ 7.8 billion in 2014. the average total premium ( including both risk premiums and member surplus contributions ) , weighted by insured par , of insurance provided by bam in the primary and secondary markets in 2015 was 52 basis points , up from 43 basis points in 2014. as of december 31 , 2015 , bam 's total claims paying resources were $ 601 million on total par insured of $ 22.6 billion . total claims paying resources increased $ 20 million from december 31 , 2014. the gaap pre-tax total return on invested assets was 3.6 % for 2015. excluding the results from symetra , the gaap pre-tax total return on invested assets was -0.2 % for 2015 , which included 0.9 % of currency losses , compared to a return of 1.9 % for 2014 , which included 1.9 % of currency losses . in local currencies , the fixed income portfolio returned 1.1 % for 2015 , essentially in-line with the longer duration bloomberg barclays u.s. intermediate aggregate index . the portfolio of common equity securities and other long-term investments returned 19.3 % for 2015. excluding the results from symetra , the portfolio of common equity securities and other long-term investments returned -1.8 % for 2015 , underperforming the s & p 500 index return of 1.4 % . the underperformance versus the s & p 500 index return was primarily due to unfavorable mark-to-market adjustments to the onebeacon surplus notes and losses in energy exposed private equity funds and a distressed hedge fund . in 2015 , white mountains deployed approximately $ 400 million of capital , primarily through $ 284 million of share repurchases and approximately $ 120 million through the purchase of various private capital investments , both in new investments and additional financings in existing investments to support growth and acquisitions . 35 adjusted book value per share the following table presents white mountains 's adjusted book value per share , a non-gaap financial measure , for the years ended december 31 , 2016 , 2015 and 2014 and reconciles this non-gaap measure to the most comparable gaap measure . see “ non-gaap financial measures ” on page 64. replace_table_token_16_th ( 1 ) adjusted book value per share at december 31 , 2016 includes the impact of 40,000 non-qualified stock options exercisable for $ 742 per common share . prior periods exclude the non-qualified stock options , which were anti-dilutive to book value . ( 2 ) for the year ended december 31 , 2014 , equity in net unrealized investment losses from symetra 's fixed maturity portfolio includes tax expense of $ 2.6. the following table is a summary of goodwill and intangible assets that are included in white mountains 's adjusted book value as of december 31 , 2016 , 2015 and 2014 : replace_table_token_17_th ( 1 ) see note 6 - “ goodwill and other intangible assets ” on page f-52 for details of other intangible assets . 36 review of consolidated results a summary of white mountains 's consolidated financial results for the years ended december 31 , 2016 , 2015 and 2014 follows : replace_table_token_18_th ( 1 ) adjusted comprehensive income is a non-gaap measure . for a description of the most comparable gaap measure . story_separator_special_tag white mountains reported near break-even income tax in 2015 on pre-tax income of $ 157 million . white mountains 's effective tax rate for 2015 was near zero , which was lower than the u.s. statutory rate of 35 % due primarily to income generated in jurisdictions with lower tax rates than the united states . white mountains reported an income tax benefit of $ 15 million in 2014 on pre-tax loss of $ 29 million . white mountains 's effective tax rate for 2014 was 51 % , which was higher than the u.s. statutory rate of 35 % due primarily to losses generated in the united states and income generated in jurisdictions with lower tax rates than the united states . 38 i. summary of operations by segment white mountains conducts its operations through three segments : ( 1 ) onebeacon , ( 2 ) hg global/bam and ( 3 ) other operations . while investment results are included in these segments , because white mountains manages the majority of its investments through its wholly-owned subsidiary , wm advisors , a discussion of white mountains 's consolidated investment operations is included after the discussion of operations by segment . white mountains 's segment information is presented in note 16 — “ segment information ” on page f-77 to the consolidated financial statements . as a result of the sirius group and tranzact sales , the results of operations for sirius group and tranzact have been classified as discontinued operations and are now presented separately , net of related income taxes , in the statement of comprehensive income . prior year amounts have been reclassified to conform to the current period 's presentation see note 22 — “ held for sale and discontinued operations ” on page f-87 . onebeacon financial results and gaap combined ratios for onebeacon for the years ended december 31 , 2016 , 2015 and 2014 follow : replace_table_token_19_th the following table presents onebeacon 's book value per share . replace_table_token_20_th 39 onebeacon results—year ended december 31 , 2016 versus year ended december 31 , 2015 onebeacon ended 2016 with a book value per share of $ 10.82 , an increase of 11.1 % during 2016 , including dividends , compared to an increase of 3.8 % during 2015 , including dividends . solid underwriting results and investment returns drove the increase . the increase in book value for the year ended december 31 , 2016 also included a $ 16 million tax benefit related to the settlement of irs examinations for tax years 2007-2012. onebeacon 's gaap combined ratio increased to 97 % for 2016 from 96 % for 2015. the increase was primarily due to a higher expense ratio . the loss ratio of 59 % for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 ratio of 60 % , as improved results primarily in the entertainment , accident and inland marine businesses were offset by lower results primarily in the healthcare business . net unfavorable loss reserve development for the year ended december 31 , 2016 was 1 point and was primarily from the healthcare ( $ 41 million ) , architects & engineers ( $ 15 million ) , and programs ( $ 13 million ) businesses , partially offset by favorable net loss reserve development in the accident ( $ 16 million ) , entertainment ( $ 9 million ) , technology ( $ 9 million ) and financial services ( $ 8 million ) businesses . net loss reserve development was insignificant in the year ended december 31 , 2015. the expense ratio increased by 2 points to 38 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily due to lower premium volume and changing business mix . the increase in other revenue for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was primarily driven by a loss of $ 4 million onebeacon recognized in 2015 that did not recur in 2016. the loss was for an assessment from the michigan catastrophic claims association payable to markel corporation pursuant to the indemnification provisions in the stock purchase agreement governing the sale of essentia insurance company ( “ essentia ” ) . onebeacon previously recognized a pretax gain of $ 23 million in 2013 on the sale of essentia , an indirect wholly-owned subsidiary which wrote legacy collector cars and boats business , to markel corporation . onebeacon 's net written premiums were $ 1.101 billion for the year ended december 31 , 2016 , a decrease of 3 % compared to the year ended december 31 , 2015. decreases in the programs ( $ 32 million ) , entertainment ( $ 27 million ) and healthcare ( $ 15 million ) businesses were partially offset by increases in financial institutions ( $ 18 million ) and various other businesses . reinsurance protection . onebeacon purchases reinsurance in order to minimize the loss from large risks or catastrophic events . onebeacon also purchases individual property reinsurance coverage for certain risks to reduce large loss volatility through property-per-risk excess of loss reinsurance programs and individual risk facultative reinsurance . onebeacon also maintains excess of loss casualty reinsurance programs that provide protection for individual risk or catastrophe losses involving workers compensation , general liability , automobile liability , professional liability or umbrella liability . the availability and cost of reinsurance protection is subject to market conditions , which are outside of management 's control . limiting risk of loss through reinsurance arrangements serves to mitigate the impact of large losses ; however , the cost of this protection in an individual period may exceed the benefit . for 2016 and 2015 , onebeacon 's net combined ratio was higher than the gross combined ratio by 4 points and 1 point as a result of the cost of the reinsurance programs more than offsetting the benefits from ceded losses .
| results of operations for the years ended december 31 , 2016 , 2015 and 2014 overview—year ended december 31 , 2016 versus year ended december 31 , 2015 white mountains ended 2016 with book value per share of $ 790 and adjusted book value per share of $ 794 , an increase of 13.6 % and 13.7 % for the year , including dividends . comprehensive income attributable to common shareholders increased to $ 558 million in 2016 compared to $ 197 million in 2015. the increases in 2016 are driven by larger transaction related gains . in 2016 , a gain of $ 477 million from the sale of sirius group increased book value per share and adjusted book value per share by $ 90 , while $ 82 million of comprehensive income generated from the sale of tranzact increased book value per share and adjusted book value per share by $ 16. in 2015 , white mountains recognized $ 241 million of comprehensive income that increased book value per share and adjusted book value per share by $ 43 , which was the result of a change in accounting for the investment in symetra from the equity method to fair value , caused by white mountains 's relinquishment of its representation on symetra 's board of directors subsequent to symetra entering into a merger agreement with sumitomo life . see note 2 - “ significant transactions ” on page f-14 for a description of each transaction . for the year ended december 31 , 2016 , white mountains repurchased and retired 1,106,145 of its common shares for $ 887 million at an average share price of $ 802.08 , approximately 101 % of white mountains 's december 31 , 2016 adjusted book value per share . onebeacon 's book value per share increased 11.1 % during 2016 , including dividends , compared to an increase of 3.8 % during 2015 , including dividends .
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previous adjustments to the hedged item are amortized over the remaining life of the hedged item . h. loans and leases . loans and leases are recognized assets that represent a contractual right to receive money either on demand or on fixed or determinable dates . loans and leases are disaggregated for disclosure purposes by portfolio segment ( segment ) and by class . northern trust has defined its segments as commercial and personal . a class of loans and leases is a subset of a segment , the components of which have similar risk characteristics , measurement attributes , or risk monitoring methods . the classes within the commercial segment have been defined as commercial and institutional , commercial real estate , lease financing , net , non-u.s. and other . the classes within the personal segment have been defined as residential real estate , private client and other . loan classification . loans that are held for investment are reported at the principal amount outstanding , net of unearned income . loans classified as held for sale are reported at the lower of cost or fair value . undrawn commitments relating to loans that are not held for sale are recorded in other liabilities and are carried at the amount of unamortized fees with an allowance for credit loss liability recognized for any estimated expected losses . nonaccrual loans and recognition of income . interest income on loans and leases is recorded on an accrual basis unless , in the opinion of management , there is a question as to the ability of the debtor to meet the terms of the loan agreement , or interest or principal is more than 90 days contractually past due and the loan is not well-secured and in the process of collection . loans meeting such criteria are classified as nonaccrual and interest income is recorded on a cash basis . past due status is based on how long since the contractual due date a principal or interest payment has been past due . for disclosure purposes , loans that are 29 days past due or less are reported as current . at the time a loan is determined to be nonaccrual , interest accrued but not collected is reversed against interest income in the current period . interest collected on nonaccrual loans is applied to principal unless , in the opinion of management , collectability of principal is not in doubt . management 's assessment of indicators of loan and lease collectability , and its policies relative to the recognition of interest income , including the suspension and subsequent resumption of income recognition , do not meaningfully vary between loan and lease classes . nonaccrual loans are returned to performing status when factors indicating doubtful collectability no longer exist . factors considered in returning a loan to performing status are consistent across all classes of loans and leases and , in accordance with regulatory guidance , relate primarily to expected payment performance . a loan is eligible to be returned to performing status when : ( i ) no principal or interest that is due is unpaid and repayment of the remaining contractual principal and interest is expected or ( ii ) the loan has otherwise become well-secured ( possessing realizable value sufficient to discharge the debt , including accrued interest , in full ) and is in the process of collection ( through action reasonably expected to result in debt repayment or restoration to a current status in the near future ) . a loan that has not been brought fully current may be restored to performing status provided there has been a sustained period of repayment performance ( generally a minimum of six payment periods ) by the borrower in accordance with the contractual terms , and northern trust is reasonably assured of repayment within a reasonable period of time . additionally , a loan that has been formally restructured so as to be reasonably assured of repayment and performance according to its modified terms may be returned to accrual status , provided there was a well-documented credit evaluation of the borrower 's financial 96 2020 annual report | northern trust corporation notes to consolidated financial statements condition and prospects of repayment under the revised terms , and there has been a sustained period of repayment performance ( generally a minimum of six payment periods ) under the revised terms . troubled debt restructurings ( tdrs ) . a loan that has been modified as a concession by northern trust or a bankruptcy court resulting from the debtor 's financial difficulties is referred to as a troubled debt restructuring ( tdr ) . all tdrs are reported as tdrs starting in the calendar year of their restructuring . in subsequent years , a tdr may cease being reported as a tdr if the loan was modified at a market rate and has performed according to the modified terms for at least six payment periods . a loan that has been modified at a below market rate will return to accrual status if it satisfies the six-payment-period performance requirement . the expected credit loss is measured based upon the present value of expected future cash flows , discounted at the effective interest rate based on the original contractual rate . if a loan 's contractual interest rate varies based on subsequent changes in an independent factor , such as an index or rate , the loan 's effective interest rate is calculated based on the factor as it changes over the life of the loan . northern trust elected not to project changes in the factor for purposes of estimating expected future cash flows . further , northern trust elected not to adjust the effective interest rate for prepayments . if the loan is collateral dependent , the expected loss is measured based on the fair value of the collateral at the reporting date . if the loan valuation is story_separator_special_tag previous adjustments to the hedged item are amortized over the remaining life of the hedged item . h. loans and leases . loans and leases are recognized assets that represent a contractual right to receive money either on demand or on fixed or determinable dates . loans and leases are disaggregated for disclosure purposes by portfolio segment ( segment ) and by class . northern trust has defined its segments as commercial and personal . a class of loans and leases is a subset of a segment , the components of which have similar risk characteristics , measurement attributes , or risk monitoring methods . the classes within the commercial segment have been defined as commercial and institutional , commercial real estate , lease financing , net , non-u.s. and other . the classes within the personal segment have been defined as residential real estate , private client and other . loan classification . loans that are held for investment are reported at the principal amount outstanding , net of unearned income . loans classified as held for sale are reported at the lower of cost or fair value . undrawn commitments relating to loans that are not held for sale are recorded in other liabilities and are carried at the amount of unamortized fees with an allowance for credit loss liability recognized for any estimated expected losses . nonaccrual loans and recognition of income . interest income on loans and leases is recorded on an accrual basis unless , in the opinion of management , there is a question as to the ability of the debtor to meet the terms of the loan agreement , or interest or principal is more than 90 days contractually past due and the loan is not well-secured and in the process of collection . loans meeting such criteria are classified as nonaccrual and interest income is recorded on a cash basis . past due status is based on how long since the contractual due date a principal or interest payment has been past due . for disclosure purposes , loans that are 29 days past due or less are reported as current . at the time a loan is determined to be nonaccrual , interest accrued but not collected is reversed against interest income in the current period . interest collected on nonaccrual loans is applied to principal unless , in the opinion of management , collectability of principal is not in doubt . management 's assessment of indicators of loan and lease collectability , and its policies relative to the recognition of interest income , including the suspension and subsequent resumption of income recognition , do not meaningfully vary between loan and lease classes . nonaccrual loans are returned to performing status when factors indicating doubtful collectability no longer exist . factors considered in returning a loan to performing status are consistent across all classes of loans and leases and , in accordance with regulatory guidance , relate primarily to expected payment performance . a loan is eligible to be returned to performing status when : ( i ) no principal or interest that is due is unpaid and repayment of the remaining contractual principal and interest is expected or ( ii ) the loan has otherwise become well-secured ( possessing realizable value sufficient to discharge the debt , including accrued interest , in full ) and is in the process of collection ( through action reasonably expected to result in debt repayment or restoration to a current status in the near future ) . a loan that has not been brought fully current may be restored to performing status provided there has been a sustained period of repayment performance ( generally a minimum of six payment periods ) by the borrower in accordance with the contractual terms , and northern trust is reasonably assured of repayment within a reasonable period of time . additionally , a loan that has been formally restructured so as to be reasonably assured of repayment and performance according to its modified terms may be returned to accrual status , provided there was a well-documented credit evaluation of the borrower 's financial 96 2020 annual report | northern trust corporation notes to consolidated financial statements condition and prospects of repayment under the revised terms , and there has been a sustained period of repayment performance ( generally a minimum of six payment periods ) under the revised terms . troubled debt restructurings ( tdrs ) . a loan that has been modified as a concession by northern trust or a bankruptcy court resulting from the debtor 's financial difficulties is referred to as a troubled debt restructuring ( tdr ) . all tdrs are reported as tdrs starting in the calendar year of their restructuring . in subsequent years , a tdr may cease being reported as a tdr if the loan was modified at a market rate and has performed according to the modified terms for at least six payment periods . a loan that has been modified at a below market rate will return to accrual status if it satisfies the six-payment-period performance requirement . the expected credit loss is measured based upon the present value of expected future cash flows , discounted at the effective interest rate based on the original contractual rate . if a loan 's contractual interest rate varies based on subsequent changes in an independent factor , such as an index or rate , the loan 's effective interest rate is calculated based on the factor as it changes over the life of the loan . northern trust elected not to project changes in the factor for purposes of estimating expected future cash flows . further , northern trust elected not to adjust the effective interest rate for prepayments . if the loan is collateral dependent , the expected loss is measured based on the fair value of the collateral at the reporting date . if the loan valuation is
| summary of significant accounting policies the consolidated financial statements have been prepared in conformity with u.s. generally accepted accounting principles ( gaap ) and reporting practices prescribed for the banking industry . a description of the more significant accounting policies follows . a. basis of presentation . the consolidated financial statements include the accounts of northern trust corporation ( corporation ) and its wholly-owned subsidiary , the northern trust company ( bank ) , and various other wholly-owned subsidiaries of the corporation and bank . throughout the notes to the consolidated financial statements , the term “ northern trust ” refers to the corporation and its subsidiaries . intercompany balances and transactions have been eliminated in consolidation . the consolidated statements of income include results of acquired subsidiaries from the dates of acquisition . certain prior-year balances have been reclassified consistent with the current year 's presentation . b. nature of operations . the corporation is a bank holding company that has elected to be a financial holding company under the bank holding company act of 1956 , as amended . the bank is an illinois banking corporation headquartered in chicago and the corporation 's principal subsidiary . the corporation conducts business in the united states ( u.s. ) and internationally through various u.s. and non-u.s. subsidiaries , including the bank . northern trust generates the majority of its revenue from its two client-focused reporting segments : corporate & institutional services ( c & is ) and wealth management . asset management and related services are provided to c & is and wealth management clients primarily by the asset management business . c & is is a leading global provider of asset servicing and related services to corporate and public retirement funds , foundations , endowments , fund managers , insurance companies , sovereign wealth funds , and other institutional investors around the globe .
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words such as may , will , should , could , would , expect , plan , anticipate , believe , estimate , project , potential , seek , target , 60 index to financial statements goal , 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 specialty and orphan diseases with high unmet medical need . our two key clinical development candidates are seladelpar and arhalofenate . we are currently developing seladelpar ( mbx-8025 ) for the treatment of primary biliary cholangitis ( pbc ) , an autoimmune disease that causes progressive destruction of the bile ducts in the liver . seladelpar is a potent and selective agonist of ppar d , a nuclear receptor that regulates genes important for lipid , bile acid/sterol and glucose metabolism and for inflammation in liver and muscle . in may 2016 , we announced results from a phase 2 clinical study of seladelpar in patients with pbc . the study was intended to enroll approximately 75 patients with pbc who had an inadequate response to ursodiol and randomize them to receive either placebo or seladelpar ( either 50 mg or 200 mg ) once-daily for 12 weeks . despite the occurrence of three cases of asymptomatic , reversible transaminase elevations ( two in the 200 mg and one in the 50 mg groups ) , data from 35 patients evaluated for efficacy demonstrated that treatment with seladelpar resulted in statistically significant reductions in the primary endpoint of serum alkaline phosphatase ( alp ) . the mean decreases from baseline in alp for the 50 and 200 mg dose groups were 53 % and 63 % , respectively , vs. 2 % for placebo ( p < 0.0001 for both ) . based on results from a number of published studies , lower levels of alp have been shown to correlate with a significant reduction in adverse clinical outcomes for pbc patients including liver transplant and or death . all patients who received seladelpar treatment for 12 weeks ( three on 50 mg and two on 200 mg ) had their alp values restored to within the normal range . the study was discontinued early after review of safety and efficacy data demonstrated proof-of-concept for activity on cholestatic biomarkers and had identified the need to reduce the dose in order to optimize for clinical safety and efficacy . in october 2016 , seladelpar received european medicines agency ( ema ) priority medicines ( prime ) designation for the treatment of pbc . the u.s. food and drug administration ( fda ) granted orphan drug designation to seladelpar for the treatment of pbc in november 2016. in december 2016 , we initiated a dose-ranging phase 2 study of seladelpar at lower daily doses of 5 and 10 mg in patients with pbc . in march 2016 , we announced results from a phase 2 clinical study evaluating seladelpar in 13 patients with homozygous familial hypercholesterolemia ( hofh ) , a rare , life-threatening , genetic disease characterized by marked elevations in plasma levels of low density lipoprotein ( ldl-c ) leading to severe atherosclerosis and the development of premature cardiovascular diseases . five patients in this study experienced what we believe was a clinically meaningful maximal decrease in ldl-c of greater than 20 % with three of them having decreases greater than 30 % . however , given the variability in responses observed in this study , including a number of patients that did not experience a decrease in ldl-c , we believe additional proof-of-concept data would be warranted before determining whether or not to advance to a registration study of seladelpar in patients with hofh . arhalofenate is being developed for the treatment of gout . arhalofenate has been studied in 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 because 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 clinical trials involving over 1,100 patients exposed to date . we have completed end of phase 2 discussions with the fda and scientific advice discussions with the ema . 61 index to financial statements in late december 2016 , we entered into an exclusive licensing agreement with kowa pharmaceuticals america , inc. ( kowa ) for the development and commercialization of arhalofenate in the u.s. ( including all its possessions and territories ) . under the terms of the agreement , we received an up-front payment of $ 5 million in january 2017 , and will receive potential milestone payments of up to $ 10 million based on the initiation of specific development activities , and are eligible to receive up to an additional $ 190 million in payments based upon the achievement of additional development and sales milestones . story_separator_special_tag each deliverable is accounted for as a separate unit of accounting if both of the following criteria are met : ( 1 ) the delivered item or items have value to the customer on a standalone basis and ( 2 ) for an arrangement that includes a general right of return relative to the delivered items , delivery or performance of the undelivered items is considered probable and substantially in our control . non-refundable upfront payments received and allocated to separate units of accounting are recognized as revenue when the four basic revenue recognition criteria , mentioned above , are met for each unit of accounting . we recognize payments that are contingent upon achievement of a substantive milestone in their entirety in the period in which the milestone is achieved . milestones are defined as events that can only be achieved based on our performance and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement . events that are contingent only on the passage of time or only on counterparty performance are not considered milestones subject to this guidance . further , the amounts received must relate solely to prior performance , be reasonable relative to all of the deliverables and payment terms within the agreement and commensurate with our performance to achieve the milestone after commencement of the agreement . any contingent payment that becomes payable upon achievement of events that are not considered substantive milestones are allocated to the units of accounting previously identified at the inception of an arrangement when the contingent payment is received and revenue is recognized based on the revenue recognition criteria for each unit of accounting . research and development expenses and related prepayments and accruals as part of the process of preparing our financial statements , we are required to estimate certain research and development expenses . this process involves reviewing contracts , reviewing the terms of our license agreements , communicating with our vendors and applicable personnel to identify services that have been performed on our 63 index to financial statements behalf and estimating the level of service performed and the associated cost incurred for the service either when we have prepaid or when we have not yet been invoiced or otherwise notified of actual cost . although certain of our vendors require us to prepay in advance of services rendered , the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of prepayments to amortize or expenses to be accrued as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . examples of estimated amortized or accrued research and development expenses include fees to : contract research organizations and other service providers in connection with clinical studies ; contract manufacturers in connection with the production of clinical trial materials ; and vendors in connection with preclinical development activities . we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in either amortizing or accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the related prepayment or accrual accordingly . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . adjustments to prior period estimates have not been material for the years ended december 31 , 2016 , and 2015. stock-based compensation we measure employee and director stock-based compensation cost at the grant date , based on the estimated fair-value of the awards , and we recognize as an expense the portion that is ultimately expected to vest as an expense over the related vesting periods , net of estimated forfeitures . we estimate the grant date fair-value based of stock options using the black-scholes option-pricing model and recognize compensation expense over the service period using the straight-line attribution method . for performance-based stock options , we evaluate the probability of achieving each performance-based condition at each reporting date . we begin to recognize the expense when it is deemed probable that a performance-based condition will be met using the accelerated attributed method over the requisite service period . the black-scholes option pricing model requires the input of highly subjective assumptions . these variables include , but are not limited to , our stock price volatility over the term of the awards , and actual and projected employee stock option exercise behaviors . we estimate expected volatility based on our own historical volatility supplemented by a review of historical volatilities of industry peers . we have , due to insufficient historical data , used the simplified method to determine the expected life of stock options granted with a service condition . because our employee stock options have characteristics significantly different from those of traded options , and because changes in the subjective input assumptions can materially affect fair value estimates , in management 's opinion , the existing models may not provide a reliable single measure of the fair value of our employee stock . in addition , management continually assesses the assumptions and methodologies used to calculate the estimated fair value of stock-based compensation .
| results of operations general to date , we have not generated any income from operations . as of december 31 , 2016 , we have an accumulated deficit of $ 423.0 million , primarily as a result of expenditures for research and development and general and administrative expenses . while we will generate revenue from our license arrangement with kowa and may in the future generate revenue from a variety of other sources , including additional milestone payments from kowa and license fees and milestone payments in connection with other strategic partnerships , arhalofenate and seladelpar are at a mid-level stage of development and our other product candidates are at the early stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate sufficient revenue to achieve and sustain profitability . our results of operations for 2016 and 2015 are presented below : replace_table_token_4_th 65 index to financial statements research & development expenses conducting research and development is central to our business model . for the years ended december 31 , 2016 and 2015 , research and development expenses were $ 15.9 million and $ 17.0 million , respectively . research and development expenses are detailed in the table below : replace_table_token_5_th our project 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 , and overhead expenses .
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associated with upcoming drydocking of vessels ; the ability to obtain and maintain major international oil company approvals and to satisfy technical , health , safety and compliance standards ; the strength of and growth in the number of the customer relationships , especially with major international oil companies and major commodity traders ; the prevailing spot market rates and the number of vessels operating in the spot market ; 69 changes in laws , treaties or regulations applicable to the company , including regulations relating to environmental compliance ; and the ability to acquire and sell vessels at satisfactory prices . year ended december 31 , 2020 compared to the year ended december 31 , 2019 operating data the following tables represent the operating data for the years ended december 31 , 2020 and 2019 on a consolidated basis . replace_table_token_7_th results of operations total revenue total revenue increased by $ 16.1 million to $ 595.9 million during the year ended december 31 , 2020 as compared to $ 579.8 million for the year ended december 31 , 2019. the $ 16.1 million increase was principally 70 driven by a 9.0 % increase in total revenue days due to an additional 1,963 revenue days during the year ended december 31 , 2020 , primarily due to the merger coupled with stronger prevailing market conditions in both the crude tanker and product carrier segments during the first half of 2020 , when compared with the market conditions during the first half of 2019. this is offset by a reduction of 513 revenue days as a result of the sale of the atlantic aquarius and atlantic leo in september 2019 , and entering the 28 vessels into the pool during the last half of 2020 , as under the pool arrangements , voyage related costs , such as the cost of bunkers and port expenses , are borne by the pool . we recognize revenue from pool arrangements based on our portion of the net distributions reported by the pool , which represents the net voyage revenue of the pool after voyage expenses and certain pool manager fees . voyage expenses voyage expenses primarily consist of bunkers , port expenses , canal dues and commissions . commissions were paid to shipbrokers for negotiating and arranging charter party agreements on the company 's behalf . voyage expenses incurred during time charters and while vessels are operating in pools are paid for by the charterer and pool , respectively , except for commissions to the initial brokers , which were paid for by the company . voyage expenses incurred during voyage charters were paid for by the company . voyage expenses decreased by $ 42.1 million to $ 188.6 million during the year ended december 31 , 2020 as compared to $ 230.7 million for the year ended december 31 , 2019. the $ 42.1 million decrease in voyage expenses was predominantly driven by a reduction in bunker and port costs incurred as a result of operating 28 vessels in the pool as of december 31 , 2020 , with all 28 of the vessels operating fully in the pool as of september 30 , 2020. vessel expenses vessel expenses include crew wages and associated costs , the cost of insurance premiums , expenses relating to repairs and maintenance , lubricants and spare parts , technical management fees and other miscellaneous expenses . vessel expenses increased by $ 17.5 million to $ 171.2 million during the year ended december 31 , 2020 as compared to $ 153.7 million for the year ended december 31 , 2019. the $ 17.5 million increase in vessel expenses was driven by a 7.6 % increase in vessel operating days , which consists of an increase in 2,175 vessel operating days due to the merger and a decrease in 513 days as a result of the sale of the atlantic aquarius and atlantic leo , and additional expenses incurred for crew bonuses , increased costs of crew reliefs , testing , quarantine and logistics for delivery of services and materials to the vessels as a result of the global pandemic . vessel depreciation and amortization expense depreciation and amortization expense increased by $ 7.1 million to $ 115.8 million during the year ended december 31 , 2020 as compared to $ 108.7 million during the year ended december 31 , 2019. the increase in depreciation and amortization expense is due to the added depreciation expense for the 25 vessels acquired in the merger for 2,175 vessel operating days in the year ended december 31 , 2020 coupled with vessel additions primarily related to the scrubber and ballast water treatment projects , offset by the decrease in the depreciation and amortization expense related to the sale of the atlantic aquarius and atlantic leo in september 2019. loss on sale of vessels and cancelled projects the $ 29.6 million loss on sale of vessels and cancelled projects during the year ended december 31 , 2020 is due to a $ 26.3 million loss on the sale of the aias and amoureux , which were contracted to be sold in december 2020 , and subsequent delivered to the purchaser in january and february 2021 , respectively , and a loss of $ 3.3 million on the cancellation of the scrubber project for the miltiadis m ii . for the year ended december 31 , 2019 , the $ 18.3 million loss on sale of vessels and cancelled projects is due to selling the atlantic aquarius and atlantic leo in september 2019 . story_separator_special_tag 71 general and administrative expenses for the year ended december 31 , 2020 and 2019 , general and administrative expenses were $ 30.0 million and $ 26.8 million , respectively . the $ 3.2 million increase was primarily due to costs incurred in the first calendar quarter of 2020 when compared to the first quarter of 2019 that were attributable to stock-based compensation costs , legal fees in connection with the annual filings and an increase in headcount to maintain the infrastructure of a public company and to manage a larger fleet employed in the spot market . other corporate expenses for the year ended december 31 , 2019 , we incurred $ 2.7 million in other corporate expenses primarily for professional fees associated with the sec filings in connection with the transactions . there were no costs of this nature during the year ended december 31 , 2020. total other expense , net total other expense , net , which includes term loan interest , amortization of deferred financing charges and commitment fees and net of interest income , was $ 34.4 million for the year ended december 31 , 2020 compared to $ 49.0 million for the year ended december 31 , 2019. the decrease of $ 14.6 million was primarily driven by a $ 57.6 million decrease in the average debt balance in the two comparative periods , coupled with a decrease in the effective interest rate , and a $ 4.0 million loss on extinguishment of debt charge in 2019 in connection with terminating the $ 460 million facility , the $ 235 million facility and the $ 75 million facility to enter into the $ 525 million facility . net income ( loss ) attributable to noncontrolling interest the net income ( loss ) attributable to noncontrolling interest was net income of $ 3.1 million for year ended december 31 , 2020 compared to a net loss of $ 0.8 million for the year ended december 31 , 2019. the net income attributable to noncontrolling interest primarily represents a 49 % interest in nt suez holdco llc , which owns and operates two suezmax vessels and is 51 % owned by the company . the increase in the net income of $ 3.9 million was mainly attributable to fixing these two suezmax vessels on three-year time charter contracts , which began in the latter half of 2019 , coupled with these two vessels having 132 off-hire days in the third calendar quarter of 2019 for the installation of their scrubbers . 72 year ended december 31 , 2019 compared to the nine months ended december 31 , 2018 operating data the following tables represent the operating data for the year ended december 31 , 2019 and the nine months ended december 31 , 2018 on a consolidated basis . replace_table_token_8_th story_separator_special_tag an increase in the average debt balance due to entering into the $ 360 million facility in connection with the merger , and a $ 4.0 million loss on extinguishment of debt charge in connection with terminating the $ 460 million facility , the $ 235 million facility and the $ 75 million facility to enter into the $ 525 million facility . net loss attributable to noncontrolling interest the net loss attributable to noncontrolling interest was $ 0.8 million for the year ended december 31 , 2019 compared to $ 0.1 million for the nine months ended december 31 , 2018. the net loss attributable to noncontrolling interest primarily represents a 49 % interest in nt suez holdco llc , which owns and operates two suezmax vessels and is 51 % owned by the company . the increase in the net loss of $ 0.7 million was mainly due to incurring 132 days of off hire during the year ended december 31 , 2019 , as the two suezmax vessels owned by nt suez holdco llc were laid up for scrubber installations during the third quarter of 2019 , before beginning three-year time charter contracts in late september 2019. liquidity and capital resources as of december 31 , 2020 and 2019 , total cash , cash equivalents and restricted cash were $ 104.2 million and $ 89.2 million , inclusive of restricted cash of $ 6.1 million and $ 5.6 million , respectively . as of december 31 , 2020 and december 31 , 2019 , we had $ 60 million and $ 15 million available and undrawn under our credit facilities , respectively . generally , our primary sources of funds have been cash from operations , undrawn amounts under our credit facilities and vessel sales . on december 27 , 2019 , we refinanced ( i ) the $ 460 million facility , ( ii ) the $ 235 million facility , and ( iii ) the $ 75 million facility with the proceeds of the $ 525 million facility . at december 31 , 2020 , we were in compliance with all financial covenants under each of our credit facilities . passage of environmental legislation or other regulatory initiatives have in the past had , and may in the future may have , a significant impact on our operations . regulatory measures can increase required costs related to operating and maintaining our vessels and may require us to retrofit our vessels with new equipment to comply with new or existing regulations . among other capital expenditures , in connection with the international maritime organization 's new limits for sulfur oxide emissions effective january 1 , 2020 , we contracted for the purchase and installation of scrubbers on five of our suezmax vessels . as of december 31 , 2020 , four of these scrubbers have been installed and fully paid , with two of these scrubbers having been installed on the aias and amoureux , which were sold and delivered to the buyer in january and february 2021 , respectively . the installation of the fifth scrubber has been cancelled
| results of operations total revenue total revenue increased by $ 304.3 million to $ 579.8 million during the year ended december 31 , 2019 as compared to the nine months ended december 31 , 2018. the $ 304.3 million increase was principally driven by a 75.8 % increase in revenue days due to an additional 9,134 revenue days during the year ended december 31 , 2019 , primarily driven by the impact of the acquisition of the athena vessels and the additional fiscal quarter of data for the year ended december 31 , 2019 compared to the nine months ended december 31 , 2018 , which only includes three fiscal quarters . further , freight rates in the crude oil transportation market improved in the fourth quarter of 2019 . 73 voyage expenses voyage expenses increased by $ 92.9 million to $ 230.7 million during the year ended december 31 , 2019 as compared to $ 137.8 million for the nine months ended december 31 , 2018. the $ 92.9 million increase in voyage expenses was driven by a 52.5 % increase in voyage revenue days due to the merger and change in year-end , offset by an increase in short-term time charter activity in the suezmax fleet during the year ended december 31 , 2019 , as the bunker and port costs were borne by the charterer .
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the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with “ item 1a . risk factors , ” “ item 6. selected financial data ” , and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. business overview ametek 's operations are affected by global , regional and industry economic factors . however , the company 's strategic geographic and industry diversification , and its mix of products and services , have helped to mitigate the potential adverse impact of any unfavorable developments in any one industry or the economy of any single country on its consolidated operating results . in 2020 , the company was impacted by a weak global economy as a result of the covid-19 pandemic , discussed below . in response to the weak global economy , the company recorded 2020 realignment costs totaling $ 43.9 million ( the “ 2020 realignment costs ” ) . the 2020 realignment costs were composed of $ 35.5 million in severance costs for a reduction in workforce and $ 8.4 million of asset write-downs , primarily inventory . contributions from the acquisitions of intellipower in january 2020 , pacific design technologies , inc. ( “ pdt ” ) in september 2019 , gatan in october 2019 , and a continued focus on and implementation of operational excellence initiatives , including the 2020 realignment actions , had a positive impact on the company 's 2020 results . highlights of 2020 were : in january 2020 , the company spent $ 116.5 million , net of cash acquired , to acquire intellipower , a leading provider of high-reliability , ruggedized uninterruptible power systems serving a wide range of defense and industrial applications . in march 2020 , the company completed the sale of its reading alloys business ( “ reading ” ) to kymera international for net proceeds of $ 245.3 million in cash . the sale resulted in a pre-tax gain of $ 141.0 million recorded in other income , net and income tax expense of $ 31.4 million . cash flow provided by operating activities for 2020 was a record $ 1,281.0 million , an increase of $ 166.6 million or 14.9 % , compared with $ 1,114.4 million in 2019. free cash flow ( cash flow provided by operating activities less capital expenditures ) increased to a record $ 1,206.8 million in 2020 , compared with $ 1,012.1 million in 2019. ebitda ( earnings before interest , income taxes , depreciation , and amortization ) was a record $ 1,421.6 million in 2020 , compared with $ 1,388.3 million in 2019. the company continued its emphasis on investment in research , development and engineering , spending $ 246.2 million in 2020. sales from products introduced in the past three years were $ 1,074.0 million or 23.7 % of net sales . 22 impact of covid-19 pandemic on our business our business , operations and end markets were negatively impacted in 2020 by the global outbreak and rapid spread of covid-19 . as the situation rapidly evolved , we remained focused on safely serving our customers and protecting the health and safety of our employees . all of our manufacturing locations remain operational with enhanced safety measures to help keep our employees , contractors , customers , and communities safe . in compliance with government protocols , certain of the company 's employees were instructed to work from home until government mandated restrictions allow for a safe return to the workplace . those working at our sites are required to follow appropriate procedures , including completion of multiple training sessions and performance of self- and on-site screenings , as well as adhere to our personal protective equipment , social distancing , and personal hygiene protocols . we are committed to safely maintaining plant operations and focusing on business continuity , while reliably supplying critical products to our customers . during 2020 , the covid-19 pandemic resulted in a rapid decline in demand which impacted most of our end markets and geographies . we continue to experience end market volatility , however , orders have begun to return and stabilize in many of our end markets . our financial position remains strong , however , we continue to closely monitor our fixed costs , capital expenditure plans , inventory , and capital resources to respond to changing conditions and to ensure we have the resources to meet our future needs . we believe that we will emerge from these events well positioned for long-term growth , though we can not reasonably estimate the duration and severity of this global pandemic or its ultimate impact on the global economy and our business and results . please refer to `` risk factors '' , part i , item 1a of this form 10-k for more information . story_separator_special_tag the effective tax rate for 2020 was 19.4 % , compared with 19.5 % in 2019. see note 9 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . net income for 2020 was a record $ 872.4 million , an increase of $ 11.1 million or 1.3 % , compared with $ 861.3 million in 2019. the net of tax gain of $ 109.6 million on the sale of reading and net of tax expense of $ 33.6 million on the 2020 realignment costs are included in net income in 2020. diluted earnings per share for 2020 were a record $ 3.77 , an increase of $ 0.02 or 0.5 % , compared with $ 3.75 per diluted share in 2019. the net of tax gain of $ 0.47 per diluted share on the sale of reading and net of tax expense of $ 0.15 per diluted share on the 2020 realignment costs are included in diluted earnings per share in 2020. segment results eig 's net sales totaled $ 2,989.9 million for 2020 , a decrease of $ 333.0 million or 10.0 % , compared with story_separator_special_tag in 2020 , the company repurchased approximately 55,000 shares of its common stock for $ 4.7 million , compared with $ 11.9 million used for repurchases of approximately 133,000 shares in 2019. at december 31 , 2020 , $ 484.4 million was available under the company 's board of directors authorization for future share repurchases . on february 12 , 2019 , the company 's board of directors approved an increase of $ 500 million in the authorization for the repurchase of the company 's common stock . additional financing activities for 2020 included cash dividends paid of $ 165.0 million , compared with $ 127.5 million in 2019. on february 12 , 2020 , the company 's board of directors approved a 29 % increase in the quarterly cash dividend on the company 's common stock to $ 0.18 per common share from $ 0.14 per common share . 26 proceeds from the exercise of employee stock options were $ 64.9 million in 2020 , compared with $ 90.4 million in 2019. as a result of all of the company 's cash flow activities in 2020 , cash and cash equivalents at december 31 , 2019 totaled $ 1,212.8 million , compared with $ 393.0 million at december 31 , 2019. at december 31 , 2020 , the company had $ 344.0 million in cash outside the united states , compared with $ 357.9 million at december 31 , 2019. the company utilizes this cash to fund its international operations , as well as to acquire international businesses . the company is in compliance with all covenants , including financial covenants , for all of its debt agreements . the company believes it has sufficient cash-generating capabilities from domestic and unrestricted foreign sources , available credit facilities and access to long-term capital funds to enable it to meet its operating needs and contractual obligations in the foreseeable future . subsequent event effective february 11 , 2021 , the company 's board of directors approved an 11 % increase in the quarterly cash dividend on the company 's common stock to $ 0.20 per common share from $ 0.18 per common share . the following table summarizes ametek 's contractual cash obligations and the effect such obligations are expected to have on the company 's liquidity and cash flows in future years at december 31 , 2020. replace_table_token_8_th ( 1 ) the liability for uncertain tax positions was not included in the table of contractual obligations as of december 31 , 2020 because the timing of the settlements of these uncertain tax positions can not be reasonably estimated at this time . see note 9 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . ( 2 ) see note 10 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . ( 3 ) although not contractually obligated , the company expects to have the capability to repay the revolving credit loan within one year as permitted in the credit agreement . accordingly , $ 72.1 million was classified as short-term debt at december 31 , 2020 . ( 4 ) excludes debt issuance costs of $ 6.0 million , of which $ 2.0 million is classified as current and $ 4.0 million is classified as long-term . see note 10 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . ( 5 ) the leases expire over a range of years from 2021 to 2035 , except for a single land lease with 63 years remaining . most of the leases contain renewal or purchase options , subject to various terms and conditions . ( 6 ) purchase obligations primarily consist of contractual commitments to purchase certain inventories at fixed prices . 27 other commitments the company has standby letters of credit and surety bonds of $ 46.8 million related to performance and payment guarantees at december 31 , 2020. based on experience with these arrangements , the company believes that any obligations that may arise will not be material to its financial position . internal reinvestment capital expenditures capital expenditures were $ 74.2 million or 1.6 % of net sales in 2020 , compared with $ 102.3 million or 2.0 % of net sales in 2019. in 2020 , approximately 73 % of capital expenditures were for improvements to existing equipment or additional equipment to increase productivity and expand capacity . capital expenditures in 2021 are expected to be approximately 2 % of net sales , with a continued emphasis on spending to improve productivity . research , development and engineering the company is committed to , and has consistently invested in , research , development and engineering activities to design and develop new and improved products and solutions . research , development and engineering costs before customer reimbursement were $ 246.2 million in 2020 , $ 260.3 million in 2019 and $ 230.2 million in 2018. these amounts included research and development expenses of $ 158.9 million , $ 161.9 million and $ 141.0 million in 2020 , 2019 , and 2018 , respectively . all such expenditures were directed toward the development of new products and solutions and the improvement of existing products and solutions . environmental matters information with respect to environmental matters is set forth in note 13 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. critical accounting policies and estimates critical accounting policies are those policies that can have a significant impact on the presentation of the company 's financial condition and results of operations and that require the use of complex and subjective estimates based on the company 's historical experience and management 's judgment . because of the uncertainty inherent in such estimates , actual results may differ materially from the estimates used .
| results of operations the following table sets forth net sales and income by reportable segment and on a consolidated basis : replace_table_token_6_th the following “ results of operations of the year ended december 31 , 2020 compared with the year ended december 31 , 2019 ” section presents an analysis of the company 's consolidated operating results displayed in the consolidated statement of income . 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 can be found under item 7 in our 23 annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the securities and exchange commission on february 20 , 2020. results of operations for the year ended december 31 , 2020 compared with the year ended december 31 , 2019 net sales for 2020 were $ 4,540.0 million , a decrease of $ 618.6 million or 12.0 % , compared with net sales of $ 5,158.6 million in 2019. the decrease in net sales for 2019 was due to a 13 % organic sales decline driven by a weak economy as a result of the covid-19 pandemic , an unfavorable 3 % from the reading divestiture , partially offset by a 4 % increase from acquisitions . eig net sales were $ 2,989.9 million in 2020 , a decrease of 10.0 % , compared with $ 3,322.9 million in 2019. emg net sales were $ 1,550.1 million in 2020 , a decrease of 15.6 % , compared with $ 1,835.7 million in 2019. total international sales for 2020 were $ 2,209.9 million or 48.7 % of net sales , a decrease of $ 265.0 million or 10.7 % , compared with international sales of $ 2,474.9 million or 48.0 % of net sales in 2019. the decrease in international sales was primarily driven by lower sales in europe as a result of the covid-19 pandemic .
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f-12 methode electronics , inc. and subsidiaries notes to consolidated financial statements ( dollar amounts in millions , except per share data ) intangible assets subject to amortization are evaluated for impairment if events or changes in circumstances indicate that the carrying value of an asset might be impaired . due to story_separator_special_tag overview we are a global manufacturer of component and subsystem devices with manufacturing , design and testing facilities in china , egypt , germany , india , italy , lebanon , malta , mexico , singapore , switzerland , the united kingdom and the united states . our primary manufacturing locations are located in shanghai , china ; cairo , egypt ; mriehel , malta ; and monterrey , mexico . we design , manufacture and market devices employing electrical , radio remote control , electronic , wireless and sensing technologies . our business is managed on a segment basis , with those segments being automotive , interface , power products and other . for more information regarding the business and products of these segments , see “ item 1. business. ” our components are found in the primary end markets of the aerospace , appliance , automotive , battery storage , construction , consumer and industrial equipment , communications ( including information processing and storage , networking equipment , wireless and terrestrial voice/data systems ) , medical device , rail and other transportation industries . plan to repurchase common stock in september 2015 , the board of directors authorized the repurchase of up to $ 100.0 million of the company 's outstanding common stock through september 1 , 2017. the company has purchased 1,997,298 shares for $ 62.0 million as of april 30 , 2016. the program may be suspended or terminated at any time . hetronic germany-gmbh matters for several years , hetronic germany-gmbh and hydronic-steuersysteme-gmbh ( the “ fuchs companies ” ) served as our distributors for germany , austria and other central and eastern european countries pursuant to their respective intellectual property licenses and distribution and assembly agreements . we became aware that the fuchs companies and their managing director , albert fuchs , had materially violated those agreements . as a result , we terminated all of our agreements with the fuchs companies . on june 20 , 2014 , we filed a lawsuit against the fuchs companies in the federal district court for the western district of oklahoma alleging material breaches of the distribution and assembly agreements and seeking damages , as well as various forms of injunctive relief . the defendants have filed counterclaims alleging breach of contract , interference with business relations and business slander . on april 2 , 2015 , we amended our complaint against the fuchs companies to add additional unfair competition and lanham act claims and to add additional affiliated parties . we incurred legal fees of $ 9.9 million and $ 3.1 million in fiscal 2016 and fiscal 2015 , respectively , related to the lawsuits . these amounts are included in the selling and administrative expenses in the interface segment . 14 results of operations results of operations for the fiscal year ended april 30 , 2016 , as compared to the fiscal year ended may 2 , 2015 . consolidated results below is a table summarizing results for the fiscal years ended : ( in millions ) ( `` n/m '' equals not meaningful ) replace_table_token_4_th net sales . consolidated net sales decreased $ 72.0 million , or 8.2 % , to $ 809.1 million for the fiscal year ended april 30 , 2016 , from $ 881.1 million for the fiscal year ended may 2 , 2015 . the automotive segment net sales decreased $ 14.1 million , or 2.2 % , to $ 614.3 million for fiscal 2016 , from $ 628.4 million for fiscal 2015 , primarily due to lower sales volumes of the ford center console program which substantially completed production at the end of fiscal 2015 , unfavorable currency rate fluctuations and higher pricing concessions on certain products , partially offset by increased sales volumes for the gm center console program . the interface segment net sales decreased $ 20.9 million , or 12.9 % , to $ 140.8 million for fiscal 2016 , compared to $ 161.7 million for fiscal 2015 , due to lower sales volumes of appliance and data solutions products , partially offset by increased sales volumes of radio remote control products . the power products segment net sales decreased $ 32.2 million , 15 or 37.6 % , to $ 53.5 million for fiscal 2016 , compared to $ 85.7 million for fiscal 2015 , primarily due to lower sales volumes for powerrail , cabling and busbar products . the power products net sales for fiscal 2016 include a gain on the sale of a building of $ 1.0 million and $ 1.5 million of customer contractual adjustments for minimum purchases . the other segment had minimal sales for fiscal 2016 as the company sold its trace laboratories operating units in the fourth quarter of fiscal 2015 and the remaining operating units in this segment , medical devices , inverters and battery systems , had minimal net sales for fiscal 2016 or fiscal 2015 . translation of foreign operations net sales for the fiscal year ended april 30 , 2016 decreased net sales by $ 10.5 million , or 1.3 % , compared to the average currency rates for the fiscal year ended may 2 , 2015 , primarily due to the strengthening of the u.s. dollar , compared to the euro and chinese yuan . cost of products sold . consolidated cost of products sold decreased $ 66.1 million , or 10.0 % , to $ 596.2 million for the fiscal year ended april 30 , 2016 , compared to $ 662.3 million for the fiscal year ended may 2 , 2015 . consolidated cost of products sold as a percentage of net sales decreased to 73.7 % for fiscal 2016 , compared to 75.2 % for fiscal 2015 . story_separator_special_tag net income attributable to methode electronics , inc. net income attributable to methode electronics , inc. decreased $ 16.5 million , or 16.3 % , to $ 84.6 million for the fiscal year ended april 30 , 2016 , compared to $ 101.1 million for the fiscal year ended may 2 , 2015 , primarily due to lower sales volumes , higher pricing concessions on certain products , the additional costs and inefficiencies experienced related to the move of the radio remote control operation from the philippines to egypt , no sales or earnings due to the sale of trace laboratories and increased selling and administrative expenses and higher income tax expense , partially offset with no impairment charges in fiscal 2016 , favorable commodity pricing of raw materials , favorable currency impact on both the purchase of certain raw materials and labor costs in our foreign operations , the gain on the sale of a building , the one-time reversal of accruals related to customer commercial issues and customer contractual adjustments for minimum purchases . operating segments automotive segment results below is a table summarizing results for the fiscal years ended : ( in millions ) replace_table_token_5_th net sales . automotive segment net sales decreased $ 14.1 million , or 2.2 % , to $ 614.3 million for the fiscal year ended april 30 , 2016 , from $ 628.4 million for the fiscal year ended may 2 , 2015 . net sales decreased in north america by $ 32.9 million , or 8.8 % , to $ 341.0 million for fiscal 2016 , compared to $ 373.9 million for fiscal 2015 , primarily due to lower sales volumes of the ford center console program which substantially completed production at the end of fiscal 2015. sales of the gm center console program increased due to increased volumes , partially offset with higher pricing concessions . sales volumes remained constant for our transmission lead-frame assemblies for fiscal 2016 as compared to fiscal 2015 . net sales increased in europe by $ 1.8 million , or 1.1 % , to $ 159.6 million for fiscal 2016 , compared to $ 157.8 million for fiscal 2015 , primarily due to higher tooling sales , and higher sales volumes for hidden switch products , partially offset by unfavorable currency rate fluctuations . net sales in asia increased $ 17.0 million , or 17.6 % , to $ 113.7 million for fiscal 2016 , compared to $ 96.7 million for fiscal 2015 , primarily due to higher sales volumes of our linear position sensor products and interior lighting products , partially offset with lower sales volumes of steering angle sensor and transmission lead-frame assemblies . translation of foreign operations net sales for the fiscal year ended april 30 , 2016 decreased reported net sales by $ 10.5 17 million , or 1.7 % , for fiscal 2016 , compared to the average currency rates for fiscal 2015 , primarily due to the strengthening of the u.s. dollar , compared to the euro and the chinese yuan . cost of products sold . automotive segment cost of products sold decreased $ 27.4 million , or 5.8 % , to $ 443.6 million for the fiscal year ended april 30 , 2016 , from $ 471.0 million for the fiscal year ended may 2 , 2015 . the automotive segment cost of products sold as a percentage of net sales decreased to 72.2 % for fiscal 2016 , compared to 75.0 % for fiscal 2015 . the decrease is substantially due to favorable commodity pricing of raw materials and favorable currency impact on both the purchase of certain raw materials and labor costs in our foreign operations . the costs of goods sold for fiscal 2016 includes a $ 2.1 million reversal of accruals related to customer commercial issues . gross profit . automotive segment gross profit increased $ 13.3 million , or 8.4 % , to $ 170.7 million for the fiscal year ended april 30 , 2016 , as compared to $ 157.4 million for the fiscal year ended may 2 , 2015 . the automotive segment gross margins as a percentage of net sales increased to 27.8 % for the fiscal year ended april 30 , 2016 , as compared to 25.0 % for the fiscal year ended may 2 , 2015 . the increase is substantially due to favorable commodity pricing of raw materials and favorable currency impact on both the purchase of certain raw materials and labor costs in our foreign operations , partially offset by higher price concessions on certain products . gross profit for fiscal 2016 was favorably impacted by the reversal of accruals related to certain customer commercial issues . selling and administrative expenses . selling and administrative expenses increased $ 1.4 million , or 4.3 % , to $ 33.9 million for fiscal year ended april 30 , 2016 , compared to $ 32.5 million for the fiscal year ended may 2 , 2015 . selling and administrative expenses as a percentage of net sales increased to 5.5 % for the fiscal year ended april 30 , 2016 , compared to 5.2 % for the fiscal year ended may 2 , 2015 . the increase in expenses for fiscal 2016 is primarily due to higher stock award compensation expense , partially offset with lower long-term incentive bonus expenses . income from operations . automotive segment income from operations increased $ 11.9 million , or 9.5 % , to $ 136.8 million for the fiscal year ended april 30 , 2016 , compared to $ 124.9 million for the fiscal year ended may 2 , 2015 . fiscal 2016 benefitted from favorable commodity pricing of raw materials and favorable currency impact on both the purchase of certain raw materials and labor costs in our foreign operations and the reversal of accruals related to customer commercial issues , partially offset with lower sales volumes , higher pricing concessions on certain products and higher selling and administrative expenses .
| other segment results below is a table summarizing results for the fiscal years ended : ( in millions ) ( `` n/m '' equals not meaningful ) replace_table_token_8_th net sales . the other segment net sales decreased $ 4.9 million , or 94.2 % , to minimal sales for the fiscal year ended april 30 , 2016 , compared to $ 5.2 million for the fiscal year ended may 2 , 2015 . the decrease is primarily due to the sale of trace laboratories business in the fourth quarter of fiscal 2015. the remaining operating units in this segment , medical devices , inverters and battery systems , had minimal net sales for fiscal 2016 and fiscal 2015 . cost of products sold . other segment cost of products sold decreased $ 2.7 million , or 38.6 % , to $ 4.3 million for the fiscal year ended april 30 , 2016 , compared to $ 7.0 million for the fiscal year ended may 2 , 2015 . the decrease is primarily due to the sale of trace laboratories , partially offset with development costs in our medical devices , inverters and battery systems operating units . gross profit . the other segment gross profit decreased $ 2.2 million , to a loss of $ 4.0 million for the fiscal year ended april 30 , 2016 , compared to a loss of $ 1.8 million for the fiscal year ended may 2 , 2015 . the decrease is primarily due to the sale of trace laboratories , partially offset with development costs in our medical devices , inverters and battery systems operating units . 21 selling and administrative expenses . selling and administrative expenses increased $ 0.2 million , or 4.3 % , to $ 4.8 million for the fiscal year ended april 30 , 2016 , compared to $ 4.6 million for the fiscal year ended may 2 , 2015 .
