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67 restricted stock units a summary of rsu activity is as follows : replace_table_token_49_th as of june 30 , 2015 , there was $ 20.8 of total unrecognized share-based compensation expense related to rsus that will be recognized over a weighted-average period of 2.67 years . share-based compensation expense recognized and included in the consolidated statements of operations for the fiscal years ended june 30 , 2015 , 2014 and 2013 was as follows : replace_table_token_50_th in october 2014 , the company and its former chief financial officer entered into a resignation agreement under which the vesting of certain awards were modified such that the specified awards were vested in full . as a result of this award modification the company recognized approximately $ 3.1 in share-based compensation expense for year ended june 30 , 2015. in february 2015 , the company and its former chief executive officer entered into a resignation agreement under which the vesting of certain awards were modified such that the specified awards were accelerated . as a result of this award modification the company recognized approximately $ 12.8 in share-based compensation expense for year ended june 30 , 2015. the company has unrecognized share-based compensation cost related to share-based compensation granted under its current plans . the estimated unrecognized share-based compensation cost and related weighted average recognition period , aggregate intrinsic value of options outstanding , aggregate intrinsic value of options that are fully vested and aggregate intrinsic value of rsus vested and expected to vest is as follows : as of june 30 , 2015 unrecognized share-based compensation cost $ 37.3 aggregate intrinsic value of options outstanding $ 131.2 aggregate intrinsic value of options fully vested $ 107.3 aggregate intrinsic value of rsus outstanding $ 34.3 68 the total intrinsic value of options exercised during 2015 , 2014 and 2013 was as follows : replace_table_token_51_th employee stock purchase plan the company had an employee stock purchase plan that was approved by shareholders in 1995 ( the ย1995 purchase planย ) , and subsequently amended , under which 2.0 shares of common stock had been authorized . as of december 5 , 2012 , a total of 2.0 shares of common stock had been issued under the 1995 purchase plan when it was terminated . on december 5 , 2012 , following shareholder approval , the company adopted the 2012 employee stock purchase plan ( the ย2012 purchase planย ) , under which 2.0 shares of common stock have been authorized . shares are issued under the 2012 purchase plan twice yearly at the end of each offering period . at june 30 , 2015 , a total of 0.4 shares of common stock had been purchased under the 2012 plan . shares purchased under and compensation expense associated with the 1995 and 2012 plans for the years reported are as follows : replace_table_token_52_th as of june 30 , 2015 , there was $ 0.8 of total unrecognized share-based compensation expense related to espp . the fair value of shares issued under the story_separator_special_tag overview our consolidated revenues consist primarily of sales of molecular diagnostic tests and pharmaceutical and clinical services through our wholly-owned subsidiaries myriad genetic laboratories , inc. , myriad genetics gmbh , and crescendo bioscience , inc. and our wholly-owned subsidiary myriad rbm . during the year ended june 30 , 2015 , we reported total revenues of $ 723.1 million , net income of $ 80.2 million and diluted earnings per share of $ 1.08 that included income tax expense of $ 54.7 million . in february 2015 , we completed the acquisition of the clinic located in germany approximately 15 miles from the company 's european laboratories for total consideration of $ 20.1 million . we believe acquisition of the clinic should facilitate our penetration into the german molecular diagnostic market . the clinic will allow us to directly negotiate reimbursement with government and private insurance providers in the german market and collaborate with hospitals and physician groups . in february 2014 , we completed the acquisition of privately-held crescendo for $ 270.0 million in cash , which was reduced by the repayment of a loan made to crescendo and other customary adjustments in accordance with the acquisition agreement . we believe that the acquisition of crescendo facilitates our entry into the high growth autoimmune and inflammatory disease market , diversifies our product revenues and enhances our strength in protein-based diagnostics . the business of crescendo , including its vectra ยฎ da blood test for rheumatoid arthritis disease management , is operated as a wholly-owned subsidiary . see note 15 ยsegment and related informationย in the notes to our consolidated financial statements for information regarding our operating segments . our research and development expenses include costs incurred in formulating , improving , validating and creating alternative or modified processes related to and expanding the use of our current molecular diagnostic test offerings and costs incurred for the discovery , development and validation of our pipeline of molecular diagnostic and companion diagnostic candidates . our research and development expense may fluctuate substantially from quarter to quarter depending on the number of clinical studies and the timing of samples supporting those clinical studies . our selling , general and administrative expenses include costs associated with growing our businesses domestically and internationally . selling , general and administrative expenses consist primarily of salaries , commissions and related personnel costs for sales , marketing , customer service , billing and collection , legal , finance and accounting , information technology , human resources , and allocated facilities expenses . story_separator_special_tag and clinical services in a timely manner , or at all ; the risk that we may not successfully develop new markets for our molecular diagnostic tests and pharmaceutical and clinical services , including our ability to successfully generate revenue outside the united states ; the risk that licenses to the technology underlying our molecular diagnostic tests and pharmaceutical and clinical services tests and any future tests are terminated or can not be maintained on satisfactory terms ; risks related to delays or other problems with operating our laboratory testing facilities ; risks related to public concern over our genetic testing in general or our tests in particular ; risks related to regulatory requirements or enforcement in the united states and foreign countries and changes in the structure of the healthcare system or healthcare payment systems ; risks related to our ability to obtain new corporate collaborations or licenses and acquire new technologies or businesses on satisfactory terms , if at all ; risks related to our ability to successfully integrate and derive benefits from any technologies or businesses that we license or acquire ; risks related to our projections about the potential market opportunity for our products ; the risk that we or our licensors may be unable to protect or that third parties will infringe the proprietary technologies underlying our tests ; the risk of patent-infringement claims or challenges to the validity of our patents ; risks related to changes in intellectual property laws covering our molecular diagnostic tests and pharmaceutical and clinical services and patents or enforcement in the united states and foreign countries , such as the supreme court decision in the lawsuit brought against us by the association for molecular pathology et al ; risks of new , changing and competitive technologies and regulations in the united states and internationally ; and other factors discussed under the heading ยrisk factorsย contained in item 1a of this annual report . in light of these assumptions , risks and uncertainties , the results and events discussed in the forward-looking statements contained in this annual report or in any document incorporated by reference might not occur . stockholders are cautioned not to place undue reliance on the forward-looking statements , which speak only as of the date of this annual report . we are not under any obligation , and we expressly disclaim any obligation , to update or alter any forward-looking statements , whether as a result of new information , future events or otherwise . all subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section . market , industry and other data this annual report on form 10-k contains estimates , projections and other information concerning our industry , our business and relevant molecular diagnostics markets , including data regarding the estimated size of relevant molecular diagnostic markets , patient populations , and the perceptions and preferences of patients and physicians regarding certain therapies , as well as data regarding market research and estimates . information that is based on estimates , forecasts , projections , market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information . unless otherwise expressly stated , we obtained this industry , business , market and other data from reports , research surveys , studies and similar data prepared by market research firms and other third parties , industry , medical and general publications , government data and similar sources that we believe to be reliable . in some cases , we do not expressly refer to the sources from which this data is derived . in that regard , when we refer to one or more sources of this type of data in any paragraph , you should assume that other data of this type appearing in the same paragraph is derived from the same sources , unless otherwise expressly stated or the context otherwise requires . critical accounting policies critical accounting policies are those policies which are both important to the portrayal of a company 's financial condition and results and require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . our critical accounting policies are as follows : revenue recognition ; allowance for doubtful accounts ; goodwill ; and income taxes . revenue recognition . revenue includes the sale of our molecular diagnostic tests and of our pharmaceutical and clinical services . revenue is recorded at the invoiced amount net of any discounts or allowances and is recognized when persuasive evidence of an agreement exists , delivery has occurred , the fee is fixed or determinable , and collection is reasonably assured . revenue is recognized upon completion of the test or service , communication of results , and when collectability is reasonably assured . 43 allowance for doubtful accounts . the preparation of our financial statements in accordance with u.s. gaap requires us to make estimates and assumptions that affect the reported amount of assets at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . trade accounts receivable are comprised of amounts due from sales of our molecular diagnostic tests , which are recorded net of any discounts or contractual allowances . we analyze trade accounts receivable and consider historic experience , customer creditworthiness , facts and circumstances specific to outstanding balances , and payment terms when evaluating the adequacy of the allowance for doubtful accounts . we periodically evaluate and adjust the allowance for doubtful accounts when trends or significant events indicate that a change in estimate is appropriate .
| results of operations years ended june 30 , 2015 , 2014 and 2013 revenue replace_table_token_7_th in 2015 , the decrease in revenue was primarily driven by the loss of a one-time bolus of our bracanalysis revenue generated by celebrity publicity during the prior year , approximately $ 50.0 million . in addition , 2015 revenue was impacted by a $ 12.0 million loss of a contract with a payor and a $ 3.0 million decrease due to the reduction in medicare reimbursement rates , offset by $ 29.7 million increase from the inclusion of sales of our vectrada test for the full fiscal year . 38 in 2014 , the increase in revenue was primarily driven by growth in hereditary cancer testing revenues of $ 148.8 million which included a one-time bolus generated by celebrity publicity . we believe that our increased sales , marketing , and education efforts resulted in wider acceptance of our molecular diagnostic tests by the medical community and increased patient testing volumes . in addition , there was a $ 14.0 million increase due to the inclusion of vectrada following our acquisition of crescendo in february 2014. the following table presents additional detail regarding the composition of our total revenue : replace_table_token_8_th cost of sales replace_table_token_9_th in 2015 , the increase in cost of sales was primarily driven by a $ 21.7 million increase in hereditary cancer costs which includes higher costs associated with the transition to myrisk as well as costs related to products for which we have not yet received reimbursement . in addition , there were $ 15.0 million of increased costs related to a full year of vectrada and a increase of $ 1.5 million related to pharmaceutical and clinical services testing .
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the company sold 202.96 units for gross proceeds of $ 5,074,000 and issued 7,611,000 warrants in connection with the units . net proceeds amounted to $ 4,462,693 after expenses of offering totaling $ 611,307 . in addition , the placement agent received 1,014,800 warrants valued at $ 165,180 . the convertible notes are convertible , at the option of the note holder , into shares of our common stock at an initial conversion price of $ .29 ( which conversion price is subject to adjustment upon the occurrence of events specified in the convertible notes , including stock dividends , stock splits , certain fundamental corporate transactions , and certain issuances of common stock by the company ) . the warrants are exercisable into shares of common stock ( the `` warrant shares `` ) at an initial exercise price of $ 0.30 ( which may be subject to certain adjustments as set forth in the warrants ) . the company evaluated the warrants under asc 815-40-15 due to the exercise price being adjustable upon certain events occurring . the company determined that the warrants are considered indexed to the company 's own stock and thus meet the scope exception under fasb asc 815-10-15-74 and are therefore not considered a derivative . the estimated fair value of the warrants , which contain reset provisions , were calculated using the monte carlo valuation model . the company recorded the warrant 's relative fair value of $ 956,712 as an increase to additional paid in capital and a discount against the related debt . the convertible notes contain a provision whereby the conversion price is adjustable upon the occurrence of certain events , including the issuance of common stock or common stock equivalents at a price which is lower than the current conversion price . under fasb asc 815-40-15-5 , the embedded conversion feature is not considered indexed to the company 's own stock and , therefore , does not meet the scope exception in fasb asc 815-10-15 and thus needs to be accounted for as a derivative liability . the initial fair value of the embedded conversion feature was estimated at $ 7,316,092 and recorded as a derivative liability , resulting in an additional discount of $ 4,117,288 to the convertible notes and a finance charge of $ 3,198,804 included in the statement of operations for the year ended story_separator_special_tag this annual report on form 10-k contains or incorporates by reference certain forward-looking statements within the meaning of section 27a of the 1933 act and section 21e of the securities exchange act of 1934 , as amended , and , as such , may involve known and unknown risks , uncertainties and assumptions . forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters . you can generally identify forward-looking statements as statements containing the words โ will , โ โ believe , โ โ expect , โ โ anticipate , โ โ intend , โ โ estimate , โ โ assume โ or other similar expressions . you should not rely on our forward-looking statements because the matters they describe are subject to assumptions , known and unknown risks , uncertainties and other unpredictable factors , many of which are beyond our control . therefore , our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors , some of which are listed under the section โ risk factors , โ item 1a of this annual report on form 10-k. in this report references to โ tomi โ โ we , โ โ us , โ and โ our โ refer to tomi environmental solutions , inc. 12 special note regarding forward-looking statements the securities and exchange commission ( โ sec โ ) encourages companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions . this report contains these types of statements . words such as โ may , โ โ will , โ โ expect , โ โ believe , โ โ anticipate , โ โ estimate , โ โ project , โ or โ continue โ or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements . you are cautioned not to place undue reliance on the forward-looking statements , which speak only as of the date of this report . all forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements . the following discussion relates to the years ended december 31 , 2014 and 2013. as disclosed elsewhere in this report , we commenced our current operations in the fourth quarter of 2007 and , since 2008 , we have proceeded to implement our business plan by acquiring for cash both the intellectual property and methodology that at that time was the core of our ozone treatment systems . tomi continues to focus on obtaining high-tech decontamination technology and the writing of building health and infectious disease protocols . during august 2010 , tomi entered into negotiations with bit technology a division of l-3 , and we began to develop applications for and distribution of the steramist tm equipment that currently accounts for nearly all of our revenue . story_separator_special_tag 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 united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the estimation process requires assumptions to be made about future events and conditions , and as such , is inherently subjective and uncertain . actual results could differ materially from our estimates . the sec defines critical accounting policies as those that are , in management 's view , most important to the portrayal of our financial condition and results of operations and most demanding of our judgment . we consider the following policies to be critical to an understanding of our consolidated financial statements and the uncertainties associated with the complex judgments made by us that could impact our results of operations , financial position and cash flows . 17 revenue recognition for revenue from services and product sales , the company recognized revenue in accordance with staff accounting bulletin no . 104 , โ revenue recognition โ ( sab no . 104 ) , which superseded staff accounting bulletin no . 101 , โ revenue recognition in financial statements โ ( sab no . 101 ) . sab no . 104 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) service has been rendered or delivery has occurred ; ( 3 ) the selling price is fixed and determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgment regarding the fixed nature of the selling prices of the services rendered or products delivered and the collectability of those amounts . provisions for discounts to customers , and allowance , and other adjustments will be provided for in the same period the related sales are recorded . fair value measurement the authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . market participants are buyers and sellers in the principal market that are ( i ) independent , ( ii ) knowledgeable , ( iii ) able to transact , and ( iv ) willing to transact . the guidance describes a fair value hierarchy based on the levels of inputs , of which the first two are considered observable and the last unobservable , that may be used to measure fair value , which are the following : level 1 : quoted prices in active markets for identical assets or liabilities . level 2 : inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities . level 3 : unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities . the company 's financial instruments include cash and equivalents , accounts receivable , accounts payable and accrued expenses and loans payable . all these items were determined to be level 1 fair value measurements . the carrying amounts of cash and equivalents , accounts receivable , accounts payable and accrued expenses , approximated fair value because of the short maturity of these instruments . the recorded value of convertible debt approximates its fair value as the terms and rates approximate market rates . inventories inventories are valued at the lower of cost or market using the first-in , first-out ( โ fifo โ ) method . inventories consist primarily of finished goods and raw materials . deferred financing costs the company follows authoritative guidance for accounting for financing costs as it relates to convertible debt issuance cost . these costs are deferred and amortized over the term of the debt period or until redemption of the convertible debentures . stock-based compensation we account for stock-based compensation in accordance with financial accounting standards board ( โ fasb โ ) , asc 718 , compensation- โ stock compensation. โ under the provisions of fasb asc 718 , stock-based compensation cost is estimated at the grant date based on the award 's fair value and is recognized as expense over the requisite service period . the company currently has one active stock-based compensation plan , tomi environmental solutions , inc. stock option and restricted stock plan ( the โ plan โ ) . the plan calls for the company , through a committee of its board of directors , to issue up to 2,500,000 shares of restricted common stock or stock options . the company generally issues grants to its employees , consultants , and board members . stock options are granted with an exercise price equal to the closing price of its common stock on the date of the grant with a term no greater than 10 years . generally , stock options vest over two to four years . incentive stock options granted to shareholders who own 10 % or more of the company 's outstanding equity securities are granted at an exercise price that may not be less than 110 % of the closing price of the company 's common stock on the date of grant and have a term no greater
| results of operations results of operations for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 sales during the year ended december 31 , 2014 and 2013 , we had net revenue of approximately $ 2,248,000 and $ 1,166,000 , respectively , representing an increase in revenue of $ 1,082,000 or 93 % . the primary reason for the increase in revenue was attributable mainly to the fact that we were able to acquire and take control over the entire steramist tm line of products from l-3 in april 2013 , including manufacturing as well as research and development , which facilitated the company having sufficient supply of product to fill orders , as well as diversify our client base . we have also ramped up sales , marketing and trade shows which has positively impacted sales as compared to the prior period . cost of sales during the year ended december 31 , 2014 and 2013 , we had cost of sales of approximately $ 874,000 and $ 481,000 , respectively , representing an increase of $ 393,000 or 82 % . the primary reason for the increase in cost of sales was due to sales increasing mostly in conjunction with costs during the year ended december 31 , 2014. we also experienced higher profit margins attributable to gaining economies of scale through the acquisition of the steramist tm line of products from l-3 in april 2013. professional fees professional fees for the year ended december 31 , 2014 totaled approximately $ 349,000 as compared to $ 336,000 during the prior year representing an increase of approximately $ 13,000 or 4 % . professional fees are mainly comprised of legal , environmental advisory , accounting and financial consulting fees . depreciation and amortization depreciation and amortization was approximately $ 470,000 and $ 318,000 for the year ended december 31 , 2014 and 2013 , respectively .
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the asu also requires additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments and story_separator_special_tag the terms โ greif , โ the โ company , โ โ we , โ โ us โ and โ our โ as used in this discussion refer to greif , inc. and its subsidiaries . results of operations 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 ( โ gaap โ ) . the preparation of these consolidated financial statements , in accordance with these principles , require us to make estimates and assumptions that affect the reported amount of assets and liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements . historical revenues and earnings may or may not be representative of future operating results due to various economic and other factors . the non-gaap financial measure of ebitda is used throughout the following discussion of our results of operations . ebitda is defined as net income , plus interest expense , net , plus income tax expense , plus depreciation , depletion and amortization . since we do not calculate net income by segment , ebitda by segment is reconciled to operating profit by segment . we use ebitda as one of the financial measures to evaluate our historical and ongoing operations and believe that this non-gaap financial measure is useful to enable investors to perform meaningful comparisons of our historical and current performance . additionally , ebitda is a metric considered by debt holders and certain investors as an indicator of our ability to generate cash flow . ebitda , as a non-gaap financial measure , should not be considered an alternative or substitute for , and should not be considered superior to , any of our gaap financial measures . accordingly , users of this financial information should not place undue reliance on ebitda . the following table sets forth the net sales , operating profit ( loss ) and ebitda for each of our business segments for 2018 , 2017 and 2016 : 22 replace_table_token_5_th the following table sets forth ebitda , reconciled to net income and operating profit , for our consolidated results for 2018 , 2017 and 2016 : replace_table_token_6_th 23 the following table sets forth ebitda for each of our business segments , reconciled to the operating profit for each segment , for 2018 , 2017 and 2016 : replace_table_token_7_th year 2018 compared to year 2017 net sales net sales were $ 3,873.8 million for 2018 compared with $ 3,638.2 million for 2017 . the 6.5 percent increase was due primarily to strategic pricing decisions and contractual price changes in our rigid industrial packaging & services segment , increases in selling prices due to increases in published containerboard pricing and an increase in sales volumes in our paper packaging & services segment , and strategic pricing decisions and product mix in our flexible products & services segment , partially offset by volume declines due to customer operational interruptions , weather and strategic pricing decisions in our rigid industrial packaging & services segment . gross profit gross profit was $ 788.9 million for 2018 compared with $ 714.7 million for 2017 . the respective reasons for the improvement or decline in gross profit , as the case may be , for each segment are described below in the `` segment review . '' gross profit margin was 20.4 percent for 2018 compared to 19.6 percent for 2017 . 24 selling , general and administrative expenses selling , general and administrative ( `` sg & a '' ) expenses increased 4.6 percent to $ 397.9 million for 2018 from $ 380.4 million for 2017 . this increase was primarily due to increased health and medical expenses , increased non-income taxes and increased salary expenses . sg & a expenses were 10.3 percent of net sales for 2018 compared with 10.5 percent of net sales for 2017 . restructuring charges restructuring charges were $ 18.6 million for 2018 compared with $ 12.7 million for 2017 . refer to note 6 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . impairment charges there were no goodwill impairment charges for 2018 compared with $ 13.0 million for 2017. the 2017 charges were related to the impairment of goodwill within the rigid industrial packaging & services segment . non-cash asset impairment charges were $ 8.3 million for 2018 compared with $ 7.8 million for 2017 . in 2018 , these charges were primarily related to plant closures and impairments of goodwill allocated to assets held for sale . refer to note 9 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . gain on disposal of properties , plants and equipment , net the gain on disposal of properties , plants , and equipment , net was $ 5.6 million and $ 0.4 million for 2018 and 2017 , respectively . see note 4 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . ( gain ) loss on disposal of businesses , net the gain on disposal of business , net was $ 0.8 million for 2018 and the loss on disposal of business , net was $ 1.7 million for 2017 . see note 2 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . operating profit operating profit was $ 370.5 million for 2018 compared with $ 299.5 million for 2017 . story_separator_special_tag ebitda was $ 191.8 million for 2018 compared with $ 115.3 million for 2017 . the increase was due primarily to the same factors that impacted the segment 's operating profit , as described above , in addition to a reduction of $ 10.2 million in pension settlement charges . depreciation , depletion and amortization expense was $ 34.2 million and $ 31.9 million for 2018 and 2017 , respectively . 26 flexible products & services key factors influencing profitability in the flexible products & services segment are : selling prices , product mix , customer demand and sales volumes ; raw material costs , primarily resin ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; divestiture of businesses and facilities ; and impact of foreign currency translation . net sales increased 13.2 percent to $ 324.2 million for 2018 compared with $ 286.4 million for 2017 . the increase was due primarily to product mix , strategic pricing decisions , volume increases , and a $ 12.3 million impact of foreign currency translation . gross profit was $ 65.2 million for 2018 compared with $ 51.1 million for 2017 . the increase was primarily attributable to the same factors that impacted net sales and improved transportation and manufacturing efficiencies , which also contributed to the increase in gross profit margin to 20.1 percent for 2018 from 17.8 percent for 2017 . operating profit was $ 19.4 million for 2018 compared with $ 5.8 million for 2017 . the increase was primarily related to the same factors impacting gross profit , partially offset by an increase in sg & a expenses of $ 1.7 million primarily due to an increase in allocated corporate costs and an increase in salaries and benefits expenses as a result of business performance . ebitda was $ 25.7 million for 2018 compared with $ 11.1 million for 2017 . the increase was due to the same factors that impacted the segment 's operating profit , as described above . depreciation , depletion and amortization expense was $ 6.9 million for 2018 compared with $ 7.0 million for 2017 , respectively . land management as of october 31 , 2018 , our land management segment consisted of 243,000 acres of timber properties in the southeastern united states . key factors influencing profitability in the land management segment are : planned level of timber sales ; selling prices and customer demand ; gains on timberland sales ; and gains on the disposal of development , surplus and hbu properties ( โ special use property โ ) . in order to maximize the value of our timber properties , we continue to review our current portfolio and explore the development of certain of these properties . this process has led us to characterize our property as follows : surplus property , meaning land that can not be efficiently or effectively managed by us , whether due to parcel size , lack of productivity , location , access limitations or for other reasons . hbu property , meaning land that in its current state has a higher market value for uses other than growing and selling timber . development property , meaning hbu land that , with additional investment , may have a significantly higher market value than its hbu market value . core timberland , meaning land that is best suited for growing and selling timber . we report the sale of timberland property in `` timberland gains , '' the sale of hbu and surplus property in โ gain on disposal of properties , plants and equipment , net โ and the sale of timber and development property under โ net sales โ and โ cost of products sold '' in our consolidated statements of income . all hbu and development property , together with surplus property , is used to productively grow and sell timber until the property is sold . whether timberland has a higher value for uses other than growing and selling timber is a determination based upon several variables , such as proximity to population centers , anticipated population growth in the area , the topography of the land , aesthetic considerations , including access to lakes or rivers , the condition of the surrounding land , availability of utilities , markets for timber 27 and economic considerations both nationally and locally . given these considerations , the characterization of land is not a static process , but requires an ongoing review and re-characterization as circumstances change . as of october 31 , 2018 , we estimated that there were 17,900 acres in the united states of special use property , which we expect will be available for sale in the next five to seven years . net sales decreased to $ 27.5 million for 2018 compared with $ 28.2 million for 2017 . operating profit decreased to $ 9.6 million for 2018 from $ 10.1 million for 2017 . ebitda was $ 14.2 million and $ 14.6 million for 2018 and 2017 , respectively . depreciation , depletion and amortization expense was $ 4.6 million for 2018 and 2017 . other income statement changes interest expense , net interest expense , net was $ 51.0 million and $ 60.1 million for 2018 and 2017 , respectively . the decrease was primarily due to the repayment of our senior notes due february 2017 with funds borrowed under our new senior secured credit agreement ( the โ 2017 credit agreement โ ) , lower long term debt balances , and lower interest rates resulting from the impact of our derivative financial instruments . other expense , net other expense , net was $ 18.4 million and $ 12.0 million for 2018 and 2017 , respectively .
| segment review rigid industrial packaging & services net sales increased 8.5 percent to $ 2,522.7 million in 2017 from $ 2,324.2 million in 2016. the $ 198.5 million increase in net sales was primarily the result of an increase in selling prices due to strategic pricing and increases in index prices of raw materials partially offset by the impact of the 2016 divestitures in this segment . gross profit was $ 502.2 million for 2017 compared with $ 489.4 million for 2016. the $ 12.8 million increase in gross profit was primarily due to the positive impact of strategic volume and pricing actions , partially offset by increases in raw material prices . gross profit margin decreased to 19.9 percent from 21.1 percent in 2016. operating profit was $ 190.1 million for 2017 compared with $ 143.9 million for 2016. the $ 46.2 million increase was primarily attributable to the same factors impacting gross profit , a decrease in non-cash asset impairment charges of $ 22.8 million , a decrease in restructuring charges of $ 7.8 million and a decrease in loss on sales of properties , plants and equipment and businesses , net of $ 3.2 million . ebitda was $ 241.9 million for 2017 compared with $ 223.8 million for 2016. the $ 18.1 million increase was due to the same factors that impacted the segment 's operating profit , as described above . depreciation , depletion and amortization expense was $ 77.0 million for 2017 compared with $ 84.6 million for 2016. the reduction in depreciation , depletion and amortization expense was primarily due to impact of 2016 divestitures .
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our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors , as more fully described in โ risk factors โ in item 1a of this form 10-k , in this item 7 , and elsewhere in this form 10-k. except as may be required by law , we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur in the future . overview we create , manufacture , and market innovative technologies and life-science tools focused on the exploration and analysis of single cells , as well as the industrial application of genomics , based upon our core microfluidics and mass cytometry technologies . we sell instruments and consumables , including integrated fluidic circuits , or ifcs , assays , and reagents , to academic institutions , clinical laboratories , and pharmaceutical , biotechnology , and agricultural biotechnology , or ag-bio , companies . we distribute our systems through our direct sales force and support organizations located in north america , europe , and asia-pacific , and through distributors or sales agents in several european , latin american , middle eastern , and asia-pacific countries . our manufacturing operations are primarily located in singapore and canada . our facility in singapore manufactures our genomic instruments , several of which are assembled at facilities of our contract manufacturers in singapore , with testing and calibration of the assembled products performed at our singapore facility . all of our ifcs for commercial sale and some ifcs for our research and development purposes are fabricated at our singapore facility . our proteomics analytical instruments are manufactured at our facility in canada . we also manufacture ifcs for research and development , assays , and reagents at our facilities in south san francisco , california . on february 13 , 2014 , we completed our acquisition of dvs sciences , inc. or dvs , for $ 199.9 million . our total revenue grew from $ 52.3 million in 2012 to $ 116.5 million in 2014. we have incurred significant net losses since our inception in 1999 and , as of december 31 , 2014 , our accumulated deficit was $ 310.2 million . critical accounting policies , significant judgments and estimates our consolidated financial statements and the related notes included elsewhere in this form 10-k are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs , and expenses and related disclosures . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . changes in accounting estimates may occur from period to period . accordingly , actual results could differ significantly from the estimates made by our management . we evaluate our estimates and assumptions on an ongoing basis . to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations , and cash flows will be affected . we believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies . accordingly , these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations . our accounting policies are more fully described in note 2 of the notes to our audited consolidated financial statements . revenue recognition we generate revenue from sales of our products , license agreements , and government grants . our product revenue consists of sales of instruments and related services , and consumables , including ifcs , assays , and other reagents . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price to the customer is fixed or determinable , and collectability is reasonably assured . revenue from the sales of our products that are not part of multiple element arrangements are recognized when no significant obligation remains undelivered and collection is reasonably assured , which is generally when delivery has occurred . delivery occurs when there is a transfer of title and risk of loss passes to the customer . payments received in advance of revenue recognition are classified as deferred revenue in the consolidated balance sheet . the evaluation of these revenue recognition criteria requires significant management judgment . for instance , we use judgment to assess collectability based on factors such as the customer 's creditworthiness and past collection history , if 39 applicable . if we determine that collection is not reasonably assured , revenue recognition is deferred until receipt of payment . we also use judgment to assess whether a price is fixed or determinable by , among other things , reviewing contractual terms and conditions related to payment . certain of our sales contracts involve the delivery of multiple products or services within contractually binding arrangements . multiple-deliverable sales transactions typically consist of the sale and delivery of one or more instruments and consumables together with one or more of our installation , training and or customer support services . significant judgment is sometimes required to determine the appropriate accounting for such arrangements , including whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes and , if so , how the related sales price should be allocated among the elements , when to recognize revenue for each element , and the period over which revenue should be recognized . for sales contracts that include multiple deliverables , we allocate the contract consideration at the inception of the contract to each unit of accounting based upon their relative selling prices . story_separator_special_tag if a revised forfeiture rate is lower than the previously estimated forfeiture rate , an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements . the effect of forfeiture adjustments was insignificant during 2014 , 2013 , and 2012 . we will continue to use judgment in evaluating the expected term , volatility , and forfeiture rate related to our stock-based compensation . also required to compute the fair value calculation of options is the fair value of the underlying common stock . we grant stock options at exercise prices not less than the fair value of our common stock at the date of grant . prior to our ipo , our board of directors obtained contemporaneous valuations from an unrelated third-party valuation firm to determine the estimated fair value of common stock . there is inherent uncertainty in these estimates and if we or the valuation firm had made different assumptions , the amount of our stock-based compensation expense , net loss , and net loss per share amounts could have been significantly different . following the completion of our ipo in february 2011 , the fair value of options granted is based on the closing price of our common stock on the date of grant as quoted on the nasdaq global select market . historically , certain of our stock options were granted to officers with vesting acceleration features based upon the achievement of certain performance milestones . the timing of the attainment of these milestones affected the timing of expense recognition since we recognize compensation expense only for the portion of stock options that are expected to vest . we recorded stock-based compensation of $ 20.9 million , $ 6.4 million , and $ 4.1 million during 2014 , 2013 , and 2012 , respectively . as of december 31 , 2014 , we have $ 29.8 million of total unrecognized compensation cost related to stock-based compensation arrangements that is expected to be recognized over an average period of 2.8 years . income taxes we use the asset and liability method to account for income taxes . 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 basis . 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 . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities , and any valuation allowance recorded against our deferred tax assets . our provision for income taxes generally consists of tax expense/benefit related to current period earnings/losses . as part of the process of preparing our consolidated financial statements , we continuously monitor the circumstances impacting the expected realization of our deferred tax assets for each jurisdiction . we consider all available evidence , including historical operating results in each jurisdiction , expectations and risks associated with estimates of future taxable income , and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . to the extent a deferred tax asset can not be recognized , a valuation allowance is established to reduce our deferred tax assets to the amount that is more likely than not to be realized . these deferred tax assets primarily consist of net operating loss carryforwards , research and development tax credits , and stock-based compensation . we intend to maintain this valuation allowance until sufficient evidence exists to support its reduction . our deferred tax liabilities primarily consist of book and tax basis differences in fixed assets and acquired identifiable intangible assets . we make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates . should the actual amounts differ from our estimates , the amount of our valuation allowance could be materially impacted . changes in these estimates may result in significant increases or decreases to our tax provision in a period in which such estimates are changed , which in turn would affect net income or loss . 41 we recognize the financial statement effects of a tax position when it is more likely than not , based on the technical merits , that the position will be sustained upon examination . any interest and penalties related to uncertain tax positions will be reflected in the income tax provision . we have not provided for u.s. federal and state income taxes on any of our non-u.s. subsidiaries ' undistributed earnings as of december 31 , 2014 because such earnings are intended to be indefinitely reinvested . upon distribution of such earnings in the form of dividends or otherwise , we believe there will be no material u.s. federal and state income tax liability as there are sufficient amount of tax losses or other attributes . undistributed earnings of our foreign subsidiaries amounted to approximately $ 0.8 million , as of december 31 , 2014. if these earning were to be repatriated , approximately $ 30,000 of withholding taxes may be due . however , since such subsidiaries ' earnings are permanently reinvested , no related deferred tax liabilities were accrued as of december 31 , 2014. effective january 1 , 2010 , we obtained approval for pioneer tax status in singapore . the pioneer tax status allowed a full exemption from singapore corporate tax related to contract manufacturing activities through the effective period subject to the achievement of certain milestones .
| results of operations the following table presents our historical consolidated statements of operations data for the years ended december 31 , 2014 , 2013 , and 2012 , and as a percentage of total revenue for the respective years ( $ in thousands ) : replace_table_token_4_th revenue we generate revenue from sales of our products , license agreements , and government grants . our product revenue consists of sales of instruments and related services , and consumables , including ifcs , assays , and other reagents . we have entered into license agreements and have received government grants to conduct research and development activities . the following table presents our revenue by source for each period presented ( in thousands ) : replace_table_token_5_th the following table presents our product revenue by geography and as a percentage of total product revenue by geography based on the billing address of our customers for each period presented ( in thousands ) : replace_table_token_6_th 43 our license and grant revenue is primarily generated in the united states . our customers include academic research institutions , clinical laboratories , pharmaceutical , biotechnology and ag-bio companies worldwide . total revenue from our five largest customers in each of the periods presented comprised 15 % , 18 % , and 17 % of revenue in 2014 , 2013 , and 2012 , respectively . comparison of the years ended december 31 , 2014 and december 31 , 2013 total revenue total revenue increase d by $ 45.3 million , or 64 % , to $ 116.5 million for 2014 , compared to $ 71.2 million for 2013 primarily due to an overall growth in our business , including revenue growth for both instruments and consumables .
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in february 2013 , the fasb issued an accounting standards update which requires additional disclosures regarding the reporting of reclassifications out of accumulated other comprehensive income . the guidance requires an entity to present , either on the face story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the selected consolidated financial data and the financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties . the statements contained in this annual report that are not purely historical are 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 ( the exchange act ) . without limiting the foregoing , the words may , will , should , could , expects , plans , intends , anticipates , believes , estimates , predicts , potential and similar expressions are intended to identify forward-looking statements . all forward-looking statements included in this annual report on form 10-k are based on information available to us up to and including the date of this report , and we assume no obligation to update any such forward-looking statements . 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 management 's discussion and analysis of financial 29 condition and results of operations and risk factors and elsewhere in this form 10-k. you should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the securities and exchange commission . in the management discussion that follows we have highlighted those changes and operating factors that were the primary factors affecting period to period fluctuations . the remainder of the change in period to period fluctuations from that which is specifically discussed is arising from various individually insignificant items . overview we provide cloud-based payment , invoice and banking solutions to banks , corporations , insurance companies and financial institutions around the world . our solutions are used to streamline , automate and manage processes and transactions involving global payments , cash management , invoice receipt and approval , collections , risk mitigation , document management , reporting and document archive . we offer hosted or software as a service ( saas ) solutions , as well as software designed to run on-site at the customer 's location . historically our software was sold predominantly on a perpetual license basis . however , a growing portion of our offerings are being sold as saas-based solutions and paid for on a subscription and transaction basis . we operate a cloud-based network that facilitates the exchange of electronic payments and invoices between buyers and their suppliers . we offer hosted and on-premise solutions that banks use to provide cash management and treasury capabilities to their business customers , as well as swift financial messaging services for banks and corporations around the world . we offer legal spend management solutions that automate receipt and review of legal invoices for insurance companies and other large corporate consumers of outside legal services . our corporate customers rely on our solutions to automate their payment and accounts payable processes and to streamline and manage the production and retention of electronic documents . our document automation solutions are used by organizations to automate paper-intensive processes for the generation of transactional and supply chain documents . our solutions complement , leverage and extend our customers ' existing information systems , accounting applications and banking relationships and can be deployed quickly and efficiently . to help our customers receive the maximum value from our products and meet their specific business requirements , we also provide professional services for installation , training , consulting and product enhancement . convertible note offering in december 2012 , we raised approximately $ 167 million in net proceeds upon completion of an underwritten public offering of convertible senior notes ( the notes ) . the notes pay semi-annual interest at a rate of 1.50 % per annum on the $ 189.8 million aggregate principal balance and mature in december 2017. we are required to settle the principal balance of the notes in cash upon conversion or maturity , however as of january 17 , 2013 , we are permitted to settle any conversion obligation in excess of the principal balance in either cash , shares of our common stock or a combination of cash and shares of our common stock , at our election . we entered into hedging transactions designed to offset dilution to our common stock in the event of a conversion under the notes . the note hedge instruments ( note hedges ) have a strike price of $ 30.03 , which is equal to the conversion rate under the notes , are exercisable by us upon any conversion under the notes and expire in december 2017. to help offset the cost of the note hedges , we also sold warrants ( warrants ) in our common stock . the warrants have a strike price of $ 40.04 , and are exercisable in equal tranches over a 150 day period beginning on march 1 , 2018 and ending on october 2 , 2018. the note hedges and warrants each cover approximately 6.3 million shares of our common stock , subject to customary anti-dilutive provisions . we intend to use the net offering proceeds for general corporate purposes which may include the acquisition of businesses or assets , or working capital needs . refer to note 10 and note 11 of the accompanying consolidated financial statements for a complete discussion of these transactions and their accounting implications . story_separator_special_tag we derive equipment and supplies revenues from the sale of printers , check paper and magnetic ink character recognition toners . these revenues are normally recognized at the time of delivery . equipment and supplies revenue also includes postage and shipping related charges billed to customers . critical accounting policies and significant judgments and estimates we believe that several accounting policies are important to understanding our historical and future performance . we refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate , and different estimatesยwhich also would have been reasonableยcould have been used . these critical accounting policies and estimates relate to revenue recognition , the valuation of goodwill and intangible assets , the valuation of acquired deferred revenue and income taxes . these critical policies and our procedures related to these policies are discussed below . in addition , refer to note 2 to the accompanying consolidated financial statements for a discussion of all of our significant accounting policies . revenue recognition software arrangements we recognize revenue on our software license arrangements when four basic criteria are met : persuasive evidence of an arrangement exists , delivery of the product has occurred , the fee is fixed and determinable and collectability is probable . we consider a fully executed agreement or a customer purchase order to be persuasive 32 evidence of an arrangement . delivery is deemed to have occurred upon transfer of the product to the customer or the completion of services rendered . we consider the arrangement fee to be fixed and determinable if it is not subject to adjustment and if the customer has not been granted extended payment terms . excluding our long term contract arrangements for which revenue is recorded on a percentage of completion basis , extended payment terms are deemed to be present when any portion of the software license fee is due in excess of 90 days after the date of product delivery . in arrangements that contain extended payment terms , software revenue is recorded as customer payments become contractually due , assuming all other revenue recognition criteria have been met . we consider the arrangement fee to be probable of collection if our internal credit analysis indicates that the customer will be able to pay contractual amounts as they become due . our software arrangements often contain multiple revenue elements , such as software licenses , professional services , hardware and post-contract customer support . for multiple element software arrangements which qualify for separate element treatment , revenue is recognized for each element when each of the four basic criteria is met which , excluding post-contract customer support , is typically upon delivery . revenue for post-contract customer support agreements is recognized ratably over the term of the agreement , which is generally one year . revenue is allocated to each element , excluding the software license , based on vendor specific objective evidence ( vsoe ) . vsoe is limited to the price charged when the element is sold separately or , for an element not yet being sold separately , the price established by management having the relevant authority . we do not have vsoe for our software licenses since they are seldom sold separately . accordingly , revenue is allocated to the software license according to the residual value method . under the residual value method , revenue equal to vsoe of each undelivered element is recognized upon delivery of that element . any remaining arrangement fee is then allocated to the software license . this has the effect of allocating any sales discount inherent in the arrangement to the software license fee . certain of our software arrangements require significant customization and modification and involve extended implementation periods . these arrangements do not qualify for separate element revenue recognition treatment as described above , and instead must be accounted for under contract accounting . under contract accounting , companies must select from two generally accepted methods of accounting : the completed contract method and the percentage of completion method . the completed contract method recognizes revenue and costs upon contract completion , and all project costs and revenues are reported as deferred items in the balance sheet until that time . the percentage of completion method recognizes revenue and costs on a contract over time , as the work progresses . we have historically used the percentage of completion method of accounting for our long-term contracts , as we believe that we can make reasonably reliable estimates of progress toward completion . progress is measured based on labor hours , as measured at the end of each reporting period , as a percentage of total expected labor hours . accordingly , the revenue we record in any reporting period for arrangements accounted for on a percentage of completion basis is dependent upon our estimates of the remaining labor hours that will be incurred in fulfilling our contractual obligations . our estimates at the end of any reporting period could prove to be materially different from final project results , as determined only at subsequent stages of project completion . to mitigate this risk , we solicit the input of our project professional staff on a monthly basis , as well as at the end of each financial reporting period , for purposes of evaluating cumulative labor hours incurred and verifying the estimated remaining effort to completion ; this ensures that our estimates are always based on the most current projections available . non-software arrangements for arrangements governed by general revenue recognition literature , such as with our hosted or saas offerings or equipment and supplies only sales , we recognize revenue when four basic criteria are met . these criteria are similar to those governing software transactions : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the arrangement fee is fixed or determinable and collectability is reasonably assured .
| results of operations fiscal year ended june 30 , 2013 compared to fiscal year ended june 30 , 2012 segment information operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker , or decision making group , in deciding how to allocate resources and in assessing performance . our operating segments are organized principally by the type of product or service offered and by geography . similar operating segments have been aggregated into three reportable segments : payments and transactional documents , banking solutions and hosted solutions . during fiscal year 2013 we changed the internal reporting classification of certain operating lines and revised the methodology used for recording certain personnel related costs . to ensure a consistent presentation of the measurement of segment revenues and profit or loss , these changes are reflected for all periods presented . 37 the following tables represent our segment revenues and our segment measure of profit : replace_table_token_10_th a reconciliation of the measure of segment profit to our gaap ( loss ) income before the provision for income taxes is as follows : replace_table_token_11_th payments and transactional documents . the revenue increase for the fiscal year ended june 30 , 2013 compared to the prior fiscal year was primarily attributable to increases in software licenses revenue of $ 5.0 million , increases in professional services revenue of $ 3.7 million , increases in maintenance revenue of $ 2.9 million and increases in subscriptions and transactions revenue of $ 0.9 million partially offset by a decrease of $ 0.1 million in equipment and supplies revenue . the increases were primarily attributable to increased european revenue in our payment and document automation products as a result of our acquisition of albany .