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” overview we are the leading global leaf tobacco supplier . we derive most of our revenues from sales of processed tobacco to manufacturers of tobacco products throughout the world and from fees and commissions for specific services . we hold a strategic position in the world leaf markets where we work closely with both our customers and farmers to ensure that we deliver a compliant product that meets our customers ' needs while promoting a strong supplier base . we adapt to meet changes in customer requirements as well as broader changes in the leaf markets , while continuing to provide the stability of supply and high level of service that distinguishes us in the marketplace . we believe that we have successfully met the needs of both our customers and suppliers while adapting to changes in leaf markets . over the last three fiscal years , we have generated over $ 520 million in net cash flow from operations , invested over $ 120 million in our businesses , settled the mandatory conversion of our series b 6.75 % convertible perpetual preferred stock for about $ 178 million in cash , and returned almost $ 200 million to our shareholders through a combination of dividends and share repurchases . we have also faced some leaf tobacco supply issues over the last three fiscal years . fiscal year 2016 was the second year of oversupplied market conditions , where the supply of leaf tobacco exceeded demand . we were able to end the year with strong fourth quarter volumes , primarily driven by later timing of customer shipping orders in brazil and asia , and the positive change in leaf supply arrangements in our north america segment . we also achieved modest growth in overall volumes for the full fiscal year and improved our margins , and our selling , general , and administrative costs were lower . our inventories continued to be well-managed , and uncommitted stocks declined from fiscal year 2015 's level , in line with our target . we delivered solid results again in fiscal year 2017 despite supply headwinds , most notably from the weather-reduced crop sizes in brazil and ongoing challenging market conditions in tanzania . although we had anticipated ending the year with slightly lower volumes , earlier shipment timing as well as attractive green prices in some origins resulting in some additional purchases by our customers boosted shipments later in our fiscal year , allowing us to improve our market share and achieve lamina sales volumes that were slightly above those of the prior fiscal year . our segment operating income for the 2017 fiscal year was also improved , primarily attributable to a reduction in selling , general , and administrative costs and earlier receipt of distributions from unconsolidated subsidiaries . we are pleased with our good results for fiscal year 2018. net income remained steady at about $ 106 million , despite modestly lower lamina volumes and a slight decline in operating income to $ 171 million , compared to fiscal year 2017. we also continued to grow our market share and expand the services we provide our customers , including gaining new multi-year processing commitments in brazil . in addition , we rewarded our shareholders by increasing our dividend rate and returning almost $ 55 million through dividends and repurchasing about $ 22 million , or 2 % , of our outstanding common stock . fiscal year 2018 was not without its challenges as fewer carryover crop sales and shipment delays in north america , african burley crop sizes that were down more than 40 % over the prior year , and a $ 10 million reduction in income from the timing of receipt of distributions of unconsolidated subsidiaries compared to the prior fiscal year , negatively impacted our results . however , we did benefit from a return to normal crop volumes in brazil , and the resultant gains from higher volumes and lower factory unit costs there . although our working capital requirements were higher in fiscal year 2018 , we maintained our strong balance sheet . our uncommitted inventory levels , at march 31 , 2018 , remained within our target range , and we are currently using some of our cash balances to fund the fiscal year 2019 crop . we expect our working capital requirements will be higher in fiscal year 2019 due to the recovery of the african burley crops and strong demand for wrapper tobacco , which has a longer life cycle . the next crop cycle , which will be reflected in our fiscal year 2019 results , has begun with green tobacco purchases in brazil . farmer deliveries there are a little slower this year , but the crop quality is very good . we are also seeing the recovery of african burley production volumes and improved north american shipments , and if the global leaf market remains stable , we expect higher total sales volumes for fiscal year 2019. on may 23 , 2018 , we announced a new capital allocation strategy that demonstrates our focus on sustainable shareholder value creation . the enhanced strategy is a result of an extensive review of our business , as well as the market environment , that began in november 2016. we believe the strategy capitalizes on our core competencies and ensures that we are well positioned for the future . in connection with this newly announced strategy , and as part of our commitment to shareholder returns , our board raised our quarterly dividend rate to $ 0.75 per share ( $ 3.00 per share annual equivalent ) , a 36 % increase from the prior quarterly dividend rate . we are celebrating the 100 th anniversary of our company this year . for one hundred years , we have had a rich history of adapting to change , finding innovative solutions to serve our customers and meet their leaf tobacco needs , and achieving results that benefit all of our stakeholders . story_separator_special_tag revenues of $ 2.1 billion for fiscal year 2017 were relatively flat compared with fiscal year 2016 , as the slightly higher volumes and a benefit from earlier receipt of distributions from unconsolidated subsidiaries were offset by lower green leaf costs and lower processing revenues . flue-cured and burley leaf tobacco operations other regions operating income for the other regions segment for the fiscal year ended march 31 , 2017 , of $ 143.3 million , was nearly flat , down only $ 0.3 million compared to $ 143.6 million in the fiscal year ended march 31 , 2016. total volumes for the segment declined , but overall margins improved , benefitting from lower selling , general , and administrative expenses and timing of receipt of distributions from unconsolidated subsidiaries . africa volumes were slightly lower , reflecting challenging market conditions in tanzania which offset volume improvements in other origins . south america 's results were down , continuing the trend noted throughout fiscal year 2017 from lower volumes and higher factory unit costs as a result of the reduced buying program and lower third-party processing volumes there in fiscal year 2017. selling , general , and administrative expenses for the segment were down significantly for fiscal year 2017 on several items , including the favorable comparison to costs incurred in fiscal year 2016 to settle challenges regarding property rights and valuation of forestry land in south america , the reversal of value-added tax reserves , lower net foreign currency and exchange remeasurement losses , and a reduction in provisions for supplier advances compared to fiscal year 2016. revenues for the segment were down about $ 116.0 million to $ 1.4 billion , on the lower sales volumes at lower average green leaf prices and lower processing revenues , offset in part by increased distributions from unconsolidated subsidiaries . north america operating income for the north america segment was $ 35.2 million for the fiscal year ended march 31 , 2017 , up $ 4.0 million compared with fiscal year 2016. earnings improvements were driven mainly by higher sales volumes , partially due to earlier timing of current crop shipments in fiscal 2017. however , margins for the year were lower from a less favorable product mix , as well as reduced factory yields on weather affected u.s. crops . fiscal year 2017 revenues for the segment increased by $ 54.6 million to $ 416.4 million compared to fiscal year 2016 , on those higher sales volumes , at lower green leaf prices , and a less favorable product mix . other tobacco operations for the fiscal year ended march 31 , 2017 , the other tobacco operations segment operating income decreased by $ 1.3 million to $ 10.0 million compared with the fiscal year ended march 31 , 2016. earnings improved modestly for the dark tobacco operations as higher domestic volumes were largely offset by a less favorable sales mix and higher inventory write-downs in fiscal year 2017. results from the oriental joint venture also improved for fiscal year 2017 mainly on favorable comparisons due to tax accruals in the fiscal year 2016. those improvements were outweighed by higher losses in the special services group , primarily for the new food ingredients business . higher selling , general , and administrative costs for the segment also contributed to the declines . revenues for the segment were up by $ 12.2 million to $ 231.8 million for the year ended march 31 , 2017 , mostly due to increased volumes from the timing of shipments of oriental tobaccos into the united states compared to fiscal year 2016 . 22 other items cost of goods sold decreased by about 2 % to $ 1.7 billion for the fiscal year ended march 31 , 2017. the decline was consistent with a comparable percentage decline in revenues , mostly as a result of lower green leaf prices . selling , general , and administrative costs decreased by $ 14.7 million , or 6 % , for the fiscal year ended march 31 , 2017 , compared with fiscal year 2016. the decline in fiscal year 2017 was mainly due to the favorable comparison to costs incurred in fiscal year 2016 to settle challenges regarding property rights and valuation of forestry land in south america , the reversal of value-added tax reserves , and lower net foreign currency and exchange remeasurement losses compared to fiscal year 2016. the consolidated effective income tax rates were approximately 34 % and 32 % for the fiscal years ended march 31 , 2017 and 2016 , respectively . income taxes in both fiscal years were lower than the 35 % federal statutory rate on a combination of lower net effective tax rates on income from certain foreign subsidiaries , and effects of changes in local currency exchange rates on deferred income tax balances , mainly in brazil . in december 2016 , 111,072 shares of the series b 6.75 % convertible perpetual preferred stock were converted into approximately 2.5 million shares of our common stock . in january 2017 , we announced a mandatory conversion of all 107,418 remaining outstanding shares of the preferred stock after meeting the requirements to initiate the mandatory conversion under the original terms of the preferred shares . we chose to satisfy the conversion obligation for the mandatory conversion in cash . although the conversions of the preferred stock into common stock or for cash did not impact net income , the shares converted for cash under the mandatory conversion in january 2017 resulted in a one-time reduction of retained earnings of approximately $ 74.4 million during the quarter ended march 31 , 2017 , representing the excess of the conversion cost over the carrying value of those shares . the reduction in retained earnings resulted in a corresponding one-time reduction of earnings available to common shareholders for the fiscal year ending march 31 , 2017 for purposes of determining the amounts reported for basic and diluted earnings per share .
| results of operations amounts described as net income and earnings per diluted share in the following discussion are attributable to universal corporation and exclude earnings related to non-controlling interests in subsidiaries . the total for segment operating income referred to in the discussion below is a non-gaap financial measure . this measure is not a financial measure calculated in accordance with gaap and should not be considered as a substitute for net income , operating income , cash flows from operating activities or any other operating performance measure calculated in accordance with gaap , and it may not be comparable to similarly titled measures reported by other companies . we have provided a reconciliation of the total for segment operating income to consolidated operating income in note 14 . `` operating segments '' to the consolidated financial statements in item 8. we evaluate our segment performance excluding certain significant charges or credits . we believe this measure , which excludes these items that we believe are not indicative of our core operating results , provides investors with important information that is useful in understanding our business results and trends . fiscal year ended march 31 , 2018 , compared to the fiscal year ended march 31 , 2017 net income for the fiscal year ended march 31 , 2018 , was $ 105.7 million , or $ 4.14 per diluted share , compared with $ 106.3 million , or $ 0.88 per diluted share for the same period of the prior fiscal year .
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please see “ forward-looking statements ” at the beginning of this form 10-k. the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this form 10-k. we undertake no obligation to update any forward-looking statements in the discussion of our financial condition and results of operations to reflect events or circumstances after the date of this report or to reflect actual outcomes . overview mustang bio , inc. ( “ mustang , ” “ we , ” “ us ” or the “ company ” ) is a clinical-stage biopharmaceutical company focused on translating today 's medical breakthroughs in cell and gene therapies into potential cures for hematologic cancers , solid tumors and rare genetic diseases . we aim to acquire rights to these technologies by licensing or otherwise acquiring an ownership interest in the technologies , funding their research and development and eventually either out-licensing or bringing the technologies to market . our pipeline is currently focused in three core areas : gene therapy programs for rare genetic disorders , chimeric antigen receptor ( “ car ” ) engineered t cell ( “ car t ” ) therapies for hematologic malignancies and car t therapies for solid tumors . for each therapy we have partnered with world class research institutions . for our gene therapy program , we have partnered with st. jude children 's research hospital ( “ st . jude ” ) in the development of a first-in-class ex vivo lentiviral treatment of x-linked severe combined immunodeficiency ( “ xscid ” ) and for our car t therapies we have partnered with the city of hope national medical center ( “ coh ” ) , fred hutchinson cancer research center ( “ fred hutch ” ) and nationwide children 's hospital ( “ nationwide ” ) . gene therapy in partnership with st. jude and the national institutes of health ( “ nih ” ) , our gene therapy program is being conducted under an exclusive license to develop a potentially curative treatment for xscid , a rare genetic immune system condition also known as bubble boy disease in which affected patients do not live beyond infancy without treatment . this first-in-class ex vivo lentiviral gene therapy is currently in two phase 1/2 clinical trials involving two different autologous cell products : a multicenter trial of the mb-107 product in newly diagnosed infants sponsored by st. jude and a single-center trial of the mb-207 product in previously transplanted patients sponsored by the nih . 61 in may 2020 , we submitted an investigational new drug ( “ ind ” ) application with the fda to initiate a registrational multicenter phase 2 clinical trial of mb-107 in newly diagnosed infants with xscid who are under the age of two . in response , the fda identified chemistry , manufacturing , and control ( “ cmc ” ) hold issues that mustang satisfactorily addressed in a december 2020 submission to the fda , and the cmc hold was removed in january 2021. the trial is expected to enroll 10 patients who , together with 15 patients enrolled in the current multicenter trial led by st. jude , will be compared with 25 matched historical control patients who have undergone hematopoietic stem cell transplant ( “ hsct ” ) . the primary efficacy endpoint will be event-free survival and we are targeting topline data from the trial in the second half of 2022 . we further expect to file an ind in the second quarter of 2021 for a registrational multicenter phase 2 clinical trial of lentiviral gene therapy in previously transplanted xscid patients ( mb-207 ) . we anticipate enrolling 20 patients , and we are targeting topline data for this trial in the first half of 2023 . car t therapies our pipeline of car t therapies is being developed under exclusive licenses from several world class research institutions . our strategy is to license these technologies , support preclinical and clinical research activities by our partners and transfer the underlying technology to our cell processing facility located in worcester , massachusetts , to conduct our own clinical trials . we are developing car t therapies for hematologic malignancies in partnership with coh targeting cd123 ( mb-102 ) and cs1 ( mb-104 ) and with fred hutch targeting cd20 ( mb-106 ) . phase 1 clinical trials sponsored by coh for mb-102 and mb-104 and by fred hutch for mb-106 are underway . in the third quarter of 2019 the fda approved our ind application to initiate a multi-center phase 1/2 clinical trial of mb-102 , and our clinical trial began enrollment in 2020 for the treatment of patients with blastic plasmacytoid dendritic cell neoplasm . we expect to file an ind for mb-106 in the first quarter of 2021 and to initiate our own phase 1/2 clinical trial shortly thereafter for the treatment of patients with non-hodgkin lymphoma and chronic lymphocytic leukemia . we plan to file an ind for a multicenter phase 1/2 trial for mb-104 for the treatment of patients with multiple myeloma once coh has established a safe and effective dose . we are also developing car t therapies for solid tumors in partnership with coh targeting il13r α 2 ( mb-101 ) , her2 ( mb-103 ) and psca ( mb-105 ) . in addition , we have partnered with nationwide for the c134 oncolytic virus ( mb-108 ) in order to enhance the activity of mb-101 for the treatment of patients with glioblastoma multiforme ( “ gbm ” ) . phase 1 clinical trials sponsored by coh for mb-101 , mb-103 and mb-105 are underway . a phase 1 clinical trial sponsored by the university of alabama at birmingham ( “ uab ” ) for mb-108 began during the third quarter of 2019 and , in the fourth quarter of 2021 , we plan to file an ind for the combination of mb-101 and mb-108 for the treatment of patients with gbm . story_separator_special_tag the phase 1 portion of the trial will determine the maximum tolerated dose of mb-102 for the phase 2 portion of the trial . safety will be assessed at each dose level before proceeding to the next . depending on the efficacy and safety profile of mb-102 in the phase 1 portion of the trial , relapsed or refractory aml and demethylation resistant hrmds may be added to the later dose escalation cohorts . the phase 2 portion of the trial may be divided into as many as three arms to evaluate the efficacy of mb-102 in relapsed or refractory bpdcn ( arm 1 ) , relapsed or refractory aml ( arm 2 ) and demethylation resistant hrmds ( arm 3 ) . the primary outcome that will be studied is the response rate at day 28 post infusion in all arms . secondary outcome measures include duration of response , progression-free survival , overall survival and incidence of treatment-emergent adverse events , which will be followed for up to three years . mb-101 ( il13rα2-targeted car t cell therapy ) in december 2020 , we announced that a phase 1 single-center , two-arm clinical trial was initiated to establish the safety and feasibility of administering mb-101 to patients with leptomeningeal brain tumors ( e.g. , glioblastoma , ependymoma or medulloblastoma ) . 63 mb-105 ( psca car t for prostate & pancreatic cancers ) in october 2020 , we announced that one patient 's experience on the phase 1 trial of mb-105 was presented at the virtual 27 th annual prostate cancer foundation scientific retreat . in a 73-year-old male patient with psca-positive metastatic castrate-resistant prostate cancer who was treated with mb-105 and lymphodepletion ( a standard car t pre-conditioning regimen ) after failing eight prior therapies , mb-105 demonstrated on day 28 a 94 percent reduction in prostate-specific antigen ( psa ) , near complete reduction of measurable soft tissue metastasis by computerized tomography , and improvement in bone metastases by magnetic resonance imaging . the therapy was associated with cytokine release syndrome , which was clinically managed with tocilizumab ( anti-il-6 receptor antibody ) , and hemorrhagic cystitis requiring transfusion which clinically resolved in 30 days . sirion biotech gmbh – lentiboost tm on september 30 , 2020 , mustang entered into an exclusive , worldwide licensing agreement with sirion biotech ( “ sirion ” ) for the rights to sirion 's lentiboost tm technology for the development of mb-207 , mustang 's lentiviral gene therapy for the treatment of previously transplanted xscid patients ( the “ sirion technology license ” ) . pursuant to the sirion technology license , the company paid a one-time upfront fee of 0.1 million ( $ 0.1 million ) during the year ended december 31 , 2020. in addition , five future development milestone payments totaling up to approximately 4.7 million ( $ 5.5 million ) in the aggregate are due upon achievement of certain milestones . additional milestone payments totaling up to 3.5 million ( $ 4.1 million ) in the aggregate are due in connection with the achievement of three commercial milestones , and low single digit royalties are due on aggregate cumulative worldwide net sales of licensed products . registration statements on october 23 , 2020 , the company filed a shelf registration statement no . 333-249657 on form s-3 ( the “ 2020 s-3 ” ) , which was declared effective on december 4 , 2020. under the 2020 s-3 , the company may sell up to a total of $ 100.0 million of its securities . as of december 31 , 2020 , approximately $ 85.7 million of the 2020 s-3 remains available for sales of securities . term loan on march 29 , 2019 ( the “ closing date ” ) , the company entered into a $ 20.0 million loan agreement with horizon ( the “ loan agreement ” ) , the proceeds of which were used to provide the company with additional working capital to continue development of its gene and cell therapies . in accordance with the loan agreement , $ 15.0 million of the $ 20.0 million loan was funded on the closing date , with the remaining $ 5.0 million fundable upon the company achieving certain predetermined milestones . on september 30 , 2020 , the company repaid in full all amounts that were outstanding under the loan agreement . at-the-market offering on july 13 , 2018 , the company filed a shelf registration statement no . 333-226175 on form s-3 , as amended on july 20 , 2018 ( the “ 2018 s-3 ” ) , which was declared effective in august 2018. under the 2018 s-3 , the company may sell up to a total of $ 75.0 million of its securities . in connection with the 2018 s-3 , the company entered into an at-the-market issuance sales agreement ( the “ atm agreement ” ) with b. riley securities , inc. ( formerly b. riley fbr , inc. ) , cantor fitzgerald & co. , national securities corporation , and oppenheimer & co. inc. ( each an “ agent ” and collectively , the “ agents ” ) , relating to the sale of shares of common stock . under the atm agreement , the company pays the agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock . on december 31 , 2020 , the atm agreement was amended to add h.c. wainwright & co. , llc as an agent . during the year ended december 31 , 2020 , the company issued approximately 17.6 million shares of common stock at an average price of $ 3.40 per share for gross proceeds of $ 59.8 million under the atm agreement . in connection with these sales , we paid aggregate fees of approximately $ 1.1 million for net proceeds of approximately $ 58.7 million .
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_1_th research and development expenses research and development expenses primarily consist of personnel related expenses , including salaries , benefits , travel , and other related expenses , stock-based compensation , payments made to third parties for license , sponsored research and milestone costs related to in-licensed products and technology , payments made to third party contract research organizations for preclinical and clinical studies , investigative sites for clinical trials , consultants , the cost of acquiring and manufacturing clinical trial materials , costs associated with regulatory filings , laboratory costs and other supplies . research and development expense increased by approximately $ 7.2 million from $ 30.0 million for the year ended december 31 , 2019 to $ 37.2 million for the year ended december 31 , 2020. the increase in research and development expense for the year ended december 31 , 2020 was primarily attributable to the following : ● $ 2.9 million for increased research and development employee compensation costs , including stock compensation , as we continue to increase research and development headcount to support development of our clinical programs ; ● $ 2.5 million for increased lentiviral vector manufacturing to support mustang-sponsored clinical trials ; 65 ● $ 1.6 million for increased costs for sponsored research and clinical trial agreements with our academic partners ; ● approximately $ 1.4 million for increased other costs including consulting , outside services , laboratory supplies and depreciation ; and ● offset by approximately $ 1.2 million for decreased costs for third-party contract research organizations .
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this update is intended to guide entities in evaluating the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license . this story_separator_special_tag except where we have otherwise indicated or the context otherwise requires , dollar amounts presented in this form 10‑k are in thousands , except for exhibits and per share amounts . overview envestnet is a leading provider of intelligent systems for wealth management and financial wellness . envestnet 's unified technology enhances advisor productivity and strengthens the wealth management process . envestnet empowers enterprises and advisors to more fully understand their clients and deliver better outcomes . more than 4,700 companies , including 16 of the 20 largest u.s. banks , 43 of the 50 largest wealth management and brokerage firms , over 500 of the largest ria s , and hundreds of internet services companies , leverage envestnet technology and services . envestnet solutions enhance knowledge of the client , accelerate client on-boarding , improve client digital experiences and help drive better outcomes for enterprises , advisors and their clients . founded in 1999 , envestnet has been a leader in helping transform wealth management , working towards its goal of building a holistic financial wellness network that supports enterprises , advisors and their clients . through a combination of platform enhancements , partnerships and acquisitions , envestnet uniquely provides a financial network connecting software , services and data , delivering better intelligence and enabling its customers to drive better outcomes . we believe that our business model results in a high degree of recurring and predictable financial results . recent developments acquisition of private ai company on january 2 , 2019 , we acquired a private artificial intelligence ( “ ai ” ) company ( the “ private ai company acquisition ” ) . in connection with the private ai company acquisition , we incurred estimated consideration of approximately $ 25,063 , inclusive of estimated contingent consideration of $ 7,580 , for all of the outstanding shares of the private ai company , subject to certain closing and post-closing adjustments . in december 2019 , we determined that revenue targets for this acquisition would not be met . as a result , we reduced the contingent consideration liability plus accrued interest associated with this acquisition by $ 8,126 and recorded this as a reduction to general and administration expenses . through the use of conversational ai tools and applications that leverages the latest wave of customer-centric capabilities , we believe that the private company improves the way financial service providers ( “ fsp s ” ) can interact with and support their customers . the technology and operations of the private ai company have been integrated into our envestnet data & analytics segment . acquisition of portfoliocenter business on april 1 , 2019 , tamarac , inc. ( “ tamarac ” ) , a wholly owned subsidiary of ours , acquired certain of the assets , primarily consisting of intangible assets , and the assumption of certain of the liabilities of the portfoliocenter business ( “ portfoliocenter ” ) from performance technologies , inc. ( the “ pc seller ” ) , a wholly owned subsidiary of the charles schwab corporation ( “ portfoliocenter acquisition ” ) . the portfoliocenter business provides investment advisors and investment advisory service providers with desktop , hosted and outsourced multicustodial software solutions . these solutions provide data-management and performance-measurement tools , as well as customizable accounting , reporting , and billing functions delivered through the commercial software application products known as portfoliocenter desktop , portfoliocenter hosted , portfolioservices and service bureau . tamarac acquired portfoliocenter to better serve small and mid-size ria firms . portfoliocenter has become a part of our envestnet wealth solutions segment . in connection with the portfoliocenter acquisition , tamarac paid $ 17,500 in cash and funded the acquisition with available cash resources . the pc seller is also entitled to an earn-out payment based on a percentage of portfoliocenter 's eligible revenue for the twelve-month period beginning april 1 , 2020. the discounted amount of the contingent consideration liability is estimated to be $ 8,200 and is included as a non-current liability in the consolidated balance sheets . 40 acquisition of pietech on may 1 , 2019 , we acquired all of the outstanding shares of capital stock of pietech , inc. , a virginia corporation ( “ pietech ” ) . pietech empowers financial advisors to use financial planning to efficiently motivate their clients to create , implement and maintain financial plans that best meet their lifetime financial goals . the technology and operations of pietech , which now operates as envestnet moneyguide , has been integrated into our envestnet wealth solutions segment . the acquisition of pietech ( the “ pietech acquisition ” ) establishes us as a leader in financial planning solutions , providing advisors and their clients with access to a full spectrum of financial planning capabilities , and offering a broad range of data-driven , financial plan-informed financial wellness solutions , both domestically and internationally over time . integration of pietech 's moneyguide software with our integrated technology platform is expected to reduce friction and enhance productivity for advisors . in connection with the pietech acquisition , we paid net cash consideration of $ 298,714 , subject to the working capital adjustments set forth in the merger agreement , and issued 3,184,713 shares of envestnet common stock to the sellers . we funded the pietech acquisition with available cash resources and borrowings under its revolving credit facility . in connection with the pietech acquisition , we established a retention bonus pool consisting of approximately $ 30,000 of cash and restricted stock units to be granted to employees and management of pietech as inducement grants . story_separator_special_tag subscription fees vary based on the scope of technology solutions and services being used , and are priced in a variety of constructs based on the size of the business , number of users or number of accounts and in many cases can increase over time based on the growth of these factors . subscription fees accounted for 42 % , 36 % and 36 % of our total revenues for the years ended december 31 , 2019 , 2018 and 2017 , respectively . finally , a portion of our revenues are generated from fees received in connection with professional services and other revenue . 43 asset-based recurring revenues 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 . these expenses are recorded under cost of revenues . we do not have fiduciary responsibility in connection with aua and , therefore , generally charge lower fees on these assets . our fees for aua vary based on the nature of the investment solutions and services we provide . for approximately 90 % of our asset-based recurring revenues from assets under management or administration , we bill customers at the beginning of each quarter based on the market value of customer assets on our platforms as of the end of the prior quarter . for example , asset-based recurring revenues recognized during the fourth quarter of 2019 were primarily based on the market value of assets as of september 30 , 2019. our asset-based recurring revenues are generally recognized ratably throughout the quarter based on the number of days in the quarter . our asset-based recurring revenues are affected by the amount of new assets that are added to existing and new client accounts , which we refer to as gross sales . gross sales , from time to time , also include conversions of client assets to our technology platforms . the amounts of assets that are withdrawn from client accounts are referred to as redemptions . we refer to the difference between gross sales and redemptions as net flows . positive net flows indicate that the market value of assets added to client accounts exceeds the market value of assets that have been withdrawn from client accounts . our asset-based revenues are also affected by changes in the market values of securities held in client accounts due to fluctuations in the securities markets . certain types of securities have historically experienced greater market price fluctuations , such as equity securities , than other securities , such as fixed income securities , though in any given period the type of securities that experience the greatest fluctuations may vary . subscription-based recurring revenues subscription-based recurring revenues are recognized ratably over the contracted term of each respective subscription agreement , commencing on the date the service is provisioned to the customer , provided all applicable revenue recognition criteria have been satisfied . as part of the subscription contracts , our customers generally commit to a minimum level of paid users from which a minimum level of non-refundable subscription revenue is derived . as paid users in excess of the guaranteed minimum level access the envestnet data & analytics platform , the customer is then required to pay additional usage fees calculated based upon a contracted per-paid-user fee . no refunds or credits are given if fewer paid users access the envestnet data & analytics platform than the contracted minimum level . usage-based revenue is recognized as earned , provided all applicable revenue recognition criteria have been satisfied . professional services and other revenues to a lesser degree we also receive revenues from professional services fees by providing customers with certain technology platform software development and implementation services . these revenues are recognized when completed , under a proportional‑performance model utilizing an output‑based approach or on a straight‑line basis over the estimated life of the customer relationship . our contracts generally have fixed prices and generally specify or quantify interim deliverables . expenses the following is a description of our principal expense items : cost of revenues cost of revenues primarily includes expenses related to our receipt of sub‑ advisory and clearing , custody and brokerage services from third parties . the largest component of cost of revenues is paid to third party investment managers . clearing , custody and brokerage services are performed by third‑party providers . these expenses are typically calculated based upon a contractual percentage of the market value of assets held in customer accounts measured as of the end of each fiscal quarter and are recognized ratably throughout the quarter based on the number of days in the quarter . also included in cost of revenues are vendor specific expenses related to the direct support of revenues associated with the envestnet data & analytics products . 44 compensation and benefits compensation and benefits expenses primarily relate to employee compensation , including salaries , short-term incentive compensation , non‑cash stock‑based compensation , incentive compensation , benefits and employer‑related taxes . general and administration general and administration expenses include occupancy costs and expenses relating to communications services , research and data services , website and system development , marketing , professional and legal services , travel and entertainment and acquisition/transaction related expenses .
| results of operations compared to 2017 for the envestnet wealth solutions segment , see part ii , item 7 of our form 10-k filed with the sec on march 1 , 2019. envestnet data & analytics the following table presents loss from operations for the envestnet data & analytics segment : replace_table_token_11_th year ended december 31 , 2019 compared to year ended december 31 , 2018 for the envestnet data & analytics segment revenues subscription-based recurring revenues subscription-base recurring revenues increased 9 % from $ 157,095 in 2018 to $ 171,207 in 2019 , primarily due to broad increases in revenue from new and existing customers . professional services and other revenues professional services and other revenues decreased 14 % from $ 22,663 in 2018 to $ 19,462 in 2019 , primarily due to the timing of the completion of projects and customer deployments . cost of revenues the cost of revenues increased 26 % from $ 18,742 in 2018 to $ 23,703 in 2019 , primarily due to the corresponding increase in subscription-based recurring revenues . as a percentage of segment revenues , cost of revenues increased from 10 % in 2018 to 12 % in 2019 . compensation and benefits compensation and benefits increased 15 % from $ 102,378 in 2018 to $ 118,062 in 2019 , primarily due to increases in salaries , benefits and related payroll taxes of $ 6,719 as we have increased overall headcount to support organic growth , increases in severance expense of $ 6,732 primarily related to a reduction in force at one location and increases in non-cash compensation expense of $ 3,411 , partially offset by a decrease in incentive compensation of $ 1,393. as a percentage of segment revenues , compensation and benefits increased from 57 % in 2018 to 62 % in 2019 .
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( 3 ) includes information related to our amended and restated 2009 non-qualified inducement stock plan , which is designed to provide equity grants to new employees . pursuant to this plan , we were authorized to issue non-qualified stock options , restricted stock awards and unrestricted stock awards . item 13. certain relationships and related transactions , and director independence transactions with related persons except as otherwise set forth below , we did not engage in any related person transactions during the years ended december 31 , 2016 and december 31 story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with our selected financial data , our financial statements , and the accompanying notes to those financial statements included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . for a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements , please refer to the section titled risk factors , contained in item 1a of this annual report on form 10-k. overview neurometrix is a commercial stage , innovation driven healthcare company combining bioelectrical and digital medicine to address chronic health conditions including chronic pain , sleep disorders , and diabetes . our business is fully integrated with in-house capabilities spanning product development , manufacturing , regulatory affairs and compliance , sales and marketing , and customer support . we derive revenues from the sale of medical devices and after-market consumable products and accessories . our products are sold in the united states and selected overseas markets , and are cleared by the u.s. food and drug administration , or fda , and regulators in foreign jurisdictions where appropriate . we have two principal product lines : wearable neuro-stimulation therapeutic devices point-of-care neuropathy diagnostic tests our core expertise in biomedical engineering has been refined over nearly two decades of designing , building and marketing medical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes . we created the market for point-of-care nerve testing and were first to market with sophisticated , wearable technology for management of chronic pain . we also have an experienced management team and board of directors . chronic pain is a significant public health problem . it is defined by the national institutes of health as any pain lasting more than 12 weeks in contrast to acute pain which is a normal bodily response to injury or trauma . chronic pain conditions include painful diabetic neuropathy , or pdn , arthritis , fibromyalgia , sciatica , musculoskeletal pain , cancer pain and many others . chronic pain may be triggered by an injury or there may be an ongoing cause such as disease or illness . there may also be no clear cause . pain signals continue to be transmitted in the nervous system over extended periods of time often leading to other health problems . these can include fatigue , sleep disturbance , decreased appetite , and mood changes which cause difficulty in carrying out important activities and contributing to disability and despair . in general , chronic pain can not be cured . treatment of chronic pain is focused on reducing pain and improving function . the goal is effective pain management . chronic pain is widespread . it affects over 100 million adults in the united states and more than 1.5 billion people worldwide . the global market for pain management drugs and devices alone was valued at $ 35 billion in 2012. the estimated incremental impact of chronic pain on health care costs in the united states is over $ 250 billion per year and lost productivity is estimated to exceed $ 300 billion per year . estimated out-of-pocket spending in the united states on chronic pain is $ 20 billion per year . the most common approach to chronic pain is pain medication . this includes over-the-counter drugs ( such as advil and motrin ) , and prescription drugs including anti-convulsants ( such as lyrica and neurontin ) and anti-depressants ( such as cymbalta and elavil ) . topical creams may also be used ( such as zostrix and bengay ) . with severe pain , narcotic pain medications may be prescribed ( such as codeine , fentanyl , morphine , and oxycodone ) . the approach to treatment is individualized , drug combinations may be employed , and the results are often hit or miss . side effects and the potential for addiction are real and the risks are substantial . reflecting the difficulty in treating chronic pain , we believe that inadequate relief leads 25 % to 50 % of pain sufferers to turn to the over-the-counter market for supplements or alternatives to prescription pain medications . these include non-prescription medications , topical creams , lotions , electrical stimulators , dietary products , braces , sleeves , pads and other items . in total they account for over $ 4 billion in annual spending in the united states on pain relief products . 33 high frequency nerve stimulation is an established treatment for chronic pain supported by numerous clinical studies demonstrating efficacy . in simplified outline , the mechanism of action involves intensive nerve stimulation to activate the body 's central pain inhibition system resulting in widespread analgesia , or pain relief . the nerve stimulation activates brainstem pain centers leading to the release of endogenous opioids that act primarily through the delta opioid receptor to reduce pain signal transmission through the central nervous system . this therapeutic approach is available through deep brain stimulation and through implantable spinal cord stimulation , both of which require surgery and have attendant risks . non-invasive approaches to neuro-stimulation ( transcutaneous electrical nerve stimulation , or tens ) have achieved limited efficacy in practice due to device limitations , ineffective dosing and low patient compliance . story_separator_special_tag 36 comparison of years ended december 31 , 2015 and december 31 , 2014 revenues the following table summarizes our revenues : years ended december 31 , 2015 2014 change % change ( in thousands ) revenues $ 7,299.8 $ 5,512.8 $ 1,787.0 32.4 % revenues include sales from quell , dpncheck and our legacy products . quell was made commercially available during the second quarter of 2015 and sales of dpncheck launched in the fourth quarter of 2011. during 2015 total revenues increased by $ 1.8 million , or 32.4 % , from 2014. quell revenues were approximately $ 2.1 million and zero in 2015 and 2014 , respectively . this increase of approximately $ 2.1 million was the largest contributor to overall revenue growth . in 2015 dpncheck revenue of approximately $ 2.3 million reflected sales of 703 dpncheck devices plus 159,000 biosensors . this compared with approximately $ 1.8 million in revenue in 2014 reflecting sales of 677 dpncheck devices and 109,525 biosensors . advance neurodiagnostic products contributed approximately $ 2.3 million in revenue for 2015 , as compared to approximately $ 2.8 million in 2014. sensus , our prescription wearable device for chronic pain had revenues of approximately $ 0.6 million and $ 0.9 million in 2015 and 2014 , respectively . cost of revenues and gross margin the following table summarizes our cost of revenues and gross margin : replace_table_token_6_th our cost of revenues increased to $ 4.0 million in 2015 , compared to $ 2.6 million in 2014 , primarily due to the increase in orders and shipment volumes during the comparable periods . gross margin decreased to 45.9 % in 2015 compared to 53.4 % in 2014. the contraction in gross margin conforms to the early stages of our plan for building a business with a high level of recurring revenue from an installed product base of medical devices . it reflects two factors : growing quell sales which are heavily weighted toward lower margin devices rather than higher margin electrodes , and operating costs of our new manufacturing facility . as we build our installed base of quell users we expect growth in recurring electrode sales at higher margins . also , we expect continued growth in quell sales to improve manufacturing cost absorption , contributing to future margin gains . operating expenses the following table summarizes our operating expenses : replace_table_token_7_th 37 research and development research and development expenses for 2015 and 2014 were $ 3.9 million and $ 4.1 million , respectively . the decrease of $ 0.2 million primarily reflects decreased spending of $ 0.5 million in personnel costs , partially offset by increased spending of $ 0.3 million in consulting fees to develop quell for launch in june 2015 and in transitioning the engineering focus to quell enhancements and eventually the next product generation . sales and marketing sales and marketing expenses increased to $ 7.2 million in 2015 from $ 2.9 million in 2014. the increase of $ 4.3 million included incremental expenses to build product awareness was responsible for the majority of the increase with approximately $ 1.9 million attributable to tv advertising , on-line advertising and paid search . an increase in personnel costs of $ 1.7 million and travel and expense of $ 0.3 million as compared to the same period last year is attributed to the addition of 14 new employees hired specifically to support the commercialization of quell , which included a new marketing team , a field sales force , and expansion of the customer care function . general and administrative general and administrative expenses increased by $ 0.8 million to $ 5.5 million in 2015 compared to $ 4.7 million in the prior year . this increase reflected $ 0.3 million in incremental temporary staffing and consulting services and recruiting fees of $ 0.1 million related to staff turnover in accounting and information technology as well as costs related to relocating the company 's corporate offices and production to new facilities in the first quarter of 2015. interest income interest income was approximately $ 5,200 and $ 4,600 during 2015 and 2014 , respectively . interest income was earned from investments in cash equivalents . change in fair value of warrant liability the change in fair value of warrant liability of $ 4.1 million for 2015 reflects the combined effects of a lower base of outstanding warrants for valuation purposes plus a lower stock price and a shorter remaining life of the remaining warrants . in connection with the may 2015 financing ( see liquidity and capital resources ) , we redeemed $ 0.9 million in outstanding warrants . the change in the fair value of the warrant liability in the year ended december 31 , 2014 was $ 1.1 million . net loss per common share applicable to common stockholders , basic and diluted the net loss per common share applicable to common stockholders , basic and diluted , was $ 7.75 and $ 6.15 for 2015 and 2014 , respectively . net loss per common share applicable to common stockholders in 2015 of $ 7.75 included a deemed dividend attributable to preferred stockholders of $ 4.1 million , or $ 1.52 per share , related to our may 2015 equity offering ; a deemed dividend attributable to preferred stockholders of $ 8.3 million , or $ 3.06 per share , related to our december 2015 equity offering ; and a return of capital to common shareholders and related embedded beneficial conversion of $ 0.6 million , or $ 0.22 per share , related to our december 2015 equity offering ; and our 2015 net loss reported in our statement of operations of $ 9.2 million , or $ 3.38 per share .
| results of operations comparison of years ended december 31 , 2016 and december 31 , 2015 revenues the following table summarizes our revenues : years ended december 31 , 2016 2015 change % change ( in thousands ) revenues $ 12,027.5 $ 7,299.8 $ 4,727.7 64.8 % revenues include sales from quell , dpncheck and our legacy neurodiagnostic products . quell was made commercially available during the second quarter of 2015 and sales of dpncheck launched in the fourth quarter of 2011. during 2016 total revenues increased by $ 4.7 million , or 65 % , from 2015. quell revenues were $ 7.4 million and $ 2.1 million in 2016 and 2015 , respectively . this increase of approximately $ 5.3 million was the largest contributor to overall revenue growth . during 2016 , 45,726 quell devices and 52,658 electrode reorder packages with a total invoiced value of approximately $ 10.6 million were shipped to quell customers . in the comparative period of 2015 , we shipped 13,796 quell devices and 14,906 electrode reorder packages with a total invoiced value of approximately $ 3.1 million . quell revenues are recorded at the point of shipment or , where distributors have a contractual right to return unsold merchandise , when quell is sold through to the ultimate customer . in both cases , revenues are recorded net of a provision for product returns under our right-of-return policy . in 2016 , dpncheck revenue of approximately $ 2.5 million reflected sales of 630 dpncheck devices plus 188,925 biosensors . this compared with approximately $ 2.3 million in revenue in 2015 reflecting sales of 703 dpncheck devices and 159,000 biosensors .
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* * xbrl ( extensible business reporting language ) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 , as amended , is deemed not filed for purposes of section 18 of the securities exchange act of 1934 , as amended , and otherwise is not subject to liability under these sections . 33 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . surf a movie solutions inc. ( name of registrant ) date : december 21 , 2012 by : fadi zeidan name : fadi zeidan title : president , secretary , treasurer and director ( and principal financial officer and principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . date : december 21 , 2012 by : ufuk turk name : ufuk turk title : director 34 exhibit index replace_table_token_12_th 101.ins * * xbrl instance document 101.sch * * xbrl taxonomy extension schema document 101.cal * * xbrl taxonomy extension calculation linkbase document 101.def * * xbrl taxonomy extension definition linkbase document 101.lab * * xbrl taxonomy extension label linkbase document 101.pre * * xbrl taxonomy extension presentation linkbase document _ ( 1 ) incorporated by reference to the registrant 's form s-1 ( file no . 333-156480 ) , filed with the commission on december 29 , 2008 . * * xbrl ( extensible business reporting language ) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 , as amended , is deemed not filed for purposes of section 18 of the securities exchange act of 1934 , as amended , and otherwise is not subject to liability under these sections . 35 story_separator_special_tag story_separator_special_tag display : block ; margin-left : 0pt ; margin-right : 0pt '' > * customer portal development : when a web site visitor wishes to make a purchase ( i.e. , rent a video from the online video store ) he or she will be required to create a user or a customer account which will be protected by a password of his or her choice . after the account is created , he or she will be able to proceed to make the payment for their video selection ( s ) . as soon as a payment confirmation is generated from paypal , the purchased videos will be available for download for a limited period of time . the customer will be able to login to his or her account and download the videos within the specified period . the next time the customer wishes to make a purchase , he or she will simply have to login to their existing account . we anticipate that it will take approximately one month to develop the customer portal feature . * store owners portal development : each video store owner who purchases one of our turn-key operations will be required to begin by completing the online registration form . we will review each online registration form for approval . once approved , a “ business owner 's account ” will be created , and within the portal , the video store owners will find the necessary information and tools to create their store . they will be able to add and edit categories , add videos , description , trailer , top 10 list , top videos by category , etc ... helpful hints and instructions will be included in each step of the portal to assist the store owner in the set-up and maintenance phase of the online store . we expect that it will take approximately four months to develop the store owners ' portal . 13 * surf a movie administrative portal development : this portal will allow us to approve or suspend an online video store if necessary . it will enable us to append notes to document our relationship and correspondence with each individual store owner . in addition , this feature will automatically calculate the amount of rental revenue ( minus fees ) that we owe to a store owner . further , it will enable our directors and staff to access a wide range of reporting related to sales and where end users are coming from . we expect that development of this feature will take approximately one month to complete . * digital rights management : we will be implementing microsoft digital right management ( “ drm ” ) system to prevent the copying and exchange of copies of online movies between multiple persons , in an effort to protect the intellectual property of the video store owners and their revenue stream . we expect that it will take approximately one month to implement the drm with our site . expenditures the following chart provides an overview of our budgeted expenditures by significant area of activity over the twelve months : replace_table_token_3_th milestones below is a brief description of our planned activities over the next 12 months , beginning january 1 , 2013. months 1 to 3 * finalize corporate and marketing materials , such as brochures , letter heads , email and letter templates , and the like . * finalize the work on the web interfaces and the feel and look of the website ; * work with the contractor on the development of the website and software ; * review targeted “ milestones ” and adjust workloads , if necessary ; * commence the google adwords advertising campaign story_separator_special_tag * * xbrl ( extensible business reporting language ) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 , as amended , is deemed not filed for purposes of section 18 of the securities exchange act of 1934 , as amended , and otherwise is not subject to liability under these sections . 33 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . surf a movie solutions inc. ( name of registrant ) date : december 21 , 2012 by : fadi zeidan name : fadi zeidan title : president , secretary , treasurer and director ( and principal financial officer and principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . date : december 21 , 2012 by : ufuk turk name : ufuk turk title : director 34 exhibit index replace_table_token_12_th 101.ins * * xbrl instance document 101.sch * * xbrl taxonomy extension schema document 101.cal * * xbrl taxonomy extension calculation linkbase document 101.def * * xbrl taxonomy extension definition linkbase document 101.lab * * xbrl taxonomy extension label linkbase document 101.pre * * xbrl taxonomy extension presentation linkbase document _ ( 1 ) incorporated by reference to the registrant 's form s-1 ( file no . 333-156480 ) , filed with the commission on december 29 , 2008 . * * xbrl ( extensible business reporting language ) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 , as amended , is deemed not filed for purposes of section 18 of the securities exchange act of 1934 , as amended , and otherwise is not subject to liability under these sections . 35 story_separator_special_tag story_separator_special_tag display : block ; margin-left : 0pt ; margin-right : 0pt '' > * customer portal development : when a web site visitor wishes to make a purchase ( i.e. , rent a video from the online video store ) he or she will be required to create a user or a customer account which will be protected by a password of his or her choice . after the account is created , he or she will be able to proceed to make the payment for their video selection ( s ) . as soon as a payment confirmation is generated from paypal , the purchased videos will be available for download for a limited period of time . the customer will be able to login to his or her account and download the videos within the specified period . the next time the customer wishes to make a purchase , he or she will simply have to login to their existing account . we anticipate that it will take approximately one month to develop the customer portal feature . * store owners portal development : each video store owner who purchases one of our turn-key operations will be required to begin by completing the online registration form . we will review each online registration form for approval . once approved , a “ business owner 's account ” will be created , and within the portal , the video store owners will find the necessary information and tools to create their store . they will be able to add and edit categories , add videos , description , trailer , top 10 list , top videos by category , etc ... helpful hints and instructions will be included in each step of the portal to assist the store owner in the set-up and maintenance phase of the online store . we expect that it will take approximately four months to develop the store owners ' portal . 13 * surf a movie administrative portal development : this portal will allow us to approve or suspend an online video store if necessary . it will enable us to append notes to document our relationship and correspondence with each individual store owner . in addition , this feature will automatically calculate the amount of rental revenue ( minus fees ) that we owe to a store owner . further , it will enable our directors and staff to access a wide range of reporting related to sales and where end users are coming from . we expect that development of this feature will take approximately one month to complete . * digital rights management : we will be implementing microsoft digital right management ( “ drm ” ) system to prevent the copying and exchange of copies of online movies between multiple persons , in an effort to protect the intellectual property of the video store owners and their revenue stream . we expect that it will take approximately one month to implement the drm with our site . expenditures the following chart provides an overview of our budgeted expenditures by significant area of activity over the twelve months : replace_table_token_3_th milestones below is a brief description of our planned activities over the next 12 months , beginning january 1 , 2013. months 1 to 3 * finalize corporate and marketing materials , such as brochures , letter heads , email and letter templates , and the like . * finalize the work on the web interfaces and the feel and look of the website ; * work with the contractor on the development of the website and software ; * review targeted “ milestones ” and adjust workloads , if necessary ; * commence the google adwords advertising campaign
| results of operations we generated no revenues during the fiscal years ended september 30 , 2012 and 2011 , and we have generated no revenues since december 18 , 2007 ( inception ) . for the fiscal year ended september 30 , 2012 , we incurred expenses of $ 20,223 , consisting solely of general and administrative costs . during the fiscal year ended september 30 , 2011 , we incurred expenses of $ 15,592 consisting solely of general and administrative costs . we incurred net losses of $ 20,223 and $ 15,592 for the years ended september 30 , 2012 and 2011 , respectively . our net loss since inception ( september 25 , 2007 ) through september 30 , 2012 is $ 87,899. the following table provides selected financial data about our company for the years ended september 30 , 2012 and 2011. replace_table_token_2_th going concern surf a movie solutions inc. is a development stage company and currently has no operations . our independent auditor has issued an audit opinion for surf a movie solutions which includes a statement raising substantial doubt as to our ability to continue as a going concern . liquidity and capital resources our cash balance at september 30 , 2012 was $ 4,963 with $ 35,130 in outstanding liabilities . total expenditures over the next 12 months are expected to be approximately $ 46,390. if we experience a shortage of funds prior to generating revenues from operations we may utilize funds from our directors , who have informally agreed to advance funds to allow us to pay for operating costs , however they have no formal commitment , arrangement or legal obligation to advance or loan funds to us . management believes our current cash balance will not be sufficient to fund our operations for the next twelve months . 12 plan of operation we are in the formative phase of development .
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amended the terms of these same restricted stock awards to vest on march 8 , 2013. a `` change in control `` is generally defined in the ltip as any of the following events : ( i ) if the company consolidates with or merges into any other corporation or other entity and is not the continuing or surviving entity of such consolidation or merger ; ( ii ) if the company permits any other corporation or other entity to consolidate with or merge into the company and the company is the continuing or surviving entity but , in connection with such consolidation or merger , the common shares are changed into or exchanged for stock or other securities of any other corporation or other entity or cash or any other assets ; ( iii ) if the company dissolves or liquidates ; ( iv ) if the company effects a share exchange , capital reorganization or reclassification in such a way that holders of common shares shall be entitled to receive stock , securities , cash or other assets with respect to or in exchange for the common shares ; ( v ) if any one person , or more than one person acting as a group , acquires ownership of common shares possessing 35 % or more of the total voting power of the common shares ; ( vi ) if a majority of members on the board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the board prior to the date of the appointment or election ; or ( vii ) if there is a change in the ownership of a substantial portion of the company 's assets , which shall occur on the date that any one person , or more than one person acting as a group acquires assets from the company that have a total gross fair market value equal to or more than 40 % of the total gross fair market value of all of the assets of the company immediately prior to such acquisition or acquisitions . the table below shows the value of the unvested options and restricted stock that would have become vested at december 31 , 2012 if a change in control had occurred on such date or , in the case of options , if the named executive officers ' employment had terminated on such date due to death or disability . the value is based upon the closing price on december 31 , 2012 and , in the case of options , the spread between such price and the exercise price of the options that would have become exercisable . name change in control death or disability robert chioini $ 2,131,439 $ 118,939 ajay gupta 1,225,900 18,400 thomas klema 1,229,414 62,164 raymond pratt 45 employment agreements each of our executive officers is employed at will , and we have no employment , termination or change in control agreements with our executive officers . we do not pay any benefits to our executive officers under any plan that provides for retirement benefits or payments in connection with resignation , retirement or other termination , except as described above with respect to restricted shares and stock options or as the board or the compensation committee may determine at the time of any such termination . outstanding equity awards at fiscal year-end the following table shows certain information regarding outstanding equity awards at december 31 , 2012 for the neos . outstanding equity awards at fiscal year-end replace_table_token_8_th 46 replace_table_token_9_th ( a ) these options vest in three equal annual installments beginning january 15 , 2011. the options would become immediately exercisable upon death , disability or a change in control . ( b ) these options vest in three equal annual installments beginning august 13 , 2011. the options would become immediately exercisable upon death , disability or a change in control . ( c ) these options vest in three equal annual installments beginning january 11 , 2012. the options would become immediately exercisable upon death , disability or a change in control . ( d ) these options vest in three equal annual installments beginning january 5 , 2013. the options would become immediately exercisable upon death , disability or a change in control . ( e ) these options vest in three equal annual installments beginning june 4 , 2013. the options would become immediately exercisable upon death , disability or a change in control . ( f ) these options vest in three equal annual installments beginning may 1 , 2013. the options would become immediately exercisable upon death , disability or a change in control . ( g ) 50,000 of these shares vest on each of march 1 , 2013 , march 8 , 2013 and august 13 , story_separator_special_tag overview and recent developments rockwell medical operates in a single business segment as a specialty pharmaceutical company offering innovative products targeting esrd , ckd and iron deficiency anemia . as an established manufacturer delivering high-quality hemodialysis concentrates to dialysis providers and distributors in the u.s. and abroad , we provide products used to maintain human life , remove toxins and replace critical nutrients in the dialysis patient 's bloodstream . we are currently developing unique , proprietary renal drug therapies . these novel renal drug therapies support disease management initiatives to improve the quality of life and care of dialysis patients and are designed to deliver safe and effective therapy , while decreasing drug administration costs and improving patient convenience and outcome . story_separator_special_tag impairments of long-lived assets we account for impairment of long-lived assets , which include property and equipment , amortizable and non-amortizable intangible assets and goodwill , in accordance with authoritative accounting pronouncements . an impairment review is performed annually or whenever a change in condition occurs which indicates that the carrying amounts of assets may not be recoverable . such changes may include changes in our business strategies and plans , changes to our customer contracts , changes to our product lines and changes in our operating practices . we use a variety of factors to assess the realizable value of long-lived assets depending on their nature and use . goodwill is not amortized ; however , it must be tested for impairment at least annually . the goodwill impairment analysis is based on the fair market value of our common shares . amortization continues to be recorded for other intangible assets with definite lives over the estimated useful lives . intangible assets subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable based on future cash flows . if we determine that goodwill has been impaired , the change in value will be accounted for as a current period expense and could have a material adverse effect on earnings . accounting for income taxes we estimate our income tax provision to recognize our tax expense and our deferred tax liabilities and assets for future tax consequences of events that have been recognized in our financial statements using current enacted tax laws . deferred tax assets must be assessed based upon the likelihood of recoverability from future taxable income and to the extent that recovery is not likely , a valuation allowance is established . the allowance is regularly reviewed and updated for changes in circumstances that would cause a change in judgment about whether the related deferred tax asset may be realized . these calculations and assessments involve complex estimates and judgments because the ultimate tax outcome can be uncertain and future events unpredictable . if we determine that the deferred tax asset will be realized in the future , it may result in a material beneficial effect on earnings . new accounting pronouncements no new accounting pronouncements that were issued or became effective during the year have had or are expected to have a material impact on our consolidated financial statements . in june 2011 , the fasb issued accounting standards update no . 2011-05 , `` statement of comprehensive income '' ( `` asu 2011-05 '' ) , which requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate , but consecutive , statements of net income and other comprehensive income . asu 2011-05 was effective for our fiscal year beginning january 1 , 2012. the standard did not impact our reported results of operations but did impact our financial statement presentation . we now present items of other comprehensive income in the statement of consolidated comprehensive income rather than in the statement of shareholders ' equity . liquidity and capital resources our strategy is centered on obtaining regulatory approval to market sfp and developing other high potential drug candidates , while also expanding our dialysis products business . we expect to expend substantial amounts in support of our clinical development plan and regulatory approval of sfp and its extensions and other product development opportunities . these initiatives will require the expenditure of substantial cash resources . we expect our cash needs for research and development 31 spending to be significant as we execute our clinical program and complete the process of seeking regulatory approval for sfp in the united states . our cash resources include cash generated from our business operations and from proceeds of equity offerings , including the receipt of a net $ 16.0 million from an equity offering in february 2012. as of december 31 , 2012 , our cash and investments were $ 4.7 million and our current liabilities exceeded our current assets by $ 13.8 million . based on our recurring losses , negative cash flows from operations and working capital levels , we will need to raise substantial additional funds to finance our operations . if we are unable to maintain sufficient financial resources , including by raising additional funds when needed , our business , financial condition and results of operations will be materially and adversely affected . the report of our independent registered public accounting firm on our financial statements for the year ended december 31 , 2012 contains an explanatory paragraph stating that our recurring losses and need for working capital raise substantial doubt about our ability to continue as a going concern . if we are unable to continue as a going concern , we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements , and it is likely that investors will lose all or a part of their investments . our financial statements do not include any adjustments that might result from the outcome of this uncertainty . as the volume of testing activity increased during 2012 , our accounts payable and accrued liabilities increased significantly with accrued liabilities related to research and development increasing from $ 5.9 million at the end of 2011 to $ 9.8 million at the end of 2012. as of december 31 , 2012 our aggregate accounts payable was $ 14.8 million compared to $ 5.4 million at the end of 2011 and included invoiced amounts pending audit , review and approval for research and development services . we expect to generate positive cash flow from operations in 2013 , excluding research and development related expenditures . the company intends to expand its customer relationships and to introduce calcitriol during the second half of 2013 which may result in increased cash availability and higher future cash
| results of operations for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 sales in 2012 , our sales were $ 49.8 million compared to $ 49.0 million in 2011. sales increased $ 0.8 million or 1.8 % in 2012 compared to 2011. domestic sales increased $ 1.7 million or 3.9 % to $ 44.2 million while international sales decreased by $ 0.8 million or 12.1 % to $ 5.6 million . international sales to a single international distributor decreased $ 1.4 million while all other international sales increased $ 0.6 million . domestic sales increased due to new business additions as well as changes in product mix to higher margin products including our citrapure product lines and due to higher volume of our dry acid concentrate product lines . dry acid concentrate lowers providers ' cost per treatment and reduces our sales , but improves our gross profit margins due to a reduction in shipping costs . gross profit our gross profit in 2012 was $ 6.7 million an increase of $ 1.1 million or 18.6 % compared to 2011. gross profit margins were 13.4 % in 2012 compared to 11.5 % in 2011. the increase in gross profit margins was due to increased sales of higher margin products and product lines including our citrapure product lines along with conversions to dry acid concentrates . margins also benefited from efforts to control operating costs in the face of inflationary cost increases for material , transportation operating costs and diesel fuel . selling , general and administrative expenses selling , general and administrative expenses were $ 12.7 million in 2012 compared to $ 9.5 million in 2011. the increase of $ 3.2 million was primarily due to an increase in non-cash charges for equity compensation of $ 2.9 million .
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it also provides a brief description of significant transactions and events that affect the comparability of results and a discussion of the progress being made on our growth initiatives . consolidated results of operations . this section , beginning on page 28 , provides an analysis of our consolidated results of operations for the three years ended december 31 , 2012. segment results of operations . this section , beginning on page 31 , provides an analysis of each business segment for the three years ended december 31 , 2012 as well as our corporate items and eliminations segment . in addition , we discuss significant transactions , events and trends that may affect the comparability of the results being analyzed . liquidity and capital resources . this section , beginning on page 39 , provides an analysis of our cash flows for the three years ended december 31 , 2012. we also discuss restrictions on cash movements , future commitments and capital resources . critical accounting judgments . this section , beginning on page 42 , identifies those accounting principles we believe are most important to our financial results and that require significant judgment and estimates on the part of management in application . we provide all of our significant accounting policies in note 2 to the accompanying consolidated financial statements . other matters . this section , beginning on page 43 , provides a discussion of off-balance sheet arrangements to the extent they exist . in addition , we provide a tabular discussion of contractual obligations and discuss any significant commitments or contingencies . forward-looking statements this annual report on form 10-k and certain information incorporated herein by reference contain forward-looking statements within the safe harbor provisions of the private securities litigation reform act of 1995. these statements may relate to , among other things , future events or our future performance or financial condition . words such as anticipate , intend , expect , may , could , should , would , plan , estimate , believe , predict , potential , or continue or the negative of these terms and comparable terminology are intended to identify such forward-looking statements . forward-looking statements are not guarantees of future performance and involve a number of assumptions , risks and uncertainties that could cause actual results to differ materially . important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include , but are not limited to , the risks discussed in item 1a of part i , risk factors . we caution you not to place undue reliance on these forward-looking statements which reflect our view only as of the date of this report . we are under no obligation ( and expressly disclaim any obligation ) to update or alter any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events , conditions or circumstances on which any such statement is based . 21 overview our business we are a global provider of services focused on high-value , technology-enabled , knowledge-based solutions principally related to real estate and mortgage portfolio management , asset recovery and customer relationship management . we conduct our operations through three reportable segments . the mortgage services segment provides services that span the mortgage and real estate lifecycle and are typically outsourced by loan servicers , originators and investors in single family homes . the financial services segment provides collection and customer relationship management services primarily to debt originators and servicers ( e.g. , credit card , auto lending , retail credit , mortgages ) and the utility and insurance industries . the technology services segment principally consists of our realsuite tm applications as well as our information technology ( it ) infrastructure services . the realsuite tm platform provides a fully integrated set of software applications and technologies that manage the end-to-end lifecycle for residential and commercial mortgage loan servicing including the automated management and payment of a distributed network of vendors . in addition , our corporate items and eliminations segment includes eliminations of transactions between the reporting segments and costs related to corporate support functions including executive , finance , legal , human resources , vendor management , risk and six sigma . further discussion regarding our business may be found under item 1 of part i , business . we classify revenue in three categories : service revenue , revenue from reimbursable expenses and non-controlling interests . in evaluating our performance , we focus on service revenue which consists of amounts attributable to our fee based services . reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin . reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee based services , but we pass such costs directly on to our customers without any additional markup . non-controlling interests represent the earnings of lenders one , a consolidated entity not owned by altisource . it is included in revenue and reduced from net income to arrive at net income attributable to altisource . basis of presentation we have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) . recent acquisitions by ocwen during 2012 , ocwen 's residential loan servicing portfolio grew from $ 102.2 billion in upb to $ 203.7 billion in upb . the 2012 growth is primarily from ocwen 's acquisition of homeward residential in the fourth quarter and the acquisition of mortgage servicing rights and related assets from saxon mortgage services , inc. and from jp morgan chase portfolios in the second quarter of 2012. additionally , in october 2012 , ocwen and walter investment management corporation presented the highest bid in the auction of rescap 's servicing portfolio . we expect ocwen to close the rescap transaction in the first quarter of 2013. story_separator_special_tag we also revisited our staffing models in the fourth quarter of 2012 and determined we will need fewer additional mortgage services employees than originally anticipated to meet the heightened referral volumes . this is reflective of improvements in the operating leverage of our business model even without the deployment of our next generation technology . while we provide a suite of default related services today , there continue to be opportunities to develop new services to complement our current offerings . in our mortgage services segment , we are developing short sale and deed-in-lieu processing offerings . we believe these services will not only accelerate our growth but will also help ocwen extend its performance leadership . mortgage origination related services with an objective of long-term growth in the origination services market , we acquired the manager of the lenders one mortgage cooperative in february 2010. in 2012 , the members of lenders one originated approximately $ 183 billion of loans representing approximately 10.5 % of the united states residential origination market . we estimate in excess of $ 3.0 billion was spent on origination related services in connection with these loans . the manager of the cooperative leverages the size of lenders one , 241 members strong as of december 31 , 2012 , to obtain better execution on the sale of closed loans with third parties and to achieve lower costs on origination related services from third parties . leveraging our vendor network , technology , scale , global workforce and lower sales costs , we have begun offering origination related services directly to the members of lenders one at a price we believe is below the current market . these services are similar to the services we provide in our default related business . our service revenue from origination related services grew to $ 37.8 million for the year ended december 31 , 2012 , an increase of 72 % over 2011. this is reflective of lenders one membership growth , strong origination volume and an increasing number of the lenders one members retaining altisource to provide them with origination related services . as of december 31 , 2012 , lenders one membership increased to 241 members compared to 214 members as of december 31 , 2011 , and the number of signed agreements for origination related services with the members increased from 128 to 158. we believe that we can enhance the profitability and competitive position of the lenders one members through the members ' retention of altisource as their service provider . while we have taken a very deliberate approach in rolling out our origination related services to the lenders one members , we are pleased with the initial progress we have made . 24 property management , lease management and renovation management services providing property management , lease management and renovation management services to residential is a complementary extension of our existing service offerings leveraging our existing infrastructure , competencies and significant economies of scale . we know firsthand , through our ability to establish altisource as one of the few nationwide single-family reo management and property inspection and preservation companies in the united states , property management can be executed on a national scale . unlike most property management firms , we are not constrained by the location of the home . we have existing nationwide single-family asset management , property inspection and preservation , real estate brokerage and settlement services operations primarily performed from centralized lower cost locations . we entered into a long-term service agreement with residential to be their exclusive provider of property management , lease management and renovation management services . we believe our lower cost operating structure will allow us to attractively price our services to residential to improve their competitive position in investing in single-family rental assets . this in-turn should generate additional business for us related to these services . we believe that as residential acquires assets , it will become a serial equity raiser . with altisource as the exclusive provider of property management , lease management and renovation management services to residential , residential 's growth will , in turn , provide attractive growth and diversification to altisource . to support the development of the rental asset businesses , the mortgage services segment incurred non-recurring expenses of $ 2.7 million related to the separation and distribution of residential and aamc . in addition , the mortgage services segment incurred $ 1.0 million of operating expenses to build out our rental property management capabilities to position us to provide the services to residential and others . to finance the capitalization of residential and aamc and other growth initiatives , we borrowed $ 200 million in november 2012 under a senior secured term loan at an interest rate of 5.75 % as of december 31 , 2012. as a result , we incurred interest expense of $ 1.2 million in 2012. we believe that these expenses represent strategic investments in our future . hubzu we continue to focus on deploying hubzu , our online real estate transaction website , to the distressed and non-distressed home sales market as we believe there are opportunities to benefit from a shifting consumer preference for on-line transacting . hubzu provides an automated , transparent and integrated on-line solution for buying and selling real estate and , eventually , related services . based on our observations , we believe the industry is beginning to see a shift in consumer behavior and attitudes toward on-line transacting for homes . for the year ended december 31 , 2012 , we sold more than 25,000 homes through hubzu , and our revenue has grown to $ 53.2 million , compared to $ 31.9 million for the year ended december 31 , 2011 ( hubzu is part of our asset management services business in our mortgage services segment ) .
| segment results of operations the following section provides a discussion of pre-tax results of operations of our business segments for the years ended december 31 , 2012 , 2011 and 2010. transactions between segments are accounted for as third-party arrangements for purposes of presenting segment results of operations . intercompany transactions primarily consist of it infrastructure services and charges for the use of certain realsuite applications from our technology services segment to our other two segments . generally , we reflect these charges within technology and communications expense in the segment receiving the services , except for consulting services , which we reflect in professional services expense . financial information for our segments is as follows : replace_table_token_9_th n/m not meaningful . 31 replace_table_token_10_th n/m not meaningful . 32 replace_table_token_11_th n/m not meaningful . 33 mortgage services revenue revenue by service line was as follows for the years ended december 31 : replace_table_token_12_th n/m not meaningful . revenue growth in all of the business lines , except origination management services , during the three year period was driven by the growth in ocwen 's servicing portfolio and expansion in services provided . additionally , a portion of the growth in closing and insurance services from 2010 to 2011 is from an increased capture rate of ocwen 's referrals as we continued to expand our geographic presence . a portion of the growth in asset management services is from ( 1 ) a higher capture rate of reo sales through the time-limit bidding process resulting in a higher percentage commission and ( 2 ) an increase in the average reo sales price . the higher origination management services revenue over the three year period is from higher overall originations volume , the increase in number of lenders one members and the incremental roll-out and capture of origination related services to the members .