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we operate as one reportable property and casualty insurance segment , offering a range of products and services , the most significant being commercial automobile and workers ' compensation insurance products . the term โ protective , โ as used throughout this management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) , refers to protective insurance corporation , the parent company . the terms the โ company , โ โ we , โ โ us โ and โ our , โ as used throughout this md & a , refer to protective and all of its subsidiaries , unless the context clearly indicates otherwise . the term โ insurance subsidiaries , โ as used throughout this md & a , refers to protective insurance company , protective specialty insurance company , sagamore insurance company and b & l insurance , ltd. effective august 1 , 2018 , we changed our name to protective insurance corporation to better align our holding company 's and insurance subsidiaries ' identities and to reflect our position within the insurance industry . effective january 1 , 2018 , we adopted accounting standards update ( `` asu '' ) 2016-01 , financial instruments - overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities , or asu 2016-01 , resulting in a cumulative-effect adjustment of $ 71.0 million ( $ 46.2 million , net of tax ) . this adjustment moved our historical unrealized gains and losses , net of tax , on our equity portfolio from accumulated other comprehensive income ( loss ) to retained earnings , but had no impact on overall shareholders ' equity . in addition , for 2018 and forward , the change in fair value for equity securities is required to be recognized in net earnings rather than in other comprehensive income ( loss ) . the impact to our consolidated statements of operations will vary depending upon the level of volatility in the performance of the securities held in our equity portfolio and the overall market . on december 22 , 2017 , the u.s. tax cuts and jobs act ( the `` u.s. tax act '' ) was signed into law , which lowered the u.s. corporate income tax rate from 35 % to 21 % effective january 1 , 2018. as a result , we recorded a tax benefit of $ 9.6 million related to the remeasurement of our deferred tax assets and liabilities at december 31 , 2017. as of december 31 , 2017 , the internal revenue service ( `` irs '' ) had not yet published all of the detailed regulations resulting from the enactment of the u.s. tax act ; therefore , while we had not completed our accounting for the tax effects , we made a reasonable estimate of the tax effects on our existing deferred tax balances at december 31 , 2017. we finalized our accounting for the tax effects of the u.s. tax act during 2018. no material adjustments to income tax expense ( benefit ) were recorded during 2018. on august 23 , 2019 , a.m. best company , inc. ( `` a.m. best '' ) affirmed our financial strength rating of `` a '' ( excellent ) . a.m. best continues to categorize our balance sheet as `` very strong '' and our operating performance as `` adequate , '' but its outlook remains negative . liquidity and capital resources the primary sources of our liquidity are ( 1 ) funds generated from insurance operations , including net investment income , ( 2 ) proceeds from the sale of investments , and ( 3 ) proceeds from maturing investments . we generally experience positive cash flow from operations . premiums are collected on insurance policies in advance of the disbursement of funds for payment of claims . operating costs of our property/casualty insurance subsidiaries , other than loss and loss expense payments and commissions paid to related agency companies , average less than one-third of net premiums earned on a consolidated basis and the remaining amount is available for investment for varying periods of time depending on the type of insurance coverage provided and the timing of the claim payments . because losses are often settled in periods subsequent to when they are incurred , operating cash flows may , at times , become negative as loss settlements on claim reserves established in prior years exceed current revenues . our cash flow relating to premiums is significantly affected by reinsurance programs in effect , whereby we cede both premium and risk to other insurance and reinsurance companies . these programs vary significantly among products and certain contracts call for reinsurance payment patterns , which do not coincide with the collection of premiums by us from our insureds . on august 31 , 2017 , our board of directors authorized the reinstatement of our share repurchase program for up to 2,464,209 shares of our class a or class b common stock . on august 6 , 2019 , our board of directors reaffirmed our share repurchase program , but also provided that the aggregate dollar amount of shares of our common stock that may be repurchased under the share repurchase program between august 6 , 2019 and august 6 , 2020 may not exceed $ 25.0 million and added a limit of no more than $ 6.25 million in repurchases per quarter . the repurchases may be made in the open market or through privately negotiated transactions , from time-to-time , and in accordance with applicable laws , rules and regulations . on december 30 , 2019 , we entered into a stock repurchase plan for the purpose of repurchasing up to $ 0.6 million of shares of our common stock , at various pricing thresholds , in accordance with guidelines specified under rule 10b5-1 of the securities exchange act of 1934 , as amended ( the `` rule 10b5-1 plan '' ) . story_separator_special_tag we maintain a revolving credit facility with a $ 40.0 million limit , with the option for up to an additional $ 35.0 million in incremental loans at the discretion of the lenders , which has an expiration date of august 9 , 2022. interest on this revolving credit facility is referenced to the london interbank offered rate ( `` libor '' ) and can be fixed for periods of up to one year at our option . outstanding drawings on this revolving credit facility were $ 20.0 million as of december 31 , 2019. at december 31 , 2019 , the effective interest rate was 2.88 % and we had $ 20.0 million remaining under the revolving credit facility . the current outstanding borrowings were used to repay our previous line of credit . our revolving credit facility has two financial covenants , each of which were met as of december 31 , 2019. these covenants require us to have a minimum u.s. generally accepted accounting principles ( `` gaap '' ) net worth and a maximum consolidated debt to equity ratio of 0.35. annualized net premiums written by our insurance subsidiaries for 2019 equaled approximately 120.7 % of the combined statutory surplus of these subsidiaries . according to the naic , acceptable ranges for the ratio of net premiums written to statutory surplus include results of up to 300 % . this ratio is designed to measure our ability to absorb above-average losses and our financial strength . additionally , t he statutory capital of each of our insurance subsidiaries substantially exceeded minimum risk-based capital requirements set by the naic as of december 31 , 2019. as a result , we have the ability to increase our business without seeking additional capital to meet regulatory guidelines . consolidated shareholders ' equity is composed largely of gaap shareholders ' equity of our insurance subsidiaries . as such , there are statutory restrictions on the transfer of substantial portions of this equity to protective . at december 31 , 2019 , $ 37.9 million may be transferred by dividend or loan to protective without approval by , or prior notification to , regulatory authorities . an additional $ 201.0 million of shareholders ' equity of our insurance subsidiaries could be advanced or loaned to protective with prior notification to , and approval from , regulatory authorities , although transfers of this size would not be practical . we believe these restrictions pose no material liquidity concerns for us . we also believe the financial strength and stability of our insurance subsidiaries would permit access by protective to short-term and long-term sources of credit when needed . protective had cash and marketable securities valued at $ 7.1 million at december 31 , 2019 . - 22 - non-gaap measures we believe investors ' understanding of our performance is enhanced by our disclosure of underwriting income ( loss ) , which is a measure that is not calculated in accordance with gaap . underwriting income ( loss ) represents the pre-tax profitability of our insurance operations and is derived by subtracting net realized and unrealized gains ( losses ) on investments and net investment income from income ( loss ) before federal income tax expense ( benefit ) . for 2018 , we also had a goodwill impairment charge , which was excluded from the calculation of 2018 underwriting income ( loss ) . we use underwriting income ( loss ) as an internal performance measure in the management of our operations because we believe it gives us and users of our financial information useful insight into our results of operations , our underlying business performance and our ongoing operating trends . underwriting income ( loss ) should not be viewed as a substitute for income ( loss ) before federal income tax expense ( benefit ) calculated in accordance with gaap , and other companies may define underwriting income ( loss ) differently . the ratio of consolidated other operating expenses , less commissions and other income , to net premiums earned , or our expense ratio , and the ratio of losses and loss expenses incurred , plus other operating expenses , less commissions and other income , to net premiums earned , or our combined ratio , are measures of our profitability that we believe increase the period-to-period comparability of our operational results . for 2018 , the goodwill impairment charge was excluded from other operating expenses when calculating our expense ratio and our combined ratio , as these ratios are intended to depict our underlying business performance and ongoing operating trends . our management uses these ratios to evaluate performance , allocate resources and forecast future operating periods . while expense ratios and combined ratios are widely used within our industry , our use of such ratios may not be directly comparable to similarly titled measures reported by other companies . replace_table_token_11_th - 23 - story_separator_special_tag losses and loss expenses incurred during 2018 increased $ 98.3 million ( 39.7 % ) to $ 345.9 million compared to $ 247.5 million in 2017. the loss ratio also increased to 79.9 % for 2018 compared to a loss ratio of 75.4 % for 2017. the loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned . the increased losses and loss expenses and loss ratio in 2018 reflected reserve adjustments of $ 16.8 million related to unfavorable prior accident year loss development in commercial automobile coverages . these unfavorable loss developments were the result of increased claim severity due to a more challenging litigation environment , as well as an unexpected increase in the time to settle claims leading to an unfavorable change in claim settlement patterns . the 2018 loss ratio also reflected an increase in current accident year losses driven by severe commercial automobile losses , including continued emergence of severity .
| results of operations 2019 compared to 2018 replace_table_token_12_th gross premiums written for 2019 decreased $ 7.6 million ( 1.3 % ) due to the non-renewal of unprofitable business during the year , while net premiums earned increased $ 14.4 million ( 3.3 % ) , as compared to 2018. the higher net premiums earned in 2019 were primarily the result of lower premiums ceded when compared to 2018 , as discussed below . the difference in the percentage change for premiums written compared to earned was reflective of the normal differences in the financial statement recognition of earned premiums compared to written , as well as differences in reinsurance ceding rates on the mix of business in-force . premiums ceded to reinsurers on our insurance business averaged 21.3 % of gross premiums written for 2019 compared to 23.7 % for 2018. during 2018 , we had reserve strengthening that resulted in ceding an additional $ 17.3 million in premium from prior treaty years related to the variable premium adjustment provisions in our historical reinsurance treaties . in comparison the 2019 period reflected the ceding of only an additional $ 1.6 million in commercial automobile premium from prior treaty years related to variable premium adjustment provisions in our historical reinsurance treaties . this was partially offset by higher gross premiums written in workers ' compensation coverages , which carry a higher reinsurance ceding rate in 2019 compared to 2018. losses and loss expenses incurred during 2019 increased $ 2.6 million ( 0.8 % ) to $ 348.5 million compared to $ 345.9 million in 2018 , while the loss ratio decreased to 77.9 % for 2019 compared to 79.9 % for 2018. the loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned . the increased losses and loss expenses incurred reflected an increase in current accident year losses driven by continued emergence of severity .
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finally , story_separator_special_tag overview the company is a savings and loan holding company headquartered in wilmington , delaware . substantially all of our assets are held by the company 's subsidiary , wilmington savings fund society , fsb ( wsfs bank of the bank ) , one of the ten oldest bank and trust companies continuously operating under the same name in the u.s. at nearly $ 7.0 billion in assets and $ 18.6 billion in assets under management ( aum ) and administration , wsfs bank is also the largest locally-managed bank and trust company headquartered in delaware and the delaware valley . as a federal savings bank , which was formerly chartered as a state mutual savings bank , the bank enjoys broader fiduciary powers than most other financial institutions . a fixture in the community , the bank has been in operation for more than 185 years . in addition to its focus on stellar customer experiences , the bank has continued to fuel growth and remain a leader in our community . we are a relationship-focused , locally-managed banking institution . we state our mission simply : โ we stand for service. โ our strategy of โ engaged associates delivering stellar experiences growing customer advocates and value for our owners โ focuses on exceeding customer expectations , delivering stellar experiences and building customer advocacy through highly-trained , relationship-oriented , friendly , knowledgeable and empowered associates . we have five consolidated subsidiaries : wsfs bank , wsfs wealth management , llc ( powdermill ) , wsfs capital management , llc ( west capital ) , cypress capital management , llc ( cypress ) and christiana trust company of delaware ( christiana trust de ) . we also have one unconsolidated subsidiary , wsfs capital trust iii ( the trust ) . wsfs bank has three wholly-owned subsidiaries : wsfs wealth investments , 1832 holdings , inc. and monarch entity services llc ( monarch ) . our core banking business is commercial lending primarily funded by customer-generated deposits , which primarily generates net interest income . we have built a $ 4.0 billion commercial loan portfolio by recruiting the best seasoned commercial lenders in our markets and offering the high level of service and flexibility typically associated with a community bank . we fund this business primarily with deposits generated through commercial relationships and retail deposits . as of december 31 , 2017 , we service our customers primarily from our 76 offices located in delaware ( 46 ) , pennsylvania ( 28 ) , virginia ( 1 ) and nevada ( 1 ) and through our website at www.wsfsbank.com . we also offer a broad variety of consumer loan products , retail securities and insurance brokerage services through our retail branches and mortgage and title services through those branches and through pennsylvania-based wsfs mortgage . wsfs mortgage is a mortgage banking company and abstract and title company specializing in a variety of residential mortgage and refinancing solutions . our cash connect ยฎ segment is a premier provider of atm vault cash , smart safe and other cash logistics services in the u.s. it manages $ 970.1 million in total cash and services approximately 23,000 non-bank atms and approximately 1,600 smart safes nationwide . cash connect ยฎ provides related services such as online reporting and atm cash management , predictive cash ordering , armored carrier management , atm processing equipment sales and deposit safe cash logistics . cash connect ยฎ also operates 440 atms for the bank , which has the largest branded atm network in delaware . as a provider of atm vault cash to the u.s. atm industry , cash connect ยฎ is exposed to substantial operational risk , including theft of cash from atms , armored vehicles , or armored carrier terminals , as well as general risk of accounting errors or fraud . this risk is managed through a series of financial controls , automated tracking and settlement systems , contracts , and other risk mitigation strategies , including both loss prevention and loss recovery strategies . throughout its 17-year history , cash connect ยฎ periodically has been exposed to theft from armored courier companies and consistently has been able to recover losses through its risk management strategies , although there can be no guarantees that we will be able to recover future losses . our wealth management segment provides a broad array of fiduciary , investment management , credit and deposit products to clients through six businesses , and primarily generates non-interest income . wsfs wealth investments provides insurance and brokerage products primarily to our retail banking clients . cypress is a registered investment adviser with $ 901.5 million in aum ( includes $ 146.9 million of christiana trust assets for which cypress serves as sub-adviser ) . cypress ' primary market segment is high net worth individuals , offering a โ balanced ' investment style focused on preservation of capital and providing current income . west capital , a registered investment adviser with approximately $ 861.2 million in aum , is a fee-only wealth management firm which operates under a multi-family office philosophy and provides fully-customized solutions tailored to the unique needs of institutions and high net worth individuals . christiana trust , with $ 16.8 billion in aum and administration ( includes $ 146.9 million of christiana trust assets for which cypress serves as sub-adviser ) , provides fiduciary and investment services to personal trust clients , and trustee , agency , bankruptcy , administration , custodial and commercial domicile services to corporate and institutional clients . powdermill is a multi-family office that specializes in providing unique , independent solutions to high net worth individuals , families and corporate executives through a coordinated , centralized approach . wsfs private banking serves high net worth clients by delivering credit and deposit products and partnering with other business units to deliver investment management and fiduciary products and services . story_separator_special_tag the company 's management believes that these non-gaap measures provide a useful understanding of ongoing operations , enhance comparability of results of operations with prior periods and show the effects of significant gains and changes in the periods presented . the company 's management believes that investors may use these non-gaap measures to analyze the company 's performance without the impact of unusual items or events that may obscure trends in the company 's underlying performance . this non-gaap data should be considered in addition to results prepared in accordance with gaap , and is not a substitute for , or superior to , gaap results . adjusted non-interest expense excludes ( i ) a $ 12.0 million charge for the settlement of a legal claim brought by universitas , ( ii ) a significant and unusual fraud loss previously disclosed on form 8-k filed on june 26 , 2017 , ( iii ) a $ 1.5 million contribution to the wsfs foundation , ( iv ) costs to redeem the 2012 senior notes in the third quarter of 2017 , and ( v ) corporate development costs . the increase of $ 28.4 million in adjusted noninterest expense in 2017 was mainly due to higher compensation to support franchise growth and higher operating and funding costs including higher partner costs and investment in new features in our cash connect ยฎ division . this increase was partially offset by a decrease in corporate development costs . contributing to the $ 22.9 million increase in adjusted noninterest expense in 2016 was ongoing operating costs from the addition of penn liberty , powdermill , and west capital as well as the full year impact of the acquisition of alliance in october 2015. also contributing to the increase was higher compensation and related costs due to added staff to support the company 's overall growth . income taxes we recorded $ 58.2 million of income tax expense for the year ended december 31 , 2017 compared to income tax expense of $ 33.1 million and $ 30.3 million for the years ended december 31 , 2016 and 2015 , respectively . the effective tax rates for the years ended december 31 , 2017 , 2016 and 2015 were 53.7 % , 34.0 % , and 36.1 % , respectively . the higher tax expense and effective tax rates in 2017 were due to a re-measurement of our deferred tax asset resulting from the tax reform act and the tax impact of our decision to surrender our boli policies in 2018. volatility in effective tax rates is also impacted by the level of pretax income or loss , combined with the amount of tax-free income as well as the effects of stock compensation tax benefits , consistent with our adoption during 2016 of asu 2016-09 , improvements to employee share-based payment accounting , compensation - stock compensation , compensation - stock compensation ( topic 718 ) . the provision for income taxes includes federal , state and local income taxes that are currently payable or deferred because of temporary differences between the financial reporting basis and the tax reporting basis of the assets and liabilities . for additional information , including the impact of the tax reform act on the 2017 effective tax rate , see note 14 to the consolidated financial statements . 44 segment information for financial reporting purposes , our business has three reporting segments : wsfs bank , cash connect ยฎ , and wealth management . the wsfs bank segment provides loans and other financial products to commercial and retail customers . cash connect ยฎ provides atm vault cash , smart safe and other cash logistics services in the u.s through strategic partnerships with several of the largest networks , manufacturers and service providers in the atm industry . the wealth management segment provides a broad array of fiduciary , investment management , credit and deposit products to clients . wsfs bank segment the wsfs bank segment income before taxes increased $ 19.0 million or 24 % , in 2017 compared to 2016 due primarily to an increase in external net interest income of $ 27.2 million or 15 % , reflecting strong organic and acquisition-related growth , continued optimization of our balance sheet mix , and continued strong performance in our purchased loan portfolio . the increase in net interest income was partially offset by an increase in external operating expenses of $ 12.4 million or 8 % , primarily driven by higher costs for compensation expense to support the growth of the business , higher infrastructure costs also associated with business growth , and a $ 1.2 million increase in the provision for loan losses , primarily driven by overall portfolio growth . the wsfs bank segment income before taxes grew $ 14.4 million or 23 % , in 2016 compared to 2015 due primarily to an increase in external net interest income of $ 39.4 million or 19 % , reflecting positive performance in our portfolio of purchased loans , improvement in our balance sheet mix , and strong organic and acquisition growth . the increase in net interest income was partially offset by an increase in external operating expenses of $ 17.4 million or 13 % , primarily driven by increased compensation expense tied to organic and acquisition growth as well as improved core performance and a $ 1.9 million increase in the provision for loan losses , primarily driven by our exit of a substandard commercial and industrial relationship and the associated charge-off . also contributing to the increase in operating expenses were increased costs to support the infrastructure from the segment 's significant organic and acquisition growth .
| results of operations we recorded net income of $ 50.2 million , or $ 1.56 per diluted common share , for the year ended december 31 , 2017 , a decrease of $ 13.8 million compared to $ 64.1 million , or $ 2.06 per diluted common share , for the year ended december 31 , 2016 . results for 2017 were impacted by the enactment of the tax cuts and jobs act ( tax reform act ) in december 2017 , which required us to re-measure our deferred tax asset , resulting in a tax charge of $ 14.5 million in the quarter ended december 31 , 2017. additionally and related to this tax change , we decided to surrender all of our bank-owned life insurance ( boli ) policies in 2018 , resulting in an additional tax charge of $ 8.0 million for the quarter ended december 31 , 2017 , and we also contributed $ 1.5 million ( pre-tax ) to the wsfs foundation in the same quarter . further , as discussed above , during the first quarter of 2018 , we agreed to settle a litigation matter which resulted in legal expense of $ 12.0 million recorded in the fourth quarter of 2017. finally , in 2017 we had corporate development costs of $ 0.9 million compared to $ 8.5 million of similar costs in 2016 . net interest income for the year ended december 31 , 2017 was $ 221.3 million , an increase of $ 27.5 million compared to 2016. our provision for loan losses decrease d $ 2.0 million in 2017 , primarily due to improving economic conditions resulting in lower required reserves and net charge-offs compared to 2016 . noninterest , or fee income , increase d $ 19.6 million primarily due to increased investment management and fiduciary revenue and growth in credit/debit card and atm income .
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the core principal of the new guidance is that an entity should recognize revenue when it transfers 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 . the guidance also requires additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . on july 9 , 2015 , the fasb decided to delay the story_separator_special_tag introduction the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in item 8 of this annual report . in addition , please see ยinformation regarding non-gaap measures and otherย beginning on page 29 for a reconciliation of the non-gaap measures for adjusted total revenues , organic commission , fee and supplemental commission revenues and adjusted ebitdac to the comparable gaap measures , as well as other important information regarding these measures . we are engaged in providing insurance brokerage and third-party property/casualty claims settlement and administration services to entities in the u.s. and abroad . we believe that one of our major strengths is our ability to deliver comprehensively structured insurance and risk management services to our clients . our brokers , agents and administrators act as intermediaries between insurers and their customers and we do not assume underwriting risks . we are headquartered in itasca , illinois , have operations in 30 other countries and offer client-service capabilities in more than 150 countries globally through a network of correspondent brokers and consultants . in 2015 , we expanded , and expect to continue to expand , our international operations through both acquisitions and organic growth . we generate approximately 68 % of our revenues for the combined brokerage and risk management segments domestically , with the remaining 32 % derived internationally , primarily in australia , bermuda , canada , the caribbean , new zealand and the u.k. ( based on 2015 revenues ) . we expect that our international revenue will continue to grow as a percentage of our total revenues in 2016 compared to 2015 , given the number and size of the non-u.s. acquisitions that we completed in 2013 , 2014 and 2015. we have three reportable segments : brokerage , risk management and corporate , which contributed approximately 62 % , 13 % and 25 % , respectively , to 2015 revenues . our major sources of operating revenues are commissions , fees and supplemental and contingent commissions from brokerage operations and fees from risk management operations . investment income is generated from invested cash and fiduciary funds , clean energy and other investments , and interest income from premium financing . this management 's discussion and analysis of financial condition and results of operations contains certain statements relating to future results which are forward-looking statements as that term is defined in the private securities litigation reform act of 1995. please see ยinformation concerning forward-looking statementsย in part i of this annual report , for certain cautionary information regarding forward-looking statements and a list of factors that could cause our actual results to differ materially from those predicted in the forward-looking statements . story_separator_special_tag exposures , resulting in higher overall premiums and higher commissions . however , the impact of hard and soft market fluctuations has historically had a greater impact on changes in premium rates , and therefore on our revenues , than inflationary pressures . the first quarter 2015 council of insurance agents & brokers ( which we refer to as the ciab ) survey indicated that rates retracted modestly by 2.3 % on average , across all lines , which was in line with the basically flat to slightly lower rate trend noted in the fourth quarter 2014 survey . the second quarter 2015 ciab survey indicated that rates retracted by 3.3 % on average , across all lines , continuing the downward trend from the first quarter 2015 survey . the third quarter 2015 ciab survey indicated that rates retracted by 3.1 % on average , across all lines , continuing the downward trend from the second quarter 2015 survey . the fourth quarter 2015 ciab survey indicated that 2015 closed as it began , with continued decreases in commercial property casualty rates across small , medium and large accounts . rates decreased by 2.8 % , on average , across all lines . large accounts experienced a decrease of 3.7 % , medium accounts decreased by 3.0 % and small accounts decreased by 1.5 % . in 2016 , while we see retail property/casualty rates as a headwind , we do see property/casualty exposure growth offsetting this partially . we also see employment growth and complexity surrounding the affordable care act as tailwinds for our employee benefit units . in addition , our history of strong new business generation , solid retentions and enhanced value-added services for our carrier partners should all result in further organic growth opportunities around the world . we believe similar conditions exist as we start the january 1 , 2016 renewal season . internationally , we see a similar market in u.k. retail and in canada , but substantially more softening in london specialty , australia and new zealand . overall , we believe a modestly-down rate environment can be partially mitigated through exposure unit growth in certain lines and by our professionals demonstrating our expertise and high quality value added capabilities by strengthening our clients ' insurance portfolio in these times . based on our experience , insurance carriers appear to be making rational pricing decisions . in lines and accounts where rate increases or decreases are warranted , the underwriters are pricing accordingly . as carriers reach their profitability targets in lines , rates may start to flatten . story_separator_special_tag we establish the allowance for estimated policy cancellations through a charge to revenues and the allowance for doubtful accounts through a charge to other operating expenses . both of these allowances are based on estimates and assumptions using historical data to project future experience . such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein . we periodically review the adequacy of these allowances and make adjustments as necessary . in may 2014 , the financial accounting standards board ( which we refer to as the fasb ) issued new accounting guidance on revenue from contracts with customers , which will supersede nearly all existing revenue recognition guidance under u.s. gaap . see note 2 to our consolidated financial statements for a discussion of the new accounting guidance . income taxes - our tax rate reflects the statutory tax rates applicable to our taxable earnings and tax planning in the various jurisdictions in which we operate . significant judgment is required in determining the annual effective tax rate and in evaluating uncertain tax positions . we report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in our tax return . we evaluate our tax positions using a two-step process . the first step involves recognition . we determine whether it is more likely than not that a tax position will be sustained upon tax examination based solely on the technical merits of the position . the technical merits of a tax position are derived from both statutory and judicial authority ( legislation and statutes , legislative intent , regulations , rulings and case law ) and their applicability to the facts and circumstances of the position . if a tax position does not meet the ยmore likely than notย recognition threshold , we do not recognize the benefit of that position in the financial statements . the second step is measurement . a tax position that meets the ยmore likely than notย recognition threshold is measured to determine the amount of benefit to recognize in the financial statements . the tax position is measured as the largest amount of benefit that has a likelihood of greater than 50 % of being realized upon ultimate resolution with a taxing authority . 27 uncertain tax positions are measured based upon the facts and circumstances that exist at each reporting period and involve significant management judgment . subsequent changes in judgment based upon new information may lead to changes in recognition , derecognition and measurement . adjustments may result , for example , upon resolution of an issue with the taxing authorities , or expiration of a statute of limitations barring an assessment for an issue . we recognize interest and penalties , if any , related to unrecognized tax benefits in our provision for income taxes . see note 16 to our consolidated financial statements for a discussion regarding the possibility that our gross unrecognized tax benefits balance may change within the next twelve months . tax law requires certain items to be included in our tax returns at different times than such items are reflected in the financial statements . as a result , the annual tax expense reflected in our consolidated statements of earnings is different than that reported in the tax returns . some of these differences are permanent , such as expenses that are not deductible in the returns , and some differences are temporary and reverse over time , such as depreciation expense and amortization expense deductible for income tax purposes . temporary differences create deferred tax assets and liabilities . deferred tax liabilities generally represent tax expense recognized in the financial statements for which a tax payment has been deferred , or expense which has been deducted in the tax return but has not yet been recognized in the financial statements . deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which a benefit has already been recorded in the financial statements . we establish or adjust valuation allowances for deferred tax assets when we estimate that it is more likely than not that future taxable income will be insufficient to fully use a deduction or credit in a specific jurisdiction . in assessing the need for the recognition of a valuation allowance for deferred tax assets , we consider whether it is more likely than not that some portion , or all , of the deferred tax assets will not be realized and adjust the valuation allowance accordingly . we evaluate all significant available positive and negative evidence as part of our analysis . negative evidence includes the existence of losses in recent years . positive evidence includes the forecast of future taxable income by jurisdiction , tax-planning strategies that would result in the realization of deferred tax assets and the presence of taxable income in prior carryback years . the underlying assumptions we use in forecasting future taxable income require significant judgment and take into account our recent performance . the ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences are deductible or creditable . intangible assets/earnout obligations - intangible assets represent the excess of cost over the estimated fair value of net tangible assets of acquired businesses . our primary intangible assets are classified as either goodwill , expiration lists , non-compete agreements or trade names . expiration lists , non-compete agreements and trade names are amortized using the straight-line method over their estimated useful lives ( three to fifteen years for expiration lists , three to five years for non-compete agreements and five to fifteen years for trade names ) , while goodwill is not subject to amortization . the establishment of goodwill , expiration lists , non-compete agreements and trade names and the determination of estimated useful lives are primarily based on valuations we receive from qualified independent appraisers .
| overview and 2015 financial highlights we have generated positive organic growth in the last nineteen quarterly periods in both our brokerage and risk management segments . we believe our customers are cautiously optimistic about their business prospects . our operating results improved in 2015 compared to 2014 in both our brokerage and risk management segments : in our brokerage segment , total revenues and adjusted total revenues were up 15 % and 19 % , respectively , base organic commission and fee revenues were up 3.3 % , net earnings were up 2 % , adjusted ebitdac was up 22 % and adjusted ebitdac margins were up 70 basis points . in our risk management segment , total revenues and adjusted total revenues were up 7 % and 10 % , respectively , organic fees were up 11.3 % , net earnings were up 36 % , adjusted ebitdac was up 18 % and adjusted ebitdac margins were up 130 basis points . in our combined brokerage and risk management segments , total revenues and adjusted total revenues were both up 17 % , total organic growth was 5.1 % , net earnings were up 6 % , adjusted ebitdac was up 22 % and adjusted ebitdac margins increased by 92 basis points . our acquisition program and our integration efforts are meeting our expectations . during the fourth quarter of 2015 , the brokerage segment completed 15 acquisitions with annualized revenues of $ 46.3 million , bringing the total for 2015 to 44 acquisitions with annualized revenues of $ 230.8 million . in our corporate segment , the net after tax earnings from our clean energy investments was $ 100.9 million in 2015. we anticipate our clean energy investments will generate between $ 110.0 million and $ 124.0 million of net earnings in 2016. we expect to use these additional earnings to continue our mergers and acquisition strategy in our core brokerage and risk management operations .
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the market rate relative to the borrower 's credit risk is determined through analysis of market pricing information gathered from peers and use of a loan pricing model . the general objective of the model is to achieve a consistent return on equity from one credit to the next , taking into consideration differences in credit risk . in the model , credits with higher risk receive a higher potential loss allocation , and therefore require a higher interest rate to achieve the target return on equity . as with other impaired loans , an story_separator_special_tag management 's discussion and analysis of results of operations and financial condition contains forward-looking statements . please refer to the discussion of forward-looking statements at the beginning of this report . the following section presents additional information to assess our results of operations and financial condition . this section should be read in conjunction with the consolidated financial statements and the supplemental financial data contained elsewhere in this report . overview macatawa bank corporation is a michigan corporation and a registered bank holding company . it wholly-owns macatawa bank , macatawa statutory trust i and macatawa statutory trust ii . macatawa bank is a michigan chartered bank with depository accounts insured by the fdic . the bank operates twenty-six branch offices and a lending and operational service facility , providing a full range of commercial and consumer banking and trust services in kent county , ottawa county , and northern allegan county , michigan . macatawa statutory trusts i and ii are grantor trusts and have issued $ 20.0 million each of pooled trust preferred securities . these trusts are not consolidated in our consolidated financial statements . for further information regarding consolidation , see the notes to the consolidated financial statements . at december 31 , 2018 , we had total assets of $ 1.98 billion , total loans of $ 1.41 billion , total deposits of $ 1.68 billion and shareholders ' equity of $ 190.9 million . we recognized net income of $ 26.4 million in 2018 compared to net income of $ 16.3 million in 2017. earnings in 2017 were reduced by $ 2.5 million to record the impact of tax reform enacted in 2017 on the value of the company 's net deferred tax assets . earnings before income tax in 2018 and 2017 improved over their respective previous years through growth in total revenue , primarily net interest income , while holding noninterest expenses stable . as of december 31 , 2018 , the company 's and the bank 's risk-based regulatory capital ratios were significantly above those required under the regulatory standards and the bank continued to be categorized as โ well capitalized โ at december 31 , 2018. the company paid a cash dividend of $ 0.04 per share for the first and second quarters of 2017 and increased to $ 0.05 per share for the third and fourth quarters of 2017. the company increased the dividend to $ 0.06 per share for the first , second and third quarters of 2018 , and to $ 0.07 per share for the fourth quarter of 2018. over the past several years , much progress has been made at reducing our nonperforming assets . the following table reflects period end balances of these nonperforming assets as well as total loan delinquencies . replace_table_token_14_th we recorded a provision for loan losses of $ 450,000 in 2018 due to loan portfolio growth and net charge-offs during the year . our earnings in 2017 were favorably impacted by negative provision for loan losses of $ 1.35 million . the negative provision in 2017 was impacted by recoveries from our collection efforts and a continual decline in our historical charge-off levels from prior years . while we had net charge-offs in 2018 , it followed five consecutive full years of net recoveries . the following table reflects the provision for loan losses for the past five years along with certain metrics that impact the determination of the level of the provision for loan losses . replace_table_token_15_th - 24 - economic conditions in our market areas of grand rapids and holland have been good during the past several years . the state of michigan 's unemployment rate at the end of 2018 was 3.9 % . the grand rapids and holland area unemployment rate was 2.5 % at the end of 2018. residential housing values and commercial real estate property values have increased in recent years . it also appears that the housing market in our primary market area continues to be strong . in the grand rapids market during 2018 , living unit starts were consistent with levels experienced over the past five years . the holland-grand haven/lakeshore region showed similar results . we experienced strong commercial loan growth in recent years . most of our emphasis has been on growing commercial and industrial loans . these loans have increased steadily from $ 449.3 million at december 31 , 2016 to $ 513.3 million at december 31 , 2018. commercial real estate loans have increased from $ 449.3 million at december 31 , 2016 to $ 568.7 million at december 31 , 2018. consumer loans have increased from $ 313.5 million at december 31 , 2016 to $ 323.6 million at december 31 , 2018. we believe we are positioned for continued loan growth in 2019. results of operations summary : net income was $ 26.4 million ( $ 32.4 million on a pretax basis ) for 2018 , compared to $ 16.3 million ( $ 27.0 million on a pretax basis ) for 2017. earnings per common share on a diluted basis was $ 0.78 for 2018 and $ 0.48 for 2017. generally , the improvement in company earnings was the result of strong growth in revenue while expenses have increased at a much lower rate or have been reduced . story_separator_special_tag our low levels of charge-offs and net recoveries in recent years were attributable to positive results from our active collection efforts . our overall commercial loan grade has stabilized and has been below 4.00 for the past several years . our weighted average commercial loan grade was 3.68 at december 31 , 2018 and 3.74 at december 31 , 2017. our loan grade improvement has also been a contributing factor to allowing for the reduction in the level of the allowance for loan losses . the amounts of loan loss provision in each period were the result of establishing our allowance for loan losses at levels believed necessary based upon our methodology for determining the adequacy of the allowance . the sustained level of net recoveries over the past several years has had a significant effect on the historical loss component of our methodology . more information about our allowance for loan losses and our methodology for establishing its level may be found in this item 7 of this report under the heading โ allowance for loan losses โ below and in item 8 of this report in note 3 of the consolidated financial statements . noninterest income : noninterest income totaled $ 17.5 million in 2018 compared to $ 17.4 million in 2017. the components of noninterest income are shown in the table below ( in thousands ) : replace_table_token_18_th revenue from deposit services was $ 4.4 million in 2018 compared to $ 4.5 million in 2017. the decrease from 2017 to 2018 was due primarily to lower levels of overdraft fee income and business account fee income . while gross fee income on business accounts increased due to growth in balances , the earnings credit offset to those fees , earned by our customers through holding high balances , increased by slightly more than the gross fees . - 27 - net gains on mortgage loans included gains on the sale of real estate mortgage loans in the secondary market . we sell the majority of the fixed-rate mortgage loans we originate . we do not retain the servicing rights for the loans we sell . a summary of gain on sales of loans and related loan volume was as follows ( in thousands ) : replace_table_token_19_th as demonstrated in the table above , volume of mortgage loans originated for sale was down significantly in 2018 compared to 2017. rising interest rates over the past three years have significantly impacted mortgage sale production volume . during 2018 , more of our mortgage production volume was in products we retain in portfolio than in prior years , also contributing to the reduction in gains on sales of mortgage loans in 2018. in addition , during the past three years , we have seen a shift in our mortgage production from refinance activity to purchase activity . trust service revenue increased $ 366,000 in 2018. this increase was due to growth in our trust service customer base and improvements in general market conditions through most of 2018. atm and debit card processing income increased $ 328,000 in 2018 to $ 5.5 million compared to $ 5.2 million in 2017. this increase reflected a continued increase in usage from current customers and overall growth in the number of debit and atm card customers . promotional efforts to increase volume in these low cost transaction alternatives continued to be successful . our uchoose rewards program also continued to have a positive impact on this income . we did not sell any securities in 2018 and sold securities resulting in net gains of $ 3,000 in 2017. the sales in 2017 were done to reposition certain holdings in our investment portfolio in response to changes in market rates during the year . we continually review our securities portfolio and will dispose of securities that pose higher than desired credit or market risk . other categories of noninterest income totaled $ 3.0 million in 2018 and $ 2.9 million in 2017. earnings from bank owned life insurance decreased by $ 27,000 in 2018 compared to 2017 due to general decline in the performance of the underlying investments . ore rental income was $ 500,000 in 2018 compared to $ 507,000 in 2017. the year over year changes were a result of changes in rental arrangements on some of these properties . - 28 - noninterest expense : noninterest expense was $ 44.3 million in 2018 and $ 43.7 million in 2017. the limited increase in total noninterest expense reflected our active management of controllable costs . the components of noninterest expense are shown in the table below ( in thousands ) : replace_table_token_20_th salaries and benefit expense was the largest component of noninterest expense and was $ 25.2 million in 2018 and $ 24.8 million in 2017. the increase in 2018 was primarily driven by salary and wage performance adjustments , higher medical and dental insurance costs and an increase in retirement benefit costs in 2018. costs associated with nonperforming assets remained at low levels , totaling $ 69,000 in 2018 and $ 65,000 in 2017. these costs included legal costs , repossessed and foreclosed property administration expense and losses ( gains ) on repossessed and foreclosed properties . repossessed and foreclosed property administration expense included survey and appraisal , property maintenance and management and other disposition and carrying costs . losses on repossessed and foreclosed properties included both net gains and losses on the sale of properties and unrealized losses from value declines for outstanding properties .
| summary : total assets were $ 1.98 billion at december 31 , 2018 , an increase of $ 84.9 million from $ 1.89 billion at december 31 , 2017. this change reflected increases of $ 9.8 million in cash and cash equivalents , $ 6.3 million in securities available for sale , $ 85.3 million in our loan portfolio and $ 941,000 in bank owned life insurance , partially offset by a decrease of $ 15.5 million in securities held to maturity and $ 1.8 million in other real estate owned . total deposits increased by $ 97.7 million and other borrowed funds were down by $ 32.1 million at december 31 , 2018 compared to december 31 , 2017. total shareholders ' equity increased by $ 17.9 million from december 31 , 2017 to december 31 , 2018. shareholders ' equity was increased by $ 26.4 million of net income in 2018 , partially offset by cash dividends of $ 8.5 million , or $ 0.25 per share . shareholders ' equity also decreased by $ 733,000 in 2018 as a result of a swing in accumulated other comprehensive income due to the effect of interest rate movement on the fair value of our available for sale securities portfolio . as of december 31 , 2018 and 2017 , the bank was categorized as โ well capitalized โ under applicable regulatory guidelines . cash and cash equivalents : our cash and cash equivalents , which include federal funds sold and short-term investments , were $ 171.3 million at december 31 , 2018 compared to $ 161.5 million at december 31 , 2017. this $ 9.8 million increase was primarily due to growth in year-end deposits which outpaced growth in loans and investments . securities : securities available for sale were $ 227.0 million at december 31 , 2018 compared to $ 220.7 million at december 31 , 2017. the balance at december 31 , 2018 primarily consisted of u.s.
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see ยforward-looking statementsย and ยitem 1a ย risk factors.ย overview central garden & pet company is a leading innovator , marketer and producer of quality branded products . we are one of the largest suppliers in the pet and lawn and garden supplies industries in the united states . the total pet industry is estimated to be approximately $ 30 billion in annual retail sales . we estimate the annual retail sales of the pet supplies and super-premium pet food markets in the categories in which we participate to be approximately $ 15 billion . the total lawn and garden industry in the united states is estimated to be approximately $ 21 billion in annual retail sales . we estimate the annual retail sales of the lawn and garden supplies markets in the categories in which we participate to be approximately $ 6 billion . our pet supplies products include products for dogs and cats , including edible bones , premium healthy edible and non-edible chews , super premium dog and cat food and treats , toys , pet carriers , grooming supplies and other accessories ; products for birds , small animals and specialty pets , including food , cages and habitats , toys , chews and related accessories ; animal and household health and insect control products ; products for fish , reptiles and other aquarium-based pets , including aquariums , furniture and lighting fixtures , pumps , filters , water conditioners , food and supplements , and information and knowledge resources ; and products for horses and livestock . these products are sold under a number of brand names including adamsย , altosid , aqueon ยฎ , avoderm ยฎ , biospot ยฎ , coralife ยฎ , farnam ยฎ , four paws ยฎ , interpet , kaytee ยฎ , kent marine ยฎ , nylabone ยฎ , oceanic systems ยฎ , pet select ยฎ , pre strike ยฎ , pinnacle ยฎ , super pet ยฎ , tfh tm , zilla ยฎ and zodiac ยฎ . our lawn and garden products include proprietary and non-proprietary grass seed ; wild bird feed , bird feeders , bird houses and other birding accessories ; weed , grass , ant and other herbicide , insecticide and pesticide products ; and decorative outdoor lifestyle and lighting products including pottery , trellises and other wood products and holiday lighting . these products are sold under a number of brand names including : amdro ยฎ , gki/bethlehem lighting ยฎ , grant 's ยฎ , ironite ยฎ , lilly miller ยฎ , matthews four seasons tm , new england pottery ยฎ , norcal pottery ยฎ , pennington ยฎ , over-n-out ยฎ , sevin ยฎ , smart seed ยฎ and the rebels ยฎ . in fiscal 2012 , our consolidated net sales were $ 1.7 billion , of which our pet segment accounted for approximately $ 931 million and our garden segment accounted for approximately $ 769 million . fiscal 2012 included an extra week as compared to fiscal 2011. in fiscal 2012 , our branded product sales were approximately $ 1.4 billion , or approximately 84 % of total sales , sales of other manufacturers ' products were approximately 16 % of total sales , and our gross profit margins were 30.2 % . in fiscal 2012 , our income from operations was $ 74 million , of which our pet segment accounted for $ 88 million and our garden segment accounted for $ 40 million , before corporate expenses and eliminations of $ 54 million . recent developments fiscal 2012 operating performance . although we experienced increased sales in fiscal 2012 , rising input costs , a change in sales mix , operational disruptions and increased costs associated with our transformational change initiatives , and unfavorable weather resulted in increased expenses and continuing pressure on gross margins . financial summary : net sales for fiscal 2012 increased $ 71.4 million , or 4.4 % , to $ 1.7 billion . our pet segment increased 9.3 % , partially offset by a 1.0 % decrease in our garden segment . 31 gross margin decreased 10 basis points in fiscal 2012 to 30.2 % , from 30.3 % in 2011. selling , general & administrative expenses increased $ 31.0 million , or 7.6 % , to $ 439.7 million in fiscal 2012 , and increased as a percentage of net sales to 25.9 % from 25.1 % . the increase was due primarily to increased selling and delivery expense . net earnings for fiscal 2012 were $ 21.2 million , or $ 0.44 per share on a diluted basis , a decrease of $ 7.1 million and $ 0.06 per share on a diluted basis , compared to fiscal 2011. we generated cash flows from operating activities of approximately $ 89.2 million during fiscal 2012 , an increase of approximately $ 38.2 million from fiscal 2011. our cash and short term investments at september 29 , 2012 were approximately $ 71.2 million , compared with $ 29.9 million at september 24 , 2011. repurchase of company stock . ย during fiscal 2012 , we repurchased $ 20.9 million of our common stock which consisted of 0.7 million shares of our voting common stock ( cent ) at an aggregate cost of approximately $ 5.6 million , or approximately $ 8.02 per share , and 1.9 million shares of our non-voting class a common stock ( centa ) at an aggregate cost of approximately $ 15.3 million , or approximately $ 8.05 per share . during fiscal 2011 , our board of directors authorized a new $ 100 million share repurchase program , under which approximately $ 52 million remains available for repurchases in fiscal 2013 and thereafter . transformational change . ย in fiscal 2012 , we continued the process of transformational change we embarked upon in fiscal 2011 , consisting of a comprehensive series of organizational and operational initiatives intended to improve our sales and marketing , profitability and operational effectiveness . we expect to continue these initiatives over the next several years . story_separator_special_tag the notes are part of a series of 8.25 % senior subordinated notes due 2018 issued by the company in march 2010. our average interest rates for fiscal 2012 and 2011 were 8.2 % and 8.1 % , respectively . debt outstanding on september 29 , 2012 was $ 449.8 million compared to $ 435.6 million as of september 24 , 2011. other income other income increased $ 0.1 million from $ 0.6 million in fiscal 2011 to $ 0.7 million in fiscal 2012. while the majority of the amounts in both fiscal 2012 and fiscal 2011 are related to earnings from investments accounted for under the equity method investment of accounting , the increase was primarily due to lower foreign exchange losses . income taxes our effective income tax rate in fiscal 2012 decreased to 36.7 % , compared to 40.8 % in fiscal 2011 due primarily to increased tax valuation allowances in fiscal 2011 . 35 fiscal 2011 compared to fiscal 2010 net sales net sales for fiscal 2011 increased $ 105.0 million , or 6.9 % , to $ 1,628.6 million from $ 1,523.6 million in fiscal 2010. the increase was due to a $ 114.7 million , or 9.1 % , increase in our branded product sales offset by a $ 9.7 million , or 3.7 % , decrease in the sales of other manufacturers ' products . branded product sales include products we manufacture under central brand names and products we manufacture under third-party brands . sales of our branded products represented 84 % of our total sales in fiscal 2011. our pet segment 's net sales for fiscal 2011 increased $ 10.8 million , or 1.3 % , to $ 851.3 million from $ 840.5 million in fiscal 2010. in fiscal 2011 , pet branded product sales increased $ 10.4 million and sales of other manufacturers ' products increased $ 0.4 million as compared with fiscal 2010. the increase in sales was due primarily to increased sales of approximately $ 4.9 million in wild bird feed and $ 4.4 of aquatic products . the sales increase in wild bird feed was price driven while the increase in aquatic products was volume driven . our pet health products decreased slightly due primarily to decreased sales of our flea , tick and mosquito products partially offset by increased sales of lower margin products such as rodenticide and dewormer products . the decrease in our flea and tick business was due primarily to the competition from generic fipronil and unfavorable weather . our garden segment 's net sales for fiscal 2011 increased $ 94.2 million , or 13.8 % , to $ 777.3 million from $ 683.1 million in fiscal 2010. in fiscal 2011 , garden branded product sales increased $ 104.3 million and sales of other manufacturers ' products declined $ 10.1 million compared with fiscal 2010. the increase in branded product sales was due primarily to a $ 49.2 million increase in grass seed sales , a $ 23.7 million increase in bird feed sales and a $ 4.5 million increase in garden control and fertilizer products . the increase in grass seed sales was due primarily to increased volumes driven by customer demand and increased investment in brand building . the increase in bird feed sales was due to both volume and price increases . the net sales increase of $ 4.5 million in garden control and fertilizer products was due primarily to an increase of $ 20 million in fertilizer sales , partially offset by decreased control product sales . gross profit gross profit decreased $ 21.2 million , or 4.1 % to $ 493.9 million from $ 515.2 million in fiscal 2010. gross profit as a percentage of net sales declined from 33.8 % in fiscal 2010 to 30.3 % for fiscal 2011. gross profit as a percentage of net sales decreased in both segments . in fiscal 2011 , the continual increases in raw material input costs put pressure on our margins . for example , our weighted average cost per pound for our primary grains increased approximately 41 % for fiscal year 2011 compared to fiscal 2010. both gross profit and gross margin decreased in the pet segment due primarily to higher prices of key commodity ingredients , such as milo , millet , sunflower and corn which impacted both our wild bird feed business and our super premium pet food , and a change in product mix in our health products , which shifted away from sales of higher margin flea , tick and mosquito products towards increased sales of lower margin products . gross profit increased in the garden segment but gross margin decreased due primarily to higher commodity ingredient costs and the sales mix shift of garden control and fertilizer products . the higher ingredient costs impacted both bird feed and garden controls and fertilizer products . additionally , there was a sales mix shift within garden controls and fertilizers whereby decreased sales of higher margin control products were offset by increased sales of lower margin fertilizer products . selling , general and administrative selling , general and administrative expenses increased $ 14.6 million , or 3.7 % , from $ 394.1 million in fiscal 2010 to $ 408.7 million in fiscal 2011. as a percentage of net sales , selling , general and administrative expenses 36 decreased from 25.9 % in fiscal 2010 to 25.1 % in fiscal 2011. the change in selling , general and administrative expenses , discussed further below , was due primarily to increased selling and delivery expense . selling and delivery expense increased by $ 21.4 million , or 10.4 % , from $ 205.8 million in fiscal 2010 to $ 227.2 million in fiscal 2011. the increased expense was due primarily to increased advertising and marketing program expenditures , including brand building activities and increased variable expenses related to the increase in sales .
| financial summary : net sales for fiscal 2011 increased $ 105 million , or 7 % , to $ 1.6 billion . net earnings for fiscal 2011 were $ 28 million , or $ 0.50 per share on a diluted basis , a decrease of $ 18 million and $ .0.20 per share on a diluted basis , compared to fiscal 2010 . 32 gross margin decreased 350 basis points in fiscal 2011 to 30.3 % , due primarily to rising raw material input costs . selling , general & administrative expenses increased $ 14.6 million , or 3.7 % , to $ 408.7 million in fiscal 2011 , but decreased as a percentage of net sales to 25.1 % from 25.9 % . we generated cash flows from operating activities of approximately $ 51.0 million during fiscal 2011 and had a cash balance of approximately $ 12.0 million at september 24 , 2011. senior credit facility ย on june 8 , 2011 , we amended our credit agreement dated june 25 , 2010 to increase the aggregate principal borrowing amount from $ 275 million to $ 375 million , extend the maturity date to june 8 , 2016 , and reduce the interest rates , commitment fees and interest coverage requirements . repurchase of company stock . ย during fiscal 2011 , we repurchased $ 108.7 million of our common stock which consisted of 3.3 million shares of our voting common stock ( cent ) at an aggregate cost of approximately $ 30.2 million , or approximately $ 9.10 per share and 8.6 million shares of our non-voting class a common stock ( centa ) at an aggregate cost of approximately $ 78.5 million , or approximately $ 9.08 per share . results of operations the following table sets forth , for the periods indicated , the relative percentages that certain income and expense items bear to net sales : replace_table_token_7_th fiscal 2012 compared to fiscal 2011 net sales net sales for fiscal 2012 increased $ 71.4
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the committee has not adopted any formal or story_separator_special_tag explanatory note on october 30 , 2012 ( ยclosing dateย ) , the partnership completed its initial public offering of a total of 6,000,000 common units representing limited partner interests , and on november 9 , 2012 issued an additional 900,000 common units pursuant to the full exercise by the underwriters ( the ยunderwritersย ) of their over-allotment option , all at a price of $ 20.00 per unit ( the ยipoย ) . the partnership received aggregate proceeds of $ 125.7 million from the sale , net of underwriting discounts and structuring fees , and $ 2.6 million of ipo expenses . as previously disclosed , of this amount the net proceeds of approximately $ 16.7 million , pursuant to the over-allotment option , were distributed to joseph v. topper , jr. , the chief executive officer of the partnership , and to certain of mr. topper 's affiliates and family trusts , and john b. reilly , iii , a member of the board of directors of the general partner of the partnership . references in this annual report to ยour predecessorย , or ยpredecessor entityย , refer to the portion of the business of lehigh gas corporation , or ยlgc , ย and its subsidiaries and affiliates that were contributed to lehigh gas partners lp in connection with the ipo . unless the context requires otherwise , references in this annual report to ยlehigh gas partners lp , ย ยthe partnership , ย ยwe , ย ยour , ย ยus , ย or like terms , when used in the context of the periods following the completion of the ipo refer to lehigh gas partners lp and its subsidiaries and , when used in the context of the periods prior to the completion of the ipo , refer to the portion of the business of our predecessor , the wholesale distribution business of lehigh gasยohio , llc and real property and leasehold interests contributed to us in connection with the ipo by joseph v. topper , jr. , the chief executive officer and the chairman of the board of directors of our general partner and or his affiliates . references to ยour general partnerย or ยlehigh gas gpย refer to lehigh gas gp llc , the general partner of lehigh gas partners lp and a wholly owned subsidiary of lgc . references to ยlgoย refer to lehigh gasยohio , llc , an entity managed by joseph v. topper , jr. , the chief executive officer and the chairman of the board of directors of our general partner . all of lgo 's wholesale distribution business was contributed to us in connection with the ipo . references to the ยtopper groupย refer to joseph v. topper , jr. , collectively with those of his affiliates and family trusts that have ownership interests in our predecessor . a trust of which joseph v. topper , jr. is a trustee owns all of the outstanding stock of lgc . the topper group , including lgc , will hold a significant portion of the limited partner interests in us . through his control of lgc , joseph v. topper , jr. controls our general partner . unless otherwise indicated , 2012 full year-to-date financial results contained in this annual report contain the audited consolidated financial results of the partnership for the period october 31 , 2012 through december 31 , 2012 , and the audited combined financial results for the predecessor entity period for the period january 1 , 2012 through october 30 , 2012. the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the partnership and predecessor entity audited consolidated and combined financial statements and notes thereto included elsewhere in this annual report . 40 overview we are a delaware limited partnership formed to engage in the distribution of motor fuels , consisting of gasoline and diesel fuel , and to own and lease real estate used in the retail distribution of motor fuels . since our predecessor was founded in 1992 , we have generated revenues from the wholesale distribution of motor fuels to retail sites and from real estate leases . in the third quarter of 2013 , we also began generating revenues , on a select basis , through the retail distribution of motor fuels at the commission sites . our primary business objective is to make quarterly cash distributions to our unitholders and , over time , to increase our quarterly cash distributions . we intend to make minimum quarterly distributions of at least $ 0.4375 per unit , per quarter ( or $ 1.75 per unit on an annualized basis ) . we increased our distribution to $ 0.4525 per unit ( or $ 1.81 per unit on an annualized basis ) effective with the june 2013 distribution , $ 0.4775 per unit ( or $ 1.91 per unit on an annualized basis ) effective with the september distribution , and $ 0.5125 per unit ( or $ 2.05 per unit on an annualized basis ) effective with the december distribution . in march 2014 , we increased our distribution to $ 0.5125 per unit ( or $ 2.05 per unit on an annualized basis ) effective with the march 2014 distribution . the amount of any distributions is subject to the discretion of the board of directors of our general partner which may modify or revoke our cash distribution policy at any time . our partnership agreement does not require us to pay any distributions at all . we believe consistent demand for motor fuels in the areas where we operate and the contractual nature of our rent income provides a stable source of cash flow . cash flows from the wholesale distribution of motor fuels will be generated primarily by a per gallon margin that is either a fixed or variable mark-up per gallon , depending on our contract terms . story_separator_special_tag aggregate incremental revenues for this acquisition included in our statements of operations were $ 23.1 million for 2013. manchester acquisition in december 2013 , we purchased 44 independent dealer supply contracts , five sub-wholesale supply contracts , two leasehold motor fuel stations and certain assets and equipment , which were held or used by the sellers in connection with their motor fuels business and related convenience store business located in the richmond , virginia area , for $ 10.7 million . aggregate incremental revenues for this acquisition included in our statements of operations were $ 3.6 million for 2013. commission sites prior to september 1 , 2013 , we leased certain sites to lgo , which , in turn , subleased certain of these sites ( the ยsubleasesย ) to third party commission agents and entered into the commission agreements with the agents to sell motor fuel on behalf of lgo to retail customers . in connection with the commission agreements , lgo also purchased motor fuel from a subsidiary of the partnership at wholesale prices . effective september 1 , 2013 , we assumed the commission agreements and subleases from lgo and terminated our leases with lgo for the commission sites . as a result , we now record the retail sale of motor fuels to the end customer and accrue a commission payable to the commission agent at the commission sites . we paid lgo $ 3.5 million ( the ยpurchase priceย ) for the subleases and commission agreements and $ 2.1 million for the motor fuel inventory . because the transaction was between entities under common control , the assets and liabilities assumed were recorded at lgo 's book value . the purchase price is presented as a distribution from partners ' capital . 42 the commission agent at each site operates all the non-fuel operations at the site for its own account , pays rent to us for the use of the site and receives a commission for each gallon of motor fuel sold at the site . at the commission sites , we own the motor fuel inventory , determine the retail pricing of motor fuel and generate revenue from the sale of motor fuel to the retail consumer . we maintain inventory from the time of the purchase of motor fuels from third party suppliers until the retail sale to the end customer at these sites . the retail fuel margin at the commission sites is non-qualifying income for federal income tax purposes and is recorded in lgws , our taxable c-corp subsidiary . lgw sells fuel on a wholesale basis to lgws for the commission sites and this income is qualifying income for federal income tax purposes and included in the results of the wholesale segment . with the addition of the retail business described above , we engage in : the wholesale distribution of motor fuels ( using unrelated third party transportation service providers ) to sub-wholesalers , independent dealers , lessee dealers , lgo , and others ; the retail distribution of motor fuels t6o end customers at commission sites ; and , the owning or leasing of sites used in the retail distribution of motor fuels and , in turn , generating rent income from the lease or sublease of the sites to third parties or lgo . given this change , we conduct ours business in two segments : 1 ) the wholesale segment and 2 ) the retail segment . see ยresults of operationsย for additional information . subsequent events in march 2014 , we entered into an amended and restated credit agreement ( the ยnew credit facilityย ) . the new credit facility is a senior secured revolving credit facility maturing march 4 , 2019 with a total borrowing capacity of $ 450 million , under which swingline loans may be drawn up to $ 10.0 million and standby letters of credit may be issued up to an aggregate of $ 45.0 million . the new credit facility may be increased , from time to time , upon the partnership 's written request , subject to certain conditions , up to an additional $ 100.0 million . all obligations under the new credit facility are secured by substantially all of the assets of the partnership and its subsidiaries . see ยliquidity ย long-term debtย for additional information . outlook the partnership expects its total fuel volume to increase in 2014 , driven by the inclusion of a full year 's worth of results from the rogers , rocky top and manchester acquisitions , offset by a decrease in volume as a result of market conditions . based on current market conditions , we would expect our motor fuel gross margins to be consistent with historical results . we expect rent income to increase in 2014 as a result of recent acquisitions . we expect to lower our interest expense in 2014 based on our reduced leverage and overall lower cost of debt capital as a result of our recent credit facility refinancing . earnings in future periods are subject to various risks and uncertainties . see ยforward-looking information , ย ยitem 1. business , ย ยitem 1a . risk factors , ย the rest of this item 7 , and note 14 to the financial statements for a discussion of the risks , uncertainties and factors that may impact future results . results of operations story_separator_special_tag lace_table_token_9_th 46 the increase in gross margin was driven by an increase in volume of gallons distributed offset by a lower margin per gallon . the increase in aggregate revenues from fuel sales resulted from an increase of $ 100.6 million related to an increase in volume of gallons distributed offset by a decrease of $ 70.7 million related to lower selling prices per gallon .
| evaluating our results of operations the primary drivers of our operating results are the volume of motor fuel we distribute , the margin per gallon we are able to generate on the motor fuel we distribute and the rent income we earn on the sites we own or lease . for owned or leased sites , we seek to maximize the overall profitability of our operations , balancing the contributions to profitability of motor fuel distribution and rent income . our omnibus agreement , under which lgc provides management , administrative and operating services for us , enables us to manage a significant component of our operating expenses . our management relies on financial and operational metrics designed to track the key elements that contribute to our operating performance . to evaluate our operating performance , our management considers gross profit from fuel sales , motor fuel volumes , margin per gallon , rent income for sites we own or lease , ebitda , adjusted ebitda and distributable cash flow . gross profit , volume and margin per gallon - gross profit from fuel sales represents the excess of revenues from fuel sales , including revenues from fuel sales to affiliates , over cost of revenues from fuel sales , including cost of revenues from fuel sales to affiliates . volume of motor fuel represents the gallons of motor fuel we distribute to sites . margin per gallon represents gross profit from fuel sales divided by total gallons of motor fuels distributed . we use volumes of motor fuel we distribute to a site and margin per gallon to assess the effectiveness of our pricing strategies , the performance of a site as compared to other sites we own or lease , and our margins as compared to the margins of sites we seek to acquire or lease .
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we have story_separator_special_tag forward-looking statements this document contains โ forward-looking statements โ within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 that are not historical in nature and typically address future or anticipated events , trends , expectations or beliefs with respect to our financial condition , results of operations or business . forward-looking statements often contain words such as โ believes , โ โ expects , โ โ anticipates , โ โ foresees , โ โ forecasts , โ โ estimates , โ โ plans , โ โ intends , โ โ continues , โ โ may , โ โ will , โ โ should , โ โ projects , โ โ might , โ โ could โ or other similar words or phrases . similarly , statements that describe our business strategy , outlook , objectives , plans , intentions or goals also are forward-looking statements . we believe there is a reasonable basis for our forward-looking statements , but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements . we presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs : ( 1 ) changes in the budgets or regulatory environments of our clients , primarily local and state governments , that could negatively impact information technology spending ; ( 2 ) our ability to protect client information from security breaches and provide uninterrupted operations of data centers ; ( 3 ) our ability to achieve growth or operational synergies through the integration of acquired businesses , while avoiding unanticipated costs and disruptions to existing operations ; ( 4 ) material portions of our business require the internet infrastructure to be adequately maintained ; ( 5 ) our ability to achieve our financial forecasts due to various factors , including project delays by our clients , reductions in transaction size , fewer transactions , delays in delivery of new products or releases or a decline in our renewal rates for service agreements ; ( 6 ) general economic , political and market conditions ; ( 7 ) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services ; ( 8 ) competition in the industry in which we conduct business and the impact of competition on pricing , client retention and pressure for new products or services ; ( 9 ) the ability to attract and retain qualified personnel and dealing with the loss or retirement of key members of management or other key personnel ; and ( 10 ) costs of compliance and any failure to comply with government and stock exchange regulations . a detailed discussion of these factors and other risks that affect our business are described in item 1a , โ risk factors. โ we expressly disclaim any obligation to publicly update or revise our forward-looking statements . overview story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > improvements to employee share-based payment accountin g. in march 2016 , the financial accounting standards board ( โ fasb โ ) issued accounting standards update ( `` asu '' ) no . 2016-09 , `` compensation-stock compensation ( topic 718 ) : improvements to employee share-based payment accounting '' which simplifies several aspects of the accounting for employee share-based payment transactions , including the accounting for income taxes , forfeitures , and statutory tax withholding requirements , as well as classification in the statement of cash flows . this standard is effective for our interim and annual reporting periods beginning december 15 , 2016 , and early adoption is permitted . we elected to early adopt this standard in fourth quarter of 2016. the impact of the early adoption was as follows : the standard eliminates additional paid in capital ( `` apic '' ) pools and requires excess tax benefits and tax deficiencies to be recorded in the income statement as a discrete item when the awards vest or are settled . the adoption of this guidance on a prospective basis resulted in the recognition of excess tax benefits in our provision for income taxes . the standard requires excess tax benefits to be recognized regardless of whether the benefit reduces taxes payable . the adoption of this guidance is applied on a modified retrospective basis ; however , it did not have an impact on our retained earnings as of january 1 , 2016 , as we had previously recognized all our excess tax benefits . 23 as permitted , we have elected to continue to estimate forfeitures expected to occur to determine the amount of stock-based compensation cost to be recognized in each period . as such , the guidance relating to forfeitures did not have an impact on our retained earnings as of january 1 , 2016. the new guidance changes the calculation of common stock equivalents for earnings per share purposes . as permitted , we elected to apply the statement of cash flows guidance that cash flows related to excess tax benefits be presented as an operating activity retrospectively . adoption of the new standard resulted in the recognition of excess tax benefits in our provision for income taxes rather than apic of $ 29.6 million for the period ended december 31 , 2016. as of december 31 , 2016 , the change in the calculation of common stock equivalents added approximately 519,000 weighted average shares for the diluted earnings per share calculations . the impact to our previously reported quarterly results for fiscal year 2016 is as follows : replace_table_token_3_th presentation of financial statements - going concern . in august 2014 , the fasb issued asu no . 2014-15 , presentation of financial statements - going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern . story_separator_special_tag lessees and lessors may not apply a full retrospective transition approach . the asu is effective for fiscal years beginning after december 15 , 2018 , including interim periods therein . early application is permitted for all business entities upon issuance . we are assessing the financial impact of adopting the new standard ; however , we are currently unable to provide a reasonable estimate regarding the financial impact . we expect to adopt the new standard in fiscal year 2019 . 25 outlook activity in the local government software market continues to be robust , and our backlog at december 31 , 2016 reached $ 953.3 million , a 13 % increase from last year . we expect to continue to achieve solid growth in revenue and earnings . with our strong financial position and cash flow , we plan to continue to make significant investments in product development to better position us to continue to expand our competitive position in the public sector software market over the long term . critical accounting policies and estimates our discussion and analysis of financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( โ gaap โ ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements , the reported amounts of revenues , cost of revenues and expenses during the reporting period , and related disclosure of contingencies . the notes to the financial statements included as part of this annual report describe our significant accounting policies used in the preparation of the financial statements . significant items subject to such estimates and assumptions include the application of the percentage-of-completion and proportional performance methods of revenue recognition , the carrying amount and estimated useful lives of intangible assets , determination of share-based compensation expense and valuation allowance for receivables . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require significant judgments and estimates used in the preparation of our financial statements . revenue recognition . we recognize revenues in accordance with the provisions of accounting standards codification ( โ asc โ ) 605 , revenue recognition and asc 985-605 , software revenue recognition . our revenues are derived from sales of software licenses and royalties , subscription-based services , appraisal services , maintenance and support , and services that typically range from installation , training and basic consulting to software modification and customization to meet specific customer needs . for multiple element software arrangements , which do not entail the performance of services that are considered essential to the functionality of the software , we generally record revenue when the delivered products or performed services result in a legally enforceable and non-refundable claim . we maintain allowances for doubtful accounts and sales adjustments , which are provided at the time the revenue is recognized . because most of our customers are governmental entities , we rarely incur a loss resulting from the inability of a customer to make required payments . in a limited number of cases , we encounter a customer who is dissatisfied with some aspect of the software product or our service , and we may offer a โ concession โ to such customer . in those limited situations where we grant a concession , we rarely reduce the contract arrangement fee , but alternatively may perform additional services , such as additional training or creating additional custom reports . these amounts have historically been nominal . in connection with our customer contracts and the adequacy of related allowances and measures of progress towards contract completion , our project managers are charged with the responsibility to continually review the status of each customer on a specific contract basis . also , we review , on at least a quarterly basis , significant past due accounts receivable and the adequacy of related reserves . events or changes in circumstances that indicate that the carrying amount for the allowances for doubtful accounts and sales adjustments may require revision , include , but are not limited to , deterioration of a customer 's financial condition , failure to manage our customer 's expectations regarding the scope of the services to be delivered , and defects or errors in new versions or enhancements of our software products . we use contract accounting , primarily the percentage-of-completion method , as discussed in asc 605-35 , construction โ type and certain production โ type contracts , for those software arrangements that involve significant production , modification or customization of the software , or where our software services are otherwise considered essential to the functionality of the software . we measure progress-to-completion primarily using labor hours incurred , or value added . in addition , we recognize revenue using the proportional performance method for our property appraisal projects , some of which can range up to five years . these methods rely on estimates of total expected contract revenue , billings and collections and expected contract costs , as well as measures of progress toward completion . we believe reasonably dependable estimates of revenue and costs and progress applicable to various stages of a contract can be made . at times , we perform additional and or non-contractual services for little to no incremental fee to satisfy customer expectations .
| general we provide integrated information management solutions and services for the public sector , with a focus on local governments . we develop and market a broad line of software products and services to address the it needs of cities , counties , schools and other local government entities . in addition , we provide professional it services to our clients , including software and hardware installation , data conversion , training and for certain clients , product modifications , along with continuing maintenance and support for clients using our systems . we also provide subscription-based services such as software as a service ( โ saas โ ) , which utilizes the tyler private cloud , and electronic document filing solutions ( โ e-filing โ ) , which simplify the filing and management of court related documents . revenues for e-filing are derived from transaction fees and in some cases fixed fee arrangements . we also provide property appraisal outsourcing services for taxing jurisdictions . our products generally automate six major functional areas : ( 1 ) financial management and education , ( 2 ) courts and justice , ( 3 ) public safety ( 4 ) property appraisal and tax , ( 5 ) planning , regulatory and maintenance , and ( 6 ) land and vital records management . we report our results in two segments . the enterprise software ( โ es โ ) segment provides municipal and county governments and schools with software systems and services to meet their information technology and automation needs for mission-critical โ back-office โ functions such as : financial management ; courts and justice processes ; public safety ; planning , regulatory and maintenance ; and land and vital records management . the appraisal and tax ( โ a & t โ ) segment provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for local governments and taxing authorities .
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during the year ended december 31 , 2012 , the estimate of the asset retirement obligations increased primarily as a result of the construction activity for the hb 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 the related notes included elsewhere in this annual report on form 10-k. the following discussion and analysis contains forwardโlooking statements that involve risks , uncertainties , and assumptions as described under the heading โ cautionary note regarding forwardโlooking statements , โ in part i of this annual report on form 10-k. our actual results could differ materially from those anticipated by these forwardโlooking statements as a result of many factors , including those discussed under โ item 1a . risk factors โ and elsewhere in this annual report on form 10-k. overview we produce potash and langbeinite , which we market and sell as trio ยฎ . our revenues are generated exclusively from the sale of potash and trio ยฎ . our potash is marketed for sale into three primary markets : the agricultural market as fertilizer , the industrial market as a component in drilling and fracturing fluids for oil and gas wells , and the animal feed market as a nutrient . our primary regional markets include agricultural areas and feed manufacturers in the central and western united states , as well as oil and gas drilling areas in the rocky mountains and the greater permian basin . in addition to the agricultural regions noted above , we also have sales , primarily of trio ยฎ , that go into the southeastern and eastern united states . our production facilities all are located in the western united states , and therefore our operations are affected by weather and other conditions in this region . we own five active production facilitiesโthree in new mexico ( referenced collectively below as โ carlsbad โ or individually as โ west , โ โ east , โ and โ north โ ) and two in utah ( โ moab โ and โ wendover โ ) โand we have a current estimated annual productive capacity of approximately 900,000 tons of potash , not including an estimated 200,000 tons of designed productive capacity for the hb solar solution mine , and based on current design , approximately 240,000 tons of langbeinite . we are not yet producing at an annual rate of 240,000 tons per year of langbeinite . we are continuing to commission the langbeinite recovery plant and will update productive capacity numbers as improvements are realized . actual production is affected by operating rates , recoveries , mining rates , precipitation and evaporation rates at our solar solution operations , and the amount of development work that we do . therefore , our production results tend to be lower than our productive capacity . the hb solar solution mine is under development in carlsbad , new mexico . construction continues to progress on the hb solar solution mine , a project to apply solution mining and solar evaporation techniques to produce potash from previously idled mine workings close to our current underground operations near carlsbad , new mexico . we also have additional opportunities to develop mineralized deposits of potash in new mexico which could include additional solar solution mining opportunities near our current operations in new mexico , reopening of the north mine , which was operated as a traditional underground mine until the early 1980s , as well as the acceleration of production from our reserves and mineralized deposits of potash through new access points in the area and the potential construction of additional production facilities in the region . significant business trends and activities our financial results are impacted by several significant trends , which are described below . we expect that these trends will continue to affect our results of operations , cash flows or financial position . construction of the hb solar solution mine and north compaction facility . we are making significant progress on the construction of the hb solar solution mine . construction of the solar evaporation ponds continues to advance , and we have pumped potash-enriched brine from the underground mines into several of the evaporation ponds . we have also substantially completed all of the drilling activities associated with the injection , extraction , and water wells that were contemplated in our initial design . in addition , during the fourth quarter of 2012 , we began construction of the processing mill , which is expected to be completed in the fourth quarter of 2013. the total expected investment for the project is between $ 225 million and $ 245 million , of which $ 128.3 million had been invested as of december 31 , 2012. the construction of the new north compaction facility is also progressing well with $ 55.4 million of the expected $ 95 million to $ 100 million investment made by december 31 , 2012. this new facility expands our granulation capacity to accommodate the increased tonnage expected from the hb solar solution mine and ongoing expansions at our west mine . the new north compaction plant will utilize state-of-the-art equipment providing us the tools to provide high quality granular production from this facility . 39 potash demand . we sold 839,000 tons of potash in 2012 , approximately 43,000 tons more than the 796,000 tons of potash we produced during the year . despite challenging weather and market conditions , we were able to sell approximately 46,000 more tons than we sold in 2011. potash demand in north america for the 2011/2012 growing season was in line with historical levels . during 2012 , the drought across much of the midwest caused lower grain yields , which in turn tightened stocks-to-use ratios . there were , however , certain regions of the united states and canada that saw above average crop yields , which partially offset the lower yields in the midwest . story_separator_special_tag ( 3 ) on a per ton basis , by-product credits were $ 8 for each of the years ended december 31 , 2012 , 2011 , and 2010. by-product credits were $ 6.5 million , $ 6.0 million and $ 6.4 million for the years ended december 31 , 2012 , 2011 , and 2010 , respectively . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > trio ยฎ our trio ยฎ production and resulting inventory levels were lower in 2012 than they were in 2011. as a result , our sales of trio ยฎ decreased from 173,000 tons of trio ยฎ in 2011 to 125,000 tons of trio ยฎ in 2012. pricing and demand for this specialty product remain strong . pricing gains offset the decreased sales volumes , resulting in consistent net sales revenues in 2012 compared with 2011. with continuing strong demand for this specialty product we expect sales demand will at least meet our production capabilities in 2013. our average trio ยฎ gross margins have increased in 2012 as our average net realized sales price for trio ยฎ increased by $ 93 per ton , while our cost of goods sold for trio ยฎ increased by $ 76 per ton , for 2012 as compared with 2011. a key element of the long-term improvement plan at our east facility is the continuing commissioning work on the lrip . although we have seen improvement in our trio ยฎ recoveries as a result of our work thus far on the long-term improvement plan , the expected production benefits from the lrip have yet to be fully realized . we remain committed to continuing the long-term improvement plan and commissioning work on lrip to obtain increased recoveries and therefore increased production levels of langbeinite . this will result in the need to invest additional capital to redesign specific elements of the plant ; the determination of the amount of additional investment will be refined as we conclude our commissioning work and long-term improvement plan at the east facility . average net realized sales price domestic pricing of our potash is influenced principally by the price established by our competitors . the interaction of global potash supply and demand , ocean , land and barge freight rates , and currency fluctuations also influence pricing . any of these factors could have a positive or negative impact on the price of our products . our average net realized sales price for potash decreased in the fourth quarter of 2012 by $ 10 per ton from the third quarter of 2012 , largely in response to the ongoing uncertainty surrounding production and consumption in the global potash market which kept buyers cautious in the short term . we believe potash buying and pricing will trade in a relatively narrow range , due to the strong corn and soybean commodity prices that support favorable farmer economics . we expect our average net realized sales price in the first quarter of 2013 to be slightly below the levels experienced in the fourth quarter of 2012 , as a result of lower potash prices posted by our competitors for sales into north america . we market trio ยฎ as a specialty product . as farmers have increasingly recognized the agronomic value of the magnesium and sulfate delivered by this product , demand for the product has grown and we have enjoyed a higher market price through 2011 and 2012. this recognition , when combined with our lower inventory levels , has resulted in pricing that more closely reflects the agronomic value of the delivered nutrients . the table below demonstrates the progression of our average net realized sales price for potash and trio ยฎ from 2011 to 2012. we calculate average net realized sales price by deducting freight costs from gross revenues and then by dividing this result by tons of product sold during the period . 43 replace_table_token_16_th specific factors affecting our results sales our gross sales are derived from the sales of potash and trio ยฎ and are determined by the quantities of product we sell and the sales prices we realize . we quote prices to customers both on a delivered basis and on the basis of pick-up at our plants and warehouses . freight costs are incurred on only a portion of our sales as many of our customers arrange and pay for their own freight directly . when we arrange and pay for freight , our quotes and billings are based on expected freight costs to the points of delivery . our gross sales include the freight that we bill , but we do not believe that gross sales provide a representative measure of our performance in the market due to variations caused by ongoing changes in the proportion of customers paying for their own freight , the geographic distribution of our products , and freight rates . we view net sales , which are gross sales less freight costs , as the key performance indicator of our revenue as it conveys the net sales price of the product that we realize . we manage our sales and marketing operations centrally and we work to achieve the highest average net realized sales price we can by evaluating the product needs of our customers and associated logistics and then determining which of our production facilities can best satisfy these needs . the volume of product we sell is determined by demand for our products and by our production capabilities . we intend to operate our facilities at full production levels , which provides the greatest operating efficiencies . by having adequate warehouse capacity , we can maintain production levels during periods of fluctuating product demand . cost of goods sold our cost of goods sold reflects the costs to produce our potash and trio ยฎ products , less credits generated from the sale of our by-products .
| results of operations operating highlights our 2012 net income was $ 87.4 million , or $ 1.16 per share with cash flows from operations of $ 187.8 million . we had capital investments of $ 253.0 million in 2012 and ended the year with $ 57.7 million of cash and investments with no debt outstanding . we also paid a cash dividend of $ 0.75 per share , or $ 56.5 million , in december 2012. potash in 2012 , we sold 839,000 tons of potash as compared to 793,000 tons in 2011. in the first half of 2012 , dealers once again took a cautious approach to purchasing potash , exiting the spring and fall application seasons with low storage levels of inventory . in the second half of 2012 , demand from dealers increased to meet demand from farmers who applied potash in the fall at better than expected levels . our average net realized sales price of potash was $ 454 per ton in 2012 , compared with $ 472 per ton in 2011. this decrease is due to the lower overall global demand for potash which resulted in lower north american prices . we continue to focus on production flexibility to support the sales needs for the diverse markets , customers , and crops that we serve . this diversity of our sales helps us maximize the average net realized sales price for our products and helps us better manage our inventory levels . the investments we made in granulation capacity in moab in late 2010 and wendover in late 2011 have resulted in a better quality product and have given us the production flexibility to manage our inventory levels more effectively . these investments have also allowed us to expand our marketing into customer locations that we did not previously serve from these facilities .
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of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a cancer therapeutics company , which does business as aveo oncology ย , committed to discovering , developing and commercializing targeted cancer therapies to impact patients ' lives . our product candidates are directed against important mechanisms , or targets , known or believed to be involved in cancer . our proprietary human response platformย , a novel method of building preclinical models of human cancer , provides us with unique insights into cancer biology . on november 27 , 2012 , the u.s. food and drug administration , or fda , accepted for filing our new drug application , or nda , for tivozanib , our lead product candidate , with the proposed indication for the treatment of patients with advanced renal cell carcinoma , or rcc . we have been informed by the fda that its oncologic drugs advisory committee , or odac , which provides the fda with independent expert advice and recommendations , will review our nda for tivozanib on may 2 , 2013. according to the timelines established by the prescription drug user fee act , or pdufa , the review of the nda is expected to be complete by july 28 , 2013. we expect that our partner , astellas pharma inc. , or astellas , will submit a marketing authorization application , or maa , with the european medicines agency , or ema , in the second half of 2013. tivozanib is a potent , selective , long half-life inhibitor of all three vascular endothelial growth factor , or vegf , receptors which is designed to optimize vegf blockade while minimizing off-target toxicities . our clinical trials of tivozanib in more than 1,000 subjects to date have demonstrated a favorable safety and efficacy profile for tivozanib . we have announced detailed data from our global , phase 3 clinical trial comparing the efficacy and safety of tivozanib with nexavar ยฎ ( sorafenib ) , an approved therapy , for first-line treatment in advanced rcc , which we refer to as the tivo-1 ( ti vozanib v ersus s o rafenib in 1 st line advanced rcc ) study . the tivo-1 study was conducted in patients with advanced clear cell rcc who had undergone a prior nephrectomy ( kidney removal ) and who had not received any prior vegf- or mtor-targeted therapy . in this trial , we measured , among other things , each patient 's progression-free survival , or pfs , which refers to the period of time that began when a patient entered the clinical trial and ended when either the patient died or the patient 's cancer had grown by a specified percentage or spread to a new location in the body . pfs was the primary endpoint in the tivo-1 study . secondary endpoints included overall survival , for which patients continue to be followed , and safety . key data from the tivo-1 study include : tivozanib demonstrated a statistically significant improvement in pfs over nexavar with a median pfs of 11.9 months for tivozanib compared to a median pfs of 9.1 months for nexavar in the overall study population ( hr=0.797 , 95 % confidence interval , or ci , 0.639ย0.993 ; p=0.042 ) . tivozanib also demonstrated a statistically significant improvement in pfs with a median pfs of 12.7 months compared to a median pfs of 9.1 months for nexavar in the pre-specified subpopulation of patients who received no prior systemic anti-cancer therapy for metastatic diseaseยa subpopulation that comprised approximately 70 % of the total study population ( hr=0.756 , 95 % ci 0.580ย0.985 ; p=0.037 ) . 70 tivozanib demonstrated a well-tolerated safety profile as evidenced by a lower rate of dose reductions ( 11.6 % vs. 42.8 % ; p < 0.001 ) and interruptions ( 17.8 % vs. 35.4 % ; p < 0.001 ) due to adverse events and discontinuations ( 4.2 % vs. 5.4 % ; p=0.683 ) due to drug-related adverse events compared to nexavar . the most commonly reported side effect for tivozanib was hypertension ( 44 % for tivozanib vs. 34 % for nexavar ) , and for nexavar was hand-foot syndrome ( 13 % for tivozanib vs. 54 % for nexavar ) . other side effects that are commonly associated with other vegf receptor inhibitors included : diarrhea ( 22 % for tivozanib vs. 32 % for nexavar ) , dysphonia , or hoarseness of voice ( 21 % for tivozanib vs. 5 % for nexavar ) , fatigue ( 18 % for tivozanib vs. 16 % for nexavar ) , and neutropenia , a condition of having a lower than normal number of white blood cells ( 10 % for tivozanib vs. 9 % for nexavar ) . the final , protocol-specified analysis of overall survival , or os , at 24 months since last patient enrolled showed a median os of 28.8 months ( 95 % ci : 22.5ยna ) for the tivozanib arm versus a median os of 29.3 months ( 95 % ci : 29.3ยna ) for the nexavar arm . no statistical difference between the two arms ( hr=1.245 , p=0.105 ) was observed . a one-sided crossover for patients randomized to the nexavar arm was offered pursuant to a separate , long-term treatment protocol to allow trial participants originally treated in the nexavar arm to receive tivozanib upon disease progression . this resulted in a substantial difference in the use of subsequent therapies . of 189 patients who discontinued their initial therapy on the tivozanib arm , 36 % received some form of subsequent therapy , including 10 % who received subsequent anti-vegf therapy . of 226 patients who discontinued their initial therapy on the nexavar arm , 74 % received some form of subsequent therapy , including 70 % who received subsequent anti-vegf therapy ( 98 % of whom received tivozanib ) . story_separator_special_tag the total number of shares sold was 7,667,050 , comprised of 6,667,000 shares of common stock initially offered and an additional 1,000,050 shares of common stock sold pursuant to the underwriters ' exercise of their over-allotment option , at the public offering price of $ 7.50 per share . aggregate net proceeds to the company were approximately $ 53.6 million , after deducting $ 3.9 million in offering related expenses and underwriting discounts and commissions . 72 strategic partnerships kyowa hakko kirin in december 2006 , we entered into a license agreement with kirin brewery co. ltd. ( now kyowa hakko kirin ) which we sometimes refer to as khk , under which we obtained an exclusive license , with the right to grant sublicenses subject to certain restrictions , to research , develop , manufacture and commercialize tivozanib , pharmaceutical compositions thereof and associated biomarkers . our exclusive license covers all territories in the world , except for asia . khk has retained rights to tivozanib in asia . under the license agreement , we obtained exclusive rights in our territory under certain khk patents , patent applications and know-how related to tivozanib , to research , develop , make , have made , use , import , offer for sale , and sell tivozanib for the diagnosis , prevention and treatment of any and all human diseases and conditions . we and kyowa hakko kirin each have access to and can benefit from the other party 's clinical data and regulatory filings with respect to tivozanib and biomarkers identified in the conduct of activities under the license agreement . under the license agreement , we are obligated to use commercially reasonable efforts to develop and commercialize tivozanib in our territory , including meeting certain specified diligence goals . prior to the first anniversary of the first post-marketing approval sale of tivozanib in our territory , neither we nor any of our subsidiaries has the right to conduct certain clinical trials of , seek marketing approval for or commercialize any other cancer product that also works by inhibiting the activity of the vegf receptor . upon entering into the license agreement with khk , we made a one-time cash payment in the amount of $ 5.0 million . in march 2010 , we made a $ 10.0 million milestone payment to khk in connection with the dosing of the first patient in our phase 3 clinical trial of tivozanib . we made a $ 22.5 million payment to khk during the year ended december 31 , 2011 related to the up-front license payment received under the collaboration and license agreement with astellas which we entered into in february 2011. in december 2012 , we made a $ 12.0 million milestone payment to khk in connection with the acceptance by the fda of our nda filing for tivozanib . under our license agreement with khk , we may be required to : make future milestone payments upon the achievement of specified regulatory milestones in the united states , including a possible milestone payment of $ 18.0 million to khk in connection with the fda granting marketing approval in the united states ; pay tiered royalty payments on net sales we make of tivozanib in our territory ranging from the low to mid-teens as a percentage of our net sales of tivozanib . the royalty rate escalates within this range during each calendar year based on increasing tivozanib sales during such calendar year . our royalty payment obligations in a particular country in our territory begin on the date of the first commercial sale of tivozanib in that country , end on the later of 12 years after the date of first commercial sale of tivozanib in that country or expiration of the last-to-expire valid claim of the licensed patents covering tivozanib in that country , and are subject to offsets under certain circumstances ; and pay 30 % of certain amounts we receive under our collaboration and license agreement with astellas , which we describe below , in connection with astellas ' development and commercialization activities outside of north america and asia related to tivozanib ( including a potential $ 4.5 million milestone payable to khk in connection with the acceptance by the ema of the filing of a marketing authorization application and $ 9.0 million to khk in connection with the ema granting marketing approval in europe ) , other than amounts we receive in respect of research and development funding or equity investments , subject to certain limitations . astellas pharma in february 2011 , we entered into a collaboration and license agreement with astellas and certain of its indirect wholly-owned subsidiaries in connection with which we and astellas will develop and seek to 73 commercialize tivozanib for the treatment of a broad range of cancers , including rcc , and breast and colorectal cancers . under the terms of the collaboration agreement , we and astellas will share responsibility for continued development and commercialization of tivozanib in north america and europe under the joint development plan and joint commercialization plan , respectively . throughout the rest of the world ( which excludes north america , europe and asia ) , which we refer to as the royalty territory , astellas has an exclusive , royalty-bearing license to develop and commercialize tivozanib . our plan to commercialize tivozanib in collaboration with astellas , as described herein , is subject to our and astellas ' receipt of necessary regulatory approvals from the fda and foreign regulatory authorities based upon favorable results in clinical trials . there can be no assurance that such approvals will be obtained . assuming successful approvals of tivozanib by applicable regulatory agencies , we will hold all marketing authorizations in north america , including any nda in the united states , and astellas will hold all marketing authorizations in the rest of the world , other than asia .
| results of operations comparison of years ended december 31 , 2012 and 2011 the following tables summarize the results of our operations for each of the years ended december 31 , 2012 and 2011 , together with the changes in those items in dollars and as a percentage : replace_table_token_10_th 88 replace_table_token_11_th revenue . revenue for the year ended december 31 , 2012 was $ 19.3 million compared to $ 164.8 million for the year ended december 31 , 2011 , a decrease of approximately $ 145.6 million , or 88 % . the decrease was primarily due to revenue recognized during 2011 that did not recur during 2012 , including $ 120.2 million of revenue recognized in conjunction with the up-front payment associated with the signing of our collaboration agreement with astellas ; $ 29.6 million in revenue from osi primarily related to its exercise of an option to acquire certain rights to our technology platform ; $ 7.0 million in revenue recognized in connection with the up-front payment from centocor related to the ron program ; and $ 5.0 million in revenue recognized in connection with the biogen idec milestone payment related to achieving the glp toxicology initiation milestone . revenue during 2012 primarily related to a $ 15.0 million milestone payment earned under our collaboration agreement with astellas related to the fda 's acceptance of our nda filing for tivozanib , $ 1.0 million in patent-related and clinical and development milestone payments earned under our agreement with osi , research funding under our collaboration agreement with centocor , and amortization of previously deferred revenue associated with our collaboration agreements with astellas and biogen idec . research and development . research and development expenses for the year ended december 31 , 2012 were $ 91.4 million compared to $ 101.7 million for the year ended december 31 , 2011 , a decrease of $ 10.4 million , or 10 % .