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historical results and percentage relationships set forth in the consolidated statements of operations and contained in the consolidated financial statements and accompanying notes , including trends which might appear , should not be taken as indicative of future operations . executive summary our company brixmor property group inc. and subsidiaries ( collectively , “ bpg ” ) is an internally-managed real estate investment trust ( “ reit ” ) . brixmor operating partnership lp and subsidiaries ( collectively , the “ operating partnership ” ) is the entity through which bpg conducts substantially all of its operations and owns substantially all of its assets . bpg owns 100 % of the common stock of bpg subsidiary inc. ( “ bpg sub ” ) , which , in turn , is the sole member of brixmor op gp llc ( the “ general partner ” ) , the sole general partner of the operating partnership . unless otherwise expressly stated or the context otherwise requires , “ we , ” “ us , ” and “ our ” as used herein refer to each of bpg and the operating partnership , collectively . we operate the largest wholly-owned portfolio of grocery-anchored community and neighborhood shopping centers in the united states . our high quality national portfolio is diversified by geography , tenancy and retail format , and our shopping centers are primarily anchored by market-leading grocers . bpg has been organized and operated in conformity with the requirements for qualification and taxation as a reit under the united states federal income tax laws , commencing with our taxable year ended december 31 , 2011 , and has maintained such requirements for our taxable year ended december 31 , 2015 , and expect to satisfy such requirements for subsequent taxable years . as of december 31 , 2015 , bpg beneficially owned , through its direct and indirect interest in bpg sub and the general partner , 98.3 % of the outstanding op units . certain investments funds affiliated with the blackstone group l.p. ( together with such affiliated funds , “ blackstone ” ) and certain members of our current and former management collectively owned the remaining 1.7 % of the outstanding op units . we use the term “ outstanding op units ” to refer to the op units not held by bpg , bpg sub or the general partner . holders of outstanding op units may redeem their op units for cash based upon the market value of an equivalent number of shares of bpg 's common stock or , at our election , exchange their op units for shares of our common stock on a one-for-one basis subject to customary conversion rate adjustments for splits , unit distributions and reclassifications . the number of op units in the operating partnership beneficially owned by bpg is equivalent to the number of outstanding shares of bpg 's common stock , and the entitlement of all op units to quarterly distributions and payments in liquidation is substantially the same as those of bpg 's common stockholders . our primary objective is to maximize total returns to bpg 's stockholders through a combination of growth and value-creation at the asset level supported by stable cash flows . we seek to achieve this through ownership of a large , high quality , diversified portfolio of primarily grocery-anchored community and neighborhood shopping centers and by creating meaningful noi growth from this portfolio . we expect that the major drivers of this growth will be a combination of positive rent spreads from below-market in-place rents and above average lease rollover , occupancy increases , annual contractual rent increases across the portfolio and the execution of embedded anchor - 36 - space repositioning / redevelopment opportunities / outparcel development opportunities . we expect the following set of core competencies to position us to execute on our growth strategies : anchor space repositioning / redevelopment / outparcel development expertise - we have been a top redeveloper over the past decade , according to chain store age magazine , having completed anchor space repositioning / redevelopment / outparcel development projects totaling over $ 1 billion since january 1 , 2003. expansive retailer relationships - we believe that given the scale of our asset base and our nationwide footprint , we have a competitive advantage in supporting the growth plans of the nation 's largest retailers . we believe that we are the largest landlord by gross leasable area ( “ gla ” ) to kroger and tjx companies , as well as a key landlord to all major grocers and most major retail category leaders . we believe that our strong relationships with leading retailers affords us insight into their strategies and priority access to their expansion plans , enabling us to efficiently provide these retailers with space in multiple locations . fully-integrated operating platform - we operate with a fully-integrated , comprehensive platform both leveraging our national presence and demonstrating our commitment to a regional and local presence . we provide our tenants with personalized service through our network of three regional offices in atlanta , chicago and philadelphia , as well as via 12 leasing and property management satellite offices throughout the country . we believe that this strategy enables us to obtain critical market intelligence and to benefit from the regional and local expertise of our workforce . experienced management - senior members of our management team are experienced real estate operators with deep industry expertise and retailer relationships . recent developments for a discussion of recent events related to a review conducted by our audit committee , related management changes , and the risks related thereto , see item 1 “ business-recent developments , ” item 1a “ risk factors-risks related to recent events , ” and item 9a “ controls and procedures. ” other factors that may influence our future results we derive our revenues primarily from rents ( including percentage rents based on tenants ' sales levels ) and expense reimbursements due to us from tenants under existing leases at each of our properties . story_separator_special_tag - 41 - comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 revenues ( in thousands ) replace_table_token_15_th rental income the increase in rental income for the year ended december 31 , 2014 of $ 73.2 million , as compared to the corresponding period in 2013 , was primarily due to a $ 72.3 million increase in abr driven by ( i ) an increase in billed occupancy from 90.7 % as of december 31 , 2013 to 91.3 % as of december 31 , 2014 , ( ii ) an increase in leasing spreads of 12.6 % for both new and renewal leases , and ( iii ) $ 46.8 million of abr from 43 properties acquired from blackstone in connection with our 2013 ipo ( the “ acquired properties ” ) , partially offset by ( iv ) a decrease in the amortization of above and below market lease intangibles and lease settlement income due to the expiration and termination of leases . expense reimbursements the increase in expense reimbursements for the year ended december 31 , 2014 of $ 25.2 million , as compared to the corresponding period in 2013 , was primarily due to ( i ) an $ 11.2 million increase in reimbursable expenses related to the acquired properties , ( ii ) an increase in the recovery percentage for properties owned for the entirety of both periods to 86.8 % for 2014 , as compared to 85.2 % for the same period in 2013. the increased percentage of recoveries from tenants is primarily attributable to increased occupancy of our portfolio , and ( iii ) a $ 7.7 million increase in reimbursable operating expenses from properties owned for the entirety of both periods . other revenues the decrease in other revenues for the year ended december 31 , 2014 of $ 8.3 million as compared to the corresponding period in 2013 , was primarily due to $ 6.1 million of non-cash management fee income recorded in connection the vesting of equity incentive awards in the acquired properties in 2013. certain of our employees have been granted equity incentive awards in the acquired properties . these awards were granted with service conditions and performance and market conditions . as the awards were granted to the employees under our management agreement with the owners of the acquired properties , we considered the amounts earned by the employees for the amortization of the awards at their fair value as measured at each reporting period to be a component of our management fees , and then recorded a corresponding amount for compensation expense . in connection with the ipo , based on the terms of these awards , all of such awards granted to our employees vested . in exchange for the vested incentive awards , the holders received vested operating partnership units . at the time of the ipo , we recorded $ 6.1 million of additional management fee income and additional compensation expense based upon the fair value of the operating partnership units issued at the date of grant . the remaining decrease is primarily due to a decrease in fee revenues resulting from the acquisition of the acquired properties at the time of the ipo , which were managed by the company prior to the ipo and a reduction in the number of properties managed subsequent to the ipo . - 42 - operating expenses ( in thousands ) replace_table_token_16_th operating costs the increase in operating costs for the year ended december 31 , 2014 of $ 12.6 million , as compared to the corresponding period in 2013 , was due to $ 8.2 million of operating costs for the acquired properties , increased weather related expenses including snow removal expenses , utility expenses , roof and parking lot repairs and maintenance expenses . real estate taxes the increase in real estate taxes for the year ended december 31 , 2014 of $ 11.0 million , as compared to the corresponding period in 2013 , was primarily due to the acquisition of the acquired properties , the purchase of 100 % ownership in a previously unconsolidated joint venture and increased tax assessments on several of our properties primarily in texas , california and illinois . depreciation and amortization the increase in depreciation and amortization for the year ended december 31 , 2014 of $ 3.1 million , as compared to the corresponding period in 2013 , was primarily due to $ 34.9 million of depreciation and amortization recorded in connection with the acquired properties , partially offset by a decrease in intangible asset amortization due to tenant lease expirations and lease terminations . provision for doubtful accounts the increase in provisions for doubtful accounts for the year ended december 31 , 2014 of $ 0.6 million , as compared to the corresponding period in 2013 , was primarily due to the acquired properties . general and administrative the decrease in general and administrative costs for the year ended december 31 , 2014 of $ 40.9 million , as compared to the corresponding period in 2013 , was primarily due to a $ 3.2 million decrease in expense associated with the acceleration of certain of our long term incentive plans in connection with our ipo , a $ 33.1 million decrease in share based compensation expense in connection with our ipo and a decrease in personnel related expenses associated with the realignment of certain corporate functions in 2013. during the years ended december 31 , 2014 and 2013 , we capitalized personnel costs of $ 5.8 million and $ 5.2 million , respectively , to building and improvements for anchor space repositioning and redevelopment projects and $ 15.1 million and $ 13.3 million , respectively , to deferred charges and prepaid expenses , net for deferred leasing costs .
| portfolio and financial highlights as of december 31 , 2015 , we owned interests in 518 shopping centers ( the “ portfolio ” ) , including 517 wholly owned shopping centers and one shopping center held through an unconsolidated joint venture . billed occupancy for the portfolio was 91.0 % and 91.3 % as of december 31 , 2015 and 2014 , respectively . leased occupancy for the portfolio was 92.6 % and 92.8 % as of december 31 , 2015 and 2014 , respectively . during 2015 , we executed 2,018 leases in our portfolio totaling 13.4 million square feet of gla , including 664 new leases totaling 3.0 million square feet of gla and 1,354 renewals totaling 10.4 million square feet of gla . the average annualized cash base rent ( “ abr ” ) under the new leases increased 41.6 % from the prior tenant 's abr and increased 14.9 % for both new and renewal leases on comparable space from the abr under the prior leases . the average abr per leased square foot of these new leases in our portfolio is $ 15.86 and the average abr per leased square foot of these new and renewal leases in our portfolio is $ 12.78. the average cost per square foot for tenant improvements and leasing commissions for new leases was $ 21.20 and $ 3.31 , respectively . the average cost per square foot for tenant improvements and leasing commissions for renewal leases was $ 1.42 and $ 0.02 , respectively . during 2014 , we executed 2,082 leases in our portfolio totaling 13.1 million square feet of gla , including 787 new leases totaling 3.8 million square feet of gla and 1,295 renewals totaling 9.2 million square feet of gla .
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we report any tax assessed by a governmental authority that we collect from our customers that is both imposed on and concurrent with our revenue-producing activities ( such as sales , use , value added and excise taxes ) on a net basis ( meaning we do not recognize these taxes either in our revenues or in our costs and expenses ) . f-12 frequently , we receive orders for products to be delivered over dat es that may extend across reporting story_separator_special_tag story_separator_special_tag style= '' text-align : justify ; margin-top:6pt ; margin-bottom:0pt ; color : # 000000 ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-family : 'times new roman ' ; font-size:10pt ; '' > a loss of $ 1.01 per share related to the litigation settlement expense , recognized in the second quarter , a loss of $ .02 per share related to kronos ' tax on global intangible low-tax income , recognized in the fourth quarter , and a loss of $ .01 per share related to kronos ' reserve for uncertain tax positions , recognized in the first and fourth quarters . our 2017 net income per share attributable to nl stockholders includes : income of $ .77 per share related to a non-cash deferred income tax benefit related to the revaluation of our net deferred income tax liability resulting from the reduction in the u.s. federal corporate income tax rate enacted into law on december 22 , 2017 , income of $ .01 per share , net of income taxes , related to insurance recoveries we recognized , income of $ .76 per share related to kronos ' non-cash deferred income tax benefit recognized as the result of the reversal of its deferred income tax asset valuation allowances associated with its german and belgian operations , mostly recognized in the second quarter , income of $ .08 per share related to kronos ' fourth quarter non-cash deferred income tax benefit recognized as the result of the reversal of its deferred income tax asset valuation allowance related to certain u.s. deferred income tax assets of one of its non-u.s. subsidiaries ( which subsidiary is treated as a dual resident for u.s. income tax purposes ) , a loss of $ .31 per share related to kronos ' fourth quarter provisional current income tax expense as a result of a change in the 2017 tax act for the one-time repatriation tax imposed on the post-1986 undistributed earnings of kronos ' non-u.s. subsidiaries , income of $ .05 per share related to kronos ' income tax benefit related to the execution and finalization of an advance pricing agreement between the canada and germany , mostly recognized in the third quarter ( which includes an $ 8.6 million non-cash income tax benefit as a result of a net decrease in kronos ' reserve for uncertain tax positions ) , - 33 - a loss of $ .02 per share related to kronos ' fourth quarter provisional non-cash deferred income tax expense related to a change in its co nclusions regarding its permanent reinvestment assertion with respect to the post-1986 undistributed earnings of kronos ' european subsidiaries , and a loss of $ .02 per share related to kronos ' third quarter loss on prepayment of debt . outlook we currently expect our net income attributable to nl stockholders in 2020 to be lower than 2019 primarily due to lower expected equity in earnings from kronos partially offset by the net effects of the non-recurring items discussed above . income ( loss ) from operations the following table shows the components of our income ( loss ) from operations . replace_table_token_5_th the following table shows the components of our income ( loss ) before income taxes exclusive of our income ( loss ) from operations . replace_table_token_6_th - 34 - compx international inc. replace_table_token_7_th net sales - net sales increased approximately $ 6.0 million in 2019 compared to 2018 primarily due to higher marine components sales to the towboat market . relative changes in selling prices did not have a material impact on net sales comparisons . net sales increased approximately $ 6.2 million in 2018 compared to 2017 primarily due to higher marine components sales volumes to manufacturers of ski/wakeboard boats and larger center-console boats ; and to a lesser extent security products sales to certain markets , particularly transportation and office furniture . relative changes in selling prices did not have a material impact on net sales comparisons . cost of sales and gross margin – cost of sales increased from 2018 to 2019 due to the effects of increased sales volumes for both compx 's security products and marine components businesses and increased labor costs at security products . as a result , gross margin as a percentage of sales decreased over the same period . the decrease in gross margin percentage is the result of the decline in security products gross margin percentage in 2019 as compared to 2018. cost of sales increased from 2017 to 2018 primarily due to increased sales volumes for both compx 's security products and marine components businesses . gross margin dollars and gross margin as a percentage of sales increased from 2017 to 2018 primarily due to greater fixed cost leverage facilitated by higher production volumes for each of our business segments . operating costs and expenses – operating costs and expenses consist primarily of sales and administrative-related personnel costs , sales commissions and advertising expenses directly related to product sales and administrative costs relating to compx 's businesses and its corporate management activities , as well as gains and losses on property and equipment . story_separator_special_tag the agreements with certain of our insurance carriers also include reimbursement for a portion of our future litigation defense costs . we are not able to determine how much we will ultimately recover from these carriers for defense costs incurred by us because of certain issues that arise regarding which defense costs qualify for reimbursement . accordingly , these insurance recoveries are recognized when receipt is probable and the amount is determinable . see note 17 to our consolidated financial statements . other income , net - other income , net in 2019 includes a gain of $ 4.4 million related to a sale of excess property in the third quarter and a gain of $ 3.0 million related to the sale of our insurance and risk management business in the fourth quarter . see note 13 to our consolidated financial statements . litigation settlement expense - we recognized a pre-tax $ 62.0 million and $ 19.3 million litigation settlement expense net of expected insurance recoveries in 2018 and 2019 , respectively , related to the lead pigment litigation in california . see note 17 to our consolidated financial statements . corporate expense - corporate expenses were $ 12.5 million in 2019 , $ 5.9 million or 32 % lower than in 2018 primarily due to lower litigation fees and related costs and lower environmental remediation and related costs . included in corporate expenses are : litigation fees and related costs of $ 4.0 million in 2019 compared to $ 6.2 million in 2018 , and environmental remediation and related benefit of $ .6 million in 2019 compared to costs of $ 2.7 million in 2018 . - 37 - corporate expenses were $ 18.4 million in 201 8 , $ 4.3 million or 31 % higher than in 201 7 primarily due to higher litigation fees and related costs s omewhat offset by lower environmental remediation and related costs . included in corporate expenses are : litigation fees and related costs of $ 6.2 million in 2018 compared to $ 3.8 million in 2017 , and environmental remediation and related costs of $ 2.7 million in 2018 compared to $ 3.4 million in 2017. overall , we currently expect that our net general corporate expenses in 2020 will be higher than in 2019 primarily due to higher expected litigation fees and related costs and higher environmental remediation and related costs . the level of our litigation fees and related costs varies from period to period depending upon , among other things , the number of cases in which we are currently involved , the nature of such cases and the current stage of such cases ( e.g . discovery , pre-trial motions , trial or appeal , if applicable ) . see note 17 to our consolidated financial statements . if our current expectations regarding the number of cases in which we expect to be involved during 2020 or the nature of such cases were to change , our corporate expenses could be higher than we currently estimate . obligations for environmental remediation and related costs are difficult to assess and estimate and it is possible that actual costs for environmental remediation will exceed accrued amounts or that costs will be incurred in the future for sites in which we can not currently estimate our liability . if these events were to occur in 2020 , our corporate expenses would be higher than we currently estimate . in addition , we adjust our environmental accruals as further information becomes available to us or as circumstances change . such further information or changed circumstances could result in an increase in our accrued environmental costs . see note 17 to our consolidated financial statements . interest and dividend income – interest income increased $ 1.7 million in 2019 compared to 2018 and increased $ 1.5 million in 2018 compared to 2017 primarily due to higher cash and cash equivalent and restricted cash and cash equivalent balances available for investment , higher average outstanding balances under compx 's loan to valhi under a promissory note and higher average interest rates . we also recognized $ .6 million of accrued interest income on the insurance recovery receivable in the second quarter of 2019. marketable equity securities – beginning on january 1 , 2018 with the adoption of asu 2016-01 , any unrealized gains or losses on our marketable equity securities are now recognized in marketable equity securities on our consolidated statements of operations . see note 5 to our consolidated financial statements . income tax expense ( benefit ) - we recognized an income tax benefit of $ 5.6 million in 2017 and $ 15.4 million in 2018 and an income tax expense of $ .6 million in 2019. as discussed below , our income tax benefit in 2017 includes a non-cash deferred income tax benefit of $ 37.5 million related to the revaluation of our net deferred income tax liability resulting from the reduction in the u.s. federal corporate income tax rate enacted into law on december 22 , 2017. in accordance with gaap , we recognize deferred income taxes on our undistributed equity in earnings of kronos . because we and kronos are part of the same u.s. federal income tax group , any dividends we receive from kronos are nontaxable to us . accordingly , we do not recognize and we are not required to pay income taxes on dividends from kronos . therefore , our full-year effective income tax rate will generally be lower than the u.s. federal statutory income tax rate in years during which we receive dividends from kronos and recognize equity in earnings of kronos . conversely , our effective income tax rate will generally be higher than the u.s. federal statutory income tax rate in years during which we receive dividends from kronos and recognize equity in losses of kronos .
| results of operations business overview we are primarily a holding company . we operate in the component products industry through our majority-owned subsidiary , compx international inc. we also own a noncontrolling interest in kronos worldwide , inc. both compx ( nyse american : cix ) and kronos ( nyse : kro ) file periodic reports with the sec . compx is a leading manufacturer of engineered components utilized in a variety of applications and industries . through its security products operations , compx manufactures mechanical and electronic cabinet locks and other locking mechanisms used in recreational transportation , postal , office and institutional furniture , cabinetry , tool storage and healthcare applications . compx also manufactures stainless steel exhaust systems , gauges , throttle controls , wake enhancement systems and trim tabs for the recreational marine and other industries through its marine components operations . we account for our 30 % non-controlling interest in kronos by the equity method . kronos is a leading global producer and marketer of value-added titanium dioxide pigments . tio 2 is used for a variety of manufacturing applications including coatings , plastics , paper and other industrial products . net income ( loss ) overview our net income attributable to nl stockholders was $ 25.8 million , or $ .53 per share , in 2019 compared to a net loss of $ 41.0 million , or $ .84 per share , in 2018 and net income of $ 116.1 million , or $ 2.38 per share , in 2017. as more fully described below , the increase in our earnings per share attributable to nl stockholders from 2018 to 2019 is primarily due to the net effects of : a pre-tax litigation settlement expense of $ 19.3 million in 2019 ( mostly recognized in the second quarter ) compared to $ 62.0 million recognized in the second quarter of 2018 , equity in earnings from kronos in 2019 of $ 26.5 million compared to $ 62.3
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story_separator_special_tag in addition to historical information , this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these statements relate to future events or to our future financial performance and involve known and unknown risks , uncertainties and other factors that may cause our or our industry 's actual results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these forward-looking statements . forward-looking statements include , but are not limited to , statements about : our goals and strategies ; our and our customers ' estimates regarding future revenues , operating results , expenses , capital requirements and liquidity ; our expectation that the portion of our future revenues attributable to customers in regions outside of north america will decrease compared with the portion of those revenues for fiscal year 2020 ; our expectation that we will incur incremental costs of revenue as a result of our planned expansion of our business into new geographic markets ; our expectation that our fiscal year 2021 selling , general and administrative ( “ sg & a ” ) expenses will increase compared to our fiscal year 2020 sg & a expenses ; our expectation that our employee costs will increase in thailand and the people 's republic of china ( “ prc ” ) ; our future capital expenditures and our needs for additional financing ; the expansion of our manufacturing capacity , including into new geographies ; the growth rates of our existing markets and potential new markets ; our ability , and the ability of our customers and suppliers , to respond successfully to technological or industry developments ; our expectations regarding the potential impact of the covid-19 pandemic on our business , financial condition and results of operations ; our suppliers ' estimates regarding future costs ; our ability to increase our penetration of existing markets and to penetrate new markets ; our plans to diversify our sources of revenues ; our plans to execute acquisitions ; trends in the optical communications , industrial lasers , and sensors markets , including trends to outsource the production of components used in those markets ; our ability to attract and retain a qualified management team and other qualified personnel and advisors ; and competition in our existing and new markets . these forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in this annual report on form 10-k , in particular , the risks discussed under the heading “ risk factors ” in item 1a , as well as those discussed in other documents we file with the securities and exchange commission . we undertake no obligation 39 to revise or publicly release the results of any revision to these forward-looking statements . given these risks and uncertainties , readers are cautioned not to place undue reliance on such forward-looking statements . “ we , ” “ us ” and “ our ” refer to fabrinet and its subsidiaries . overview for an overview of our business , see part i – item 1. business . fiscal years we utilize a 52-53 week fiscal year ending on the friday in june closest to june 30. fiscal year 2020 ended on june 26 , 2020 and consisted of 52 weeks . fiscal year 2019 ended on june 28 , 2019 and consisted of 52 weeks . fiscal year 2018 ended on june 29 , 2018 and consisted of 52 weeks . recent developments related to covid-19 in the quarter ended march 27 , 2020 , the effects of the global covid-19 pandemic impacted us in several ways and created various challenges . at the onset of the pandemic , our prc subsidiary , which manufactures custom optics components for us and other customers at its facility in fuzhou , china , experienced a prolonged temporary closure following its customary eight-day chinese lunar new year holiday in january 2020. in accordance with the chinese government 's official efforts to mitigate the spread of covid-19 , our prc subsidiary , along with other businesses in various parts of the country , delayed resumption of operations following the holiday closures for approximately two weeks . furthermore , because of the restrictions in place on travel in china during this period , many of our employees were unable to return from their holiday travel as planned , resulting in fewer than 90 % of our employees being able to return to work at our prc subsidiary before early march . our other global manufacturing facilities also have been affected by various government restrictions put in place to slow the spread of covid-19 . in thailand , the government declared a national state of emergency effective march 26 , 2020 and required the closure of various businesses , in particular retail establishments , and passed measures restricting movement and activities in thailand . while our operations in thailand have not been suspended , we have implemented a number of safety protocols to allow our operations in our facilities there to continue in accordance with government regulations . with the exception of our facility in santa clara , california , which closed for approximately one week beginning in late march before reopening in early april as a previously classified “ essential business , ” our facilities in the u.s. , including in new jersey , and in the u.k. have remained open while adhering to the local government restrictions and orders implemented in march 2020 , including “ shelter-in-place ” orders and social distancing guidelines . the health and well-being of our employees continues to be our top priority . story_separator_special_tag because we depend upon a small number of 41 customers for a significant percentage of our total revenues , a reduction in orders from , a loss of , or any other adverse actions by , any one of these customers would reduce our revenues and could have a material adverse effect on our business , operating results and share price . moreover , our customer concentration increases the concentration of our accounts receivable and payment default by any of our key customers will negatively impact our exposure . many of our existing and potential customers have substantial debt burdens , have experienced financial distress or have static or declining revenues , all of which may be exacerbated by the continued uncertainty in the global economies . certain customers have gone out of business or have been acquired or announced their withdrawal from segments of the optics market . we generate significant accounts payable and inventory for the services that we provide to our customers , which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers . therefore , any financial difficulties that our key customers experience could materially and adversely affect our operating results and financial condition by generating charges for inventory write-offs , provisions for doubtful accounts , and increases in working capital requirements due to increased days inventory and in accounts receivable . furthermore , reliance on a small number of customers gives those customers substantial purchasing power and leverage in negotiating contracts with us . in addition , although we enter into master supply agreements with our customers , the level of business to be transacted under those agreements is not guaranteed . instead , we are awarded business under those agreements on a project-by-project basis . some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us . if we are unable to maintain our relationships with our existing significant customers , our business , financial condition and operating results could be harmed . revenues by geography we generate revenues from three geographic regions : north america , asia-pacific , and europe . revenues are attributed to a particular geographic area based on the bill-to-location of our customers , notwithstanding that our customers may ultimately ship their products to end customers in a different geographic region . the substantial majority of our revenues are derived from our manufacturing facilities in asia-pacific . the percentage of our revenues generated from a bill-to-location outside of north america decreased from 52.3 % in fiscal year 2019 to 49.4 % in fiscal year 2020 , which was partially due to a decrease in sales to our customers in asia-pacific by 4.7 % . based on the short- and medium-term indications and forecasts from our customers , we expect that the portion of our future revenues attributable to customers in regions outside of north america will decrease as compared with the portion of revenues attributable to such customers during fiscal year 2020. the following table presents percentages of total revenues by geographic regions : replace_table_token_4_th our contracts we enter into supply agreements with our customers which generally have an initial term of up to three years , subject to automatic renewals for subsequent one-year terms unless expressly terminated . although there are no minimum purchase requirements in our supply agreements , our customers provide us with rolling forecasts of their demand requirements . our supply agreements generally include provisions for pricing and 42 periodic review of pricing , consignment of our customer 's unique production equipment to us , and the sharing of benefits from cost-savings derived from our efforts . we are generally required to purchase materials , which may include long lead-time materials and materials that are subject to minimum order quantities and or non-cancelable or non-returnable terms , to meet the stated demands of our customers . after procuring materials , we manufacture products for our customers based on purchase orders that contain terms regarding product quantities , delivery locations and delivery dates . our customers generally are obligated to purchase finished goods that we have manufactured according to their demand requirements . materials that are not consumed by our customers within a specified period of time , or that are no longer required due to a product 's cancellation or end-of-life , are typically designated as excess or obsolete inventory under our contracts . once materials are designated as either excess or obsolete inventory , our customers are typically required to purchase such inventory from us even if they have chosen to cancel production of the related products . the excess or obsolete inventory is shipped to the customer and revenue is recognized upon shipment . cost of revenues the key components of our cost of revenues are material costs , employee costs , and infrastructure-related costs . material costs generally represent the majority of our cost of revenues . several of the materials we require to manufacture products for our customers are customized for their products and often sourced from a single supplier or in some cases , our own subsidiaries . shortages from sole-source suppliers due to yield loss , quality concerns and capacity constraints , among other factors , may increase our expenses and negatively impact our gross profit margin or total revenues in a given quarter . material costs include scrap material . historically , scrap rate diminishes during a product 's life cycle due to process , fixturing and test improvement and optimization . a second significant element of our cost of revenues is employee costs , including indirect employee costs related to design , configuration and optimization of manufacturing processes for our customers , quality testing , materials testing and other engineering services ; and direct costs related to our manufacturing employees . direct employee costs include employee salaries , insurance and benefits , merit-based bonuses , recruitment , training and retention .
| results of operations the following table sets forth a summary of our consolidated statements of operations and comprehensive income . note that period-to-period comparisons of operating results should not be relied upon as indicative of future performance . replace_table_token_6_th the following table sets forth a summary of our consolidated statements of operations and comprehensive income as a percentage of total revenues for the periods indicated . replace_table_token_7_th 51 the following table sets forth our revenues by end market for the periods indicated . replace_table_token_8_th we operate and internally manage a single operating segment . as such , discrete information with respect to separate product lines and segments is not accumulated . comparison of fiscal year 2020 with fiscal year 2019 total revenues . our total revenues increased by $ 57.5 million , or 3.6 % , to $ 1.64 billion for fiscal year 2020 , compared with $ 1.58 billion for fiscal year 2019. this increase was primarily due to an increase in customers ' demand for optical communications manufacturing services , particularly telecom manufacturing services , for fiscal year 2020. revenues from optical communications products represented 76.0 % of our total revenues for fiscal year 2020 , compared with 74.8 % for fiscal year 2019. cost of revenues . our cost of revenues increased by $ 50.6 million , or 3.6 % , to $ 1.46 billion , or 88.7 % of total revenues , for fiscal year 2020 , compared with $ 1.41 billion , or 88.7 % of total revenues , for fiscal year 2019. the increase in cost of revenues was primarily due to a proportional increase in sales volume . gross profit . our gross profit increased by $ 6.9 million , or 3.8 % , to $ 186.1 million , or 11.3 % of total revenues , for fiscal year 2020 , compared with $ 179.2 million , or 11.3 % of total revenues , for fiscal year 2019. sg & a expenses . our sg & a expenses increased by $ 13.3 million , or 24.2
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the fair values of our stock option grants were estimated with the following weighted average assumptions : replace_table_token_28_th the impact on our results of operations from stock-based compensation expense was as follows ( in thousands , except per share amounts ) : replace_table_token_29_th 47 stock option activity the following table summarizes stock option activity : replace_table_token_30_th at december 31 , 2017 , total compensation cost related to stock options granted but not yet recognized was approximately $ 1,016,877 , net of estimated forfeitures . this cost will be amortized on the straight-line method over a weighted-average period of approximately 1.50 years . the following table summarizes certain additional information about stock options : replace_table_token_31_th the aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options that were exercised during the periods indicated . we issue new shares of common stock upon exercise of stock options . restricted stock unit activity the following table summarizes rsu activity : replace_table_token_32_th 48 at december 31 , 2017 , total compensation cost related to rsus granted but not recognized was approximately $ 237,386 , net of estimated forfeitures . this cost will be amortized on the straight-line method over a weighted-average period of approximately 1.12 years . common stock reserved for future issuance the following table summarizes our shares of common stock reserved for future issuance under the plans as of december 31 , 2017 : stock options outstanding 1,912,161 restricted stock units outstanding 116,968 stock options available for future grant 1,189,256 common stock reserved for future issuance 3,218,385 11. employee benefit plan we have a profit sharing and deferred compensation plan , the bsquare corporation 401 ( k ) plan and trust ( the “ profit sharing plan ” ) under section 401 ( k ) of the internal revenue code of 1986 , as amended . substantially all full-time employees are eligible to participate in the profit sharing plan . we typically elect to match the participants ' contributions to the profit sharing plan up to a certain amount subject to vesting . participants will receive story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes . this management 's discussion and analysis of financial condition and results of operations may contain some statements and information that are not historical facts but are forward-looking statements . for a discussion of these forward-looking statements , and of important factors that could cause results to differ materially from the forward-looking statements contained in this report , see item 1 of part i , “ business—cautionary note regarding forward-looking statements , ” and item 1a of part i , “ risk factors. ” overview since our inception , our business has largely been focused on providing software solutions ( historically , including reselling software from microsoft corporation ( “ microsoft ” ) ) and related engineering services to businesses that develop , market and sell dedicated-purpose standalone intelligent systems . examples of dedicated-purpose standalone intelligent systems include smart , connected computing devices such as smart phones , set-top boxes , point-of-sale terminals , kiosks , tablets and handheld data collection devices , as well as smart vending machines , atm machines , digital signs and in-vehicle telematics and entertainment devices . we focus on systems that utilize various microsoft windows embedded operating systems as well as devices running other popular operating systems such as android , linux , and qnx , and that are usually connected to a network via a wired or wireless connection . our customers include world-class original equipment manufacturers ( “ oems ” ) , original design manufacturers ( “ odms ” ) , corporate enterprises ( “ enterprises ” ) , silicon vendors ( “ svs ” ) and peripheral vendors . a significant portion of our business historically has also been focused on reselling software from microsoft , from which a majority of our revenue currently continues to be derived . beginning in early 2014 , we initiated development efforts focused on new proprietary software products addressing the industrial internet of things ( “ iiot ” ) market , by interconnecting of uniquely identifiable devices , extracting data from those devices and applying advanced analytics and machine learning to the data in order to derive meaningful and actionable insights . while iiot is a relatively new market , we believe the work we have engaged in since our inception—namely adding intelligence and connectivity to discrete standalone devices and systems—embodies much of what is central to the core functionality of iiot . these software development efforts have driven a new business initiative for bsquare , which we refer to as datav . our datav solution includes software products , applications and services that are designed to turn raw iiot device data into meaningful and actionable data for our customers . we launched datav late in the first quarter of 2016 and announced our first three major customer bookings later that year . these bookings comprised software licensing , software maintenance and related systems integration services and are , we believe , indicative of the potential customer demand for datav . during 2017 we began selling data analytics services and datav application pilots to major industrial customers primarily in the transportation , oil and gas and manufacturing vertical markets and signed four pilots in the first six months of 2017 and another fifteen pilots in the second half of 2017 , the majority of which are still ongoing . we believe that datav presents high growth opportunities in a large , expanding addressable market , at substantially higher gross margins as compared to our traditional business . story_separator_special_tag every fixed-price contract requires various approvals within our company , including our chief executive officer if significant . this approval process takes into consideration several factors , including the complexity of engineering required . historically , our estimation processes related to fixed-price contracts have been accurate based on the information known at the time of the reporting of our results . however , percentage-of-completion estimates require significant judgment . as of december 31 , 2017 , we were delivering professional engineering services under three fixed-price service contracts . the estimated remaining labor hours and costs to complete these contracts represent management 's best estimates based on the facts and circumstances as of the filing of this report . if there are changes to the underlying facts and circumstances , we record the revisions to our calculations in the period the changes are noted . for illustrative purposes only , if we were 10 % under in our estimate of remaining labor hours and costs on the fixed-bid contracts active on december 31 , 2017 , our revenue could have been overstated by approximately $ 36,000 for 2017 . 23 intangible assets and goodwill we evaluate our intangible assets for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable . our intangible assets consist of customer relationships arising from business acquisitions . we periodically assess the value of our intangible assets . factors that could trigger an impairment analysis include significant under-performance relative to historical or projected future operating results , significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends . if this evaluation indicates that the value of the intangible asset may be impaired , we assess the likelihood of recoverability of the net carrying value of the asset over its remaining useful life . if this assessment indicates that the intangible asset is not recoverable , based on the estimated undiscounted future cash flows of the technology over the remaining useful life , we reduce the net carrying value of the related intangible asset to fair value . we evaluate goodwill for impairment annually during the fourth quarter or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . we test goodwill for impairment by performing a qualitative assessment to determine whether the fair value of the reporting unit is more likely than not less than the carrying amount . if we determine that the fair value of the reporting unit is more likely greater than its carrying amount , we do not conduct further impairment testing . if we determine that the fair value of the reporting unit is not more likely greater than the carrying amount , we perform a quantitative two-step impairment test . the first step compares the fair value of the reporting unit with its carrying amount , including goodwill . if the carrying amount exceeds fair value , we then perform the second step of the impairment test to measure the amount of any impairment loss . any such impairment charges could be significant and could have a material adverse effect on our reported financial results . stock-based compensation our stock-based compensation expense for stock options is estimated at the grant date based on the stock award 's fair value as calculated by the black-scholes-merton ( “ bsm ” ) option-pricing model and is recognized as expense over the requisite service period . the bsm model requires various highly judgmental assumptions including expected volatility and option life . if any of the assumptions used in the bsm model change significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . restricted stock units ( “ rsus ” ) are measured based on the fair market values of the underlying stock on the dates of grant as determined based on the number of shares granted and the quoted price of our common stock on the date of grant . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we recognize share-based award forfeitures as they occur rather than at vest date . incentive compensation we make certain estimates , judgments and assumptions regarding the likelihood of attainment , and the level thereof , of bonuses payable under our annual incentive compensation programs . we accrue bonuses and recognize the resulting expense when the bonus is judged reasonably likely to be earned as of year-end and is estimable . the amount accrued , and expense recognized , is the estimated portion of the bonus earned on a year-to-date basis less any amounts previously accrued . these estimates , judgments and assumptions are made quarterly based on available information and take into consideration our year-to-date actual results and expected results for the remainder of the year . because we consider estimated future results in assessing the likelihood of attainment , significant judgment is required . if actual results differ materially from our estimates , the amount of bonus expense recorded in a particular quarter could be significantly over- or under-estimated . taxes as part of the process of preparing our consolidated financial statements , we are required to estimate income taxes in each of the countries and other jurisdictions in which we operate . this process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities . net operating losses and tax credits , to the extent not already utilized to offset taxable income or income taxes , also give rise to deferred tax assets .
| results of operations the following table presents our summarized results of operations for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_4_th revenue we generate revenue from the sale of software , both our own proprietary software and third-party software that we resell , and the sale of professional engineering services . total revenue decreased in 2017 compared to 2016 , primarily due to lower sales of microsoft windows embedded and mobile operating systems and lower professional engineering service revenue , predominantly in north america . this decrease was partially offset by recognition of approximately $ 3.8 million in datav revenue in 2017. one customer , honeywell international inc. , accounted for 15 % and 14 % of total revenue in 2017 and 2016 , respectively . no other customers accounted for 10 % or more of total revenue in those periods . additional revenue details were as follows : replace_table_token_5_th 25 revenue total revenue consists of sales of third-party software and revenue realized from sales of our own proprietary software products , which include software license sales and support and maintenance revenue , and professional engineering services that support proprietary datav software customers and legacy service customers . third-party software revenue decreased in 2017 compared to 2016 , primarily due to lower sales of microsoft windows embedded operating systems , a portion of which is attributable to higher levels of buying activity late in 2016 as customers anticipated higher pricing following the cessation of microsoft 's volume purchase discount programs on december 31 , 2016. sales of microsoft operating systems represented approximately 80 % and 81 % of our total revenue and 54 % and 74 % of our total gross profit for 2017 and 2016 , respectively .
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see note 13 for additional information regarding the new standard and its impact on the company 's financial statements . in june 2016 , the fasb issued asu 2016-13 , financial instruments - credit losses ( topic 326 ) , measurement of credit losses on financial instruments . the standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that are n't measured at fair value through net income . for available-for-sale debt securities , entities will be required to recognize an allowance for credit losses rather than a reduction in carrying value of the asset . entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized . the company plans to adopt the new guidance on january 1 , 2020 and does not anticipate the adoption will have a material impact on its financial position or results of operations . in august 2018 , the fasb issued asu 2018-13 , fair value measurement ( topic 820 ) . the new guidance removes , modifies and adds to certain disclosure requirements on fair value measurements in topic 820 , fair value measurement . the company plans to adopt the new guidance on january 1 , 2020 and does not anticipate the adoption will have a material impact on its financial position or results of operations . in december 2019 , the fasb issued asu 2019-12 , simplifying the accounting for income taxes . the new guidance removes certain exceptions to the general principles of asc 740 in order to simplify the complexities of its application . these changes include eliminations to the exceptions for intraperiod tax allocation , recognizing deferred tax liabilities related to outside basis differences , and year-to-date losses in interim periods among others . the company will adopt asu 2019-12 in january 2020 and does not anticipate it will have a material impact on its financial position or results of operations . 66 eton pharmaceuticals , inc. notes to financial statements ( in thousands , except share and per share amounts ) note 4 — fair value of financial assets and liabilities valuation of warrant liability the company previously accounted for a warrant to purchase shares of its common stock that was issued to the company 's placement agent in connection with the series a preferred offering ( see note 9 ) as a liability . the fair value of the warrant liability was determined based on significant inputs not observable in the market , which represented a level 3 measurement within the fair value hierarchy . the company used the bsm , which incorporates assumptions and estimates , to value the warrant . estimates and assumptions impacting the fair value measurement included the fair value per share of the underlying shares of common stock , the remaining contractual term of the warrant , risk-free interest rate , expected dividend yield and expected volatility of the price of the underlying common stock . the company determined the fair value per share of the underlying common stock by taking into consideration the most recent sales of its preferred stock , results obtained from third-party valuations and additional factors that were deemed relevant . the company historically had been a private company and lacked company-specific historical and implied volatility information of its common stock . therefore , the company estimated its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrant . the risk-free interest rate was determined by reference to the u.s. treasury yield curve for time periods approximately equal to the remaining contractual term of the warrant . the company estimated a 0 % expected dividend yield based on the fact that the company had never paid or declared dividends and did not intend to do so in the foreseeable future . in november 2018 , in connection with the company 's ipo , the number of shares issuable upon the exercise of the warrant became fixed ( see note 9 ) . the company remeasured the estimated fair value on the date of the ipo and reclassified this amount to additional paid-in-capital . the following table provides a roll forward of the aggregate fair values of the company 's warrant liability , for which fair value was determined using level 3 inputs story_separator_special_tag you should read the following discussion and analysis together with our financial statements and the related notes thereto included in “ item 8. financial statements and supplementary data ” in this annual report on form 10-k. the following discussion contains forward-looking statements that involve risks and uncertainties . for a complete discussion of forward-looking statements , see the section above entitled “ forward looking statements. ” our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption “ item 1a . risk factors. ” overview we were formed in april 2017 as a specialty pharmaceutical company focused on developing and commercializing innovative pharmaceutical products utilizing the fda 's 505 ( b ) ( 2 ) regulatory pathway . our business model is to develop proprietary innovative products that fulfill an unmet patient need . since our formation , we have focused our efforts on the development of our initial product candidates , engaging in preliminary discussions with the fda concerning the regulatory pathway for certain additional product candidates , registration filings of our initial product candidates and the licensing of late-stage product candidates . story_separator_special_tag to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . 49 at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . arrangements that include rights to additional goods or services that are exercisable at a customer 's discretion are generally considered options . we assess whether these options provide a material right to the customer and , if so , they are considered performance obligations . the exercise of a material right is accounted for as a contract modification for accounting purposes . we recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) each performance obligation is satisfied at a point in time or over time , and if over time this is based on the use of an output or input method . any amounts received prior to revenue recognition will be recorded as deferred revenue . amounts expected to be recognized as revenue within the twelve months following the balance sheet date will be classified as current portion of deferred revenue in our balance sheets . amounts not expected to be recognized as revenue within the twelve months following the balance sheet date are classified as long-term deferred revenue , net of current portion . milestone payments – if a commercial contract arrangement includes development and regulatory milestone payments , we will evaluate whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue . milestone payments that are not within our control or the licensee 's control , such as regulatory approvals , are generally not considered probable of being achieved until those approvals are received . royalties – for arrangements that include sales-based royalties , including milestone payments based on a level of sales , which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate , we will recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied . to date , we have not recognized any royalty revenue resulting from any of our licensing arrangements . significant financing component – in determining the transaction price , we will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more than one year . we sell biorphen in the u.s. to wholesale pharmaceutical distributors , who then sell the product to hospitals and other end-user customers . sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement , and delivery of individual shipments of biorphen represent performance obligations under each purchase order . we use a third-party logistics ( “ 3pl ” ) vendor to process and fulfill orders and have concluded it is the principal in the sales to wholesalers because it controls access to the 3pl vendor services rendered and directs the 3pl vendor activities . we have no significant obligations to wholesalers to generate pull-through sales . selling prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sell biorphen at negotiated discounted prices to members of certain group purchasing organizations ( “ gpos ” ) and government programs . in addition , the we pay fees to wholesalers for their distribution services , inventory reporting and chargeback processing . we pay gpos fees for administrative services and for access to gpo members and concluded the benefits received in exchange for these fees are not distinct from our sales of biorphen , and accordingly we apply these amounts to reduce revenues . wholesalers also have rights to return unsold product nearing or past the expiration date . because of the shelf life of biorphen and our lengthy return period , there may be a significant period of time between when the product is shipped and when we issue credits on returned product . we estimate the transaction price when we receive each purchase order , taking into account the expected reductions of the selling price initially billed to the wholesaler arising from all of the above factors . we have developed estimates for future returns and chargebacks of biorphen and the impact of the other discounts and fees we pay . when estimating these adjustments to the transaction price , we reduce it sufficiently to be able to assert that it is probable that there will be no significant reversal of revenue when the ultimate adjustment amounts are known .
| results of operations to date we have realized only limited revenues from a licensing arrangement on our em-100 product and the launch of our biorphen product . we anticipate successfully completing development of additional product candidates in 2020 and beyond and growing our business . year ended december 31 , 2019 compared to year ended december 31 , 2018 for the years ended december 31 , 2019 and 2018 , we generated $ 1.0 and $ 0 in revenue , respectively . the revenue realized in 2019 was from a licensing arrangement for our em-100 product which is pending additional fda review and the launch of our biorphen product in december 2019. for the years 2019 and 2018 , we incurred $ 11.6 million and $ 5.6 million of research and development ( “ r & d ” ) expenses , respectively , and $ 7.6 million and $ 4.7 million of general and administrative ( “ g & a ” ) expenses , respectively . the comparative period detail of our r & d expense is listed in the table below . the $ 2.9 million increase in g & a expenses was primarily due to additional expenses related to becoming a public company , sales and marketing for the launch of our biorphen product , and the impact of personnel additions in the second half of 2018 and first half of 2019. this was partially offset by lower stock-based consulting expenses . in addition , the change in the fair value of our warrant liability reflected in other expense decreased by $ 2.6 million as this mark–to–market accounting treatment was terminated in conjunction with our november 2018 ipo . we incurred a net loss of $ 18.3 million and $ 12.7 million for the years ended december 31 , 2019 and 2018 , respectively . general and administrative expenses g & a expenses consist primarily of employee compensation expenses , stock-based consulting service fees , sales and marketing expenses , business insurance , legal and professional fees and travel expenses .
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during fiscal year 2010 , the company recorded an additional $ 0.6 million in warranty reserves to cover future potential costs and or claims related to 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. this discussion and analysis contains forward-looking statements that involve risks and uncertainties . please see cautionary notes regarding forward-looking statements for more information . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including , but not limited to , those discussed below and elsewhere in this annual report on form 10-k , particularly under the headings risk factors and cautionary notes regarding forward-looking statements. overview the underlying trends in u.s. housing point toward an ongoing multi-year recovery supported by favorable demographics , an improving economy , mortgage interest rates near historic lows , and limited supplies of new and existing home inventories . our results in 2013 showed significant improvement in the majority of our key operating metrics compared to 2012 , driven by the introduction of new home inventory and development activities , as compared to the fully developed , available for sale legacy inventories settled in 2012. sales trends in the first six months of 2013 were stronger than the last six months of the year . during the first half of 2013 , the homebuilding market experienced favorable sales and pricing trends compared to 2012 , driven by historically low mortgage interest rates and rising costs in the rental market which contributed to higher levels of housing affordability in the washington , d.c. market . sales trends in the second half of 2013 were strong compared to 2012 , though negatively impacted by increasing mortgage interest rates , higher home prices and buyer uncertainty . the housing market also continues to face challenges from tight mortgage underwriting standards . while we have benefited from generally improved market conditions , we continue to face gross margin pressure due to increasing land acquisition , land development and home construction costs . home closings , revenues , average selling price , gross margin , overhead leverage , and net income from continuing operations all improved in 2013 compared to 2012. our settlements for the year ended december 31 , 2013 totaled 107 units , compared to 45 units in 2012 , which represents an increase of 138 % . our consolidated homebuilding revenues for the year ended december 31 , 2013 totaled $ 53.8 million , an increase of 363 % from $ 11.6 million in 2012. our net new orders increased by 147 % in 2013 compared to 2012. an increase in the number of active communities with units available for sale contributed to the increase in net new orders as compared to 2012. the higher active community count resulted from our more disciplined land investment strategy and capital raising initiatives . we intend to continue to calibrate sales pace in each community to improve our gross margins and maximize returns on invested capital . we expect that this approach will continue to result in an expansion in our net new order volume in 2014 , as compared to 2013. while we believe higher mortgage interest rates are inevitable and may have a moderating effect on demand and pricing , we believe this impact will be outweighed in the long-term by other factors driving increased sales volume as overall new home sales in the washington , d.c. market remain low compared with historical levels . the significant improvements reported for 2013 , coupled with our successful capital raising initiatives , allowed us to continue to enhance our financial position . unrestricted cash at december 31 , 2013 totaled $ 11.9 million , an increase of $ 8.4 million from $ 3.5 million at december 31 , 2012. our improved financial position provided us additional flexibility to increase our pipeline and reduce our secured loan-to-inventory ratio to 57 % at december 31 , 2013 , as compared to 70 % at december 31 , 2012. in the short-term , we will continue to focus on maximizing our operating margins to enhance our balance sheet , despite the possibility of rising house cost pressures from increasing material prices and labor shortages , by using our existing land assets more effectively , allocating capital more effectively , and aggressively controlling unsold spec inventory . we believe we have positioned ourselves to deliver improved long-term returns . in planning for the longer term , we continue to maintain confidence that we are likely in the early stages of a broad , sustainable recovery in the u.s. new home market . while the u.s. macroeconomic environment continues to face challenges , we are continuing to pursue strategic land positions that meet our underwriting requirements in well-positioned locations and believe that sustained execution of our strategy will allow us to continue to improve our financial position and improve our returns on invested capital over the housing cycle . recent developments comstock maxwell square , l.c . on september 30 , 2013 , the company , through its subsidiary comstock maxwell square , l.c . the borrower , closed on its forty-five unit townhome condominium project located in downtown frederick , maryland ( the townes at maxwell square ) . in connection with the closing of the townes at maxwell square , the borrower entered into a loan agreement and related documents with eaglebank pursuant to which the borrower secured ( i ) a $ 2.1 million acquisition and development loan , ( ii ) a $ 3.4 million revolving construction loan and ( iii ) a $ 51 letter of credit facility ( collectively , the eagle maxwell loans ) to finance the development of the townes at maxwell square . the eagle maxwell loans provide for a variable interest rate of libor plus 3 % , subject to a minimum floor of 4.75 % . story_separator_special_tag asu 2013-11 is intended to end inconsistent practices regarding the presentation of a unrecognized tax benefits when a net operating loss ( nol ) , a similar tax loss or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from the disallowance of a tax position . we adopted this guidance during fiscal year 2013. the adoption of asu 2013-11 did not have a material impact on our consolidated financial statements . 18 in april 2013 , the fasb issued asu 2013-04 , liabilities , ( asu 2013-04 ) . asu 2013-04 provides guidance for the recognition , measurement , and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date . asu 2013-04 will be effective for our fiscal year beginning january 1 , 2014 and subsequent interim periods . the adoption of asu 2013-04 is not expected to have a material effect on our consolidated financial statements . other accounting pronouncements issued or effective during the year ended december 31 , 2013 are not applicable to us and are not anticipated to have an effect on our consolidated financial statements . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( gaap ) , which require us to make certain estimates and judgments that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates , including those related to the consolidation of variable interest entities , revenue recognition , impairment of real estate inventories , warranty reserve and our environmental liability exposure . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from these estimates . a summary of significant accounting policies is provided in note 2 in the accompanying consolidated financial statements . the following section is a summary of certain aspects of those accounting policies that require the most difficult , subjective or complex judgments and estimates . real estate inventories real estate inventories include land , land development costs , construction and other costs . real estate held for development and use is stated at cost , or when circumstances or events indicate that the real estate is impaired , at estimated fair value . real estate held for sale is carried at the lower of cost or fair value less estimated costs to sell . land , land development and indirect land development costs are accumulated by specific project and allocated to various units within that project using specific identification and allocation based upon the relative sales value method . direct construction costs are assigned to units based on specific identification , when practical , or based upon the relative sales value method . construction costs primarily include direct construction costs and capitalized field overhead . other costs are comprised of fees , capitalized interest and real estate taxes . costs incurred to sell real estate are capitalized to the extent they are reasonably expected to be recovered from the sale of the project and are tangible assets or services performed to obtain regulatory approval of sales . other selling costs are expensed as incurred . for assets held for development and use , a write-down to estimated fair value is recorded when the net carrying value of the property exceeds its estimated undiscounted future cash flows . estimated fair value is based on comparable sales of real estate in the normal course of business under existing and anticipated market conditions . these evaluations are made on a property-by-property basis whenever events or changes in circumstances indicate that the net book value may not be recoverable . if the project is considered held for sale , it is valued at the lower of cost or fair value less estimated selling costs . the evaluation takes into consideration the current status of the property , various restrictions , carrying costs , costs of disposition and any other circumstances that may affect fair value including management 's plans for the property . as of december 31 , 2012 , the company classified its eclipse and penderbrook projects as held for sale and accordingly , carried the projects at fair value less costs to sell as determined by discounted cash flow models , by reference to comparable market transactions , or relevant purchase offers . discounted cash flow models are dependent upon several subjective factors , including estimated average sales prices , estimated sales pace , and the selection of an appropriate discount rate . the estimates of sales prices , sales pace and discount rates used by the company were based on the best information available at the time the estimates were made . the company did not have any development projects considered to be held for sale at december 31 , 2013 . 19 warranty reserve warranty reserves for units settled are established to cover potential costs for materials and labor with regard to warranty-type claims expected to arise during the typical one-year warranty period provided by the company or within the two-year statutorily mandated structural warranty period for condominiums . because the company typically subcontracts its homebuilding work , subcontractors are required to provide the company with an indemnity and a certificate of insurance prior to receiving payments for their work . claims relating to workmanship and materials are generally the primary responsibility of the subcontractors and product manufacturers . the warranty reserve is established at the time of closing , and is calculated based upon historical warranty cost experience and current business factors .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 orders , backlog and cancellations replace_table_token_3_th revenue homebuilding the number of units delivered for the year ended december 31 , 2013 increased by 62 to 107 as compared to 45 units for the year ended december 31 , 2012. average revenue per unit delivered increased by approximately $ 244 to $ 503 for the year ended december 31 , 2013 as compared to $ 259 for the year ended december 31 , 2012. revenue from homebuilding increased by $ 42.2 million to $ 53.8 million for the year ended december 31 , 2013 as compared to $ 11.6 million for the year ended december 31 , 2012. for the year ended december 31 , 2013 , the company settled 107 units ( 33 units at the hampshires , 53 units at eastgate , 2 units at penderbrook and 19 units at eclipse ) , as compared to 45 units ( 37 units at penderbrook and 8 units at eclipse ) for the year ended december 31 , 2012. in addition , our homebuilding gross margin percentage for the year ended december 31 , 2013 increased by 6.0 % to 22.7 % , as compared to 16.7 % for the year ended december 31 , 2012. the increase noted in revenue , average sales price and margins was a result of the increase in the number of homes settled , mix of units settled and the company exiting impaired legacy projects .
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61 the following table sets forth by fair value hierarchy teradyne 's financial assets and liabilities that were measured at fair value on a recurring basis as of december 31 , 2012 and 2011. replace_table_token_51_th reported as follows : replace_table_token_52_th 62 replace_table_token_53_th reported as follows : replace_table_token_54_th changes in the fair value of level 3 contingent consideration for the year ended december 31 , 2012 and december 31 , 2011 were as follows : replace_table_token_55_th 63 the carrying amounts and fair values of financial instruments at december 31 , 2012 and 2011 were as follows : replace_table_token_56_th ( 1 ) the carrying value represents the bifurcated debt component only , while the story_separator_special_tag statements in this annual report on form 10-k which are not historical facts , so called forward looking statements , are made pursuant to the safe harbor provisions of section 21e of the securities exchange act of 1934 , as amended . investors are cautioned that all forward looking statements involve risks and uncertainties , including those detailed in teradyne 's filings with the securities and exchange commission . readers are cautioned not to place undue reliance on these forward-looking statements which reflect management 's analysis only as of the date hereof . we assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements , except as may be required by law . 19 overview we are a leading global supplier of automatic test equipment . we design , develop , manufacture and sell automatic test systems and solutions used to test semiconductors , wireless products , hard disk drives and circuit boards in the consumer electronics , wireless , automotive , industrial , computing , communications and aerospace and defense industries . our automatic test equipment products and services include : semiconductor test ( semiconductor test ) systems ; wireless test ( wireless test ) systems ; and military/aerospace ( mil/aero ) test instrumentation and systems , storage test ( storage test ) systems , circuit-board test and inspection ( commercial board test ) systems , collectively these products represent systems test group . we have a broad customer base which includes integrated device manufacturers ( idms ) , outsourced semiconductor assembly and test providers ( osats ) , wafer foundries , fabless companies that design , but contract with others for the manufacture of integrated circuits ( ics ) , developers of wireless devices and consumer electronics , manufacturers of circuit boards , automotive suppliers , wireless product manufacturers , storage device manufacturers , aerospace and military contractors . in 2011 , we acquired litepoint corporation ( litepoint ) to expand our product portfolio of test equipment in the wireless test sector . litepoint designs , develops , and supports advanced wireless test solutions for the development and manufacturing of wireless devices , including smart phones , tablets , notebooks/laptops , personal computer peripherals , and other wi-fi and cellular enabled devices . litepoint is our wireless test segment . the sales of our products and services are dependent , to a large degree , on customers who are subject to cyclical trends in the demand for their products . these cyclical periods have had , and will continue to have , a significant effect on our business since our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor industry . historically , these demand fluctuations have resulted in significant variations in our results of operations . this was particularly relevant beginning in the fourth quarter of fiscal year 2008 where we saw a significant decrease in revenues in our semiconductor test business which was impacted by the deteriorating global economy , which negatively impacted the entire semiconductor industry . the sharp swings in the semiconductor industry in recent years have generally affected the semiconductor test equipment and services industry more significantly than the overall capital equipment sector . we believe our acquisitions of litepoint , eagle test and nextest , and our entry into the high speed memory and storage test markets have enhanced our opportunities for growth . we will continue to invest in our business to expand further our addressable markets while tightly managing our costs . on march 21 , 2011 , we completed the sale of our diagnostic solutions business unit , which was included in the systems test group segment , to spx corporation for $ 40.2 million in cash . we sold this business as its growth potential as a stand-alone business was significantly less than if it was part of a larger automotive supplier . the financial information for diagnostic solutions has been reclassified to discontinued operations . critical accounting policies and estimates we have identified the policies discussed below as critical to understanding our business and our results of operations and financial condition . the impact and any associated risks related to these policies on our business operations is discussed throughout management 's discussion and analysis of financial condition and results of operations where such policies affect our reported and expected financial results . 20 preparation of financial statements and use of estimates the preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and related disclosure of contingent liabilities . on an on-going basis , management evaluates its estimates , including those related to inventories , investments , goodwill , intangible and other long-lived assets , bad debts , income taxes , deferred tax assets , pensions , warranties , contingencies , and litigation . management bases its estimates on historical experience and on appropriate and customary 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 significantly from these estimates . story_separator_special_tag income taxes on a quarterly basis , we evaluate the realizability of our deferred tax assets by jurisdiction and assess the need for a valuation allowance . we consider the probability of future taxable income and our historical profitability , among other factors , in assessing the amount of the valuation allowance . as a result of this review , undertaken at december 31 , 2002 , we concluded under applicable accounting criteria that it was more likely than not that our deferred tax assets would not be realized and established a valuation allowance in several jurisdictions , most notably the united states . at december 31 , 2011 , we reassessed this judgment and concluded that it is more likely than not that a substantial majority of our deferred tax assets will be realized through consideration of both the positive and negative evidence . the evidence consisted primarily of our three year u.s. historical cumulative profitability , projected future taxable income , forecasted utilization of the deferred tax assets and the fourth quarter of 2011 acquisition of litepoint offset by the volatility of the industries we operate in , primarily the semiconductor industry . as such , we reduced the valuation allowance by $ 190.2 million , which was recorded as a tax benefit in the year ended december 31 , 2011. at december 31 , 2012 and 2011 , we maintained a valuation allowance for certain deferred tax assets of $ 55.4 million and $ 51.1 million , respectively , primarily related to excess stock compensation deductions associated with pre-2006 activity , state net operating losses and state tax credit carryforwards , due to uncertainty regarding their realization . adjustments could be required in the future if we estimate that the amount of deferred tax assets to be realized is more or less than the net amount we have recorded . 22 on january 2 , 2013 , the american taxpayer relief act of 2012 was enacted which retrospectively reinstated the research and development tax credit for 2012 and extended it through december 31 , 2013. as a result , in the first quarter of 2013 , we expect to record a discrete benefit related to 2012 of approximately $ 7.0 million . investments we account for our investments in debt and equity securities in accordance with the provisions of asc 320-10 , investmentsdebt and equity securities . on a quarterly basis , we review our investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment . factors considered in determining whether a loss is other-than-temporary include : the length of time and the extent to which the market value has been less than cost ; the financial condition and near-term prospects of the issuer ; and the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value . goodwill , intangible and long-lived assets we assess the impairment of intangible and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important in the determination of an impairment include significant underperformance relative to historical or projected future operating results , significant changes in the manner that we use the acquired asset and significant negative industry or economic trends . when we determine that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we measure any impairment based on a projected discounted cash flow method using a discount rate commensurate with the associated risks . we assess goodwill for impairment at least annually in the fourth quarter , on a reporting unit basis , or more frequently , when events and circumstances occur indicating that the recorded goodwill may be impaired . if the book value of a reporting unit exceeds its fair value , the implied fair value of goodwill is compared with the carrying amount of goodwill . if the carrying amount of goodwill exceeds the implied fair value , an impairment loss is recorded in an amount equal to that excess . no goodwill impairment was identified in 2012 or 2011 . 23 selected relationships within the consolidated statements of operations replace_table_token_7_th story_separator_special_tag style= '' border-collapse : collapse '' width= '' 100 % '' > a decline in demand compared to previously forecasted demand levels for prior generation nextest magnum testers resulted in an inventory provision of $ 12.0 million in semiconductor test . a $ 5.3 million inventory write-down as a result of product transition related to the flex test platform in semiconductor test . a $ 3.9 million inventory write-down as a result of product transition in wireless test . the remainder of the charge of $ 5.6 million primarily reflects downward revisions to previously forecasted demand levels , of which $ 4.3 million was in systems test group , $ 0.2 million in wireless test and $ 1.1 million in semiconductor test . during the year ended december 31 , 2011 , we recorded an inventory provision of $ 11.6 million included in cost of revenues , due to the downward revisions to previously forecasted demand levels . of the $ 11.6 million of total excess and obsolete provisions recorded in 2011 , $ 10.4 million was related to semiconductor test primarily due to product transition , $ 1.1 million was in systems test group , and $ 0.1 million was in wireless test . during the year ended december 31 , 2010 , we recorded an inventory provision of $ 6.0 million included in cost of revenues , due to the downward revisions to previously forecasted demand levels . of the $ 6.0 million of total excess and obsolete provisions recorded in 2010 , $ 4.5 million was related to semiconductor test and $ 1.5 million was in systems test group .
| results of operations book to bill ratio book to bill ratio is calculated as net bookings divided by net sales . book to bill ratio by reportable segment was as follows : replace_table_token_8_th 24 revenues net revenues for our three reportable segments were as follows : replace_table_token_9_th the increase in semiconductor test revenues of $ 21.5 million or approximately 2 % from 2011 to 2012 was primarily due to an increase in system-on-a-chip ( soc ) test products for mobility applications , partially offset by a decrease in memory system sales . semiconductor test revenues decreased $ 307.1 million or approximately 22 % from 2010 to 2011 , due to a decrease in soc product sales . semiconductor test product demand can fluctuate significantly from year to year based upon semiconductor device unit growth and installed base utilization . the 2011 decrease was due to lower volume from reduced demand . the decrease in systems test group revenues of $ 51.8 million or approximately 18 % from 2011 to 2012 was primarily due to a decrease in sales due to lower volume in both storage test systems and commercial board test systems , partially offset by an increase in mil/aero systems and instruments . the increase in systems test group revenues of $ 141.6 million or approximately 93 % from 2010 to 2011 was primarily due to an increase in sales of storage test systems , which was driven by new customers and new product applications . the acquisition of litepoint , which was completed in october of 2011 , added $ 286.4 million and $ 28.4 million of revenues in 2012 and 2011 , respectively . litepoint is our wireless test segment .
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on july 1 , 2015 , pursuant to the business combination agreement , rocktenn and mwv completed a strategic combination of their respective businesses and rocktenn and mwv each became wholly-owned subsidiaries of westrock . rocktenn was the accounting acquirer in the combination . on april 6 , 2017 , we completed the hh & b sale . we used the proceeds from the hh & b sale in connection with the mps acquisition . we recorded a pre-tax gain on sale of hh & b of $ 192.8 million in fiscal 2017. see “ note 1. description of business and summary of significant accounting policies — description of business ” of the notes to consolidated financial statements for additional information . on june 6 , 2017 , we completed the mps acquisition . mps is reported in our consumer packaging segment . on november 2 , 2018 , we completed the kapstone acquisition . as a result , among other things , the company became the ultimate parent of wrkco , kapstone and their respective subsidiaries , and the company changed its name to “ westrock company ” and wrkco changed its name to “ wrkco inc. ” . see “ note 3. acquisitions and investment ” of the notes to consolidated financial statements for additional information . presentation effective in the first quarter of fiscal 2019 , we aligned our financial results for all periods presented to move our merchandising displays operations from our consumer packaging segment to our corrugated packaging segment and to allocate certain previously non-allocated costs and certain pension and other postretirement non-service income ( expense ) to our reportable segments . separately , in the first quarter of fiscal 2019 , we began conducting our recycling operations primarily as a procurement function . since then , recycling net sales have not been recorded and the margin from these operations has reduced cost of goods sold . following the realignment , we report our financial results of operations in the following three reportable segments : corrugated packaging , which consists of our containerboard mills , corrugated packaging and distribution operations , as well as our merchandising displays and recycling procurement operations ; consumer packaging , which consists of our consumer mills , food and beverage and partition operations ; and land and development , which sells real estate , primarily in the charleston , sc region . prior to the hh & b sale , our consumer packaging segment included hh & b . a detailed discussion of the fiscal 2019 year-over-year changes can be found below and a detailed discussion of fiscal 2018 year-over-year changes can be found in “ item 7 . “ management 's discussion and analysis of financial condition and results of operations ” in exhibit 99.1 of our current report on form 8-k filed with the securities and exchange commission on may 9 , 2019 ( the “ may 9 , 2019 form 8-k ” ) , which was , as disclosed therein , filed to provide revisions to the company 's consolidated financial statements , and the notes thereto for the three years ended september 30 , 2018 and other related disclosures . acquisitions and investments during fiscal 2019 and 2018 , we completed acquisitions that expanded our product and geographic scope , allowed us to increase our integration levels and impacted our comparative financials . we expect to continue to evaluate similar potential acquisitions in the future , although the size of individual acquisitions may vary . below we summarize certain of these acquisitions . on november 2 , 2018 , we completed the kapstone acquisition . kapstone is a leading north american producer and distributor of containerboard , corrugated products and specialty papers , including liner and medium containerboard , kraft papers and saturating kraft . kapstone also owns victory packaging , a packaging solutions 33 distribution company with facilities in the u.s. , canada and mexico . we have included the financial results of kapstone in our corrugated packaging segment since the date of the acquisition . on september 4 , 2018 , we completed the acquisition ( the “ schlüter acquisition ” ) of schlüter print pharma packaging ( “ schlüter ” ) . schlüter is a leading provider of differentiated paper and packaging solutions and a german-based supplier of a full range of leaflets and booklets . the schlüter acquisition allowed us to further enhance our pharmaceutical and automotive platform and expand our geographical footprint in europe to better serve our customers . we have included the financial results of the acquired operations in our consumer packaging segment since the date of the acquisition . on january 5 , 2018 , we completed the acquisition ( the “ plymouth packaging acquisition ” ) of substantially all of the assets of plymouth packaging , inc. ( “ plymouth ” ) . the assets we acquired included plymouth 's “ box on demand ” systems , which are manufactured by panotec , an italian manufacturer of packaging machines . the addition of the box on demand systems enhanced our platform , differentiation and innovation . these systems , which are located on customers ' sites under multi-year exclusive agreements , use fanfold corrugated to produce custom , on-demand corrugated packaging that is accurately sized for any product type according to the customer 's specifications . fanfold corrugated is continuous corrugated board , folded periodically to form an accordion-like stack of corrugated material . as part of the transaction , westrock acquired plymouth 's equity interest in panotec and plymouth 's exclusive right from panotec to distribute panotec 's equipment in the u.s. and canada . we have fully integrated the approximately 60,000 tons of containerboard used by plymouth annually . we have included the financial results of plymouth in our corrugated packaging segment since the date of the acquisition . see “ note 3. acquisitions and investment ” of the notes to consolidated financial statements for additional information . see also item 1a . story_separator_special_tag management believes these non-gaap financial measures provide our board of directors , investors , potential investors , securities analysts and others with useful information to evaluate our performance because the measures exclude restructuring and other costs and other specific items that management believes are not indicative of the ongoing operating results of the business . we and our board of directors use this information to evaluate our performance relative to other periods . we believe that the most directly comparable gaap measures to adjusted net income and adjusted earnings per diluted share are net income attributable to common stockholders and earnings per diluted share , respectively . diluted earnings per share were $ 3.33 in fiscal 2019 compared to $ 7.34 in fiscal 2018. adjusted earnings per diluted share were $ 3.98 and $ 4.09 in fiscal 2019 and 2018 , respectively . set forth below is a reconciliation of the non-gaap financial measure adjusted earnings per diluted share to earnings per diluted share , the most directly comparable gaap measure ( in dollars per share ) for the periods indicated . 36 replace_table_token_6_th ( 1 ) includes a $ 13.0 million and $ 23.6 million impairment of mineral rights in fiscal 2019 and 2018 , respectively . the gaap results in the tables below for pre-tax , tax and net of tax are equivalent to the line items “ income before income taxes ” , “ income tax ( expense ) benefit ” and “ consolidated net income ” , respectively , as reported on the statements of income . set forth below are reconciliations of adjusted net income to the most directly comparable gaap measure , net income attributable to common stockholders ( represented in the table below as the gaap results for consolidated net income ( i.e . net of tax ) plus noncontrolling interests ) , for the periods indicated ( in millions ) : replace_table_token_7_th 37 ( 1 ) includes a $ 13.0 million impairment of mineral rights in fiscal 2019. replace_table_token_8_th ( 1 ) includes a $ 23.6 million impairment of mineral rights in fiscal 2018. we discuss certain of these charges in more detail in “ note 4. restructuring and other costs ” , “ note 5. retirement plans ” , and “ note 6. income taxes ” . net sales ( unaffiliated customers ) net sales in fiscal 2019 increased $ 2,003.9 million , or 12.3 % , compared to fiscal 2018. the increase was primarily attributable to the kapstone acquisition and higher selling price/mix in our corrugated packaging and consumer packaging segments . these increases were partially offset by the absence of recycling net sales in fiscal 2019 as a result of conducting the operations primarily as a procurement function beginning in the first quarter of fiscal 2019 , lower volumes and unfavorable foreign currency impacts across our segments compared to the prior year . the change in net sales by segment is outlined below in “ results of operations — segment data ” . cost of goods sold cost of goods sold increased to $ 14,540.0 million in fiscal 2019 compared to $ 12,923.1 million in fiscal 2018. cost of goods sold as a percentage of net sales was 79.5 % in fiscal 2019 compared to 79.4 % in fiscal 2018. the increase in cost of goods sold in fiscal 2019 compared to fiscal 2018 was primarily due to increased net sales associated with the impact of acquisitions ( primarily the kapstone acquisition ) , higher levels of cost inflation and other items . these factors were partially offset by lower recovered fiber costs and productivity improvements . we discuss these items in greater detail below . in fiscal 2019 , we received $ 180.0 million of insurance proceeds related to hurricane michael , primarily associated with our panama city , fl mill that were recorded as a reduction of cost of goods sold . see “ hurricane michael ” below for additional information . we discuss these items in greater detail below in “ results of operations — segment data ” . selling , general and administrative excluding intangible amortization selling , general , and administrative expenses ( “ sg & a ” ) excluding intangible amortization increased $ 168.6 million to $ 1,715.2 million in fiscal 2019 compared to fiscal 2018 primarily due to the kapstone acquisition . sg & a excluding intangible amortization as a percentage of net sales declined in fiscal 2019 to 9.4 % from 9.5 % in fiscal 2018 . 38 selling , general and administrative intangible amortization sg & a intangible amortization was $ 400.2 million and $ 296.6 million in fiscal 2019 and 2018 , respectively . the increase in fiscal 2019 compared to fiscal 2018 was primarily due to the kapstone acquisition . ( gain ) loss on disposal of assets the gain on disposal of assets in fiscal 2019 was $ 41.2 million and the loss on disposal of assets in fiscal 2018 was $ 10.1 million . the gain on disposal of assets in fiscal 2019 was primarily due to the $ 48.5 million gain on sale of our former atlanta beverage facility recorded in the first quarter of fiscal 2019. multiemployer pension withdrawal ( income ) expense in the fiscal 2019 , we recorded a $ 6.3 million reduction to a previously recorded mepp withdrawal liabilities . in fiscal 2018 , we submitted formal notification to withdraw from piumpf and central states and recorded aggregate estimated withdrawal liabilities of $ 184.2 million , which includes an estimate of our portion of piumpf 's accumulated funding deficiency . since these withdrawal liabilities assume payment over 20 years , the liabilities were discounted at a credit adjusted risk-free rate and , therefore , we will accrete the liability over time with a charge to interest expense . see “ note 5. retirement plans — multiemployer plans ” of the notes to consolidated financial statements for additional information , including the receipt of demand letters from piumpf . see also item 1a .
| results of operations — segment data corrugated packaging segment north american corrugated packaging shipments corrugated packaging shipments are expressed as a tons equivalent , which includes external and intersegment tons shipped from our corrugated packaging mills plus corrugated packaging container shipments converted from billion square feet ( “ bsf ” ) to tons . we have presented the corrugated packaging shipments in two groups : north american and brazil / india because we believe investors , potential investors , securities analysts and 40 others find this breakout useful when evaluating our operating performance . we have included the impact of the kapstone acquisition beginning in the first quarter of fiscal 2019. the shipment data table excludes merchandising displays since there is not a common unit of measure . the table below reflects shipments in thousands of tons , bsf and millions of square feet ( “ mmsf ” ) . replace_table_token_9_th brazil / india corrugated packaging shipments replace_table_token_10_th 41 corrugated packaging segment replace_table_token_11_th ( 1 ) net sales before intersegment eliminations net sales ( aggregate ) — corrugated packaging segment net sales before intersegment elimination for the corrugated packaging segment increased $ 2,123.7 million in the fiscal 2019 compared to fiscal 2018. the increase in net sales was primarily due to $ 2,851.5 million from acquisitions , notably the kapstone acquisition , and $ 203.5 million from higher corrugated selling price/mix as we had higher selling prices for domestic containerboard and corrugated containers that were partially offset by declining export prices . these increases were partially offset by the absence of $ 461.6 million of recycling net sales in fiscal 2019 as a result of conducting the operations primarily as a procurement function beginning in the first quarter of fiscal 2019 , $ 417.7 million of lower volumes as lower containerboard volumes were partially offset by increased corrugated container shipments and $ 65.4 million related to the impact of unfavorable foreign currency .
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the 8.50 % notes include , story_separator_special_tag overview we are the world 's leading internet television network with more than 33 million members in over 40 countries enjoying more than one billion hours of tv shows and movies per month , including original series . for one low monthly price , our members can watch as much as they want , anytime , anywhere , on nearly any internet-connected screen . additionally , in the u.s. , our subscribers can receive standard definition dvds , and their high definition successor , blu-ray discs ( collectively referred to as “ dvd ” ) , delivered quickly to their homes . we are a pioneer in the internet delivery of tv shows and movies , launching our streaming service in 2007. since this launch , we have developed an ecosystem for internet-connected devices and have licensed increasing amounts of content that enable consumers to enjoy tv shows and movies directly on their tvs , computers and mobile devices . as a result of these efforts , we have experienced growing consumer acceptance of and interest in the delivery of tv shows and movies directly over the internet . historically , our acquisition of new subscriptions has been seasonal with the first and fourth quarters representing our strongest net subscription additions and our second quarter representing the lowest net subscription additions in a calendar year . results of operations the following represents our consolidated performance highlights for the years ended december 31 : replace_table_token_6_th ( 1 ) see “ liquidity and capital resources ” for a definition of “ free cash flow ” and a reconciliation of “ free cash flow ” to “ net cash provided by operating activities. ” consolidated revenues for 2012 increased as compared to prior years due to growth in streaming subscriptions . operating income and net income in 2012 both declined as compared to prior year reflective of increases in both cost of revenues due to streaming content investments and marketing to support our launch into new international markets . free cash flow for the year ended december 31 , 2012 decreased $ 244.7 million as compared to 2011 to negative $ 58.2 million . significant uses of cash in the year were cash payments for content ( in excess of the expense ) , and cash payments related to income taxes . these uses of cash were partially offset by net income excluding the impact of non-cash stock compensation and deferred revenue . we expect excess content payments over expense to continue to fluctuate over time both domestically and internationally . payment terms for certain streaming licenses , especially programming that initially airs in the 20 applicable territory on our service ( “ original programming ” ) or that is considered output content , will typically require more up-front cash payments than other licensing agreements . due to the expected receipt timing of original programming content , content cash payments in excess of expense and free cash flow will be materially more negative in the first quarter of 2013 as compared to the fourth quarter of 2012 , but free cash flow is expected to improve in subsequent quarters . prior to july 2011 , in the u.s. , our streaming and dvds-by-mail operations were combined and subscribers could receive both streaming content and dvds under a single “ hybrid ” plan . in july 2011 , we introduced dvd only plans and separated the combined plans , making it necessary for subscribers who wish to receive both streaming services and dvds-by-mail to have two separate subscription plans . as subscribers were able to receive both streaming and dvds-by-mail under a single hybrid plan prior to the fourth quarter of 2011 , it is impracticable to allocate revenues and expenses to the domestic streaming and domestic dvd segments prior to the fourth quarter of 2011. our core strategy is to grow a streaming subscription business domestically and internationally . we are continuously improving the customer experience , with a focus on expanding our streaming content , enhancing our user interface and extending our streaming service to even more internet-connected devices , while staying within the parameters of our consolidated net income ( loss ) and operating segment contribution profit ( loss ) targets . as we grow our streaming subscription segments , we have shifted spending away from the domestic dvd segment to invest more in streaming content and marketing our streaming services . we define contribution profit as revenues less cost of revenues and marketing expenses . we believe this is an important measure of our operating segment performance . for the domestic and international streaming segments , content licensing expenses , which includes the amortization of the streaming content library and other expenses associated with the licensing of streaming content , represent the vast majority of cost of revenues . streaming content rights are generally specific to a geographic region and accordingly our international expansion will require us to obtain additional streaming content licenses to support new international markets . other cost of revenues such as content delivery expenses , customer service and payment card fees tend to be lower as a percentage of total cost of revenues . we utilize both our own and third-party content delivery networks to help us efficiently stream content in high volume to our subscribers over the internet . content delivery expenses therefore also include equipment costs related to open connect and all third-party costs associated with delivering streaming content over the internet . cost of revenues in the domestic dvd segment consists primarily of expenses related to the acquisition of content including amortization of dvd content library and revenue sharing expenses , content delivery and other expenses associated with our dvd processing and customer service centers . content delivery expenses for the domestic dvd segment consist of the postage costs to mail dvds to and from our paying subscribers and the packaging and label costs for the mailers . story_separator_special_tag other costs increased due to a $ 28.9 million increase in credit card fees as a result of the growth in revenues , and a $ 19.1 million increase in costs associated with customer service call centers to support our growing subscriber population . these increases were partially offset by an $ 8.6 million decrease in expenses related to content processing due primarily to the 14 % decrease in the number of dvds mailed to paying subscribers . marketing marketing expenses increased $ 39.2 million in 2011 as compared to 2010 primarily due to an increase in marketing program spending in television , radio and online advertising coupled with an increase in payments to our affiliates . these increases were partially offset by a decrease in direct mail and inserts , and payments made to our consumer electronic partners . the increase in marketing program spending was partially offset by decreases in the costs of free trials . international streaming segment replace_table_token_9_th story_separator_special_tag third quarter of 2011 and federal and california r & d credits of $ 5.1 million . the decrease in our effective tax rate for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 was attributable to the discrete benefit of $ 3.5 million , higher r & d tax credits and a lower effective tax rate for california . liquidity and capital resources cash , cash equivalents and short-term investments were $ 748.1 million and $ 797.8 million at december 31 , 2012 and 2011 , respectively . our primary uses of cash include the acquisition and licensing of content , content delivery expenses , marketing and payroll related expenses . we expect to continue to make significant investments to license streaming content both domestically and internationally and expect to obtain more original programs in 2013. these investments will impact our liquidity and we expect to have negative operating cash flows and or use of cash in future periods . on january 29 , 2013 we announced the pricing of an offering of $ 500 million aggregate principal amount of 5.375 % senior notes due 2021 ( the `` 5.375 % notes '' ) . we expect the sale of the 5.375 % notes to close on february 1 , 2013 and we intend to use approximately $ 225 million of the net proceeds to redeem our 8.50 % notes . although we currently anticipate that the remaining proceeds from the 5.375 % notes together with our available funds will be sufficient to meet our cash needs for the foreseeable future , we may be required or choose to obtain additional financing . our ability to obtain additional financing will depend on , among other things , our development efforts , business plans , operating performance , current and projected compliance with our debt covenants , and the condition of the capital markets at the time we seek financing . we may not be able to obtain such financing on terms acceptable to us or at all . if we raise additional funds through the issuance of equity , equity-linked or debt securities , those securities may have rights , preferences or privileges senior to the rights of our common stock , and our stockholders may experience dilution . in november 2011 , we issued $ 200.0 million of senior convertible notes ( the `` convertible notes '' ) and raised an additional $ 200.0 million through a public offering of common stock . the convertible notes consist of $ 200.0 million aggregate principal amount due on december 1 , 2018 and do not bear interest . we intend to exercise our option to cause the conversion of the convertible notes into shares of our common stock if the specified conditions are satisfied , including that the daily volume weighted average price of our common stock is equal or greater than $ 111.54 for at least 50 trading days during a 65 trading day period prior to the conversion date . in november 2009 , we issued $ 200.0 million of our 8.50 % senior notes due november 15 , 2017 ( the “ 8.50 % notes ” ) . interest on the 8.50 % notes is payable semi-annually at a rate of 8.50 % per annum on may 15 and november 15 of each year , commencing on may 15 , 2010. see note 4 of item 8 , financial statements and supplementary data for additional information as of december 31 , 2012 , $ 42.5 million of cash and cash equivalents were held by our foreign subsidiaries . if these funds are needed for our operations in the u.s. , we would be required to accrue and pay u.s. income taxes and foreign withholding taxes on a portion of these funds when repatriated back to the u.s. see note 8 of item 8 , financial statements and supplementary data for additional details . on june 11 , 2010 , we announced that our board of directors authorized a stock repurchase program allowing us to repurchase $ 300.0 million of our common stock through the end of 2012. under this plan , we repurchased $ 259.0 million . at december 31 , 2012 this authorization expired and the remaining $ 41.0 million was not used . 28 free cash flow we define free cash flow as cash provided by operating and investing activities excluding the non-operational cash flows from purchases , maturities and sales of short-term investments . we believe free cash flow is an important liquidity metric because it measures , during a given period , the amount of cash generated that is available to repay debt obligations , make investments , and for certain other activities . free cash flow is considered a non-gaap financial measure and should not be considered in isolation of , or as a substitute for , net income , operating income , cash flow from operating activities , or any other measure of financial performance or liquidity presented in accordance with gaap .
| 2012 international streaming segment results revenues 24 in the international streaming segment , we derive revenues from services consisting solely of streaming content offered through a subscription plan priced at approximately the equivalent of usd 8.00 per month . in september 2010 , we began international operations in canada . we expanded to latin america in september 2011 and the u.k. and ireland in january 2012. in october 2012 , we launched our streaming service in finland , denmark , sweden and norway . the $ 204.7 million increase in our international revenues in 2012 as compared to 2011 was primarily due to the 260 % growth in the international average number of unique paying subscribers driven by a full year of service offering in latin america as well as our launches in the u.k. and ireland and nordic regions . international streaming subscriptions account for 18 % of total streaming subscriptions at the end of 2012. we expect international streaming subscriptions to continue to grow . cost of revenues international cost of revenues increased by $ 368.1 million in 2012 as compared to 2011 primarily due to a $ 347.5 million increase in content licensing costs resulting from the continued investments in streaming content available for viewing in canada and latin america and to support our launches in the u.k. and ireland and nordic regions . marketing marketing expenses incurred by our international streaming segment have been significant and will fluctuate dependent upon the number of international territories in which our streaming service is offered and the timing of the launch of new territories . international marketing expenses increased $ 122.8 million in 2012 as compared to 2011 primarily due to increases in marketing program spending online and in television and radio advertising to support our launches in the u.k. and ireland and nordic regions .
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in addition , we must make mandatory prepayments of principal under the term loan credit agreement upon the occurrence of certain specified events , including certain asset sales ( subject to customary reinvestment rights ) , debt issuances not permitted under the term loan credit agreement , and based on a percentage , which may vary from 50 % to 0 % depending on our secured leverage ratio , of annual excess cash flows in excess of certain threshold amounts , less any voluntary prepayments under the term loan credit agreement . any remaining outstanding principal balance under the term loan credit agreement is repayable on the maturity date . amounts repaid or prepaid by us with respect to the loans under the term loan credit agreement can not be reborrowed . we may , at our option , prepay any borrowings under the term loan credit agreement , in whole or in part , at any time and from time to time without premium or penalty ( except in certain circumstances ) . we may add one or more incremental term loan facilities to the term loan credit agreement , subject to obtaining commitments from any participating lenders and certain other conditions in an amount not to exceed ( 1 ) $ 100 million , plus ( 2 ) the amount of all voluntary prepayments of the term loan credit agreement ( other than prepayments funded with long-term indebtedness ) , plus ( 3 ) an additional amount , so long as after giving effect to the incurrence of such additional amount , our pro forma first lien secured leverage ratio would not exceed 2.00 to 1.00 . under the term loan credit agreement , loans generally may bear interest based on libor or an annual base rate , as applicable , plus , in each case , an applicable margin , when our leverage ratio is ( i ) less than or equal to 4.25 to 1.00 , of 3.00 % per annum in the case of libor loans and of 2.00 % per annum in the case of annual base rate loans and ( ii ) greater than 4.25 to 1.00 , of 3.25 % per annum in the case of libor loans and of 2.25 % per annum in the case of annual base rate loans . at december 31 , 2019 , our applicable margin on libor loans was 3.25 % . abl credit agreement the abl credit agreement matures on july 26 , 2024 and includes a $ 250 million revolving loan commitment , subject to borrowing base limitations based on a percentage of applicable eligible receivables and eligible inventory . up to $ 15 million of the abl credit agreement is available for the issuance of letters of credit , of which $ 4.4 million was utilized at december 31 , 2019. as of december 31 , 2019 , $ 217 million was available under the abl credit agreement . we may , at our option , prepay any borrowings under the abl credit agreement , in whole or in part , at any time and from time to time without premium or penalty ( except in certain circumstances ) . borrowings under the abl credit agreement are also subject to mandatory prepayment in certain circumstances , including in the event that borrowings exceed applicable borrowing base limits . we may also increase commitments under the abl credit agreement in an aggregate principal amount of up to $ 100 million , subject to obtaining commitments from any participating story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes that appear elsewhere in this report . this discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties . 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 report . a discussion of the earliest year may be found in management 's discussion and analysis of financial condition and results of operations in our annual report on form 10‑k filed march 18 , 2019. overview executive summary for the year ended 2019 , we reported net sales of $ 1.8 billion , up from $ 1.7 billion reported for the year ended 2018 . we reported a net loss for the year of $ 5.6 million , or $ 0.34 per diluted share , compared to a net loss of $ 143.8 million or $ 8.72 per diluted share in 2018. included in our 2018 results was an impairment of our goodwill of $ 195 million and a gain on a divestiture of our ladysmith facility of $ 24.0 million . adjusted ebitda for the year was $ 167.3 million compared to $ 181.6 million reported in 2018. reductions in adjusted ebitda for the year ended december 31 , 2019 as compared to december 31 , 2018 were driven by improvements in price and mix with higher volumes due to our expansion at our shelby facility offset by higher maintenance expenses , input costs and operational disruptions . see discussion on segment level results regarding sales , operating results and adjusted ebitda in “ our operating results ” below . business drivers tissue industry overview the u.s. tissue market can be divided into two market segments : the at-home or consumer retail purchase segment , which represented approximately two-thirds of u.s. tissue sales in 2019 ; and afh segment , which represents the remaining one-third of u.s. tissue market sales and includes tissue for locations such as restaurants , hotels and office buildings . story_separator_special_tag critical accounting policies and significant estimates a discussion of our significant accounting policies and significant accounting estimates and judgments is presented in note 1 of the notes to consolidated financial statements in item 8 of this report . throughout the preparation of the financial statements , we employ significant judgments in the application of accounting principles and methods . we believe that the accounting estimates discussed below represent the accounting estimates requiring the exercise of judgment where a different set of judgments could result in the greatest changes to reported results . we reviewed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board of directors . for 2019 , these significant accounting estimates and judgments include : pension and other postretirement employee benefits we have a number of pension plans in the united states covering many of our employees . benefit accruals under most of our defined benefit pension plan in the united states were frozen prior to january 2014. we account for the consequences of our sponsorship of these plans using assumptions to calculate the related assets , liabilities and expenses recorded in our financial statements . net actuarial gains and losses occur when actual experience differs from any of the assumptions used to value defined benefit plans or when assumptions change as they may each year . the primary factors contributing to actuarial gains and losses are changes in the discount rate used to value obligations as of the measurement date and the differences between expected and actual returns on pension plan assets . this accounting method results in the potential for volatile and difficult to forecast gains and losses . we record amounts relating to these defined benefit plans based on various actuarial assumptions , including discount rates , assumed rates of return , compensation increases and life expectancy . we review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current economic conditions and trends . we believe 22 that the assumptions utilized in recording our obligations under our plans are reasonable based on our experience and on advice from our independent actuaries ; however , differences in actual experience or changes in the assumptions may materially affect our financial condition or results of operations . a 25 basis point change in our discount rate assumption would lead to an increase or decrease in our pension liability of approximately $ 8.7 million . a 25 basis point change in the long-term rate of return on plan assets used in accounting for our pension plans would have a $ 0.7 million impact on pension expense and a 25 basis point change in the discount rate would have a $ 0.5 million impact on pension expense . it is not possible to forecast or predict whether there will be actuarial gains and losses in future periods , and if required , the magnitude of any such adjustment . these gains and losses are driven by differences in actual experience or changes in the assumptions that are beyond our control , such as changes in interest rates and the actual return on pension plan assets . non-gaap financial measures in evaluating our business , we utilize several non-gaap financial measures . a non-gaap financial measure is generally defined by the sec as one that purports to measure historical or future financial performance , financial position or cash flows , but excludes or includes amounts that would not be so excluded or included under applicable gaap guidance . in this report on form 10-k , we disclose overall and segment earnings ( loss ) from operations before interest expense , net , non-operating pension and other post employment benefit costs , taxes , depreciation and amortization , goodwill impairment , other operating charges , net , and debt retirement costs as adjusted ebitda which is a non-gaap financial measure . adjusted ebitda is not a substitute for the gaap measure of net income or for any other gaap measures of operating performance . we have included adjusted ebitda on a consolidated and business segment basis in this report because we use it as important supplemental measures of our performance and believe that it is frequently used by securities analysts , investors and other interested persons in the evaluation of companies in our industry , some of which present adjusted ebitda when reporting their results . we use adjusted ebitda to evaluate our performance as compared to other companies in our industry that have different financing and capital structures and or tax rates . it should be noted that companies calculate adjusted ebitda differently and , therefore , our adjusted ebitda measures may not be comparable to adjusted ebitda reported by other companies . our adjusted ebitda measures have material limitations as performance measures because they exclude interest expense , income tax ( benefit ) expense and depreciation and amortization which are necessary to operate our business or which we otherwise incur or experience in connection with the operation of our business . in addition , we exclude other income and expense items which are outside of our core operations . 23 the following table provides our adjusted ebitda reconciliation for the last three years : replace_table_token_3_th 1 other operating charges , net above excludes $ 4.6 million associated with accelerated depreciation related to our closures of the oklahoma facility and the long island facility in 2017 as this amount is already included in the depreciation and amortization amount . story_separator_special_tag operations . any such repurchases may be commenced , suspended , discontinued or resumed , and the method or methods of effecting any such repurchases may be changed at any time or from time to time without prior notice .
| our operating results our operating results for each of our segments are discussed below . see note 16 `` segment information '' of the notes to consolidated financial statements included in item 8 of this report for further information regarding our segments . consumer products segment our consumer products segment sells and manufacturers a complete line of at-home tissue products as well as afh products . our integrated manufacturing and converting operations and geographic footprint enable us to deliver a broad range of cost-competitive products with brand equivalent quality to our customers . 24 segment sales , operating income and adjusted ebitda for the consumer products segment were as follows : replace_table_token_4_th net sales for the consumer products segment increased $ 22.0 million , or 2.5 % , compared to 2018 due to higher average net selling prices due to a price increase implemented in the second half of 2018 and a favorable mix shift resulting from a higher percentage of retail sales . this change was partially offset due to decreased non-retail sales volume resulting from the sale of our ladysmith , wisconsin facility in the third quarter of 2018. the segment had an operating loss of $ 6.6 million for 2019 compared to income of $ 0.3 million in 2018. overall , the decrease in operating results in this segment was due to higher pulp costs and ramp-up costs , increased depreciation expense and higher wage and benefit costs associated with the shelby expansion project , partially offset by lower transportation costs and higher shipments . pulp and paperboard segment our pulp and paperboard segment markets and produces bleached paperboard to quality-conscious printers and packaging converters , and offers services that include custom sheeting , slitting and cutting .
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4. other financial statement information inventory inventory was comprised of the following ( in thousands ) : replace_table_token_24_th property and equipment , net property and equipment , net consisted of the following ( in thousands ) : replace_table_token_25_th depreciation expense was $ 6.7 million , story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes and other financial information included elsewhere in this annual report and our audited consolidated financial statements and notes thereto . as discussed in the section titled special note regarding forward looking statements , the following discussion and analysis , in addition to historical financial information , 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 set forth in the section titled risk factors under part i , item 1a above . we operate on a fiscal year that ends on december 31. overview we are a life sciences technology company focused on building innovative products and solutions to interrogate , understand and master biological systems at resolution and scale that matches the complexity of biology . our expanding suite of offerings leverages our cross-functional expertise across chemistry , biology , hardware and software to provide a comprehensive , dynamic and high-resolution view of complex biological systems . we have launched multiple products that enable researchers to understand and interrogate biological analytes in their full biological context . our commercial product portfolio leverages our chromium instruments , which we refer to as instruments , and our proprietary microfluidic chips , slides , reagents and other consumables for both our visium and chromium solutions , which we refer to as consumables. we bundle our software with these products to guide customers through the workflow , from sample preparation through analysis and visualization . since launching our first product in mid-2015 , and as of december 31 , 2019 , we have sold 1,666 instruments to customers around the world , including 97 of the top 100 global research institutions as ranked by nature in 2018 based on publications and 19 of the top 20 global biopharmaceutical companies by 2018 revenue . our products cover a wide variety of applications and allow researchers to analyze biological systems at fundamental resolutions and on massive scales , such as at the single cell level for millions of cells . our chromium instruments and chromium consumables are designed to work together exclusively . after buying a chromium instrument , customers purchase consumables from us for use in their experiments . accordingly , as the installed base of our instruments grows , we expect recurring revenue from consumable sales to become an increasingly important driver of our operating results . as such , our revenue growth is expected to outpace growth in our instrument placements as our business develops . in addition to instrument and consumable sales , we derive revenue from post-warranty service contracts for our chromium instruments . for the years ended december 31 , 2019 and 2018 , sales of our chromium instruments accounted for 14 % and 25 % of our revenue , respectively , sales of our consumables accounted for 84 % and 74 % of our revenue , respectively , and sales of services accounted for 2 % and 1 % of our revenue , respectively . we currently serve thousands of researchers in more than 40 countries . our customers include a range of academic , government , biopharmaceutical , biotechnology and other leading institutions around the globe . in both the years ended december 31 , 2019 and 2018 , approximately 70 % of our direct sales revenue came from sales to academic institutions . as of december 31 , 2019 , we employed a commercial team of over 200 employees , including more than 75 commissioned sales representatives , many with ph.d. degrees and many with significant industry experience . we follow a direct sales model in north america and certain regions of europe , representing the majority of our revenue . we sell our products through third-party distributors in asia , certain regions of europe , oceania , south america , the middle east and africa . we currently sell our products for research use only . for the years ended december 31 , 2019 and 2018 , sales within north america accounted for approximately 57 % and 58 % of our revenue , respectively . 78 revenue increased 68 % to $ 245.9 million in the year ended december 31 , 2019 as compared to $ 146.3 million in the year ended december 31 , 2018 , primarily due to the adoption of our instruments by customers and the associated consumables on those instruments . we focus a substantial portion of our resources on developing new products and solutions . our research and development efforts are centered around improving the performance of our existing assays and software , developing new chromium solutions such as multi-omics solutions , developing our visium platform , improving and developing new capabilities for our chromium platform , developing combined software and workflows across multiple solutions and investigating new technologies . we incurred research and development expenses of $ 83.1 million and $ 47.5 million for the years ended december 31 , 2019 and 2018 , respectively . we intend to make significant investments in this area for the foreseeable future . in addition , in 2018 , we made acquisitions for an aggregate purchase price of $ 62.4 million . there were no similar acquisitions in the year ended december 31 , 2019. our instrument manufacturing is contracted out to a third-party contract manufacturer and we manufacture the majority of our consumable products in-house , with a small amount of our components outsourced to key suppliers . we have designed our operating model to be capital efficient and to scale efficiently as our product volumes grow . story_separator_special_tag 80 chromium consumable pull-through per instrument replace_table_token_6_th our consumables portfolio includes proprietary microfluidic chips , slides , reagents and other consumables for both our visium and chromium solutions . our chromium instruments and chromium consumables are designed to work together exclusively . this chromium closed-system model generates recurring revenue from each instrument we sell . our growth in the instrument installed base has been the largest contributor to our growth in consumable sales . in addition , we believe that annual consumable pull-through per instrument is an indicator of our ability to generate future consumable revenue and the rate of customer adoption of our new applications . we define consumable pull-through per instrument as the total consumables revenue in the given quarter divided by the average instrument installed base during that quarter . we calculate the average instrument installed base for a given quarter using the instrument installed base as of the last day of the prior quarter and the instrument installed base as of the last day of the given quarter . we calculate the annual consumable pull-through per instrument figure by summing the quarterly pull-through for the quarters in a given year . the figures in the table above represent the annual consumable pull-through per instrument for the years ended december 31 , 2019 and 2018. we do not believe the consumable pull-through per instrument in an individual quarter is an effective indicator of the current state of our business trends . our quarterly consumable pull-through can fluctuate due to a number of factors . in addition to timing of product transitions such as the next gem consumable transition , other factors such as the budget and funding cycles of our customers can cause our quarterly consumables pull-through fluctuate quarter to quarter . for example , a significant portion of our current customers are reliant on government funding and research grants . these funds and grants typically expire at year end , resulting in a higher consumable pull-through per instrument in the fourth quarter relative to the first three quarters of the year . finally , as we continue to expand into new markets globally as well as into new industries , our average pull-through could be adversely impacted in a particular period . we therefore believe that an annual , rather than quarterly , representation of our consumable pull-through is most appropriate for assessing trends in our business . our current customer base includes customers who purchase consumables for use on a shared or centralized instrument . we refer to customers who purchase consumables but do not own an instrument as halo users. for the year ended december 31 , 2019 , halo users represented close to half of our revenue from sales of consumables . halo users , as well as the future introduction of consumables that may not use instruments , such as our recently introduced visium solution , or chromium instruments that are expected to use a greater amount of consumables , such as our chromium connect instrument , could reduce the utility of this metric and make it difficult to compare consumable pull-through per instrument metrics over time . key factors affecting our performance we believe that our financial performance has been and in the foreseeable future will continue to be primarily driven by the following factors . while each of these factors presents significant opportunities for our business , they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations . our ability to successfully address the factors below is subject to various risks and uncertainties , including those described under the heading risk factors . instrument sales our financial performance has largely been driven by , and in the future will continue to be impacted by , the rate of sales of our chromium instruments . management focuses on instrument sales as an indicator of current business success and a leading indicator of likely future sales of consumables . we expect our instrument sales to continue to grow as we increase penetration in our existing markets and expand into , or offer new features and solutions that appeal to new markets . 81 we plan to grow our instrument sales in the coming years through multiple strategies including expanding our sales efforts globally and continuing to enhance the underlying technology and applications for life sciences research . as part of this strategy and in an effort to increase the rate of sales of our instruments , we increased our sales force by 54 % from december 31 , 2018 through december 31 , 2019 , with more than 75 commissionable sales representatives as of december 31 , 2019. we regularly solicit feedback from our customers and focus our research and development efforts on enhancing the chromium controller instrument and enabling its ability to use additional applications that address their needs , which we believe in turn helps to drive additional sales of our instruments and consumables . we have developed and recently introduced our chromium connect instrument , which is an automated version of our current chromium controller instrument . we believe the automated features of the chromium connect will increase our addressable market by increasing utilization by biopharmaceutical customers . our sales process varies considerably depending upon the type of customer to whom we are selling . our sales process with small laboratories and individual researchers is often short , and in some cases , we receive purchase orders from these customers in under a month . our sales process with other institutions can be longer with most customers submitting purchase orders within six months . given the variability of our sales cycle , we have in the past experienced , and likely will in the future experience , fluctuations in our instrument sales on a period-to-period basis . recurring consumable revenue we regularly assess trends relating to recurring consumable revenue based on our product offerings , our customer base and our understanding of how our customers use our products .
| results of operations replace_table_token_7_th ( 1 ) includes stock-based compensation expense as follows : replace_table_token_8_th 88 the following table sets forth our consolidated results of operations data as a percentage of revenue for the periods presented . replace_table_token_9_th ( 1 ) includes stock-based compensation expense as follows : replace_table_token_10_th comparison of the year ended december 31 , 2019 and 2018 revenue year ended december 31 , change ( dollars in thousands ) 2019 2018 $ % revenue $ 245,893 $ 146,313 $ 99,580 68 % revenue increased $ 99.6 million , or 68 % , for the year ended december 31 , 2019 as compared to year ended december 31 , 2018. the increase was driven primarily by an increase in consumables revenue partially offset by lower instrument revenue . consumables revenue increased $ 99.3 million , or 92 % , to $ 206.9 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the growth in consumables revenue was substantially driven by the growth in the instrument installed base . we experienced continued increases in revenue from our single cell gene expression , single cell immune profiling and single cell atac consumables . in addition , in the fourth quarter of 2019 we began selling our visium spatial gene expression solution which experienced high initial demand . 89 instrument revenue decreased $ 1.6 million , or 4 % , to $ 34.9 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. lower average selling prices were partially offset by higher volumes .
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earlier adoption is permitted only for fiscal years beginning after december 15 , 2016 , including interim reporting periods within such fiscal years story_separator_special_tag overview we are a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications . we sell our products and provide related services in diversified markets , including homeland security , healthcare , defense and aerospace . we have three operating divisions : ( a ) security , providing security and inspection systems and turnkey security screening solutions ; ( b ) healthcare , providing patient monitoring , diagnostic cardiology , and anesthesia systems ; and ( c ) optoelectronics and manufacturing , providing specialized electronic components for our security and healthcare divisions , as well as to third parties for applications in the defense and aerospace markets , among others . security division . through our security division , we provide security screening products and services worldwide , as well as turnkey security screening solutions . these products and services are used to inspect baggage , parcels , cargo , people , vehicles and other objects for weapons , explosives , drugs , radioactive and nuclear materials and other contraband . revenues from our security division accounted for 58 % of our total consolidated revenues for fiscal 2017. during fiscal 2017 , in conjunction with ongoing cost optimization efforts , we undertook an initiative to consolidate a manufacturing facility where we incurred approximately $ 0.6 million of costs . this facility consolidation is expected to result in recurring annualized savings of approximately $ 0.8 million . as a result of the terrorist attacks in the u.s. and in other locations worldwide , security and inspection products have increasingly been used at a wide range of facilities other than airports , such as border crossings , railways , seaports , cruise line terminals , freight forwarding operations , sporting venues , government and military installations and nuclear facilities . we believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to competitively pursue security and inspection opportunities as they arise throughout the world . currently , the u.s. federal government is discussing various options to address sequestration and the u.s. federal government 's overall fiscal challenges and we can not predict the outcome of these efforts . while we believe that national security spending will continue to be a priority , u.s. government budget deficits and the national debt have created increasing pressure to examine and reduce spending across many federal agencies . additionally , there continues to be volatility in international markets that has impacted international security spending . we believe that the diversified product portfolio and international customer mix of our security division position us well to withstand the impact of these uncertainties and even benefit from specific initiatives within various governments . however , depending on how future sequestration cuts are implemented and how the u.s. federal government and our other international customers manage their fiscal challenges , we believe that these actions could have a material , adverse effect on our business , financial condition and results of operations . healthcare division . through our healthcare division , we design , manufacture , market and service patient monitoring , diagnostic cardiology , and anesthesia delivery and ventilation systems worldwide for sale primarily to hospitals and medical centers . our products monitor patients in critical , emergency and perioperative care areas of the hospital and provide information , through wired and wireless networks , to physicians and nurses who may be at the patient 's bedside , in another area of the hospital or even outside the hospital . revenues from our healthcare division accounted for 21 % of our total consolidated revenues for fiscal 2017. during fiscal 2017 , in conjunction with ongoing cost optimization efforts , we undertook an initiative to consolidate a manufacturing and r & d facility where we incurred approximately $ 1.4 million of employee termination costs and $ 0.6 million of other costs . this facility consolidation is expected to result in recurring annualized savings of approximately $ 3.0 million . the healthcare markets in which we operate are highly competitive . we believe that our customers choose among competing products on the basis of product performance , functionality , value and service . there is continued uncertainty regarding the u.s. federal government budget and the affordable care act , either of which 55 may impact hospital spending , third-party payer reimbursement and fees to be levied on certain medical device revenues , any of which could adversely affect our business and results of operations . in addition , hospital capital spending appears to have been impacted by strategic uncertainties surrounding the affordable care act and economic pressures . we also believe that global economic uncertainty has caused some hospitals and healthcare providers to delay purchases of our products and services . during this period of uncertainty , sales of our healthcare products may be negatively impacted . we can not predict when the markets will fully recover or when the uncertainties related to the u.s. federal government will be resolved and , therefore , when this period of delayed and diminished purchasing will end . a prolonged delay could have a material adverse effect on our business , financial condition and results of operations . optoelectronics and manufacturing division . through our optoelectronics and manufacturing division , we design , manufacture and market optoelectronic devices and provide electronics manufacturing services globally for use in a broad range of applications , including aerospace and defense electronics , security and inspection systems , medical imaging and diagnostics , telecommunications , office automation , computer peripherals , industrial automation , automotive diagnostic systems , and consumer products . we also provide our optoelectronic devices and electronics manufacturing services to oem customers , as well as our own security and healthcare divisions . story_separator_special_tag the determination of whether or not customer acceptance terms are perfunctory or inconsequential impacts the amount and timing of revenue recognition . critical judgments also include estimates of warranty reserves , which are established based on historical experience and knowledge of the product under warranty . allowance for doubtful accounts . the allowance for doubtful accounts involves estimates based on management 's judgment , review of individual receivables and analysis of historical bad debts . we monitor collections and payments from our customers and we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we also assess current economic trends that might impact the level of credit losses in the future . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances could be required . inventory . inventory is stated at the lower of cost or market . cost is determined on the first-in , first-out method . we write down inventory for slow-moving and obsolete inventory based on assessments of future demands , market conditions and customers who may be experiencing financial difficulties . if these factors were to become less favorable than those projected , additional inventory write-downs could be required . property and equipment . property and equipment are stated at cost less accumulated depreciation and amortization . depreciation and amortization are charged while assets are used in service and are computed using the straight-line method over the estimated useful lives of the assets taking into consideration any estimated salvage value . amortization of leasehold improvements is calculated on the straight-line method over the shorter of the useful life of the asset or the lease term . leased capital assets are included in property and equipment . amortization of property and equipment under capital leases is included with depreciation expense . in the event that property and equipment are idle , as a result of excess capacity or the early termination , non-renewal or reduction in scope of a turnkey screening operation , such assets are assessed for impairment on a periodic basis and when an indication that impairment may exist . income taxes . our annual tax rate is based on our income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities . significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties . we review our tax positions quarterly and adjust the balances as new information becomes available . deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years . such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as from net operating loss and tax credit carryforwards . we evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies . these sources of income inherently rely on estimates . to provide insight , we use our historical experience and our short and long-range business forecasts . we believe it is more likely than not that a portion of 59 the deferred income tax assets may expire unused and therefore have established a valuation allowance against them . although realization is not assured for the remaining deferred income tax assets , we believe it is more likely than not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods . however , deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable . business combinations . we allocate the fair value of purchase consideration to the tangible and intangible assets acquired , and liabilities assumed based on their estimated fair values . the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill . such valuations require management to make significant estimates and assumptions , especially with respect to intangible assets . significant estimates in valuing certain intangible assets include , but are not limited to , future expected cash flows from acquired customers , acquired technology , and trade names , useful lives and discount rates . our estimates of fair value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable and , as a result , actual results may differ from estimates . during the measurement period , which is one year from the acquisition date , we may record adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill . upon the conclusion of the measurement period , any subsequent adjustments are recorded to earnings . impairment of long-lived assets . goodwill represents the excess purchase price of net tangible and intangible assets acquired in business combinations over their estimated fair value . goodwill is allocated to our segments based on the nature of the product line of the acquired business . the carrying value of goodwill is not amortized , but is annually tested for impairment during our second quarter and more often if there is an indicator of impairment . intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite . we assess qualitative factors of each of our reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill .
| consolidated results fiscal 2017 compared with fiscal 2016. we reported consolidated sales of $ 961.0 million in fiscal 2017 , a 16 % increase over the prior year , which drove a year-over-year increase in gross profit of $ 46.6 million . despite this increase in sales and gross profit , our income from operations decreased by 13 % from the prior year to $ 33.3 million in fiscal 2017. this decline in profitability was driven primarily by a 112 % increase in impairment , restructuring and other charges . such charges related to the abandonment of assets previously built or constructed for our turnkey scanning program in mexico and two product lines in our security division , facility consolidations among all three of our operating divisions , transaction costs for acquisition activity during the fiscal year and costs related to the integration of as & e® , which was acquired in september of 2016. fiscal 2016 compared with fiscal 2015. we reported consolidated sales of $ 829.7 million in fiscal 2016 , a 13 % decrease from the prior year . our operating profit decreased by 58 % from the prior year to $ 38.4 million in fiscal 2016. this decline in profitability was driven primarily by the decrease in sales , which was the primary driver of a $ 48.5 million decrease in gross profit , and a $ 12.1 million increase in impairment , restructuring and other charges . these factors were partially offset by a $ 5.1 million decrease in sg & a expenses and a $ 1.8 million decrease in r & d . acquisitions . in september 2016 , we acquired as & e® , a leading provider of detection solutions for advanced cargo , parcel and personnel inspection . as & e® 's operations are included in our security division .
| 5,074 |
as of december 31 , 2019 , the company has foreign tax credit carryforwards of $ 3.1 million that will expire in 2029. as of december 31 , 2019 , the company has no valuation allowance against the corresponding deferred tax asset . total net income tax payments ( refunds ) were $ ( 11.8 ) million in 2019 , $ 18.0 million in 2018 , and $ 98.0 million in 2017. the company and its subsidiaries are subject to u.s. federal and state income taxes in multiple jurisdictions . in many cases , our uncertain tax positions are related to tax story_separator_special_tag overview the following discussion should be read in conjunction with “ selected financial data ” and the consolidated financial statements included elsewhere in this document . see also “ forward-looking statements ” on page 2. rpc , inc. ( “ rpc ” ) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration , production and development of oil and gas properties throughout the united states , including the southwest , mid-continent , gulf of mexico , rocky mountain and appalachian regions , and in selected international markets . the company 's revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells . our key business and financial strategies are : - to focus our management resources on and invest our capital in equipment and geographic markets that we believe will earn high returns on capital . - to maintain a flexible cost structure that can respond quickly to volatile industry conditions and business activity levels . - to maintain an efficient , low-cost capital structure which includes an appropriate use of debt financing . - to optimize asset utilization with the goal of increasing revenues and generating leverage of direct and overhead costs , balanced against increasingly high maintenance requirements and low financial returns experienced during times of low customer pricing for our services . - to deliver product and services to our customers safely . - to secure adequate sources of supplies of certain high-demand raw materials used in our operations , both in order to conduct our operations and to enhance our competitive position . - to maintain and selectively increase market share . - to maximize stockholder return by optimizing the balance between cash invested in the company 's productive assets , the payment of dividends to stockholders , and the repurchase of our common stock on the open market . - to align the interests of our management and stockholders . in assessing the outcomes of these strategies and rpc 's financial condition and operating performance , management generally reviews periodic forecast data , monthly actual results , and other similar information . we also consider trends related to certain key financial data , including revenues , utilization of our equipment and personnel , maintenance and repair expenses , pricing for our services and equipment , profit margins , selling , general and administrative expenses , cash flows and the return on our invested capital . additionally , we compare our trends to those of our peers . we continuously monitor factors that impact current and expected customer activity levels , such as the price of oil and natural gas , changes in pricing for our services and equipment and utilization of our equipment and personnel . our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world , overall economic conditions and weather in the united states , the prices of oil and natural gas , and our customers ' drilling and production activities . 19 current industry conditions are characterized by oil prices which have fallen from a cyclical peak of $ 75 per barrel in the fourth quarter of 2018 to $ 53 per barrel in the first quarter of 2020. in spite of this significant decrease in the price of oil , the u.s. domestic rig count and well completion counts have not fallen significantly during the fourth quarter of 2019 and into the first quarter of 2020. however , many of our customers indicate that they are curtailing or delaying their drilling and completion plans early in 2020 , and we believe that this will have a negative impact on rpc 's revenues and earnings during the near term . one catalyst for the recent decrease in the price of oil relates to global supply and demand for the commodity . early in 2020 , a potential slowdown in economic growth is perceived to be a catalyst for lower oil prices , a factor which is exacerbated by continued growth in oil production , particularly in the united states . rpc believes that oil production in the united states has also become an increasingly important determinant of global oil prices , because the united states grew to be the world 's largest producer of oil during the second quarter of 2016. following its recent peak , u.s. oil production fell by 25 percent as of the third quarter of 2017. since that time , however , improving drilling and completion activity have caused u.s. domestic oil production to rise , and as of the most recent monthly reported statistics , current u.s. oil production has increased to a level that is 42 percent higher than the cyclical low production recorded during the third quarter of 2016. during the fourth quarter of 2018 , u.s. oil production rose to its highest level on record . we believe that record u.s. oil production is a catalyst for lower oil prices during the near term . customer activities directed towards natural gas drilling and production have been weak for several years , with the u.s. domestic natural gas rig count during the first quarter of 2017 falling to the lowest level ever recorded . story_separator_special_tag we believe that oil-directed drilling will remain the majority of domestic drilling , and that natural gas-directed drilling will remain a low percentage of u.s. domestic drilling in the near term . we believe that this relationship will continue due to relatively low prices for natural gas , high production from existing natural gas wells , and industry projections of limited increases in domestic natural gas demand during the near term . we continue to monitor the market for our services and the competitive environment . the u.s. domestic rig count had increased sharply since the historical low recorded during the third quarter of 2016 and continuing until the fourth quarter of 2018 , though the rig count has declined during 2019. the fact that drilling and completion activities continue to be highly service-intensive and require a large amount of equipment and raw materials carries favorable implications for our activity levels . furthermore , we note that some wells in the u.s. domestic market have been drilled but not completed . at the end of the fourth quarter of 2019 , the number of wells in this category had decreased by approximately ten percent since the beginning of 2019. these moderately positive economic factors are offset by indications from our customers that they intend to reduce drilling and completion activity during 2020 because they are managing their operations to maximize near-term cash flow . also , during 2018 , we began to observe that oilfield completion crews and equipment were providing services with increasing efficiency , and we believe that this higher efficiency has caused the market for several oilfield completion services , including pressure pumping , to become oversupplied . this trend continued during 2019 , and we believe that this development carries negative consequences for pricing of our services , utilization of our equipment and our financial results during the near term . activity levels and pricing for oilfield services reached a level during 2018 that allowed the industry to maintain its equipment and encouraged oilfield service providers to expand their fleets of revenue-producing equipment and hire additional personnel . the prospect of improved financial returns also provided access to the capital markets and allowed previously insolvent service companies to resume operations and add equipment . as a result , competition increased during 2018. increased competition and improved service efficiency , coupled with the significant decline in oil prices during the fourth quarter of 2018 , became catalysts for lower pricing and activity levels in 2019. rpc expanded the size of its fleet of revenue-producing equipment modestly during 2018 and placed orders in the latter part of 2018 for a small amount of new equipment that was delivered in 2019. the equipment we placed in service in 2018 and 2019 is more powerful and efficient than earlier generations of oilfield service equipment , and we believe that it will produce acceptable financial returns as it is placed in service at high utilization levels . our consistent response to the near-term potential of lower activity levels and pricing is to undertake moderate fleet expansions which we believe will allow us to maintain a strong balance sheet , even if near-term pricing and activity levels generated by such new equipment are modest . the negative implications for rpc 's near-term activity levels from low oil prices and increased competition are partially offset by improved availability and lower cost for some of the critical raw materials used in providing rpc 's services . in addition , lower activity levels reduce the cost , and increase the availability of , skilled labor . these factors may reduce the cost of providing rpc 's services and reduce logistical constraints . the company recorded impairment and other charges in 2019 of $ 82.3 million primarily related to equipment disposals , closing operating locations and reducing employee staffing . we made operational decisions resulting in these impairments and other charges because the u.s. oilfield has undergone fundamental changes in the past few years . these changes require equipment which is capable of operating continuously , over long periods of time , and much of our older equipment is not able to fulfill this requirement , no matter how well maintained . we believe that the oilfield will require less pressure pumping equipment in the foreseeable future based on the fact that u.s. oil production has reached record levels while not fully utilizing the pressure pumping capacity that has been available during the period . in addition , we are aware that our customers have been forced to conduct their operations with little or no access to outside capital for the first time in many years , and we assume that this aspect of exploration and production financing will remain in place for the foreseeable future , thereby reducing the volume of future drilling and completion of new wells . 21 story_separator_special_tag 0pt ; '' > cost of revenues . cost of revenues in 2018 was $ 1.2 billion compared to $ 1.1 billion in 2017 , an increase of $ 132.2 million or 12.6 percent due to higher employment costs , maintenance and repair expenses and other costs , all of which were driven by higher activity levels . as a percentage of revenues , cost of revenues increased to 68.7 percent in 2018 compared to 65.9 percent in 2017. selling , general and administrative expenses . selling , general and administrative expenses increased 5.6 percent to $ 168.2 million in 2018 compared to $ 159.2 million in 2017. these expenses increased due to higher salaries and wages expense consistent with higher activity levels as well as an increase in information technology costs . selling , general and administrative expenses as a percentage of revenues decreased slightly to 9.8 percent of revenues in 2018 compared to 10.0 percent of revenues in 2017 due to the leverage of higher revenues over primarily fixed expenses . depreciation and amortization .
| results of operations replace_table_token_2_th ( 1 ) amount in 2019 represents $ 80,263 related to technical services and $ 2,010 related to corporate services . ( 2 ) the indicated data for 2017 includes the impact of a net discrete tax benefit of $ 19.3 million , or $ 0.09 per share , recorded as a result of the tax cuts and jobs act enacted during the fourth quarter of 2017. year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues . revenues in 2019 decreased $ 498.6 million or 29.0 percent compared to 2018. the technical services segment revenues in 2019 decreased $ 501.7 million or 30.5 percent compared to the prior year . the decrease is due primarily to lower activity levels and lower pricing in several of our service lines as compared to the prior year . the support services segment revenues in 2019 increased $ 3.1 million or 4.2 percent compared to 2018 due primarily to improved activity levels and pricing in the rental tools service line , which is the largest service line within this segment . technical services reported an operating loss of $ 33.0 million during 2019 compared to a profit of $ 216.7 million in the prior year , while support services reported an operating income of $ 10.0 million in 2019 compared to $ 4.6 million in the prior year . the average price of oil decreased 12.5 percent and the average price of natural gas decreased 19.2 percent during 2019 compared to the prior year .