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you should read the information in this section in conjunction with the business and financial information regarding kearny financial corp. and the audited consolidated financial statements and notes thereto contained in this annual report on form 10-k. critical accounting policies our accounting policies are integral to understanding the results reported . we describe them in detail in note 1 to our audited consolidated financial statements included as an exhibit to this document . in preparing the audited consolidated financial statements , management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended . actual results could differ significantly from those estimates . material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses . allowance for loan losses . the allowance for loan losses is a valuation account that reflects our estimation of the losses in its loan portfolio to the extent they are both probable and reasonable to estimate . the balance of the allowance is generally maintained through provisions for loan losses that are charged to income in the period that estimated losses on loans are identified . we charge confirmed losses on loans against the allowance as such losses are identified . recoveries on loans previously charged-off are added back to the allowance . our allowance for loan loss calculation methodology utilizes a two-tier loss measurement process that is performed quarterly . we first identify the loans that must be reviewed individually for impairment . factors considered in identifying individual loans to be reviewed include , but may not be limited to , loan type , classification status , contractual payment status , performance/accrual status and impaired status . loans considered to be eligible for individual impairment review include commercial mortgage loans , construction loans , commercial business loans , one- to four-family mortgage loans , home equity loans and home equity lines of credit . a loan is deemed to be impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement . once a loan is determined to be impaired , management performs an analysis to determine the amount of impairment associated with that loan . the second tier of the loss measurement process involves estimating the probable and estimable losses on loans not otherwise individually reviewed for impairment . such loans generally comprise large groups of smaller-balance homogeneous loans as well as the remaining non-impaired loans of those types noted above that are otherwise eligible for individual impairment evaluation . valuation allowances established through the second tier of the loss measurement process utilize historical and environmental loss factors to collectively estimate the level of probable losses within defined segments of our loan portfolio . to calculate the historical loss factors , our allowance for loan loss methodology generally utilizes a two-year moving average of annualized net charge-off rates ( charge-offs net of recoveries ) by loan segment , where available , to calculate the actual , historical loss experience . the outstanding principal balance of each loan segment is multiplied by the applicable historical loss factor to estimate the level of probable losses based upon our historical loss experience . environmental loss factors are based upon specific quantitative and qualitative criteria representing key sources of risk within the loan portfolio . such sources of risk include those relating to the level of and trends in nonperforming loans ; the level of and trends in credit risk management effectiveness , the levels and trends in lending resource capability ; levels and trends in economic and market conditions ; levels and trends in loan concentrations ; levels and trends in loan composition and terms , levels and trends in independent loan review effectiveness , levels and trends in collateral values and the effects of other external factors . the outstanding principal balance of each applicable loan segment is multiplied by the applicable environmental loss factors to estimate the level of probable losses based upon their supporting quantitative and qualitative criteria . the sum of the probable and estimable loan losses calculated in accordance with loss measurement processes , as described above , represents the total targeted balance for our allowance for loan losses at the end of a fiscal period . a more detailed discussion of our allowance for loan loss calculation methodology is presented in note 1 to our audited consolidated financial statements . 46 business combinations . we account for business combinations under the purchase method of accounting . the application of this method of accounting requires the use of significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are amortized , accreted or depreciated from those that are recorded as goodwill . our estimates of the fair values of assets acquired and liabilities assumed are based upon assumptions that we believe to be reasonable , and whenever necessary , include assistance from independent third-party appraisal and valuation firms . goodwill . goodwill represents the excess of the purchase price over the net fair value of the acquired businesses . goodwill is not amortized , but is tested for impairment at the reporting unit level at least annually , or more frequently whenever events or circumstances occur that indicate that it is more-likely-than-not that an impairment loss has occurred . in assessing impairment , we have the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount . story_separator_special_tag the aggregate balance of other assets , including premises and equipment , fhlb stock , interest receivable , goodwill , core deposit intangibles , bank owned life insurance , deferred income taxes , other real estate owned and other assets , increased by $ 30.0 million to $ 677.1 million at june 30 , 2020 from $ 647.1 million at june 30 , 2019. the increase in other assets primarily reflected the adoption of a new accounting standard that requires leases to be recognized on our consolidated statements of condition as a right of use asset and lease liability and a payment deferral receivable related to modified loans in accordance with the cares act provisions . our operating lease right of use asset and payment deferral receivable totaled approximately $ 16.5 million and $ 12.4 million , respectively , as of june 30 , 2020. the remaining increases and decreases in other assets for the year ended june 30 , 2020 generally reflected normal operating fluctuations in their respective balances . additional information about the company 's operating lease right of use asset at june 30 , 2020 is presented in note 9 to the audited consolidated financial statements . 49 deposits . total deposits increased by $ 282.7 million to $ 4.43 billion at june 30 , 2020 from $ 4.15 billion at june 30 , 2019. the following table sets forth the changes , by account type , in deposit s . replace_table_token_23_th the net increase in deposit balances for the year ended june 30 , 2020 was comprised of changes in the balances of retail deposits as well as non-retail deposits acquired through various wholesale channels . the reallocation of deposits for the year ended june 30 , 2020 reflected the company 's continued success in realigning its funding mix in favor of core deposits . the following table sets forth the distribution of total deposit accounts , by retail and wholesale deposits , at the dates indicated : replace_table_token_24_th additional information about our deposits at june 30 , 2020 is presented under โ item 1. business โ of this annual report on form 10-k , as well as in note 12 to the audited consolidated financial statements . 50 borrowings . the balance of borrowings decreased by $ 148.8 million to $ 1.17 billion , or 17.4 % of total assets , at june 30 , 2020 from $ 1.32 b illion , or 19.9 % of total assets , at june 30 , 2019. the de crease in b orrowings primarily reflected the extinguishment and maturity of $ 121.5 million and $ 35.0 million of fhlb advances , respectively . the decrease in borrowings also included a de crease in overnight borrowings totaling $ 3 0.0 million . the decrease in borrowings was partially offset by a net increase in short-term fhlb advances totaling $ 40 .0 million . additional information about our borrowings at june 30 , 2020 is presented under โ item 1. business โ of this annual report on form 10-k , as well as in note 13 to the audited consolidated financial statements . other liabilities . the balance of other liabilities increased by $ 32.5 million to $ 70.6 million at june 30 , 2020 from $ 38.1 million at june 30 , 2019. the increase in other liabilities primarily reflected the adoption of a new accounting standard related to leases and a decrease in the fair value of our interest rate derivatives . the new accounting standard requires leases to be recognized on our consolidated statements of condition as a right of use asset and lease liability , as noted above . our operating lease liability totaled approximately $ 17.1 million as of june 30 , 2020 and the decrease in the fair value of our interest rate derivatives portfolio in a liability position was approximately $ 18.0 million at june 30 , 2020. the remaining variance generally represented normal operating fluctuations in the balances of other liabilities . additional information about the company 's operating lease liability at june 30 , 2020 is presented in note 9 to the audited consolidated financial statements . additional information about the company 's derivatives portfolio at june 30 , 2020 is presented under โ item 1. business โ of this annual report on form 10-k , as well as in note 14 to the audited consolidated financial statements . stockholders ' equity . stockholders ' equity decreased by $ 43.0 million to $ 1.08 billion at june 30 , 2020 from $ 1.13 billion at june 30 , 2019 largely reflecting the impact of our share repurchases and dividends declared during fiscal 2020. in march 2019 we announced our fourth share repurchase program through which we authorized the repurchase of 9,218,324 shares , or 10 % , of our outstanding shares as of that date . during the year ended june 30 , 2020 , the company repurchased 5,375,551 shares of common stock at a total cost of $ 69.8 million and an average cost of $ 12.98 per share . the shares of common stock repurchased during the period represented 58.3 % of the total shares authorized to be repurchased under the current repurchase program . cumulatively , the company has repurchased a total of 8,457,294 shares or 91.7 % of the shares to be repurchased under its current repurchase program at a total cost of $ 111.1 million and at an average cost of $ 13.14 per share . on march 25 , 2020 the company temporarily suspended its stock repurchase program due to the risks and uncertainties associated with the covid-19 pandemic . the net decrease in stockholders ' equity was partially offset by net income of $ 45.0 million , or $ 0.55 per share , for the year ended june 30 , 2020 from which we declared and paid cash dividends totaling $ 0.29 per share . cash dividends declared and paid during the year ended june 30 , 2020 reduced stockholders ' equity by $ 23.7 million .
| executive summary . total assets increased $ 123.3 million to $ 6.76 billion at june 30 , 2020 from $ 6.63 billion at june 30 , 2019. the net increase in total assets primarily reflected increases in the balances of cash and equivalents , investment securities , loans held-for-sale and other assets , partially offset by a decrease in net loans receivable . wholesale restructuring transaction . during the year ended june 30 , 2020 the company executed a wholesale restructuring transaction designed to enhance net interest income and reduce credit risk within the investment portfolio . during the first phase of the transaction , $ 158.4 million of investment securities with a weighted average yield of 2.63 % were sold and a portion of the proceeds utilized to extinguish $ 121.5 million of federal home loan bank ( โ fhlb โ ) advances with a weighted average cost of 2.84 % . gains on sale of investment securities and debt extinguishment losses each totaled $ 2.2 million , resulting in a negligible impact on pre-tax net income . during the second phase of the transaction , $ 248.7 million of u.s. agency-backed mortgage-backed securities were purchased at a weighted average yield of 2.77 % and were funded with a combination of fhlb advances , brokered time deposits and overnight borrowings that , at execution of the transaction , carried a weighted average cost of 1.65 % . 47 investment securities . investment securities classified as available for sale increased by $ 671.4 million to $ 1.39 billion at june 30 , 2020 from $ 714.3 million at june 30 , 2019. the net increase in the portfolio partially reflected the adoption of asu 2019-04 on july 1 , 2019 , upon which the company reclassified $ 537.7 million of investment securities from held to maturity to available for sale .
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we record a contract asset when we have satisfied our performance obligation prior to billing and a contract liability when a customer payment is received prior to the satisfaction of our performance obligation . the difference between the beginning and ending balances of our contract assets and liabilities primarily results from the timing of our performance and the customer 's payment . our remaining performance obligations are expected to be recognized within the next twelve months . โ the following table represents our contract assets and contract liabilities with customers , in thousands : โ replace_table_token_19_th โ 46 โ topbuild corp. notes to consolidated financial statements โ 4. property & equipment โ the following table sets forth our property and equipment by class as of december 31 , 2019 and 2018 , in thousands : โ replace_table_token_20_th โ for additions to property and equipment as a result of 2018 acquisitions , see note 17 โ business combinations . โ total property and equipment , net as of december 31 , 2018 excludes $ 0.9 million of assets held for sale related to a property acquired in the usi acquisition in which management committed to a plan of sale in the fourth quarter of 2018. these assets held for sale are included in prepaid expenses and other current assets on the consolidated balance sheet as of december 31 , 2018. these assets were sold during the second quarter of 2019 and no gain or loss was recognized on the sale . โ depreciation expense was $ 31.9 million , $ 23.7 million , and $ 13.5 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . โ 5. goodwill and other intangibles โ we have two reporting units which are also our operating and reporting segments : installation and distribution . both reporting units contain goodwill . assets acquired and liabilities assumed are assigned to the applicable reporting unit based on whether the acquired assets and liabilities relate to the operations of and determination of the fair value of such unit . goodwill assigned to the reporting unit is the excess of the fair value of the acquired business over the fair value of the individual assets acquired and liabilities assumed for the reporting unit . in the fourth quarters of 2019 and 2018 , we performed annual assessments on our goodwill resulting in no impairment . โ changes in the carrying amount of goodwill for the years ended december 31 , 2019 and 2018 , by segment , were as follows , in thousands : 47 โ topbuild corp. notes to consolidated financial statements โ replace_table_token_21_th โ replace_table_token_22_th โ other intangible assets , net includes customer relationships , non-compete agreements , and trademarks / trade names . the following table sets forth our other intangible assets , in thousands : โ replace_table_token_23_th โ the following table sets forth the amortization expense related to the definite-lived intangible assets during each of the next five years , in thousands : โ replace_table_token_24_th โ see note 17 โ business combinations for breakout by major intangible asset class and their weighted average estimated useful lives . โ โ 48 โ topbuild corp. notes to consolidated financial statements 6. long-term debt โ the following table reconciles the principal balances of our outstanding debt to our consolidated balance sheets , in thousands : โ replace_table_token_25_th โ the following table sets forth our remaining principal payments for our outstanding debt balances as of december 31 , 2019 , in thousands : โ replace_table_token_26_th โ amended credit agreement and senior secured term loan facility on march 28 , 2018 , the company executed an amendment to its credit agreement , which primarily facilitated the acquisition of usi by ( i ) extending until august 29 , 2018 , the period during which the company could access the $ 100.0 million delayed draw term loan feature and ( ii ) providing that the company could issue up to $ 500.0 million of senior notes in connection with its acquisition of usi . on may 1 , 2018 , the company closed on its acquisition of usi . the acquisition was funded through net proceeds from the issuance of our senior notes on april 25 , 2018 together with the net proceeds from the $ 100.0 million delayed draw term loan commitment accessed on may 1 , 2018 under the company 's amended credit agreement . these funds were also used for the payment of related fees and expenses , as well as for general corporate purposes . โ 49 โ topbuild corp. notes to consolidated financial statements the following table outlines the key terms of our amended credit agreement ( dollars in thousands ) : โ โ โ โ โ senior secured term loan facility ( original borrowing ) ( a ) $ 250,000 โ additional delayed draw term loan ( b ) $ 100,000 โ โ โ โ โ additional term loan and or revolver capacity available under incremental facility ( c ) $ 200,000 โ โ โ โ โ revolving facility $ 250,000 โ sublimit for issuance of letters of credit under revolving facility ( d ) $ 100,000 โ sublimit for swingline loans under revolving facility ( d ) $ 20,000 โ โ โ โ โ interest rate as of december 31 , 2019 โ 2.95 % scheduled maturity date โ 5/05/2022 โ ( a ) the story_separator_special_tag n and results of operations โ the financial and business analysis below provides information which we believe is relevant to an assessment and understanding of our financial position , results of operations , and cash flows . story_separator_special_tag โ other expense , net โ other expense , net , which primarily consists of interest expenses , increased $ 7.6 million to $ 35.7 million in 2019 compared with 2018. the increase is primarily related to the issuance of our $ 400 million senior notes and our borrowing of the $ 100 million delayed draw term loan to fund our acquisition of usi in the second quarter of 2018 , as well as the issuance of $ 15.0 million of equipment notes in 2019 . โ 24 โ income tax expense โ our effective tax rate decreased from 25.5 percent in 2018 to 24.7 percent in 2019. the lower 2019 rate was primarily related to an increased benefit from share-based compensation partially offset by an increase in the state and local taxes . the state and local tax increase was due to a revaluation of deferred tax assets & liabilities resulting from state filing position changes , with some offsetting benefit for the state return to provision adjustment and other miscellaneous state adjustments . โ 2019 and 2018 business segment results โ the following table sets forth our net sales and operating profit information by business segment , in thousands : โ replace_table_token_4_th ( a ) segment operating profit for years ended december 31 , 2019 and 2018 includes an allocation of general corporate expenses attributable to the operating segments which is based on direct benefit or usage ( such as salaries of corporate employees who directly support the segment ) . ( b ) general corporate expense , net includes expenses not specifically attributable to our segments for functions such as corporate human resources , finance and legal , including salaries , benefits , and other related costs . in the years ended december 31 , 2019 and 2018 , general corporate expense , net decreased primarily due to merger and acquisition costs incurred related to the usi acquisition in 2018 . โ 2019 and 2018 business segment results discussion โ changes in operating profit margins in the following business segment results discussion exclude general corporate expense , net in 2019 and 2018 , as applicable . โ installation โ sales โ sales increased $ 225.8 million , or 13.4 percent , in 2019 compared to 2018. sales increased 7.1 percent from acquisitions , 3.8 percent due to increased selling prices , and 2.5 percent due to increased sales volume , primarily in our commercial markets . โ 25 โ operating results โ operating margins in the installation segment were 13.3 percent and 11.7 percent for 2019 and 2018 , respectively . the increase in operating margins related to increased selling prices , increased sales volume , operational efficiencies , and synergies from the usi acquisition , partially offset by higher material costs . โ distribution โ sales โ sales increased $ 41.8 million , or 5.1 percent , in 2019 compared to 2018. sales increased 4.6 percent due to increased selling prices , 1.3 percent from acquisitions , and decreased 0.8 percent due to volume . volume decreased primarily due to deliberate decisions with respect to price and volume , as well as the decision to exit some low margin business . โ story_separator_special_tag style= '' background-color : # 000000 ; clear : both ; height:2pt ; page-break-after : always ; width:76.47 % ; border:0 ; margin:30pt 11.76 % 30pt 11.76 % ; '' > โ at time of sale , we record estimated reductions to revenue for customer programs and incentive offerings , including special pricing and other volume-based incentives based on historical experience , which is continuously adjusted . the duration of our contracts with customers is relatively short , generally less than a 90-day period , and therefore there is not a significant financing component when considering the determination of the transaction price which gets allocated to the individual performance obligations , generally based on standalone selling prices . additionally , we consider shipping costs charged to a customer as a fulfillment cost rather than a promised service and expense as incurred . sales taxes , when incurred , are recorded as a liability and excluded from revenue on a net basis . โ we record a contract asset when we have satisfied our performance obligation prior to billing and a contract liability when a customer payment is received prior to the satisfaction of our performance obligation . the difference between the beginning and ending balances of our contract assets and liabilities primarily results from the timing of our performance and the customer 's payment . โ we maintain allowances for doubtful accounts receivable for estimated losses resulting from the inability of customers to make required payments . in addition , we monitor our customer receivable balances and the credit worthiness of our customers on an on-going basis . during downturns in our markets , declines in the financial condition and creditworthiness of customers impact the credit risk of the receivables involved and we have incurred additional bad debt expense related to customer defaults . โ goodwill and other intangible assets โ we have two reporting units , which are also our operating and reporting segments : installation and distribution . both reporting units contain goodwill . assets acquired and liabilities assumed are assigned to the applicable reporting unit based on whether the acquired assets and liabilities relate to the operations of and determination of the fair value of such unit . goodwill assigned to the reporting unit is the excess of the fair value of the acquired business over the fair value of the individual assets acquired and liabilities assumed for the reporting unit .
| operating results โ operating margins in the distribution segment were 10.5 percent and 9.6 percent for 2019 and 2018 , respectively . the increase in operating margins related to increased selling prices and operational efficiencies , which were partially offset by increased material costs . commitments and contingencies โ litigation โ โ we are subject to certain claims , charges , litigation , and other proceedings in the ordinary course of our business , including those arising from or related to contractual matters , intellectual property , personal injury , environmental matters , product liability , product recalls , construction defects , insurance coverage , personnel and employment disputes , antitrust , and other matters , including class actions . we believe we have adequate defenses in these matters , and we do not believe that the ultimate outcome of these matters will have a material adverse effect on us . however , there is no assurance that we will prevail in any of these pending matters , and we could in the future incur judgments , enter into settlements of claims , or revise our expectations regarding the outcome of these matters , which could materially impact our liquidity and our results of operations . โ other commitments โ we enter into contracts which include customary indemnities that are standard for the industries in which we operate . such indemnities include , among other things , customer claims against builders for issues relating to our products and workmanship . in conjunction with divestitures and other transactions , we occasionally provide customary indemnities relating to various items including , among others : the enforceability of trademarks ; legal and environmental issues ; and asset valuations . we evaluate the probability that we may incur liabilities under these customary indemnities and appropriately record an estimated liability when deemed probable .
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for over a decade , our solutions have helped improve customer experience , grow sales , and optimize service processes across the web , social , and phone channels . hundreds of global enterprises rely on us to transform fragmented sales engagement and customer service operations into unified customer engagement hubs . in fiscal year 2014 , we recorded annual revenue of $ 70.3 million and loss from operations of $ 4.1 million , compared to annual revenue of $ 58.9 million and income from operations of $ 1.2 million in fiscal year 2013. the year-over-year increase in total revenue was primarily driven by the 36 % increase in subscription revenue as our business has shifted more toward a cloud delivery model . subscription and support revenue was $ 40.5 million in fiscal year 2014 , an increase of 25 % from fiscal year 2013. professional services revenue was $ 15.0 million in fiscal year 2014 , an increase of 9 % from fiscal year 2013. cash used in operations was $ 4.7 million for fiscal year 2014 , compared to cash provided by operations of $ 10.0 million for fiscal year 2013. based upon the strong increase in the demand for our products and services we continued to increase our investment in sales and marketing and expand our distribution capability during fiscal year 2014. if the demand continues for our products and services , we intend to continue to increase our sales and marketing investments and the expansion of distribution capability in fiscal year 2015. in addition , we intend to make further investments in product development and technology to enhance our current products and services , develop new products and services and further advance our solution offerings . we believe that existing capital resources will enable us to maintain current and planned operations for the next 12 months . due to fluctuations in our business , we believe that period-to-period comparisons of our revenue and operating results may not be meaningful and should not be relied upon as indications of future performance , but we anticipate an increase in revenue in fiscal year 2015. unbilled deferred revenue unbilled deferred revenue represents business that is contracted but not yet invoiced or collected and offโbalance-sheet and , accordingly , is not recorded in deferred revenue . as such , the deferred revenue balance on our consolidated balance sheet does not represent the total contract value of annual or multi-year , non-cancelable subscription agreements . as of june 30 , 2014 , unbilled deferred revenue decreased to $ 22.6 million , down from approximately $ 24.8 million as of june 30 , 2013. critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states 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 revenue and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to revenue recognition , allowance for doubtful accounts , goodwill , deferred tax valuation allowance and accrued liabilities , long-lived assets and stock-based compensation . management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . revenue recognition we enter into arrangements to deliver multiple products or services ( multiple-elements ) . we apply software revenue recognition rules and multiple-elements arrangement revenue guidance . significant management judgments and estimates are made and used to determine the revenue recognized in any accounting period . material differences may result in changes to the amount and timing of our revenue for any period if different conditions were to prevail . we present revenue net of taxes collected from customers and remitted to governmental authorities . 24 we derive revenue from three sources : ( i ) subscription and support fees primarily consist of cloud revenue from customers accessing our enterprise cloud computing services , term license revenue , and maintenance and support revenue ; ( ii ) license fees primarily consist of perpetual software license revenue ; ( iii ) professional services primarily consist of consulting , implementation services and training . revenues are recognized when all of the following criteria are met : ยท persuasive evidence of an arrangement exists : evidence of an arrangement consists of a written contract signed by both the customer and management prior to the end of the period . we use signed software license , services agreements and order forms as evidence of an arrangement for sales of software , cloud , maintenance and support . we use a signed statement of work as evidence of arrangement for professional services . ยท delivery or performance has occurred : software is delivered to customers electronically or on a cd-rom , and license files are delivered electronically . delivery is considered to have occurred when we provide the customer access to the software along with login credentials . ยท fees are fixed or determinable : we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction . arrangements where a significant portion of the fee is due beyond 90 days from delivery are generally not considered to be fixed or determinable . ยท collectibility is probable : we assess collectibility based on a number of factors , including the customer 's past payment history and its current creditworthiness . payment terms generally range from 30 to 90 days from invoice date . story_separator_special_tag term license revenue term license revenue includes arrangements where our customers receive license rights to use our software along with bundled maintenance and support services for the term of the contract . the majority of our contracts provide customers with the right to use one or more products up to a specific license capacity . certain of our license agreements stipulate that customers can exceed pre-determined base capacity levels , in which case additional fees are specified in the license agreement . term license revenue is recognized ratably over the term of the license contract . maintenance and support revenue maintenance and support revenue consists of customers purchasing maintenance and support for our on-premise software . we use vsoe of fair value for maintenance and support to account for the arrangement using the residual method , regardless of any separate prices stated within the contract for each element . maintenance and support revenue is recognized ratably over the term of the maintenance contract , which is typically one year . maintenance and support is renewable by the customer on an annual basis . maintenance and support rates , including subsequent renewal rates , are typically established based upon a specified percentage of net license fees as set forth in the arrangement . license revenue license revenue consists of perpetual license rights sold to customers to use our software in conjunction with related maintenance and support services if an acceptance period is required , revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period . in software arrangements that include rights to multiple software products and or services , we use the residual method under which revenue is allocated to the undelivered elements based on vsoe of the fair value of such undelivered elements . the residual amount of revenue is allocated to the delivered elements and recognized as revenue , assuming all other criteria for revenue recognition have been met . such undelivered elements in these arrangements typically consist of software maintenance and support , implementation and consulting services and in some cases cloud services . license sales to resellers as a percentage of total revenue were approximately 11 % , 6 % and 2 % in fiscal years 2014 , 2013 and 2012 , respectively . revenue from sales to resellers is generally recognized upon delivery to the reseller dependent on the facts and circumstances of the transaction . these include items such as our understanding of the reseller 's plans to sell the software , existence of return provisions , price protection or other allowances , the reseller 's financial status and our past experience with the reseller . historically sales to resellers have not included any return provisions , price protections or other allowances . 26 professional services revenue professional services revenue includes system implementation , consulting and training . for license transactions , the majority of our consulting and implementation services qualify for separate accounting . we use vsoe of fair value for the services to account for the arrangement using the residual method , regardless of any separate prices stated within the contract for each element . our consulting and implementation service contracts are bid either on a fixed-fee basis or on a time-and-materials basis . substantially all of our contracts are on a time-and-materials basis . for time-and-materials contracts , where the services are not essential to the functionality , we recognize revenue as services are performed . if the services are essential to functionality , then both the product license revenue and the service revenue are recognized under the percentage of completion method . for a fixed-fee contract , we recognize revenue based upon the costs and efforts to complete the services in accordance with the percentage of completion method , provided we are able to estimate such cost and efforts . under asc 605-25 , in order to account for deliverables in a multiple-deliverable arrangement as separate units of accounting , the deliverables must have standalone value upon delivery . for cloud services , in determining whether professional services have standalone value , we consider the following factors for each professional services agreement : availability of the services from other vendors , the nature of the professional services , the timing of when the professional services contract was signed in comparison to the subscription service start date and the contractual dependence of the subscription service on the customer 's satisfaction with the professional services work . we determined at or around july 1 , 2013 that we had established standalone value for consulting and implementation services . this was primarily due to the change in our business focus , the growing number of partners we trained and certified to perform these deployment services and the consequential sale of subscription services without bundled implementation service . revenues earned from professional services related to consulting and implementation of a majority of our core subscription services are being accounted for separately from revenues earned from subscription services beginning july 1 , 2013 when the standalone value was established for those professional services . for those contracts that have standalone value , we recognized the services revenue when rendered for time and material contracts , when the milestones are achieved and accepted by the customer for fixed price contracts or by percentage of completion basis if there is no acceptance criteria . for cloud , consulting and implementation services that do not qualify for separate accounting , we recognize the services revenue ratably over the estimated life of the customer cloud relationship , once cloud has gone live or system ready . we currently estimate the life of the customer cloud relationship to be approximately 28 months , based on the average life of all cloud customer relationships . training revenue that meets the criteria to be accounted for separately is recognized when training is provided .
| results of operations the following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenue for the periods indicated . replace_table_token_4_th revenue total revenue , which consists of subscription and support , license and professional services revenue , was $ 70.3 million , $ 58.9 million , and $ 43.4 million , in fiscal years 2014 , 2013 , and 2012 , respectively . in fiscal year 2014 , total revenue increased 19 % or $ 11.4 million , from the prior year . our international sales accounted for approximately 45 % of total revenue in fiscal year 2014 , an increase from 40 % of total revenue in fiscal year 2013. the impact of the foreign exchange fluctuation between the u.s. dollar , the euro and british pound in total revenue was $ 1.3 million in fiscal year 2014 and was minimal in fiscal year 2013. there were two different customers that accounted for 16 % and 10 % of total revenue in fiscal year 2014. two different customers accounted for 18 % and 10 % of total revenue in fiscal years 2013 and 2012 , respectively . 29 subscription and support revenue replace_table_token_5_th subscription and support revenue includes cloud and software maintenance and support revenue . subscription and support revenue was $ 40.5 million , $ 32.3 million , and $ 23.6 million in fiscal years 2014 , 2013 , and 2012 , respectively . this represented an increase of 25 % or $ 8.2 million , in fiscal year 2014 compared to fiscal year 2013 and an increase of 37 % , or $ 8.7 million , in fiscal year 2013 compared to fiscal year 2012. subscription and support revenue represented 58 % , 55 % , and 54 % of total revenue for the fiscal years 2014 , 2013 and 2012 , respectively .
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this new guidance eliminates the requirement story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section entitled โ selected financial data โ in this report and our consolidated financial statements and related notes to this report . this discussion and analysis contains forward-looking statements based on our current expectations , assumptions , estimates and projections . these forward-looking statements involve risks and uncertainties . our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors , as more fully discussed in item 1a of this report , entitled โ risk factors. โ overview we are a leader in the research , development and commercialization of organic light emitting diode , or oled , technologies for use in flat panel display , solid-state lighting and other applications . since 1994 , we have been exclusively engaged , and expect to continue to be exclusively engaged , in funding and performing research and development activities relating to oled technologies and materials , and in attempting to commercialize these technologies and materials . we derive our revenue from the following : ยท intellectual property and technology licensing ; ยท sales of oled materials for evaluation , development and commercial manufacturing ; and ยท technology development and support , including government contract work and support provided to third parties for commercialization of their oled products . while we have made significant progress over the past few years developing and commercializing our family of oled technologies ( pholed , toled , foled , etc . ) and materials , we have incurred significant losses since our inception , resulting in an accumulated deficit of $ 213,870,962 as of december 31 , 2011 . 30 we anticipate fluctuations in our annual and quarterly results of operations due to uncertainty regarding : ยท the timing of our receipt of license fees and royalties , as well as fees for future technology development and evaluation ; ยท the timing and volume of sales of our oled materials ; ยท the timing and magnitude of expenditures we may incur in connection with our ongoing research and development activities ; and ยท the timing and financial consequences of our formation of new business relationships and alliances . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities , revenues and expenses , and other financial information . actual results may differ significantly from our estimates under other assumptions and conditions . we believe that our accounting policies related to revenue recognition and deferred license fees , stock-based compensation and accounting for warrants and our supplemental executive retirement plan , as described below , are our โ critical accounting policies โ as contemplated by the sec . these policies , which have been reviewed with our audit committee , are discussed in greater detail below . revenue recognition and deferred revenue technology development and support revenue is revenue earned from government contracts , development and technology evaluation agreements and commercialization assistance fees , which includes reimbursements by the u.s. government for all or a portion of the research and development expenses we incur related to our government contracts . revenue is recognized proportionally as research and development expenses are incurred or as defined milestones are achieved . in order to ascertain the revenue associated with these contracts for a period , we estimate the proportion of related research and development expenses incurred and whether defined milestones have been achieved . different estimates would result in different revenues for the period . we receive non-refundable cash payments under certain commercial , development and technology evaluation agreements with our customers . these payments are generally recognized as revenue over the term of the agreement . on occasion , however , certain of the payments under development and evaluation agreements are creditable against license fees and or royalties payable by the customer if a commercial license agreement is subsequently executed with the customer . these payments are classified as deferred revenues , and are recorded as liabilities in the consolidated balance sheet until such time as revenue can be recognized . revenue is deferred until a commercial license agreement is executed or negotiations have ceased and there is no appreciable likelihood of executing a commercial license agreement with the customer . if a commercial license agreement is executed , payments are recorded as revenue over the term of the agreement or the estimated useful life of the licensed technology , for perpetual licenses , and the revenue is classified based on the terms of the license . otherwise , payments deferred pending a commercial license are recorded as revenue at the time negotiations with the customer show that there is no appreciable likelihood of executing a commercial license agreement . if we used different estimates for the useful life of the licensed technology , reported revenue during the relevant period would differ . as of december 31 , 2011 , $ 9,407,715 was recorded as deferred revenue , of which $ 3,366,667 is creditable against future commercial license agreements that have not yet been executed or deemed effective . for the years ended december 31 , 2010 and 2009 , $ 2,100,000 and $ 1,500,000 , respectively , of revenue was recognized relating to cash payments received that were creditable against license fees and or royalties for which we determined there was no appreciable likelihood of executing a license agreement with the customer . for the year ended december 31 , 2011 , no such revenue was recognized . for arrangements with extended payment terms where the fee is not fixed and determinable , revenue is recognized when the payment is due and payable . story_separator_special_tag patent costs increased to $ 7,442,374 for the year ended december 31 , 2011 , compared to $ 4,270,689 for 2010. the increase was mainly due to increased costs associated with our defense of certain ongoing and new challenges to our issued patents , as well as the timing of prosecution and maintenance costs associated with a number of patents and patent applications . royalty and license expense increased to $ 1,359,578 for the year ended december 31 , 2011 , compared to $ 875,902 for 2010. the increase consisted mainly of royalties incurred under an amended license agreement with princeton , usc and michigan , resulting from increased revenues . see note 3 in noted to consolidated financial statements for further discussion . interest income increased to $ 994,221 for the year ended december 31 , 2011 , compared to $ 279,474 for 2010. the increase was mainly attributable to interest earned on higher average cash and investment balances as a result of proceeds received from the completion of our public offering in march 2011. in 2011 , all remaining outstanding stock warrants to purchase shares of our common stock were exercised . the warrants , which contained a โ down-round โ provision , were previously recorded as a liability . the change in fair value of 34 these warrants during the period prior to the exercise date resulted in a $ 4,190,283 non-cash loss on our statement of operations for the year ended december 31 , 2011 , compared to a $ 10,077,065 non-cash loss for 2010. during the year ended december 31 , 2011 , we sold approximately $ 45.2 million of our state-related income tax net operating losses ( nols ) and $ 232,000 of our research and development tax credits under the new jersey technology tax certificate transfer program . we recorded the amount of the completed sale as an income tax benefit for the year ended december 31 , 2011 and received the proceeds of $ 2,660,512 in january 2012. during the year ended december 31 , 2010 , we sold approximately $ 3.8 million of our state-related income tax nols and $ 194,088 of our research and development tax credits under the new jersey technology tax certificate transfer program . we received proceeds of $ 464,162 from our sale of these nols and research and development tax credits , and we recorded these proceeds as an income tax benefit for the year ended december 31 , 2010. the above-mentioned income tax benefit was offset by foreign income tax withholdings in connection with payments received from smd . we had previously filed for and were granted a five-year exemption from withholding tax on royalties and license fees received from smd under our 2005 patent license agreement as part of a tax incentive program in korea . the exemption remained in effect until may 2010. since then , smd has been required to withhold tax upon payment of royalties to us . this is also the case under our new patent license agreement with smd , which we entered into in august 2011. in 2011 and 2010 , the withholding tax rate for royalties and license fees paid by smd was 16.5 % . for the years ended december 31 , 2011 and 2010 , foreign income taxes of $ 1,946,456 and $ 329,813 , respectively , were withheld in connection with these payments . we anticipate the amount of withholding taxes to increase as associated payments received from smd increase in the future . year ended december 31 , 2010 compared to year ended december 31 , 2009 we had an operating loss of $ 10,226,297 for the year ended december 31 , 2010 , compared to an operating loss of $ 20,266,794 for 2009. the decrease in operating loss was due to : ยท an increase in revenue of $ 14,757,763 ; ยท offset by an increase in operating expenses of $ 4,717,266. we had a net loss of $ 19,917,410 , or $ 0.53 per diluted share , for the year ended december 31 , 2010 , compared to a net loss of $ 20,505,320 , or $ 0.56 per diluted share , for 2009. the decrease in net loss was primarily due to : ยท a decrease in operating loss of $ 10,040,497 ; ยท offset by an increase in loss on stock warrant liability of $ 9,046,010. our revenues were $ 30,544,380 for the year ended december 31 , 2010 , compared to $ 15,786,617 for 2009. material sales increased to $ 17,271,749 for the year ended december 31 , 2010 , compared to $ 5,668,752 for 2009. material sales relates to the sale of our oled materials for incorporation into our customers ' commercial oled products or for their oled development and evaluation activities . material sales included sales of both phosphorescent emitter and host materials . phosphorescent emitter sales were 88 % of our total material sales in 2010 , compared to 94 % of our total material sales in 2009. host material sales were 12 % of our total material sales in 2010 , compared to 6 % of our total material sales in 2010. we can not accurately predict how long our phosphorescent emitter material sales or host material sales to particular customers will continue , as our customers frequently update and alter their product offerings in response to market demands . continued sales of our oled materials to these customers will depend on several factors , including pricing , availability , continued technical improvement and competitive product offerings . royalty and license fees increased to $ 4,605,512 for the year ended december 31 , 2010 , compared to $ 2,656,326 for 2009. a substantial portion of the increase was due to additional royalty payments received under our 2005 patent license agreement with smd .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 we had operating income of $ 5,686,737 for the year ended december 31 , 2011 , compared to an operating loss of $ 10,226,297 for 2010. the change to operating income was due to : ยท an increase in revenue of $ 30,744,298 ; ยท offset by an increase in operating expenses of $ 14,831,264. we had net income of $ 3,155,153 , or $ 0.07 per diluted share , for the year ended december 31 , 2011 , compared to a net loss of $ 19,917,410 , or $ 0.53 per diluted share for 2010. the change to net income was primarily due to : 32 ยท an increase of operating income of $ 15,913,034 ; ยท a decrease in loss on stock warrant liability of $ 5,886,782 ; ยท an increase in interest income of $ 714,747 ; and ยท an increase in income tax benefit of $ 579,704. our revenues were $ 61,288,678 for the year ended december 31 , 2011 , compared to $ 30,544,380 for the year ended december 31 , 2010. the increase in our overall revenue was primarily due to additional oled material sales and licensing revenues from the expanded adoption of our technology and materials in the marketplace by display manufacturers , particularly smd . material sales increased to $ 37,443,329 for the year ended december 31 , 2011 , compared to $ 17,271,749 for 2010. material sales relates to the sale of our oled materials for incorporation into our customers ' commercial oled products or for their oled development and evaluation activities . material sales included sales of both phosphorescent emitter and host materials .
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mr. budde was previously the chief financial officer and shareholder of neace lukens holding company and subsidiaries from july 2003 through september 2011 , when it was acquired by assured partners capital , inc. assuredpartners was founded in 2011 and is a national partnership of leading independent property and casualty and employee benefits brokerage firms . mr. budde was the machine tool group controller of cincinnati milacron inc. from april 1994 to october 1998 , at which time he was appointed as vice president of finance after cincinnati milacron 's machine tool group was acquired by unova industrial automation systems , inc. mr. budde remained in that role prior to joining neace lukens in 2003. mr. budde was a certified public accountant until he left public accounting and ernst & young and after 11 years of service in 1994. mr. budde is currently a member of the board of trustees and the finance committee of mt . notre dame high school and is also a member of the finance commission of st. margaret of york parish and school . mr. budde received a bachelor 's degree in accounting from the university of dayton . martin j. rucidlo , president mr. rucidlo has over 25 years of experience in a variety of industries ranging from vp sales & marketing to general manager positions in the aerospace , packaging , software , medical technology , and automotive industries . he has held executive-level positions at zix corporation , quest diagnostics inc. , nuance communications . , pcc airfoils and alcoa . he holds a bachelors of science degree in industrial engineering from the pennsylvania state university . julio c. rodriguez , chief financial officer mr. rodriguez is a finance executive with over 30 years of experience in financial and operational leadership roles within various industries including the automotive industry . most recently , he served in various executive roles for genuine parts company ( `` gpc `` ) including director process improvement for gpc corporate , and vice president finance & corporate secretary for johnson industries , a subsidiary of gpc . prior to gpc mr. rodriguez served as director of international finance for federal mogul an oem manufacturer of automotive systems , and director of finance for chiquita brands international in the fruit ingredients manufacturing division . mr. rodriguez was a certified public accountant until he left public accounting working for arthur andersen for 8 years . mr. rodriguez holds a bachelor of science degree in business administration and a bachelor of science degree in accounting from catholic university caracas , venezuela . family relationships there are no family relationships among our directors and executive officers . there is no arrangement or understanding between or among our executive officers and directors pursuant to which any director or officer was or is to be selected as a director or officer . involvement in certain legal proceedings to our knowledge , during the last ten years , none of our directors and executive officers has : โ had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time . โ been convicted in a criminal proceeding or been subject to a pending criminal proceeding , excluding traffic violations and other minor offenses . โ been subject to any order , judgment or decree , not subsequently reversed , suspended or vacated , of any court of competent jurisdiction , permanently or temporarily enjoining , barring , suspending or otherwise limiting his involvement in any type of business , securities or banking activities . โ been found by a court of competent jurisdiction ( in a civil action ) , the sec , or the commodities futures trading commission to have violated a federal or state securities or commodities law , and the judgment has not been reversed , suspended or vacated . โ been the subject to , or a party to , any sanction or order , not subsequently reverse , suspended or vacated , of any self-regulatory organization , any registered entity , or any equivalent exchange , association , entity or organization that has disciplinary authority over its members or persons associated with a member . 38 corporate governance governance policies of the board of directors the board of directors has adopted governance policies of the board of directors to assist the board in the exercise of its duties and responsibilities and to serve the best interests of the company and its stockholders . these policies provide a framework for the conduct of the board 's business . committees establishment of board committees and adoption of charters on december 17 , 2015 , the company established a nominating and corporate governance committee , a compensation committee and an audit committee ( collectively , the `` committees `` ) and approved and adopted charters to govern each of the committees . in connection with the establishment of the nominating and corporate governance committee , compensation committee and audit committee , the board of directors of the company appointed members to each such committee . currently , all three committees are comprised of three ( 3 ) directors meeting the requirements set forth in each applicable charter . the membership of these three standing committees of the board of directors of the company is as follows : nominating and corporate governance committee compensation committee audit committee raymond chess ( chairman ) james taylor ( chairman ) gerald budde ( chairman ) gerald budde gerald budde raymond chess james taylor benjamin samuels benjamin samuels compensation committee . story_separator_special_tag our approach is to provide battery-electric power trains utilizing proven , automotive-grade , mass-produced parts in their architectures , coupled with in-house control software that we have developed over the last five years . the company is also seeking to re-design the future of parcel delivery aviation : horsefly , an unmanned aerial vehicle ( uav ) that is designed for the package delivery market as well as other commercial applications . our uav works in tandem with our electric trucks to bring a practical low cost solution to making the last mile more efficient and cost effective for our parcel customers . horsefly is designed to further improve package delivery efficiencies and has been developed in conjunction with the university of cincinnati , one of the country 's foremost educational institutions for drone research , and the faa . although the faa rules governing the use of drones have not been finalized , we believe that horsefly is built to comply with the nature of the faa proposed rules . 31 recent developments on august 7 , 2015 , the company entered into a prime order under the vehicle purchase agreement with ups , pursuant to which ups agreed to purchase 125 e-gen trucks . in addition , workhorse also received orders for two e-gen vehicles from ups for testing , which have been delivered . workhorse had previously entered into a purchase agreement with ups to supply 18 all-electric workhorse e-100 walk-in vans to be deployed in the houston-galveston , texas area . the u.s. department of energy selected this project to improve local air quality in the houston-galveston area , which is currently designated as a national ambient air quality non-attainment area . the purchase agreement requires an initial vehicle to be approved by ups prior to delivering additional vehicles . after approval of the initial vehicle , we are scheduled to deliver five vehicles per month over a period of three to four months . as of the date hereof , workhorse has delivered one e-100 all electric vehicle and , pending receipt of approval , is in the process of finalizing the manufacture of one additional vehicle . currently , the schedule agreed to with ups for the prime order requires that we deliver 20 vehicles per month , beginning in february 2016. however , these deadlines are expected to evolve as ups operations personnel from seven states will be involved in the scheduling . there is no guarantee that the company will be able to perform under the prime order or the e-100 order and , if it does perform , that ups will purchase additional vehicles from the company . further , if the company is not able to raise the required capital , including to purchase required parts and pay certain vendors , the company may not be able to comply with ups 's deadlines . the company responded on march 6 , 2015 to a request for information and prequalification ( rfi ) from the united states postal service ( usps ) for its next generation delivery vehicle ( ngdv ) acquisition program . the usps anticipates making a single award in 2017 to a supplier for up to 180,000 ngdvs to replace its current fleet of mail delivery vehicles . delivery of the ngdvs to the usps is expected to begin no later than january 2018. on april 14 , 2015 , the usps notified the company that it has advanced in the ngdv acquisition program as a prequalified supplier . the company is now required to submit detailed specifications and build several prototypes for testing . the company was expected to submit its specifications in early october 2015. however , on august 10 , 2015 , usps advised that it is continuing to review its objectives and refine its requirements under the program to ensure design flexibility and maximum opportunity for innovation . the usps advised that it expected to provide further guidance prior to september 25 , 2015. as of the date hereof , the usps has not provided the further guidance . upon receipt of such guidance , the company will submit its specifications . the federal aviation administration ( faa ) granted a certificate of authorization ( coa ) to the ohio/indiana uas center and test complex , allowing workhorse and the university of cincinnati ( uc ) to continue their joint development of workhorse group 's horsefly uas , which is designed to fly to and from a standard delivery vehicle . testing of horsefly will take place at the wilmington air park in wilmington , oh . collaboration between the uc 's college of engineering and applied science and the ohio/indiana uas center led to sponsorship for the two-year faa authorization from the ohio state department of transportation in addition to priority access to wilmington air park . story_separator_special_tag right '' > critical accounting policies and estimates the following accounting principles and practices of the company are set forth to facilitate the understanding of data presented in the consolidated financial statements : nature of operations workhorse is a technology company that is focused on last mile delivery systems . the company designs , develops , manufactures and sells cost effective high-performance electric medium duty trucks and unmanned aerial delivery systems that are fully integrated with our electric vehicles as an original equipment manufacturer ( oem ) . workhorse 's vehicles , engineering expertise , and business model differentiates us from other truck and drone manufacturers . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect certain reported amounts and disclosures . accordingly , actual results could differ from those estimates . property and depreciation property and equipment is recorded at cost . depreciation is provided on the straight-line and accelerated methods over the estimated useful lives of the respective assets . income taxes
| results of operations our condensed consolidated statement of operations data for the period presented follows : replace_table_token_4_th 32 revenue revenue for the year ended december 31 , 2015 were related to delivery of egen and e100 prototypes for ups . revenue for the year ended in december 31 , 2014 were related to delivery of conversion of an all-electric para-transit 12 passenger bus to barta ( berks county regional transit authority ) of pennsylvania . we have received several orders from fleets which we are in the process of filling . selling , general and administrative expenses selling , general and administrative ( โ sg & a โ ) expenses consist primarily of personnel and facilities costs related to our development including , marketing , sales , executive , finance , human resources , information technology and professional , legal and contract services . sg & a expenses during year ended december 31 , 2015 were $ 3.9 million , an increase from $ 3.0 million for the year ended december 30 , 2014. the increase in our sg & a expenses consisted primarily in employee compensation expenses related to higher headcount to support the sales and technical activities as well as additional employee expenses , and consulting expenses as a result of our production and sales efforts and focus on marketing of our new technologies . research and development expenses research and development ( โ r & d โ ) expenses consist primarily of personnel costs for our teams in engineering and research , prototyping expense , and contract and professional services . union city plant expenses prior to the start of production are also included in research and development expenses .
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management has presented these non-gaap financial measures in this form 10k because it believes that they provide useful and comparative information to assess trends in the company 's financial position reflected in the results and facilitate comparison of our performance with the performance of our peers . tangible equity ( non-gaap financial measures ) tangible common stockholders ' equity ( tangible book value ) excludes goodwill and other intangible assets . the company believes the exclusion of goodwill and other intangible assets to create โ tangible equity โ facilitates the comparison of results for ongoing business operations . the company 's management internally assesses its performance based , in part , on these non-gaap financial measures . the following table sets forth a reconciliation of total shareholders ' equity to tangible shareholder 's equity for the periods presented . reconciliation to tangible common shareholders ' equity : replace_table_token_2_th net interest margin and efficiency ratio ( non-gaap financial measures ) in accordance with industry standards , certain designated net interest income amounts are presented on a taxable equivalent basis , including the calculation of net interest margin and the efficiency ratio . the company believes the presentation of net interest margin on a taxable equivalent basis using a 21 % effective tax rate for 2019 and 2018 and a 34 % effective tax rate for 2017 , allows comparability of net interest margin with industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both taxable and tax-exempt loans and investments . the efficiency ratio is a measure of a banking company 's overhead as a percentage of its revenue . the company derives this ratio by dividing total noninterest expense by the sum of the taxable equivalent net interest income and the total noninterest income . reconciliation of annualized net interest margin , fully tax equivalent ( non-gaap ) replace_table_token_3_th 32 reconciliation of non-gaap measure โ efficiency ratio replace_table_token_4_th critical accounting policies general the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( โ gaap โ ) . 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 . actual losses could differ significantly from the factors that we use . in addition , gaap itself may change from one previously acceptable method to another method . although the economics of our transactions would be the same , the timing of events that would impact our transactions could change . allowance for loan and lease losses the allowance for loan and lease losses is an estimate of probable credit losses inherent in the company 's credit portfolio that have been incurred as of the balance-sheet date . the allowance is based on two basic principles of accounting : ( 1 ) โ accounting for contingencies , โ which requires that losses be accrued when it is probable that a loss has occurred at the balance sheet date and such loss can be reasonably estimated ; and ( 2 ) the โ receivables โ topic , which requires that losses be accrued on impaired loans based on the differences between the value of collateral , present value of future cash flows or values that are observable in the secondary market and the loan balance . the allowance for loan and lease losses is determined based upon estimates that can and do change when the actual risk , loss events , or changes in other factors , occur . the analysis of the allowance uses a historical loss view as an indicator of future losses and as a result could differ from the actual losses incurred in the future . if the allowance for loan and lease losses falls below that deemed adequate ( by reason of loan and lease growth , actual losses , the effect of changes in risk factors , or some combination of these ) , the company has a strategy for supplementing the allowance for loan and lease losses , over the short-term . for further information regarding our allowance for loan and lease losses , see โ allowance for loan and lease losses activity. โ stock-based compensation the company recognizes compensation expense over the service period in an amount equal to the fair value of all share-based payments which consist of stock options and restricted stock awarded to directors and employees . the fair value of each stock option award is estimated on the date of grant and amortized over the service period using a black-scholes-merton based option valuation model that requires the use of assumptions . critical assumptions that affect the estimated fair value of each award include expected stock price volatility , dividend yields , option life and the risk-free interest rate . the fair value of each restricted award is estimated on the date of award and amortized over the service period . overview the company recorded net income in 2019 of $ 5,500,000 , an increase of $ 600,000 ( 12.2 % ) from $ 4,900,000 in 2018. diluted earnings per share were $ 0.94 for 2019 and $ 0.83 for 2018. for 2019 , the company realized a return on average equity of 6.92 % and a return on average assets of 0.78 % , compared to 6.77 % and 0.72 % , respectively , in 2018 . 33 net income for 2018 increased $ 1,702,000 ( 53.2 % ) from $ 3,198,000 in 2017. diluted earnings per share for 2017 were $ 0.50. for 2017 , the company realized a return on average equity of 3.91 % and return on average assets of 0.49 % . story_separator_special_tag โ noninterest income table four below provides a summary of the components of noninterest income for the periods indicated ( dollars in thousands ) : table four : components of noninterest income replace_table_token_7_th noninterest income increased $ 175,000 ( 11.6 % ) to $ 1,688,000 in 2019 from $ 1,513,000 in 2018. the increase from 2018 to 2019 was primarily related to higher gains on sale of securities which increased $ 84,000 ( 271.0 % ) from 2018 to 2019 and an increase in service charges on deposit accounts which increased $ 82,000 ( 17.2 % ) from $ 476,000 in 2018 to $ 558,000 in 2019. noninterest income decreased $ 83,000 ( 5.2 % ) to $ 1,513,000 in 2018 from $ 1,596,000 in 2017. the decrease from 2017 to 2018 was primarily related to lower gains on sale of securities . gain on sales of securities decreased $ 130,000 ( 81.3 % ) from 2017 to 2018. noninterest expense salaries and benefits salaries and benefits were $ 11,316,000 ( up $ 1,113,000 or 10.9 % ) for 2019 , compared to $ 10,203,000 in 2018. the increase in salaries and benefits expense resulted from a full year of salary and benefits for new hires in 2018 including additional relationship managers and lending support personnel , as well as , increased incentive payments to the relationship managers due to the increased loan production in 2019. salary expense in 2019 also includes normal cost of living increases and promotions . average full-time equivalent employees was 102 during 2019 compared to 97 during 2018. employer benefit expenses , such as insurance , 401 ( k ) matching and incentives and payroll taxes increased commensurate with the increased staffing levels . salaries and benefits were $ 10,203,000 ( up $ 1,283,000 or 14.4 % ) for 2018 , compared to $ 8,920,000 in 2017. the increase in salaries and benefits expense resulted from filling some vacant positions , hiring additional relationship managers , creating a position for a chief lending officer in december 2017 , and normal cost of living increases and promotions . average full-time equivalent employees was 97 during 2018 compared to 93 during 2017. employer benefit expenses , such as insurance , 401 ( k ) matching and incentives and payroll taxes increased commensurate with the increased staffing levels . 38 other real estate owned the total other real estate owned ( โ oreo โ ) expense in 2019 was $ 134,000 ( up $ 114,000 or 570.0 % ) compared to $ 20,000 in 2018. the primary reason for the increase in oreo related expense was due to the $ 111,000 write-down of the company 's lone remaining property in 2019 after receipt of an updated property valuation report . operating expenses on the properties in 2019 totaled $ 23,000 compared to $ 16,000 in 2018. write-downs on the property totaled $ 4,000 in 2018. at december 31 , 2019 , the company held one property with a book value of $ 846,000. the total oreo expense in 2018 was $ 20,000 ( down $ 24,000 or 54.5 % ) compared to $ 44,000 in 2017. the primary reason for the decrease in oreo related expenses was due to the sale of one of the properties in the third quarter of 2017. operating expenses on the properties held in 2017 totaled $ 52,000 compared to $ 16,000 in 2018. in 2017 , the gains on sale , which offset the overall oreo expense , were $ 8,000 compared to zero in 2018. there were no write-downs on any of the properties held during 2017 compared to write-downs of $ 4,000 in 2018. at december 31 , 2018 , the company held one property with a book value of $ 957,000. occupancy , furniture and equipment occupancy expense decreased $ 27,000 ( 2.6 % ) during 2019 to $ 1,023,000 , compared to $ 1,050,000 in 2018. furniture and equipment expense decreased $ 11,000 ( 2.0 % ) during 2019 to $ 542,000 compared to $ 553,000 in 2018. the decrease in occupancy and furniture and equipment expense decrease resulted from lower depreciation expense on premises and equipment leased or owned by the company . occupancy expense decreased $ 3,000 ( 0.3 % ) during 2018 to $ 1,050,000 , compared to $ 1,053,000 in 2017. furniture and equipment expense decreased $ 33,000 ( 5.6 % ) during 2018 to $ 553,000 compared to $ 586,000 in 2017. the decrease in occupancy and furniture and equipment expense decrease resulted from lower depreciation expense on premises and equipment leased or owned by the company . regulatory assessments regulatory assessments include fees paid to the california department of business oversight ( the โ dbo โ ) and the federal deposit insurance corporation ( the โ fdic โ ) . fdic assessments decreased $ 154,000 ( 76.2 % ) during 2019 to $ 48,000 , compared to $ 202,000 in 2018. the assessments paid to the dbo in 2019 were $ 78,000 , compared to an expense of $ 78,000 in 2018. the decrease in fdic assessments in 2019 is due to the receipt of the fdic 's small bank assessment credits during the year as the deposit insurance fund reserve ratio exceeded 1.35 % . fdic assessments decreased $ 4,000 ( 1.9 % ) during 2018 to $ 202,000 , compared to $ 206,000 in 2017. the assessments paid to the dbo in 2018 were $ 78,000 , compared to an expense of $ 74,000 in 2017. other expenses table five below provides a summary of the components of the other noninterest expenses for the periods indicated ( dollars in thousands ) : replace_table_token_8_th 39 other expenses were $ 3,705,000 ( up $ 301,000 or 8.8 % ) for 2019 , compared to $ 3,404,000 for 2018. the increase in other expenses occurred primarily in the professional fees ( up $ 68,000 ) and bank charges ( up $ 233,000 ) ( which is included in the other operating expenses line item ) .
| 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 3.60 % in 2019 , 3.41 % in 2018 , and 3.39 % in 2017. the fully taxable equivalent net interest income increased $ 2,570,000 ( 12.3 % ) , from $ 20,853,000 in 2018 to $ 23,423,000 in 2019. the fully taxable equivalent net interest income increased $ 1,110,000 ( 5.6 % ) , from $ 19,743,000 in 2017 to $ 20,853,000 in 2018. the fully taxable equivalent interest income component increased $ 3,435,000 ( 15.3 % ) from $ 22,449,000 in 2018 to $ 25,884,000 in 2019. the increase in the fully taxable equivalent interest income for 2019 compared to the same period in 2018 is comprised of two components - rate ( up $ 1,335,000 ) and volume ( up $ 2,100,000 ) . the primary driver in this rate increase was an increase in the yield on loans which saw an increase from 4.72 % in 2018 to 4.95 % in 2019 and an increase in the yield on investments , which saw an increase from 2.66 % in 2018 to 2.81 % in 2019. the increased yield in 2019 compared to 2018 was due to the overall higher interest rate environment . the yield on earning assets increased from 3.67 % during 2018 to 3.98 % during 2019. the volume increase of $ 2,100,000 was primarily from an increase in loans ( $ 2,394,000 ) and interest-bearing deposits in banks ( $ 153,000 ) , partially offset by a decrease in investment balances ( $ 103,000 ) and federal funds ( $ 345,000 ) .
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perquisites the company does not provide for any perquisites or any other benefits for its senior executives that are not generally available to all story_separator_special_tag important note about forward-looking statements the following discussion and analysis should be read in conjunction with our audited financial statements as of december 31 , 2012 and un-audited 10-q filings for the first three quarters of 2012 and the notes thereto , all of which are included elsewhere in this form 10-k. in addition to historical information , the following discussion and other parts of this form 10-k contain forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed elsewhere in this form 10-k. the statements that are not historical constitute `` forward-looking statements '' . said forward-looking statements involve risks and uncertainties that may cause the actual results , performance or achievements of the company to be materially different from any future results , performance or achievements , express or implied by such forward-looking statements . these forward-looking statements are identified by their use of such terms and phrases as `` expects '' , `` intends '' , `` goals '' , `` estimates '' , `` projects '' , `` plans '' , `` anticipates '' , `` should '' , `` future '' , `` believes '' , and `` scheduled '' . the variables which may cause differences include , but are not limited to , the following : general economic and business conditions ; competition ; success of operating initiatives ; operating costs ; advertising and promotional efforts ; the existence or absence of adverse publicity ; changes in business strategy or development plans ; the ability to retain management ; availability , terms and deployment of capital ; business abilities and judgment of personnel ; availability of qualified personnel ; labor and employment benefit costs ; availability and costs of raw materials and supplies ; and changes in , or failure to comply with various government regulations . although the company believes that the assumptions underlying the forward-looking statements contained herein are reasonable , any of the assumptions could be inaccurate ; therefore , there can be no assurance that the forward-looking statements included in this form 10-k will prove to be accurate . in light of the significant uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by the company or any person that the objectives and expectations of the company will be achieved . losses from operations and accumulated deficit historically , the company has not generated sufficient revenues from operations to self-fund its capital and operating requirements . following the equity raises closed in 2012 and subsequent reductions of debt coupled with the continued improvement in the company 's operations , management believes the company has sufficient resources and that it is generating significant revenues that it expects will provide the company with the ability to self-fund its capital and operating requirements . if that is not possible , the company will seek additional working capital from funding that will primarily include equity and debt placements . overview cui global , inc. is dedicated to maximizing shareholder value through the acquisition , development and commercialization of innovative companies and technologies . from its gaspt2 platform targeting the energy sector , to its subsidiary cui , inc. 's industry leading digital power platform targeting the networking and telecom industries , cui global has built a diversified portfolio of industry leading technologies that touch many markets . 25 in may 2008 , cui global formed a wholly owned subsidiary that acquired the assets of cui , inc. , a technology company dedicated to the development , commercialization and distribution of new , innovative electro-mechanical products . over the past 20 years , cui has become a recognized name in electronic components worldwide in the areas of power , interconnect , motion control , and sound . in that time , the company has been able to leverage many long-standing relationships in asia to create a flexible , responsive business model that ultimately benefits cui customers . today , its industry leading technology platforms which include novum advanced power , solus power topology and amt capacitive encoders are quickly positioning cui , inc. as a global leader in the fields of power electronics and motion control . through the acquisition of cui , inc. the company obtained 352,589 common shares representing an 11.54 % interest in test products international , inc. , a provider of handheld test and measurement equipment . in july 2009 , cui global acquired , as a wholly owned subsidiary , comex instruments , ltd. , now known as cui japan and 49 % of comex electronics ltd. both companies are japanese based providers of electronic components . effective july 1 , 2011 , cui global entered into an agreement to convey its 49 % ownership interest in comex electronics to the owners of the remaining 51 % who are the original founders and were the original owners of comex instruments , for $ 617,975 in the form of a five year note receivable bearing interest at 4 % per annum . as of december 31 , 2012 the comex electronics note receivable is current in accordance with the agreed terms . the operations of cui japan are not affected by this divestment . as such , the operations of comex electronics are reported as discontinued operations for the current and comparable periods . cui global will continue to maintain its 100 % ownership of cui japan . for the years ended december 31 , 2012 and 2011 , the company has identified a single operating segment based on the activities of the company in accordance with the asc 280-10-50-1 for which the operating results are regularly reviewed by the company 's chief operating decision makers . story_separator_special_tag this decrease is primarily the result of a larger net loss attributable to cui global , inc. in 2012 of $ 2,526,321 which included increased sales related travel for cui , inc. to manage third party sales representatives , reach new customers , maintain existing customers , and promote new product lines including novum and solus , professional fees expenses related to engineering support , testing fees and travel expenses related to the vergence gaspt2 product as the company increased the vergence gaspt2 exposure to customers in north america , parts of europe and elsewhere , increased expenses associated with being a public company such as filing services and fees , professional fees , and listing fees among others , increased advertising costs for company products , increased commissions to third party sales representatives related to the increase in sales , increased expenses associated with the growth in operations at cui japan , operating costs associated with the newer technologies novum and solus and the overall growth of the business in relation to revenues . additional factors that impacted the cash from operations include increases in trade accounts receivable , inventory , accounts payable and unearned revenue of $ 1,337,048 , $ 1,290,794 , $ 382,852 , and $ 300,786 , respectively , and decreases in prepaid expenses and other current assets of $ 280,917. the increase in trade accounts receivable is largely attributed to the increased revenues in the fourth quarter of 2012 , $ 11,890,762 , as compared to $ 9,744,499 during the same period in 2011. the increase in inventory is primarily related to the inventory on hand associated with the increased back log of customer orders at december 31 , 2012 of $ 14,149,352 as compared with $ 9,244,748 at december 31 , 2011 and increased inventory of gaspt2 units on hand at year end to prevent potential shortages in 2013 associated with manufacturing and calibration lead times . the increase in accounts payable is associated with the increase in inventory levels and fourth quarter activity during 2012 as well as timing in relation to payment terms with vendors . the increase in unearned revenue is related to an increase in the accrual for potential returns from customers and deposits received from customers for orders that have not been fulfilled as of december 31 , 2012. the decrease in prepaid expenses and other current assets is primarily related to decreases in prepayments for inventory purchases as compared to the prior year , which will vary based on the products purchased and the vendors utilized . 27 during 2012 and 2011 , the company used stock and warrants as a form of payment to certain vendors , consultants and employees . for 2012 and 2011 , respectively , the company recorded a total of $ 1,190,081 and $ 227,867 for compensation and services expense including amortization of deferred compensation related to equity given , or to be given , to employees and consultants for services provided . the large increase in 2012 is attributable to increased stock compensation issued for stock issued to consultants for strategic investor marketing services , employee stock compensation and options expenses . during 2012 , cui global recorded two significant non-cash entries - $ 73,333 of non-cash interest expense , including amortization of debt offering costs and $ 278,428 for the impairment of intangible , trademark and trade name v-infinity . the intangible , trademark and trade name v-infinity was determined to have a finite life and an impaired value during 2012. as a result of this evaluation and the impairment , management determined the trademark and trade name v-infinity no longer has an indefinite life , and will instead be amortized over the estimated remaining useful life of 5 years . during 2011 , the company recorded one significant non-cash entry - $ 334,747 of non-cash interest expense , including amortization of debt offering costs . the decrease in the non-cash interest expense , including amortization of debt offering costs is the result of the completion in mid year 2011 of the amortization of the beneficial interest associated with debts from the cui , inc. acquisition offset by an increase in the amortization of debt issuance costs associated with the wells fargo debts . during 2012 the company had no cash flows from discontinued operating activities where as in 2011 , the company had positive cash flow from discontinued operations of $ 22,141. as the company continues to focus on technology development and product line additions during 2013 , it will continue to fund research and development together with related sales and marketing efforts for its technology platforms including the vergence gaspt2 , novum advanced power , solus power topology , amt capacitive encoders and its other electromechanical products . capital expenditures and investments during the years ended 2012 and 2011 , the company invested $ 685,269 and $ 422,970 , respectively , in fixed assets . among the larger investments in fixed assets were additions to equipment and software for engineering and research and development , tooling for manufacturing , and regular computer equipment and software upgrades for office personnel . the company anticipates further investment in fixed assets during 2013 in support of its on-going business and continued development of product lines and technologies . the company invested $ 0 and $ 6,646 , respectively , in patent costs during 2012 and 2011. the company expects its investment in patent costs will continue throughout 2013 as it invests in patents to protect the rights to use its product and technology developments . 28 the company invested $ 80,343 and $ 37,418 , respectively in other intangible assets during 2012 and 2011. the 2012 investments were related to the new cui , inc. website . the 2011 investments were related to the new cui global and cui japan websites . the company 's websites are utilized to communicate with our investors , customers , vendors and other stakeholders .
| results of operations the accompanying financial statements reflect the operations of the company for the fiscal years ended december 31 , 2012 and 2011. revenue during the year ended 2012 , revenue was $ 41,084,589 and $ 38,938,326 for the same period during 2011. the growth in 2012 from 2011 is primarily due to management 's decision to continue to push smaller sales through the distribution sales channel and focus on larger value direct sales through cui , inc. as well as the continued expansion of cui 's product offering and further penetration in the japanese market through cui japan . this change resulted in a 4.7 % decrease in the total number of customer sales orders processed , while total revenue increased $ 2,146,263 , or 5.5 % for the year . the company introduced 207 new products during the year ended 2012. the continued product expansion and moving smaller sales through the distribution channel is expected to continue to result in revenue growth in future periods as cui 's sales group and support staff continues to reach new customers , further expand relationships with existing customers and while the company introduces new products in efforts to have cui products designed into new projects . the revenue for the year ended december 31 , 2012 is comprised of $ 39,802,620 from cui products , $ 1,228,430 from cui japan products and $ 53,539 from freight . the revenue for the year ended december 31 , 2011 is comprised of $ 38,366,403 from cui products , $ 511,295 from cui japan products and $ 60,628 for freight . during 2012 , 59 % of revenues were derived from five customers at 47 % , 4 % , 3 % , 3 % , and 2 % . during 2011 , 55 % of revenues were derived from six customers at 41 % , 4 % , 3 % , 3 % , 2 % and 2 % .
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throughout the following sections , the โ company โ refers to 1 st constitution bancorp and , as the context requires , its wholly-owned subsidiary , 1 st constitution bank ( the โ bank โ ) and the bank 's wholly-owned subsidiaries , 1 st constitution investment company of new jersey , inc. , fcb assets holdings , inc. , 1 st constitution title agency , l.l.c. , 204 south newman street corp. and 249 new york avenue , llc . 1 st constitution capital trust ii ( โ trust ii โ ) , a subsidiary of the company , is not included in the company 's consolidated financial statements as it is a variable interest entity and the company is not the primary beneficiary . the purpose of this discussion and analysis is to assist in the understanding and evaluation of the company 's financial condition , changes in financial condition and results of operations . 23 critical accounting policies and estimates โ management 's discussion and analysis of financial condition and results of operation โ is based upon 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 the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . note 1 to the company 's consolidated financial statements for the year ended december 31 , 2012 contains a summary of the company 's significant accounting policies . management believes the company 's policies with respect to the methodologies for the determination of the allowance for loan losses and for determining other-than-temporary security impairment involve a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters . changes in these judgments , assumptions or estimates could materially impact results of operations . these critical policies and their application are periodically reviewed with the audit committee and the board of directors . the provision for loan losses is based upon management 's evaluation of the adequacy of the allowance , including an assessment of known and inherent risks in the portfolio , giving consideration to the size and composition of the loan portfolio , actual loan loss experience , level of delinquencies , detailed analysis of individual loans for which full collectability may not be assured , the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans , and current economic and market conditions . although management uses the best information available to it , the level of the allowance for loan losses remains an estimate which is subject to significant judgment and short-term change . various regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses . such agencies may require the company to make additional provisions for loan losses based upon information available to them at the time of their examination . furthermore , the majority of the company 's loans are secured by real estate in the state of new jersey . accordingly , the collectibility of a substantial portion of the carrying value of the company 's loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values decline or should the central new jersey area experience an adverse economic shock . future adjustments to the allowance for loan losses may be necessary due to economic , operating , regulatory and other conditions beyond the company 's control . real estate acquired through foreclosure , or a deed-in-lieu of foreclosure , is recorded at fair value less estimated selling costs at the date of acquisition or transfer , and subsequently at the lower of its new cost or fair value less estimated selling costs . adjustments to the carrying value at the date of acquisition or transfer are charged to the allowance for loan losses . the carrying value of the individual properties is subsequently adjusted to the extent it exceeds estimated fair value less estimated selling costs , at which time a provision for losses on such real estate is charged to operations . appraisals are critical in determining the fair value of the other real estate owned amount . assumptions for appraisals are instrumental in determining the value of properties . overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property . the assumptions supporting such appraisals are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable . management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets ( level 1 ) or quoted prices on similar assets ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of quoted prices , valuation techniques would be used to determine fair value of any investments that require inputs that are both significant to the fair value measurement and unobservable ( level 3 ) . valuation techniques are based on various assumptions , including , but not limited to cash flows , discount rates , rate of return , adjustments for nonperformance and liquidity , and liquidation values . a significant degree of judgment is involved in valuing investments using level 3 inputs . the use of different assumptions could have a positive or negative effect on consolidated financial condition or results of operations . management must periodically evaluate if unrealized losses ( as determined based on the securities valuation methodologies discussed above ) on individual securities classified as held to maturity or available for sale in the investment portfolio are considered to be other-than-temporary . story_separator_special_tag 27 average interest earning assets increased by $ 36,409,877 , or 5.7 % , to $ 669,743,655 for the year ended december 31 , 2011 from $ 633,333,778 for the year ended december 31 , 2010. the average total loan portfolio decreased by $ 31,543,359 , or 7.8 % , to $ 374,684,906 for the year ended december 31 , 2011 from $ 406,228,265 for the year ended december 31 , 2010. due to a marginal increase in the level of market interest rates during 2011 , loan yields averaged 6.09 % for the year ended december 31 , 2011 , 18 basis points higher than for the year ended december 31 , 2010. the average investment securities portfolio increased 17.5 % , while the yield on that portfolio increased 50 basis points for the year ended december 31 , 2011 compared to the year ended december 31 , 2010. overall , the yield on interest earning assets decreased 10 basis points to 4.56 % in the year ended december 31 , 2011 from 4.66 % in the year ended december 31 , 2010. interest expense decreased by $ 1,636,222 , or 24.1 % , to $ 5,151,142 for the year ended december 31 , 2012 , from $ 6,787,364 for the year ended december 31 , 2011. this decrease in interest expense was principally attributable to higher levels of interest-bearing liabilities priced at a significantly lower market interest rate level . money market and now accounts , increased on average by $ 30,629,257 in 2012 , or 17.7 % , as compared to 2011 , contributing to the funding of loan portfolio growth . the cost on these deposits decreased 50 basis points in 2012 as compared to 2011. average interest bearing liabilities rose 6.7 % in 2012 from 2011. the cost of total interest-bearing liabilities decreased 36 basis points to 0.89 % in 2012 from 1.25 % in 2011. interest expense decreased by $ 2,032,134 , or 23.0 % , to $ 6,787,364 for the year ended december 31 , 2011 from $ 8,819,498 for the year ended december 31 , 2010. this decrease in interest expense was principally attributable to higher levels of interest-bearing liabilities priced at a significantly lower market interest rate level . money market and now accounts , increased on average by $ 50,940,546 in 2011 , or 41.8 % , as compared to 2010 , contributing to the funding of loan portfolio growth . the cost on these deposits decreased 41 basis points in 2011 as compared to 2010. average interest bearing liabilities rose 5.4 % in 2011 from 2010. the cost of total interest-bearing liabilities decreased 46 basis points to 1.25 % in 2011 from 1.71 % in 2010. average non-interest bearing demand deposits increased by $ 9,681,778 , or 8.27 % , to $ 127,558,073 for the year ended december 31 , 2012 from $ 117,876,295 for the year ended december 31 , 2011. the primary reason for this increase in 2012 was the requirement for customers of the warehouse line of credit to maintain deposit relationships with the bank that , on average , represent 10 % to 15 % of the loan balances . provision for loan losses management considers a complete review of the following specific factors in determining the provisions for loan losses : historical losses by loan category , non-accrual loans , and problem loans as identified through internal classifications , collateral values , and the growth and size of the loan portfolio . in addition to these factors , management takes into consideration current economic conditions and local real estate market conditions . using this evaluation process , the company 's provision for loan losses was $ 2,149,992 for the year ended december 31 , 2012 and $ 2,558,328 for the year ended december 31 , 2011. non-interest income non-interest income increased by $ 751,278 , or 16.6 % , to $ 5,267,528 for the year ended december 31 , 2012 from $ 4,516,250 for the year ended december 31 , 2011. the following paragraphs explain the increase for 2012 versus 2011. service charges on deposit accounts increased by $ 38,663 to $ 930,162 for the year ended december 31 , 2012 compared to $ 891,499 for the year ended december 31 , 2011. this component of non-interest income represented 17.7 % and 19.7 % of the total non-interest income for the years ended december 31 , 2012 and 2011 , respectively . the current year increase is due to an increase in the number of accounts subject to service charges . gains on sales of loans held for sale increased by $ 86,065 , or 4.8 % , to $ 1,862,219 for the year ended december 31 , 2012 from $ 1,776,154 for the year ended december 31 , 2011. loan sale volume totaled $ 163.2 million in 2012 compared to $ 143.2 million in 2011. the bank sells both residential mortgage loans and small business administration loans in the secondary market . during the second quarter of 2011 , the bank revised its pricing on mortgage loan sales and now requires a 160 basis point return on sale transactions compared to the 110 basis point return requirement that existed prior to this revision . during december 2012 , the bank sold available-for-sale securities with an aggregate book value of $ 5,761,594 that resulted in a pre-tax gain of $ 313,004. there were no sales of securities for the year ended december 31 , 2011 . 28 non-interest income also includes income from bank-owned life insurance ( โ boli โ ) which amounted to $ 447,524 for the year ended december 31 , 2012 compared to $ 404,338 for the year ended december 31 , 2011. the bank purchased tax-free boli assets to partially offset the cost of employee benefit plans and reduce the company 's overall effective tax rate . the bank also generates non-interest income from a variety of fee-based services . these include safe deposit rentals , wire transfer service fees and automated teller machine fees for non-bank customers .
| results of operations the company reported net income for the year ended december 31 , 2012 of $ 5,060,504 , an increase of 28.7 % from the $ 3,931,443 reported for the year ended december 31 , 2011. the increase was due primarily to increases in net interest income and noninterest income , which were partially offset by increases in non-interest expenses and income taxes during the year ended december 31 , 2012 compared to the prior year . diluted net income per common share was $ 0.90 for the year ended december 31 , 2012 compared to $ 0.74 reported for the year ended december 31 , 2011. basic net income per common share for the year ended december 31 , 2012 was $ 0.92 as compared to $ 0.74 reported for the year ended december 31 , 2011. all per share information has been restated for the effect of a 5 % stock dividend declared on december 20 , 2012 and paid on january 31 , 2013 to shareholders of record on january 14 , 2013. return on average assets ( โ roa โ ) and return on average equity ( โ roe โ ) were 0.65 % and 8.63 % , respectively , for the year ended december 31 , 2012 , compared to 0.54 % and 7.60 % , respectively , for the year ended december 31 , 2011 and 0.50 % and 5.78 % , respectively , for the year ended december 31 , 2010. key performance ratios improved for the 2012 fiscal year as compared to the prior year due to the higher net income for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011. the bank 's results of operations depend primarily on net interest income , which is primarily affected by the market interest rate environment , the shape of the u.s. treasury yield curve , and the difference between the yield on interest-earning assets and the rate paid on interest-bearing liabilities .
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the company places its cash deposits in accredited financial institutions and , therefore , the company 's management believes these funds are subject to minimal credit risk . the company invests cash equivalents in money market funds . the company has no significant off-balance sheet concentrations of credit risk such as foreign currency exchange contracts , option contracts or other hedging arrangements . recently adopted accounting pronouncements in june 2018 , the financial accounting standards 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 our financial statements and the notes to those financial statements appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth in part i , item 1a . risk factors of this annual report on form 10-k , which are incorporated herein by reference , our actual results may differ materially from those anticipated in these forward-looking statements . overview we are a biopharmaceutical company based in cambridge , massachusetts that is entitled to receive up to $ 450.0 million in contingent milestone payments related to our sale of onivyde ยฎ to ipsen s.a. , or ipsen , in april 2017 and up to $ 54.5 million in contingent milestone payments related to our sale of mm-121 and mm-111 to elevation oncology , inc. ( formerly known as 14ner oncology , inc. ) , or elevation , in july 2019. we d o not have any ongoing research or development activities and are seeking potential acquirers for our remaining preclinical and clinical assets . we do not have any employees and instead use external consultants for the operation of our company . on april 3 , 2017 , we completed the sale of onivyde and mm-436 ( the โ commercial business โ ) to ipsen ( the โ ipsen sale โ ) . in connection with the ipsen sale , we are eligible to receive up to $ 450.0 million in additional regulatory approval-based milestone payments . we entered into a license and collaboration agreement , or the servier agreement , between ipsen and les laboratoires servier sas , or servier ( as assignee from shire plc ) in 2014 , and on april 3 , 2017 , the servier agreement was assigned to ipsen in connection with the completion of the ipsen sale . we have received all $ 33.0 million in milestone payments under the servier agreement . the remaining up to $ 450.0 million in potential milestone payments resulting from the ipsen sale consist of : $ 225.0 million upon approval by the u.s. food and drug administration , or fda , of onivyde for the first-line treatment of metastatic adenocarcinoma of the pancreas , subject to certain conditions ; $ 150.0 million upon approval by the fda of onivyde for the treatment of small-cell lung cancer after failure of first-line chemotherapy ; and $ 75.0 million upon approval by the fda of onivyde for an additional indication unrelated to those described above . our non-commercial assets , including our clinical and preclinical development programs , were not included in the ipsen sale and remain assets of ours . on may 30 , 2019 , we announced the completion of our review of strategic alternatives , following which our board of directors implemented a series of measures designed to extend our cash runway into 2027 and preserve our ability to capture the potential milestone payments resulting from the ipsen sale . we have based this estimate on assumptions that may prove to be wrong , and we could use our financial resources sooner than we currently expect . in connection with that announcement , we discontinued the discovery efforts on our remaining preclinical programs : mm-401 , an agonistic antibody targeting a novel immuno-oncology target , tnfr2 ; and mm-201 , a highly stabilized agonist-fc fusion protein targeting death receptors 4 and 5. we are seeking potential acquirers for our remaining preclinical and clinical assets . the termination of our executive management team and all other employees was substantially completed by june 28 , 2019 and fully completed by july 12 , 2019. as of july 12 , 2019 , we do not have any employees . we have engaged external consultants to run our day-to-day operations . we have also entered into consulting agreements with certain former members of our executive management team who are supporting our relationship with current partners , assisting with the potential sale of remaining preclinical and clinical assets , and assisting with certain legal and regulatory matters and the continued wind-down of operations . on april 15 , 2019 , we repaid in full all principal , accrued and unpaid interest , fees , costs and expenses under our loan and security agreement , or loan agreement , with hercules capital , inc. , or hercules , in an aggregate amount equal to $ 16.0 million . in may 2019 , we monetized certain assets to strengthen our cash position . this included the sale of our entire equity position in silver creek pharmaceuticals , inc. , or silver creek , resulting in $ 7.8 million in cash , and the sale of laboratory equipment from our research and development operations , resulting in approximately $ 1.4 million in cash . 22 on ju ly 12 , 2019 , we completed the sale to elevation , or the elevation sale , of our anti-her3 antibody programs , mm-121 ( seribantumab ) and mm-111 . story_separator_special_tag financial operations overview research and development expenses research and development expenses consisted of the costs associated with our research and discovery activities , conduct of preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings . our research and development expenses consisted of : employee salaries and related expenses , which included stock-based compensation and benefits for the personnel involved in our drug discovery and development activities ; external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites ; manufacturing material expense for third-party manufacturing organizations and consultants , including costs associated with manufacturing product prior to product approval ; license fees for and milestone payments related to in-licensed products and technologies ; and facilities , depreciation and other allocated expenses , which included direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory and other supplies . we expensed research and development costs as incurred . as a result of completing the closeout of our sherloc , sherboc and mm-310 clinical trials , the discontinuation of the discovery efforts for our remaining preclinical programs , mm-401 and mm-201 , and the termination of all remaining employees as of july 12 , 2019 , we no longer have any ongoing research or development activities . accordingly , no research and development costs were recognized in the second half of 2019 and we do not anticipate incurring any such costs in future periods . we have historically used our employee and infrastructure resources across multiple research and development programs . we tracked expenses related to our most advanced product candidates on a per project basis . accordingly , we allocated internal employee-related and infrastructure costs , as well as third-party costs , to each of these programs . we do not allocate to specific development programs either stock-based compensation expense or expenses related to preclinical programs . costs that were not directly attributable to specific clinical programs , such as wages related to shared laboratory services , travel and employee training and development , are not allocated and are considered general research and discovery expenses . the following table summarizes our principal product development programs , including the research and development expenses allocated to each clinical product candidate , for the years ended december 31 , 2019 and 2018 : replace_table_token_1_th in connection with the ipsen sale , all expenses related to the commercial business have been reclassified under discontinued operations . 24 during the second quarter of 2019 , we ceased all research and development activities related to all of our programs listed above and are actively pursuing the sale of any of our remaining program assets . mm-121 ( seribantumab ) in february 2015 , we initiated the global , open-label , biomarker-selected , phase 2 randomized sherloc clinical trial evaluating mm-121 in combination with docetaxel , versus docetaxel alone , in patients with heregulin positive non-small cell lung cancer . on october 19 , 2018 , we announced the termination of the sherloc clinical trial based on an interim analysis triggered by the occurrence of 75 % of events required for trial completion , which demonstrated that the addition of mm-121 to docetaxel did not improve progression free survival over docetaxel alone in this patient population . in february 2018 , we dosed the first patient in our global , double-blinded , placebo-controlled , biomarker-selected phase 2 randomized sherboc clinical trial evaluating mm-121 in combination with fulvestrant , versus fulvestrant alone , in patients with heregulin positive , hormone receptor positive , erbb2 ( her2 ) negative , metastatic breast cancer . on november 7 , 2018 , we announced that we were discontinuing development of all ongoing mm-121 programs , including terminating the sherboc clinical trial based on the results of the interim analysis of the sherloc clinical trial . the costs for mm-121 were expensed as incurred , as we believed the costs to maintain the intellectual property for mm-121 increased the likelihood of selling or out-licensing the program . on july 12 , 2019 , we completed the elevation sale of our anti-her3 antibody programs , mm-121 ( seribantumab ) and mm-111 . mm-310 in march 2017 , we initiated a phase 1 clinical trial of mm-310 to evaluate its safety and preliminary activity in patients with solid tumors and to identify the maximum tolerated dose . on november 7 , 2018 , we announced an amendment to the clinical trial to extend the dosing interval of mm-310 from every three weeks to every four weeks as a result of emerging cumulative grade 3 peripheral neuropathy following multiple cycles of treatment observed in three patients . on april 4 , 2019 , we announced that we were discontinuing development of mm-310 as a result of a comprehensive review of available safety data from the phase 1 clinical trial . based on emerging data since the amendment of the clinical protocol in late 2018 , we concluded that the trial would not be able to reach an optimal therapeutic index for mm-310 . the mm-310 program was discontinued , and we do not expect to incur any future costs related to mm-310 . legacy programs in january 2017 , we announced the completion of a strategic pipeline review as a result of which many product candidates in our pipeline were put on hold until such time as we determine the conditions are appropriate to invest in them . these molecules include mm-302 , mm-151 , mm-131 and certain early stage discovery efforts . in june 2018 , we announced top-line results from the global , double-blinded , placebo-controlled , phase 2 randomized carrie clinical trial of mm-141 , showing that the trial did not meet its primary or secondary efficacy endpoints in patients who received mm-141 in combination with nab-paclitaxel and gemcitabine , compared to nab-paclitaxel and gemcitabine alone . based on these results , we are not devoting additional resources to and have ceased all of our development activities for mm-141 .
| results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_2_th research and development expenses research and development expenses were $ 11.1 million for the year ended december 31 , 2019 compared to $ 50.0 million for the year ended december 31 , 2018 , a decrease of $ 38.9 million , or 78 % . this decrease was primarily attributable to : $ 23.2 million decrease in expenses related to the discontinuation of the mm-121 clinical trials ; $ 8.1 million decrease in expenses related to our preclinical , general research and discovery primarily due to our reduction in headcount ; $ 4.3 million decrease in expense related to legacy programs mainly due to the discontinuation of the mm-141 clinical trial ; $ 2 .5 million decrease in expense related to the discontinuation of the mm-310 clinical trial ; and $ 0.9 million decrease in stock-based compensation related to reduction in headcount due to restructuring . during the year ended december 31 , 2019 , we ceased all research and development activities and no research and development expenses were recognized in the second half of the year then ended . we do not expect to incur any research and development cost in future periods . 27 general and administrative expenses general and administrative expenses were $ 16.2 million for the year ended december 31 , 2019 compared to $ 15.6 million for the year ended december 31 , 2018 , an increase of $ 0.6 million , or 4 % .
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the following discussion and analysis of the results of operations and financial condition of muscle maker , inc. ( โ muscle maker โ ) , together with its subsidiaries ( collectively , the โ company โ ) as of december 31 , 2019 and 2018 and for the years ended december 31 , 2019 and 2018 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this annual report on form 10-k following item 16. references in this management 's discussion and analysis of financial condition and results of operations to โ us , โ โ we , โ โ our , โ and similar terms refer to muscle maker . โ muscle maker grill โ refers to the name under which our corporate and franchised restaurants do business . this annual report contains forward-looking statements as that term is defined in the federal securities laws . the events described in forward-looking statements contained in this annual report may not occur . generally , these statements relate to business plans or strategies , projected or anticipated benefits or other consequences of our plans or strategies , projected or anticipated benefits from acquisitions to be made by us , or projections involving anticipated revenues , earnings or other aspects of our operating results . the words โ may , โ โ will , โ โ expect , โ โ believe , โ โ anticipate , โ โ project , โ โ plan , โ โ forecast , โ โ model , โ โ proposal , โ โ should , โ โ may , โ โ intend , โ โ estimate , โ and โ continue , โ and their opposites and similar expressions , are intended to identify forward-looking statements . we caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties , risks and other influences , many of which are beyond our control , which may influence the accuracy of the statements and the projections upon which the statements are based . reference is made to โ factors that may affect future results and financial condition โ in this item 7 for a discussion of some of the uncertainties , risks and assumptions associated with these statements . overview we operate under the name muscle maker grill as a franchisor and owner-operator of muscle maker grill and healthy joe 's restaurants . as of december 31 , 2019 , our restaurant system included ten company-owned restaurants and twenty-eight franchised restaurants . muscle maker grill is a fast-casual restaurant concept that specializes in preparing healthy-inspired , high-quality , fresh , made-to-order lean , protein-based meals featuring chicken , seafood , pasta , hamburgers , wraps and flat breads . in addition , we feature freshly prepared entrรฉe salads and an appealing selection of sides , protein shakes and fruit smoothies . we operate in the approximately $ 47 billion fast casual restaurant segment , which we believe has created significant recent disruption in the restaurant industry and is rapidly gaining market share from adjacent restaurant segments , resulting in significant growth opportunities for healthy-inspired restaurant concepts such as muscle maker grill . we believe our healthier restaurant concept delivers a highly differentiated customer experience by combining the quality and hospitality that customers commonly associate with our full service and fast casual restaurant competitors with the convenience and value customers generally expect from traditional fast food restaurants . the foundation of our brand is based on our core values of quality , empowerment , respect , service and value . as of december 31 , 2019 , we had an accumulated deficit of $ 53,094,602 and expect to continue to incur substantial operating and net losses for the foreseeable future . in its report on our consolidated financial statements for the fiscal year ended december 31 , 2019 , our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern . see โ liquidity and capital resources โ availability of additional funds and going concern โ and note 1 โ business organization and nature of operations , going concern and management 's plans to notes to consolidated financial statements for additional information describing the circumstances that led to the inclusion of this explanatory paragraph . 46 key financial definitions total revenues our revenues are derived from three primary sources : company restaurant sales , franchise revenues and vendor rebates from franchisees . franchise revenues are comprised of franchise royalty revenues collected based on 5 % of franchisee net sales and other franchise revenues which include initial and renewal franchisee fees . vendor rebates are received based on volume purchases or services from franchise owned locations . food and beverage costs food and beverage costs include the direct costs associated with food , beverage and packaging of our menu items at company-operated restaurants partially offset by vendor rebates from company-owned stores . the components of food , beverages and supplies are variable in nature , change with sales volume , are affected by menu mix and are subject to fluctuations in commodity costs . the current management team has begun implementing multiple operational changes to lower food and paper costs . labor restaurant labor costs , including preopening labor , consists of company-operated restaurant-level management and hourly labor costs , including salaries , wages , payroll taxes , workers ' compensation expense , benefits and bonuses paid to our company-operated restaurant-level team members . like other cost items , we expect restaurant labor costs at our company-operated restaurants to increase due to inflation and as our company restaurant revenues grow . factors that influence labor costs include minimum wage and employer payroll tax legislation , mandated health care costs and operational productivity established by the management team . the current management team has begun implementing operational changes to lower restaurant level labor costs overall . story_separator_special_tag the term of the ppp loan is two years with a maturity date of may 9 , 2022 and contains a favorable fixed annual interest rate of 1.00 % . payments of principal and interest on the ppp loan will be deferred for the first six months of the term of the ppp loan until november 9 , 2020. principal and interest are payable monthly and may be prepaid by the company at any time prior to maturity with no prepayment penalties . under the terms of the cares act , recipients can apply for and receive forgiveness for all or a portion of loans granted under the ppp . such forgiveness will be determined , subject to limitations , based on the use of loan proceeds for certain permissible purposes as set forth in the ppp , including , but not limited to , payroll costs ( as defined under the ppp ) and mortgage interest , rent or utility costs ( collectively , โ qualifying expenses โ ) , and on the maintenance of employee and compensation levels during the eight-week period following the funding of the ppp loan . the company intends to use the proceeds of the ppp loan , when received , for qualifying expenses . however , no assurance is provided that the company will be able to obtain forgiveness of the ppp loan in whole or in part . we expect to have ongoing needs for working capital in order to fund operations and expand operations by opening additional corporate-owned restaurants . to that end , we intend to raise additional capital in 2020 and 2021 to raise additional funds through equity or debt financing . the amount required will be dependent on current operations , future investment and the execution of our business plan . we estimate our cash needs for 2020 is approximately $ 7.2 million which will allow us to open 14 company owned and operated locations in 2020 and execute on our franchise sales program . however , there can be no assurance that we will be successful in securing additional capital . if we are unsuccessful , we may need to initiate cost reductions , forego business development opportunities , seek extensions of time to fund our liabilities , or seek protection from creditors . 53 in addition , if we are unable to generate adequate cash from operations , and if we are unable to find sources of funding , it may be necessary for us to sell one or more lines of business or all or a portion of our assets , enter into a business combination , or reduce or eliminate operations . these possibilities , to the extent available , may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our company . if we are able to raise additional capital , we do not know what the terms of any such capital raising would be . in addition , any future sale of our equity securities would dilute the ownership and control of shares sold in this offering and could be at prices substantially below prices at which our shares currently trade . our inability to raise capital could require us to significantly curtail or terminate our operations . we may seek to increase our cash reserves through the sale of additional equity or debt securities . the sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders . the incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity . in addition , our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties . our audited consolidated financial statements included elsewhere in this 10k document have been prepared in conformity with accounting principles generally accepted in the united states of america ( โ u.s . gaap โ ) , which contemplate our continuation as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business . the carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values . the consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty . sources and uses of cash for the years ended december 31 , 2019 and december 31 , 2018 for the year ended december 31 , 2019 and 2018 , we used cash of $ 4,504,226 and $ 2,726,737 , respectively , in operations . our cash used for the year ended december 31 , 2019 was primarily attributable to our net loss of $ 28,385,044 , adjusted for net non-cash income in the aggregate amount of $ 24,474,439 , partially offset by $ 349,674 of net cash provided by changes in the levels of operating assets and liabilities . our cash used for the year ended december 31 , 2018 was primarily attributable to our net loss of $ 7,204,540 , adjusted for net non-cash income in the aggregate amount of $ 4,542,867 , partially offset by $ 65,064 of net cash provided by changes in the levels of operating assets and liabilities . during the year ended december 31 , 2019 , cash used in investing activities was $ 1,520,569 , of which $ 1,161,625 was used to purchase property and equipment , $ 60,186 which was used for the issuances of loans receivables , $ 335,116 used in connection with the acquisition of two new company stores from former franchisees and $ 36,358 was collected from loans to franchisees and related parties net of loan issuances .
| consolidated results of operations the following table represents selected items in our consolidated statements of operations for the years ended december 31 , 2019 and 2018 , respectively : replace_table_token_2_th 49 year ended december 31 , 2019 compared with year ended december 31 , 2018 revenues our revenues totaled $ 4,959,005 for the year ended december 31 , 2019 compared to $ 6,022,669 for the year ended december 31 , 2018. the 17.66 % decrease was primarily attributable a decrease in franchise royalties and fees due to fewer franchisee stores and lower sales and a decrease in company restaurant sales in the current period due to a combination of fewer stores in the early part of the year and lower sales . we generated company restaurant sales , net of discounts , of $ 3,466,553 for the year ended december 31 , 2019 compared to $ 3,869,758 , for the year ended december 31 , 2018. this represented a decrease of $ 403,205 , or 10.4 % , which resulted primarily from the eight cost-cutting store closures throughout 2018 partially offset by opening of 2 new stores and the acquisition of 2 existing franchised stores during 2019. franchise royalties and fees for the year ended december 31 , 2019 and december 31 , 2018 totaled $ 1,352,944 compared to $ 1,908,278 , respectively . the $ 555,334 decrease is primarily attributable to a decrease in initial franchise fees of $ 314,394 as we opened fewer franchise locations due to pausing the franchise program until q4 2019 and a decrease in royalty income of $ 206,012 due to fewer franchisee locations and lower sales volumes . other revenues decreased to $ 0 for the year ended december 31 , 2019 from $ 244,633 for the year ended december 31 , 2018 , representing a decrease of $ 244,633 or 100 % .