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we encourage you to review the risks and uncertainties , discussed in the section entitled item 1a “ risk factors ” , and the “ note regarding forward-looking statements ” , included at the beginning of this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends . the following discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. overview we are a biopharmaceutical company focused on serving patients with severe and ultra-rare disorders through the innovation , development and commercialization of life-transforming therapeutic products . our marketed product soliris is the first and only therapeutic approved for patients with either of two severe and ultra-rare disorders resulting from chronic uncontrolled activation of the complement component of the immune system : paroxysmal nocturnal hemoglobinuria ( pnh ) , a life-threatening and ultra-rare genetic blood disorder , and atypical hemolytic uremic syndrome ( ahus ) , a life-threatening and ultra-rare genetic disease . we are also evaluating additional potential indications for soliris in severe and ultra-rare diseases in which we believe that uncontrolled complement activation is the underlying mechanism , and we are progressing in various stages of development with additional biotechnology product candidates as treatments for patients with severe and life-threatening ultra-rare disorders . we were incorporated in 1992 and began commercial sale of soliris in 2007. soliris is designed to inhibit a specific aspect of the complement component of the immune system and thereby treat inflammation associated with chronic disorders in several therapeutic areas , including hematology , nephrology , transplant rejection and neurology . soliris is a humanized monoclonal antibody that effectively blocks terminal complement activity at the doses currently prescribed . the initial indication for which we received approval for soliris is pnh . pnh is a debilitating and life-threatening , ultra-rare genetic blood disorder defined by chronic uncontrolled complement activation leading to the destruction of red blood cells ( hemolysis ) . the chronic hemolysis in patients with pnh may be associated with life-threatening thromboses , recurrent pain , kidney disease , disabling fatigue , impaired quality of life , severe anemia , pulmonary hypertension , shortness of breath and intermittent episodes of dark-colored urine ( hemoglobinuria ) . soliris was approved for the treatment of pnh by the u.s. food and drug administration ( fda ) and the european commission ( ec ) in 2007 and by japan 's ministry of health , labour and welfare ( mhlw ) in 2010 , and has been approved in several other territories . additionally , soliris has been granted orphan drug designation for the treatment of pnh in the united states , europe , japan and several other territories . in september and november 2011 , soliris was approved by the fda and ec , respectively , for the treatment of pediatric and adult patients with ahus in the united states and europe . in september 2013 , the mhlw approved soliris for the treatment of pediatric and adult patients with ahus in japan . ahus is a severe and life-threatening genetic ultra-rare disease characterized by chronic uncontrolled complement activation and thrombotic microangiopathy ( tma ) , the formation of blood clots in small blood vessels throughout the body , causing a reduction in platelet count ( thrombocytopenia ) and life-threatening damage to the kidney , brain , heart and other vital organs . in addition , the fda and ec have granted soliris orphan drug designation for the treatment of patients with ahus . in addition to pnh and ahus , we believe that soliris may be useful in the treatment of a variety of other serious diseases and conditions resulting from uncontrolled complement activation . we are currently evaluating additional potential indications for soliris in severe and ultra-rare diseases in which uncontrolled complement activation is the underlying mechanism . we are also progressing in various stages of development with additional biotechnology product candidates that target severe and life-threatening ultra-rare diseases for which we believe current treatments are either non-existent or inadequate . these therapeutics focus on metabolic and inflammatory diseases . we are also involved in the research associated with the identification and development of new therapeutics pursuant to ongoing license and collaboration agreements . critical accounting policies and the use of estimates the significant accounting policies and basis of preparation of our consolidated financial statements are described in note 1 , “ business overview and summary of significant accounting policies ” of the consolidated financial statements included in this annual report on form 10-k. under accounting principles generally accepted in the united states , we are required to make 49 estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and disclosure of contingent assets and liabilities in our financial statements . actual results could differ from those estimates . we believe the judgments , estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements : revenue recognition ; contingent liabilities ; inventories ; research and development expenses ; share-based compensation ; valuation of goodwill , acquired intangible assets and in-process research and development ( ipr & d ) ; valuation of contingent consideration ; and income taxes . revenue recognition net product sales our principal source of revenue is product sales . we recognize revenue from product sales when persuasive evidence of an arrangement exists , title to product and associated risk of loss has passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured , and we have no further performance obligations . revenue is recorded upon receipt of the product by the end customer , which is typically a hospital , physician 's office , private or government pharmacy or other health care facility . story_separator_special_tag on a periodic basis , as additional information becomes available , or based on specific events such as the outcome of litigation or 51 settlement of claims , we may reassess the potential liability related to these matters and may revise these estimates , which could result in a material adjustment to our operating results . inventories inventories are stated at the lower of cost or estimated realizable value . we determine the cost of inventory using the weighted-average cost method . we capitalize inventory produced for commercial sale , which may include costs incurred for certain products awaiting regulatory approval . we capitalize inventory produced in preparation of product launches sufficient to support estimated initial market demand . capitalization of such inventory begins when we have ( i ) obtained positive results in clinical trials that we believe are necessary to support regulatory approval , ( ii ) concluded that uncertainties regarding regulatory approval have been sufficiently reduced , and ( iii ) determined that the inventory has probable future economic benefit . in evaluating whether these conditions have been met , we consider clinical trial results for the underlying product candidate , results from meetings with regulatory authorities , and the compilation of the regulatory application . if we are aware of any material risks or contingencies outside of the standard regulatory review and approval process , or if there are any specific negative issues identified relating to the safety , efficacy , manufacturing , marketing or labeling of the product that would have a significant negative impact on its future economic benefits , the related inventory would not be capitalized . products that have been approved by the fda or other regulatory authorities , such as soliris , are also used in clinical programs to assess the safety and efficacy of the products for usage in diseases that have not been approved by the fda or other regulatory authorities . the form of soliris utilized for both commercial and clinical programs is identical and , as a result , the inventory has an `` alternative future use '' as defined in authoritative guidance . raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and , therefore , does not have an `` alternative future use '' . for products which are under development and have not yet been approved by regulatory authorities , purchased drug product is charged to research and development expense upon delivery . delivery occurs when the inventory passes quality inspection and ownership transfers to us . nonrefundable advance payments for research and development activities , including production of purchased drug product , are deferred and capitalized until the goods are delivered . we also recognize expense for raw materials purchased when the raw materials pass quality inspection and we have an obligation to pay for the materials . we analyze our inventory levels to identify inventory that may expire prior to sale , inventory that has a cost basis in excess of its estimated realizable value , or inventory in excess of expected sales requirements . although the manufacturing of our product is subject to strict quality control , certain batches or units of product may no longer meet quality specifications or may expire , which would require adjustments to our inventory values . we also apply judgments related to the results of quality tests that we perform throughout the production process , as well as our understanding of regulatory guidelines , to determine if it is probable that inventory will be saleable . soliris currently has a maximum estimated life of 48 months and , based on our sales forecasts , we expect to realize the carrying value of the soliris inventory . in the future , reduced demand , quality issues or excess supply beyond those anticipated by management may result in a material adjustment to inventory levels , which would be recorded as an increase to cost of sales . the determination of whether or not inventory costs will be realizable requires estimates by our management . a critical input in this determination is future expected inventory requirements based on internal sales forecasts . we then compare these requirements to the expiry dates of inventory on hand . for inventories that are capitalized in preparation of product launch , we also consider the expected approval date in assessing realizability . to the extent that inventory is expected to expire prior to being sold , we will write down the value of inventory . if actual results differ from those estimates , additional inventory write-offs may be required . research and development expenses we accrue costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the contract research organizations ( cro 's ) , clinical study sites , laboratories , consultants , or other clinical trial vendors that perform the activities . related contracts vary significantly in length , and may be for a fixed amount , a variable amount based on actual costs incurred , capped at a certain limit , or for a combination of these elements . activity levels are monitored through close communication with the cro 's and other clinical trial vendors , including detailed invoice and task completion review , analysis of expenses against budgeted amounts , analysis of work performed against approved contract budgets and payment schedules , and recognition of any changes in scope of the services to be performed . certain cro and 52 significant clinical trial vendors provide an estimate of costs incurred but not invoiced at the end of each quarter for each individual trial . the estimates are reviewed and discussed with the cro or vendor as necessary , and are included in research and development expenses for the related period .
| results of operations the following table sets forth consolidated statements of operations data for the periods indicated . this information has been derived from the consolidated financial statements included elsewhere in this annual report on form 10-k. replace_table_token_5_th 55 comparison of the year ended december 31 , 2013 to the year ended december 31 , 2012 net product sales net product sales by significant geographic region are as follows : replace_table_token_6_th the increase in revenue for fiscal year 2013 versus 2012 was primarily due to an increased volume of unit shipments , partially offset by a negative impact of price and foreign exchange . the increase in revenue of 37 % for the year ended december 31 , 2013 was due to an increase in unit volumes of 40 % , offset by a negative price impact of 2 % , and a negative impact on foreign exchange of 1 % . the increase in volume was largely due to physicians globally requesting soliris therapy for additional patients . the negative price impact of 2 % for the year ended december 31 , 2013 was primarily due to increased rebates in certain countries in europe , offset by a price increase in the united states . the negative impact on foreign exchange of $ 15,876 , or 1 % , for the year ended december 31 , 2013 was due to changes in foreign currency exchange rates ( inclusive of hedging activity ) versus the u.s. dollar for the year ended december 31 , 2012 . the negative impact was primarily due to the weakening of the japanese yen . we recorded a gain in revenue of $ 20,569 and $ 12,869 related to our foreign currency cash flow hedging program , which is included in revenue from outside the united states , for the years ended december 31 , 2013 and 2012 , respectively .
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between september 2009 and september 2012 , we acquired approximately 200 million tons of coal reserves related to the deer run mine in illinois from colt , llc , an affiliate of foresight energy , for a total purchase price of $ 255 million . oklahoma oil and gas . from december 2011 through june 2012 , we acquired approximately 19,200 net mineral acres located in the mississippian lime oil play in northern oklahoma for $ 63.9 million . sugar camp . in march 2012 , we acquired the rail loadout and associated infrastructure assets for $ 50.0 million and a contractual overriding royalty for $ 8.9 million interest on certain tonnage at the sugar camp mine in illinois . the rail loadout and infrastructure assets were purchased from sugar camp energy , llc and the contractual overriding royalty interest was purchased from ruger , llc , both affiliates of foresight energy . 49 litz-moore . in march 2012 , we acquired metallurgical coal reserves adjacent to current nrp holdings in virginia for $ 2.8 million . royal . in july 2011 , we acquired approximately 44,000 acres of coal reserves and coal bed methane located in pennsylvania and illinois from royal oil and gas corporation for $ 8.0 million . nbr sand . in june 2011 , we acquired an overriding royalty interest in approximately 711 acres of frac sand reserves near tyler , texas for $ 16.5 million . east tennessee materials . in march 2011 , we acquired approximately 500 acres of mineral and surface rights related to limestone reserves in cleveland , tennessee near chattanooga for $ 4.7 million . calx resources . in february 2011 , we acquired approximately 500 acres of mineral and surface rights related to limestone reserves on the tennessee river near paducah , kentucky for $ 16.0 million . critical accounting policies coal and aggregate royalties . coal and aggregate royalty revenues are recognized on the basis of tons of mineral sold by our lessees and the corresponding revenue from those sales . generally , the lessees make payments to us based on the greater of a percentage of the gross sales price or a fixed price per ton of mineral they sell , subject to minimum annual or quarterly payments . processing and transportation fees . processing fees are recognized on the basis of tons of material processed through the facilities by our lessees and the corresponding revenue from those sales . generally , the lessees of the processing facilities make payments to us based on the greater of a percentage of the gross sales price or a fixed price per ton of coal that is processed and sold from the facilities . the processing leases are structured so that the lessees are responsible for operating and maintenance expenses associated with the facilities . transportation fees are recognized on the basis of tons of coal transported over the beltlines . under the terms of the transportation contracts , we receive a fixed price per ton for all coal transported on the beltlines . oil and gas revenues . oil and gas royalty revenues are recognized on the basis of volume of hydrocarbons sold by lessees and the corresponding revenue from those sales . generally , the lessees make payments based on a percentage of the selling price . some leases are subject to minimum annual payments or delay rentals . revenues related to our non-operated working interests in oil and gas assets are recognized on the basis of our net revenue interests in hydrocarbons produced . we also have capital expenditure and operating expenditure obligations associated with the non-operated working interests . our revenues fluctuate based on changes in the market prices for oil and natural gas , the decline in production from producing wells , and other factors affecting the third-party oil and natural gas exploration and production companies that operate wells , including the cost of development and production . minimum royalties . most of our lessees must make minimum annual or quarterly payments which are generally recoupable over certain time periods . these minimum payments are recorded as deferred revenue when received . the deferred revenue attributable to the minimum payment is recognized as revenues either when the lessee recoups the minimum payment through production or immediately following the period during which the lessee is allowed to recoup the minimum payment . lessee audits and inspections . we periodically audit lessee information by examining certain records and internal reports of our lessees . our regional managers also perform periodic mine inspections to verify that the information that has been submitted to us is accurate . our audit and inspection processes are designed to identify material variances from lease terms as well as differences between the information reported to us and the actual results from each property . our audits and inspections , however , are in periods subsequent to when the revenue is reported and any adjustment identified by these processes might be in a reporting period different from when the revenue was initially recorded . depreciation , depletion and amortization . we depreciate our plant and equipment on a straight line basis over the estimated useful life of the asset . we deplete mineral properties on a units-of-production basis by lease , 50 based upon minerals mined in relation to the net cost of the mineral properties and estimated proven and probable tonnage in those properties . we amortize intangible assets on a units-of-production basis , unless classified as a temporarily idled asset then a minimum amortization is applied . oil and natural gas non-operated working interests are depleted on a unit-of-production basis . the depletion rate is adjusted annually based upon the amount of remaining reserves as determined by a third-party . oil and gas royalty interests are depleted on a straight-line basis over 30 years or the life of the lease , whichever is shorter . we update our estimates of reserves periodically and story_separator_special_tag between september 2009 and september 2012 , we acquired approximately 200 million tons of coal reserves related to the deer run mine in illinois from colt , llc , an affiliate of foresight energy , for a total purchase price of $ 255 million . oklahoma oil and gas . from december 2011 through june 2012 , we acquired approximately 19,200 net mineral acres located in the mississippian lime oil play in northern oklahoma for $ 63.9 million . sugar camp . in march 2012 , we acquired the rail loadout and associated infrastructure assets for $ 50.0 million and a contractual overriding royalty for $ 8.9 million interest on certain tonnage at the sugar camp mine in illinois . the rail loadout and infrastructure assets were purchased from sugar camp energy , llc and the contractual overriding royalty interest was purchased from ruger , llc , both affiliates of foresight energy . 49 litz-moore . in march 2012 , we acquired metallurgical coal reserves adjacent to current nrp holdings in virginia for $ 2.8 million . royal . in july 2011 , we acquired approximately 44,000 acres of coal reserves and coal bed methane located in pennsylvania and illinois from royal oil and gas corporation for $ 8.0 million . nbr sand . in june 2011 , we acquired an overriding royalty interest in approximately 711 acres of frac sand reserves near tyler , texas for $ 16.5 million . east tennessee materials . in march 2011 , we acquired approximately 500 acres of mineral and surface rights related to limestone reserves in cleveland , tennessee near chattanooga for $ 4.7 million . calx resources . in february 2011 , we acquired approximately 500 acres of mineral and surface rights related to limestone reserves on the tennessee river near paducah , kentucky for $ 16.0 million . critical accounting policies coal and aggregate royalties . coal and aggregate royalty revenues are recognized on the basis of tons of mineral sold by our lessees and the corresponding revenue from those sales . generally , the lessees make payments to us based on the greater of a percentage of the gross sales price or a fixed price per ton of mineral they sell , subject to minimum annual or quarterly payments . processing and transportation fees . processing fees are recognized on the basis of tons of material processed through the facilities by our lessees and the corresponding revenue from those sales . generally , the lessees of the processing facilities make payments to us based on the greater of a percentage of the gross sales price or a fixed price per ton of coal that is processed and sold from the facilities . the processing leases are structured so that the lessees are responsible for operating and maintenance expenses associated with the facilities . transportation fees are recognized on the basis of tons of coal transported over the beltlines . under the terms of the transportation contracts , we receive a fixed price per ton for all coal transported on the beltlines . oil and gas revenues . oil and gas royalty revenues are recognized on the basis of volume of hydrocarbons sold by lessees and the corresponding revenue from those sales . generally , the lessees make payments based on a percentage of the selling price . some leases are subject to minimum annual payments or delay rentals . revenues related to our non-operated working interests in oil and gas assets are recognized on the basis of our net revenue interests in hydrocarbons produced . we also have capital expenditure and operating expenditure obligations associated with the non-operated working interests . our revenues fluctuate based on changes in the market prices for oil and natural gas , the decline in production from producing wells , and other factors affecting the third-party oil and natural gas exploration and production companies that operate wells , including the cost of development and production . minimum royalties . most of our lessees must make minimum annual or quarterly payments which are generally recoupable over certain time periods . these minimum payments are recorded as deferred revenue when received . the deferred revenue attributable to the minimum payment is recognized as revenues either when the lessee recoups the minimum payment through production or immediately following the period during which the lessee is allowed to recoup the minimum payment . lessee audits and inspections . we periodically audit lessee information by examining certain records and internal reports of our lessees . our regional managers also perform periodic mine inspections to verify that the information that has been submitted to us is accurate . our audit and inspection processes are designed to identify material variances from lease terms as well as differences between the information reported to us and the actual results from each property . our audits and inspections , however , are in periods subsequent to when the revenue is reported and any adjustment identified by these processes might be in a reporting period different from when the revenue was initially recorded . depreciation , depletion and amortization . we depreciate our plant and equipment on a straight line basis over the estimated useful life of the asset . we deplete mineral properties on a units-of-production basis by lease , 50 based upon minerals mined in relation to the net cost of the mineral properties and estimated proven and probable tonnage in those properties . we amortize intangible assets on a units-of-production basis , unless classified as a temporarily idled asset then a minimum amortization is applied . oil and natural gas non-operated working interests are depleted on a unit-of-production basis . the depletion rate is adjusted annually based upon the amount of remaining reserves as determined by a third-party . oil and gas royalty interests are depleted on a straight-line basis over 30 years or the life of the lease , whichever is shorter . we update our estimates of reserves periodically and
| other operating results processing and transportation revenues . we generated $ 5.0 million , $ 8.3 million and $ 13.5 million in processing revenues for the years ended december 31 , 2013 , 2012 and 2011 , respectively . our processing revenues are derived primarily from our ownership of coal preparation plants . we do not operate the preparation plants , but receive a fee for material processed through them . similar to our coal royalty structure , the throughput fees are based on a percentage of the ultimate sales price for the material that is processed through the facilities . 55 during 2013 and 2012 , lower volumes and prices at our plants in appalachia resulted in lower revenues than in 2011. also , during 2012 we sold a preparation plant midway through the year which also contributed to lower revenues in both 2013 and 2012. in addition to our preparation plants , we own coal handling and transportation infrastructure in illinois . in contrast to our typical royalty structure , we receive a fixed rate per ton for coal transported over these facilities . at the williamson mine in illinois , we operate the coal handling and transportation infrastructure and have subcontracted out that responsibility to a third party . we generated transportation fees from these assets of approximately $ 18.0 million , $ 19.5 million and $ 16.7 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the increase in transportation fees from 2011 to 2012 is due to increased volumes from our lessee operations ramping up in the illinois basin . during 2013 , we saw reduced volumes on those transportation assets resulting in lower revenue . additional revenues and other income .
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we were incorporated under the laws of the state of delaware on september 24 , 2012. since our incorporation , we have devoted most of our efforts towards conducting certain clinical trials and preclinical studies related to our vk2809 , vk5211 and vk0214 programs , as well as efforts towards raising capital and building infrastructure . we obtained exclusive worldwide rights to our vk2809 , vk5211 and vk0214 programs and certain other assets pursuant to an exclusive license agreement with ligand pharmaceuticals incorporated , or ligand . the terms of this license agreement are detailed in the master license agreement which we entered into on may 21 , 2014 with ligand , as amended , or the master license agreement . a summary of the master license agreement can be found under the heading “ agreements with ligand— master license agreement ” under part i , “ item 1. business ” of this annual report on form 10-k. financial operations overview revenues to date , we have not generated any revenue . we do not expect to receive any revenue from any drug candidates that we develop unless and until we obtain regulatory approval for , and commercialize , our drug candidates or enter into collaborative agreements with third parties . research and development expenses during the year ended december 31 , 2018 , we charged $ 19.0 million to research and development expense related to our continued efforts to conduct our phase 2 clinical trial and certain toxicology studies for vk2809 and in vivo studies for vk0214 . during the year ended december 31 , 2017 , we charged $ 13.7 million to research and development expense related to our continued efforts to conduct phase 2 clinical trials for vk5211 and vk2809 and in vivo studies for vk0214 . we expect that our ongoing research and development expenses will consist of costs incurred for the development of our drug candidates , including , but not limited to : employee and consultant-related expenses , which will include salaries , benefits and stock-based compensation , and certain consultant fees and travel expenses ; expenses incurred under agreements with investigative sites and contract research organizations , or cros , which will conduct a substantial portion of our research and development activities , including studies in nash , on our behalf ; payments to third-party manufacturers , which will produce our active pharmaceutical ingredients and finished products ; license fees paid to third parties for use of their intellectual property ; and facilities , depreciation and other allocated expenses , which will include direct and allocated expenses for rent and maintenance of facilities and equipment , depreciation of leasehold improvements , equipment and laboratory and other supplies . we expense all research and development costs as incurred . 56 the process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming and the successful development of our drug candidates is highly uncertain . our futu re research and development expenses will depend on the clinical success of each of our drug candidates , as well as ongoing assessments of the commercial potential of such drug candidates . in addition , we can not forecast with any degree of certainty which drug candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . we expect to incur increased research and developm ent expenses in the future as we continue our efforts towards advancing our vk5211 and vk2809 programs and seek to advance our additional programs . general and administrative expenses our general and administrative expenses have generally increased year-over-year as we have hired additional employees , issued additional equity awards , which has resulted in increased stock-based compensation expense , implemented certain systems to increase efficiency , and incurred additional costs for insurance , legal and accounting related to operating as a public company . we expect that our general and administrative expenses will continue to increase in the future in order to support our expected increase in research and development activities , including increased salaries and other related costs , stock-based compensation and consulting fees for executive , finance , accounting and business development functions . we also expect general and administrative expenses to increase as a result of additional costs associated with being a public company , including expenses related to compliance with the rules and regulations of the sec and the nasdaq stock market llc , additional insurance expenses , investor relations activities and other administration and professional services . other significant costs are expected to include legal fees relating to patent and corporate matters , facility costs not otherwise included in research and development expenses , and fees for accounting and other consulting services . other income ( expense ) through may 21 , 2018 , other income ( expense ) includes the change in fair value of the debt conversion feature liability contained in the secured convertible promissory note issued pursuant to the loan and security agreement with ligand , or the ligand note , and its related interest expense , as well as the non-cash amortization of debt discount cost associated with the ligand note , offset by interest income earned from our cash and short-term investments . after may 21 , 2018 , other income ( expense ) includes only interest income earned from our cash , cash equivalents and short-term investments as the ligand note and related interest were repaid in full on may 21 , 2018. jobs act we are an “ emerging growth company ” within the meaning of the rules under the securities act , and we utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies . story_separator_special_tag preclinical study and clinical trial expenses include : fees paid to cros , consultants and laboratories in connection with preclinical studies ; fees paid to cros , clinical trial sites , investigators and consultants in connection with clinical trials ; and fees paid to contract manufacturers and service providers in connection with the production , testing and packaging of active pharmaceutical ingredients and drug materials for preclinical studies and clinical trials . payments under some of these agreements depend on factors such as the milestones accomplished , including enrollment of certain numbers of patients , site initiation and the completion of clinical trial milestones . to date , we have not experienced any events requiring us to make material adjustments to our accruals for service fees . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates , which could materially affect our results of operations . adjustments to our accruals are recorded as changes in estimates become evident . furthermore , based on amounts invoiced to us by our service providers , we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as services are rendered . in may 2014 , we entered into the master license agreement , pursuant to which we acquired certain rights to a number of research and development programs from ligand . in doing so , we updated our policy on research and development to include the purchase of rights to intangible assets . in accordance with asc topic 730 , research and development , intangible assets that are acquired and have an alternative future use , as defined , should be capitalized and reported as an intangible asset ; however , the cost of acquired intangible assets that do not have alternative future uses should be reported as research and development expense as incurred . we note that intangible assets acquired that are in the preclinical or clinical stages of development when acquired , and not approved by the u.s. food and drug administration , are deemed to have not satisfied the definition of having an alternative future use , as defined . 58 accordingly , assets acquired in the preclinic al and clinical stages of development are expensed as incurred in our statement of operations . patent costs costs related to filing and pursuing patent applications are expensed as incurred to general and administrative expense , as recoverability of such expenditures is uncertain . stock-based compensation we generally use the straight-line method to allocate compensation cost to reporting periods over each optionee 's requisite service period , which is generally the vesting period , and estimate the fair value of stock-based awards or restricted stock units to employees and directors using the black-scholes option-valuation model . the black-scholes model requires the input of subjective assumptions , including volatility , the expected term and the fair value of the underlying common stock on the date of grant , among other inputs . for restricted stock and restricted stock unit awards , we generally use the straight-line method to allocate compensation cost to reporting periods over the holder 's requisite service period , which is generally the vesting period , and use the fair value at grant date to value the awards . for restricted stock that vests upon the satisfaction of certain performance conditions , we recognize stock-based compensation expense when it becomes probable that the performance conditions will be met . at the grant date , we determine the grant date fair value , as a publicly traded company , using the intrinsic value , or the closing price of our stock on the date of grant . at the point where the criteria are deemed probable of being met , we record stock-based compensation with a cumulative catch-up expense in the period first recognized and then on a straight-line basis over the remaining period for which the performance criteria are expected to be completed . for our employee stock purchase plan ( espp ) , we generally recognize compensation expense for the fair value of the purchase options , as measured on the grant date , and use the graded vesting method to allocate this compensation cost to each purchase period within the related two-year offering period . as our espp also allows for up to one increase in contributions during each purchase period , then as an employee elects to increase their contributions , we treat this as an accounting modification . the pre- and post-modification values are calculated on the date of the modification , and the incremental expense is then amortized over the remaining purchase periods . income taxes we account for our income taxes using the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the basis used for financial reporting and income tax reporting purposes . deferred income taxes are provided based on the enacted tax rates in effect at the time such temporary differences are expected to reverse . a valuation allowance is provided for deferred tax assets if it is more likely than not that we will not realize those tax assets through future operations . asc topic 740-10 , income taxes , clarifies the accounting for uncertainty in income taxes recognized in our financial statements in accordance with accounting principles generally accepted in the united states of america , or gaap . income tax positions must meet a more-likely-than-not recognition threshold to be recognized . income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met . previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met .
| financial condition and results of operations . you should read the following discussion and analysis in conjunction with part ii , “ item 8. financial statements and supplementary data ” included below in this annual report on form 10-k. operating results are not necessarily indicative of results that may occur in future periods . the following discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve a number of risks , uncertainties and assumptions . actual events or results may differ materially from our expectations . important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include , but are not limited to , those set forth in part i , “ item 1a . risk factors ” in this annual report on form 10-k. all forward-looking statements included in this annual report on form 10-k are based on information available to us as of the time we file this annual report on form 10-k and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . overview we are a clinical-stage biopharmaceutical company focused on the development of novel , first-in-class or best-in-class therapies for metabolic and endocrine disorders . our lead clinical program 's drug candidate , vk2809 , is an orally available , tissue and receptor-subtype selective agonist of the thyroid hormone receptor beta , or trß . in september 2018 , we announced top-line results from a 12-week , phase 2 clinical trial of vk2809 in patients with non-alcoholic fatty liver disease , or nafld , and elevated low-density lipoprotein cholesterol , or ldl-c. the study successfully achieved its primary endpoint , with patients receiving vk2809 demonstrating statistically significant reductions in ldl-c compared with placebo . in addition , the trial 's secondary endpoint was achieved , with vk2809-treated patients experiencing statistically significant reductions in liver fat content compared with placebo .
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our offerings are focused on improving subsurface knowledge to enhance e & p decision-making and enhancing situational awareness to optimize offshore operations . we serve customers in most major energy producing regions of the world from strategically located offices . the company is publicly listed on the new york stock exchange under the ticker io . ion is headquartered in houston , texas with regional offices around the world . we provide our services and products through two business segments – e & p technology & services and operations optimization . for a full discussion of our business , see part i , item 1 . “ business . ” going concern and existing second lien notes restructuring as of december 31 , 2020 , we had $ 120.6 million in aggregate principal amount outstanding of our 9.125 % senior secured second priority notes due december 2021 , which mature on december 15 , 2021 ( the “ existing second lien notes ” ) . the existing second lien notes , which are now classified as a current liability , raise substantial doubt about our ability to continue as a going concern within the next twelve months . our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america ( `` gaap '' ) on a going concern basis of accounting , which contemplates continuity of operations , realization of assets and satisfaction of liabilities and commitments in the normal course of business . accordingly , our consolidated financial statements exclude certain adjustments that might result if we are unable to continue as a going concern . if we are unable to repay , refinance or restructure our existing second lien notes , which could result in the acceleration of the maturity of the outstanding balance on our credit facility , our assets may not be sufficient to repay in full the amounts owed to holders of our existing second lien notes or to lenders under our credit facility . to address the upcoming maturity of our existing second lien notes , we executed a restructuring support agreement supported by holders of our existing second lien notes representing approximately 92 % of the aggregate principal amount outstanding under our existing second lien notes , to effect certain restructuring transactions ( the `` restructuring transactions '' ) , and we are seeking stockholder approval of such restructuring transactions to be voted at a special meeting of stockholders scheduled for february 23 , 2021 ( `` the special meeting '' ) . the restructuring transactions , as further discussed in item 7 . “ liquidity and capital resources ” and in footnote 1 , `` summary of significant accounting policies '' of footnotes to consolidated financial statements , will allow us to extend the maturity of our existing second lien notes by four years to december 2025 by exchanging such notes for new convertible notes with a lower interest rate of 8 % per annum . accordingly , the consummation of the restructuring transactions and the conversion of the new second lien notes , if converted , will have a substantial dilutive effect on our outstanding common stock . shareholders will have the opportunity to participate in a concurrent rights offering to purchase the new convertible notes or our common stock in order to minimize dilution from the restructuring transactions . we anticipate the completion of the restructuring transactions by the end of march 2021. we also entered into a restructuring support agreement with pnc bank , national association ( “ pnc ” ) , the lender of our credit facility , ( the `` pnc restructuring support agreement '' ) that will allo w us , among others , to consummate and implement the restructuring transactions and waive any going concern event of default that would otherwise occur under our credit facility . while we believe we will be successful in obtaining stockholders ' approval and executing the restructuring transactions , there can be no assurances regarding the ultimate success , timing or extent of any such funding , which are dependent upon a variety of factors , many of which are outside of our control . in addition , no assurance can be given that any funding from the restructuring transactions , if approved by stockholders and obtained at all , will be adequate to fulfill our obligations and operate our business . consequently , we may be required to obtain additional funding whether through private or public equity transactions , debt financing or other capital sources . we may not be able to take such actions , if necessary , on commercially reasonable terms or at all . if additional funding can not be obtained on a timely basis and on satisfactory terms , it will have an adverse effect on our business , financial condition and results of operations . 29 covid-19 business impact and response the covid-19 pandemic caused the global economy to enter a recessionary period , which may be prolonged and severe . during 2020 , the exploration and production ( “ e & p ” ) industry faced the dual impact of demand deterioration from covid-19 and market oversupply from increased production , which caused oil and natural gas prices to decline significantly for most of the year . brent crude oil prices , which are most relevant to our internationally focused business , dropped 66 % during the first quarter from $ 66 on january 1 , 2020 to $ 23 on march 31 , 2020. by the end of the second quarter , brent crude oil prices rebounded to $ 41 per barrel , benefiting from increased global demand as pandemic restrictions started to ease and decreased production . brent crude oil prices have remained relatively stable through the end of the year , increasing during the fourth quarter to end the year at $ 51 per barrel . brent crude oil prices further increased to approximately $ 60 per barrel at the beginning of february 2021 , which is consistent with prices a year ago . story_separator_special_tag over the last five years , we have made an effort to diversify our offerings across the e & p life cycle and move closer to the reservoir , where capital investment tends to be higher and more consistent . historically , our data library was largely 2d and exploration focused , which limited our revenues to approximately 3 % of a $ 2.0 to $ 3.0 billion-dollar offshore multi-client market . in 2020 , we entered the 3d multi-client new acquisition market , where revenue and earnings potential are at least five times a typical new 2d exploration program . this strategy shift builds on our 3d multi-client reimaging success and leverages our tier 1 imaging and new gemini seismic source technology . within the operations optimization segment , the decrease in optimization software & services revenues was due to covid-19 related reduced seismic activity and associated services demand . devices revenues decreased due to a decrease in sales of replacement marine equipment and repairs . it is our view that technologies that add a competitive advantage through improved imaging , lower costs , higher productivity , or enhanced safety will continue to be valued in our marketplace . we believe that our newest technologies will continue to attract customer interest , because these technologies are designed to deliver those desirable attributes . the sustained e & p shift to maintain capital discipline and deliver shareholder value has resulted in a leaner , more profitable environment . e & p management focus is now much more closely aligned with customers where emphasis is on value metrics such as return on investment and cash generation as opposed to volume metrics such as production or reserves growth . international activity has been picking up while north america has slowed down . sustainable structural changes have made offshore increasingly cost-competitive with shale , with improved payback timeframes . as a result , we are seeing investment start to flow offshore again , which aligns more favorably with ion 's strategy and portfolio . oil and gas exploration remains competitive with the development of existing opportunities and assets , supporting the case for investment . historically , our revenue and ebitda generation are lower in the first part of the year as customers tend to set budgets in the first quarter , then picks up as they firm up plans throughout the year . the last few years , e & p companies have remained focused on generating cash and shareholder returns prioritizing value over volume . we expect continued activity to rationalize and high grade portfolios to maximize return on investment , and related data sales opportunities to fill knowledge gaps . with a strong focus on value generation , exploration spending remains very focused on specific geographic areas . 31 key financial metrics the table below provides ( i ) a summary of our net revenues for our company as a whole , and by segment , for 2020 , 2019 and 2018 , and ( ii ) an overview of other certain key financial metrics for our company as a whole and our two business segments on a comparative basis for 2020 , 2019 and 2018 replace_table_token_2_th ( a ) includes impairment of multi-client data library of $ 1.2 million and $ 9.1 million for 2020 and 2019 , respectively . ( b ) includes impairment of goodwill of $ 4.2 million for 2020 . ( c ) includes amortization of the government relief funding expected to be forgiven of $ 6.9 million , severance expense of $ 3.1 million and stock appreciation right awards credit of $ 2.5 million for 2020 . ( d ) in addition to item ( a ) , ( b ) and ( c ) , also affecting net loss attributable to ion was the valuation allowance on our net deferred tax assets of $ 8.5 million and tax impact of $ 0.4 million related to the impairment of multi-client data library . ( e ) in addition to item ( a ) , also affecting net loss attributable to ion for 2019 was the tax impact of $ 0.4 million related to the impairment of multi-client data library . ( f ) primarily relates to depreciation expense of previously reported ocean bottom integrated technologies segment . ( g ) includes loss from operations of previously reported ocean bottom integrated technologies segment of $ 11.1 million for 2019 , which includes other 's gross profit above , operating expenses of $ 5.1 million for 2018 , stock appreciation right awards and related expenses of $ 2.1 million for 2018 and impairment charge of $ 36.6 million for 2018 . 32 we intend that the following discussion of our financial condition and results of operations will provide information that will assist in understanding our consolidated financial statements , the changes in certain key items in those financial statements from year to year , and the primary factors that accounted for those changes . the financial results are reported in accordance with generally accepted accounting principles ( “ gaap ” ) . this discussion includes a comparison of our results of operations and liquidity and capital resources for 2020 and 2019. for the discussion of comparison of our results of operations and liquidity and capital resources for 2019 and 2018 , refer to part ii , item 7. `` management 's discussion and analysis of financial condition and results of operations - results of operations and liquidity and capital resources `` in our 2019 annual report on form 10-k , which was filed with the sec on february 6 , 2020. for a discussion of factors that could impact our future operating results and financial condition , see item 1a . “ risk factors ” above . story_separator_special_tag discussion of establishment of the deferred tax valuation allowance at footnote 8 “ income taxes ” of footnotes to consolidated financial statements .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 our overall gross margin remained consistent at 34 % for 2020 and 2019 as the impact of our cost-cutting initiatives offset most of the impact of the significant decline in revenues . our total net revenues of $ 122.7 million for 2020 decreased $ 52.0 million , or 30 % , compared to total net revenues of $ 174.7 million for 2019. total operating expenses as a percentage of total net revenues for 2020 and 2019 were 46 % and 48 % , respectively . during 2020 , our loss from operations was $ 14.6 million , compared to a loss of $ 24.5 million for 2019. our net loss attributable to ion for 2020 was $ 37.2 million , or a loss of $ 2.61 per share , compared to net loss attributable to ion of $ 48.2 million or a loss of $ 3.41 per share for 2019. net revenues , gross profits and gross margins e & p technology & services — net revenues for 2020 decreased by $ 33.8 million , or 27 % , to $ 91.8 million , compared to $ 125.6 million for 2019. within the e & p technology & services segment , total multi-client revenues were $ 76.6 million , a decrease of 26 % . this decline is primarily driven by decreased new venture net revenues resulting from reduced new program activity during 2020 . imag ing and reservoir services net revenues were $ 15.2 million , a 33 % decrease , attributable to lower proprietary tender activity and consistent with our strategy to preferentially utilize these resources to generate higher margin multi-client reimaging products .
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reference in this annual report on form 10-k including , but not limited to , matters described in “ item 7 - management 's discussion and analysis of financial condition and results of operations , ” are “ forward-looking statements ” within the meaning of section 21e of the securities exchange act of 1934 , as amended , section 27a of the securities act of 1933 , as amended , and subject to the safe-harbor provisions of the private securities litigation reform act of 1995. such forward-looking statements may contain words related to future projections including , but not limited to , words such as “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” “ would , ” and variations of those words and similar words that are subject to risks , uncertainties and other factors that could cause actual results to differ materially from those projected . factors that could cause or contribute to such differences include , but are not limited to , the following : ( 1 ) the legislation promulgated by the united states congress and actions taken by governmental agencies , including the united states department of the treasury , to deal with challenges to the u.s. financial system ; ( 2 ) the risks presented by economic volatility and recession , which could adversely affect credit quality , collateral values , including real estate collateral , investment values , liquidity and loan originations and loan portfolio delinquency rates ; ( 3 ) variances in the actual versus projected growth in assets and return on assets ; ( 4 ) potential loan and lease losses ; ( 5 ) potential expenses associated with resolving non-performing assets as well as regulatory changes ; ( 6 ) changes in the interest rate environment including interest rates charged on loans , earned on securities investments and paid on deposits and other borrowed funds ; ( 7 ) competitive effects ; ( 8 ) potential declines in fee and other noninterest income earned associated with economic factors as well as regulatory changes ; ( 9 ) general economic conditions nationally , regionally , and within our operating markets could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our ability to continue internal growth at historical rates and maintain the quality of our earning assets ; ( 10 ) changes in the regulatory environment including increased capital and regulatory compliance requirements and further government intervention in the u.s. financial system ; ( 11 ) changes in business conditions and inflation ; ( 12 ) changes in securities markets , public debt markets , and other capital markets ; ( 13 ) potential data processing and other operational systems failures or fraud ; ( 14 ) potential continued decline in real estate values in our operating markets ; ( 15 ) the effects of uncontrollable events such as terrorism , the threat of terrorism or the impact of military conflicts in connection with the conduct of the war on terrorism by the united states and its allies , negative financial and economic conditions , natural disasters , and disruption of power supplies and communications ; ( 16 ) changes in accounting standards , tax laws or regulations and interpretations of such standards , laws or regulations ; ( 17 ) projected business increases following any future strategic expansion could be lower than expected ; ( 18 ) the goodwill we have recorded in connection with acquisitions could become impaired , which may have an adverse impact on our earnings ; ( 19 ) the reputation of the financial services industry could experience further deterioration , which could adversely affect our ability to access markets for funding and to acquire and retain customers ; ( 20 ) the efficiencies we may expect to receive from any investments in personnel and infrastructure may not be realized ; and ( 21 ) downgrades in the credit rating of the united states by credit rating agencies . the factors set forth under “ item 1a - risk factors ” in this report and other cautionary statements and information set forth in this report should be carefully considered and understood as being applicable to all related forward-looking statements contained in this report , when evaluating the business prospects of the company and its subsidiaries . forward-looking statements are not guarantees of performance . by their nature , they involve risks , uncertainties and assumptions . the future results and shareholder values may differ significantly from those expressed in these forward-looking statements . you are cautioned not to put undue reliance on any forward-looking statement . any such statement speaks only as of the date of this report , and in the case of any documents that may be incorporated by reference , as of the date of those documents . we do not undertake any obligation to update or release any revisions to any forward-looking statements , to report any new information , future event or other circumstances after the date of this report or to reflect the occurrence of unanticipated events , except as required by law . however , your attention is directed to any further disclosures made on related subjects in our subsequent reports filed with the securities and exchange commission ( the “ sec ” ) on forms 10-k , 10-q and 8-k. 33 critical accounting policies general the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the financial information contained within our statements is , to a significant extent , financial information that is based on measures of the financial effects of transactions and events that have already occurred . we use historical loss data and the economic environment as factors , among others , in determining the inherent loss that may be present in our loan and lease portfolio . story_separator_special_tag tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination . only tax positions that meet the more-likely-than-not recognition threshold are recognized . the election has been made to record interest expense related to tax exposures in tax expense , if applicable , and the exposure for penalties related to tax exposures in tax expense , if applicable . overview the company recorded net income in 2014 of $ 4,361,000 , an increase of $ 1,304,000 ( 42.7 % ) from $ 3,057,000 in 2013. diluted earnings per share were $ 0.54 for 2014 and $ 0.34 for 2013. for 2014 , the company realized a return on average equity of 4.98 % and a return on average assets of 0.72 % , as compared to 3.38 % and 0.52 % , respectively , in 2013. net income for 2013 decreased $ 150,000 ( 4.7 % ) from $ 3,207,000 in 2012. diluted earnings per share for 2012 were $ 0.34. for 2012 , the company realized a return on average equity of 3.42 % and return on average assets of 0.55 % for 2012. table one below provides a summary of the components of net income for the years indicated ( dollars in thousands ) : table one : components of net income replace_table_token_3_th * fully taxable equivalent basis ( fte ) under accounting principles generally accepted in the united states of america all share and per share data is adjusted for stock dividends and stock splits . there were no stock dividends or stock splits in 2014 , 2013 or 2012 . 35 during 2014 , total assets of the company increased $ 25,001,000 ( 4.2 % ) from $ 592,753,000 at december 31 , 2013 to $ 617,754,000 at december 31 , 2014. at december 31 , 2014 , net loans totaled $ 258,057,000 , up $ 6,310,000 ( 2.5 % ) from the ending balance of $ 251,747,000 at december 31 , 2013. deposits increased $ 27,003,000 or 5.6 % from $ 483,690,000 at december 31 , 2013 to $ 510,693,000 at december 31 , 2014. shareholders ' equity increased $ 2,627,000 or 3.0 % from $ 87,02,000 at december 31 , 2013 to $ 89,647,000 at december 31 , 2014. the company ended 2014 with a leverage capital ratio of 11.6 % and a total risk-based capital ratio of 22.9 % compared to a leverage capital ratio of 11.9 % and a total risk-based capital ratio of 23.2 % at the end of 2013. story_separator_special_tag style= '' margin : 0 '' > ( 1 ) loan and lease interest includes loan and lease fees of $ 307,000 , $ 119,000 and $ 174,000 in 2014 , 2013 and 2012 , respectively . ( 2 ) includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes . the effective federal statutory tax rate was 34 % in 2014 , 2013 and 2012 . ( 3 ) net interest margin is computed by dividing net interest income by total average earning assets . 38 replace_table_token_5_th ( 1 ) the average balance of non-accruing loans and leases is immaterial as a percentage of total loans and leases and has been included in net loans and leases . ( 2 ) loan and lease fees of $ 307,000 , $ 119,000 and $ 174,000 for the years ended december 31 , 2014 , 2013 and 2012 , respectively , have been included in the interest income computation . ( 3 ) includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes . the effective federal statutory tax rate was 34 % in 2014 , 2013 and 2012 . ( 4 ) the rate/volume variance has been included in the rate variance . 39 provision for loan and lease losses the company experienced net loan and lease recoveries of $ 496,000 or 0.20 % of average loans and leases during 2014 compared to net loan and lease losses of $ 635,000 or 0.25 % of average loans and leases during 2013. as a result of the $ 496,000 in recoveries in 2014 , the company reduced the allowance for loan and lease losses by recording a negative provision for loan and lease losses of $ 541,000 in 2014 compared to a $ 200,000 provision ( addition to ) during 2013. the level of non-performing loans and leases , which began to increase during the recent economic cycle , reached a high of $ 22,571,000 at december 31 , 2010 , but has decreased to $ 1,653,000 at december 31 , 2014. for additional information see the “ nonaccrual , past due and restructured loans and leases. ” while the level of nonperforming loans and leases has decreased , there remains a challenging economy in the company 's market areas and in the united states , in general . this may potentially negatively impact the company 's borrowers and as a result the company has maintained the alll at a level that is higher than the long-term historical averages . for additional information see the “ allowance for loan and lease losses activity. ” service charges and fees and other income table four below provides a summary of the components of noninterest income for the periods indicated ( dollars in thousands ) : replace_table_token_6_th noninterest income increased $ 162,000 ( 8.0 % ) to $ 2,177,000 in 2014 from the 2013 level .
| results of operations net interest income and net interest margin net interest income represents the excess of interest and fees earned on interest earning assets ( loans , securities , federal funds sold and interest-bearing deposits in other banks ) over the interest paid on deposits and borrowed funds . net interest margin is net interest income expressed as a percentage of average earning assets . the company 's fully taxable equivalent net interest margin was 3.54 % in 2014 , 3.45 % in 2013 , and 3.91 % in 2012. the fully taxable equivalent net interest income was up $ 1,387,000 ( 7.8 % ) , from $ 17,680,000 in 2013 to $ 19,067,000 in 2014. the fully taxable equivalent net interest income was down $ 2,023,000 ( 10.3 % ) in 2013 compared to 2012. the fully taxable equivalent interest income component increased from $ 19,170,000 in 2013 to $ 20,235,000 in 2014 , representing a 5.6 % increase . the increase in the fully taxable equivalent interest income for 2014 compared to the same period in 2013 is comprised of two components - rate ( up $ 591,000 ) and volume ( up $ 474,000 ) . the rate increase primarily occurred in the investment portfolio which can be attributed to a slowdown in the mortgage refinance market . as mortgage refinancing slows it also reduces the principal prepayments that the company receives on the mortgage backed securities , which reduces the premium amounts amortized on the bonds . a lower amount of amortized premium results in higher interest income . investment securities added $ 1,211,000 in additional interest income related to rate . the average yield on investments increased from 1.93 % in 2013 to 2.32 % in 2014. the increase in interest income created from the investment portfolio was partially offset by a decrease in rates on the loan balances .
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actual events or results may differ materially . our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks , uncertainties and other factors . we discuss many of these risks , uncertainties and other factors in this annual report on form 10-k in greater detail under the heading item 1a risk factors. we caution investors that our business and financial performance are subject to substantial risks and uncertainties . overview we are a clinical-stage pharmaceutical company discovering and developing targeted therapeutics in disease areas of inflammation and immuno-oncology . our primary focus is anti-inflammatory product candidates targeting the sh2-containing inositol-5'-phosphatase 1 ( ship1 ) enzyme , which is a key regulator of an important cellular signaling pathway in immune cells , known as the pi3k pathway . our product candidate , aqx-1125 , is a small molecule activator of ship1 suitable for oral , once daily dosing . we are currently developing aqx-1125 as treatment in interstitial cystitis/bladder pain syndrome ( ic/bps ) , a chronic inflammatory disease of the bladder . for aqx-1125 , we retain full worldwide rights and hold patents with terms through 2024 in europe and 2028 in the united states with the possibility of further patent term extension avenues available to us . ic/bps is a chronic inflammatory bladder disease characterized by pelvic pain and increased urinary urgency and or frequency . for many sufferers , these symptoms are severe and adversely affect all major aspects of their lives , including overall physical and emotional health , employment , social and intimate relationships , and leisure activities . while the cause of the disease remains largely unknown , erosion of the bladder lining is thought to be 67 a significant contributor . ic/bps is estimated to affect between 5 and 12 million people in the united states although the reported diagnostic rate is lower . ic/bps is diagnosed more frequently in women but epidemiologic estimates suggest men may be equally affected . most ic/bps patients continue to suffer this debilitating condition , despite treatment with existing therapies , many unapproved for this indication , as these treatments have been reported to be of limited benefit . we believe new and innovative therapies that target the underlying disease in order to reduce the chronic pain and urinary symptoms are needed . in 2015 , we completed and reported results from our leadership trial , a multicenter , randomized , double-blind , placebo-controlled , phase 2 clinical trial investigating the ability of 200 mg oral , once daily aqx-1125 to reduce pain and urinary symptoms in female patients with ic/bps . the primary endpoint was to measure the difference in the change from baseline in the average daily bladder pain score based on an 11-point numeric rating scale ( nrs ) at six weeks recorded by electronic diary . results demonstrated a positive trend in the primary endpoint and statistically significant changes on secondary endpoints . a total of 69 subjects were enrolled . we intend to proceed with further development of aqx-1125 in ic/bps , including finalizing phase 3 trial designs to support product registration in consultation with the appropriate regulatory authorities . subject to input by the fda and other regulatory authorities we anticipate conducting two phase 3 clinical trials of aqx-1125 in ic/bps , with the first trial commencing in 2016 , and designed as a three-arm , randomized , double-blind , placebo-controlled phase 3 clinical trial , with 12 weeks dosing followed by an open label extension , to assess the efficacy and safety of aqx-1125 in both female and male ic/bps patients . patients will be randomized to receive one of two potential doses of aqx-1125 or placebo . the design and execution of the second phase 3 trial will be informed , in part , by the first trial upon receipt of top-line results once every patient has received 12 weeks of treatment . aqx-1125 is a ship1 activator that has demonstrated preliminary safety , broad anti-inflammatory potential and favorable drug properties in multiple preclinical studies . we have also completed seven clinical trials , exposing over 380 subjects to once daily oral administration of aqx-1125 . these trials have demonstrated a good tolerability profile , with over 200 patients receiving aqx-1125 in two phase 2 trials for periods of 12 weeks . we believe aqx-1125 is the only ship1 activator currently in clinical trials and that no ship1 activator has yet received marketing approval as a treatment for disease in humans . our longer-term strategy is to broaden our development activities for aqx-1125 and to advance next generation ship1 activators for the treatment of additional inflammatory diseases and cancer . we use a proprietary screening approach to discover new drug candidates that selectively target ship1 to modulate activated immune cells while minimizing their toxicity to normal cells . this approach has provided us with an extensive chemical library and several candidate lead compounds that target ship1 . these compounds have both similar and distinct properties from aqx-1125 . our intellectual property covers ship1 as a target , the c2 binding domain for screening and the composition of matter for our compounds . we commenced operations as 6175813 canada inc. , a corporation formed in december 2003 under the canada business corporations act . in may 2014 , after a corporate restructuring , we changed the name of such entity to aquinox pharmaceuticals ( canada ) inc. ( aqxp canada ) . we incorporated aquinox pharmaceuticals ( usa ) inc. , a corporation under the laws of the state of delaware , in may 2007. we subsequently changed the name of this corporation in january 2014 to aquinox pharmaceuticals , inc. ( aquinox usa ) . upon the completion of our initial public offering ( ipo ) in march 2014 , aqxp canada became a wholly owned subsidiary of aquinox usa . since commencing operations , we have dedicated a significant portion of our resources to development efforts for our clinical-stage product candidate aqx-1125 . story_separator_special_tag for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for executive and other administrative personnel , including stock-based compensation and travel expenses . other general and administrative expenses include facility-related costs , communication expenses and professional fees for legal , patent review , consulting and accounting services . for the year ended december 31 , 2015 , general and administrative expenses of $ 5.5 million were higher compared to $ 4.3 million for the year ended december 31 , 2014. the increase is the result of higher personnel related costs , legal and consulting expenses . for the year ended december 31 , 2014 , general and administrative expenses of $ 4.3 million were higher than the $ 1.8 million incurred for the year ended december 31 , 2013 primarily due to costs associated with being a public company as we completed our initial public offering ( ipo ) in march 2014. this included , among other expenses , increased costs for insurance , costs related to the hiring of additional personnel and outside consultants and increased travel . interest expense and financing costs interest expense and financing costs consist of bank loan interest , warrant discount amortization and normal course bank charges . for the year ended december 31 , 2015 , our interest expense and financing costs were $ 0.1 million . this compared to $ 0.5 million for the year ended december 31 , 2014. the higher expenses in 2014 was due to early repayment of the term loan with silicon valley bank , or svb , entered into in october 2013 and repaid in march 2014 resulting in early repayment penalty and fees of $ 0.1 million and accretion of warrant discount and deferred costs of $ 0.3 million . the small amount of interest expense and financing costs for the year ended december 31 , 2013 were due to interest expense on the term loan with svb entered into in october 2013. change in fair value of derivative liabilities our derivative liabilities for the year ended december 31 , 2015 comprised only the warrant liability and it is re-measured at each balance sheet date with the corresponding change recorded within change in fair value of derivative liabilities . for the year ended december 31 , 2015 , the change in fair value of derivative liabilities was immaterial . during the year ended december 31 , 2014 , in connection with our ipo , we converted all our preferred stock to common stock in accordance with the terms of our preferred stock and extinguished the derivative liabilities related to our preferred stock , resulting in a $ 0.9 million decline in fair value of derivative liabilities . this compared to $ 1.0 million for the year ended december 31 , 2013 when the change in fair value was associated with a decline in fair value of our preferred stock derivative liabilities and preferred stock warrant derivative liabilities . 72 amortization and extinguishment of remaining discount on preferred shares prior to our ipo in march 2014 , we had preferred stock outstanding with a discount feature that was being amortized over its expected life . upon our ipo , all our preferred stock were converted to common shares . as a result , there was no amortization or extinguishment of discount related to preferred stock for the year ended december 31 , 2015 or for periods subsequent to the ipo . amortization and extinguishment of discount on preferred stock for the year ended december 31 , 2014 was $ 1.9 million compared to $ 0.4 million for the year ended december 31 , 2013. the increase was due to the conversion of all our preferred stock to common stock in march 2014 , resulting in the extinguishment of all remaining discount on our preferred stock . other ( expenses ) income other ( expenses ) income include primarily interest income and foreign exchange gains and losses . for the years ended december 31 , 2015 and 2014 , we recorded $ 0.4 million and $ 0.3 million , respectively , of other expenses primarily as a result of foreign exchange losses on our foreign currency holdings as the u.s. dollar strengthened during that period against our canadian dollar and euro holdings . for the year ended december 31 , 2013 , the other income of $ 0.1 million included a gain on sale of equipment . liquidity and capital resources since our inception , we have incurred net losses and negative cash flows from our operations and relied upon the issuance of common and preferred stock to fund our operations . our operating activities used $ 20.3 million , $ 17.5 million and $ 7.8 million of cash flows during the years ended december 31 , 2015 , 2014 and 2013 , respectively . as of december 31 , 2015 , we had an accumulated deficit of $ 111.3 million , working capital of $ 70.0 million , and cash , cash equivalents , short and long-term investments of $ 112.9 million . we believe that our existing capital resources will be sufficient to fund our operations for at least the next 12 months .
| results of operations revenue to date , we have not generated any revenue . in the future , we may generate revenue from a combination of product sales , license fees , milestone payments and royalties from the sale of products developed under licenses of our intellectual property . operating expenses the following table summarizes our operating expenses for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_4_th research and development expenses our research and development expenses consist primarily of costs incurred for the development of aqx-1125 and other future product candidates . research and development expenses include : costs associated with research , development and regulatory activities ; 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 and manufacturing our products , for preclinical studies and clinical trials ; 69 cost incurred in relation to purchase of technology licenses and patent rights ; and facilities , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , amortization of equipment and leasehold improvements , insurance and supplies . our main clinical activities during 2015 are described as follows : leadership trial the leadership trial was a multicenter , randomized , double-blind , placebo-controlled , phase 2 clinical trial investigating the ability of 200 mg oral , once daily aqx-1125 to reduce pain and urinary symptoms in female patients with ic/bps . primary and secondary endpoint results were announced on june 25 , 2015 and august 6 , 2015 , respectively . the primary endpoint was to measure the difference in the change from baseline in the average daily bladder pain score based on an 11-point numeric rating scale ( nrs ) at six weeks recorded by electronic diary . the trial was conducted at investigative sites across canada and the united states . a total of 69 subjects were enrolled .