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the following financial statement schedule for the fiscal years 2014 , 2013 and 2012. schedule ii โ valuation and qualifying accounts . ( a ) ( 3 ) exhibits the exhibits of this annual report on form 10-k included herein are set forth on the attached exhibit index . 40 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the company has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . hawkins , inc. date : may 29 , 2014 by patrick h. hawkins patrick h. hawkins , chief executive officer and president 41 power of attorney each of the undersigned directors of the company , does hereby make , constitute and appoint patrick h. hawkins and kathleen p. pepski , and either of them , the undersigned 's true and lawful attorney-in-fact and agent , acting alone , with full power of substitution , for the undersigned and in the undersigned 's name , place and stead , to sign and affix the undersigned 's name as such director of the company , in any and all capacities , to any and all amendments to this annual report on form 10-k and to file the same , with all exhibits thereto , and other documents in connection wherewith , with the securities and exchange commission , granting unto said attorney-in-fact , and either of them , full power and authority to do and perform each and every act necessary or incidental to the performance and execution of the powers herein expressly granted . pursuant to the requirements of the securities exchange act of 1934 , this report has also been signed below by the following persons on behalf of the company and in the capacities indicated on the date set forth beside their signature . patrick h. hawkins date : may 29 , 2014 patrick h. hawkins , chief executive officer and president ( principal executive officer ) and director kathleen p. pepski date : may 29 , 2014 kathleen p. pepski , vice president , chief financial officer , and treasurer ( principal financial officer and principal accounting officer ) john s. mckeon date : may 29 , 2014 john s. mckeon , director , chairman of the board duane m. jergenson date : may 29 , 2014 duane m. jergenson , director daryl i. skaar date : may 29 , 2014 daryl i. skaar , director james a. faulconbridge date : may 29 , 2014 james a. faulconbridge , director james t. thompson date : may 29 , 2014 james t. thompson , director jeffrey l. wright date : may 29 , 2014 jeffrey l. wright , director mary j. schumacher date : may 29 , 2014 mary j. schumacher , director 42 schedule ii hawkins , inc. valuation and qualifying accounts for the fiscal years ended march 30 , 2014 , march 31 , 2013 , and april 1 , 2012 replace_table_token_30_th 43 exhibit index unless otherwise indicated , all documents incorporated into this annual report on form 10-k by reference to a document filed with the sec are located under file number 0-7647. replace_table_token_31_th * management contract or compensation plan or arrangement required to be filed as an exhibit to this annual report on form 10-k. 44 ( 1 ) incorporated by reference to exhibit 3.1 to the company 's quarterly report on form 10-q for the quarterly period ended june 30 , 2010 . ( 2 ) incorporated by reference to exhibit 3.1 to the company 's current report on form 8-k dated october 28 , 2009 and filed november 3 , 2009 . ( 3 ) incorporated by reference to appendix b to the company 's proxy statement for the 2004 annual meeting of shareholders filed july 23 , 2004 . ( 4 ) incorporated by reference to exhibit 10.1 to the company 's quarterly report on form 10-q for the quarterly period ended june 30 , 2008 . ( 5 ) incorporated by reference to exhibit 10.1 to the company 's registration statement on form s-8 filed june 6 , 2011 ( file no . 333-174735 ) . ( 6 ) incorporated by reference to exhibit 10.1 to the company 's quarterly report on form 10-q for the quarterly period ended june 30 , 2010 . ( 7 ) incorporated by reference to exhibit 10.2 to the company 's quarterly report on form 10-q for the quarterly period ended june 30 , 2010 . ( 8 ) incorporated by reference to exhibit 10.1 to the company 's quarterly report on form 10-q for the quarterly period ended july 3 , 2011 . 45 story_separator_special_tag operations the following is a discussion and analysis of our financial condition and results of operations for fiscal 2014 , 2013 and 2012. this discussion should be read in conjunction with the financial statements and notes to financial statements included in item 8 of this annual report on form 10-k. overview we derive substantially all of our revenues from the sale of chemicals to our customers in a wide variety of industries . we began our operations primarily as a distributor of bulk chemicals with a strong customer focus . over the years , we have maintained the strong customer focus and have expanded our business by increasing our sales of value-added chemical products , including repackaging , blending , manufacturing and diluting certain products . we have continued to invest in infrastructure to support increased business . during fiscal 2013 , we completed construction of a new industrial manufacturing facility in rosemount , minnesota . story_separator_special_tag our lifo reserve decreased by $ 1.9 million in fiscal 2014 and $ 0.4 million in fiscal 2013 , increasing our reported gross profit for both of these years . the reduction in the lifo reserve in fiscal 2014 was primarily due to lower levels of inventory at year-end , driven by unusually cold and wintry weather that resulted in rail car and barge shipment delays during the fourth quarter of fiscal 2014. we anticipate our lifo reserve will increase in fiscal 2015 , decreasing our gross profit recorded , as we anticipate our inventory will return to levels consistent with historical levels at the end of fiscal 2015. the amount of the reserve increase will depend on our actual fiscal year-end inventory levels and costs . we disclose the sales of our bulk commodity products as a percentage of total sales dollars . we reviewed and revised the definition of bulk commodity products so that it now consists of products that we do not modify in any way , but receive , store , and ship from our facilities , or direct ship to our customers in large quantities . this definition is more consistent with the business of a company primarily focused on bulk chemical distribution . the disclosures in this document referring to sales of bulk commodity products have been recalculated for all periods presented based on this revised definition . 12 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > our effective income tax rate was 35.5 % for fiscal 2014 compared to 32.7 % for fiscal 2013 . our effective tax rate for fiscal 2014 was reduced by a non-recurring state tax benefit of $ 0.4 million . during fiscal 2013 , we amended previously filed u.s. federal tax returns resulting in an increase of $ 0.8 million in the benefits related to the domestic manufacturing deduction and investment tax credits , which reduced our tax rate for that year . the effective tax rate is generally impacted by projected levels of taxable income , permanent items , and state taxes . fiscal 2013 compared to fiscal 2012 sales sales increased $ 6.6 million , or 1.9 % , to $ 350.4 million for fiscal 2013 , as compared to sales of $ 343.8 million for fiscal 2012. sales of bulk commodity products , using the revised definition for these products discussed above , were approximately 23 % of sales compared to approximately 20 % in the previous year . industrial segment . industrial segment sales decreased $ 2.9 million , or 1.2 % , to $ 248.6 million for fiscal 2013. while overall volumes increased year-over-year , competitive pricing pressure resulted in lower overall per-unit selling prices . water treatment segment . water treatment segment sales increased $ 9.4 million , or 10.2 % , to $ 101.8 million for fiscal 2013. the increase in sales was primarily due to volume growth resulting from favorable weather conditions in the first half of fiscal 2013 and additional sales of bulk commodity products . gross profit gross profit was $ 56.9 million , or 16.2 % of sales , for fiscal 2013 , as compared to $ 65.9 million , or 19.2 % of sales , for fiscal 2012. fiscal 2013 gross profit was adversely impacted by the $ 7.2 million css pension withdrawal and the $ 3.2 million charge resulting from the litigation settlement , which charges together constituted 3.0 % of sales for the fiscal year . additionally , gross profit was 14 negatively impacted by $ 1.3 million in incremental costs related to our new rosemount manufacturing facility in fiscal 2013 as compared to fiscal 2012 , and $ 0.4 million of accelerated depreciation charges related to a facility we vacated in fiscal 2014. the lifo method of valuing inventory increased gross profit by $ 0.4 million for fiscal 2013 primarily due to reduced inventory of certain products at year end . in the prior year , lifo reduced gross profit by $ 1.6 million due to higher inventory levels and the mix of chemicals in inventory at the end of the year . industrial segment . gross profit for the industrial segment was $ 28.9 million , or 11.6 % of sales , for fiscal 2013 , as compared to $ 40.4 million , or 16.0 % of sales , for fiscal 2012. fiscal 2013 gross profit for this segment was negatively impacted by the $ 7.2 million css pension withdrawal charge and the $ 3.2 million charge resulting from the litigation settlement , which charges together constituted 4.2 % of industrial segment sales for the fiscal year . gross profit for this segment was also negatively impacted by heightened competitive pricing pressure , resulting in overall lower per-unit margins , $ 1.3 million in incremental costs for the new rosemount facility , and by $ 0.4 million of accelerated depreciation charges related to the facility we vacated as noted above . the lifo method of valuing inventory increased gross profit by $ 0.4 million in fiscal 2013 and reduced gross profit by $ 1.5 million in fiscal 2012. water treatment segment . gross profit for the water treatment segment was $ 28.1 million , or 27.6 % of sales , for fiscal 2013 , as compared to $ 25.5 million , or 27.6 % of sales , for fiscal 2012. the increase in gross profit dollars was primarily due to increased volumes resulting from favorable weather conditions during the first half of the year , partially offset by higher volumes of lower margin products sold as compared to the prior year .
| results of operations the following table sets forth certain items from our statement of income as a percentage of sales from period to period : replace_table_token_5_th fiscal 2014 compared to fiscal 2013 sales sales decreased $ 2.1 million , or 0.6 % , to $ 348.3 million for fiscal 2014 , as compared to sales of $ 350.4 million for fiscal 2013 . sales of bulk commodity products , using the revised definition for these products discussed above , were approximately 21 % of sales in fiscal 2014 and 23 % in fiscal 2013. industrial segment . industrial segment sales decreased $ 3.7 million , or 1.5 % , to $ 244.9 million for fiscal 2014 . overall volumes increased slightly year-over-year , with the increase driven by higher volumes of bulk commodity products sold , which generally carry lower per-unit selling prices and margins . in addition , competitive pricing pressures resulted in lower overall per-unit selling prices . water treatment segment . water treatment segment sales increased $ 1.5 million , or 1.5 % , to $ 103.4 million for fiscal 2014 . sales volumes in this segment were largely unchanged as compared to the prior year . sales growth in our newer branches , including the oklahoma branch we acquired in connection with the acs acquisition , together with increased sales of certain specialty chemical products and equipment , more than offset the negative impact of unfavorable weather conditions during the majority of the spring and summer months and reduced sales volumes of bulk commodity products . gross profit gross profit was $ 61.6 million , or 17.7 % of sales , for fiscal 2014 , as compared to $ 56.9 million , or 16.2 % of sales , for fiscal 2013 .
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overview investors title company ( the โ company โ ) is a holding company that engages primarily in issuing title insurance through two subsidiaries , investors title insurance company ( โ itic โ ) and national investors title insurance company ( โ nitic โ ) . total revenues from the title segment accounted for 95.6 % of the company 's revenues in 2017 . through itic and nitic , the company underwrites land title insurance for owners and mortgagees as a primary insurer . title insurance protects against loss or damage resulting from title defects that affect real property . there are two basic types of title insurance policies - one for the mortgage lender and one for the real property owner . a lender often requires the property owner to purchase a lender 's title insurance policy to protect its position as a holder of a mortgage loan , but the lender 's title insurance policy does not protect the property owner . the property owner has to purchase a separate owner 's title insurance policy to protect its investment . when real property is conveyed from one party to another , occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed , will or mortgage that may give a third party a legal claim against such property . if a covered claim is made against real property , title insurance provides indemnification against insured defects . the company issues title insurance policies through its home and branch offices and through a network of agents . issuing agents are typically real estate attorneys , independent agents or subsidiaries of community and regional mortgage lending institutions , depending on local customs and regulations and the company 's marketing strategy in a particular territory . the ability to attract and retain issuing agents is a key determinant of the company 's growth in title insurance premiums written . revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate , refinance activity and certain other types of mortgage lending such as home equity lines of credit . title insurance premiums vary from state to state and are subject to extensive regulation . statutes generally provide that rates must not be excessive , inadequate or unfairly discriminatory . the process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator . volume is a factor in the company 's profitability due to fixed operating costs which are incurred by the company regardless of title insurance premium volume . the resulting operating leverage tends to amplify the impact of changes in volume on the company 's profitability . the company 's profitability also depends , in part , upon its ability to manage its investment portfolio to maximize investment returns and to minimize risks such as interest rate changes , defaults and impairments of assets . the company 's volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity , which includes sales , mortgage financing and mortgage refinancing . real estate activity , home sales and mortgage lending are cyclical in nature . in turn , real estate activity is affected by a number of factors , including the availability of mortgage credit , the cost of real estate , consumer confidence , employment and family income levels and general united states economic conditions . interest rate volatility is also an important factor in the level of residential and commercial real estate activity . the company 's title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management 's control . services other than title insurance provided by operating divisions of the company are not reported separately and are reported collectively in a category called โ all other. โ these other services include those offered by the company and by its wholly owned subsidiaries , investors title exchange corporation ( โ itec โ ) , investors title accommodation corporation ( โ itac โ ) , investors trust company ( โ investors trust โ ) and investors title management services , inc. ( โ itms โ ) . 19 the company 's exchange services division , consisting of the operations of itec and itac , provides customer services in connection with tax-deferred real property exchanges . itec serves as a qualified intermediary in like-kind exchanges under section 1031 of the internal revenue code of 1986 , as amended . in its role as qualified intermediary , itec coordinates the exchange aspects of the real estate transaction , and its duties include drafting standard exchange documents , holding the exchange funds between the sale of the old property and the purchase of the new property , and accepting the formal identification of the replacement property within the required identification period . itac serves as exchange accommodation titleholder in reverse exchanges . an exchange accommodation offers a vehicle for accommodating a reverse exchange when the taxpayer must acquire replacement property before selling the relinquished property . the company 's trust services division , investors trust , provides investment management and trust services to individuals , companies , banks and trusts . itms offers various consulting services to provide clients with the technical expertise to start and successfully operate a title insurance agency . business trends and recent conditions the housing market is heavily influenced by government policies and overall economic conditions . regulatory reform and initiatives by various governmental agencies , including the federal reserve 's monetary policy and other regulatory changes , could impact lending standards or the processes and procedures used by the company . the current real estate environment , including interest rates and general economic activity , typically influence the demand for real estate . changes in either one , or both of , these areas would likely impact the company 's results of operations . story_separator_special_tag the mba january 20 , 2018 mortgage finance forecast ( โ mba forecast โ ) projects 2018 purchase activity to increase 6.6 % to $ 1,183 billion and refinance activity to decrease 29.0 % to $ 426 billion , resulting in a decrease in total mortgage originations of 5.9 % to $ 1,609 billion , all from 2017 levels . in 2017 , purchase activity accounted for 64.9 % of all mortgage originations and is projected to represent 73.5 % of all mortgage originations in 2018. according to data published by freddie mac , the average 30-year fixed mortgage interest rate in the united states was 4.0 % , 3.6 % and 3.8 % for the years ended december 31 , 2017 , 2016 and 2015 , respectively . per the mba forecast , refinancing is expected to be lower in 2018 as mortgage interest rates continue to climb to a projected 4.8 % in the fourth quarter of 2018. historically , activity in real estate markets has varied over the course of market cycles by geographic region and in response to evolving economic factors . operating results can vary from year to year based on cyclical market conditions and do not necessarily indicate the company 's future operating results and cash flows . agency acquisition in october 2016 , national investors holdings , llc ( `` nih '' ) , a subsidiary of the company , acquired all of the outstanding shares of a title insurance agency doing business in the state of texas . nih paid $ 10 million plus a $ 918,000 adjustment for the agency 's net cash position at closing . critical accounting estimates and policies this discussion and analysis of the company 's financial condition and results of operations is based upon the company 's accompanying consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the company 's management makes various estimates and judgments when applying policies affecting the preparation of the consolidated financial statements . actual results could differ from those estimates . significant accounting policies of the company are discussed in note 1 to the accompanying consolidated financial statements . following are the accounting estimates and policies considered critical to the company . 21 reserve for claim losses the company 's reserve for claims is established using estimates of amounts required to settle claims for which notice has been received ( reported ) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the future ( incurred but not reported , or โ ibnr โ ) . the total reserve for all losses incurred but unpaid as of december 31 , 2017 is represented by the reserve for claims totaling $ 34,801,000 in the accompanying consolidated balance sheets . of that total , approximately $ 4,646,000 was reserved for specific claims which have been reported to the company , and approximately $ 30,155,000 was reserved for ibnr claims . a provision for estimated future claims payments is recorded at the time the related policy revenue is recorded . the company records the claims provision as a percentage of net premiums written . this loss provision rate is set to provide for losses on current year policies . by their nature , title claims can often be complex , vary greatly in dollar amounts , vary in number due to economic and market conditions such as an increase in mortgage foreclosures , and involve uncertainties as to ultimate exposure . in addition , some claims may require a number of years to settle and determine the final liability for indemnity and loss adjustment expense . the payment experience may extend for more than 20 years after the issuance of a policy . events such as fraud , defalcation and multiple property defects can substantially and unexpectedly cause increases in estimates of losses . due to the length of time over which claim payments are made and regularly occurring changes in underlying economic and market conditions , these estimates are subject to variability . management considers factors such as the company 's historical claims experience , case reserve estimates on reported claims , large claims , actuarial projections and other relevant factors in determining its loss provision rates and the aggregate recorded expected liability for claims . in establishing the reserve , actuarial projections are compared with recorded reserves to evaluate the adequacy of such recorded claims reserves and any necessary adjustments are then recorded in the current period 's income statement . as the most recent claims experience develops and new information becomes available , the loss reserve estimate related to prior periods will change to more accurately reflect updated and improved emerging data . the company reflects any adjustments to the reserve in the results of operations in the period in which new information ( principally claims experience ) becomes available . the company initially reserves for each known claim based upon an assessment of specific facts and updates the reserve amount as necessary over the course of administering each claim . loss ratios for earlier years tend to be more reliable than recent policy years , as those years are more fully developed . in making loss estimates , management determines a loss provision rate , which it then applies to net premiums written . the company assumes the reported liability for known claims and ibnr , in the aggregate , will be comparable to its historical claims experience unless factors , such as loss experience and charged premium rates , change significantly . also affecting the company 's assumptions are large losses related to fraud and defalcation , as these can cause significant variances in loss emergence patterns . management defines a large loss as one where incurred losses exceed $ 250,000. due to the small volume of large claims , the long-tail nature of title insurance claims and the inherent uncertainty in loss emergence patterns , large claim activity can vary significantly between policy years .
| results of operations the following table presents certain income statement data for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_2_th 24 insurance and other services revenue insurance and other services revenues include net premiums written plus commission income , other fee income , trust income , management services income , exchange services income , and income related to the company 's equity method investments . investment income and realized investment gains and losses are not included in insurance and other service revenues and are discussed separately under โ investment-related revenues โ below . the following is a summary of the company 's insurance and other services revenues with intersegment eliminations netted with each segment ; therefore , the individual segment amounts will not agree to note 12 in the accompanying consolidated financial statements . replace_table_token_3_th title insurance net premiums : net premiums written increased 14.9 % in 2017 to $ 138,588,877 compared with $ 120,569,151 in 2016 , and increased 7.7 % in 2016 compared with $ 111,909,473 in 2015 . the increase in 2017 compared with 2016 was primarily due to higher levels of home sales in our core markets , a continuation of the multi-year trend of increases in the underlying values of real estate , and business from newly-signed agents , partially offset by a decrease in the level of refinance activity . the increase in 2016 net premiums versus the prior year is primarily attributable to growth in average real estate values , coupled with growth in transaction volumes stemming from higher levels of home sales and refinance activity . title insurance companies typically issue title insurance policies directly through home and branch offices or through title agencies .
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a discussion and analysis of our results of operations and changes in financial condition for fiscal 2018 compared to 2017 may be found in item 7. management 's discussion and analysis of financial condition and results of operation of our annual report on form 10-k for the year ended december 29 , 2018 , filed with the sec on february 6 , 2019 , which discussion is incorporated herein by reference . overview we are one of the fastest growing construction materials companies in the united states , with a 55 % increase in revenue between the year ended january 2 , 2016 ( the year of our initial public offering ) and the year ended december 28 , 2019 . within our markets , we offer customers a single-source provider for construction materials and related downstream products through our vertical integration . our materials include aggregates , which we supply across the united states , and in british columbia , canada , and cement , which we supply to surrounding states along the mississippi river from minnesota to louisiana . in addition to supplying aggregates to customers , we use a portion of our materials internally to produce ready-mix concrete and asphalt paving mix , which may be sold externally or used in our paving and related services businesses . our vertical integration creates opportunities to increase aggregates volumes , optimize margin at each stage of production and provide customers with efficiency gains , convenience and reliability , which we believe gives us a competitive advantage . since our inception in 2009 , we have completed dozens of acquisitions , which are organized into 11 operating companies that make up our three distinct operating segmentsโwest , east and cement . we operate in 23 u.s. states and in british columbia , canada and currently have assets in 22 u.s. states and british columbia , canada . the map below illustrates our geographic footprint : 38 business trends and conditions the u.s. construction materials industry is composed of four primary sectors : aggregates ; cement ; ready-mix concrete ; and asphalt paving mix . each of these materials is widely used in most forms of construction activity . participants in these sectors typically range from small , privately-held companies focused on a single material , product or market to publicly traded multinational corporations that offer a wide array of construction materials and services . competition is constrained in part by the distance materials can be transported efficiently , resulting in predominantly local or regional operations . due to the lack of product differentiation , competition for all of our products is predominantly based on price and , to a lesser extent , quality of products and service . as a result , the prices we charge our customers are not likely to be materially different from the prices charged by other producers in the same markets . accordingly , our profitability is generally dependent on the level of demand for our materials and products and our ability to control operating costs . our revenue is derived from multiple end-use markets including public infrastructure construction and private residential and nonresidential construction . public infrastructure includes spending by federal , state , provincial and local governments for roads , highways , bridges , airports and other infrastructure projects . public infrastructure projects have historically been a relatively stable portion of state and federal budgets . residential and nonresidential construction consists of new construction and repair and remodel markets . any economic stagnation or decline , which could vary by local region and market , could affect our results of operations . our sales and earnings are sensitive to national , regional and local economic conditions and particularly to cyclical changes in construction spending , especially in the private sector . from a macroeconomic view , we see positive indicators for the construction sector , including positive trends in highway obligations , housing starts and construction employment . 39 transportation infrastructure projects , driven by both federal and state funding programs , represent a significant share of the u.s. construction materials market . federal funds are allocated to the states , which are required to match a portion of the federal funds they receive . federal highway spending uses funds predominantly from the federal highway trust fund , which derives its revenue from taxes on diesel fuel , gasoline and other user fees . the dependability of federal funding allows the state departments of transportation to plan for their long term highway construction and maintenance needs . funding for the existing federal transportation funding program extends through 2020. with the nation 's infrastructure aging , there is increased demand by states and municipalities for long-term federal funding to support the construction of new roads , highways and bridges in addition to the maintenance of the existing infrastructure . in addition to federal funding , state , county and local agencies provide highway construction and maintenance funding . our four largest states by revenue , texas , kansas , utah and missouri , represented approximately 22 % , 13 % , 12 % and 10 % , respectively , of our total revenue in 2019 . the following is a summary of key funding initiatives in those states : according to the texas department of transportation ( โ txdot โ ) , annual funding available for transportation infrastructure , including state and federal funding , is estimated to average $ 16.2 billion in total for fiscal year 2020 ( which commenced september 1 , 2019 ) and fiscal year 2021 combined . further , the 2020 unified transportation program ( โ utp โ ) was approved by the texas transportation commission in september 2019 at $ 77 billion to fund transportation projects from 2020 through 2029 ; this is an increase from $ 75 billion in 2019 and more than double the fiscal year 2016 level , which was prior to the proposition 1 and proposition 7 funding initiatives discussed in further detail below . story_separator_special_tag furthermore , within the kansas department of transportation ( โ kdot โ ) budget , the highway program was allocated $ 546 million , an increase of 138 % or $ 317 million from fiscal year 2017. most recently , the governor authorized an additional $ 216 million in sales tax revenue to remain in the shf in fiscal year 2020 to help restore the bridge replacement program and kdot pledged to complete $ 435 million worth of transportation projects promised under the transportation works program by fiscal year 2023. kdot has scheduled the following projects for the transportation works program over the next three fiscal years : five projects in fiscal year 2021 for approximately $ 135 million , ten projects in fiscal year 2022 for approximately $ 221 million and four projects in fiscal year 2023 for approximately $ 47 million . in july 2019 , the missouri highways and transportation commission approved the 2020 statewide transportation improvement program ( โ stip โ ) , which increased funding to $ 4.6 billion for highway and bridge construction through 2024 from $ 4.5 billion in the 2019 stip and $ 4.2 billion in the 2018 stip . most recently , missouri lawmakers proposed four new bills aimed at increasing the motor fuel tax , although three of which would require statewide votes . the fourth bill ( house bill 1433 ) , which does not require a statewide vote , includes a $ 450 million bond directed toward repairing road infrastructure and would increase the motor fuel tax from 17 cents-per-gallon to 19 cents-per-gallon from january 2021 until december 2030 and then decrease back to 18 cents-per-gallon thereafter . the increased motor fuel tax is expected to generate around $ 60 million per year to pay off the bond over a 10-year period . the table below sets forth additional details regarding our four key states , including growth rates as compared to the u.s. as a whole : replace_table_token_6_th ( 1 ) percentages based on our revenue by state for the year ended december 28 , 2019 and management 's estimates as to end markets . ( 2 ) source : pca ( 3 ) calculated using a weighted average based on each state 's percentage contribution to our total revenue . use and consumption of our products fluctuate due to seasonality . nearly all of the products used by us , and by our customers , in the private construction or public infrastructure industries are used outdoors . our highway operations and production and distribution facilities are also located outdoors . therefore , seasonal changes and other weather-related conditions , in particular extended rainy and cold weather in the spring and fall and major weather events , such as hurricanes , tornadoes , tropical storms , heavy snows and flooding , can adversely affect our business and operations through a decline in 41 both the use of our products and demand for our services . in addition , construction materials production and shipment levels follow activity in the construction industry , which typically occurs in the spring , summer and fall . warmer and drier weather during the second and third quarters of our fiscal year typically result in higher activity and revenue levels during those quarters . the first quarter of our fiscal year typically has lower levels of activity due to weather conditions . we are subject to commodity price risk with respect to price changes in liquid asphalt and energy , including fossil fuels and electricity for aggregates , cement , ready-mix concrete and asphalt paving mix production , natural gas for hot mix asphalt production and diesel fuel for distribution vehicles and production related mobile equipment . liquid asphalt escalator provisions in most of our private and commercial contracts limit our exposure to price fluctuations in this commodity . we often obtain similar escalators on public infrastructure contracts . in addition , we enter into various firm purchase commitments , with terms generally less than one year , for certain raw materials . financial highlightsโ year ended december 28 , 2019 the principal factors in evaluating our financial condition and operating results for the year ended december 28 , 2019 are : net revenue increased 6.4 % or $ 121.4 million in 2019 as compared to 2018 , primarily resulting from organic growth and to a lesser extent , contributions from our acquisitions . our operating income increased 31.4 % or $ 51.1 million in 2019 as compared to 2018 , as pricing and volume increases exceeded the increases in cost of revenue . in march 2019 , we issued $ 300 million of 6.5 % senior notes due 2027 ( the `` 2027 notes '' ) , resulting in net proceeds of $ 296.3 million , after related fees and expenses . the proceeds from the 2027 notes were used to redeem the $ 250 million of 8.5 % senior notes due 2022 ( the `` 2022 notes '' ) . in february 2019 , we entered into incremental amendment no . 4 to the credit agreement ( as defined below ) increasing the size of our revolving credit facility to $ 345 million and extending the maturity date with respect to the revolving credit commitments to february 25 , 2024. components of operating results total revenue we derive our revenue predominantly by selling construction materials and products and providing paving and related services . construction materials consist of aggregates and cement . products consist of related downstream products , including ready-mix concrete , asphalt paving mix and concrete products . paving and related services that we provide are primarily asphalt paving services . revenue derived from the sale of construction materials are recognized when risks associated with ownership have passed to unaffiliated customers . typically this occurs when products are shipped . product revenue generally includes sales of aggregates , cement and related downstream products and other materials to customers , net of discounts or allowances and taxes , if any .
| consolidated results of operations the table below sets forth our consolidated results of operations for the periods indicated : replace_table_token_8_th ( 1 ) the statement of operations above is based on the financial results of summit inc. and its subsidiaries , which was $ 27.5 million , $ 27.5 million and $ 8.3 million less than summit llc and its subsidiaries in the years ended december 28 , 2019 , december 29 , 2018 and december 30 , 2017 , respectively , due to interest expense associated with a deferred consideration obligation , tra expense and income tax benefit are obligations of summit holdings and summit inc. , respectively and are thus excluded from summit llc 's consolidated net income . 44 fiscal year 2019 compared to 2018 replace_table_token_9_th ( 1 ) adjusted ebitda is a non-gaap measure that we find helpful in monitoring the performance of our business . see the definition of and the reconciliation below of adjusted ebitda to net income , which is the most directly comparable gaap measure . net revenue increased $ 121.4 million for the year ended december 28 , 2019 , primarily resulting from organic growth in our aggregates and asphalt operations , and to a lesser extent , our acquisition program . of the increase in net revenue , $ 103.2 million was from increased sales of materials and $ 21.1 million from increased sales of products , offset by a $ 2.9 million decrease in service revenue . we generated organic volume growth of 9.5 % , 2.8 % , 0.1 % and 2.6 % in aggregates , cement , ready-mix and asphalt , respectively , during 2019 over the prior year period .
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each quarter , management makes its best estimate of its annual performance related bonuses , which requires management to , among other things , project annual consultant productivity ( as measured by engagement fees billed and collected by executive search consultants and revenue for futurestep consultants ) , company performance including profitability , competitive forces and future economic conditions and their impact on the company 's results . at the end of each fiscal year , annual performance related bonuses take into account final individual consultant productivity , company results including profitability , the achievement of strategic objectives and the results of individual performance appraisals , and the current economic landscape . management takes these factors into consideration , and any changes in the estimate are reported in current operations . because annual performance-based bonuses are communicated and paid only after the company reports its full fiscal year results , actual performance-based bonus payments may differ from the prior year 's estimate . such changes in the bonus estimates historically have been immaterial and are recorded in current operations in the period in which they are determined . the performance related bonus expense was $ 116.8 million , $ 128.3 million and $ 76.9 million for the years ended april 30 , 2012 , 2011 and 2010 , respectively , which was reduced by a f-12 korn/ferry international and subsidiaries notes to consolidated financial statements ย ( continued ) april 30 , 2012 change in the previous years ' estimate recorded in fiscal 2012 , 2011 and 2010 of $ 1.2 million , $ 2.0 million and $ 3.6 million , respectively . this resulted in net bonus expense of $ 115.6 million , $ 126.3 million and $ 73.3 million for the years ended story_separator_special_tag forward-looking statements this annual report on form 10-k may contain certain statements that we believe are , or may be considered to be , ยforward-lookingย statements , within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these forward-looking statements generally can be identified by use of statements that include phrases such as ยbelieve , ย ยexpect , ย ยanticipate , ย ยintend , ย ยplan , ย ยforesee , ย ยmay , ย ยwill , ย ยlikely , ย ยestimates , ย ยpotential , ย ยcontinueย or other similar words or phrases . similarly , statements that describe our objectives , plans or goals also are forward-looking statements . all of these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement . the principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include , but are not limited to , dependence on attracting and retaining qualified and experienced consultants , maintaining our brand name and professional reputation , potential legal liability and regulatory developments , portability of client relationships , global and local political or economic developments in or affecting countries where we have operations , currency fluctuations in our international operations , risks related to growth , restrictions imposed by off-limits agreements , competition , reliance on information processing systems , cyber security vulnerabilities , limited protection of our intellectual property , our ability to enhance and develop new technology , our ability to successfully recover from a disaster or business continuity problems , employment liability risk , an impairment in the carrying value of goodwill and other intangible assets , deferred tax assets that we may not be able to use , our ability to develop new products and services , changes in our accounting estimates and assumptions , alignment of our cost structure , risks related to the integration of recently acquired businesses and the matters disclosed under the heading ยrisk factorsย in the company 's exchange act reports , including item 1a included in this annual report . readers are urged to consider these factors carefully in evaluating the forward-looking statements . the forward-looking statements included in this annual report on form 10-k are made only as of the date of this annual report on form 10-k and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances . the following presentation of management 's discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this annual report on form 10-k. 23 executive summary korn/ferry international ( referred to herein as the ยcompany , ย ยkorn/ferry , ย or in the first person notations ยwe , ย ยour , ย and ยusย ) is a premier global provider of talent management solutions that helps clients to attract , engage , develop and retain their talent . we are the premier provider of executive recruitment , leadership and talent consulting and high impact recruitment solutions with the broadest global presence in the recruitment industry . our services include executive recruitment , middle-management recruitment ( through futurestep ) , recruitment process outsourcing ( ยrpoย ) , leadership and talent consulting ( ยltcย ) and executive coaching . approximately 75 % of the executive recruitment searches we performed in fiscal 2012 were for board level , chief executive and other senior executive and general management positions . our 5,487 clients in fiscal 2012 included many of the world 's largest and most prestigious public and private companies , including approximately 48 % of the fortune 500 , middle market and emerging growth companies , as well as government and nonprofit organizations . we have built strong client loyalty , with 79 % of the executive recruitment assignments performed during fiscal 2012 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years . story_separator_special_tag these products mainly consist of books covering a variety of topics including performance management , team effectiveness , and coaching and development . the company recognizes revenue for their products when the product has been sold . furthermore , a provision for doubtful accounts on recognized revenue is established with a charge to general and administrative expenses based on historical loss experience , assessment of the collectability of specific accounts , as well as expectations of future collections based upon trends and the type of work for which services are rendered . annual performance related bonuses . each quarter , management records its best estimate of its annual performance related compensation , which on a quarterly basis requires management to , among other things , project annual consultant ( employees who originate business ) productivity ( as measured by engagement fees billed and collected by executive search consultants or revenue for futurestep consultants ) , company performance including profitability , competitive forces and future economic conditions and their impact on our results . at the end of each fiscal year , annual performance related bonuses take into account final individual consultant productivity , company results including profitability , the achievement of strategic objectives and the results of individual performance appraisals , as determined by management , and the current economic landscape . activity-based changes in any of the assumptions underlying the quarterly bonus accrual may significantly impact the compensation and benefits liability on our balance sheet and related compensation and benefits cost on our statement of income . differences between the assumptions used each quarter to estimate annual performance related bonus and actual cash payments made on an annual basis could materially impact the carrying amount of the liability and our operating results . deferred compensation . estimating deferred compensation requires assumptions regarding the timing and probability of payments of benefits to participants and the discount rate . changes in these assumptions would significantly impact the liability and related cost on our consolidated balance sheet and statement of income . management engages an independent actuary to periodically review these assumptions in order to ensure that they reflect the population and economics of our deferred compensation plans in all material respects and to assist us in estimating our deferred compensation liability and the related cost . the actuarial assumptions we use may differ from actual results due to changing market conditions or changes in the participant population . these differences could have a significant impact on our deferred compensation liability and the related cost . carrying values . valuations are required under u.s. generally accepted accounting principles ( ยgaapย ) to determine the carrying value of various assets . our most significant assets for which management is required 25 to prepare valuations are goodwill , intangible assets , deferred income taxes and marketable securities . management must identify whether events have occurred that may impact the carrying value of these assets and make assumptions regarding future events , such as cash flows and profitability . differences between the assumptions used to prepare these valuations and actual results could materially impact the carrying amount of these assets and our operating results . of the assets mentioned above , goodwill is the largest asset requiring a valuation . fair value of goodwill for purposes of the goodwill impairment test is determined utilizing a discounted cash flow analysis based on forecast cash flows ( including estimated underlying revenue and operating income growth rates ) discounted using an estimated weighted-average cost of capital for market participants . a market approach , utilizing observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction ( to the extent available ) , is used to corroborate the discounted cash flow analysis performed at each reporting unit . the company also reconciles the results of these analyses to its market capitalization . if the carrying amount of a reporting unit exceeds its estimated fair value , goodwill is considered potentially impaired and further tests are performed to measure the amount of impairment loss , if any . we recorded no goodwill impairments in conjunction with our annual goodwill impairment assessment performed as of january 31 , 2012. while historical performance and current expectations have resulted in fair values of goodwill in excess of carrying values , if our assumptions are not realized , it is possible that in the future an impairment charge may need to be recorded . however , it is not possible at this time to determine if an impairment charge would result or if such a charge would be material . fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors . as a result , there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future . as of our testing date , none of the company 's reporting units were considered at risk . examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the reporting units may include such items as follows : ย a prolonged downturn in the business environment in which the reporting units operate especially in emea ; ย an economic recovery that significantly differs from our assumptions in timing or degree ; and ย volatility in equity and debt markets . story_separator_special_tag style= '' font-family : times new roman '' > 28 growth in average worldwide headcount , and to a lesser extent , $ 1.9 million of separation charges related to changes in certain corporate and futurestep leadership positions recorded in fiscal 2012. the growth in average worldwide headcount was primarily due to an increase in execution and support staff to support our growth in futurestep and other business activities .
| results of operations the following table summarizes the results of our operations as a percentage of fee revenue : replace_table_token_7_th 26 the following tables summarize the results of our operations by business segment : replace_table_token_8_th replace_table_token_9_th ( 1 ) margin calculated as a percentage of fee revenue by business segment . fiscal 2012 compared to fiscal 2011 fee revenue fee revenue . fee revenue increased $ 46.2 million , or 6 % , to $ 790.5 million in fiscal 2012 compared to $ 744.3 million in fiscal 2011. the increase in fee revenue was primarily attributable to a 4 % increase in the weighted-average fees billed per engagement during fiscal 2012 as compared to fiscal 2011 and a 2 % increase in the number of engagements billed during the same period . weighted-average fees billed are impacted by the mix of engagements by geography and segment , and fluctuating foreign currencies . exchange rates favorably impacted fee revenues by $ 18.3 million in fiscal 2012. executive recruitment . executive recruitment reported fee revenue of $ 676.6 million , an increase of $ 22.5 million , or 3 % , in fiscal 2012 compared to $ 654.1 million in fiscal 2011. the increase in executive recruitment fee revenue was driven by a 2 % increase in the weighted-average fees billed per engagement in fiscal 2012 as compared to fiscal 2011 and to a 1 % increase in the number of executive recruitment engagements billed during the same period . weighted-average fees billed are impacted by the mix of engagements by geography and fluctuating foreign currencies . exchange rates favorably impacted fee revenues by $ 13.4 million in fiscal 2012 .
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we encourage you to review the risks and uncertainties , discussed in the section entitled item 1a โ risk factors โ , and the โ note regarding forward-looking statements โ , included at the beginning of this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends . 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 two severe and ultra-rare disorders resulting from chronic uncontrolled activation of the complement component of the immune system : pnh , a life-threatening and ultra-rare blood disorder , and 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 chronic 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 46 severe and 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 the therapeutic areas of 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 an ultra-rare , debilitating and life-threatening , genetic deficiency blood disorder defined by chronic uncontrolled complement activation leading to the destruction of red blood cells , or 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 fda and the ec in 2007 and by 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 2011 , soliris was approved by the fda for the treatment of pediatric and adult patients with ahus . ahus is a genetic ultra-rare disease characterized by chronic uncontrolled complement activation and thrombotic microangiopathy , 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 . also , in november 2011 , the ec granted marketing authorization for soliris to treat pediatric and adult patients with ahus in europe . the fda and ec granted soliris orphan drug designation for the treatment of patients with ahus . on february 7 , 2012 , we acquired enobia , a privately held clinical-stage biotechnology company based in montreal , canada and cambridge , massachusetts , in a transaction accounted for under the acquisition method of accounting for business combinations . the acquisition was intended to further our objective to develop and commercialize therapies for patients with severe , ultra-rare and life-threatening disorders . enobia 's lead product candidate , asfotase alfa , is a human recombinant targeted alkaline phosphatase enzyme-replacement therapy for patients suffering with hypophosphatasia ( hpp ) , an ultra-rare , life-threatening , genetic metabolic disease for which there are no approved treatments . we made a cash payment of $ 610,000 , subject to purchase price adjustments , for 100 % of enobia 's capital stock . additional contingent payments of up to an aggregate of $ 470,000 may be due upon reaching various regulatory and sales milestones . we financed the acquisition with a combination of existing cash and proceeds from our new credit facility . on february 8 , 2011 , we acquired patents and assets from orphatec related to an investigational therapy for patients with mocd type a , an ultra-rare genetic disorder characterized by severe brain damage and rapid death in newborns . we made initial payments of $ 3,050 in cash and may make additional future payments of up to $ 42,000 in contingent milestone payments upon various development , regulatory and commercial milestones . on january 28 , 2011 , we acquired taligen , a privately held development stage biotechnology company based in cambridge , massachusetts , in a transaction accounted for under the acquisition method of accounting for business combinations . the acquisition was intended to broaden our portfolio of preclinical compounds and to expand our capabilities in translational medicine . we acquired preclinical compounds and novel antibody and protein regulators of the complement inflammatory pathways . we made an upfront cash payment of $ 111,773 for 100 % of taligen 's equity interests . additional contingent payments of up to an aggregate of $ 367,000 may be due upon the achievement of various development and commercial milestones in both the united states and european union for up to six product candidates . 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 , โ business overview and summary of significant accounting policies โ 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 estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and disclosure of contingent assets and liabilities in our financial statements . story_separator_special_tag we assess on an ongoing basis whether collectibility is reasonably assured at the time of sale and we also use judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables if and when collection becomes doubtful . we continue to monitor economic conditions , including volatility associated with international economies and the sovereign debt crisis in europe , and the associated impacts on the financial markets and our business . for additional information related to our concentration of credit risk associated with certain international accounts receivable balances , refer to the `` liquidity and capital resources '' section below . contingent liabilities we are currently involved in various claims and legal proceedings . on a quarterly basis , we review the status of each significant matter and assess our potential financial exposure . if the potential loss from any claim , asserted or unasserted , or legal proceeding is considered probable and the amount can be reasonably estimated , we accrue a liability for the estimated loss . because of uncertainties related to claims and litigation , accruals are based on our best estimates based on available information . on a periodic basis , as additional information becomes available , or based on specific events such as the outcome of litigation or settlement of claims , we may reassess the potential liability related to these matters and may revise these estimates , which could result in a material adverse adjustment to our operating results . 49 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 , including costs incurred prior to regulatory approval but subsequent to the filing of a biologics license application ( bla ) when the company has determined that the inventory has probable future economic benefit . 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 also capitalize the cost of inventory manufactured at arimf in property , plant and equipment prior to the approval of the facility by regulatory authorities . 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 . 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 an 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 . 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 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_6_th comparison of the year ended december 31 , 2012 to the year ended december 31 , 2011 net product sales net product sales by significant geographic region are as follows : replace_table_token_7_th the increase in revenue for fiscal year 2012 versus 2011 was primarily due to an increased number of patients treated with soliris globally . the increase in treated patients was due to physicians requesting soliris therapy for additional patients , as well as reimbursement and price approvals in additional territories and reimbursement for ahus in the united states . we also recognized $ 3,300 related to an agreement reached with a payer in the second quarter of 2012 related to product shipped during 53 2011. the increase in revenues was offset by the negative impact of approximately $ 16,566 for the year ended december 31 , 2012 due to changes in foreign currency exchange rates ( inclusive of hedging activity ) versus the u.s. dollar for the year ended december 31 , 2011 . the negative impact was primarily due to the euro , offset by a positive impact of the japanese yen . we recorded a gain ( loss ) in revenue of $ 12,869 and $ ( 6,558 ) 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 , 2012 and 2011 , respectively . cost of sales in october 2012 , we entered into a settlement and non-exclusive license agreement with a third party .
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115 mercer international inc. notes to the consolidated financial statements ( in thousands of u.s. dollars , except share and per share data ) note 8. income taxes ( continued ) the company 's effective income tax rate can be affected by many factors , including but not limited to , changes in the mix of earnings in tax jurisdictions with differing statutory rates , changes in corporate structure , changes in the valuation of deferred tax assets and liabilities , the result of audit examinations of previously filed tax returns and changes in tax laws . the asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between story_separator_special_tag the following discussion and analysis of our financial condition and results of our operations for the years ended december 31 , 2015 , 2014 and 2013 is based upon and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report . this annual report contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those indicated in forward-looking statements . see ยcautionary note regarding forward-looking statementsย and item 1a . ยrisk factorsย . results of operations general we operate in the pulp business and our operations are located in germany and western canada . our mills have a current combined annual production capacity of approximately 1.5 million admts of nbsk pulp and 305 mw of electrical generation . markets for nbsk pulp are global , cyclical and commodity based . our financial performance depends on a number of variables that impact sales and production costs . sales and production results for kraft pulp are influenced largely by the market price for nbsk pulp , fiber costs and foreign currency exchange rates . kraft pulp prices are highly cyclical and primarily determined by the balance between supply and demand . pricing and demand are influenced by global macroeconomic conditions , changes in consumption and industry capacity , the level of customer and producer inventories and fluctuations in exchange rates . the average european list prices for nbsk pulp between 2006 and 2015 have fluctuated between a low of $ 575 per admt in 2009 to a high of $ 1,030 per admt in 2011. our financial performance is also impacted by changes in the dollar to euro and canadian dollar exchange rates . changes in currency rates affect our operating results because most of our operating costs at our german mills are incurred in euros . most of our operating costs at the celgar mill are in canadian dollars . these costs do not fluctuate with the dollar to euro or canadian dollar exchange rates . thus , an increase in the strength of the dollar versus the euro and the canadian dollar decreases our operating costs and increases our operating margins and income from operations . conversely , a weakening of the dollar against the euro and the canadian dollar tends to increase our operating costs and decrease our operating margins and income from operations . our energy and chemical sales are made in local currencies and , as a result , decline in dollar terms when the dollar strengthens and increase when the dollar weakens . as a corollary to changes in exchange rates between the dollar and the euro and canadian dollar , a stronger dollar generally increases costs to our customers and results in downward pressure on prices . conversely , a weakening dollar generally supports higher pulp pricing . however , there is invariably a time lag between changes in currency exchange rates and pulp prices . this lag can vary and is not predictable with any precision . in 2015 , changes in foreign exchange rates had a very significant effect on revenues , costs and expenses and results of operations , as the u.s. dollar increased by approximately 16 % and 14 % , respectively , versus the euro and the canadian dollar compared to 2014. this largely contributed to an approximately 14 % reduction in our costs and expenses in 2015 compared to 2014. in 2014 , the u.s. dollar was flat and 7 % stronger against the euro and canadian dollar , respectively , compared to 2013. this contributed to a 4 % decrease in costs and expenses in 2014 compared to 2013 . 61 in 2013 , demand for nbsk pulp from china was stable throughout the year and supply was slightly under-balanced , which resulted in higher prices than the prior year . in 2014 , generally strong markets resulted in average nbsk list prices being about 7 % higher than the previous year . at the end of 2014 , list prices were approximately $ 935 per admt in europe and $ 1,020 per admt and $ 700 per admt in north america and china , respectively . in 2015 , although pulp markets and demand were generally stable , the appreciation and the strength of the u.s. dollar versus the euro and canadian dollar resulted in list prices declining by about 8 % compared to 2014. at the end of 2015 , the nbsk list price was approximately $ 940 per admt in north america and $ 800 and $ 595 per admt in europe and china , respectively . our pulp sales realizations are list prices , net of customer discounts , rebates and other selling commissions . over the last three years , these discounts , rebates and commissions , particularly in europe and north america , have increased as producers compete for customers and sales . our sales to china are closer to a net price with significantly lower or little discounts and rebates . surplus energy and chemicals are by-products of our pulp production and the volumes generated and sold are primarily related to the rate of pulp production . prices for our energy and chemical sales are generally stable and unrelated to cyclical changes in pulp prices . story_separator_special_tag in 2014 , operating depreciation and amortization marginally decreased to $ 77.7 million from $ 78.3 million in 2013. selling , general and administrative expenses decreased to $ 47.9 million in 2014 from $ 51.2 million in 2013. transportation costs decreased to $ 88.6 million in 2014 from $ 90.0 million in 2013 . 67 on average , our overall per unit fiber costs in 2014 decreased by approximately 7 % from 2013 , primarily as a result of lower average fiber costs in the markets from which our mills source their fiber and the strengthening of the u.s. dollar versus the canadian dollar . our per unit fiber costs for our celgar mill decreased during 2014 compared to 2013 due to strong sawmill activity in the region . our per unit fiber costs at our german mills declined due to sawmills running at high rates , a stronger supply of logs and lower demand from pellet producers and board manufacturers . in 2014 , our operating income increased to $ 161.8 million from $ 31.7 million in 2013 , primarily due to higher pulp sales realizations , lower per unit fiber costs , the strengthening of the u.s. dollar and record energy sales volumes . interest expense in 2014 decreased to $ 67.5 million from $ 69.2 million in 2013 , primarily due to lower indebtedness . during 2014 , we recorded a net gain on the settlement of debt of $ 3.4 million , which reflected a gain of $ 31.9 million on our acquisition of all of the shareholder loans of the former noncontrolling shareholder in stendal , in large part offset by a loss of $ 28.5 million on the settlement of debt resulting from the refinancing of our long-term debt . in 2014 , we recorded a non-cash derivative gain of $ 11.5 million on the mark to market adjustment of the stendal interest rate swap contract , compared to a net derivative gain of $ 19.7 million in 2013. the noncontrolling shareholder 's interest in the stendal mill 's net income in 2014 was $ 7.8 million , compared to $ 0.6 million in the prior year . we eliminated such noncontrolling interest in the third quarter of 2014. during 2014 , we recorded a net income tax benefit of $ 16.8 million , compared to a net income tax expense of $ 9.2 million in 2013 , primarily due to the recognition of income tax loss carry-forwards associated with our stendal mill . we had net income of $ 113.2 million , or $ 1.82 per basic and $ 1.81 per diluted share , in 2014 , which included a non-cash unrealized gain on the stendal interest rate swap contract of $ 11.5 million , a net gain of $ 3.4 million on the settlement of debt and a deferred income tax benefit of $ 22.0 million . in 2013 , the net loss was $ 26.4 million , or $ 0.47 per basic and diluted share , which included a net gain of $ 19.7 million on the stendal interest rate swap contract and our fixed price pulp swaps and a deferred tax provision of $ 11.5 million . in 2014 , operating ebitda increased by 117 % to $ 239.8 million from $ 110.3 million in 2013 , primarily as a result of higher pulp prices , lower per unit fiber costs , the strengthening of the u.s. dollar versus the euro and canadian dollar and higher energy sales volumes . in 2014 , our operating ebitda margin was 20 % , compared to 10 % in 2013. sensitivities our earnings are sensitive to , among other things , fluctuations in : nbsk pulp price . nbsk pulp is a global commodity that is priced in u.s. dollars , whose markets are highly competitive and cyclical in nature . as a result , our earnings are sensitive to nbsk pulp price changes . based upon our 2015 sales volume ( and assuming all other factors remained constant ) , each $ 10.00 per tonne change in nbsk pulp list prices yields a change in operating ebitda of approximately $ 12.0 million . 68 foreign exchange . our operating costs are in euros for our german mills and canadian dollars for our celgar mill and our principal product , nbsk pulp , is quoted in u.s. dollars . as a result , our operating costs when translated into u.s. dollars will fluctuate with changes in the value of the u.s dollar relative to the euro and canadian dollar . our business and operating margins have materially benefited from the current strengthening of the u.s. dollar . based on our 2015 operating costs , each $ 0.01 change in the value of the u.s. dollar relative to the euro and the canadian dollar yields a total change in annual operating costs of approximately $ 9.0 million . our energy and chemical sales are made in local currencies and , as a result , decline in u.s. dollar terms when the u.s. dollar strengthens . based on our 2015 chemical and energy revenues , each $ 0.01 change in the value of the u.s. dollar relative to the euro and the canadian dollar yields a total change in chemical and energy revenues of approximately $ 1.0 million . seasonal influences . we are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors . these factors are common in the nbsk pulp industry . we generally have weaker pulp demand in europe during the summer holiday months and in china in the period relating to its lunar new year . we typically have a seasonal build-up in raw material inventories in the early winter months as our mills build up their fiber supply for the winter when there is reduced availability . liquidity and capital resources summary of cash flows replace_table_token_20_th cash flows from operating activities .
| selected 2015 highlights in 2015 : we achieved strong operating performance and the strength of the dollar helped us generate $ 234.0 million in operating ebitda * and $ 75.5 million in net income ; we continued to strengthen our balance sheet and increased our cash position to $ 99.6 million from $ 53.2 million and our working capital to $ 284.4 million from $ 242.4 million , respectively , from the start of the year ; we reduced our debt by $ 35.6 million ; mid-way through the year , our board instituted a quarterly cash dividend of $ 0.115 per share and we returned approximately $ 14.8 million to our shareholders ; we initiated a broad company-wide program to enhance safety performance at all of our operations ; and we were successful in our appeal before the b.c . utilities commission and recovered $ 6.1 million and completed our nafta hearing and are awaiting a decision currently expected some time in 2016 . * see page 64 of this annual report on form 10-k for a reconciliation of net income to operating ebitda . 63 current market environment demand from china and europe was stable throughout 2015 and supply was generally balanced . however , due to the strengthening dollar , prices decreased in 2015 compared to 2014. at year end , world producer inventories of nbsk pulp were at about 29 days ' supply . in addition , we expect to see continued growth in nbsk demand in emerging markets , particularly in china , driven by increasing strong demand from tissue producers . as our operating costs are primarily incurred in euros and canadian dollars and our principal product , nbsk pulp , is quoted in dollars , our business and operating margins have benefited from the current strengthening of the dollar .
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increasingly , our customers are selecting either a cloud-based deployment or a blended deployment , which is a combination of on-premise and cloud-based software , as they expand their businesses globally and as they recognize the benefits of full featured erp cloud-based software . at the core of our solutions is our enterprise resource planning ( โ erp โ ) suite called qad enterprise applications or mfg/pro . our erp suite is also deployed in the cloud as qad cloud erp . qad enterprise applications supports the core business processes of our global manufacturing customers , including key functions in the following areas : financials , customer management , manufacturing , demand and supply chain planning , supply chain execution , transportation management , service and support , enterprise asset management , analytics , enterprise quality management , interoperability , process and performance , and internationalization . we also focus on the foundation and technology of our applications , such as user interface and usability . we have four principal sources of revenue : โ license purchases of our enterprise applications ; โ subscription of our enterprise applications through our cloud offering in a software as a service ( โ saas โ ) model as well as other hosted internet applications ; โ maintenance and support , including technical support , training materials , product enhancements and upgrades ; โ professional services , including implementations , technical and application consulting , training , migrations and upgrades . we operate primarily in the following four geographic regions : north america , latin america , emea and asia pacific . in fiscal 2015 , approximately 44 % of our total revenue was generated in north america , 34 % in emea , 16 % in asia pacific and 6 % in latin america . the majority of our revenue is generated from global customers who have operations in multiple countries throughout the world . license and subscription revenues are assigned to the geographic regions based on both the proportion of users in each region and sales effort . maintenance revenue is allocated to the region where the end user is located . services revenue is assigned based on the region where the services are performed . a significant portion of our revenue and expenses are derived from international operations which are primarily conducted in foreign currencies . as a result , changes in the value of foreign currencies relative to the u.s. dollar have impacted our results of operations and may impact our future results of operations . at january 31 , 2015 , we employed approximately 1,650 employees worldwide , of which 620 employees were based in north america , 490 employees in emea , 470 employees in asia pacific and 70 employees in latin america . our customer base and our target markets are global manufacturing companies ; therefore , our results are heavily influenced by the state of the manufacturing economy on a global basis . as a result , our management team monitors several economic indicators , with particular attention to the global and country purchasing managers ' indexes ( โ pmi โ ) . the pmi is a survey conducted on a monthly basis by polling businesses that represent the makeup of respective sectors . since most of our customers are manufacturers , our revenue has historically correlated with fluctuations in the manufacturing pmi . global macro economic trends and manufacturing spending are important barometers for our business , and the health of the u.s. , western european and asian economies have a meaningful impact on our financial results . our business model is evolving . we continue to assess current business offerings and introduce more flexible license and service offerings in the cloud which have ratable revenue streams . the accounting impact of these cloud offerings and other business decisions are expected to result in an increase in the percentage of our ratable revenue , making for more predictable revenue over time , while correspondingly reducing our upfront perpetual license revenue stream . over time , we expect our business model transition to expand our customer base by eliminating higher up-front licensing costs and providing more flexibility in how customers gain access to and pay for our products . we expect this business model transition will increase our long-term revenue growth rate by increasing total subscriptions and customer value over time . page 29 we remain diligent about managing our expenditures while making essential investments to drive growth . if we are unable to successfully achieve our major business initiatives we may not achieve our financial goals . fiscal 2015 operating results a significant portion of our business is conducted in currencies other than the u.s. dollar , particularly the euro . in fiscal 2015 , approximately 56 % of our total revenue was generated outside of north america and we expect to continue generating a significant portion of our revenue outside the u.s. weakening of the value of the u.s. dollar compared to foreign currency exchange rates generally has the effect of increasing our revenues but also increasing our expenses denominated in currencies other than the u.s. dollar . similarly , strengthening of the u.s. dollar compared to foreign currency exchange rates generally has the effect of reducing our revenues but also reducing our expenses denominated in currencies other than the u.s. dollar . we plan our business accordingly by deploying additional resources to areas of expansion , while continuing to monitor our overall expenditures given the economic uncertainties of our target markets . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , we compare the changes in results from one period to another period using constant currency . in order to calculate our constant currency results , we apply the current foreign currency exchange rates to the prior period results . in the tables below , we present the change based on actual results in reported currency and in constant currency . replace_table_token_3_th total revenue . story_separator_special_tag as a result , our margins tend to remain consistent . although our professional services are optional , many of our customers use these services for some of their planning , implementation , or related needs . professional services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis . professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones . professional services revenue growth is contingent upon license and subscription revenue growth and customer upgrade cycles , which are influenced by the strength of general economic and business conditions and the competitive position of our software products . we use our partners and subcontractors to supplement our internal resources . this allows us to quickly respond to demand fluctuations while somewhat mitigating low utilization in slow times . we believe this also helps us extend our global reach by keeping a higher number of partners engaged and knowledgeable about our products . our professional services business has competitive exposure to offshore providers which could create the risk of pricing pressure , fewer customer orders and reduced gross margins . page 31 cash flow and financial condition . in fiscal 2015 , we generated cash flow from operating activities of $ 23.7 million and successfully closed a public offering of 2 million shares of our class a stock resulting in net cash received of $ 37.0 million after underwriting discounts , commissions and offering expenses . on february 18 , 2015 the offering underwriters exercised in full an option to purchase additional shares . as a result , a further 450,000 shares of class a common stock were issued generating approximately $ 8.4 million in additional net proceeds . our cash and equivalents at january 31 , 2015 totaled $ 120.5 million , with the only debt on our balance sheet of $ 15.1 million related to the mortgage of our headquarters . our primary uses of cash have been funding investment in research and development and funding operations to drive revenue and earnings growth . in addition , we use cash for acquisitions , dividend payments , share repurchase programs and other equity related transactions . in fiscal 2016 , we anticipate that our priorities for use of cash will be developing sales and services resources and continued investment in research and development to drive and support growth and profitability . we will continue to evaluate acquisition opportunities that are complementary to our product footprint , solutions delivery and technology direction . we will also continue to assess share repurchases and dividend payments . we do not anticipate additional borrowing requirements in fiscal 2016. seasonal nature of deferred revenue , accounts receivable and operating cash flow . deferred revenue primarily consists of billings to customers for maintenance and subscription . when renewing maintenance we generally invoice our customers in annual cycles and when renewing subscription we generally invoice our customers quarterly . we typically issue renewal invoices in advance of the renewal period . depending on timing , the initial invoice and the subsequent renewal invoice may occur in different quarters . this may result in an increase in deferred revenue and accounts receivable . there is a disproportionate weighting towards annual billings in the fourth quarter , primarily as a result of large enterprise account buying patterns . our fourth quarter has historically been our strongest quarter for new business and renewals . the year on year compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual billings . the sequential quarterly changes in accounts receivable , related deferred revenue and operating cash flow during the first three quarters of our fiscal year are not necessarily indicative of the billing activity that occurs in the fourth quarter as displayed below ( in thousands ) : replace_table_token_4_th ( 1 ) operating cash flow represents net cash provided by ( used in ) operating activities for the three months ended in the periods stated above . page 32 critical accounting policies the sec defines โ critical accounting policies โ as those that require application of management 's most difficult , subjective , or complex judgments . these policies often require us to make estimates about the effects of matters that are inherently uncertain and are subject to change in subsequent periods . we consider the following policies to be critical because of the significance of these items to our operating results and the estimation processes and management judgment involved in each : โ revenue โ accounts receivable allowances for doubtful accounts โ capitalized software development costs โ goodwill and intangible assets โ impairment assessments โ business combinations โ valuation of deferred tax assets and tax contingency reserves โ stock-based compensation our senior management has reviewed these critical accounting policies and related disclosures . historically , estimates described in our critical accounting policies that have required significant judgment and estimation on the part of management have been reasonably accurate . revenue . we offer our software using two models , a traditional on-premise licensing model and a cloud delivery model . the traditional model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own equipment . under the cloud delivery model we provide access to our software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software ; we sometimes refers to this as a saas model . we sell a majority of our software through our on-premise licensing model and recognize revenue associated with these offerings in accordance with the accounting guidance contained in asc 985-605 , software revenue .
| results of operations we operate in several geographical regions as described in note 12 โ business segment information โ within the notes to consolidated financial statements . in order to present our results of operations without the effects of changes in foreign currency exchange rates , we provide certain financial information on a โ constant currency basis โ , which is in addition to the actual financial information presented in the following tables . in order to calculate our constant currency results , we apply the current foreign currency exchange rates to the prior period results . we completed two acquisitions in fiscal 2013. the acquisitions contributed $ 15.7 million , $ 12.0 million and $ 3.7 million to total revenue during fiscal 2015 , 2014 and 2013 , respectively . as revenue and expenses from these acquisitions were relatively comparable for fiscal 2015 and 2014 , and on a standalone basis , are not a significant percentage of total revenue , we do not discuss the individual impact on each revenue or expense category when comparing fiscal 2015 to fiscal 2014. revenue replace_table_token_5_th page 40 total revenue . on a constant currency basis , total revenue was $ 295.1 million and $ 263.1 million for fiscal 2015 and 2014 , representing a $ 32.0 million , or 12 % , increase from the prior year . when comparing categories within total revenue at constant rates , our results for fiscal 2015 included increases in all revenue categories . our customers are widely dispersed and no single customer accounted for more than 10 % of total revenue in any of the last three fiscal years . revenue outside the north america region as a percentage of total revenue was 56 % and 57 % for fiscal 2015 and 2014 , respectively . total revenue increased in all regions during fiscal 2015 when compared to the same period last year .
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the prior period impact of the adjustment should be either presented separately on the face of the income statement or disclosed in the notes . the company is currently evaluating the impact the pronouncement will have on the company 's consolidated financial statements . as of december 31 , 2015 , there are no other recently issued accounting standards not yet adopted that would or could have a material effect on the company 's consolidated financial statements . 3. restricted cash restricted cash represents interest bearing deposits placed with banks to secure banking facilities in the form of loans and notes payable . the restriction of funds is based on time . the funds that collateralize loans are held for 60 days in a savings account that pays interest at the prescribed national daily savings account rate . for funds that under lie notes payable , the cash is deposited in six month time deposits that pay interest at the national time deposit rate . 4. trade accounts receivable replace_table_token_18_th replace_table_token_19_th 14 american lorain corporation notes to consolidated financial statements december 31 , 2015 and 2014 ( stated in us dollars ) the company offers credit terms of between 30 to 60 days to most of their domestic customers , including supermarkets and wholesalers , around 90 days to most of their international customers , and between 0 to 15 days for most of the third-party distributors the company works with . 5. other receivables other receivables consisted of the following as of december 31 , 2015 and 2014 : replace_table_token_20_th advances to employees for job/travel disbursements consisted of advances to employees for transportation , meals , client entertainment , commissions , and procurement of certain raw materials . the advances issued to employees may be carried for extended periods of time because employees may spend several months out in the field working to procure new sales contracts or fulfill existing contracts . specifically , the company uses available employees of the purchasing department to arrange purchases with desirable chestnut or story_separator_special_tag overview we are an integrated food manufacturing company headquartered in shandong province , china . we develop , manufacture and sell the following types of food products : chestnut products , convenience foods ( including ready-to-cook , or rtc , foods , ready-to-eat , or rte , foods and meals ready-to- eat , or mre ) ; and frozen food products . we conduct our production activities in china . our products are sold in the chinese domestic markets as well as exported to foreign countries and regions such as japan , south korea and europe . we believe that we are the largest chestnut processor and manufacturer in china . we have developed brand equity for our chestnut products in china , japan and south korea over the past 17 years . we produced 238 products in 2015. we derive most of our revenues from sales in china , france and japan . in 2016 , our primary strategy is to continue building our brand recognition in china through consistent marketing efforts towards supermarkets , wholesalers , and significant customers , enhancing the cooperation with other manufacturers and factories , and enhancing the turnover for our existing chestnut , convenience and frozen food products . in addition , we are working to expand our marketing efforts in asia and europe . we currently have limited sales and marketing activity in the united states , although our long-term plan is to significantly expand our activities there . in addition , we are working to developing new products and developing new sales channels . production factors that affect our financial and operational condition our business depends on obtaining a reliable supply of various agricultural products , including chestnuts , vegetables , fruits , red meat , fish , eggs , rice , flour and packaging products . during 2015 , the cost of our raw materials decreased from $ 146,601,039 to $ 143,226,607 for a decrease of approximately 2.3 % . we may have to increase the number of our suppliers of raw materials and expand our own agricultural operations in the future to meet growing production demands . despite our efforts to control our supply of raw materials and maintain good relationships with our suppliers , we could lose one or more of our suppliers at any time . the loss of several suppliers may be difficult to replace and could increase our reliance on higher cost or lower quality suppliers , which could negatively affect our profitability . in addition , if we have to increase the number of our suppliers of raw materials in the future to meet growing production demands , we may not be able to locate new suppliers who could provide us with sufficient materials to meet our needs . any interruptions to , or decline in , the amount or quality of our raw materials supply could materially disrupt our production and adversely affect our business and financial condition and financial prospects . the average price that we paid for chestnuts in the china domestic market in 2015 and 2014 was approximately $ 1,600 metric ton and $ 1,536 per metric ton , respectively , excluding value added taxes . in the past few years , increasing inflation pressures weighed on the chinese economy which reflected on agricultural product prices . we do not have effective means and do not currently hedge against changes in our raw material prices . consequently , if the costs of our raw materials increase further and we are unable to offset these increases by raising the prices of our products , our profit margins and financial condition could be adversely affected . uncertainties that affect our financial condition we spend a significant amount of cash on our operations , principally to procure raw materials for our products . story_separator_special_tag the use of estimates is critical to the carrying value of asset accounts such as accounts receivable , inventory , fixed assets , and intangible assets . we use estimates to account for the related bad debt allowance , inventory impairment charges , depreciation and amortization of our assets . in the food processing industry these accounts have a significant impact on the valuation of our balance sheet and the results of our operations . principles of consolidation -- the consolidated financial statements are presented in us dollars and include the accounts of the company and its commonly controlled entity . all significant inter-company balances and transactions are eliminated in combination . as of december 31 , 2015 , the particulars of the commonly controlled entities are as follows : replace_table_token_9_th accounting for the impairment of long-lived assets -- the long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable . it is reasonably possible that these assets could become impaired as a result of technology or other industry changes . determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets . 30 if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . the company believes no impairment has occurred to its assets during 2015 and 2014. revenue recognition -- the company 's revenue recognition policies are in compliance with staff accounting bulletin ( sab ) 104. sales revenue is recognized at the date of shipment to customers when a formal arrangement exists , the price is fixed or determinable , the delivery is completed , no other significant obligations of the company exist and collectibility is reasonably assured . payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue . the company 's revenue consists of invoiced value of goods , net of a value-added tax ( vat ) . the company allows its customers to return products if they are defective . however , this rarely happens and amounts returned have been de minimis . financial instruments the company 's financial instruments , including cash and equivalents , accounts and other receivables , accounts and other payables , accrued liabilities and short-term debt , have carrying amounts that approximate their fair values due to their short maturities . asc topic 820 , ยfair value measurements and disclosures , ย requires disclosure of the fair value of financial instruments held by the company . asc topic 825 , ยfinancial instruments , ย defines fair value , and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures . the carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest . the three levels of valuation hierarchy are defined as follows : level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets . level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement . the company analyzes all financial instruments with features of both liabilities and equity under asc 480 , ยdistinguishing liabilities from equity , ย and asc 815. as of december 31 , 2015 and 2014 , the company did not identify any assets and liabilities whose carrying amounts were required to be adjusted in order to present them at fair value . recent accounting pronouncements in january 2015 , the fasb issued asu no . 2015-01 , ยincome statementยextraordinary and unusual items ( subtopic 225-20 ) ย.this update eliminates from gaap the concept of extraordinary items . subtopic 225-20 , income statementยextraordinary and unusual items , required that an entity separately classify , present , and disclose extraordinary events and transactions . presently , an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item . paragraph 225-20-45-2 contains the following criteria that must both be met for extraordinary classification : 1. unusual nature . the underlying event or transaction should possess a high degree of abnormality and be of a type clearly unrelated to , or only incidentally related to , the ordinary and typical activities of the entity , taking into account the environment in which the entity operates . 2. infrequency of occurrence . the underlying event or transaction should be of a type that would not reasonably be expected to recur in the foreseeable future , taking into account the environment in which the entity operates . if an event or transaction meets the criteria for extraordinary classification , an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement , net of tax after income from continuing operations . the entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item . the amendments in this update are effective for
| results of operations the following tables set forth key components of our results of operations for the periods indicated , and the differences between the two periods expressed in dollars and percentages . replace_table_token_6_th 26 year ended december 31 , 2015 compared to year ended december 31 , 2014 revenue net revenues . net revenues decreased by $ 2.2 million , or approximately 1.0 % , to $ 215.3 million in 2015 from $ 217.5 million in 2014. this decrease was attributable to the decreased revenues from sales of our chestnut food products and convenience food products , which was partially offset by increased revenues from frozen food product segments as reflected in the following table : replace_table_token_7_th revenues from sales in the china domestic market increased by approximately $ 32.8 million , or approximately 23.5 % in 2015. as a percentage of total revenues , revenues from the domestic prc market increased to approximately 80.1 % from approximately 64.2 % in 2014. revenue from sales in international markets decreased by approximately $ 35.0 million , or approximately 45.0 % the decrease is mainly due to a decrease in our revenue from europe as a result of a question raised by ctcpa , with respect to the origin of canned chestnuts sold by conserverie minerve ( ยminerveย , a former subsidiary of athena ) and minerve chestnuts come from a chinese cultivar , while ctcpa stated that only chestnuts based on the european or japanese cultivars can be used in canned chestnut products sold in france according to ctcpa policies . the company has since shipped chestnuts based on the japanese cultivar grown in china to minerve . we are also still in negotiation with ctcpa with respect to chestnuts based on the chinese cultivar . the company initiated a reorganization proceeding with the local court in september 2015 in order to have time to obtain ifs certification and to address the ctcpa cultivar issue .
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fasb asc 740 requires the use of an asset and liability approach in accounting for income taxes . deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently . f-13 cang bao tian xia international art trade center , inc. notes to financial statements for the period june 30 , 2019 and 2018 fasb asc 740 requires the reduction of deferred tax assets by a valuation allowance , if , based on the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . in the company 's opinion , it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset . accordingly , a valuation allowance equal to the deferred tax asset has been recorded . the cumulative deferred tax asset for the years june 30 , 2019 and 2018 is $ 851,633 and $ 843,610 , respectively , which is calculated by multiplying the estimated tax rate by the cumulative net operating loss ( nol ) adjusted for the following items : replace_table_token_7_th details of valuation allowance for the last two years are as follows : replace_table_token_8_th rate reconciliation : replace_table_token_9_th uncertain tax positions unrecognized income tax benefits represent income tax positions taken on income tax returns but not yet recognized in the financial statements . if recognized , substantially all of the unrecognized tax benefits for the company 's fiscal years ended june 30 , 2019 and 2018 would affect the effective income tax rate . there were no unrecognized income tax benefits as of june 30 , 2019 and 2018. the company recognizes the interest and penalties accrued related to unrecognized tax benefits in income tax expense . the company did not recognize any expenses any interest and penalties as of june 30 , 2019 and 2018 , respectively . note 8 ย subsequent events the company evaluates events that occur after the year-end date through the date the financial statements are available to be issued . accordingly , management has evaluated subsequent events through august 1 , 2019 , and has determined that there were no subsequent events , requiring adjustment to , or disclosure in , the financial statements . f-14 story_separator_special_tag this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal years ended june 30 , 2019 and 2018. the discussion and analysis that follows should be read together with our financial statements and the notes to the financial statements included elsewhere in this annual report on form 10-k. except for historical information , the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . business development the company 's current business objective is to seek a business combination with an operating company . we intend to use the company 's limited personnel and financial resources in connection with such activities . the company will utilize its capital stock , debt or a combination of capital stock and debt , in effecting a business combination . it may be expected that entering into a business combination will involve the issuance of restricted shares of capital stock . the issuance of additional shares of our capital stock : ยท may significantly reduce the equity interest of our stockholders ; ยท will likely cause a change in control if a substantial number of our shares of capital stock are issued , and most likely will also result in the resignation or removal of our present officer and director ; and ยท may adversely affect the prevailing market price for our common stock . similarly , if we issued debt securities , it could result in : ยท default and foreclosure on our assets if our operating revenues after a business combination were insufficient to pay our debt obligations ; ยท acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contained covenants that required the maintenance of certain financial ratios or reserves and any such covenants were breached without a waiver or renegotiations of such covenants ; ยท our immediate payment of all principal and accrued interest , if any , if the debt security was payable on demand ; and ยท our inability to obtain additional financing , if necessary , if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding . cang bao tian xia international art trade center , inc. has administrative offices located at 5-1-1206 hefeng jiangan , nianqing rd . meilan district , haikou , hainan province , china 570203. the company 's fiscal year end is june 30 . 8 critical accounting policies and estimates our condensed consolidated financial statements are prepared in accordance with gaap . the preparation of these financial statements 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 . we continually evaluate our estimates and judgments , our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones . we base our estimates and judgments on historical experience and other factors that we believe to be reasonable story_separator_special_tag fasb asc 740 requires the use of an asset and liability approach in accounting for income taxes . deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently . f-13 cang bao tian xia international art trade center , inc. notes to financial statements for the period june 30 , 2019 and 2018 fasb asc 740 requires the reduction of deferred tax assets by a valuation allowance , if , based on the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . in the company 's opinion , it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset . accordingly , a valuation allowance equal to the deferred tax asset has been recorded . the cumulative deferred tax asset for the years june 30 , 2019 and 2018 is $ 851,633 and $ 843,610 , respectively , which is calculated by multiplying the estimated tax rate by the cumulative net operating loss ( nol ) adjusted for the following items : replace_table_token_7_th details of valuation allowance for the last two years are as follows : replace_table_token_8_th rate reconciliation : replace_table_token_9_th uncertain tax positions unrecognized income tax benefits represent income tax positions taken on income tax returns but not yet recognized in the financial statements . if recognized , substantially all of the unrecognized tax benefits for the company 's fiscal years ended june 30 , 2019 and 2018 would affect the effective income tax rate . there were no unrecognized income tax benefits as of june 30 , 2019 and 2018. the company recognizes the interest and penalties accrued related to unrecognized tax benefits in income tax expense . the company did not recognize any expenses any interest and penalties as of june 30 , 2019 and 2018 , respectively . note 8 ย subsequent events the company evaluates events that occur after the year-end date through the date the financial statements are available to be issued . accordingly , management has evaluated subsequent events through august 1 , 2019 , and has determined that there were no subsequent events , requiring adjustment to , or disclosure in , the financial statements . f-14 story_separator_special_tag this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal years ended june 30 , 2019 and 2018. the discussion and analysis that follows should be read together with our financial statements and the notes to the financial statements included elsewhere in this annual report on form 10-k. except for historical information , the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . business development the company 's current business objective is to seek a business combination with an operating company . we intend to use the company 's limited personnel and financial resources in connection with such activities . the company will utilize its capital stock , debt or a combination of capital stock and debt , in effecting a business combination . it may be expected that entering into a business combination will involve the issuance of restricted shares of capital stock . the issuance of additional shares of our capital stock : ยท may significantly reduce the equity interest of our stockholders ; ยท will likely cause a change in control if a substantial number of our shares of capital stock are issued , and most likely will also result in the resignation or removal of our present officer and director ; and ยท may adversely affect the prevailing market price for our common stock . similarly , if we issued debt securities , it could result in : ยท default and foreclosure on our assets if our operating revenues after a business combination were insufficient to pay our debt obligations ; ยท acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contained covenants that required the maintenance of certain financial ratios or reserves and any such covenants were breached without a waiver or renegotiations of such covenants ; ยท our immediate payment of all principal and accrued interest , if any , if the debt security was payable on demand ; and ยท our inability to obtain additional financing , if necessary , if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding . cang bao tian xia international art trade center , inc. has administrative offices located at 5-1-1206 hefeng jiangan , nianqing rd . meilan district , haikou , hainan province , china 570203. the company 's fiscal year end is june 30 . 8 critical accounting policies and estimates our condensed consolidated financial statements are prepared in accordance with gaap . the preparation of these financial statements 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 . we continually evaluate our estimates and judgments , our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones . we base our estimates and judgments on historical experience and other factors that we believe to be reasonable
| results of operations comparison of twelve-month periods ended june 30 , 2019 and 2018 revenue for the year ended june 30 , 2019 , the company generated $ 0 in revenues . for the year ended june 30 , 2018 , the company generated $ 0 in revenues . expenses for the year ended june 30 , 2019 , we incurred operating expenses of $ 48,856. for the year ended june 30 , 2018 , we incurred operating expenses in the amount of $ 4,017,192. the decrease in operating expenses is attributable to a $ 4,000,000 preferred stock valuation for services related to the issuance of that stock to the david lazar . net loss for the year ended june 30 , 2019 we incurred a net loss of 48,856. we had net loss of $ 4,017,192 for the year ended june 30 , 2018. the decrease is attributable to a $ 4,000,000 preferred stock valuation for services related to the issuance of that stock to the david lazar . liquidity and capital resources as of june 30 , 2019 , the company has no business operations and $ 5,000 cash resources other than that provided by management . we are dependent upon interim funding provided by management or an affiliated party to pay professional fees and expenses . management and an affiliated party have provided funding as may be required to pay for accounting fees and other administrative expenses of the company until the company enters into a business combination . the company would be unable to continue as a going concern without interim financing provided by management . as of june 30 , 2019 , we had $ 0 in cash . as of june 30 , 2018 , we had $ 0 in cash . if we require additional financing , we can not predict whether equity or debt financing will become available at terms acceptable to us , if at all .
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the following table summarizes the activity in total shares available for grant ( in thousands ) : replace_table_token_25_th stock compensation expense the following table summarizes the effects of stock-based compensation on cost of goods sold , research and development , sales , general and administrative , pre-tax income , and net income after taxes for options granted under the company 's equity incentive plans ( in thousands , except per share amounts ) : replace_table_token_26_th page 55 of 72 the total share based compensation expense included in the table above and which is attributable to restricted stock awards and restricted stock units was $ 18.6 million , $ 16.3 million , and $ 6.3 million , for fiscal years 2014 , 2013 , and 2012 , respectively . as of march 29 , 2014 , there was $ 37.5 million of compensation costs related to non-vested stock options , restricted story_separator_special_tag please read the following discussion in conjunction with our audited historical consolidated financial statements and notes thereto , which are included elsewhere in this form 10-k. management 's discussion and analysis of financial condition and results of operations contains statements that are forward-looking . these statements are based on current expectations and assumptions that are subject to risk , uncertainties and other factors . actual results could differ materially because of the factors discussed in part i , item 1a . ยrisk factorsย of this form 10-k. critical accounting policies our discussion and analysis of the company 's financial condition and results of operations are based upon the consolidated financial statements included in this report , which have been prepared in accordance with u. s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts . we evaluate the estimates on an on-going basis . we base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . we believe the following critical accounting policies involve significant judgments and estimates that are used in the preparation of the consolidated financial statements : ยก we provide for the recognition of deferred tax assets if realization of such assets is more likely than not . the company evaluates the ability to realize its deferred tax assets based on all the facts and circumstances , including projections of future taxable income and expiration dates of carryover page 27 of 72 attributes . we have provided a valuation allowance against a portion of our net u.s. deferred tax assets due to uncertainties regarding its realization . the calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the internal revenue service or other taxing jurisdiction . if our estimates of these taxes are greater or less than actual results , an additional tax benefit or charge will result . see note 17 ย income taxes of the notes to consolidated financial statements contained in item 8 for additional details . ยก we recognize revenue when all of the following criteria are met : persuasive evidence that an arrangement exists , delivery of goods has occurred , the sales price is fixed or determinable and collectability is reasonably assured . we evaluate our distributor arrangements , on a distributor by distributor basis , with respect to each of the four criteria above . for a majority of our distributor arrangements , we provide rights of price protection and stock rotation . revenue is deferred at the time of shipment to our domestic distributors and certain international distributors due to the determination that the ultimate sales price to the distributor is not fixed or determinable . once the distributor has resold the product , and our final sales price is fixed or determinable , we recognize revenue for the final sales price and record the related costs of sales . for certain of our smaller international distributors , we do not grant price protection rights and provide minimal stock rotation rights . for these distributors , revenue is recognized upon delivery to the distributor , less an allowance for estimated returns , as the revenue recognition criteria have been met upon shipment . further , the company defers the associated cost of goods sold on our consolidated balance sheet , net within the deferred income caption . the company routinely evaluates the products held by our distributors for impairment to the extent such products may be returned by the distributor within these limited rights and such products would be considered excess or obsolete if included within our own inventory . products returned by distributors and subsequently scrapped have historically been immaterial to the company . ยก inventories are recorded at the lower of cost or market , with cost being determined on a first-in , first-out basis . we write down inventories to net realizable value based on forecasted demand , product release schedules , product life cycles , management judgment , and the age of inventory . actual demand and market conditions may be different from those projected by management , which could have a material effect on our operating results and financial position . see note 2 ย summary of significant accounting policies of the notes to consolidated financial statements contained in item 8 . ยก we evaluate the recoverability of property , plant , and equipment and intangible assets by testing for impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets ' carrying amounts . story_separator_special_tag fiscal year 2014 fiscal year 2014 was a year focused on developing innovative new products , strengthening existing customer relationships and establishing new relationships with key players in the markets we serve . with the page 29 of 72 addition of the embedded soundclear ยฎ technology and existing hardware , the company is leveraging its engineering expertise to develop custom and general market audio subsystems that intelligently solve system design issues . also in fiscal year 2014 , we expanded our footprint in portable audio with the addition of several new top tier smartphone customers . fiscal year 2014 net sales of $ 714.3 million represented a 12 percent decrease over fiscal year 2013 net sales of $ 809.8 million . audio product line sales of $ 667.7 million in fiscal year 2014 represented a 12 percent decrease over fiscal year 2013 sales of $ 754.8 million , attributable to lower sales of portable audio products due to reduced average selling prices ( ยaspsย ) to certain customers . energy product line sales of $ 46.6 million in fiscal year 2014 represented a 15 percent decrease from fiscal year 2013 sales of $ 55.0 million , which was attributable , primarily to the absence of revenue related to the products associated with our tucson office asset sale , described in note 8 ย asset sale . overall , gross margin for fiscal year 2014 was 50 percent . the increase in gross margin for fiscal year 2014 was primarily due to the absence of the significant inventory write-down , including scrapped inventory , experienced in the prior fiscal year , which had a 3.1 % negative impact on fiscal year 2013 margin . the company achieved net income of $ 108.1 million in fiscal year 2014 , which included an income tax provision in the amount of $ 47.6 million . additionally , the company 's number of employees increased to 751 as of march 29 , 2014. fiscal year 2013 fiscal year 2013 was a year focused on ramping new custom products and introducing general market portable audio and energy products that we expected to drive revenue growth and customer diversification longer-term . the company targeted tier-one customers in growing markets who were able to differentiate their products with our innovative technology , highlighted by the fact that our top ten end customer concentration had increased to 89 percent of sales in fiscal year 2013 , from 74 percent in fiscal year 2012. fiscal year 2013 net sales of $ 809.8 million represented a 90 percent increase over fiscal year 2012 net sales of $ 426.8 million . audio product line sales of $ 754.8 million in fiscal year 2013 represented a 115 percent increase over fiscal year 2012 sales of $ 350.7 million , attributable to higher sales of portable audio products . energy product line sales of $ 55.0 million in fiscal year 2013 represented a 28 percent decrease from fiscal year 2012 sales of $ 76.1 million , which was attributable , primarily to the absence of revenue related to the products associated with our tucson office asset sale , described in note 8 ย asset sale , coupled with decreased sales from our power meter components . additionally , the restructuring discussed in note 10 ย restructuring costs of the consolidated financial statements contributed to this decrease . in fiscal year 2013 , we experienced substantial growth in our revenue and operating profit , significantly expanded our footprint in portable audio , and continued our investments in new led lighting products . overall , gross margin for fiscal year 2013 was 49 percent . decreases in gross margin for fiscal year 2013 were primarily due to inventory write-downs , including scrapped inventory , and unfavorable product mix . the company achieved net income of $ 136.6 million in fiscal year 2013 , which included an income tax provision in the amount of $ 64.6 million . additionally , the company 's number of employees decreased slightly to 652 in fiscal year 2013 , due to the restructuring discussed in note 10 , partially offset by an increase in new hires . fiscal year 2012 fiscal year 2012 net sales of $ 426.8 million represented a 15 percent increase over fiscal year 2011 net sales of $ 369.6 million . audio product line sales of $ 350.7 million in fiscal year 2012 represented a 32 percent increase over fiscal year 2011 sales of $ 264.8 million and were primarily attributable to higher sales of portable audio products . energy product line sales of $ 76.1 million in fiscal year 2012 represented a 27 percent decrease from fiscal year 2011 sales of $ 104.7 million , and were attributable to decreased sales across product lines , primarily in the seismic product line . in fiscal year 2012 , we launched our first led controller within our energy product line and continued our strategy of targeting growing markets , to showcase our expertise in analog and digital signal processing to solve challenging problems . page 30 of 72 overall gross margin of 54 percent for fiscal year 2012 represented an approximate 14 percent increase in gross profit over prior years . the company achieved net income of $ 88.0 million in fiscal year 2012 , which included a benefit for income taxes in the amount of $ 8.0 million upon realizing net deferred tax assets . additionally , the company 's number of employees grew to 667 in the 2012 fiscal year , due to the increased hiring of engineering talent for additional projects . story_separator_special_tag respectively . the increase in interest income , net in fiscal year 2014 was due to higher cash and cash equivalent balances , compared to fiscal year 2013. the decrease in fiscal year 2013 was attributable to lower yield on invested capital . provision ( benefit ) for income taxes we recorded income tax expense of $ 47.6 million in fiscal year 2014 on a pre-tax income of $ 155.7 million , yielding an effective tax provision rate of 30.6
| results of operations the following table summarizes the results of our operations for each of the past three fiscal years as a percentage of net sales . all percentage amounts were calculated using the underlying data , in thousands : replace_table_token_5_th net sales we report sales in two product categories : audio products and energy products . our sales by product line are as follows ( in thousands ) : replace_table_token_6_th net sales for fiscal year 2014 decreased 12 percent , to $ 714.3 million from $ 809.8 million in fiscal year 2013. the decrease in net sales reflects an $ 87.0 million decrease in audio product sales and an $ 8.4 million decrease in energy product sales . the audio products group experienced a decline in sales from portable audio products , primarily due to anticipated declines in asps . the decline in energy product group sales was attributable primarily to the absence of revenue related to the products associated with our tucson office asset sale , described in note 8 ย asset sale . net sales for fiscal year 2013 increased 90 percent , to $ 809.8 million from $ 426.8 million in fiscal year 2012. the increase in net sales reflects a $ 404.0 million increase in audio product sales , partially offset by a $ 21.1 million decrease in energy product sales . the substantial increase in audio revenue was largely driven by sales in portable audio products , where we experienced increases in the asps and volumes associated with low power audio codecs . in addition , we saw an increase in portable audio revenue as we began the shipment of a new product , a low power audio amplifier .