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the company entered into a lease agreement in january 2013 which was amended in march 2016 and extended the lease term until october 2023. the company classified this lease as an operating lease and recorded a right-of-use asset and lease liability on january 1 , 2019 and recognized rent expense on a straight-line basis throughout the remaining lease term . switzerland lease in april 2020 , the company entered into a lease agreement for office and laboratory space at rottenstrasse 5 in visp , switzerland . the space is approximately 1,000 square meters . the initial lease term is 5 years , with automatic renewals every 5 years for a maximum lease term of 15 years . the monthly rent during the initial 5 -year term will be approximately 32 thousand swiss francs plus certain operating expenses and taxes . under asc 842 , the company classified these leases as operating leases and recorded right-of-use assets and lease liabilities on the lease commencement date . 134 kodiak sciences inc. notes to consolidated financial statements ( in thousands , except share and per share data ) the maturities of the operating lease liabilities as of december 31 , 2020 were as follows ( in thousands ) : replace_table_token_24_th the minimum lease payments above do not include any related common area maintenance charges or real estate taxes . the weighted-average remaining lease terms and weighted-average discount rates were as follows : replace_table_token_25_th embedded lease in august 2020 , the company and its subsidiary kodiak sciences gmbh entered into a manufacturing agreement with a contract manufacturing organization for the clinical and commercial supply of drug substance for ksi-301 , the company 's proprietary therapeutic candidate for the treatment and prevention of retinal vascular diseases . a custom-built manufacturing suite is planned to be completed and dedicated to the manufacture of the company 's drug substance with an estimated capital contribution of 40 million swiss francs from the company . construction of the manufacturing suite is targeted for completion in 2021. the company will be required to pay annual suite fees of 12 million swiss francs for 2021 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the section titled “ selected consolidated financial data ” and our consolidated financial statements and the related notes included elsewhere in this report . this discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs , plans and expectations related to future events and our future financial performance that involve risks , uncertainties and assumptions , such as statements regarding our intentions , plans , objectives , expectations , forecasts and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under the section titled “ risk factors ” and elsewhere in this report . overview kodiak sciences ( we or the company ) is a biopharmaceutical company committed to researching , developing and commercializing transformative therapeutics to treat high prevalence retinal diseases in the united states and additional international markets . we are bringing new science to the design and development of next generation retinal medicines . our abc platform tm uses molecular engineering to merge the fields of antibody-based and chemistry-based therapies and is at the core of kodiak 's discovery engine . our lead product candidate , ksi-301 , is a novel anti-vegf antibody biopolymer conjugate generating compelling data in treatment naïve patients with retinal vascular diseases . our pivotal program is exploring ksi-301 in wamd , dme , rvo and non-proliferative diabetic retinopathy . our hope with ksi-301 is to meaningfully change the treatment paradigm for all patients with retinal vascular diseases . our pipeline , including product candidates ksi-501 and ksi-601 , aims to bring a similar ethos of drug development to other unmet needs in retina such as dry amd and glaucoma . our goal is to prevent and treat the major causes of blindness by developing next-generation therapeutics for chronic , high-prevalence retinal diseases . our overall objective is to develop our product candidates , seek fda and worldwide health authority marketing authorization approvals , and ultimately commercialize our product candidates . product candidates ksi-301 kodiak 's lead product candidate , ksi-301 , is a novel anti-vegf antibody biopolymer conjugate being developed for the treatment of retinal vascular diseases including age-related macular degeneration , a leading cause of blindness in elderly patients , and diabetic eye diseases , a leading cause of blindness in working-age patients . we continue to observe promising safety , efficacy and clinical durability data through 52-weeks in our ongoing phase 1b study of ksi-301 in treatment-naïve patients with wet amd , dme or rvo . based on the encouraging data from our phase 1b study , we have expanded the ksi-301 clinical pivotal program in the third quarter of 2020 , and we have entered into the manufacturing-related commitments necessary for ksi-301 's commercial scale-up and bla submission . we successfully recruited patients into both of our paired pivotal studies in dme ( gleam and glimmer ) and into our pivotal study in rvo ( beacon ) in the third quarter of 2020. the pivotal study for wet amd ( dazzle ) began recruiting in the third quarter of 2019 and completed patient enrollment in the fourth quarter of 2020. approximately 2,000 ksi-301 injections have been administered to approximately 500 patients , representing approximately 350 patient-years of exposure . story_separator_special_tag nonrefundable payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized . the capitalized amounts are recognized as expense as the goods are delivered or the related services are performed . 111 we are focusing substantially all of our resources and development efforts on the development of our product candidates , in particular ksi-301 . we expect our research and development expenses to increase substantially during the next few years as we conduct our phase 3 clinical studies , complete our clinical program , pursue regulatory approval of our drug candidates and prepare for a possible commercial launch . predicting the timing or the final cost to complete our clinical program or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors , including factors outside of our control . for example , if the fda or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . furthermore , we are unable to predict when or if our drug candidates will receive regulatory approval with any certainty . general and administrative expenses general and administrative expenses consist principally of payroll and personnel expenses , including stock-based compensation ; professional fees for legal , consulting , accounting and tax services ; allocated overhead , including rent , equipment , depreciation and utilities ; and other general operating expenses not otherwise classified as research and development expenses . we anticipate that our general and administrative expenses will increase as a result of increased personnel costs , including stock-based compensation , expanded infrastructure and higher consulting , legal and accounting services associated with maintaining compliance with requirements of the stock exchange listing and securities and exchange commission , or sec , investor relations costs and director and officer insurance premiums associated with being a public company . interest income interest income consists primarily of interest income earned on our cash , cash equivalents and marketable securities . other income ( expense ) , net other income ( expense ) , net consists primarily of accretion income and amortization expense on marketable debt securities net of amortized issuance costs from the liability related to the future sale of royalties to bba in 2019. story_separator_special_tag 114 the number and scope of clinical programs we decide to pursue ; the scope and costs of manufacturing development and commercial manufacturing activities ; the extent to which we acquire or in-license other product candidates and technologies ; the cost , timing and outcome of regulatory review of our product candidates ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; our ability to establish and maintain collaborations on favorable terms , if at all ; our efforts to enhance operational systems and our ability to attract , hire and retain qualified personnel , including personnel to support the development of our product candidates ; the costs associated with being a public company ; and the cost and timing associated with commercializing our product candidates , if they receive marketing approval . a change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate . furthermore , our operating plans may change in the future , and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans . if we raise additional funds by issuing equity securities , our stockholders may experience dilution . any future debt financing into which we enter may impose upon us additional covenants that restrict our operations , including limitations on our ability to incur liens or additional debt , pay dividends , repurchase our common stock , make certain investments and engage in certain merger , consolidation or asset sale transactions . any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders . if we are unable to raise additional funds when needed , we may be required to delay , reduce , or terminate some or all of our development programs and clinical trials . we may also be required to sell or license rights to our product candidates in certain territories or indications to others that we would prefer to develop and commercialize ourselves . the significant uncertainties caused by the evolving effects of the covid-19 pandemic may also negatively impact our operations and capital resources . we and our key clinical and manufacturing partners have been able to continue to advance our operations , and we continue to monitor the impact of covid-19 on our ability to continue the development of , and seek regulatory approvals for , our product candidates , and begin to commercialize any approved products . this pandemic may ultimately have a material adverse effect on our liquidity and operating plans , although we are unable to make any prediction with certainty given the spread and rapidly changing nature of the pandemic and the evolving global actions taken to contain and treat the novel coronavirus . adequate additional funding may not be available to us on acceptable terms or at all . our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies . see the section titled “ risk factors ” for additional risks associated with our substantial capital requirements .
| results of operations the following table summarizes our results of operations for the periods indicated : replace_table_token_10_th * percentage is not meaningful 112 research and development expenses research and development expenses increased $ 69.9 million , or 186 % , from the year ended december 31 , 2019 to the year ended december 31 , 2020. the following table summarizes our research and development expenses : replace_table_token_11_th ( 1 ) abc platform external expenses primarily relates to manufacturing of biopolymer intermediate drug substance which can be used with multiple product candidates . these expenses are primarily for services provided by cmos . ( 2 ) ksi-301 program external expenses relate to development of ksi-301 , including manufacturing and clinical trial costs . these expenses are primarily for services provided by cmos and cros . ( 3 ) ksi-501 program external expenses relate to research and development of ksi-501 . ( 4 ) payroll and personnel expenses includes salaries , benefits and stock-based compensation for our personnel involved in research and development activities . these expenses are separately classified and not allocated to specific programs because these expenses relate to multiple programs . ( 5 ) other research and development expenses includes direct costs related to research and development activities other than those listed above . abc platform external expenses increased $ 5.1 million during the year ended december 31 , 2020 as compared to 2019. the increase was primarily driven by manufacturing runs to support our product candidate pipeline . ksi-301 program external expenses increased $ 39.3 million during the year ended december 31 , 2020 as compared to 2019 , primarily due to clinical trial costs to support ongoing trials , as well as manufacturing activities for ksi-301 .
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executive overview the following are factors that regularly affect our operating results and financial condition . in addition , our business is subject to the risks and uncertainties described in item 1a of this annual report . product costs and supply the level of profitability in the retail propane , fuel oil , natural gas and electricity businesses is largely dependent on the difference between retail sales price and product cost . the unit cost of our products , particularly propane , fuel oil and natural gas , is subject to volatility as a result of supply and demand dynamics or other market conditions , including , but not limited to , economic and political factors impacting crude oil and natural gas supply or pricing . we enter into product supply contracts that are generally one-year agreements subject to annual renewal , and also purchase product on the open market . we attempt to reduce price risk by pricing product on a short-term basis . our propane supply contracts typically provide for pricing based upon index formulas using the posted prices established at major supply points such as mont belvieu , texas , or conway , kansas ( plus transportation costs ) at the time of delivery . to supplement our annual purchase requirements , we may utilize forward fixed price purchase contracts to acquire a portion of the propane that we resell to our customers , which allows us to manage our exposure to unfavorable changes in commodity prices and to assure adequate physical supply . the percentage of contract purchases , and the amount of supply contracted for under forward contracts at fixed prices , will vary from year to year based on market conditions . product cost changes can occur rapidly over a short period of time and can impact profitability . there is no assurance that we will be able to pass on product cost increases fully or immediately , particularly when product costs increase rapidly . therefore , average retail sales prices can vary significantly from year to year as product costs fluctuate with propane , fuel oil , crude oil and natural gas commodity market conditions . in addition , periods of sustained higher commodity prices can lead to customer conservation , resulting in reduced demand for our product . seasonality the retail propane and fuel oil distribution businesses , as well as the natural gas marketing business , are seasonal because these fuels are primarily used for heating in residential and commercial buildings . historically , approximately two-thirds of our retail propane volume is sold during the six-month peak heating season from october through march . the fuel oil business tends to experience greater seasonality given its more limited use for space heating and approximately three-fourths of our fuel oil volumes are sold between october and march . consequently , sales and operating profits are concentrated in our first and second fiscal quarters . cash flows from operations , therefore , are greatest during the second and third fiscal quarters when customers pay for product purchased during the winter heating season . we expect lower operating profits and either net losses or lower net income during the period from april through september ( our third and fourth fiscal quarters ) . to the extent necessary , we will reserve cash from the second and third quarters for distribution to holders of our common units in the fourth quarter and following fiscal year first quarter . 26 weather weather conditions have a significant impact on the demand for our products , in particular propane , fuel oil and natural gas , for both heating and agricultural purposes . many of our customers rely heavily on propane , fuel oil or natural gas as a heating source . accordingly , the volume sold is directly affected by the severity of the winter weather in our service areas , which can vary substantially from year to year . in any given area , sustained warmer than normal temperatures will tend to result in reduced propane , fuel oil and natural gas consumption , while sustained colder than normal temperatures will tend to result in greater consumption . hedging and risk management activities we engage in hedging and risk management activities to reduce the effect of price volatility on our product costs and to ensure the availability of product during periods of short supply . we enter into propane forward and option agreements with third parties , and use futures and option contracts traded on the new york mercantile exchange ( nymex ) to purchase and sell propane , fuel oil and crude oil at fixed prices in the future . the majority of the futures , forward and option agreements are used to hedge price risk associated with propane and fuel oil physical inventory , as well as , in certain instances , forecasted purchases of propane or fuel oil . forward contracts are generally settled physically at the expiration of the contract whereas futures and option contracts are generally settled in cash at the expiration of the contract . although we use derivative instruments to reduce the effect of price volatility associated with priced physical inventory and forecasted transactions , we do not use derivative instruments for speculative trading purposes . risk management activities are monitored by an internal commodity risk management committee , made up of five members of management and reporting to our audit committee , through enforcement of our hedging and risk management policy . critical accounting policies and estimates our significant accounting policies are summarized in note 2 , summary of significant accounting policies , included within the notes to consolidated financial statements section elsewhere in this annual report . certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated , requiring management to make certain assumptions with respect to values or conditions that can not be known with certainty at the time the financial statements are prepared . story_separator_special_tag cost of products sold excludes depreciation and amortization ; these amounts are reported separately within the consolidated statements of operations . 30 cost of products sold increased $ 80.3 million , or 13.4 % , to $ 678.7 million in fiscal 2011 compared to $ 598.4 million in the prior year due to higher average product costs resulting from the increase in commodity prices , partially offset by lower volumes sold . average posted prices for propane and fuel oil in fiscal 2011 were 26.7 % and 36.6 % higher , respectively , compared to the prior year . cost of products sold in fiscal 2011 included a $ 1.4 million unrealized ( non-cash ) gain representing the net change in the fair value of derivative instruments during the period , compared to a $ 5.4 million unrealized ( non-cash ) loss in the prior year resulting in a decrease of $ 6.8 million in cost of products sold in fiscal 2011 compared to the prior year ( $ 0.3 million decrease reported within the propane segment and $ 6.5 million decrease reported within the fuel oil and refined fuels segment ) . cost of products sold associated with the distribution of propane and related activities of $ 506.5 million for fiscal 2011 increased $ 69.7 million , or 15.9 % , compared to the prior year . higher average propane product costs resulted in an increase of $ 70.9 million in cost of products sold during fiscal 2011 compared to the prior year . the impact of the increase in average propane product costs was partially offset by lower propane volumes sold , which resulted in a $ 25.5 million decrease in cost of products sold during fiscal 2011 compared to the prior year . cost of products sold from other propane activities increased $ 24.6 in fiscal 2011 compared to the prior year . cost of products sold associated with our fuel oil and refined fuels segment of $ 100.9 million for fiscal 2011 increased $ 8.9 million , or 9.6 % , compared to the prior year . higher average fuel oil and refined fuel product costs resulted in an increase of $ 27.3 million in cost of products sold during fiscal 2011 compared to the prior year . the impact of the increase in product costs was partially offset by lower fuel oil and refined fuels volumes sold , which resulted in an $ 11.9 million decrease in cost of products sold in fiscal 2011 compared to the prior year . cost of products sold in our natural gas and electricity segment of $ 61.5 million for fiscal 2011 increased $ 3.6 million , or 6.2 % , compared to the prior year primarily due to higher natural gas and , to a lesser extent , electricity volumes sold , coupled with an increase in average product costs . cost of products sold as a percent of total revenues for fiscal 2011 increased 4.4 percentage points to 57.0 % from 52.6 % in the prior year . the increase in cost of products sold as a percentage of revenues was primarily attributable to wholesale product costs rising at a faster rate than average selling prices in fiscal 2011 compared to the prior year . operating expenses replace_table_token_5_th all costs of operating our retail distribution and appliance sales and service operations are reported within operating expenses in the consolidated statements of operations . these operating expenses include the compensation and benefits of field and direct operating support personnel , costs of operating and maintaining our vehicle fleet , overhead and other costs of our purchasing , training and safety departments and other direct and indirect costs of operating our customer service centers . operating expenses of $ 279.3 million for fiscal 2011 decreased $ 10.2 million , or 3.5 % , compared to $ 289.6 million in the prior year as a result of lower variable compensation associated with lower earnings , lower payroll and benefit related expenses resulting from operating efficiencies , and lower insurance costs . these savings were partially offset by an increase in fuel costs to operate our fleet . 31 general and administrative expenses replace_table_token_6_th all costs of our back office support functions , including compensation and benefits for executives and other support functions , as well as other costs and expenses to maintain finance and accounting , treasury , legal , human resources , corporate development and the information systems functions are reported within general and administrative expenses in the consolidated statements of operations . general and administrative expenses of $ 51.6 million for fiscal 2011 decreased $ 10.0 million , or 16.2 % , compared to $ 61.6 million in the prior year primarily as a result of lower variable compensation associated with lower earnings and the impact of a $ 2.5 million gain on sale of assets during the second quarter of fiscal 2011 , partially offset by an increase in litigation costs for uninsured legal matters . depreciation and amortization replace_table_token_7_th depreciation and amortization expense of $ 35.6 million in fiscal 2011 increased $ 4.8 million , or 15.5 % , compared to $ 30.8 million in the prior year primarily as a result of tangible and intangible long-lived assets acquired in business combinations in fiscal 2011 and 2010 , coupled with accelerated depreciation expense of $ 2.9 million and $ 1.8 million in fiscal 2011 and fiscal 2010 , respectively , for assets taken out of service . interest expense , net replace_table_token_8_th net interest expense of $ 27.4 million in fiscal 2011 was flat compared to the prior year . see liquidity and capital resources below for additional discussion on long-term borrowings . 32 loss on debt extinguishment on march 23 , 2010 , we repurchased $ 250.0 million aggregate principal amount of the 2013 senior notes through a cash tender offer .
| results of operations and financial condition net income for fiscal 2011 amounted to $ 115.0 million , or $ 3.24 per common unit , compared to $ 115.3 million , or $ 3.26 per common unit , in fiscal 2010. earnings before interest , taxes , depreciation and amortization ( ebitda ) for fiscal 2011 amounted to $ 178.9 million , compared to $ 174.7 million for fiscal 2010. net income and ebitda for fiscal 2011 included a $ 2.0 million charge for severance costs associated with the realignment of the partnership 's field operations , as well as a non-cash charge of $ 2.9 million to accelerate depreciation expense on assets taken out of service . by comparison , net income and ebitda for fiscal 2010 included : ( i ) a loss on debt extinguishment of $ 9.5 million associated with a refinancing of the partnership 's senior notes ; ( ii ) a non-cash pension settlement charge of $ 2.8 million ; and ( iii ) a non-cash charge of $ 1.8 million to accelerate depreciation expense on assets taken out of service . adjusted ebitda ( as defined and reconciled below ) amounted to $ 179.4 million in fiscal 2011 , compared to $ 192.4 million in fiscal 2010. retail propane gallons sold for fiscal 2011 decreased 19.0 million gallons , or 6.0 % , to 298.9 million gallons from 317.9 million gallons in fiscal 2010. sales of fuel oil and other refined fuels for fiscal 2011 decreased 6.0 million gallons , or 13.9 % , to 37.2 million gallons compared to 43.2 million gallons in the prior year . sales volumes in both segments continued to be negatively affected by weakness in the economy , coupled with customer conservation attributable to the high commodity price environment relative to historical levels .
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bancorp also provides atms , debit cards , mortgage lending , safe deposit boxes , and telephone banking , among other products and services . bancorp has experienced an improved level of profitability in 2015 , as well as increased loan originations and expanded local economic activity . in addition , bancorp 's levels of non-performing assets , foreclosed real estate and provision for loan losses have improved in 2015. management believes that , while conditions continue to improve , and real estate values in bancorp 's market area continue to stabilize and , in some cases improve , including job losses and other factors , still exist for some customers . the interest rate spread between bancorp 's cost of funds and what it earns on loans has decreased from 2014 levels and competition for new loans and deposits remains strong . bancorp 's total loan portfolio has decreased from 2014 primarily due to management 's decision to sell a larger portion of newly originated residential loans on the secondary market . bancorp has experienced a decrease in loan delinquencies in part due to an improved economy . the allowance for loan losses decreased from levels needed in 2014 primarily due to an improvement in the level of problem assets at december 31 , 2015 compared to the level at december 31 , 2014 and management 's assessment of the collectability of the loans in bancorp 's portfolio . in addition , bancorp has seen a decrease in foreclosed real estate in 2015 as compared to 2014. this is due to an improved economy resulting in a lower level of loan foreclosures in 2015 compared to 2014. bancorp expects to experience similar market conditions in 2016 as 2015 , as the national and local economies continue to improve and as the employment environment in its market improves . however , the federal reserve board has ended its quantitative easing program and recently raised the federal funds interest rate , and if interest rates increase , demand for borrowing may decrease and bancorp 's interest rate spread could decrease . bancorp will continue to manage loan and deposit pricing against the risks of rising costs of its deposits and borrowings . interest rates are outside the control of bancorp , so it must attempt to balance its pricing and duration of its loan portfolio against the risks of rising costs of its deposits and borrowings . 48 the continued success and attraction of anne arundel county , maryland , and vicinity , will also be important to bancorp 's ability to originate and grow its mortgage loans and deposits , as will bancorp 's continued focus on maintaining a low overhead . if the volatility in the market and the economy continues or worsens , bancorp 's business , financial condition , results of operations , access to funds and the price of its stock could be materially and adversely impacted . on november 23 , 2009 , bancorp and the bank each entered into a supervisory agreement with the ots . the bank 's supervisory agreement was replaced by a formal agreement dated april 23 , 2013 with the occ . on october 15 , 2015 , the bank was notified by the occ that its agreement was terminated . bancorp 's supervisory agreement was enforced by the frb . on january 21 , 2016 , bancorp was notified by frb that its agreement was terminated . see “ supervisory and formal agreements ” for more information . critical accounting policies and recent accounting pronouncements bancorp 's significant accounting policies and recent accounting pronouncements are set forth in note 1 of the consolidated financial statements which are included elsewhere in this form 10-k. of these significant accounting policies , bancorp considers the policies regarding the allowance for loan losses , the valuation of foreclosed real estate , the evaluation of other than temporary impairment of investment securities and the valuation of the deferred tax asset to be its most critical accounting policies , given the uncertainty in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio and the material effect that such judgments can have on the results of operations and future taxable income . in addition , changes in economic conditions can have a significant impact on real estate values of underlying collateral affecting the allowance for loan losses and therefore the provision for loan losses and results of operations as well as the valuation of foreclosed real estate . bancorp has developed policies and procedures for assessing the adequacy of the allowance for loan losses , recognizing that this process requires a number of assumptions and estimates with respect to its loan portfolio . bancorp 's assessments may be impacted in future periods by changes in economic conditions , the impact of regulatory examinations , and the discovery of information with respect to borrowers that is not known to management at the time of the issuance of the consolidated financial statements . recent accounting pronouncements – under asu 2014-04 , reclassification of residential real estate collateralized consumer mortgage loans upon foreclosure , a creditor will be considered to have physical possession of residential real estate property that is collateral for a residential mortgage loan and therefore should reclassify the loan to other real estate owned when either ( a ) the creditor obtains legal title to the property upon completion of a foreclosure , or ( b ) the borrower conveys all interest in the real estate property to the lender to satisfy that loan even though legal title may not have passed . the amendments are effective for public business entities for annual periods and interim periods within those annual periods , beginning after december 15 , 2014. bancorp adopted this guidance on january 1 , 2015 using a prospective transition method ; it did not have material impact on the consolidated financial statements . story_separator_special_tag 50 foreclosed real estate foreclosed real estate decreased by $ 203,000 , or 10.4 % , to $ 1,744,000 at december 31 , 2015 , compared to $ 1,947,000 at december 31 , 2014. this decrease was primarily due to an increase in the number of foreclosed properties sold in 2015 that were included in the balance as of december 31 , 2014 , and the lower level of loans foreclosed on in 2015 compared to 2014. premises and equipment premises and equipment decreased by $ 869,000 , or 3.5 % , to $ 24,290,000 at december 31 , 2015 , compared to $ 25,159,000 at december 31 , 2014. this decrease was primarily due to the annual depreciation taken on premises and equipment in 2015 , partially offset by new fixed assets acquired in 2015. accrued interest receivable and other assets accrued interest receivable and other assets decreased by $ 1,452,000 , or 15.6 % , to $ 7,836,000 at december 31 , 2015 , compared to $ 9,288,000 at december 31 , 2014. this decrease is primarily due to a reimbursement of a security deposit in 2015. liabilities deposits . total deposits decreased by $ 20,043,000 , or 3.7 % , to $ 523,771,000 at december 31 , 2015 , compared to $ 543,814,000 at december 31 , 2014. this decrease was primarily the result of management 's decision to not renew higher priced certificates of deposit given the higher amount of cash received from loan payoffs and proceeds received from loans sold on the secondary market . fhlb-atlanta advances . fhlb-atlanta advances at december 31 , 2015 were $ 115,000,000 , which was unchanged from december 31 , 2014. there were no contractual advance payoffs scheduled during 2015 and no additional advances were needed . subordinated debentures . as of december 31 , 2015 , bancorp had outstanding approximately $ 20,619,000 principal amount of junior subordinated debt securities due 2035 ( the “ 2035 debentures ” ) . the 2035 debentures were issued pursuant to an indenture dated as of december 17 , 2004 ( the “ 2035 indenture ” ) between bancorp and wells fargo bank , national association as trustee . the 2035 debentures pay interest quarterly at a floating rate of interest of 3-month libor ( 0.32 % december 31 , 2015 ) plus 200 basis points , and mature on january 7 , 2035. payments of principal , interest , premium and other amounts under the 2035 debentures are subordinated and junior in right of payment to the prior payment in full of all senior indebtedness of bancorp , as defined in the 2035 indenture . the 2035 debentures became redeemable , in whole or in part , by bancorp on january 7 , 2010. the 2035 debentures were issued and sold to severn capital trust i ( the “ trust ” ) , of which 100 % of the common equity is owned by bancorp . the trust was formed for the purpose of issuing corporation-obligated mandatorily redeemable capital securities ( “ capital securities ” ) to third-party investors and using the proceeds from the sale of such capital securities to purchase the 2035 debentures . the 2035 debentures held by the trust are the sole assets of the trust . distributions on the capital securities issued by the trust are payable quarterly at a rate per annum equal to the interest rate being earned by the trust on the 2035 debentures . the capital securities are subject to mandatory redemption , in whole or in part , upon repayment of the 2035 debentures . bancorp has entered into an agreement which , taken collectively , fully and unconditionally guarantees the capital securities subject to the terms of the guarantee . under the terms of the 2035 debenture , bancorp is permitted to defer the payment of interest on the 2035 debentures for up to 20 consecutive quarterly periods , provided that no event of default has occurred and is continuing . as of december 31 , 2015 , bancorp has deferred the payment of fifteen quarters of interest and the cumulative amount of interest in arrears not paid , including interest on unpaid interest , was $ 1,863,000. subordinated notes and series a preferred stock . on november 15 , 2008 , bancorp completed a private placement offering consisting of a total of 70 units , at an offering price of $ 100,000 per unit , for gross proceeds of $ 7,000,000. each unit consists of 6,250 shares of bancorp 's series a 8.0 % non-cumulative convertible preferred stock and bancorp 's subordinated notes ( “ subordinated notes ” ) in the original principal amount of $ 50,000. the subordinated notes earn interest at an annual rate of 8.0 % , payable quarterly in arrears on the last day of march , june , september and december commencing december 31 , 2008. the subordinated notes are redeemable in whole or in part at the option of bancorp at any time beginning on december 31 , 2009 until maturity , which is december 31 , 2018. dividends will not be paid on bancorp 's common stock in any quarter until the dividend on the series a preferred stock has been paid for such quarter ; however , there is no requirement that bancorp 's board of directors declare any dividends on the series a preferred stock and any unpaid dividends are not cumulative . 51 dividends on the series a preferred stock have not been paid since the first quarter of 2012 because bancorp has not received approval from the federal reserve to pay such dividends . series b preferred stock .
| general . net income increased $ 1,626,000 , or 55.9 % , to $ 4,535,000 for the year ended december 31 , 2015 compared to $ 2,909,000 for the year ended december 31 , 2014. earnings per common share , after the effect of dividends declared on preferred stock and amortization of discount on preferred stock , increased to $ 0.21 per common share for the year ended december 31 , 2015 compared to $ 0.06 per common share for the year ended december 31 , 2014. this increase in net income was primarily due to higher non-interest income and a lower provision for loan losses , partially offset by lower net interest income in 2015 compared to 2014. net interest income . net interest income ( interest earned net of interest charges ) decreased $ 1,021,000 , or 4.4 % , to $ 22,161,000 for the year ended december 31 , 2015 , compared to $ 23,182,000 for the year ended december 31 , 2014. this decrease was primarily due to a decrease in bancorp 's loan portfolio and from higher interest expense on deposits and borrowings . bancorp 's interest rate spread declined 10 basis points to 3.14 % for the year ended december 31 , 2015 , compared to 3.24 % for the year ended december 31 , 2014. provision for loan losses . bancorp 's loan portfolio is subject to varying degrees of credit risk and an allowance for loan losses is maintained to absorb losses inherent in its loan portfolio . credit risk includes , but is not limited to , the potential for borrower default and the failure of collateral to be worth what the bank determined it was worth at the time of the granting of the loan . the bank monitors its loan portfolio loan delinquencies at least as often as monthly . all loans that are delinquent and all loans within the various categories of the bank 's portfolio as a group are evaluated .
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however , the company 's strategic geographic and industry diversification , and its mix of products and services , have helped to limit the potential adverse impact of any unfavorable developments in any one industry or the economy of any single country on its consolidated operating results . in 2013 , the company established records for orders , sales , operating income , operating income margins , net income , diluted earnings per share and operating cash flow . contributions from recent acquisitions , combined with successful operational excellence initiatives , had a positive impact on 2013 results . the company also benefited from its strategic initiatives under ametek 's four growth strategies : operational excellence , new product development , global and market expansion , and strategic acquisitions and alliances . highlights of 2013 were : in 2013 , net sales were $ 3.6 billion , an increase of $ 259.9 million or 7.8 % from 2012 , on contributions from the 2012 and 2013 acquisitions . net income for 2013 was $ 517.0 million , an increase of $ 57.9 million or 12.6 % , compared with $ 459.1 million in 2012. during 2013 , the company completed the following acquisitions : in august 2013 , the company acquired controls southeast ( csi ) , a leader in custom-engineered , thermal management solutions used to maintain temperature control of liquid and gas in a broad range of demanding industrial process applications ; in october 2013 the company acquired creaform , inc. , a leading developer and manufacturer of innovative portable 3d measurement technologies and a provider of 3d engineering services ; and in december 2013 , the company acquired powervar , inc. , a leading provider of power management systems and uninterruptible power supply systems . higher earnings resulted in record cash flow provided by operating activities that totaled $ 660.7 million for 2013 , a $ 48.2 million or 7.9 % increase from 2012. the company continues to maintain a strong international sales presence . international sales , including u.s. export sales , were $ 1,984.5 million or 55.2 % of net sales in 2013 , compared with $ 1,707.6 million or 51.2 % of net sales in 2012. new orders for 2013 were a record at $ 3,621.9 million , an increase of $ 86.8 million or 2.5 % , compared with $ 3,535.1 million in 2012. as a result , the company 's backlog of unfilled orders at december 31 , 2013 was $ 1,140.0 million . 22 the company continued its emphasis on investment in research , development and engineering , spending $ 178.7 million in 2013 before customer reimbursement of $ 9.2 million . sales from products introduced in the last three years were $ 768.4 million or 21.4 % of net sales . results of operations the following table sets forth net sales and income by reportable segment and on a consolidated basis : replace_table_token_10_th ( 1 ) after elimination of intra- and intersegment sales , which are not significant in amount . ( 2 ) segment operating income represents net sales less all direct costs and expenses ( including certain administrative and other expenses ) applicable to each segment , but does not include interest expense . results of operations for the year ended december 31 , 2013 compared with the year ended december 31 , 2012 in 2013 , the company established records for orders , sales , operating income , operating income margins , net income , diluted earnings per share and operating cash flow . the company achieved these results primarily through contributions from acquisitions completed in 2013 and the acquisitions of dunkermotoren gmbh in may 2012 , micro-poise measurement systems ( micro-poise ) in october 2012 , aero components international ( aci ) , avtech avionics and instruments ( avtech ) , sunpower , inc. and crystal engineering in december 2012 , as well as our operational excellence initiatives . the full year impact of the 2013 acquisitions and our continued focus on and implementation of operational excellence initiatives are expected to have a positive impact on our 2014 results . net sales for 2013 were $ 3,594.1 million , an increase of $ 259.9 million or 7.8 % , compared with net sales of $ 3,334.2 million in 2012. net sales for the electronic instruments group ( eig ) were $ 2,034.6 million in 2013 , an increase of 8.7 % from net sales of $ 1,872.6 million in 2012. net sales for the electromechanical group ( emg ) were $ 1,559.5 million in 2013 , an increase of 6.7 % from net sales of $ 1,461.7 million in 2012. the increase in net sales was attributable to higher order rates , as well as the impact of the acquisitions mentioned above . the net sales increase for 2013 included internal sales growth of approximately 2 % . foreign currency translation was flat period over period . 23 total international sales for 2013 were $ 1,984.5 million or 55.2 % of net sales , an increase of $ 276.9 million or 16.2 % , compared with international sales of $ 1,707.6 million or 51.2 % of net sales in 2012. the $ 276.9 million increase in international sales resulted from the acquisitions mentioned above , primarily driven by dunkermotoren and micro-poise , and includes the effect of foreign currency translation . both reportable segments of the company maintain strong international sales presences in europe and asia . export shipments from the united states , which are included in total international sales , were $ 1,037.0 million in 2013 , an increase of $ 174.4 million or 20.2 % , compared with $ 862.6 million in 2012. export shipments improved due to increased exports from the 2013 and 2012 acquisitions noted above , excluding creaform and dunkermotoren . new orders for 2013 were a record at $ 3,621.9 million , an increase of $ 86.8 million or 2.5 % , compared with $ 3,535.1 million in 2012. the increase in orders was primarily attributable to 2013 and 2012 acquisitions . story_separator_special_tag emg 's operating income was $ 292.2 million for 2012 , an increase of $ 29.5 million or 11.2 % , compared with $ 262.7 million in 2011. emg 's operating margins were 20.0 % of net sales for 2012 , compared with 19.6 % of net sales in 2011. emg 's increase in operating income and operating margins was primarily due to the benefit of the group 's lower cost structure through operational excellence initiatives . liquidity and capital resources cash provided by operating activities totaled $ 660.7 million in 2013 , an increase of $ 48.2 million or 7.9 % , compared with $ 612.5 million in 2012. the increase in cash provided by operating activities was primarily due to the $ 57.9 million increase in net income . free cash flow ( cash flow provided by operating activities less capital expenditures ) was $ 597.4 million in 2013 , compared with $ 555.1 million in 2012. ebitda ( earnings before interest , income taxes , depreciation and amortization ) was $ 916.3 million in 2013 , compared with $ 842.7 million in 2012. free cash flow and ebitda are presented because the company is aware that they are measures used by third parties in evaluating the company . ( see the notes to selected financial data included in item 6 in this annual report on form 10-k for a reconciliation of u.s. generally accepted accounting principles ( gaap ) measures to comparable non-gaap measures ) . cash used for investing activities totaled $ 460.3 million in 2013 , compared with $ 803.7 million in 2012. in 2013 , the company paid $ 414.3 million , net of cash acquired , to acquire csi in august 2013 , creaform in october 2013 and powervar in december 2013. in 2012 , the company paid $ 747.7 million , net of cash acquired , to acquire o'brien in january 2012 , dunkermotoren in may 2012 , micro-poise in october 2012 , and aci , avtech , sunpower and crystal engineering in december 2012. in 2013 , the company received $ 12.8 million for the sale of a facility . additions to property , plant and equipment totaled $ 63.3 million in 2013 , compared with $ 57.4 million in 2012. cash used for financing activities totaled $ 70.3 million in 2013 , compared with $ 174.5 million of cash provided by financing activities in 2012. in 2013 , net total borrowings decreased by $ 44.9 million , compared with a net total borrowings increase of $ 177.9 million in 2012. in 2013 , the company repurchased approximately 206,000 shares of its common stock for $ 8.5 million , compared with $ 4.6 million used for repurchases of approximately 141,000 shares of the company 's common stock in 2012. at december 31 , 2013 , $ 92.4 million was available under the board authorization for future share repurchases . the company has a revolving credit facility with a total borrowing capacity of $ 700 million , which excludes an accordion feature that permits the company to request up to an additional $ 200 million in revolving credit commitments at any time during the life of the revolving credit agreement under certain conditions . the revolving credit facility was amended in december 2013 and now expires in december 2018. interest rates on outstanding loans under the revolving credit facility are at the applicable benchmark rate plus a negotiated spread or at the u.s. prime rate . the revolving credit facility provides the company with additional financial flexibility to support its growth plans , including its successful acquisition strategy . at december 31 , 2013 , the company had available borrowing capacity of $ 587.0 million under its revolving credit facility , including the $ 200 million accordion feature . 27 at december 31 , 2013 , total debt outstanding was $ 1,415.1 million , compared with $ 1,453.8 million at december 31 , 2012 , with no significant maturities until 2015. the debt-to-capital ratio was 31.1 % at december 31 , 2013 , compared with 36.4 % at december 31 , 2012. the net debt-to-capital ratio ( total debt less cash and cash equivalents divided by the sum of net debt and stockholders ' equity ) was 26.3 % at december 31 , 2013 , compared with 33.8 % at december 31 , 2012. the net debt-to-capital ratio is presented because the company is aware that this measure is used by third parties in evaluating the company . ( see the notes to selected financial data included in item 6 in this annual report on form 10-k for a reconciliation of u.s. gaap measures to comparable non-gaap measures ) . additional financing activities for 2013 include cash dividends paid of $ 58.4 million , compared with $ 53.1 million in 2012. proceeds from the exercise of employee stock options were $ 26.1 million in 2013 , compared with $ 39.4 million in 2012. as a result of all of the company 's cash flow activities in 2013 , cash and cash equivalents at december 31 , 2013 totaled $ 295.2 million , compared with $ 158.0 million at december 31 , 2012. at december 31 , 2013 , the company had $ 291.4 million in cash outside the united states , compared with $ 150.6 million at december 31 , 2012. the company utilizes this cash to operate its international operations , as well as acquire international businesses . in october 2013 , the company acquired a canadian company , creaform , inc. , for approximately 125 million canadian dollars ( approximately $ 120 million ) . the company is in compliance with all covenants , including financial covenants , for all of its debt agreements . the company believes it has sufficient cash-generating capabilities from domestic and unrestricted foreign sources , available credit facilities and access to long-term capital funds to enable it to meet its operating needs and contractual obligations in the foreseeable future .
| segment results eig 's net sales totaled $ 2,034.6 million for 2013 , an increase of $ 162.0 million or 8.7 % , compared with $ 1,872.6 million in 2012. the net sales increase was driven by the acquisitions of powervar , creaform , csi and micro-poise . internal sales growth was approximately 2 % , primarily driven by increases in eig 's process instruments businesses . foreign currency translation was flat period over period . eig 's operating income was $ 552.1 million for 2013 , an increase of $ 55.0 million or 11.1 % , compared with $ 497.1 million in 2012. eig 's increase in operating income was primarily due to higher sales mentioned above . eig 's operating margins were 27.1 % of net sales for 2013 , compared with 26.5 % of net sales in 2012. eig 's increase in operating margins was primarily due to the group 's lower cost structure through operational excellence initiatives . eig 's 2013 operating margins included a $ 11.6 million gain on the sale of a facility recorded in third quarter , which was partially offset by incremental growth investments in the businesses recorded in the third and fourth quarters . emg 's net sales totaled $ 1,559.5 million for 2013 , an increase of $ 97.8 million or 6.7 % , compared with $ 1,461.7 million in 2012. the net sales increase was driven by the acquisition of dunkermotoren . internal sales growth was approximately 1 % , driven by emg 's floorcare and specialty motors businesses . foreign currency translation was flat period over period . emg 's operating income was $ 309.4 million for 2013 , an increase of $ 17.2 million or 5.9 % , compared with $ 292.2 million in 2012. emg 's increase in operating income was primarily due to higher sales mentioned above .
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our current clinical development programs are focused on treating neurological conditions , cardiovascular disease , inflammatory and immune disorders , certain pulmonary conditions and other conditions where the current standard of care is limited or inadequate for many patients . current programs by applying our proprietary multistem cell therapy product , we established therapeutic product development programs treating neurological conditions , cardiovascular disease , inflammatory and immune disorders , and other conditions . our programs in the clinical development stage include the following : ischemic stroke : we completed our phase 2 study of multistem treatment of patients suffering a moderate to severe ischemic stroke and announced the one-year follow-up data and final results from the study in 2016. we are actively engaged in advancing the next stage of clinical development of this program , both independently and with healios . in 2016 , we announced that we received agreement from the fda , under a spa , for the design and planned analysis of a pivotal phase 3 clinical trial of multistem cell therapy for the treatment of ischemic stroke , referred to as masters-2 . the spa provides agreement from the fda that the protocol design , clinical endpoints , planned conduct and statistical analyses encompassed in athersys ' planned phase 3 study can address objectives in support of a regulatory submission for approval of the multistem product for treating ischemic stroke patients , if the trial is successful . in may 2017 , we announced that the fda granted us fast track designation for our clinical product for the treatment of ischemic stroke . such designation for a new biologic product means that the fda will take such actions as are appropriate to expedite the development and review of our application to approve the product , and specifically , under fast track designation , the program becomes eligible for rolling submission , accelerated approval and priority review of the biologics license application , facilitating a timely regulatory review . also , in august 2017 , we announced that the design of masters-2 received a final scientific advice positive opinion from ema , representing ema 's agreement that successful results from the trial could result in registration and marketing approval of the multistem therapy . this positive opinion provides further alignment among the key regulators regarding potential commercialization of the multistem product upon success of this single pivotal trial . in october 2017 , we received the rmat , designation from the fda , which was established under the 21 st century cures legislation . the rmat designation may be obtained for eligible cell therapy and other regenerative medicine and advanced therapies when the fda agrees that preliminary clinical evidence indicates that the therapy has demonstrated the potential to address unmet medical needs for a serious or life threatening disease or condition . the rmat designation is the equivalent of the breakthrough therapy designation that exists for non-regenerative medicine products , and designated products benefit from all breakthrough therapy features . the designation enables sponsors to discuss with the fda multidisciplinary strategic development plans , including expediting manufacturing development plans for commercialization to support priority review and accelerated approval . in september 2016 , we announced the successful completion of the pmda review of healios ' ctn , allowing healios to commence its confirmatory clinical trial , treasure , evaluating the safety and efficacy of administration of multistem cell therapy for the treatment of ischemic stroke in japan , which will be evaluated under the new regulatory framework for regenerative medicine therapies . in accordance with the regulatory system in japan , a ctn is equivalent to an ind , application under the regulatory system used in the u.s. this 220 patient randomized , double blind , placebo controlled clinical trial is being conducted in japan as part of a partnership and license agreement between healios and athersys . this partnership is focused on the development and commercialization of multistem in japan for the treatment of ischemic stroke , and potentially other indications . 38 our masters-2 clinical trial is a randomized , double-blind , placebo-controlled clinical trial designed to enroll 300 patients in north america and europe who have suffered moderate to moderate-severe ischemic stroke . the enrolled subjects will receive either a single intravenous dose of multistem cell therapy or placebo , administered within 18-36 hours of the occurrence of the stroke , in addition to the standard of care . the primary endpoint will evaluate disability using mrs scores at three months , comparing the distribution , or the shift between the multistem treatment and placebo groups . the mrs shift analyzes patient improvement across the full disability spectrum , enabling recognition of improvements in disability and differences in mortality and other serious outcomes , among strokes of different severities . the study will also assess excellent outcome ( the achievement of mrs £ 1 , nihss £ 1 , and barthel index ³ 95 ) at three months and one year as key secondary endpoints . additionally , the study will consider other measures of functional recovery , biomarker data and clinical outcomes , including hospitalization , mortality and life-threatening adverse events , and post-stroke complications such as infection . healios ' treasure study in japan is being conducted at hospitals in japan that have extensive experience at providing care for stroke victims . based on the experience from our b01-02 study , subjects enrolled in the trial will receive either a single dose of multistem or placebo , administered within 1836 hours of the occurrence of the stroke , in addition to standard of care . the study will evaluate patient recovery through approximately 90 days following initial treatment based on excellent outcome and other neurological , functional and clinical endpoints . the treasure study was initiated earlier in 2017 , though interruption in media supply at our contract manufacturer affected manufacturing of the multistem product and had slowed the launch of the japan study . story_separator_special_tag these third parties may not deliver sufficient quantities of our multistem product , manufacture multistem product in accordance with specifications , or comply with applicable government regulations . from time to time , such third-party manufacturers , or their material suppliers , may experience production delays , stoppages or interruptions in supply , which may affect the initiation , execution and timing of completion of clinical trials or commercial activities . in january 2016 , we entered into a license agreement with healios to develop and commercialize multistem cell therapy for ischemic stroke in japan , and to provide healios with access to our proprietary technologies for use in healios ' proprietary organ bud program , initially for transplantation to treat liver disease or dysfunction . under the agreement , healios also obtained a right to expand the scope of the collaboration to include the exclusive rights to develop and commercialize multistem for the treatment of two additional indications in japan , which include ards and another indication in the orthopedic area , as well as all indications for the organ bud program . healios is working toward the development and commercialization of the multistem product in japan , and we are providing the manufactured product to healios for its clinical studies ; provided , that , if we fail to perform our responsibilities to supply clinical trial product to healios , then under certain circumstances , we may be required to grant healios a license to make the product solely for use in the licensed field in japan . in march 2018 , we entered into the loi with healios to significantly expand healios ' license to develop multistem products and are working to execute the agreements necessary to expand the existing collaboration by april 30 , 2018. if the expansion is consummated , healios would , among other things , ( i ) expand its license in japan to include the ards field , trauma and use of multistem for organ buds for all organ diseases , ( ii ) obtain a worldwide exclusive license for use of multistem product to treat certain ophthalmological indications , and ( iii ) obtain an exclusive option to a license to develop and commercialize multistem products for ischemic stroke , the ards field and trauma in china . we also have a collaboration with rti for the development of products for certain orthopedic applications using our stem cell technologies in the bone graft substitutes market , and we continue to receive royalty revenue from product sales and may receive other payments from time to time upon the successful achievement of certain commercial milestones . in 2017 , we received a $ 1.0 million payment associated with achievement of a commercial milestone . also , in the fourth quarter of 2017 , our royalty rate increased as a result of reaching a milestone for product sales . we have also developed other earlier stage programs targeted at indications with significant unmet needs . we may elect to enter into partnerships to advance the development of these programs , or pursue independent development . financial in connection with our january 2016 license agreement with healios , we received an up-front cash payment of $ 15 million from healios , and the collaboration can be expanded at healios ' election . if healios expands the collaboration , we will be entitled to receive an additional cash payment of $ 10 million . healios may exercise its option to expand the collaboration after receipt of the initial results from our ongoing ards clinical trial . if healios exercises the option to expand to collaboration , we would be entitled to receive royalties from product sales and success-based development , regulatory approval and sales milestones , and payments for product supply for the additional indications , as well as a fractional royalty percentage on net sales of the organ bud products . 40 for the ischemic stroke indication , we may receive additional success-based development , regulatory approval and sales milestones of $ 225 million in aggregate , and tiered royalties on product sales that start in the low double digits and increase incrementally into the high teens depending on net sales levels . additionally , we receive payments for product supplied to healios under a manufacturing supply agreement , which is initially focused on clinical product supply , and in 2017 , we agreed to a cost-sharing arrangement with healios for clinical product for its treasure trial in japan that may impact the amount of proceeds we receive from future milestones . we began receiving cost-sharing proceeds late in 2017. in addition , in september 2017 , we entered into a services agreement with healios , in which healios provides financial support to establish a contract manufacturer in japan to produce product for healios . the services under this arrangement commenced in the fourth quarter of 2017. in connection with the march 2018 loi , we would be entitled to receive payments of $ 35 million ( $ 10 million of which is guaranteed to be paid to us ) , as well as additional possible payments , including milestones and royalties . if the expansion agreements are entered into and , thereafter , healios elects to exercise its option for the license in china , healios would pay us license fees , milestone payments and escalating royalties or profit-sharing for each indication in china . also in march 2018 , healios purchased 12,000,000 shares of our common stock and a warrant to purchase up to an additional 20,000,000 shares of common stock for $ 21,100,000 , or approximately $ 1.76 per share . the warrant does not become effective until the expansion agreements are effective . in february 2017 , we completed a public offering generating net proceeds of approximately $ 20.9 million through the issuance of 22,772,300 shares of common stock at an offering price of $ 1.01 per share .
| results of operations since our inception , our revenues have consisted of license fees , contract revenues and milestone payments from our collaborators , and grant proceeds primarily from federal , state and foundation grants . we have derived no revenue from the commercial sale of therapeutic products to date , but we receive royalties on commercial sales by a licensee of products using our technologies . research and development expenses consist primarily of external clinical and preclinical study fees , manufacturing costs , salaries and related personnel costs , legal expenses resulting from intellectual property prosecution processes , facility costs , and laboratory supply and reagent costs . we expense research and development costs as they are incurred . we expect to continue to make significant investments in research and development to enhance our technologies , advance clinical trials of our product candidates , expand our regulatory affairs and product development capabilities , conduct preclinical studies of our product and manufacture our product candidates . general and administrative expenses consist primarily of salaries and related personnel costs , professional fees and other corporate expenses . we expect to continue to incur substantial losses through at least the next several years . year ended december 31 , 2017 compared to year ended december 31 , 2016 revenues . revenues decreased to $ 3.7 million for the year ended december 31 , 2017 from $ 17.3 million in 2016 , related primarily to the $ 15.0 million payment received from the healios collaboration in january 2016 that was recognized as revenue in the first quarter of 2016 , partially offset by 2017 revenues , including a $ 1.0 million milestone payment from rti and proceeds from our collaboration with healios . we expect our future contract revenue to be comprised primarily of revenues associated with our healios collaboration , royalty payments and potential commercial milestone payments from rti , and proceeds from potential new collaborations .
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the status of all defined benefit pension plans at september 30 is as follows : replace_table_token_31_th 46 sifco industries , inc. and subsidiaries notes to consolidated financial statements – ( continued ) as part of the acquisition of c * blade , as discussed more fully in note 12 , the company sponsors a defined pension plan for certain of its employees . the plan is a severance entitlement payable to the italian employees who qualified prior to december 27 , 2006. the plan is considered an unfunded defined benefit plan and is measured as story_separator_special_tag sifco is engaged in the production of forgings and machined components primarily for the aerospace and energy markets . the processes and services include forging , heat-treating and machining . since fiscal 2014 , the company operates under one business segment : sifco . the company endeavors to plan and evaluate its business operations while taking into consideration certain factors including the following : ( i ) the projected build rate for commercial , business and military aircraft , as well as the engines that power such aircraft ; ( ii ) the projected build rate for industrial steam and gas turbine engines ; and ( iii ) the projected maintenance , repair and overhaul schedules for commercial , business and military aircraft , as well as the engines that power such aircraft . 16 the company operates within a cost structure that includes a significant fixed component . therefore , higher net sales volumes are expected to result in greater operating income because such higher volumes allow the business operations to better leverage the fixed component of their respective cost structures . conversely , the opposite effect is expected to occur at lower net sales and related production volumes . a. results of operations non-gaap financial measures presented below is certain financial information based on our ebitda and adjusted ebitda . references to “ ebitda ” mean earnings from continuing operations before interest , taxes , depreciation and amortization , and references to “ adjusted ebitda ” mean ebitda plus , as applicable for each relevant period , certain adjustments as set forth in the reconciliations of net income to ebitda and adjusted ebitda . neither ebitda nor adjusted ebitda is a measurement of financial performance under generally accepted accounting principles in the united states of america ( “ gaap ” ) . the company presents ebitda and adjusted ebitda because it believes that they are useful indicators for evaluating operating performance and liquidity , including the company 's ability to incur and service debt and it uses ebitda to evaluate prospective acquisitions . although the company uses ebitda and adjusted ebitda for the reasons noted above , the use of these non-gaap financial measures as analytical tools has limitations . therefore , reviewers of the company 's financial information should not consider them in isolation , or as a substitute for analysis of the company 's results of operations as reported in accordance with gaap . some of these limitations include : neither ebitda nor adjusted ebitda reflects the interest expense , or the cash requirements necessary to service interest payments , on indebtedness ; although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and neither ebitda nor adjusted ebitda reflects any cash requirements for such replacements ; the omission of the substantial amortization expense associated with the company 's intangible assets further limits the usefulness of ebitda and adjusted ebitda ; and neither ebitda nor adjusted ebitda includes the payment of taxes , which is a necessary element of operations . because of these limitations , ebitda and adjusted ebitda should not be considered as measures of discretionary cash available to the company to invest in the growth of its businesses . management compensates for these limitations by not viewing ebitda or adjusted ebitda in isolation and specifically by using other gaap measures , such as net income ( loss ) , net sales , and operating profit , to measure operating performance . the company 's calculation of ebitda and adjusted ebitda may not be comparable to the calculation of similarly titled measures reported by other companies . 17 the following table sets forth a reconciliation of net income ( loss ) to ebitda and adjusted ebitda : replace_table_token_2_th ( 1 ) represents the gain or loss from changes in the exchange rates between the functional currency and the foreign currency in which the transaction is denominated . ( 2 ) represents miscellaneous non-operating income or expense , primarily rental income from the company 's irish subsidiary . ( 3 ) represents the difference between the proceeds from the sale of operating equipment and the carrying value shown on the company 's books . ( 4 ) represents accounting adjustments to value inventory at fair market value associated with the acquisition of a business that was charged to cost of goods sold when the inventory was sold . ( 5 ) represents severance expense related to the departure of an executive officer . included in the $ 964 for fiscal 2015 is $ 233 of equity based compensation expense recognized by the company under its 2007 long-term incentive plan . included in the $ 813 for fiscal 2013 is $ 155 of equity-based compensation expense recognized by the company under its 2007 long-term incentive plan . ( 6 ) represents the equity-based compensation expense recognized by the company under its 2007 long-term incentive plan . ( 7 ) represents expense incurred by a defined benefit pension plan related to settlement of pension obligations . ( 8 ) represents transaction-related costs such as legal , financial , tax due diligence expenses , valuation services , costs , and executive travel that are required to be expensed as incurred . ( 9 ) represents the increase ( decrease ) in the reserve for inventories for which cost is determined using the last in , first out ( `` lifo '' ) method . story_separator_special_tag cost of goods sold cost of goods sold increased by $ 5.7 million , or 6.4 % , to $ 94.3 million during fiscal 2014 , compared to $ 88.6 million in the comparable period of fiscal 2013 , primarily due to the additional business as a result of the acquisition of colorado springs and higher employee benefits expense . gross profit gross profit decreased by $ 2.0 million , or 7.4 % , to $ 25.3 million during fiscal 2014 , compared with $ 27.4 million in fiscal 2013. gross margin as a percentage of sales was 21.2 % during fiscal 2014 , compared with 23.6 % in fiscal 2013. the decrease in gross margin as a percentage of sales in fiscal 2014 compared to fiscal 2013 was primarily due to a change in mix within the company 's energy components sales . selling , general and administrative expenses selling , general and administrative expenses increased by $ 3.5 million to $ 15.1 million , or 12.6 % of net sales , during fiscal 2014 , compared to $ 11.6 million , or 10.0 % of net sales , in fiscal 2013. fiscal 2013 included a $ 0.8 million non-recurring severance payment to a former executive . excluding this charge , selling , general and administrative expenses increased by $ 4.3 million , primarily due to increases in legal and professional costs associated with the company 's sarbanes-oxley compliance readiness , higher long-term incentive compensation , an increase in depreciation expense due to accelerating depreciation on certain computer assets targeted to be replaced by an upcoming erp system installation , the addition of colorado springs and increased compensation and benefit costs . amortization of intangibles amortization of intangibles was $ 2.2 million during fiscal 2014 , compared with $ 2.1 million in the comparable period of fiscal 2013 . 21 other/general interest expense decreased to $ 0.2 million during fiscal 2014 , compared with $ 0.3 million in fiscal 2013. the following table sets forth the weighted average interest rates and weighted average outstanding balances under the company 's debt agreements in fiscal 2014 and 2013 : replace_table_token_6_th other income , net consists principally of $ 0.4 million of rental income earned from the lease of the cork , ireland facility for both fiscal 2014 and 2013. the company believes that inflation did not materially affect its results of operations in either fiscal 2014 or 2013. income taxes the company 's effective tax rate in fiscal 2014 was 33 % , compared with 30 % in fiscal 2013 , and differs from the u.s. federal statutory rate due primarily to ( i ) the application of foreign tax credits and other u.s. credits in both the current year and in prior year adjustments , ( ii ) the impact of u.s. state and local income taxes , ( iii ) a domestic production activities deduction , and ( iv ) a decrease in the reserve for uncertain tax positions . income from continuing operations income from continuing operations , net of tax decreased by $ 4.2 million , or 42.6 % , to $ 5.6 million , or 4.7 % of net sales , during fiscal 2014 , compared with $ 9.8 million , or 8.4 % of net sales , in fiscal 2013 due primarily to the factors noted above . ( loss ) /income from discontinued operations loss from discontinued operations , net of tax , was $ 0.6 million during fiscal 2014 , compared with income from discontinued operations of $ 0.5 million in fiscal 2013. this line item consists of income from discontinued operations related to applied surface concepts and the repair group . the loss in fiscal 2014 is due to certain minimal continued operating costs associated with the closure of the repair group in the first quarter of fiscal 2014. income in fiscal 2013 was primarily due to the after-tax gain of $ 2.5 million on the sale of asc during the first quarter of fiscal 2013 , which was partially offset by an after-tax loss of $ 2.0 million due to the exiting of the repair group as of september 30 , 2013. net income net income decreased by $ 5.2 million , or 50.9 % , to $ 5.0 million , or 4.2 % of net sales , during fiscal 2014 , compared with $ 10.2 million , or 8.8 % of net sales , in fiscal 2013. net income decreased primarily due to higher selling , general and administrative expenses and lower gross margin as noted above . b. liquidity and capital resources cash and cash equivalents decreased to $ 0.7 million at september 30 , 2015 compared with $ 4.6 million at september 30 , 2014 and $ 4.5 million at september 30 , 2013. in the fourth quarter of fiscal 2015 , approximately $ 4.5 million of the company 's cash and cash equivalents that was in the possession of its non-operating irish subsidiary , was distributed as part of the $ 17.0 million cash used to fund the acquisition of c * blade , effective july 1 , 2015 as referenced in note 12 of the consolidated financial statements included in item 8. the aforementioned cash distribution from ireland used to fund the acquisition of c * blade , resulted in taxes generated from a monetary gain in ireland . the company has considered the tax effect in the calculation of its fiscal 2015 income tax provision ( see note 6 of the consolidated financial statements included in item 8 ) . operating activities the company 's operating activities from continuing operations used $ 1.3 million of cash in fiscal 2015 , compared with $ 11.0 million of cash provided by operating activities from continuing operations in fiscal 2014. the cash used by operating activities from continuing operations in fiscal 2015 was due to the net loss of $ 2.9 million and a $ 6.6 million use of working capital .
| overview as set in motion in previous years , sifco has continued to execute on its transformative changes . these changes have revolved around its customer base ( less dependency on major customers ) , its management structure , the implementation of an enterprise resource planning ( `` erp '' ) system at two of its facilities , the continued increase of compliance measures for being an accelerated sec filer , and the completion of the acquisition of c * blade . such measures have transformed the company into the aerospace and energy ( `` a & e '' ) focused business that sifco is today . 18 fiscal year 2015 compared with fiscal year 2014 net sales the company 's results for fiscal 2015 include the results of c * blade from the date of acquisition . net sales in fiscal 2015 decreased 8.7 % to $ 109.3 million , compared to $ 119.7 million in fiscal 2014. the company produces forged components for ( i ) turbine engines that power commercial , business and regional aircraft as well as military aircraft and armored military vehicles ; ( ii ) airframe applications for a variety of aircraft ; ( iii ) industrial gas and steam turbine engines for power generation units ; and ( iv ) other commercial applications . net sales comparative information for fiscal 2015 and 2014 , respectively , is as follows : replace_table_token_3_th overall , net sales for the company decreased $ 10.4 million in fiscal 2015 compared to fiscal 2014. the decrease in fixed wing aircraft and rotorcraft sales are primarily due to ( i ) changes in build rates in military programs such as c130 and v-22 , which are driving the decline in volume compared to the comparable period , and ( ii ) from delays in raw material availability . the company 's lower energy components sales were due to a major customer closing its facility .
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collection and transportation revenues are recognized over time , as the customer receives and consumes the benefits of the services as they are being performed and the company has a right to payment for performance completed to date . the company uses the input method to recognize revenue over time , based on time and materials incurred . product story_separator_special_tag overview we are north america 's leading provider of environmental , energy and industrial services supporting our customers in finding environmentally responsible solutions to further their sustainability goals in today 's world . we believe we operate , in the aggregate , the largest number of hazardous waste incinerators , landfills and treatment , storage and disposal facilities ( `` tsdfs '' ) in north america . we serve a diverse customer base , including fortune 500 companies , across the chemical , energy , manufacturing and additional markets , as well as numerous government agencies . these customers rely on us to deliver a broad range of services including but not limited to end-to-end hazardous waste management , emergency response , industrial cleaning and maintenance and recycling services . we are also the largest re-refiner and recycler of used oil in north america and the largest provider of parts cleaning and related environmental services to commercial , industrial and automotive customers in north america . we have two operating segments ; ( i ) the environmental services segment and ( ii ) the safety-kleen segment . performance of our segments is evaluated on several factors of which the primary financial measure is adjusted ebitda as described more fully below . the following is a discussion of how management evaluates its segments including key performance indicators that management uses to assess the segments ' results , as well as certain macroeconomic trends and influences that impact each reportable segment : environmental services - environmental services segment results are predicated upon the demand by our customers for waste services directly attributable to waste volumes generated by them and project work for which waste handling and or disposal is required . in managing the business and evaluating performance , management tracks the volumes and mix of waste handled and disposed of through our owned incinerators and landfills , as well as utilization of such incinerators , labor and billable hours and equipment among other key metrics . levels of activity and ultimate performance associated with this segment can be impacted by several factors including overall u.s. gdp and u.s. industrial production , weather conditions , efficiency of our operations , technology , changing regulations , competition , market pricing of our services and the management of our related operating costs . environmental services results are also impacted by the demand for planned and unplanned industrial related cleaning and maintenance services at customer sites and for environmental cleanup services on a scheduled or emergency basis , including response to national events such as major chemical spills , natural disasters or other events where immediate and specialized services are required . safety-kleen - safety-kleen segment results are impacted by an array of core service and product offerings that serve to attract small quantity waste producers as customers and integrate them into the clean harbors waste network . core service offerings include parts washer services , containerized waste services , vac services , used motor oil collection and contract blending and packaging services . key performance indicators tracked by the company relative to these services include the number of parts washer services performed and pricing and volume of used motor oil and waste collected . results from these services are primarily driven by the overall number of parts washers placed at customer sites and volumes of waste collected , as well as the demand for and frequency of other offered services . these factors can be impacted by overall economic conditions in the marketplace , especially in the automotive related area . in addition to its core service offerings , safety-kleen offers high quality recycled base and blended oil products to end users including fleet customers , distributors and manufacturers of oil products . other product offerings include automotive related fluids and shop supplies . relative to its oil related products , management tracks the company 's volumes and relative percentages of base and blended oil sales along with various pricing metrics associated with the commodity driven marketplace . the segment 's results are significantly impacted by overall market pricing and product mix associated with base and blended oil products and , more specifically , the market prices of group ii base oils . costs incurred in connection with the collection of used oil and other raw materials associated with the segment 's oil related products can also be volatile . our oilplus ® closed loop initiative , which results in the sale of our renewable oil products directly to our end customers , may also be impacted by changes in customer demand for high-quality , environmentally responsible recycled oil . story_separator_special_tag increased blended oil volumes . revenues generated through our core service offerings , such as handling of containerized waste and vacuum services , accounted for $ 22.3 million of incremental revenues driven both by volume and pricing increases . higher volumes of blended oil sales and increased pricing of our used motor oil collections contributed $ 15.6 million and $ 5.2 million , respectively , to the growth in direct revenues from the comparable period in 2018 . revenue from contract blending and packaging also increased $ 9.3 million due to increased volume . these increases were partially offset by a $ 17.5 million decrease in base oil sales due to reductions in pricing experienced in 2019 in response to lower demand across the base oil market and lower base oil volumes , most significantly seen in the first quarter of 2019 . sales of recycled fuel oil and refinery bi-products decreased by $ 12.3 million from prior year due to a reduction in volume . in 2019 , parts washer services were relatively consistent with the prior year . story_separator_special_tag the primary driver of these decreases relates to certain trade receivables which were reserved for in 2018 and subsequently recovered in 2019 , generating a favorable difference of nearly $ 13.0 million . the favorable resolution of a litigation matter further reduced sg & a expenses by $ 5.5 million in 2019. these decreases were partially offset by a $ 5.2 million increase in compensation and benefits related costs which was consistent with the growth of the business in 2019. excluding the recovery of trade receivables and litigation impacts , 2019 sg & a expenses as a percentage of direct revenues still improved over the prior year . environmental services sg & a expenses for the year ended december 31 , 2018 increased $ 21.3 million from the comparable period in 2017 , however as a percentage of direct revenues , these costs remained consistent between the two periods . the increase in sg & a expenses was primarily due to increases in salary , benefits and variable compensation related costs of $ 14.7 million and bad debt expense of $ 7.0 million , partially offset by cost reductions across various expense categories . the increases in salary , benefits and variable compensation are in line with the growth of the business in 2018 as compared to 2017 . safety-kleen replace_table_token_11_th safety-kleen sg & a expenses for the year ended december 31 , 2019 decreased $ 7.2 million from the comparable period in 2018 and sg & a as a percentage of direct revenues decreased as well . the primary driver of these decreases is a $ 4.4 million decrease in compensation and benefits related costs resulting from lower headcount and cost saving initiatives implemented by the business throughout 2019. a reduction in legal related costs of $ 1.6 million also contributed to the overall decrease in sg & a expenses . safety-kleen sg & a expenses for the year ended december 31 , 2018 increased $ 5.8 million from the comparable period in 2017 , however these costs decreased as a percentage of direct revenues , as the additional direct revenues outpaced incremental sg & a expenses . the overall increase in sg & a expenses was primarily due to increased salaries , benefits and variable compensation of $ 5.7 million as we continue to grow the business . corporate items replace_table_token_12_th corporate items sg & a expenses for the year ended december 31 , 2019 were consistent with the comparable period in 2018 . continued investment in our employees increased our compensation and benefits related costs by $ 6.6 million and stock-based compensation increased by $ 1.0 million due to the achievement of certain performance metrics associated with performance based awards . these costs were offset by a $ 6.9 million reduction in legal and consulting fees due to cost saving initiatives . corporate items sg & a expenses for the year ended december 31 , 2018 increased $ 20.1 million from the comparable period in 2017 primarily due to increased salaries and benefits resulting from continued commitments to investing in our employees and variable compensation totaling $ 14.8 million , as well as increased stock-based compensation of $ 4.3 million primarily attributable to the achievement of performance metrics associated with performance based awards in 2018 . incremental costs associated with the acquired veolia business also contributed to the increased costs . 33 adjusted ebitda management considers adjusted ebitda to be a measurement of performance which provides useful information to both management and investors . adjusted ebitda should not be considered an alternative to net income or other measurements under generally accepted accounting principles ( `` gaap '' ) . adjusted ebitda is not calculated identically by all companies and , therefore our measurements of adjusted ebitda , while defined consistently and in accordance with our existing credit agreement , may not be comparable to similarly titled measures reported by other companies . we use adjusted ebitda to enhance our understanding of our operating performance , which represents our views concerning our performance in the ordinary , ongoing and customary course of our operations . we historically have found it helpful , and believe that investors have found it helpful , to consider an operating measure that excludes certain expenses relating to transactions not reflective of our core operations . the information about our operating performance provided by this financial measure is used by our management for a variety of purposes . we regularly communicate adjusted ebitda results to our lenders since our loan covenants are based upon levels of adjusted ebitda achieved and to our board of directors and we discuss with the board our interpretation of such results . we also compare our adjusted ebitda performance against internal targets as a key factor in determining cash and equity bonus compensation for executives and other employees , largely because we believe that this measure is indicative of how the fundamental business is performing and is being managed . we also provide information relating to our adjusted ebitda so that analysts , investors and other interested persons have the same data that we use to assess our core operating performance . we believe that adjusted ebitda should be viewed only as a supplement to the gaap financial information . we also believe , however , that providing this information in addition to , and together with , gaap financial information provides a better understanding of our core operating performance and how management evaluates and measures our performance . the following is a reconciliation of net income to adjusted ebitda for the following periods ( in thousands , except percentages ) : replace_table_token_13_th depreciation and amortization replace_table_token_14_th depreciation and amortization for the year ended december 31 , 2019 remained relatively consistent with the same period in the prior year . depreciation and amortization for the year ended december 31 , 2018 increased $ 10.2 million from the comparable period in 2017 , primarily due to incremental depreciation from acquisitions and a slight increase in volumes at our landfills that drove higher landfill amortization .
| highlights total revenues for 2019 increased 3.4 % to $ 3.4 billion , compared with $ 3.3 billion in 2018 . our environmental services segment increased direct revenues $ 95.9 million in 2019 compared with 2018 due to greater activity at our sales and service branches and improvements in average pricing which was driven by a more profitable mix of waste streams across our incinerator network . direct revenues recorded by safety-kleen increased $ 16.8 million in 2019 compared to 2018 as a result of continued growth across safety-kleen 's core service offerings and higher volumes of blended oil sales . foreign currency 28 translation of our canadian operations negatively impacted our consolidated direct revenues by $ 12.9 million in 2019 as compared to 2018 . income from operations in 2019 was $ 229.5 million , compared with $ 182.6 million in 2018 . we reported net income in 2019 and 2018 of $ 97.7 million and $ 65.6 million , respectively . adjusted ebitda , which is the primary financial measure by which our segments are evaluated , increased 10.0 % to $ 540.3 million in 2019 from $ 491.0 million in 2018 . the increased level of adjusted ebitda in 2019 was primarily attributable to higher revenue amounts as described above and improved operating margins . additional information regarding adjusted ebitda , which is a non-gaap measure , including a reconciliation of adjusted ebitda to net income , appears below under `` adjusted ebitda . '' net cash from operating activities for 2019 was $ 413.2 million , an increase of $ 40.0 million from 2018 .
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for a description of these forward-looking statements , refer to part i “ cautionary note regarding forward-looking statements. ” a description of factors that could cause actual results to differ materially from the results we anticipate include , but are not limited to , those discussed in item 1a “ risk factors , ” as well as those discussed elsewhere in this annual report . overview we provide mission-focused technology solutions and services for u.s. defense , intelligence community and federal civilian agencies . we excel in full-spectrum cyber , secure mission & enterprise it , advanced data analytics , software and systems development , intelligent systems engineering , intelligence mission support and mission operations . 17 approximately 98 % of our revenues during the year ended december 31 , 2020 were generated from contracts with the u.s. government , or through prime contractors supporting the u.s. government . the u.s. government is the largest consumer of services and solutions in the u.s. in government fiscal year ( gfy ) 2020 , the u.s. government obligated approximately $ 393 billion on contracted services , a 10 % increase from the prior year . our business is impacted by the overall u.s. government budget and the alignment of our capabilities and offerings with the u.s. government 's spending priorities . the department of defense ( dod ) is the largest purchaser of services and solutions in the u.s. government . the covid-19 pandemic the global outbreak of the covid-19 pandemic , along with various measures that local , state and federal governments have adopted to mitigate its impact , have required us to make changes to our operations to enable our employees to continue supporting our customers ' mission-critical needs in this period of disruption . as a result of travel restrictions , social distancing guidelines and other efforts that have been adopted by public health officials to mitigate the impact of the covid-19 pandemic , we have made changes to our operating schedules and staffing plans to accommodate these restrictions while maintaining the ability of our employees to continue to support and work with our customers to the maximum extent possible . the changes include the implementation of telework or other means of remote work for our employees , who support both mission-critical programs and our internal support organization . with respect to our impacted programs that , by their nature , can not be supported remotely , we have accommodated those customers who have implemented shiftwork or other mitigation protocols by maintaining our workforce in a “ mission ready ” state . on march 27 , 2020 , the coronavirus aid , relief and economic security ( cares ) act was enacted . the cares act includes a provision ( section 3610 ) under which government contractors can seek reimbursement for employee 's salaries when they are prevented from accessing worksites or are subject to reduced work schedules and ca n't telecommute . the precise application of this provision , including what type of costs will be reimbursed , the earliest date cost-reimbursement will be applicable , and whether fee recovery will be included in the reimbursement , are determinations being made at the individual government agency or contract level . currently , our customers are reimbursing costs incurred without fee . the fee impacts were largely offset by increases related to increased labor utilization ( due to reductions in the use of paid time off ) and reduced indirect spending due to travel restrictions imposed in response to the pandemic . on december 27 , 2020 , congress passed , and the president signed into law the consolidated appropriations act of 2021. the act funds the federal government through gfy 2021 and contains $ 696 billion of funding for defense . additionally , the act extends the reimbursement period for section 3610 of the cares act through march 31 , 2021. we are continuing to monitor the impacts of the pandemic and the rollout of the vaccine to the population . we can not predict the duration of the pandemic nor the timing and impact of the vaccine , however , an extended duration of the pandemic may have adverse impact on our results of operations . acquisitions we continually monitor u.s. government spending and budgetary priorities to align our investments in new capabilities to drive organic growth . we will selectively pursue acquisitions that broaden our domain expertise and service offerings and or establish relationships with new customers . in 2020 , we acquired minerva engineering and tapestry technologies . minerva engineering is a leading provider in advanced cybersecurity solutions focused on risk and vulnerability assessment , incident response , cyber intrusion detection , and wireless signal discovery . tapestry technologies provides unique insight and cybersecurity solutions to the u.s. defense information systems agency ( disa ) and the department of defense ( dod ) . since going public in 2002 , we have acquired and integrated 32 businesses into our operations . pricing our industry remains competitive on price . while there has been a trend away from the lowest-price technically acceptable procurement model for a majority of our customers , contracts continue to be awarded through a competitive bidding process ( including indefinite delivery , indefinite quantity and other multi-award contracts ) , which could increase pricing pressure . to ensure our cost structure remains competitive , we continually evaluate and adjust our levels of indirect spending to stay in line with the expected business opportunities . our industry also remains competitive with respect to attracting and retaining employees with the necessary skills and security clearances to perform certain services that are a priority for our customers . we classify indirect costs incurred as cost of services and general and administrative expenses in the same manner as such costs are defined in our disclosure statements under the government 's cost accounting standards . over time , we may change 18 how certain indirect costs are allocated based on organizational changes and to maintain competitive cost structures . story_separator_special_tag for the years ended december 31 , 2020 and 2019 , our net cash flows from operating activities were $ 247.2 million and $ 221.4 million , respectively . the increase in net cash flows from operating activities during the year ended december 31 , 2020 when compared to the same period in 2019 was primarily due to an increase in non-cash operating expenses and the timing of accrued salaries and related expenses . cash used in investing activities our cash used in investing activities consists primarily of business combinations , purchases of property and equipment and investments in capitalized software for internal use . for the years ended december 31 , 2020 and 2019 , our net cash used in investing activities were $ 150.1 million and $ 214.9 million , respectively . for the year ended december 31 , 2020 , our net cash used in investing activities were primarily due to the acquisitions of minerva engineering and tapestry technologies and the 21 purchase of equipment to support our managed it service contracts and infrastructure investments . for the year ended december 31 , 2019 , our net cash used in investing activities were primarily due to the acquisitions of kforce government solutions and h2m group and the purchase of equipment to support managed it service contracts , infrastructure and capitalized software for internal use . cash flows used in financing activities for the years ended december 31 , 2020 and 2019 , our net cash used in financing activities were $ 64.8 million and $ 2.9 million , respectively . for the year ended december 31 , 2020 , our net cash used in financing activities were primarily due to dividends paid and net repayments under our revolving credit facility , offset by the proceeds from the exercise of stock options . for the year ended december 31 , 2019 , our net cash used in financing activities was primarily due to dividends paid , offset by net borrowings under our revolving credit facility to fund our acquisitions this year and proceeds from the exercise of stock options . revolving credit facility we maintain a credit agreement with a syndicate of lenders led by bank of america , n.a. , as sole administrative agent . the credit agreement provides for a $ 500 million revolving credit facility , with a $ 75 million letter of credit sublimit and a $ 30 million swing line loan sublimit . the credit agreement also includes an accordion feature that permits us to arrange with the lenders for the provision of additional commitments . the maturity date is august 17 , 2022. borrowings under our credit agreement are collateralized by substantially all of our assets of us and those of our material subsidiaries ( as defined in the credit agreement ) and bear interest at one of the following variable rates as selected by us at the time of borrowing : a london interbank offer rate ( libor ) based rate plus market spreads ( 1.25 % to 2.25 % based on our consolidated total leverage ratio ) or bank of america 's base rate plus market spreads ( 0.25 % to 1.25 % based on our consolidated total leverage ratio ) . the terms of the credit agreement permit prepayment and termination of the loan commitments at any time , subject to certain conditions . the credit agreement requires us to comply with specified financial covenants , including the maintenance of certain consolidated leverage ratios and a certain consolidated coverage ratio . the credit agreement also contains various covenants , including affirmative covenants with respect to certain reporting requirements and maintaining certain business activities , and negative covenants that , among other things , may limit or impose restrictions on our ability to incur liens , incur additional indebtedness , make investments , make acquisitions and undertake certain other actions . as of , and during the fiscal years ending december 31 , 2020 and 2019 , we were in compliance with our financial covenants under the credit agreement . there was $ 15.0 million and $ 36.5 million outstanding on our revolving credit facility at december 31 , 2020 and 2019 , respectively . capital resources we believe the capital resources available to us from cash on hand , our remaining capacity under our revolving credit facility , and cash from our operations are adequate to fund our anticipated cash requirements for at least the next year . we anticipate financing our external growth from acquisitions and our longer-term internal growth through one or more of the following sources : cash from operations ; use of our revolving credit facility ; and additional borrowings of debt or issuance of equity . cash management to the extent possible , we invest our available cash in short-term , investment grade securities in accordance with our investment policy . under our investment policy , we manage our investments in accordance with the priorities of maintaining the safety of our principal , maintaining the liquidity of our investments , maximizing the yield on our investments and investing our cash to the fullest extent possible . our investment policy provides that no investment security can have a final maturity that exceeds six months and that the weighted average maturity of the portfolio can not exceed 60 days . cash and cash equivalents include cash on hand , amounts due from banks and short-term investments with maturity dates of three months or less at the date of purchase . dividend during the years ended december 31 , 2020 and 2019 , we declared and paid quarterly dividends in the amount of $ 0.32 and $ 0.27 per share on both classes of common stock .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table sets forth certain items from our consolidated statements of income and the relative percentages that certain items of expense and earnings bear to revenues as well as the year-over-year change from december 31 , 2019 to december 31 , 2020. replace_table_token_0_th revenues the primary drivers of the increase in our revenues are revenues from new contract awards , growth on existing contracts and the acquisitions we completed during the year . these increases were offset by contracts and tasks that ended during the year and reduced scope of work on some contracts including contracts with variable material purchase requirements . we expect revenues to increase in 2021 due to recent and future new contract awards and growth on existing programs . cost of services the increase in cost of services was primarily due to increases in revenues . as a percentage of revenues , direct labor costs were 49 % and 47 % for the years ended december 31 , 2020 and 2019 , respectively . as a percentage of revenues , other direct costs , which include subcontractors and third party equipment and materials used in the performance of our contracts , were 36 % and 39 % for the years ended december 31 , 2020 and 2019 , respectively . due to the pandemic , we have seen an increase in labor utilization as our workforce has reduced the amount of paid time off taken . as a result of travel restrictions and other protocols to mitigate the spread of the virus , we have incurred less travel related other direct costs . depending on the duration of the pandemic , we may continue to experience a similar shift in our mix of direct labor and other direct costs .
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our income tax calculations have historically been under the regular and amt regimes found in u.s. tax laws . the u.s. tax system contains rules to alleviate the burden of double taxation on income generated in foreign countries and subject to tax in such countries . the u.s. allows for either a deduction or credit of such foreign taxes against u.s. taxable income . an election to either claim a deduction or credit on such foreign income taxes can be made 49 each story_separator_special_tag forward-looking statements this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that have been made pursuant to the provisions of the private securities litigation reform act of 1995. these forward-looking statements are based on current expectations , estimates , and projections about evolving systems ' industry , management 's beliefs , and certain assumptions made by management . forward-looking statements include our expectations regarding product , services , and customer support revenue ; our expectations associated with evolving systems india , evolving systems u.k. and evolving systems nc and short- and long-term cash needs . in some cases , words such as anticipates , expects , intends , plans , believes , estimates , variations of these words , and similar expressions are intended to identify forward-looking statements . the following discussion should be read in conjunction with , and is qualified in its entirety by , the consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth in this section and in item 1a - risk factors. overview evolving systems , inc. is a leading provider of software solutions and services to the wireless , wireline and cable markets . we maintain long-standing relationships with many of the largest wireline , wireless and cable companies worldwide . our customers rely on us to develop , deploy , enhance , maintain and integrate complex , reliable software solutions for a range of operations support systems ( oss ) . our activation solution is the leading packaged solution for activation in the wireless industry . we recognize revenue in accordance with the prescribed accounting standards for software revenue recognition under generally accepted accounting principles . as a result , our license fees and services revenue fluctuate from period to period as a result of the timing of revenue recognition on existing projects . recent developments we reported net income of $ 3.3 million , $ 5.6 million and $ 3.8 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . our ending backlog at december 31 , 2015 was $ 12.1 million , consisting of $ 6.1 million of license and services and $ 6.0 million of customer support compared to total backlog of $ 10.6 million at december 31 , 2014. on september 30 , 2015 we acquired privately held ssm , now known as evolving systems nc , inc. , a provider of real time analytics and marketing solutions to wireless carriers , for an initial payment of approximately $ 9.75 million and a $ 0.5 million working capital adjustment . we also agreed to make a payment on the one year anniversary of the transaction of $ 250,000 , with such payment being available to secure ssm 's representations and warranties in the agreement . ssm 's software solution platform , rlm , enables carriers ' marketing departments to innovate , execute and manage highly-personalized and contextually-relevant , interactive campaigns that engage consumers in real time . rlm is included as a component of our mobile marketing solutions ( mms ) product suite in license fees and service revenue and customer support revenue . we declared and paid a $ 0.11 cash dividend per share in each of the four quarters of 2015. we have operations in foreign countries where the local currency is used to prepare the financial statements which are translated into our reporting currency , u.s. dollars . changes in the exchange rates between these currencies and our reporting currency are partially responsible for some of the changes from period to period in our financial statement amounts . the majority of the changes in 2015 and 2014 are a result of the u.s. dollar strengthening on average versus the british pound sterling . the chart below summarizes what the effects on our revenue and expenses would be on a constant currency basis . the constant currency basis assumes that the exchange rate was constant for the periods presented ( in thousands ) . 21 replace_table_token_4_th the net effect of our foreign currency translations for the year ended december 31 , 2015 was a $ 1.0 million decrease in revenue and a $ 1.2 million decrease in operating expenses versus the year ended december 31 , 2014. the net effect of our foreign currency translations for the year ended december 31 , 2014 was a $ 0.4 million increase in revenue and a $ 0.5 million increase in operating expenses versus the year ended december 31 , 2013 due to a weaker u.s. dollar on average during the year 2014. story_separator_special_tag for the year ended december 31 , 2014 from 35 % for the year ended december 31 , 2013. the decrease in costs as a percentage of license fees and services revenue is primarily related to the increased revenue during the period . costs of customer support , excluding depreciation and amortization costs of revenue for customer support decreased 16 % , or $ 0.3 million , to $ 1.6 million for the year ended december 31 , 2015 from $ 1.9 million for the year ended december 31 , 2014. the decrease in costs is related to embedded software maintenance and fewer customer support project hours partially offset by expenses related to evolving systems nc . story_separator_special_tag depreciation expenses increased 28 % , or $ 0.1 million , to $ 0.3 million for the year ended december 31 , 2015 from $ 0.2 million for the year ended december 31 , 2014. the increase of expense was due to capital improvements on internal systems in 2015. as a percentage of revenue , depreciation expense remained at 1 % for the years ended december 31 , 2015 and 2014. depreciation expenses were $ 0.2 million for the years ended december 31 , 2014 and 2013. as a percentage of revenue , depreciation expense remained at 1 % for the years ended december 31 , 2014 and 2013. amortization amortization expense consists of amortization of identifiable intangibles related to our acquisitions of evolving systems u.k. , evolving systems labs and evolving systems nc . amortization expense increased 180 % , to $ 0.3 million for the year ended december 31 , 2015 from $ 0.1 million for the year ended december 31 , 2014. the increase in amortization expense was due to intangible assets relating to the acquisition of evolving systems nc on september 30 , 2015. as a percentage of revenue , amortization expense increased to 1 % for the year ended december 31 , 2015 from less than 1 % for the year ended december 31 , 2014. the increase of amortization expense as a percentage of total revenue is due to the aforementioned increase of expense . amortization expense decreased 55 % , to $ 0.1 million for the year ended december 31 , 2014 from $ 0.2 million for the year ended december 31 , 2013. the decrease in amortization expense was due to intangible assets relating to the acquisition of evolving systems u.k. becoming fully amortized as of june 30 , 2013. as a percentage of revenue , amortization expense decreased to less than 1 % for the year ended december 31 , 2014 from 1 % for the year ended december 31 , 2013. the decrease of amortization expense as a percentage of total revenue is due increased revenue and to the aforementioned decrease of expense . restructuring restructuring expense includes the costs associated with a reduction in workforce involving the termination of employees . restructuring increased to $ 0.5 million for the year ended december 31 , 2015 from $ 0.2 million for the year ended december 31 , 2014. restructuring expense for the year ended december 31 , 2015 related to the acquisition of evolving systems nc and for the year ended december 31 , 2014 was a result of the acquisition of evolving systems , labs . as a percentage of revenue , restructuring expense increased to 2 % for the year ended december 31 , 2015 from 1 % for the year ended december 31 , 2014. the increase of restructuring expense as a percentage of total revenue is due the aforementioned increase of expense and lower revenue . 25 restructuring decreased to $ 0.2 million for the year ended december 31 , 2014 from $ 0.6 million for the year ended december 31 , 2013. restructuring expense for both years was a result of the acquisition of evolving systems , labs . as a percentage of revenue , restructuring expense decreased to 1 % for the year ended december 31 , 2014 from 2 % for the year ended december 31 , 2013. the decrease of restructuring expense as a percentage of total revenue is due increased revenue and to the aforementioned decrease of expense . interest income interest income includes interest income earned on cash , cash equivalents and long-term investments . interest income decreased 5 % , or $ 1,000 , to $ 18,000 for the year ended december 31 , 2015 from $ 19,000 for the year ended december 31 , 2014. interest income increased 73 % , or $ 8,000 , to $ 19,000 for the year ended december 31 , 2014 from $ 11,000 for the year ended december 31 , 2013. interest expense interest expense includes interest expense on our revolving line of credit and capital lease obligations as well as amortization of debt issuance costs . interest expense for the year ended december 31 , 2015 increased 612 % , or $ 0.1 million , to $ 0.1 million as compared to $ 17,000 for the year ended december 31 , 2014. this increase was due to the interest expense from our revolving line of credit for the initial payment of the acquisition of evolving systems nc . refer to note 5 , revolving line of credit , of our consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding the revolving line of credit . interest expense for the year ended december 31 , 2014 decreased 15 % , or $ 3,000 , to $ 17,000 as compared to $ 20,000 for the year ended december 31 , 2013. this decrease was primarily due to the amortized costs related to our loan and security agreement and interest expense from our capital leases . refer to note 5 , revolving line of credit , of our consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding the loan and security agreement . loss on foreign exchange transactions loss on foreign exchange transactions consists of realized and unrealized foreign currency transaction gains and losses . foreign currency transaction gains and losses result from transactions denominated in a currency other than the functional currency of the respective subsidiary . the foreign currency transaction loss of $ 6,000 for the year ended december 31 , 2015 compared to a $ 9,000 loss for the year ended december 31 , 2014 resulted in a year over year gain of 33 % or $ 3,000. the net loss was generated through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our evolving systems u.k. and india subsidiaries .
| results of operations the following table presents our consolidated statements of operations in comparative format . replace_table_token_5_th the following table presents our consolidated statements of operations reflected as a percentage of total revenue . 22 replace_table_token_6_th revenue revenue is comprised of license fees and services and customer support . license fees and services revenue represent the fees we receive from the licensing of our software products and those services directly related to the delivery of the licensed product as well as integration services , saas services and time and materials work . customer support revenue includes annual support fees , recurring maintenance fees , minor product upgrades and warranty fees . warranty fees are typically bundled with a license sale and the related revenue , based on vendor specific objective evidence ( vsoe ) , is deferred and recognized ratably over the warranty period . license fees and services license fees and services revenue decreased 21 % , or $ 4.1 million to $ 15.6 million for the year ended december 31 , 2015 compared to $ 19.7 million for the year ended december 31 , 2014. the decrease in license fee and services revenue is due to less mms revenue primarily related to decreased first user activations ( fuas ) and lower revenue from our tertio service activation ( tsa ) products . license fees and services revenue increased 23 % , or $ 3.7 million to $ 19.7 million for the year ended december 31 , 2014 compared to $ 16.0 million for the year ended december 31 , 2013. the increase in license fee and services revenue is due to an increase in dsa revenue primarily related to increased fuas and revenue generated from evolving systems labs , which we acquired in october 2013. customer support customer support revenue increased 1 % , or $ 50,000 , to $ 10.0 million for the year ended december 31 , 2015 from $ 9.9 million for the year ended december 31 , 2014.
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therapies or existing therapies are inadequate . we have a portfolio of product candidates with a current focus on modulating two critical cns receptor systems , gaba and nmda . the gaba receptor family , which is recognized as the major inhibitory neurotransmitter in the cns , mediates downstream neurologic and bodily function via activation of gaba a receptors . the nmda-type receptors of the glutamate receptor system are a major excitatory receptor system in the cns . dysfunction in these systems is implicated in a broad range of cns disorders . we are targeting cns indications where patient populations are easily identified , clinical endpoints are well-defined , and development pathways are feasible . the following table summarizes the status of our development programs as of the date of this annual report . our lead product candidate , sage-547 ( brexanolone usan ) , is a proprietary intravenous , or iv , formulation of allopregnanolone , a naturally occurring neuroactive steroid that acts as a positive allosteric modulator of gaba a receptors , including both synaptic and extrasynaptic populations . we are currently conducting phase 3 clinical trials of sage-547 in both super-refractory status epilepticus , or srse , and post-partum depression , or ppd . our phase 3 clinical trial in srse , known as the status trial , is evaluating sage-547 as a potential adjunctive therapy in the treatment of srse . srse is a rare and life-altering condition in which a patient experiences a state of continuous seizure called status epilepticus , or se , that continues or recurs despite standard treatment regimens normally sufficient to stop the seizure activity . we expect to report top-line results from the status trial in the first half of 2017. if successful , we believe the results from this phase 3 clinical trial , together with other data from the sage-547 development program will be sufficient to form the basis of a new drug application , or nda , submission to the fda seeking approval for sage-547 in srse in the u.s. based on scientific advice we received in the fourth quarter of 2016 from the european medicines agency , or ema , we also believe our current phase 3 clinical program in srse , if successful , will be sufficient to support a marketing authorization application , or maa , to the ema seeking approval of sage-547 for srse in the european union , or eu . our phase 3 clinical program in ppd is evaluating sage-547 as a potential treatment for ppd . ppd is a distinct and readily identified major depressive disorder that is a biological complication of childbirth , affecting a subset of women typically commencing in the third trimester of pregnancy or within four weeks after giving birth . we anticipate announcing top-line data from the phase 3 clinical program , known as the hummingbird study , encompassing two placebo-controlled trials , in the second half of 2017. in the third quarter of 2016 , we received breakthrough therapy designation from the fda for sage-547 as a potential treatment for ppd . based on input we received from the fda during a breakthrough therapy meeting in the fourth quarter of 2016 , we believe that , if successful , the results of the phase 3 clinical program , together with the results of prior clinical studies of sage-547 in ppd , and 63 ongoing non-clinical studies , will be sufficient to support the submission of an nda to the fda seeking approval for sage-547 in ppd . i n the fourth quarter of 2016 , we also received pri ority me dicines ( prime ) designation from the ema for sage-547 in the treatment of ppd . our most advanced next-generation product candidate is sage-217 , a novel neuroactive steroid that , like sage-547 , is a positive allosteric modulator of gaba a receptors , targeting both synaptic and extrasynaptic gaba a receptors . in the fourth quarter of 2016 , we initiated our phase 2 clinical program for sage-217 with a focus on four indications : two movement disorder indications , essential tremor and parkinson 's disease , and two mood disorder indications , major depressive disorder , or mdd , and ppd . in february 2017 , we announced top-line results from the open-label , proof-of-concept portion ( part a ) of our phase 2 clinical trial of sage-217 in mdd which met our criteria for advancing sage-217 into the blinded , placebo-controlled portion of the phase 2 mdd clinical trial ( part b ) . we expect to initiate part b in the second quarter of 2017. we are also currently conducting the phase 2 clinical trials of sage-217 in ppd , essential tremor and parkinson 's disease . we expect to report top-line results from the open-label portion of the phase 2 clinical trial of sage-217 in parkinson 's disease in the first half of 2017. we anticipate reporting top-line results from the blinded , placebo-controlled phase 2 clinical trials of sage-217 in essential tremor and ppd in the second half of 2017. we also have a portfolio of other novel compounds that target the gaba a receptors , including sage-105 , sage-324 and sage-689 , which are at earlier stages of development with a focus on both acute and chronic cns disorders . our second area of focus is the development of novel compounds that target the nmda receptor . the first product candidate selected for development from this program is sage-718 , an oxysterol-based positive allosteric modulator of the nmda receptor . our initial areas of focus for development of sage-718 will be cerebrosterol deficit disorders , anti-nmda receptor encephalitis , and other indications involving nmda receptor hypofunction . we believe measuring levels of anti-nmda receptor antibodies or decreased levels of cerebrosterol , a naturally occurring oxysterol , may represent biomarkers to identify , for future study , broader patient populations characterized by cognitive dysfunction and neuropsychiatric symptoms resulting from nmda receptor dysfunction or hypofunction . story_separator_special_tag research and development expenses consist primarily of : personnel costs , including salaries , benefits , stock-based compensation and travel expenses , for employees engaged in research and development functions ; expenses incurred under agreements with contract research organizations , or cros , and sites that conduct our non-clinical studies and clinical trials ; expenses associated with manufacturing materials for use in clinical trials and developing external manufacturing capabilities ; costs of outside consultants engaged in research and development activities , including their fees , stock-based compensation and travel expenses ; 65 other expenses related to our non-clinical studies and clinical trials and ex penses related to our regulatory activities ; and payments made under our third-party license agreements . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . we have been developing our product candidates and focusing on other research and development programs , including exploratory efforts to identify new compounds , target validation for identified compounds and lead optimization for our earlier-validated programs . our direct research and development expenses are tracked on a program-by-program basis , and consist primarily of external costs , such as fees paid to investigators , central laboratories , cros and contract manufacturing organizations , or cmos , in connection with our non-clinical studies and clinical trials ; third-party license fees related to our product candidates ; and fees paid to outside consultants who perform work on our programs . we do not allocate employee-related costs and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and , as such , are separately classified as unallocated research and development expenses . research and development activities are central to our business . 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 continue to increase in the foreseeable future as we continue or initiate clinical trials and non-clinical studies for certain product candidates , and pursue later stages of clinical development of our product candidates . we can not determine with certainty the duration and costs of the current or future clinical trials of our product candidates or if , when , or to what extent we will generate revenue from the commercialization and sale of any of our product candidates , if approved for marketing and sale . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , size , rate of progress , and expense of our ongoing as well as any additional clinical trials , non-clinical studies , and other research and development activities ; future clinical trial and non-clinical study results ; decisions by regulatory authorities related to our product candidates ; uncertainties in clinical trial enrollment rate or design ; significant and changing government regulation ; and the receipt and timing of any regulatory approvals , if any . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials or need to enroll additional patients , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of personnel costs , consisting of salaries , benefits , stock-based compensation and travel expenses of our executive , finance , business , commercial , corporate development and other administrative functions . general and administrative expenses also include expenses incurred under agreements with third parties relating to evaluation , planning and preparation for a potential commercial launch ; facilities and other related expenses , including rent , depreciation , maintenance of facilities , insurance and supplies ; and professional fees for audit , tax and legal services , including legal expenses to pursue patent protection of our intellectual property . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our business and the potential commercialization of our product candidates . we also anticipate increased expenses associated with general operations , including costs related to audit , tax and legal services , director and officer insurance premiums , and investor relations costs . additionally , we anticipate an increase in payroll and related expenses as we continue to build our organizational capabilities , expand our operations , and prepare for possible future commercial operations , including sales and marketing of our product candidates , if approved . 66 critical accounting policies and significant judgments and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets , liabilities , revenue , costs and expenses , and related disclosures . we believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and , therefore , consider these to be our critical accounting policies . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions and conditions .
| results of operations comparison of the years ended december 31 , 2016 and 2015 the following table summarizes our results of operations for the years ended december 31 , 2016 and 2015 : replace_table_token_6_th research and development expenses replace_table_token_7_th research and development expenses for the year ended december 31 , 2016 were $ 120.8 million , compared to $ 69.4 million for the year ended december 31 , 2015. the increase of $ 51.4 million was primarily due to the following : an increase of $ 16.3 million in expenses related to our sage-547 program , due to the continued advancement of the program in clinical development , including ongoing enrollment in the phase 3 clinical trial in srse ; completion of the phase 2 clinical trial of sage-547 in ppd ; commencement of the phase 3 clinical trial of sage-547 in ppd ; conduct of supporting clinical pharmacology studies ; and an increase in chemistry , manufacturing and control ( cmc ) work in preparation for a potential filing for regulatory approval . expenses related to payments to consultants and licensors upon achievement of certain clinical development milestones were $ 0.8 million and $ 2.7 million for the years ended december 31 , 2016 and 2015 , respectively ; an increase of $ 12.3 million in expenses related to our sage-217 program due to the conduct of the phase 1 clinical program ; the initiation of phase 2-enabling toxicology , formulation and manufacturing activities ; and commencement of phase 2 clinical trials ; a decrease of $ 1.4 million in expenses related to our sage-689 program due to the delay in commencement of a phase 1 clinical trial as a result of a request from the fda for additional non-clinical study data ; an increase of $ 3.1 million in expenses due to the progression of our sage-718 program to ind-enabling non-clinical development and cmc activities in preparation for ind filing ; an increase of
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forward-looking statements this report may contain certain forward-looking statements , such as discussions of the company 's pricing and fee trends , credit quality and outlook , liquidity , new business results , expansion plans , anticipated expenses and planned schedules . the company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1955. forward-looking statements , which are based on certain assumptions and describe future plans , strategies and expectations of the company , are identified by use of the words “ believe , ” ” expect , ” ” intend , ” ” anticipate , ” ” estimate , ” ” project , ” or similar expressions . actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties , including those described in item 1a . “ risk factors ” and other sections of the company 's annual report on form 10-k and the company 's other filings with the sec , and changes in interest rates , general economic conditions and those in the company 's market area , legislative/regulatory changes , monetary and fiscal policies of the u.s. government , including policies of the u.s. treasury and the federal reserve board , the quality or composition of the loan or investment portfolios and the valuation of the investment portfolio , the company 's success in raising capital , demand for loan products , deposit flows , competition , demand for financial services in the company 's market area and accounting principles , policies and guidelines . furthermore , forward-looking statements speak only as of the date they are made . except as required under the federal securities laws or the rules and regulations of the sec , we do not undertake any obligation to update or review any forward-looking information , whether as a result of new information , future events or otherwise . for the years ended december 31 , 2014 , 2013 and 2012 overview this overview of management 's discussion and analysis highlights selected information in this document and may not contain all of the information that is important to you . for a more complete understanding of trends , events , commitments , uncertainties , liquidity , capital resources , and critical accounting estimates , you should carefully read this entire document . these have an impact on the company 's financial condition and results of operations . net income was $ 15.5 million , 14.7 million , and $ 14.0 million and diluted earnings per share were $ 1.85 , $ 1.73 , and $ 1.62 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the increase in net income and earnings per share in 2014 was primarily the result of an increase in net interest income due to growth in loan balances and sustained low funding costs , a reduction in provision for loan losses given lower non-performing assets and net charge-offs . the following table shows the company 's annualized performance ratios for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_3_th total assets at december 31 , 2014 , 2013 and 2012 were $ 1.61 billion , $ 1.61 billion , and $ 1.58 billion , respectively . net loan balances increased to $ 1.05 billion at december 31 , 2014 , from $ 970 million at december 31 , 2013 , from $ 899 million at december 31 , 2012. of the increase in 2014 , $ 55.4 million or 32.9 % was due to increases in commercial and industrial loans and $ 19.8 million or 2.5 % was due to increases in loans secured by real estate . of the increase in 2013 , $ 61.4 million or 86 % was due to increases in loans secured by real estate . of the increase in 2012 , $ 46.9 million or 93 % was due to increases in loans secured by real estate . total deposit balances decreased to $ 1.27 billion at december 31 , 2014 from $ 1.29 billion at december 31 , 2013 and from $ 1.27 billion at december 31 , 2012. the decline in 2014 was due to declines in non-interest bearing deposits and higher rate cds that matured and were not replaced offset by an increase in interest bearing deposits . the increase in 2013 was due to increases in interest-bearing deposits offset by declines in savings account balances and non-interest bearing deposits . net interest margin , defined as net interest income divided by average interest-earning assets , was 3.43 % for 2014 , 3.38 % for 2013 and 3.44 % for 2012. the increase during 2014 was primarily due to the growth in loan balances . the decrease during 2013 was primarily due to a greater decrease in rates on earning assets compared to the decline in rates on interest bearing liabilities . net interest income increased to $ 51.5 million in 2014 from $ 49.9 million in 2013 and $ 49.6 million in 2012. the ability of the company to continue to grow net interest income is largely dependent on management 's ability to succeed in its overall business development efforts . management expects these efforts to continue but does not intend to compromise credit quality and prudent management of the maturities of interest-earning assets and interest-paying liabilities in order to achieve growth . non-interest income decreased to $ 18.4 million in 2014 compared to $ 19.3 million in 2013 and $ 18.3 million in 2012. the primary reason for the decrease of $ .9 million or 5 % from 2013 to 2014 was less gains on sales of securities and a decline in mortgage banking income as refinance and new purchase activity has slowed , offset by increases in revenue from brokerage and insurance commissions and deposit account service charges . story_separator_special_tag because of the nature of the judgments and assumptions made by management , actual results could differ from these judgments and assumptions , which could have a material impact on the carrying values of assets and liabilities and the results of operations of the company . allowance for loan losses . the company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements . an estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates , expected cash flows and estimated collateral values . in assessing these factors , the company use organizational history and experience with credit decisions and related outcomes . the allowance for loan losses represents the best estimate of losses inherent in the existing loan portfolio . the allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off , net of recoveries . the company evaluates the allowance for loan losses quarterly . if the underlying assumptions later prove to be inaccurate based on subsequent loss evaluations , the allowance for loan losses is adjusted . the company estimates the appropriate level of allowance for loan losses by separately evaluating impaired and nonimpaired loans . a specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the carrying amount of the loan . the methodology used to assign an allowance to a nonimpaired loan is more subjective . generally , the allowance assigned to nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics , adjusted for qualitative factors including the volume and severity of identified classified loans , changes in economic conditions , changes in credit policies or underwriting standards , and changes in the level of credit risk associated with specific industries and markets . because the economic and business climate in any given industry or market , and its impact on any given borrower , can change rapidly , the risk profile of the loan portfolio is continually assessed and adjusted when appropriate . notwithstanding these procedures , there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required . other real estate owned . other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired , establishing a new cost basis . the adjustment at the time of foreclosure is recorded through the allowance for loan losses . due to the subjective nature of establishing the fair value when the asset is acquired , the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate . if it is determined that fair value temporarily declines subsequent to foreclosure , a valuation allowance is recorded through noninterest expense . operating costs associated with the assets after acquisition are also recorded as noninterest expense . gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense . investment in debt and equity securities . the company classifies its investments in debt and equity securities as either held-to-maturity or available-for-sale in accordance with statement of financial accounting standards ( sfas ) no . 115 , “ accounting for certain investments in debt and equity securities , ” which was codified into asc 320. securities classified as held-to-maturity are recorded at cost or amortized cost . available-for-sale securities are carried at fair value . fair value calculations are based on quoted market prices when such prices are available . if quoted market prices are not available , estimates of fair value are computed using a variety of techniques , including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities , fundamental analysis , or through obtaining purchase quotes . due to the subjective nature of the valuation process , it is possible that the actual fair values of these investments could differ from the estimated amounts , thereby affecting the financial position , results of operations and cash flows of the company . if the estimated value of investments is less than the cost or amortized cost , the company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment . if such an event or change has occurred and the company determines that the impairment is other-than-temporary , a further determination is made as to the portion of impairment that is related to credit loss . the impairment of the investment that is related to the credit loss is expensed in the period in which the event or change occurred . the remainder of the impairment is recorded in other comprehensive income . deferred income tax assets/liabilities . the company 's net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported income and taxable income . deferred tax assets and liabilities are established for these items as they arise . from an accounting standpoint , deferred tax assets are reviewed to determine if they are realizable based on the historical level of taxable income , estimates of future taxable income and the reversals of deferred tax liabilities . in most cases , the realization of the deferred tax asset is based on future profitability . if the company were to experience net operating losses for tax purposes in a future period , the realization of deferred tax assets would be evaluated for a potential valuation reserve . additionally , the company reviews its uncertain tax positions annually under fasb interpretation no . 48 ( fin no .
| results of operations net interest income the largest source of operating revenue for the company is net interest income . net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities . the amount of interest income is dependent upon many factors , including the volume and mix of earning assets , the general level of interest rates and the dynamics of changes in interest rates . the cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds . 23 the company 's average balances , interest income and expense and rates earned or paid for major balance sheet categories are set forth in the following table ( dollars in thousands ) : year ended december 31 , 2014 year ended december 31 , 2013 year ended december 31 , 2012 average balance interest average rate average balance interest average rate average balance interest average rate assets interest-bearing deposits $ 32,379 $ 83 0.26 % $ 13,633 $ 33 0.24 % $ 16,559 $ 40 0.24 % federal funds sold 495 1 0.10 % 6,923 6 0.09 % 41,484 37 0.09 % certificates of deposit investments — — — % 2,554 14 0.55 % 10,714 57 0.53 % investment securities taxable 374,285 7,499 2.00 % 466,031 9,153 1.96 % 458,158 < td colspan= '' 2 ''
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f-24 triangle capital corporation notes to financial statements ( continued ) public offerings of common stock on april 23 , 2009 , the company filed a prospectus supplement pursuant to which 1,200,000 shares of common stock were offered for sale at a price story_separator_special_tag the information in this section contains forward-looking statements that involve risks and uncertainties . please see risk factors and special note regarding forward-looking statements for a discussion of the uncertainties , risks and assumptions associated with these statements . you should read the following discussion in conjunction with the combined financial statements and related notes and other financial information appearing elsewhere in this annual report . the following discussion is designed to provide a better understanding of our financial statements , including a brief discussion of our business , key factors that impacted our performance and a summary of our operating results . the following discussion should be read in conjunction with the financial statements and the notes thereto included in item 8 of this annual report on form 10-k. historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods . overview of our business we are a maryland corporation which has elected to be treated and operates as an internally managed business development company , or bdc , under the investment company act of 1940 , or 1940 act . our wholly owned subsidiaries , triangle mezzanine fund lllp , or the fund , and triangle mezzanine fund ii lp , or fund ii , are licensed as small business investment companies , or sbics , by the united states small business administration , or sba . in addition , the fund has also elected to be treated as a bdc under the 1940 act . we , the fund and fund ii invest primarily in debt instruments , equity investments , warrants and other securities of lower middle market privately held companies located in the united states . our business is to provide capital to lower middle market companies in the united states . we focus on investments in companies with a history of generating revenues and positive cash flows , an established market position and a proven management team with a strong operating discipline . our target portfolio company has annual revenues between $ 20.0 million and $ 100.0 million and annual earnings before interest , taxes , depreciation and amortization , or ebitda , between $ 3.0 million and $ 20.0 million . we invest primarily in subordinated debt securities secured by second lien security interests in portfolio company assets , coupled with equity interests . on a more limited basis , we also invest in senior debt securities secured by first lien security interests in portfolio companies . our investments generally range from $ 5.0 million to $ 15.0 million per portfolio company . in certain situations , we have partnered with other funds to provide larger financing commitments . we generate revenues in the form of interest income , primarily from our investments in debt securities , loan origination and other fees and dividend income . fees generated in connection with our debt investments are recognized over the life of the loan using the effective interest method or , in some cases , recognized as earned . in addition , we generate revenue in the form of capital gains , if any , on warrants or other equity-related securities that we acquire from our portfolio companies . our debt investments generally have a term of between three and seven years and typically bear interest at fixed rates between 12.0 % and 17.0 % per annum . certain of our debt investments have a form of interest , referred to as payment in kind , or pik , interest , that is not paid currently but that is accrued and added to the loan balance and paid at the end of the term . in our negotiations with potential portfolio companies , we generally seek to minimize pik interest . cash interest on our debt investments is generally payable monthly ; however , some of our debt investments pay cash interest on a quarterly basis . as of december 31 , 2010 and 2009 , the weighted average yield on our outstanding debt investments other than non-accrual debt investments ( including pik interest ) was approximately 15.1 % and 14.7 % , respectively . the weighted average yield on all of our outstanding investments ( including equity and equity-linked investments but excluding non-accrual debt investments ) was approximately 13.7 % and 13.5 % as of december 31 , 2010 and 2009 , respectively . the weighted average yield on all of our outstanding investments ( including equity and equity-linked investments and non-accrual debt investments ) was approximately 12.9 % and 12.5 % as of december 31 , 2010 and 2009 , respectively . 55 the fund and fund ii are eligible to issue debentures guaranteed by the sba to the capital markets at favorable interest rates and invest these funds in portfolio companies . we intend to continue to operate the fund and fund ii as sbics , subject to sba approval , and to utilize the proceeds of the issuance of sba-guaranteed debentures , referred to herein as sba leverage , to enhance returns to our stockholders . portfolio composition the total value of our investment portfolio was $ 326.0 million as of december 31 , 2010 , as compared to $ 201.3 million as of december 31 , 2009. as of december 31 , 2010 , we had investments in 48 portfolio companies with an aggregate cost of $ 324.0 million . as of december 31 , 2009 , we had investments in 37 portfolio companies with an aggregate cost of $ 209.9 million . as of both december 31 , 2010 and 2009 , none of our portfolio investments represented greater than 10 % of the total fair value of our investment portfolio . story_separator_special_tag fcl graphics , inc. 2nd lien note during the first eight months of 2009 , we received cash interest on our 2nd lien note in fcl graphics , inc. , or fcl , at the stated contractual rate ( 20 % per annum as of september 30 , 2009 ) . in september 2009 , fcl did not make the scheduled interest payments on its 2nd lien notes . as a result , we placed our 2nd lien note in fcl on non-accrual status and therefore , under u.s. gaap , we no longer recognized interest income on our 2nd lien note investment in fcl for financial reporting purposes . in november 2009 , we amended the terms of our note with fcl . the terms of the amendment provide for cash interest at a rate of libor plus 250 basis points per annum and pik interest at a rate of 8 % per annum . in addition , we exchanged approximately $ 0.4 million of unpaid pik interest on our fcl 2nd lien note for common equity in fcl graphics , resulting in a $ 0.4 million realized loss . while we are currently recognizing cash interest on our 2nd lien investment in fcl , we have placed the pik component of this note on non-accrual status . in the year ended december 31 , 2009 , we recognized an unrealized loss on our 2nd lien note investment in fcl of approximately $ 2.2 million and in the year ended december 31 , 2010 , we recognized an unrealized loss on our 2nd lien note investment in fcl of approximately $ 0.8 million . as of december 31 , 2010 , the cost of our 2nd lien note investment in fcl was approximately $ 3.0 million and the fair value of our 2nd lien note investment in fcl was zero . wholesale floors , inc. during the first seven months of 2010 , we received cash and pik interest on our subordinated note investment in wholesale floors , inc. , or wholesale floors . we did not receive scheduled interest payments from wholesale floors in august and september 2010 and in october 2010 , we received notification from wholesale floors ' senior lender that wholesale floors was blocked from making interest payments to us . as a result , we placed our debt investments in wholesale floors on non-accrual status and under u.s. gaap , we no longer recognize interest income on our debt investments in wholesale floors for financial reporting purposes . for the year ended december 31 , 2010 , we recognized an unrealized loss on our subordinated note investment in wholesale floors of approximately $ 0.8 million . as of december 31 , 2010 , the cost of our debt investment in wholesale floors was approximately $ 3.4 million and the fair value of our debt investment in wholesale floors was approximately $ 2.6 million . 58 we are currently involved in discussions with the wholesale floors investor group regarding various restructuring alternatives . while there can be no assurance that these discussions will result in terms that are acceptable to us , the wholesale floors investor group is working diligently toward an acceptable restructuring . story_separator_special_tag margin-right : 0 % ; font-size : 10pt ; font-family : arial , helvetica ; color : # 000000 ; background : transparent '' > expenses for the year ended december 31 , 2009 , expenses increased by 28 % to $ 13.7 million from $ 10.7 million for the year ended december 31 , 2008. the increase in expenses was primarily attributable to a $ 2.7 million increase in interest expense . the increase in interest expense is related to higher average balances of sba-guaranteed debentures outstanding during the year ended december 31 , 2009 than in the comparable period in 2008. in addition , during 2008 , a significant portion of our outstanding sba-guaranteed debentures were bearing interest at interim ( pre-pooling ) interest rates , which are generally lower than the fixed pooled interest rates . during 2009 , these debentures bore interest at the higher fixed rates resulting in increased interest expense . net investment income as a result of the $ 6.4 million increase in total investment income and the $ 3.0 million increase in expenses , net investment income for the year ended december 31 , 2009 was $ 14.0 million compared to net investment income of $ 10.6 million during the year ended december 31 , 2008. net increase in net assets resulting from operations for the year ended december 31 , 2009 , total net realized gains on non-control/non-affiliate investments was approximately $ 0.4 million , which consisted of realized gains on the sales of two investments totaling approximately $ 1.8 million , partially offset by realized losses on the restructuring of two other investments totaling approximately $ 1.3 million . for the year ended december 31 , 2008 , total net realized gains on investments totaled approximately $ 1.4 million . net realized gain on control investments for the year ended december 31 , 2008 was $ 2.8 million , which consisted of a realized gain on one investment . for the year ended december 31 , 2008 , net realized loss on non-control/non-affiliate investments was $ 1.4 million , which consisted of a realized loss on the writeoff of one investment of $ 1.5 million and a realized gain on one investment of $ 0.1 million . in the year ended december 31 , 2009 , we recorded net unrealized depreciation of investments , net of income taxes , in the amount of $ 10.3 million , comprised primarily of unrealized depreciation on 15 investments totaling approximately $ 17.4 million and unrealized appreciation , net of tax , on 13 other investments totaling approximately $ 7.3 million . in addition , we recorded net unrealized depreciation reclassification adjustments of approximately $ 0.2 million related to the realized losses on non-control/non-affiliate investments noted above .
| results of operations comparison of year ended december 31 , 2010 and december 31 , 2009 investment income for the year ended december 31 , 2010 , total investment income was $ 36.0 million , a 30 % increase from $ 27.8 million of total investment income for the year ended december 31 , 2009. this increase was primarily attributable to a $ 7.6 million increase in total loan interest , fee and dividend income and a $ 0.9 million increase in total pik interest income due to a net increase in our portfolio investments from december 31 , 2009 to december 31 , 2010 , partially offset by a $ 0.3 million decrease in interest income from cash and cash equivalent investments due to a decrease in average cash balances in 2010 over 2009 due to the increased deployment of cash for purchases of portfolio investments . non-recurring fee income was $ 2.6 million for the year ended december 31 , 2010 as compared to $ 0.8 million for the year ended december 31 , 2009. expenses for the year ended december 31 , 2010 , expenses increased by 15 % to $ 15.8 million from $ 13.7 million for the year ended december 31 , 2009. the increase in expenses was primarily attributable to a $ 1.2 million increase in general and administrative expenses as a result of higher salary expenses during 2010 due to an increase in employees and non-cash compensation expenses .
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our future minimum annual capital lease payments are included in our total future debt obligations as disclosed in note 7. landfill leases from an operating perspective , landfills that we lease are similar to landfills we own because generally we own the landfill 's operating permit and will operate the landfill for the entire lease term , which in many cases is the life of the landfill . as a result , our landfill leases are generally capital leases . the most significant portion of our rental obligations for landfill leases is contingent upon operating factors such as disposal volumes story_separator_special_tag this section includes a discussion of our results of operations for the three years ended december 31 , 2014. this discussion may contain forward-looking statements that anticipate results based on management 's plans that are subject to uncertainty . we discuss in more detail various factors that could cause actual results to differ materially from expectations in item 1a , risk factors . the following discussion should be read in light of that disclosure and together with the consolidated financial statements and the notes to the consolidated financial statements . overview our company 's goals are targeted at serving our customers , our employees , the environment , the communities in which we work and our stockholders , and achievement of our goals is intended to meet the needs of a changing industry . our company and others have recognized the value of the traditional waste stream as a potential resource . increasingly , customers want more of their waste materials recovered , while waste streams are becoming more complex , and our aim is to address , and anticipate , the current , expanding and evolving needs of our customers . accomplishment of our goals will grow our company and allow us to meet the needs of our customers and communities as they , too , think green ® . we believe we are uniquely equipped to meet the challenges of the changing waste industry and our customers ' waste management needs , both today and as we work together to envision and create a more sustainable future . as the waste industry leader , we have the expertise necessary to collect and handle our customers ' waste efficiently and responsibly by delivering environmental performance maximizing resource value , while minimizing environmental impact so that both our economy and our environment can thrive . drawing on our resources and experience , we also pursue projects and initiatives that benefit the waste industry , the customers and communities we serve and the environment . we remain dedicated to providing long-term value to our stockholders by successfully executing our strategy : to know and service our customers better than anyone in our industry , to extract more value from the materials we manage , and to innovate and optimize our business . we plan to accomplish our strategic goals through competitive advantages derived from a best cost structure achieved through operational improvements and differentiation in our industry , driven by capitalizing on our extensive , well-placed network of assets . while we will continue to monitor emerging diversion technologies that may generate additional value , our current attention will be on improving existing diversion technologies , such as recycling operations . in pursuit of these long-term goals , we recognize that we must grow the business , and do so as efficiently and cost effectively as possible . accordingly , we are focusing on the following five key company priorities : customers : provide the best possible service to our customers ; traditional waste business : continuously improve our operational performance ; growth : take advantage of opportunities in our current business , as well as considering attractive acquisition opportunities ; yield management : remain focused on price leadership while considering competitive dynamics ; and costs : minimize both operating costs and selling , general & administrative expenses . we believe that execution of our strategy through these key priorities will drive continued financial performance and leadership in a dynamic industry . notable items of our 2014 financial results include : revenues of $ 13,996 million in 2014 compared with $ 13,983 million in 2013 , an increase of $ 13 million . this increase in revenues is primarily attributable to ( i ) positive revenue growth from 32 yield on our collection and disposal operations of $ 262 million , or 2.3 % , and ( ii ) revenue from acquired operations , particularly the rci operations acquired in july 2013 , which increased revenues by $ 77 million . substantially offsetting these increases were ( i ) lower volumes which decreased our revenues by $ 188 million ; ( ii ) divestitures of our puerto rico operations and certain other collection and landfill assets as well as the december 2014 sale of our wheelabrator business , which decreased our revenues by $ 90 million and ( iii ) foreign currency translation of $ 61 million related to our canadian operations ; operating expenses of $ 9,002 million in 2014 , or 64.3 % of revenues , compared with $ 9,112 million , or 65.2 % of revenues , in 2013. this decrease of $ 110 million is largely driven by our decline in collection volumes and divestitures , both of which affect several of our operating expense categories , particularly labor costs , transfer and disposal costs , and fuel costs ; selling , general and administrative expenses of $ 1,481 million in 2014 , or 10.6 % of revenues , compared with $ 1,468 million , or 10.5 % of revenues , in 2013. this increase of $ 13 million is driven mainly by higher litigation settlements ; restructuring costs of $ 82 million in 2014 compared to $ 18 million in 2013. the 2014 restructuring charges relate to the consolidation and realignment of several corporate functions . story_separator_special_tag free cash flow as is our practice , we are presenting free cash flow , which is a non-gaap measure of liquidity , in our disclosures because we use this measure in the evaluation and management of our business . we define free cash flow as net cash provided by operating activities , less capital expenditures , plus proceeds from divestitures of businesses ( net of cash divested ) and other sales of assets . we believe it is indicative of our ability to pay our quarterly dividends , repurchase common stock , fund acquisitions and other investments and , in the absence of refinancings , to repay our debt obligations . free cash flow is not intended to replace net cash provided by operating activities , which is the most comparable gaap measure . however , we believe free cash flow gives investors useful insight into how we view our liquidity . nevertheless , the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that we have committed to , such as declared dividend payments and debt service requirements . 34 our calculation of free cash flow and reconciliation to net cash provided by operating activities is shown in the table below ( in millions ) , and may not be calculated the same as similarly-titled measures presented by other companies : replace_table_token_7_th when comparing our cash flows from operating activities for the year ended december 31 , 2014 to the comparable period in 2013 , the decrease of $ 124 million is primarily related to higher income tax payments of $ 247 million in the current year and a payment of $ 36 million made in the first quarter of 2014 to terminate our forward starting swaps . these decreases were partially offset by higher cash earnings and favorable working capital changes . when comparing our cash flows from operating activities for the year ended december 31 , 2013 to the comparable period in 2012 , the increase of $ 160 million was primarily related to the impact of higher cash earnings , favorable impacts of working capital changes and the payment of $ 59 million to settle the liabilities associated with the termination of our forward starting swaps in september 2012. the increase was partially offset by an increase in tax payments of $ 145 million and the favorable cash receipt of $ 72 million resulting from the termination of interest rate swaps in april 2012. the decrease in capital expenditures when comparing the year ended december 31 , 2014 to the comparable period in 2013 and comparing the year ended december 31 , 2013 to the comparable period in 2012 can generally be attributed to increased focus on capital spending management . the increase in proceeds from divestitures of businesses and other assets ( net of cash divested ) for the year ended december 31 , 2014 from the comparable period in 2013 is largely driven by ( i ) the sale of our wheelabrator business in the fourth quarter of 2014 for $ 1.95 billion ; ( ii ) the sale of our investment in shanghai environment group ( seg ) , which was part of our wheelabrator business , in the first quarter of 2014 for $ 155 million ; ( iii ) the sale of our puerto rico operations and certain other collection and landfill assets in the second quarter of 2014 , for proceeds of $ 80 million , including $ 65 million in cash ; ( iv ) the sale of certain landfill and collection operations in our eastern canada area in the third quarter of 2014 for $ 39 million and ( v ) the sale of a vacant facility in the second quarter of 2014 for $ 19 million . pending acquisition on september 17 , 2014 , the company signed a definitive agreement to acquire the outstanding stock of deffenbaugh disposal , inc. , one of the largest privately owned collection and disposal firms in the midwest . closing of the acquisition is expected to occur in early 2015 , subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions . acquisitions greenstar , llc on january 31 , 2013 , we paid $ 170 million inclusive of certain adjustments , to acquire greenstar , llc ( greenstar ) . pursuant to the sale and purchase agreement , up to an additional $ 40 million is payable to the sellers during the period from 2014 to 2018 , of which $ 20 million is guaranteed . the remaining $ 20 million of this consideration is contingent based on changes in certain recyclable commodity indexes and 35 had an estimated fair value at closing of $ 16 million . greenstar was an operator of recycling and resource recovery facilities . this acquisition provides the company 's customers with greater access to recycling solutions , having supplemented our extensive nationwide recycling network with the operations of one of the nation 's largest private recyclers . rci environnement , inc. on july 5 , 2013 , we paid c $ 509 million , or $ 481 million , to acquire substantially all of the assets of rci environnement , inc. ( rci ) , the largest waste management company in quebec , and certain related entities . total consideration , inclusive of amounts for estimated working capital , was c $ 515 million , or $ 487 million . rci provides collection , transfer , recycling and disposal operations throughout the greater montreal area . the acquired rci operations complement and expand the company 's existing assets and operations in quebec . divestitures divestiture of wheelabrator business on december 19 , 2014 , we sold our wheelabrator business to an affiliate of energy capital partners and received cash proceeds of $ 1.95 billion , net of cash divested , subject to certain post-closing adjustments .
| summary of contractual obligations the following table summarizes our contractual obligations as of december 31 , 2014 and the anticipated effect of these obligations on our liquidity in future years ( in millions ) : replace_table_token_31_th ( a ) environmental liabilities include final capping , closure , post-closure and environmental remediation costs . the amounts included here reflect environmental liabilities recorded in our consolidated balance sheet as of december 31 , 2014 without the impact of discounting and inflation . our recorded environmental liabilities for final capping , closure and post-closure will increase as we continue to place additional tons within the permitted airspace at our landfills . ( b ) the amounts reported here represent the scheduled principal payments related to our long-term debt , excluding related interest . refer to note 7 to the consolidated financial statements for information regarding interest rates . ( c ) our debt obligations as of december 31 , 2014 include $ 638 million of tax-exempt bonds subject to repricing within the next 12 months , which is prior to their scheduled maturities . if the re-offerings of the bonds are unsuccessful , then the bonds can be put to us , requiring immediate repayment . we have classified the anticipated cash flows for these contractual obligations based on the scheduled maturity of the borrowing for purposes of this disclosure . for additional information regarding the classification of these borrowings in our consolidated balance sheet as of december 31 , 2014 , refer to note 7 to the consolidated financial statements . ( d ) our recorded debt obligations include non-cash adjustments associated with discounts , premiums and fair value adjustments for interest rate hedging activities . these amounts have been excluded here because they will not result in an impact to our liquidity in future periods . ( e ) our unrecorded obligations represent operating lease obligations and purchase commitments from which we expect to realize an economic benefit in future periods .
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property , plant and equipment are recorded at cost . depreciation expense is calculated based on the estimated useful lives of the assets by using the straight-line method . amortization of leasehold improvements is recognized using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements . long-lived assets and cost method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . if circumstances require a long-lived asset or asset group be tested for story_separator_special_tag executive summary after a multiyear downturn in mocvd , led lighting adoption is accelerating and led fabrication utilization rates are increasing at most of our key customers to levels that will require additional capacity purchases . our customers are also reporting better market demand for products with led backlighting . as a result , our mocvd bookings improved meaningfully in 2014 over 2013. and while quarterly mocvd customer order patterns fluctuate , we expect multiyear growth for our mocvd systems . we also continue to invest in our existing mocvd products and new , innovative technologies to further reduce our customers ' cost of ownership and improve their manufacturing capability . but while we are seeing a general improvement in the mocvd market , competitive pricing pressure , which had a negative effect on our gross margins in 2014 and 2013 , is difficult to predict and may continue to depress our margins in the future . in december 2014 , we determined that the incumbent deposition technology for flexible oled display encapsulation had progressed to satisfy current market requirements and that we were unlikely to receive large orders for our fast ald products in the near future . as a result , we plan to lower our spending rate on our ald products , refocus our research and development efforts on ald applications in semiconductor and other markets , and continue to assess our flexible oled market opportunity . the reduction in near-term forecasted orders and cash flows required us to assess our ald reporting unit for impairment , and we recorded a non-cash impairment charge of $ 53.9 million related to goodwill and other long-lived assets for ald . also in 2014 , we determined that certain performance milestones that would have triggered contingent payments to the original ald shareholders were not going to be met and as a result we recorded a non-cash gain of $ 29.4 million . in december 2014 , we acquired psp for $ 145.5 million , net of cash acquired , and entered the market for single wafer wet etch , clean , and surface preparation equipment targeting high growth segments in advanced packaging , mems , and compound semiconductor . for the period from the acquisition date through december 31 , 2014 , we generated $ 7.9 million of net sales 21 and incurred a loss from operations before tax of $ 3.0 million . the loss from operations was attributable to the write-up of existing inventory on the date of acquisition to fair value , which eliminated the gross margin on the sale of those systems . we are seeing some signs of improved conditions in our hdd market as cloud related expansion continues to demand higher capacity drives . and although we have started to see signs of capacity constraints in some process areas and there was an increase in orders for some of our equipment at the end of 2014 , low growth is expected to continue . future demand for our systems sold in the hdd industry is unclear and orders are expected to fluctuate from quarter to quarter . story_separator_special_tag style= '' margin:0in 0in .0001pt ; text-align : center ; '' > 23 amortization expense amortization expense increased primarily due to additional amortization associated with intangible assets acquired as part of our acquisition of ald during the fourth quarter of 2013. we expect to incur additional amortization expense in 2015 as a result of intangible assets acquired as part of our acquisition of psp during the fourth quarter of 2014 , partially offset by the elimination of amortization of certain ald intangible assets that have been either impaired or fully amortized in the fourth quarter of 2014. restructuring expense during 2014 , we announced the closing of our ft. collins , colorado and camarillo , california facilities . business activities formally conducted at these sites have been transferred to our plainview , new york facility . in addition , we responded to the challenging business environment we were facing , particularly for sales to customers in the data storage industry , and reduced headcount by approximately 90 employees . as a results of these actions , we recorded $ 4.4 million in personnel severance and related costs and facility closing costs . during 2013 , we recorded $ 1.5 million in personnel severance and related costs principally resulting from the transition from a direct sales presence in japan to a distributor model and the consolidation of certain sales and administrative functions . asset impairment during 2014 , based on a combination of factors , including our determination that incumbent deposition technology for flexible oled display encapsulation had progressed to satisfy current market requirements , we believed that there were sufficient indicators that required an interim asset impairment analysis on our ald reporting unit . as a result of our analysis , we recorded non-cash impairment charges of $ 28.0 million related to goodwill and $ 25.9 million related to other long-lived assets , including $ 17.4 million related to customer relationships , $ 4.8 million related to in-process research and development , and $ 3.6 million related to certain tangible assets . in addition , during 2014 , we recognized $ 4.3 million of asset impairments on tangible assets held for sale , including certain lab tools and a vacant building and land . story_separator_special_tag we selectively funded certain product development activities which resulted in reduced spending for project materials and professional consultants as well as lower personnel and personnel-related costs . amortization expense amortization expense increased primarily due to additional amortization associated with intangible assets acquired as part of our acquisition of ald during the fourth quarter of 2013 , partially offset by certain intangible assets becoming fully amortized . restructuring expense during 2013 , we recorded $ 1.5 million in personnel severance and related costs principally resulting from the transition from a direct sales presence in japan to a distributor model and the consolidation of certain sales and administrative functions . during 2012 , we took measures to improve profitability , including a reduction in discretionary expenses , realignment of our senior management team , and the consolidation of certain sales and administrative functions . as a result of these actions , we reduced headcount by approximately 50 employees and recorded a restructuring charge of $ 3.8 million of personnel severance and related costs . 26 asset impairment during 2013 , we recorded asset impairment charges of $ 0.9 million related to certain lab tools we are holding for sale and $ 0.3 million related to certain other tangible assets . during 2012 , we recorded an asset impairment charge related to a license agreement . income taxes the 2013 net benefit for income taxes included a $ 3.5 million provision relating to our foreign operations and a $ 32.4 million benefit relating to our domestic operations . the 2012 provision for income taxes included $ 8.3 million relating to our foreign operations and $ 3.4 million relating to our domestic operations . our 2013 effective tax rate is higher than the statutory rate as a result of the jurisdictional mix of earnings in our foreign locations , an income tax benefit related to the generation of current year research and development tax credits , and legislation enacted in the first quarter of 2013 which extended the federal research and development credit for both the 2012 and 2013 tax years . during the fourth quarter of 2012 , we determined that we may not meet the criteria required to receive a certain incentive tax rate pursuant to a negotiated tax holiday in one foreign jurisdiction . although we are continuing to negotiate the criteria for the incentive , for financial reporting purposes we have recorded additional tax provisions of $ 0.9 million and $ 4.0 million in 2013 and 2012 , respectively , totaling $ 4.9 million , which represents the cumulative effect of calculating the tax provision using the incentive tax rate as compared to the foreign country 's statutory rate . if we successfully renegotiate the incentive criteria , this additional tax provision could be reversed as a future benefit in the period in which the negotiations are finalized . during 2012 we recorded an income tax expense of $ 1.9 million related to discontinued operations and a current tax benefit of $ 2.1 million related to equity-based compensation , neither of which occurred in 2013. liquidity and capital resources our cash and cash equivalents , short-term investments , and restricted cash were as follows : replace_table_token_12_th a portion of our cash and cash equivalents is held by our subsidiaries throughout the world , frequently in each subsidiary 's respective functional currency , which may not be the u.s. dollar . at december 31 , 2014 and 2013 , cash and cash equivalents of $ 220.5 million and $ 150.6 million , respectively , were held outside the united states . it is our current intention to permanently reinvest the cash and cash equivalent balances held in singapore , china , taiwan , south korea , and malaysia , and our current forecasts do not require repatriation of these funds back to the united states . at december 31 , 2014 , we had $ 125.2 million in cash held outside the united states on which we would have to pay significant u.s. income taxes to repatriate . additionally , local government regulations may restrict our ability to move cash balances under certain circumstances . we currently do not expect such regulations and restrictions to impact our ability to make acquisitions , pay vendors , or conduct operations . we believe that our projected cash flow from operations , combined with our cash and short term investments , will be sufficient to meet our projected working capital requirements , contractual obligations , and other cash flow needs for the next twelve months . at december 31 , 2014 and 2013 , our short-term investments were held in the united states and restricted cash was in germany , which serves as collateral for bank guarantees that provide financial assurance that we will fulfill certain customer or lease obligations . this cash is held in custody by the issuing bank and is restricted as to withdrawal or use while the related bank guarantees are outstanding . a summary of the cash flow activity for the year ended december 31 , 2014 and 2013 was as follows : 27 cash flows from operating activities replace_table_token_13_th net cash provided by operations was $ 42.1 million in fiscal year 2014 , and was due to the net loss of $ 66.9 million , adjustments for non-cash items of $ 54.3 million , and an increase in cash flow from operating activities due to changes in operating assets and liabilities of $ 54.7 million . the changes in operating assets and liabilities was largely attributable to an increase in customer deposits and deferred revenue and income taxes payable , net , offset by an increase in accounts receivable . net cash provided by operations was $ 0.7 million in fiscal year 2013 , and was due to the net loss of $ 42.3 million , adjustments for non-cash items of $ 22.5 million , and an increase in cash flow from operating activities due to changes in operating assets and liabilities of $ 20.5 million .
| results of operations years ended december 31 , 2014 and 2013 the following table presents revenue and expense line items reported in our consolidated statements of operations for fiscal 2014 and 2013 and the period-over-period dollar and percentage changes for those line items . our results of operations are reported as one business segment . replace_table_token_6_th * not meaningful net sales the following is an analysis of sales by region : replace_table_token_7_th ( 1 ) consists of europe , the middle east , and africa 22 total sales increased in 2014 from 2013 primarily due to an increase in the volume of mocvd systems , largely due to customers increasing their manufacturing capacity . pricing was not a significant driver of the change in total sales . total sales also increased as a result of our acquisition of psp , which contributed $ 7.9 million to 2014 results . the increase in sales was partially offset by a decline in volume of our systems sold to data storage customers , primarily due to our customers ' unwillingness to make technology investments given the overcapacity in the hard drive industry . by region , sales decreased in the united states in 2014 primarily due to a decrease in purchases by our data storage customers . in asia pacific , sales increased as a result of mocvd sales growth in korea and china . in emea , sales increased as a result of growth in both mocvd and ion beam and other data storage system sales . we believe there will continue to be year-to-year variations in the geographic distribution of sales in the future . between 2014 and 2013 , total orders increased $ 178.8 million , or 54 % , to $ 510.0 million . the increase is primarily attributable to a 74 % increase in orders of our mocvd systems largely as customers in china , europe , and korea begin to add manufacturing capacity .
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a trust 's internal control over financial reporting includes those policies and procedures that ( 1 ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of the assets of the trust ; ( 2 ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with a modified cash basis of accounting , and that receipts and expenditures of the trust are being made only in accordance with the authorizations of the trustee ; and ( 3 ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use , or disposition of the trust 's assets that could have a material effect on the financial statements . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of the effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . in our opinion , enduro royalty trust maintained , in all material respects , effective internal control over financial reporting as story_separator_special_tag this discussion contains forward-looking statements . please refer to forward-looking statements for an explanation of these types of statements . overview enduro royalty trust , a statutory trust created in may 2011 , completed its initial public offering in november 2011. the trust 's only asset and source of income is the net profits interest , which entitles the trust to receive 80 % of the net profits from oil and natural gas production from the underlying properties . the net profits interest is passive in nature and neither the trust nor the trustee has any management control over or responsibility for costs relating to the operation of the underlying properties . additionally , third parties operate substantially all of the wells on the underlying properties and , therefore , enduro is not in a position to control the timing of development efforts , associated costs , or the rate of production of the reserves . the trust is required to make monthly cash distributions of substantially all of its monthly cash receipts , after deducting the trust 's administrative expenses , to holders of record ( generally the last business day of each calendar month ) on or before the 10 th business day after the record date . the net profits interest is entitled to a share of the profits from and after july 1 , 2011 attributable to production occurring on or after june 1 , 2011. the amount of trust revenues and cash distributions to trust unitholders depends on , among other things : · oil and natural gas sales prices ; · volumes of oil and natural gas produced and sold attributable to the underlying properties ; · production and development costs ; · price differentials ; · potential reductions or suspensions of production ; · the amount and timing of trust administrative expenses ; and · the establishment , increase , or decrease of reserves for approved development expenses or future liabilities of the trust . generally , enduro receives cash payment for oil production 30 to 60 days after it is produced and for natural gas production 60 to 90 days after it is produced . 2016 recap and 2017 outlook oil and natural gas prices declined significantly in the second half of 2014 and have remained low , negatively impacting the fair value of the net profits interest as well as revenues and distributable income available to unitholders . further , depressed commodity pricing reduced development activity in 2015 and 2016 , thereby hindering the ability to abate natural production declines on the underlying properties . the average nymex oil price for the production months included in 2016 distributions decreased 31 % from the prior year , significantly decreasing the revenues and distributable income available to unitholders in 2016. although nymex oil prices have recovered to over $ 50 per bbl , the continued depressed commodity price environment has and will continue to negatively affect the amount of cash flow available for distribution to the trust unitholders in 2017. development activity was limited in 2016 , leading to oil and natural gas declines as there was no new production to offset natural declines . the trust 's oil and natural gas volumes are anticipated to decline again in 2017 due to continued minimal capital expenditures . additionally , continued low commodity prices or further price declines may reduce the amount of oil and natural gas that enduro and its third party operators can economically produce . in 2017 , development activity on the underlying properties is anticipated to be focused on the east texas / north louisiana area . operators have recently enhanced completion technology on haynesville wells , resulting in improved economics . enduro currently anticipates over 50 % of the capital expenditures to be focused on the east texas / north louisiana area , with 6 gross wells planned to be drilled during 2017. the operators of the properties underlying the trust continue to evaluate planned capital expenditures during 2017 , but based on currently available information , enduro anticipates 2017 capital expenditures to range from $ 5 to $ 8 million attributable to the properties in which the trust owns a net profits interest , or $ 4 to $ 6.4 million net to the trust 's 80 % net profits interest . 29 story_separator_special_tag .0001pt 40.5pt ; text-indent : -.25in ; '' > · production , ad valorem and other taxes decreased $ 2.4 million primarily due to a $ 26.4 million decrease in total sales revenues . story_separator_special_tag · hedge settlements decreased $ 1.8 million due to the maturation of all hedge contracts related to 2013 production , a portion of which was recognized in 2014. for further information on commodity hedges , see note 5 of the notes to financial statements in item 8 of this form 10-k. the trust withheld $ 0.7 million and paid $ 0.9 million for general and administrative expenses during the year ended december 31 , 2015. expenses paid during the period primarily consisted of fees for the preparation of 2014 tax information for unitholders , preparation of the trust 's 2014 reserve report and annual report on form 10-k , 2014 and 2015 financial statement audit fees , preparation of the trust 's 2015 monthly press releases and quarterly reports on form 10-q , trustee fees , and new york stock exchange listing fees . for the year ended december 31 , 2014 , the trust withheld $ 0.8 million and paid $ 0.6 million for general and administrative expenses . 33 liquidity and capital resources the trust 's principal sources of liquidity are cash flow generated from the net profits interest and borrowing capacity under the letter of credit described below . other than trust administrative expenses , including any reserves established by the trustee for future liabilities , the trust 's only use of cash is for distributions to trust unitholders . available funds are the excess cash , if any , received by the trust from the net profits interest and other sources ( such as interest earned on any amounts reserved by the trustee ) in any given month , over the trust 's expenses paid for that month . available funds are reduced by any cash the trustee determines to hold as a reserve against future expenses . the trustee may create a cash reserve to pay for future liabilities of the trust . if the trustee determines that the cash on hand and the cash to be received are , or will be , insufficient to cover the trust 's liabilities , the trustee may authorize the trust to borrow money to pay administrative or incidental expenses of the trust that exceed cash held by the trust . the trustee may authorize the trust to borrow from any person , including the trustee or the delaware trustee or an affiliate thereof , although none of the trustee , the delaware trustee or any affiliate thereof intends to lend funds to the trust . the trustee may also cause the trust to mortgage its assets to secure payment of the indebtedness . the terms of such indebtedness and security interest , if funds were to be loaned by the entity serving as trustee or delaware trustee or an affiliate thereof , would be similar to the terms which such entity would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship . in addition , enduro has provided the trust with a $ 1 million letter of credit to be used by the trust if its cash on hand ( including available cash reserves ) is insufficient to pay ordinary course administrative expenses . further , if the trust requires more than the $ 1 million under the letter of credit to pay administrative expenses , enduro has agreed to loan funds to the trust necessary to pay such expenses . any loan made by enduro to the trust would be evidenced by a written promissory note , be on an unsecured basis , and have terms that are no less favorable to enduro than those that would be obtained in an arm 's length transaction between enduro and an unaffiliated third party . if the trust borrows funds or draws on the letter of credit , no further distributions will be made to trust unitholders until such amounts borrowed or drawn are repaid . except for the foregoing , the trust has no source of liquidity or capital resources . the trustee has no current plans to authorize the trust to borrow money . at december 31 , 2016 and 2015 , the trust held cash reserves of $ 184,331 and $ 107,851 , respectively , for future trust expenses . since its formation , the trust has not borrowed any funds and no amounts have been drawn on the letter of credit . in february 2016 , enduro established a $ 750,000 reserve from that month 's net profits interest calculation for approved 2016 development expenses . the trust , in its discretion , also withheld $ 250,000 for anticipated future liabilities of the trust . in march 2016 , enduro withheld an additional $ 100,000 to increase the previously established reserve for approved development expenses , a total reserve of $ 850,000. as a result of lower than anticipated expenditures during the year , over the course of the remaining 2016 distributions enduro released $ 750,000 of the established reserve , thereby increasing the net profits attributable to the trust . in the distribution paid in january 2017 , enduro released the final $ 100,000 reserve . enduro no longer maintains any reserve for development expenses . cash held by the trustee as a reserve against future liabilities or for distribution at the next distribution date may be held in a noninterest-bearing account or may be invested in : · interest-bearing obligations of the united states government ; · money market funds that invest only in united states government securities ; · repurchase agreements secured by interest-bearing obligations of the united states government ; or · bank certificates of deposit .
| results of operations the following table displays oil and natural gas sales volumes and average prices ( excluding the effects of the hedging arrangements discussed in note 5 of the notes to financial statements in item 8 of this form 10-k ) from the underlying properties , representing the amounts included in the net profits calculation for the distributions paid during the years ended december 31 , 2016 , 2015 and 2014. replace_table_token_11_th 30 computation of income from net profits interest received by the trust in connection with the closing of the initial public offering in november 2011 , enduro contributed the net profits interest to the trust in exchange for 33,000,000 newly issued trust units . the net profits interest entitles the trust to receive 80 % of the net profits from the sale and production of oil and natural gas attributable to the underlying properties that are produced during the term of the conveyance , which commenced on july 1 , 2011. the trust 's income from net profits interest consists of monthly net profits attributable to the income from net profits interest . net profits income for the years ended december 31 , 2016 , 2015 , and 2014 was determined as shown in the following table : replace_table_token_12_th the following table displays oil and natural gas sales volumes and average prices ( excluding the effects of the hedging arrangements discussed in note 5 of the notes to financial statements in item 8 of this form 10-k ) from the underlying properties , representing the amounts included in the net profits calculation for distributions paid during the years ended december 31 , 2016 , 2015 , and 2014 : replace_table_token_13_th 31 years ended december 31 , 2016 and 2015 income from net profits interest for the year ended december 31 , 2016 is calculated from the following : · oil sales primarily related to oil produced from the underlying properties from september
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given that our credit card prepayment amounts tend to be approximately equal to our credit card consumption amounts in each period , and that we do not have many invoiced customers on pre-payment contract terms , our deferred revenue and customer deposits liability at any particular time is not a meaningful indicator of future revenue . we define u.s. revenue as revenue from customers with ip addresses at the time of registration in the united states , and we define international revenue as revenue from customers with ip addresses at the time of registration outside of the united states . cost of revenue and gross margin . cost of revenue consists primarily of fees paid to network service providers . cost of revenue also includes cloud infrastructure fees , personnel costs , such as salaries and stock-based compensation for our customer support employees , and non-personnel costs , such as amortization of capitalized internal use software development costs and amortization of acquired intangibles . our arrangements with network service providers require us to pay fees based on the volume of phone calls initiated or text messages sent , as well as the number of telephone numbers acquired by us to service our customers . our arrangements with our cloud infrastructure provider require us to pay fees based on our server capacity consumption . our gross margin has been and will continue to be affected by a number of factors , including the timing and extent of our investments in our operations , our ability to manage our network service provider and cloud infrastructure-related fees , the mix of u.s. revenue compared to international revenue , the timing of amortization of capitalized software development costs and acquired intangibles and the extent to which we periodically choose to pass on our cost savings from platform optimization efforts to our customers in the form of lower usage prices . operating expenses . the most significant components of operating expenses are personnel costs , which consist of salaries , benefits , bonuses and stock-based compensation . we also incur other non-personnel costs related to our general overhead expenses . we expect that our operating costs will increase in absolute dollars as we add additional employees and invest in our infrastructure to grow our business . research and development . research and development expenses consist primarily of personnel costs , outsourced engineering services , cloud infrastructure fees for staging and development , amortization of capitalized internal use software development costs and an allocation of our general overhead expenses . we capitalize the portion of our software development costs that meets the criteria for capitalization . we continue to focus our research and development efforts on adding new features and products , including new use cases , improving our platform and increasing the functionality of our existing products . sales and marketing . sales and marketing expenses consist primarily of personnel costs , including commissions for our sales employees . sales and marketing expenses also include expenditures related to advertising , marketing , our brand awareness activities and developer evangelism , costs related to our 69 signal developer conferences , credit card processing fees , professional services fees and an allocation of our general overhead expenses . we focus our sales and marketing efforts on generating awareness of our company , platform and products through our developer evangelist team and self-service model , creating sales leads and establishing and promoting our brand , both domestically and internationally . we plan to continue investing in sales and marketing by increasing our sales and marketing headcount , supplementing our self-service model with an enterprise sales approach , expanding our sales channels , driving our go-to-market strategies , building our brand awareness and sponsoring additional marketing events . general and administrative . general and administrative expenses consist primarily of personnel costs for our accounting , finance , legal , human resources and administrative support personnel and executives . general and administrative expenses also include costs related to business acquisitions , legal and other professional services fees , sales and other taxes , depreciation and amortization and an allocation of our general overhead expenses . we expect that we will incur costs associated with supporting the growth of our business and to meet the increased compliance requirements associated with both our international expansion and our operation as , a public company . our general and administrative expenses include a certain amount of sales and other taxes to which we are subject based on the manner we sell and deliver our products . prior to march 2017 , we did not collect such taxes from our customers and recorded such taxes as general and administrative expenses . effective march 2017 , we began collecting these taxes from customers in certain jurisdictions and added more jurisdictions throughout 2018 where we are now collecting these taxes . we continue expanding the number of jurisdictions where we will be collecting these taxes in the future . we expect that these expenses will decline in future years as we continue collecting these taxes from our customers in more jurisdictions , which would reduce our rate of ongoing accrual . provision for income taxes . our income tax provision or benefit for interim periods is determined using an estimate of our annual effective tax rate , adjusted for discrete items occurring in the quarter . the primary difference between our effective tax rate and the federal statutory rate relates to the net operating losses in jurisdictions with a valuation allowance or a zero tax rate . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( tax act ) . the tax act reduces the u.s. statutory corporate tax rate to 21 % , effective january 1 , 2018. consequently , we recorded a decrease to the company 's federal deferred tax assets of $ 28.0 million , which was fully offset story_separator_special_tag given that our credit card prepayment amounts tend to be approximately equal to our credit card consumption amounts in each period , and that we do not have many invoiced customers on pre-payment contract terms , our deferred revenue and customer deposits liability at any particular time is not a meaningful indicator of future revenue . we define u.s. revenue as revenue from customers with ip addresses at the time of registration in the united states , and we define international revenue as revenue from customers with ip addresses at the time of registration outside of the united states . cost of revenue and gross margin . cost of revenue consists primarily of fees paid to network service providers . cost of revenue also includes cloud infrastructure fees , personnel costs , such as salaries and stock-based compensation for our customer support employees , and non-personnel costs , such as amortization of capitalized internal use software development costs and amortization of acquired intangibles . our arrangements with network service providers require us to pay fees based on the volume of phone calls initiated or text messages sent , as well as the number of telephone numbers acquired by us to service our customers . our arrangements with our cloud infrastructure provider require us to pay fees based on our server capacity consumption . our gross margin has been and will continue to be affected by a number of factors , including the timing and extent of our investments in our operations , our ability to manage our network service provider and cloud infrastructure-related fees , the mix of u.s. revenue compared to international revenue , the timing of amortization of capitalized software development costs and acquired intangibles and the extent to which we periodically choose to pass on our cost savings from platform optimization efforts to our customers in the form of lower usage prices . operating expenses . the most significant components of operating expenses are personnel costs , which consist of salaries , benefits , bonuses and stock-based compensation . we also incur other non-personnel costs related to our general overhead expenses . we expect that our operating costs will increase in absolute dollars as we add additional employees and invest in our infrastructure to grow our business . research and development . research and development expenses consist primarily of personnel costs , outsourced engineering services , cloud infrastructure fees for staging and development , amortization of capitalized internal use software development costs and an allocation of our general overhead expenses . we capitalize the portion of our software development costs that meets the criteria for capitalization . we continue to focus our research and development efforts on adding new features and products , including new use cases , improving our platform and increasing the functionality of our existing products . sales and marketing . sales and marketing expenses consist primarily of personnel costs , including commissions for our sales employees . sales and marketing expenses also include expenditures related to advertising , marketing , our brand awareness activities and developer evangelism , costs related to our 69 signal developer conferences , credit card processing fees , professional services fees and an allocation of our general overhead expenses . we focus our sales and marketing efforts on generating awareness of our company , platform and products through our developer evangelist team and self-service model , creating sales leads and establishing and promoting our brand , both domestically and internationally . we plan to continue investing in sales and marketing by increasing our sales and marketing headcount , supplementing our self-service model with an enterprise sales approach , expanding our sales channels , driving our go-to-market strategies , building our brand awareness and sponsoring additional marketing events . general and administrative . general and administrative expenses consist primarily of personnel costs for our accounting , finance , legal , human resources and administrative support personnel and executives . general and administrative expenses also include costs related to business acquisitions , legal and other professional services fees , sales and other taxes , depreciation and amortization and an allocation of our general overhead expenses . we expect that we will incur costs associated with supporting the growth of our business and to meet the increased compliance requirements associated with both our international expansion and our operation as , a public company . our general and administrative expenses include a certain amount of sales and other taxes to which we are subject based on the manner we sell and deliver our products . prior to march 2017 , we did not collect such taxes from our customers and recorded such taxes as general and administrative expenses . effective march 2017 , we began collecting these taxes from customers in certain jurisdictions and added more jurisdictions throughout 2018 where we are now collecting these taxes . we continue expanding the number of jurisdictions where we will be collecting these taxes in the future . we expect that these expenses will decline in future years as we continue collecting these taxes from our customers in more jurisdictions , which would reduce our rate of ongoing accrual . provision for income taxes . our income tax provision or benefit for interim periods is determined using an estimate of our annual effective tax rate , adjusted for discrete items occurring in the quarter . the primary difference between our effective tax rate and the federal statutory rate relates to the net operating losses in jurisdictions with a valuation allowance or a zero tax rate . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( tax act ) . the tax act reduces the u.s. statutory corporate tax rate to 21 % , effective january 1 , 2018. consequently , we recorded a decrease to the company 's federal deferred tax assets of $ 28.0 million , which was fully offset
| results of operations the following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods . the period-to-period comparison of our historical results are not necessarily indicative of the results that may be expected in the future . replace_table_token_9_th ( 1 ) includes stock-based compensation expense as follows : replace_table_token_10_th 71 ( 2 ) includes amortization of acquired intangibles as follows : replace_table_token_11_th replace_table_token_12_th * less than 0.5 % of revenue . * * columns may not add up to 100 % due to rounding . comparison of the fiscal years ended december 31 , 2018 , 2017 and 2016 revenue replace_table_token_13_th 72 2018 compared to 2017 in 2018 , base revenue increased by $ 227.5 million , or 62 % , compared to the same period last year , and represented 91 % and 92 % of total revenue in 2018 and 2017 , respectively . this increase was primarily attributable to an increase in the usage of our products , particularly our programmable messaging products and programmable voice products , and the adoption of additional products by our existing customers . this increase was partially offset by pricing decreases that we have implemented over time in the form of lower usage prices , in an effort to increase the reach and scale of our platform . the changes in usage and price in the year ended december 31 , 2018 were reflected in our dollar-based net expansion rate of 140 % . the increase in usage was also attributable to a 31 % increase in the number of active customer accounts , from 48,979 as of december 31 , 2017 , to 64,286 as of december 31 , 2018. in the year ended december 31 , 2018 , variable revenue increased by $ 23.5 million , or 70 % , compared to the same period last year , and represented 9 % and 8 % of total revenue in the year ended december 31 , 2018 and 2017 , respectively .
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42 note 10 income taxes deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . significant components of the company 's deferred tax liabilities and assets are as follows at the respective year ends : replace_table_token_19_th significant components of the provision for income taxes from continuing operations are as follows : story_separator_special_tag critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments based 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 . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of the company 's consolidated financial statements . allowance for doubtful accounts the company maintained an allowance for doubtful accounts of approximately $ 35,000 as of december 31 , 2017 , for estimated losses resulting from the inability of its customers to make required payments . the allowance is based upon a review of outstanding receivables , historical collection information and existing economic conditions . the company performs periodic credit evaluations of its customers ' financial condition and generally does not require collateral . receivables are generally due within 30 to 60 days . delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer . inventory adjustments and reserves at the end of each quarter , all facilities review recent sales reports to identify sales price trends that would indicate products or product lines that are being sold below our cost . this would indicate that an adjustment would be required . during the years ended december 31 , 2017 and december 31 , 2016 , adjustments of $ 254,000 and $ 93,000 to inventory cost were required by our storage tank facility as lower demand for oil and gas products caused the net realizable value to fall below inventory cost for certain tanks . during the year ended december 31 , 2016 , an adjustment of $ 43,000 to inventory cost was required by our metals segment mainly due to decreases in nickel prices . stainless steel , both in its raw material ( coil or plate ) or finished goods ( pipe ) state is purchased / sold using a base price plus an additional surcharge which is dependent on current nickel prices . as raw materials are purchased , it is priced to the company based upon the surcharge at that date . when the selling price of the finished pipe is set for the customer , approximately three months later , the then-current nickel surcharge is used to determine the proper selling prices . a lower of cost or net realizable value adjustment is recorded when the company 's inventory cost , based upon a historical nickel price , is greater than the current selling price of that product due to a reduction in the nickel surcharge . an adjustment was not required at december 31 , 2017. the company establishes inventory reserves for : estimated obsolete or unmarketable inventory . as of december 31 , 2017 and december 31 , 2016 , the company identified inventory items with no sales or expected sales activity for finished goods or no usage for raw materials for a certain period of time . for those inventory items that are not currently being marketed and unable to be sold , a reserve was established for 100 percent of the inventory cost less any estimated scrap proceeds . the company reserved $ 411,000 and $ 697,000 at december 31 , 2017 and december 31 , 2016 , respectively . estimated quantity losses . the company performs an annual physical inventory during the fourth quarter each year . for those facilities that complete their physical inventory before the end of december , a reserve is established for the potential quantity losses that could occur subsequent to their physical . this reserve is based upon the most recent physical inventory results . at december 31 , 2017 and december 31 , 2016 , the company had $ 286,000 and $ 269,000 , respectively , reserved for expected physical inventory quantity losses . impairment of long-lived assets the company continually reviews the recoverability of the carrying value of long-lived assets . long-lived assets are reviewed for impairment when events or changes in circumstances , also referred to as `` triggering events '' , indicate that the carrying value of a long-lived asset or group of assets ( the `` assets '' ) may no longer be recoverable . triggering events include : a significant decline in the market price of the assets ; a significant adverse change in the operating use or physical condition of the assets ; a significant adverse change in legal factors or in the business climate impacting the assets ' value , including regulatory issues such as 18 environmental actions ; the generation by the assets of historical cash flow losses combined with projected future cash flow losses ; or the expectation that the assets will be sold or disposed of significantly before the end of the useful life of the assets . story_separator_special_tag finally , the change in other assets and accrued expenses resulted mainly from an $ 11,000,000 non-cash reversal of an accrual recorded during the fourth quarter 2016 for a judgment received on an on-going lawsuit which was initially identified during the company 's due diligence associated with the acquisition of palmer . during 2017 , the plaintiff of the case entered into settlement agreements with palmer/synalloy and the former shareholders of palmer . the former shareholders of palmer satisfied the financial conditions specified in their settlement agreement resulting in the plaintiff filing a release of final judgment with the court . as a result of the release , the $ 11,000,000 legal liability and corresponding indemnified receivable due from the former shareholders of palmer were eliminated . this litigation is more fully described in note 13. in 2017 , the company 's current assets and current liabilities increased $ 10,143,000 and $ 615,000 , respectively , from the year ended 2016 amounts , which caused working capital for 2017 to increase by $ 9,528,000 to $ 74,396,000 from the 2016 total of $ 64,868,000. the current ratio for the year ended december 31 , 2017 , increased to 3.2:1 from the 2016 year-end ratio of 3.0:1. the company used cash from investing activities during 2017 of $ 17,401,000. the bristol metals-munhall acquisition during the first quarter 2017 used $ 11,954,000 and the company incurred capital asset purchases of $ 5,279,000. financing activities during 2017 generated $ 15,117,000 of cash as the company borrowed funds during 2017 for the aforementioned acquisition and capital purchases . the company declared a $ 0.13 per share dividend during the fourth quarter 2017 which resulted in a use of cash of $ 1,149,000. on august 31 , 2016 , the company amended its credit agreement with its bank to create a new credit facility in the form of an asset-based revolving line of credit in the amount of $ 45,000,000. the maturity date of the line was february 28 , 2019. on october 30 , 2017 , the company amended its credit agreement with its bank to increase the limit of the line by $ 20,000,000 to a maximum of $ 65,000,000 and extended the maturity date to october 30 , 2020. interest under the credit agreement is calculated using the one month libor rate ( as defined in the credit agreement ) , plus a pre-defined spread . borrowings under the credit agreement are limited to an amount equal to a borrowing base calculation ( as defined in the credit agreement ) that includes eligible accounts receivable and inventory . the company determined the refinancing should be accounted for as a debt modification . the company incurred lender and third party costs associated with the debt restructuring that were capitalized on the balance sheet while certain other third party costs were expensed . pursuant to the credit agreement , the company was required to pledge all of its tangible and intangible properties , including the stock and membership interests of its subsidiaries . in the credit agreement , the company 's bank agreed to release its liens on the real estate properties covered by the purchase and sale agreement with store funding , as described in note 12. covenants under the amended credit agreement include maintaining a minimum fixed charge coverage ratio and a limitation on the company 's maximum amount of capital expenditures per year , which is in line with currently projected needs . at december 31 , 2017 , the company was in compliance with all debt covenants . the company believes that its current liquidity position is sufficient to meet its needs going forward . story_separator_special_tag quarter resulted from the incremental sales of bristol metals-munhall as their sales of smaller diameter pipe and tube had an unfavorable effect on average selling prices . seamless heavy-wall carbon steel pipe and tube sales increased 68 percent and 53 percent for the full-year and fourth quarter , respectively , of 2017 compared to the same periods of the prior year . the full year sales induction was comprised of a 63 percent increase in average unit volumes combined with a five percent increase in average selling price . for the fourth quarter , average unit volumes increased 45 percent while average selling prices increased eight percent . heavier demand in 2017 , primarily related to improvements in the oil and gas sector , drove the sales increase . storage tank sales increased 43 percent and 52 percent for the full-year and fourth quarter , respectively , of 2017 when compared to the same periods for the prior year . the full-year increase was comprised of a 15 percent increase in the number of tanks sold and 29 percent increase in average selling price . for the fourth quarter , the storage tank increase resulted from a 21 percent increase in the number of tanks sold combined with a 31 percent decrease in average selling price . the results highlight a move toward higher levels of activity in the permian basis and other palmer of texas delivery areas , as wti pricing and other economic indicators have risen throughout the second half of 2017. the metals segment 's operating results from continuing operations increased $ 12,651,000 to an operating profit of $ 5,664,000 for the full-year 2017 compared to an operating loss of $ 6,987,000 for 2016. for the fourth quarter , the metals segment 's operating results from continuing operations increased $ 4,331,000 to an operating profit of $ 3,005,000 compared to a loss of $ 1,326,000 for 2017 compared to 2016 , respectively . current year operating results were affected by the following factors : a ) the addition of bristol metals-munhall operations as noted above . the full-year 2017 and fourth quarter of 2017 operating results includes $ 443,000 and $ 558,000 , respectively , for bristol metals-munhall operations . these amounts do not reflect the earn-out adjustment for the year since that expense is not included in the metals segment 's operating results .
| results of operations comparison of 2017 to 2016 – consolidated for the full-year 2017 , the net income from continuing operations totaled $ 1,341,000 , or $ 0.15 per share . this compared to full-year 2016 net loss from continuing operations of $ 6,994,000 , or $ 0.81 loss per share . for the fourth quarter of 2017 the company recorded net income from continuing operations of $ 1,017,000 , or $ 0.11 per share . this compares to net loss from continuing operations of $ 1,436,000 , or $ 0.17 loss per share for fourth quarter of 2016. the full-year and fourth quarter 2017 operating results include an operating loss of $ 245,000 and an operating profit of $ 14,000 , respectively , due to bristol metals-munhall 's operations which was acquired in the first quarter 2017. consolidated gross profit from continuing operations increased 66 percent to $ 28,081,000 in 2017 , compared to $ 16,904,000 in 2016 , and , as a percent of sales , increased to 14 percent of sales in 2017 compared to twelve percent of sales in 2016. for the fourth quarter of 2017 , consolidated gross profit from continuing operations was $ 7,663,000 , an increase of 108 percent from the fourth quarter of 2016 of $ 3,684,000. consolidated gross profit from continuing operations was 15 percent of sales for the fourth 20 quarter of 2017 and eleven percent of sales for same period of 2016. the increases in dollars and in percentage of sales were attributable to the metals segment as discussed in the metals segment comparison of 2017 to 2016 below .
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this acquisition furthers our growth and service offering diversification strategies by providing an entry point into the specialized healthcare staffing space . since the acquisition , we have expanded these operations geographically and added to our portfolio of service offerings . this acquisition is more fully discussed in note 2 , acquisition , to the consolidated financial statements contained in item 8 of this form 10-k. on january 11 , 2010 , the company sold its brokerage operations service offerings ( operated under the name global financial services of nevada ) , as more fully discussed in note 18 , divestiture of our brokerage operations service offerings to the consolidated financial statements contained in item 8 of this form 10-k. economic trends and outlook generally , our business outlook is highly correlated to general u.s. economic conditions . during periods of increasing employment and economic expansion , demand for our services tends to increase . conversely , during periods of contracting employment and / or a slowing domestic economy , demand for our services tends to decline . as the economy slowed during the last half of 2007 and recessionary conditions emerged in 2008 and during much of 2009 , we experienced less demand for our staffing services . during the second half of 2009 , we began to see signs of market stabilization and a modest pick-up in activity levels within certain sales channels and technologies . during 2010 , market conditions continued to strengthen over the course of the year and activity levels within most of our sales channels progressively improved . in 2011 and 2012 , activity levels have continued to trend up in most technologies and sales channels . as we enter 2013 , we are encouraged by the recent strengthening of the domestic job market . in addition to tracking general u.s. economic conditions , a large portion of our revenues are generated from a limited number of clients ( see item 1a , the risk factor entitled our revenues are highly concentrated and the loss of a significant client would adversely affect our business and revenues ) . accordingly , our trends and outlook are additionally impacted by the prospects and well-being of these specific clients . by way of illustration , during the second half of 2006 , while general u.s. economic conditions were positive , we experienced a decline in billable headcount and negative sequential quarterly revenue growth due to client-specific conditions at two of our larger clients . this account concentration factor may result in our results of operations deviating from the prevailing u.s. economic trends from time to time . in recent years , a larger portion of our revenues have come from our wholesale it sales channel , which consists largely of strategic relationships with systems integrators and other staffing organizations . this channel tends to carry lower gross margins , but provides higher volume opportunities . this trend in our business mix has impacted overall gross margins during the past several years and , if this trend continues , will likely impact future gross margins as well . within our retail it sales channel , many large users of it staffing services are employing managed service providers ( msp ) to manage their contractor spending in an effort to drive down overall costs . this trend towards utilizing the msp model has resulted in lower gross margins in the retail it channel over the last two years and it is likely that our gross margins will be pressured in future periods should this trend continue . recent developments on october 23 , 2012 , the company 's board of directors approved the extension of the company 's existing share repurchase program through december 22 , 2014 , and increased the number of shares subject to the program by 250,000 shares . this program was set to expire on december 22 , 2012 . 20 on november 29 , 2012 , the company announced the declaration of a special one-time cash dividend of $ 2.00 per share of common stock , payable on december 21 , 2012. this $ 6.7 million dividend was funded by a combination of cash balances on hand and borrowings under the company 's credit facility with pnc bank , n.a . story_separator_special_tag td width= '' 5 % '' > general and administrative expenses decreased by $ 0.1 million . higher severance expense in 2011 related to the elimination of several executive positions was responsible for $ 0.3 million of this decline . bad debt expense in 2012 of $ 0.1 million , compared to a $ 0.1 million credit expense in 2011 , was largely responsible for the balance of the variance in general and administrative expenses . other income / ( expense ) components in 2012 , other income / ( expense ) consisted of net interest expense of $ 68,000 and foreign exchange gains of $ 36,000. in 2011 , other income / ( expense ) consisted of $ 38,000 of net interest expense , foreign exchange losses of $ 26,000 and a $ 5,000 loss related to the closure of a joint venture . higher net interest expense in 2012 was due to higher unused credit line fees on our expanded credit facility and higher amortization of loan origination costs incurred in august 2011. net foreign exchange gains and losses in 2012 and 2011 reflect exchange rate variations between the indian rupee and the u.s. dollar . income tax expense income tax expense for 2012 was $ 1.3 million and represented an effective tax rate on pre-tax income of 38.6 % compared to $ 679,000 for 2011 , which represented an effective tax rate on pre-tax income of 37.9 % . the higher effective tax rate in 2012 was largely due to a higher aggregate state income tax rate . story_separator_special_tag liquidity and capital resources financial condition and liquidity at december 31 , 2012 , we had $ 2.0 million of outstanding debt , net of cash balances on hand , and approximately $ 12.5 million of borrowing capacity under our existing credit facility . this financial position 24 reflects returning $ 9.2 million of capital to our shareholders during 2012 in the form of share repurchases ( $ 2.5 million ) and cash dividends ( $ 6.7 million ) . the cash dividend was declared by our board of directors as a one-time special dividend and we do not anticipate adopting a recurring dividend program at this time . historically , we have funded our business needs with cash generated from operating activities . in the staffing services industry , investment in operating working capital levels ( defined as current assets minus cash and cash equivalents and current liabilities , excluding short-term borrowings ) is a significant use of cash . controlling our operating working capital levels by closely managing our accounts receivable balance is an important element of cash preservation . our accounts receivable days sales outstanding ( dso's ) measurement was 47 days at december 31 , 2012 and 2011. we believe that effectively managing our dso 's has been an important factor in maximizing our cash flows in recent years . cash provided by operating activities , our cash and cash equivalents balances on hand at december 31 , 2012 and current availability under our credit facility are expected to be adequate to fund our business needs over the next 12 months . below is a tabular presentation of cash flow activities for the periods discussed : replace_table_token_6_th operating activities cash provided by operating activities for the years ended december 31 , 2012 , 2011 and 2010 totaled $ 1.0 million , $ 0.4 million and $ 0.4 million , respectively . factors contributing to cash flows during the 2012 period included net income of $ 2.1 million and non-cash charges of $ 0.7 million , offset by an increase in operating working capital of $ 1.8 million . in 2011 , cash flows from operating activities included net income of $ 1.1 million and non-cash charges of $ 0.3 million , offset by an increase in operating working capital of $ 1.0 million . in 2010 , cash flows from operating activities included net income of $ 0.7 million , non-cash charges of $ 0.5 million and an offsetting increase in operating working capital of $ 0.8 million . the increases in operating working capital during 2012 , 2011 and 2010 were in support of higher activity levels and revenue expansion . we would expect operating working capital levels to increase should revenue growth continue in 2013. similar to previous years , such an increase would have a negative impact on cash generated from operating activities . we believe that dso 's are likely to remain in the 47 to 50-day range during 2013. investing activities cash used in investing activities for the years ended december 31 , 2012 , 2011 and 2010 totaled approximately $ 0.2 million , $ 0.3 million and $ 1.3 million , respectively . in 2012 and 2011 , capital expenditures and long-term facility lease deposits accounted for all uses of cash in investing activities . in 2010 , the acquisition of curastat , inc. accounted for $ 1.1 million and capital expenditures and facility lease deposits approximated $ 0.2 million . we believe that investments in capital expenditures and facility lease deposits should approximate $ 0.3 million in 2013. financing activities in 2012 , cash used in financing activities totaled $ 5.9 million and included $ 6.7 million of dividend payments on common stock , $ 2.5 million of purchases under the company 's share repurchase program , partially offset by $ 2.6 million of borrowings under our revolving loan facility and $ 0.7 million of proceeds related to 25 stock option exercises . in 2011 , cash used in financing activities totaled $ 0.7 million and principally related to share repurchases and deferred financing costs incurred in connection with our amended credit facility with pnc bank . in 2010 , financing activities largely consisted of net proceeds from stock option exercises . contractual obligations and off-balance sheet arrangements we have financial commitments related to existing operating leases , primarily for office space that we occupy , and borrowings under our existing credit facility . our commitments are as follows : replace_table_token_7_th we do not have any off-balance sheet arrangements . inflation we do not believe that inflation had a significant impact on our results of operations for the periods presented . on an ongoing basis , we attempt to minimize any effects of inflation on our operating results by controlling operating costs and , whenever possible , seek to ensure that billing rates reflect increases in costs due to inflation . seasonality our operations are generally not affected by seasonal fluctuations . however , our consultants ' billable hours are affected by national holidays and vacation patterns . accordingly , we typically have lower utilization rates and higher benefit costs during the fourth quarter . foreign currency exchange the company is exposed to foreign currency risks as a result of its indian-based global recruitment centers . during 2012 , the company 's expenditures in indian rupees , in support of these operations , increased significantly due to staff expansion and a new office lease in new delhi which is denominated in indian rupees . to mitigate and manage the risk of fluctuations in foreign currency exchange rates , the company entered into foreign currency forward contracts in 2012 as a hedge to such exposures . critical accounting policies certain accounting policies are particularly important to the portrayal of our financial position , results of operations and cash flows and require the application of significant judgment by management , and as a result , are subject to an inherent degree of uncertainty .
| results of operations below is a tabular presentation of revenues and gross profit margins by sales channel for the periods discussed : revenues & gross margin by sales channel ( amounts in millions ) replace_table_token_4_th * permanent placement / fees are generated from clients within all three of our existing sales channels . in order to minimize the impact of the industry trends mentioned above on our operating margins , the company will need to continue to lower its operating cost structure as a percentage of revenues through innovation and greater efficiencies . investments in our global recruitment centers , aimed at improving operational effectiveness , and costs rationalization efforts throughout our entire organization , are examples of past actions that have resulted in lower operating costs . below is a tabular presentation of operating expenses by sales , operations and general and administrative categories for the periods discussed : selling , general & administrative ( s , g & a ) expense details ( amounts in millions ) replace_table_token_5_th 21 2012 compared to 2011 revenues revenues for the year ended december 31 , 2012 totaled $ 101.8 million , compared to $ 89.4 million for the year ended december 31 , 2011. this 14 % increase was due to higher demand for both the company 's it and healthcare staffing services during 2012. billable it consultant headcount at december 31 , 2012 totaled 632-consultants compared to 555-consultants one-year earlier . billable hour increases in our therapy , per diem surgical nursing and travel nursing service offerings were responsible for the revenue growth in our healthcare staffing segment . revenues from our wholesale it channel increased 11 % in 2012 compared to 2011. higher revenue levels from staffing clients ( up 28 % ) were driven by strong demand for our it services . revenue from our integrator clients were largely flat in 2012 , compared to 2011 , as lower levels of erp assignments in 2012 impacted our overall growth rate with these clients .
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