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unless otherwise stated or the context otherwise requires , โ lnc , โ โ lincoln , โ โ company , โ โ we , โ โ our โ or โ us โ refers to lincoln national corporation and its consolidated subsidiaries . the md & a is provided as a supplement to , and should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements ( โ notes โ ) presented in โ part ii โ item 8. financial statements and supplementary data , โ as well as โ part i โ item 1a . risk factors โ above . the amounts in item 7 are inclusive of our restatement of our consolidated financial statements . see โ basis of presentation โ in note 1 and note 24 for further information . in this report , in addition to providing consolidated revenues and net income ( loss ) , we also provide segment operating revenues and income ( loss ) from operations because we believe they are meaningful measures of revenues and the profitability of our operating segments . financial information that follows is presented in conformity with accounting principles generally accepted in the united states of america ( โ gaap โ ) , unless otherwise indicated . see note 1 for a discussion of gaap . operating revenues and income ( loss ) from operations are the financial performance measures we use to evaluate and assess the results of our segments . accordingly , we define and report operating revenues and income ( loss ) from operations by segment in note 22. our management believes that operating revenues and income ( loss ) from operations explain the results of our ongoing businesses in a manner that allows for a better understanding of the underlying trends in our current businesses because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments , and , in many instances , decisions regarding these items do not necessarily relate to the operations of the individual segments . in addition , we believe that our definitions of operating revenues and income ( loss ) from operations will provide investors with a more valuable measure of our performance because it better reveals trends in our business . forward-looking statements โ cautionary language certain statements made in this report and in other written or oral statements made by us or on our behalf are โ forward-looking statements โ within the meaning of the private securities litigation reform act of 1995 ( โ pslra โ ) . a forward-looking statement is a statement that is not a historical fact and , without limitation , includes any statement that may predict , forecast , indicate or imply future results , performance or achievements , and may contain words like : โ believe , โ โ anticipate , โ โ expect , โ โ estimate , โ โ project , โ โ will , โ โ shall โ and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance . in particular , these include statements relating to future actions , trends in our businesses , prospective services or products , future performance or financial results and the outcome of contingencies , such as legal proceedings . we claim the protection afforded by the safe harbor for forward-looking statements provided by the pslra . forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements . risks and uncertainties that may cause actual results to vary materially , some of which are described within the forward-looking statements , include , among others : ยท deterioration in general economic and business conditions that may affect account values , investment results , guaranteed benefit liabilities , premium levels , claims experience and the level of pension benefit costs , funding and investment results ; ยท adverse global capital and credit market conditions could affect our ability to raise capital , if necessary , and may cause us to realize impairments on investments and certain intangible assets , including goodwill and the valuation allowance against deferred tax assets , which may reduce future earnings and or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures ; ยท because of our holding company structure , the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company 's ability to meet its obligations ; ยท legislative , regulatory or tax changes , both domestic and foreign , that affect the cost of , or demand for , our subsidiaries ' products , the required amount of reserves and or surplus , or otherwise affect our ability to conduct business , including changes to statutory reserve requirements related to secondary guarantee universal life and annuities ; regulations regarding captive reinsurance arrangements ; restrictions on revenue sharing and 12b-1 payments ; and the potential for u.s. federal tax reform ; ยท declines in or sustained low interest rates causing a reduction in investment income , the interest margins of our businesses , estimated gross profits ( โ egps โ ) and demand for our products ; ยท uncertainty about the effect of rules and regulations to be promulgated under the dodd-frank wall street reform and consumer protection act on us and the economy and the financial services sector in particular ; ยท the initiation of legal or regulatory proceedings against us , and the outcome of any legal or regulatory proceedings , such as : adverse actions related to present or past business practices common in businesses in which we compete ; adverse decisions in 36 significant actions including , but not limited to , actions brought by federal and state authorities and class action cases ; new decisions that result in changes in law ; and unexpected trial court rulings ; ยท a decline in the equity markets causing a reduction in the sales of our subsidiaries ' products story_separator_special_tag in the face of these economic challenges , we continue to focus on building our businesses through these challenging markets by continuing to develop and introduce high quality products , expand distribution into new and existing key accounts and channels and target market segments that have high growth potential while maintaining a disciplined approach to managing our expenses . significant operational matters interest rate risk on fixed insurance businesses because the profitability of our fixed annuity , ul , vul and defined contribution insurance business depends in part on interest rate spreads , interest rate fluctuations could negatively affect our profitability . changes in interest rates may reduce both our profitability from spread businesses and our return on invested capital . some of our products , principally our fixed annuities , ul and vul , have interest rate guarantees that expose us to the risk that changes in interest rates or prolonged low interest rates will reduce our spread , or the difference between the interest that we are required to credit to contracts and the yields that we are able to earn on our general account investments supporting our obligations under the contracts . although we have been proactive in our investment strategies , product designs , crediting rate strategies and overall asset-liability practices to mitigate the risk of unfavorable consequences in this type of environment , declines in our spread , or instances where the returns on our general account investments are not enough to support the interest rate guarantees on these products , could have an adverse effect on some of our businesses or results of operations . given the level of interest rates as of the end of 2012 , we have provided disclosures around the effects of sustained low interest rates in โ part ii โ item 7a . quantitative and qualitative disclosures about market risk โ interest rate risk โ interest rate risk on fixed insurance businesses โ falling rates โ and โ part i โ item 1a . risk factors โ changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease and changes in interest rates may also result in increased contract withdrawals. โ earnings from account values the annuities and retirement plan services segments are the most sensitive to the equity markets , as well as , to a lesser extent , our life insurance segment . we discuss the earnings effect of the equity markets on account values and the related asset-based earnings below in โ part ii โ item 7a . quantitative and qualitative disclosures about market risk โ equity market risk โ effect of equity market sensitivity. โ account values increased $ 17.8 billion during 2012 driven primarily by an increase in equity markets and positive net flows . variable annuity hedge program performance we offer variable annuity products with living benefit guarantees . as described below in โ critical accounting policies and estimates โ derivatives โ guaranteed living benefits , โ we use derivative instruments to hedge our exposure to the risks and earnings volatility that result from the guaranteed living benefit ( โ glb โ ) embedded derivatives in certain of our variable annuity products . the change in fair value of these instruments tends to move in the opposite direction of the change in embedded derivative reserves . these results are excluded from the annuities and retirement plan services segments ' operating revenues and income from operations . see โ realized gain ( loss ) and benefit ratio unlocking โ variable annuity net derivatives results โ below for information on our methodology for calculating the non-performance risk ( โ npr โ ) , which affects the discount rate used in the calculation of the glb embedded derivative reserves . 38 we also offer variable products with death benefit guarantees . as described below in โ critical accounting policies and estimates โ future contract benefits and other contract holder obligations โ guaranteed death benefits , โ we use derivative instruments to attempt to hedge the income statement effect in the opposite direction of the guaranteed death benefit ( โ gdb โ ) benefit ratio unlocking for movements in equity markets . these results are excluded from income ( loss ) from operations . the costs of derivative instruments that we use to hedge these variable annuity products may increase as a result of the low interest rate environment . the variable annuity hedge program ended 2012 with assets of $ 1.9 billion , which were in excess of the estimated liability of $ 1.2 billion as of december 31 , 2012. life insurance pivot products we plan to continue to pivot to higher return life insurance products in the current low interest rate environment . in doing so , we are shifting our focus toward life insurance products , such as variable universal life , indexed universal life and term insurance , that are not primarily focused upon secondary guarantees . these pivot products comprised 46 % of our total life sales in 2012 , as compared to 31 % in 2011. we remain focused on improving the overall attractiveness of our pivot products . improvement of return on equity one of our highest priorities continues to be increasing our return on equity ( โ roe โ ) . growth in roe will be driven by a number of items including : ยท earnings mix shift to businesses with higher returns ; ยท sales of products that have higher returns than the products already in force ; and ยท capital management actions consisting of redeployment of excess capital ( including returning capital to common stockholders ) and further generation of excess capital . strategic investments we continue to make strategic investments in our businesses to grow revenues , further spur productivity and improve our efficiency and service to our customers . these efforts include investments in technology and system upgrades , new products for the voluntary market and expanded distribution focus . industry trends we continue to be influenced by a variety of trends that affect the industry .
| results of life insurance income ( loss ) from operations details underlying the results for life insurance ( in millions ) were as follows : replace_table_token_29_th 67 comparison of 2012 to 2011 income from operations for this segment increased due primarily to the following : ยท higher insurance fees due to the effect of unlocking and growth in business in force ; and ยท higher net investment income , net of interest credited , driven by : ยง growth in business in force ; and ยง more favorable investment income on alternative investments within our surplus portfolio ( see โ consolidated investments โ alternative investments โ below for more information ) ; partially offset by : ยง spread compression due to new money rates averaging below our current portfolio yields , partially offset by lower interest crediting rates . the increase in income from operations was partially offset by the following : ยท higher commissions and other expenses attributable to the effect of unlocking and other reserve changes ; and ยท higher benefits due to higher death claims , partially offset by the effect of unlocking . comparison of 2011 to 2010 income from operations for this segment increased due primarily to the following : ยท higher net investment income , net of interest credited , attributable to growth in business in force and actions implemented to reduce interest crediting rates , partially offset by new money rates averaging below our portfolio yields ; ยท lower benefits due to the effect of unlocking , partially offset by higher death claims , model refinements and continued growth in our secondary guarantee life insurance business ; and ยท higher insurance fees due to growth in insurance in force , partially offset by the effect of unlocking .
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cash used for investing activities cash used for investing activities in 2014 decreased $ 276 million compared to 2013. in 2014 , a $ 121 million change in restricted cash and a $ 38 million decrease in capital expenditures was largely offset by a $ 110 million increase in timberland acquisitions . the prior year period included large cash outlays for the purchase of an additional interest in the new zealand jv of $ 140 million and the cellulose specialties expansion project of $ 148 million , partially offset by $ 63 million of after-tax proceeds from the sale of our wood products business . cash ( used for ) provided by financing activities cash used for financing activities in 2014 was relatively consistent with the prior year . in 2014 , higher net debt repayments ( including debt issuance costs ) of $ 874 million and higher dividend payments of $ 20 million was offset by $ 906 million of proceeds from the spin-off of the performance fibers business . in 2014 , our annual dividend was $ 2.03 per share . after making dividend payments of $ 0.49 per share in both the first and second quarters , we reduced our third quarter dividend to $ 0.30 per share based on the post-spin structure of our company . we also paid a $ 0.50 per share special dividend in the third quarter from proceeds received from rayonier advanced materials to effect the spin-off . we lowered our dividend rate to $ 0.25 per share in the fourth quarter as a result of our previously announced internal review and our revised expectations regarding annual harvest levels as well as reduced reliance on sales of non-strategic timberlands . credit ratings both our ability to obtain financing and the related costs of borrowing are affected by our credit ratings , which are periodically reviewed by the rating agencies . the january 2014 announcement of the separation of the performance fibers business caused moody 's investors service ( โ moody 's โ ) to revise our outlook from โ stable โ to โ under review โ while standard & poor 's ratings services ( โ s & p โ ) revised our outlook from โ stable โ to โ credit watch negative. โ in july 2014 , s & p lowered our credit ratings , including our corporate credit rating , from โ bbb+ โ to โ bbb โ . in november 2014 , s & p further lowered our credit ratings to โ bbb-. โ as of december 31 , 2014 , our credit ratings from s & p and moody 's were โ bbb- โ and โ baa2 , โ respectively , with both services listing our outlook as โ stable. โ strategy we continuously evaluate our capital structure . our strategy is to keep our weighted-average cost of capital competitive with other timberland reits and timos , while maintaining an investment grade debt rating as well as retaining the flexibility to actively pursue opportunities as they become available . overall , we believe we have adequate liquidity and sources of capital to run our businesses efficiently and effectively and to maximize the value of our timberland and real estate assets under management . 44 expected 2015 expenditures capital expenditures in 2015 are forecasted to be between $ 65 million and $ 68 million , excluding any strategic timberland acquisitions we may make . capital spending is expected to be primarily limited to seedling planting , fertilization and other silvicultural activities . however , one of our strategic goals is to increase the size and quality of our timberland holdings through acquisitions and we actively evaluate acquisition opportunities . our 2015 dividend payments are expected to be approximately $ 127 million assuming no change in the quarterly dividend rate of $ 0.25 per share . we made no discretionary pension contributions in 2014 or 2013 . we have no mandatory pension contributions in 2015 but may make discretionary contributions in the future . on an ongoing basis , cash income tax payments are expected to be minimal . during 2015 , we may repatriate approximately $ 27 million of proceeds received in consideration for our sale of forestry assets to the new zealand jv when it was formed in 2005. if this occurs , we anticipate that cash payments for income taxes in 2015 will be approximately $ 3 million . performance and liquidity indicators the discussion below is presented to enhance the reader 's understanding of our operating performance , liquidity , ability to generate cash and satisfy rating agency and creditor requirements . this information includes two measures of financial results : adjusted earnings before interest , taxes , depreciation , depletion and amortization ( โ adjusted ebitda โ ) , and cash available for distribution ( โ cad โ ) . these measures are not defined by generally accepted accounting principles ( โ gaap โ ) and the discussion of adjusted ebitda and cad is not intended to conflict with or change any of the gaap disclosures described above . management considers these measures to be important to estimate the enterprise and shareholder values of the company as a whole and of its core segments , and for allocating capital resources . in addition , analysts , investors and creditors use these measures when analyzing our operating performance , financial condition and cash generating ability . management uses adjusted ebitda as a performance measure and cad as a liquidity measure . adjusted ebitda and cad as defined may not be comparable to similarly titled measures reported by other companies . adjusted ebitda is defined as earnings before interest , taxes , depreciation , depletion , amortization , the non-cash cost of real estate sold ( excluding strategic divestitures ) , the gain related to consolidation of the new zealand joint venture , discontinued operations , separation costs related to the performance fibers spin-off and internal review and story_separator_special_tag cash used for investing activities cash used for investing activities in 2014 decreased $ 276 million compared to 2013. in 2014 , a $ 121 million change in restricted cash and a $ 38 million decrease in capital expenditures was largely offset by a $ 110 million increase in timberland acquisitions . the prior year period included large cash outlays for the purchase of an additional interest in the new zealand jv of $ 140 million and the cellulose specialties expansion project of $ 148 million , partially offset by $ 63 million of after-tax proceeds from the sale of our wood products business . cash ( used for ) provided by financing activities cash used for financing activities in 2014 was relatively consistent with the prior year . in 2014 , higher net debt repayments ( including debt issuance costs ) of $ 874 million and higher dividend payments of $ 20 million was offset by $ 906 million of proceeds from the spin-off of the performance fibers business . in 2014 , our annual dividend was $ 2.03 per share . after making dividend payments of $ 0.49 per share in both the first and second quarters , we reduced our third quarter dividend to $ 0.30 per share based on the post-spin structure of our company . we also paid a $ 0.50 per share special dividend in the third quarter from proceeds received from rayonier advanced materials to effect the spin-off . we lowered our dividend rate to $ 0.25 per share in the fourth quarter as a result of our previously announced internal review and our revised expectations regarding annual harvest levels as well as reduced reliance on sales of non-strategic timberlands . credit ratings both our ability to obtain financing and the related costs of borrowing are affected by our credit ratings , which are periodically reviewed by the rating agencies . the january 2014 announcement of the separation of the performance fibers business caused moody 's investors service ( โ moody 's โ ) to revise our outlook from โ stable โ to โ under review โ while standard & poor 's ratings services ( โ s & p โ ) revised our outlook from โ stable โ to โ credit watch negative. โ in july 2014 , s & p lowered our credit ratings , including our corporate credit rating , from โ bbb+ โ to โ bbb โ . in november 2014 , s & p further lowered our credit ratings to โ bbb-. โ as of december 31 , 2014 , our credit ratings from s & p and moody 's were โ bbb- โ and โ baa2 , โ respectively , with both services listing our outlook as โ stable. โ strategy we continuously evaluate our capital structure . our strategy is to keep our weighted-average cost of capital competitive with other timberland reits and timos , while maintaining an investment grade debt rating as well as retaining the flexibility to actively pursue opportunities as they become available . overall , we believe we have adequate liquidity and sources of capital to run our businesses efficiently and effectively and to maximize the value of our timberland and real estate assets under management . 44 expected 2015 expenditures capital expenditures in 2015 are forecasted to be between $ 65 million and $ 68 million , excluding any strategic timberland acquisitions we may make . capital spending is expected to be primarily limited to seedling planting , fertilization and other silvicultural activities . however , one of our strategic goals is to increase the size and quality of our timberland holdings through acquisitions and we actively evaluate acquisition opportunities . our 2015 dividend payments are expected to be approximately $ 127 million assuming no change in the quarterly dividend rate of $ 0.25 per share . we made no discretionary pension contributions in 2014 or 2013 . we have no mandatory pension contributions in 2015 but may make discretionary contributions in the future . on an ongoing basis , cash income tax payments are expected to be minimal . during 2015 , we may repatriate approximately $ 27 million of proceeds received in consideration for our sale of forestry assets to the new zealand jv when it was formed in 2005. if this occurs , we anticipate that cash payments for income taxes in 2015 will be approximately $ 3 million . performance and liquidity indicators the discussion below is presented to enhance the reader 's understanding of our operating performance , liquidity , ability to generate cash and satisfy rating agency and creditor requirements . this information includes two measures of financial results : adjusted earnings before interest , taxes , depreciation , depletion and amortization ( โ adjusted ebitda โ ) , and cash available for distribution ( โ cad โ ) . these measures are not defined by generally accepted accounting principles ( โ gaap โ ) and the discussion of adjusted ebitda and cad is not intended to conflict with or change any of the gaap disclosures described above . management considers these measures to be important to estimate the enterprise and shareholder values of the company as a whole and of its core segments , and for allocating capital resources . in addition , analysts , investors and creditors use these measures when analyzing our operating performance , financial condition and cash generating ability . management uses adjusted ebitda as a performance measure and cad as a liquidity measure . adjusted ebitda and cad as defined may not be comparable to similarly titled measures reported by other companies . adjusted ebitda is defined as earnings before interest , taxes , depreciation , depletion , amortization , the non-cash cost of real estate sold ( excluding strategic divestitures ) , the gain related to consolidation of the new zealand joint venture , discontinued operations , separation costs related to the performance fibers spin-off and internal review and
| results of operations for an analysis in changes in adjusted ebitda from the prior year . 45 cad is a non-gaap measure of cash generated during a period which is available for dividend distribution , repurchase of the company 's common shares , debt reduction and strategic acquisitions . we define cad as cash provided by operating activities adjusted for capital spending ( excluding strategic acquisitions ) , strategic divestitures , cash provided by discontinued operations and working capital and other balance sheet changes . in compliance with sec requirements for non-gaap measures , we reduce cad by mandatory debt repayments which results in the measure entitled โ adjusted cad. โ adjusted cad generated in any period is not necessarily indicative of the amounts that may be generated in future periods . below is a reconciliation of cash provided by operating activities to adjusted cad for the five years ended december 31 ( in millions ) : replace_table_token_42_th replace_table_token_43_th ( a ) cash flow from operating activities for 2010 includes $ 205.2 million , net of expenses , related to the afmc offset by a $ 27.5 million pension contribution . ( b ) capital expenditures exclude strategic capital of $ 131 million for timberland acquisitions during the year ended december 31 , 2014 .
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we have long specialized in crafting solutions to the complex financial and strategic challenges of a diverse set of clients around the world , including corporations , governments , institutions , partnerships and individuals . founded in 1848 in new orleans , we currently operate from 43 cities in key business and financial centers across 27 countries throughout north america , europe , asia , australia , the middle east , and central and south america . our primary business purpose is to serve our clients . our deep roots in business centers around the world form a global network of relationships with key decision-makers in corporations , governments and investing institutions . this network is both a competitive strength and a powerful resource for lazard and our clients . as a firm that competes on the quality of our advice , we have two fundamental assets : our people and our reputation . we operate in cyclical businesses across multiple geographies , industries and asset classes . in recent years , we have expanded our geographic reach , bolstered our industry expertise and continued to build in growth areas . companies , government bodies and investors seek independent advice with a geographic perspective , deep understanding of capital structure , informed research and knowledge of global economic conditions . we believe that our business model as an independent advisor will continue to create opportunities for us to attract new clients and key personnel . our principal sources of revenue are derived from activities in the following business segments : financial advisory , which offers corporate , partnership , institutional , government , sovereign and individual clients across the globe a wide array of financial advisory services regarding mergers and acquisitions ( ยm & aย ) and other strategic matters , restructurings , capital structure , capital raising , corporate preparedness and various other financial matters , and asset management , which offers a broad range of global investment solutions and investment management services in equity and fixed income strategies , alternative investments and private equity funds to corporations , public funds , sovereign entities , endowments and foundations , labor funds , financial intermediaries and private clients . in addition , we record selected other activities in our corporate segment , including management of cash , investments , deferred tax assets , outstanding indebtedness and assets and liabilities associated with lazard group 's paris-based subsidiary , lazard frรจres banque sa ( ยlfbย ) . lfb , as a registered bank , is engaged primarily in commercial and private banking services for clients and funds managed by lazard frรจres gestion sas ( ยlfgย ) and other clients , investment banking activities , including participation in underwritten offerings of securities in france , and asset-liability management . 36 our consolidated net revenue was derived from the following segments : replace_table_token_5_th we also invest our own capital from time to time , generally alongside capital of qualified institutional and individual investors in alternative investments or private equity investments , and , since 2005 , we have engaged in a number of alternative investments and private equity activities , including , historically , investments through ( i ) the edgewater funds ( ยedgewaterย ) , our chicago-based private equity firm ( see note 12 of notes to consolidated financial statements ) , ( ii ) a mezzanine fund , which invests in mezzanine debt of a diversified selection of small-to mid-cap european companies and ( iii ) a fund targeting significant noncontrolling-stake investments in established private companies . we also make investments to seed our asset management strategies . business environment and outlook economic and global financial market conditions can materially affect our financial performance . as described above , our principal sources of revenue are derived from activities in our financial advisory and asset management business segments . as our financial advisory revenues are primarily dependent on the successful completion of merger , acquisition , restructuring , capital raising or similar transactions , and our asset management revenues are primarily driven by the levels of assets under management ( ยaumย ) , weak economic and global financial market conditions can result in a challenging business environment for m & a and capital-raising activity as well as our asset management business , but may provide opportunities for our restructuring business . equity market indices for developed markets at december 31 , 2015 were mixed , with european indices generally increasing and u.s. indices generally decreasing , as compared to such indices at december 31 , 2014. emerging markets equity indices at december 31 , 2015 decreased as compared to december 31 , 2014. in the global m & a markets during 2015 , the value of all completed m & a transactions increased as compared to the same period in the prior year , as did the subset of such transactions involving values greater than $ 500 million . during the same time , the value of all announced m & a transactions , including the subset of such transactions involving values greater than $ 500 million , also increased , reflecting an active global m & a environment . while the value of completed and announced transactions increased as compared to the prior period , the number of completed and announced transactions ( excluding the subset of completed and announced transactions involving values greater than $ 500 million ) decreased . during 2015 , global restructuring activity remained low , consistent with the last several years . entering 2016 , volatile market conditions continue . however , corporate cash balances remain high , and interest rates remain low for companies with strong credit ratings . although market volatility may continue and may affect our business in 2016 , the longer-term trends appear to remain favorable for both of our businesses . our outlook with respect to our financial advisory and asset management businesses is described below . financial advisory ย the fundamentals for continued m & a activity appear to remain in place . story_separator_special_tag the full impact of the savings resulting from the cost saving initiatives was reflected in our 2014 results . see note 16 of notes to consolidated financial statements . financial statement overview net revenue the majority of lazard 's financial advisory net revenue historically has been earned from the successful completion of m & a transactions , strategic advisory matters , restructuring and capital structure advisory services , capital raising and similar transactions . the main drivers of financial advisory net revenue are overall m & a activity , the level of corporate debt defaults and the environment for capital raising activities , particularly in the industries and geographic markets in which lazard focuses . in some client engagements , often those involving financially distressed companies , revenue is earned in the form of retainers and similar fees that are contractually 39 agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction . in addition , lazard also earns fees from providing strategic advice to clients , with such fees not being dependent on a specific transaction , and may also earn fees in connection with public and private securities offerings . significant fluctuations in financial advisory net revenue can occur over the course of any given year , because a significant portion of such net revenue is earned upon the successful completion of a transaction , restructuring or capital raising activity , the timing of which is uncertain and is not subject to lazard 's control . lazard 's asset management segment principally includes lazard asset management llc ( together with its subsidiaries , ยlamย ) , lfg and edgewater . asset management net revenue is derived from fees for investment management and advisory services provided to clients . as noted above , the main driver of asset management net revenue is the level and product mix of aum , which is generally influenced by the performance of the global equity markets and , to a lesser extent , fixed income markets as well as lazard 's investment performance , which impacts its ability to successfully attract and retain assets . as a result , fluctuations ( including timing thereof ) in financial markets and client asset inflows and outflows have a direct effect on asset management net revenue and operating income . asset management fees are generally based on the level of aum measured daily , monthly or quarterly , and an increase or reduction in aum , due to market price fluctuations , currency fluctuations , changes in product mix , or net client asset flows will result in a corresponding increase or decrease in management fees . the majority of our investment advisory contracts are generally terminable at any time or on notice of 30 days or less . institutional and individual clients , and firms with which we have strategic alliances , can terminate their relationship with us , reduce the aggregate amount of aum or shift their funds to other types of accounts with different rate structures for a number of reasons , including investment performance , changes in prevailing interest rates and financial market performance . in addition , as lazard 's aum includes significant amounts of assets that are denominated in currencies other than u.s. dollars , changes in the value of the u.s. dollar relative to foreign currencies will impact the value of lazard 's aum . fees vary with the type of assets managed and the vehicle in which they are managed , with higher fees earned on equity assets and alternative investment funds , such as hedge funds and private equity funds , and lower fees earned on fixed income and cash management products . the company earns performance-based incentive fees on various investment products , including traditional products and alternative investment funds , such as hedge funds and private equity funds . for hedge funds , incentive fees are calculated based on a specified percentage of a fund 's net appreciation , in some cases in excess of established benchmarks or thresholds . the company records incentive fees on traditional products and hedge funds at the end of the relevant performance measurement period , when potential uncertainties regarding the ultimate realizable amounts have been determined . the incentive fee measurement period is generally an annual period ( unless an account terminates or a redemption occurs during the year ) . the incentive fees received at the end of the measurement period are not subject to reversal or payback . incentive fees on hedge funds are often subject to loss carryforward provisions in which losses incurred by the hedge funds in any year are applied against certain gains realized by the hedge funds in future periods before any incentive fees can be earned . for private equity funds , incentive fees may be earned in the form of a ยcarried interestย if profits arising from realized investments exceed a specified threshold . typically , such carried interest is ultimately calculated on a whole-fund basis and , therefore , clawback of carried interest during the life of the fund can occur . as a result , incentive fees earned on our private equity funds are not recognized until potential uncertainties regarding the ultimate realizable amounts have been determined , including any potential for clawback . corporate segment net revenue consists primarily of investment gains and losses on the company 's ยseed investmentsย related to our asset management business , principal investments in private equity funds and ยequity methodย investments , net of hedging activities , as well as gains and losses on investments held in connection with lazard fund interests ( ยlfiย ) and interest income and interest expense . corporate net revenue also can fluctuate due to changes in the fair value of investments classified as ยtradingย , as well as due to changes in interest and currency exchange rates and in the levels of cash , investments and indebtedness .
| operating results year ended december 31 , 2015 versus december 31 , 2014 the company reported net income attributable to lazard ltd of $ 986 million , as compared to net income of $ 427 million in 2014. the changes in the company 's operating results during these years are described below . net revenue increased $ 53 million , or 2 % , with operating revenue increasing $ 40 million , or 2 % , as compared to 2014. fee revenue from investment banking and other advisory activities increased $ 75 million , or 6 % , primarily due to increases in m & a and other advisory fees . the increase in m & a and other advisory fee revenue was primarily due to an increase in the average transaction fee with respect to completed transactions involving fees greater than $ 1 million as compared to 2014. asset management fees , including incentive fees , decreased $ 44 million , or 4 % , as compared to 2014 , due to a decrease in management fees from slightly lower average aum , a slight change in the mix of assets and a decrease in incentive fees relating to traditional investment products . in the aggregate , interest income , other revenue and interest expense increased $ 23 million as compared to 2014 , primarily due to a $ 24 million gain on the disposal of the company 's australian private equity business ( which primarily related to the realization of carried interest at fair value ) , partially offset by lower investment gains from lfi . interest expense was lower due to the refinancing of the 2017 notes . compensation and benefits expense increased $ 6 million as compared to 2014 , primarily driven by an increase in operating revenue .
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the risk-free rate for periods within the expected life of the stock option is based upon the u.s. treasury yield curve in effect at the time of grant . the assumptions used in the black-scholes option-pricing model for stock story_separator_special_tag the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed here . factors that could cause or contribute to such differences include , but are not limited to , those discussed in this section as well as factors described in ยpart i , item 1aย risk factors.ย overview we are an rna interference-based biopharmaceutical company focused on the discovery and development of innovative treatments for rare inherited diseases involving the liver , for other therapeutic areas in which the liver plays a key role , and for cancers that are genetically defined . we are using our rna interference ( rnai ) technology platform to build a broad pipeline in these therapeutic areas . in many cases , we are pursuing targets that have historically been difficult to inhibit using conventional approaches , but where we believe connections between targets and diseases are well understood and documented . we aim to discover , develop and commercialize these novel therapeutics either on our own or in collaboration with pharmaceutical partners , while seeking to retain significant portions of the commercial rights in the rare disease and oncology fields . in the rare disease field , we are developing a proprietary treatment , dcr-ph1 , for the rare and serious inherited disorder primary hyperoxaluria type 1 ( ph1 ) . in december 2015 , we initiated dosing in our first ph1 clinical trial in normal healthy volunteers , and we expect to begin our first phase 1 study of dcr-ph1 in patients with ph1 in the first half of 2016. in december 2015 , we also initiated an international , multicenter , observational study designed to measure biomarkers implicated in ph1 , and enrolled our first patient in this observational study in january 2016. the fda and the european medicines agency ( ema ) have both granted orphan drug designation to dcr-ph1 . we also have discovery and early development programs against a series of additional rare inherited diseases involving the liver where we are utilizing our dsirna-ex conjugate technology . in other therapeutic areas involving the liver , we are using our dsirna-ex conjugate technology to develop potential therapeutics for a wide variety of diseases , including chronic liver diseases , cardiovascular diseases , and viral infection diseases . we have selected these diseases and disease target genes based on criteria that include having a strong therapeutic hypothesis , a readily-identified patient population , the availability of predictive biomarkers , and favorable competitive positioning . for many of these diseases we may seek development partners . in oncology , we are currently directing our development efforts towards our proprietary product candidate dcr-myc for the treatment of myc-related cancers , including hepatocellular carcinoma ( hcc ) . in the second quarter of 2014 , we initiated a multi-center , dose-escalating phase 1 clinical study of dcr-myc to assess the safety and tolerability of dcr-myc in patients with solid tumors , multiple myeloma , or lymphoma who are refractory or unresponsive to standard therapies . in the fourth quarter of 2014 we initiated a global phase 1b/2 clinical trial of dcr-myc in patients with advanced hcc with the first patient dosed in january 2015. in the second quarter of 2015 , we announced plans to expand our ongoing phase 1 study of dcr-myc in solid tumors , multiple myeloma , or lymphoma to include a cohort of patients with pancreatic neuroendocrine tumors ( pnets ) following early signs of clinical and metabolic response and tumor shrinkage in pnet patients . in addition , once the optimal dose of dcr-myc has been determined , we plan to initiate enrollment of a cohort of patients who will undergo pre- and post-treatment tumor biopsies . molecular analysis of the myc gene transcript in these biopsies will allow direct observation of the rnai-mechanism of action of dcr-myc . we expect to announce data from the pnet and biopsy cohorts in 2016. as part of our collaboration with kyowa hakko kirin co. , ltd. ( khk ) , a global pharmaceutical company , we are developing a product candidate that targets the oncogene kras , which is frequently mutated in numerous major cancers , including non-small cell lung cancer , colorectal cancer , and pancreatic cancer . khk is responsible for global development of the kras program , including all development expenses . for the kras product candidate , we retain an option to co-promote in the u.s. for an equal share of the profits from u.s. net sales . we are also developing , with khk , a therapeutic candidate targeting a second cancer-related gene , which we are not identifying at this time . for each product candidate in our collaboration with khk , we have the potential to receive clinical , regulatory and commercialization milestone payments of up to $ 110.0 million and royalties on net sales of each such product candidate . we expect that our strategy to partner the development of 80 product candidates will help us fund the costs of clinical development and enable us to diversify risk across a number of programs . khk is responsible for all preclinical and clinical development activities , including the selection of patient population and disease indications for clinical trials . since our inception in october 2006 , we have devoted substantial resources to the research and development of dsirna molecules and drug delivery technologies and the protection and enhancement of our intellectual property estate . we have no products approved for sale and all of our revenue to date has been collaboration revenue or government grant revenue . story_separator_special_tag we have granted khk an exclusive , worldwide , royalty-bearing and sub-licensable license to our dsirna molecules and drug delivery technologies and intellectual property for two programs , kras and a second undisclosed oncology target . under the research collaboration and license agreement , khk is responsible for activities to develop , manufacture and commercialize the selected dsirna-based compounds and pharmaceutical products containing such compounds . for the kras product candidate , we have an option to co-promote in the u.s. for an equal share of the profits from u.s. net sales . in addition , for each product candidate under the research collaboration and license agreement , we have the potential to receive clinical , regulatory and commercialization milestone payments of up to $ 110.0 million and royalties on net sales of such product candidate . since the initiation of the research collaboration and license agreement , of the various targets in the collaboration , two target programs , including the initial target kras , have been nominated by khk for formal development studies . both programs utilize our specific rnai-inducing double-stranded dsirna molecules and a lipid nanoparticle drug delivery technology proprietary to khk . as of december 31 , 2015 , we have received total payments to date of $ 17.5 million from khk under the research collaboration and license agreement . license agreement in september 2007 , we entered into a license agreement with city of hope ( coh ) , an independent academic research and medical center , pursuant to which coh has granted to us an exclusive ( subject to certain exceptions described below ) , royalty-bearing , worldwide license under certain patent rights in relation to dsirna , including the core dsirna patent ( u.s. 8,084,599 ) , to manufacture , use , offer for sale , sell and import products covered by the licensed patent rights for the prevention and treatment of any disease in humans . coh is restricted from granting any additional rights to develop , manufacture , use , offer to sell , sell or import products covered by the licensed patent rights for the prevention and treatment of any disease in humans . in addition , coh has granted to us an exclusive , royalty-bearing , worldwide license under the licensed patent rights providing certain rights for up to 20 licensed products selected by us for human diagnostic uses , provided that coh has not granted or is not negotiating a license of rights to diagnostic uses for such licensed products to a third party . the core dsirna patent ( u.s. 8,084,599 ) , titled ยmethods and compositions for the specific 82 inhibition of gene expression by double-stranded rna , ย describes rna structures having a 25 to 30 nucleotides sense strand , a blunt end at the 3 ' end of the sense strand and a one to four nucleotides overhang at the 3 ' end of the antisense strand . the expiration date of this patent is july 17 , 2027. pursuant to the terms of the agreement , we paid coh a one-time , non-refundable license fee and issued shares of our common stock to coh and a co-inventor of the core dsirna patent . coh is entitled to receive milestone payments in an aggregate amount within the range of $ 5.0 million to $ 10.0 million upon achievement of certain clinical and regulatory milestones . coh is further entitled to receive royalties at a low single-digit percentage of any net sale revenue of the licensed products sold by us and our sublicensees . if we sublicense the licensed patent rights to a third party , coh has the right to receive a double digit percentage of sublicense income , the percentage of which decreases after we have expended $ 12.5 million in development and commercialization costs . we are also obligated to pay coh an annual license maintenance fee , which may be credited against any royalties due to coh in the same year , and reimburse coh for expenses associated with the prosecution and maintenance of the license patent rights . the license agreement will remain in effect until the expiration of the last to expire of the patents or copyrights licensed under the agreement . we have not included our obligations to make future milestone payments on our balance sheet because the achievement and timing of the related milestones is not probable and estimable . in september 2013 , we entered into a commercial license agreement with plant bioscience limited ( pbl ) , pursuant to which pbl has granted a license to us for certain of its u.s. patents and patent applications to research , discover , develop , manufacture , sell , import and export , products incorporating one or more short rna molecules ( srms ) . we have paid pbl a one-time , non-refundable signature fee and will pay pbl a nomination fee for any additional srms nominated by us under the agreement . we are further obligated to pay pbl milestone payments upon achievement of certain clinical and regulatory milestones . in addition , pbl is entitled to receive royalties on any net sale revenue of any licensed product candidates sold by us . during 2014 , the company paid $ 0.1 million to pbl upon the commencement of our myc clinical trial . in november 2014 , we entered into a licensing and collaboration agreement with arbutus to license arbutus ' lnp delivery technology for exclusive use in our ph1 development program . we will use arbutus ' lnp technology to deliver dcr-ph1 , for the treatment of ph1 . as of december 31 , 2015 , we had paid a total of $ 3.0 million in license fees to arbutus . arbutus is entitled to receive additional payments of $ 22.0 million in aggregate development milestones , plus a mid-single-digit royalty on future ph1 sales . this partnership also includes a supply agreement with arbutus providing clinical drug supply and regulatory support .
| general and administrative expenses general and administrative expenses were $ 19.2 million and $ 15.6 million for the years ended december 31 , 2015 and 2014 , respectively . the increase of $ 3.6 million was primarily due to an increase in payroll-related expenses of $ 0.7 million , an increase in stock-based compensation of $ 1.5 million , and an increase in professional fees of $ 1.9 million , primarily from legal costs incurred related to the alnylam complaint . we expect that general and administrative expenses will continue to increase in 2016 as we incur additional costs to support the expanding operations . other income ( expense ) other income ( expense ) was $ 0.2 million and $ ( 2.8 ) million for the years ended december 31 , 2015 and 2014 , respectively . the change was primarily due to a decrease in expense related to the re-measurement of the preferred stock warrant liability of $ 2.6 million , and a decrease in interest expense of $ 0.3 million due to the hercules loan being repaid in full in april 2014 . 91 comparison of the years ended december 31 , 2014 and 2013 the following table summarizes the results of our operations for the years ended december 31 , 2014 and 2013 ( in thousands , except percentages ) : replace_table_token_5_th revenue we did not recognize any revenue for the years ended december 31 , 2014 and 2013. we do not expect to generate any product revenue for the foreseeable future . research and development expenses the following table summarizes our research and development expenses incurred during the years ended december 31 , 2014 and 2013 ( in thousands ) : replace_table_token_6_th research and development expenses were $ 29.5 million and $ 11.6 million for the years ended december 31 , 2014 and 2013 , respectively .
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the impact of covid-19 on our operational and financial performance will depend on certain developments , including the duration and spread of the outbreak , the efforts of governments at the national , state , and local levels to manage the outbreak , the impact of the pandemic and governmental actions on our customers , and the timing and rollout of approved vaccines to combat the spread of covid-19 , which are uncertain and not fully predictable . the company provides an essential service to its customers and has taken additional measures to keep our associates safe and to minimize unnecessary risk of exposure to covid-19 , including precautions for our associates and owner-operators who work in the field . we have also implemented work from home policies where appropriate and imposed travel limitations on employees . the company implemented and continues to maintain physical and cyber-security measures to ensure our systems remain functional in order to serve our operational needs with a remote workforce and ensure uninterrupted service to our customers . the company 's operational and financial performance was impacted by a decrease in demand primarily during the second quarter of 2020 resulting , in part , from government imposed stay-at-home orders and the related closure of certain customers as a result of covid-19 . we believe the largest impacts from covid-19 were experienced in the second quarter of 2020. freight demand began to normalize during the third quarter , and we did not experience significant negative operational or financial impacts from covid-19 . while we are unable to predict with any certainty the impact covid-19 may have on our operational and financial performance , we do not anticipate significant future impacts . we implemented cost reduction efforts to help mitigate the impact reduced revenues had , and may continue to have , on our income from operations . while we worked diligently to manage costs throughout the organization , we incurred additional expenses related to the safe onboarding of company drivers , the purchase of personal protective equipment , emergency sick leave benefits , and additional cleaning services . we will continue to incur these added costs for the duration of the pandemic in order to ensure the safety of our associates , owner-operators , and customers . we continue to actively monitor the situation and take further actions that alter our business operations as may be required by federal , state , or local governmental authorities , or that we determine are in the best interests of our associates , customers , and shareholders . in this time of uncertainty resulting from covid-19 , we are continuing to serve our customers while taking precautions to provide a safe work environment for our associates , owner-operators , and customers . strategy our goals are to grow revenue and profitability , drive strong and consistent return on capital , and increase stakeholder value resiliently through economic cycles . we believe our competitive strengths position us to pursue our goals by way of the following strategies : 22 leverage core strengths to drive organic growth and maintain or improve market position we intend to drive organic growth through leveraging our existing customer relationships , as well as expanding our customer base . we believe our broad portfolio of services , with different asset intensities , and our north american footprint allow for supply chain alternatives which enable new and existing customer growth . we also plan to drive revenue growth by increasing our marketing to customers that seek to outsource their transportation services . our growth decisions are based on our โ value triangle , โ which represents profitable growth while balancing the needs of our customers , our associates , and our shareholders . our integrated technology platform serves as an instrumental factor which drives profitability as it enables real-time , data-driven decision support science on every load/order and assists our associates to proactively manage our services across our network . together with our highly incentivized and proactive sales organization , we believe that our platform will continue to provide better service and foster organic growth in each of our reportable segments . expand capabilities in the specialty equipment freight market and continue growing our asset-light and non-asset businesses we believe that our specialty freight capabilities position us to grow in the specialty equipment market , which has higher barriers to entry , potentially higher margins , and lasting customer relationships . the complexity and time-sensitivity of the loads often require increased collaboration with , and greater understanding of , our customers ' business needs and processes . the transportation of specialty equipment freight requires specially trained drivers with appropriate licenses and special hauling permits , as well as equipment that can handle items with unique requirements in terms of temperature , freight treatment , size , and shape . as such , there are few carriers that have comparable network scale and capabilities in the specialty equipment market , which we believe will allow us to grow profitably in that business . our intermodal product offering continues to identify opportunities to profitably grow services and compete in the intermodal marketplace . as an asset-based provider , we have more control over our equipment to include containers and chassis , perform most of our own drays , and have strong contractual rail relationships . we believe our integrated technology platform will enable us to enjoy certain benefits of complete end-to-end control , including increased pickโup and delivery predictability , better visibility , and the ability to source and retain capacity . freight brokerage , which is a significant part of our logistics segment , is a business that is expected to be a driver of growth into the future . as shippers increasingly consolidate their business with fewer freight brokers , we are well-positioned to become one of their select providers due to our customer service , innovative technology , and an established dense network of qualified third-party carriers . we believe shippers see the value of working with providers like us that have scale , capacity , and lane density . story_separator_special_tag in addition , in the case of revenues ( excluding fuel surcharge ) , we believe the measure is useful to investors because it isolates volume , price , and cost changes directly related to industry demand and the way we operate our business from the external factor of fluctuating fuel prices and the programs we have in place to manage fuel price fluctuations . fuel-related costs and their impact on our industry are important to our results of operations , but they are often independent of other , more relevant factors affecting our results of operations and our industry . although we believe these non-gaap measures are useful to investors , they have limitations as analytical tools and may not be comparable to similar measures disclosed by other companies . you should not consider the non-gaap measures in this report in isolation or as substitutes for , or alternatives to , analysis of our results as reported under gaap . the exclusion of unusual or infrequent items or other adjustments reflected in the non-gaap measures should not be construed as an inference that our future results will not be affected by unusual or infrequent items or by other items similar to such adjustments . our management compensates for these limitations by relying primarily on our gaap results in addition to using the non-gaap measures . 24 story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > depreciation and amortization decreased $ 2.4 million , or 1 % , year over year , driven by the ftfm shutdown , partially offset by an increase in trailer and telematics depreciation expense within the truckload segment . operating supplies and expenses increased $ 2.8 million , or 1 % , year over year , driven by $ 12.8 million of costs for an adverse tax ruling related to a dispute with the irs over the applicability of excise taxes on certain tractors refurbished during tax years 2011 through 2013 and no longer in service , a $ 9.5 million unfavorable change from equipment dispositions , and an $ 8.5 million increase in cost of goods sold from an increase in equipment sales by our leasing business . these increases were partially offset by a $ 10.0 million decrease in impairment of held for sale assets , a $ 9.7 million decrease in facility , utility , and other costs primarily due to temporary facility closures associated with covid-19 , reduced volumes , the ftfm shutdown , and various other cost savings initiatives , a $ 4.0 million reduction in temporary worker pay due to insourcing by one of our import/export customers , and reductions in a variety of other operating-related expenses that were individually immaterial . insurance and related expenses decreased $ 23.5 million , or 21 % , year over year , predominately due to favorability in auto liability despite an increase in insurance premiums . improvements in equipment technology , combined with a reduction in company driver miles and less traffic congestion resulting from covid-19 , led to a decrease in claim severity . we anticipate that we will continue to see favorability in claims severity driven by technology improvements , however not at the same levels as 2020. other general expenses decreased $ 9.3 million , or 8 % , year over year , as a result of reduced travel expenses and general supplies resulting from company enforced travel restrictions related to covid-19 and cost savings initiatives , as well as a decline in driver recruiting and training costs due to lower company driver turnover and fewer hires . additional costs were incurred in the driver recruiting and training space to safely onboard new drivers during covid-19 ; however , these costs were more than offset by savings from lower company driver turnover and fewer inexperienced hires . goodwill impairment charges decreased $ 34.6 million year over year , due to the ftfm goodwill impairment charge of $ 34.6 million in 2019. restructuringโnet was $ 62.7 million favorable year over year , due to higher initial costs in 2019 related to impairment charges , receivable write-downs , and other costs related to the ftfm shutdown . restructuring activity in 2020 was insignificant . refer to note 16 , restructuring , for additional details . total oth er expenses other expenses decreased $ 5.9 million , approximately 61 % , in the year ended december 31 , 2020 compared to 2019 , primarily from an $ 8.8 million pre-tax gain recognized on our ownership interest in psi and a $ 3.0 million decrease in interest expense primarily a result of lower outstanding debt balances year over year . see note 5 , investments , for more information on psi . these items were partially offset by a $ 5.2 million decrease in interest income attributed to a decline in interest rates . income tax expense our provision for income taxes increased $ 20.1 million , approximately 39 % , in the year ended december 31 , 2020 compared to 2019 , primarily due to higher taxable income . our effective income tax rate was 25.2 % for the year ended december 31 , 2020 compared to 25.8 % for 2019. we anticipate that our ongoing effective tax rate will be 25.2 % - 25.7 % subject to further changes in tax law . revenues and income ( loss ) from operations by segment the following tables summarize revenue and income ( loss ) from operations by segment . replace_table_token_9_th 28 replace_table_token_10_th we monitor and analyze a number of kpis to manage our business and evaluate our financial and operating performance . below are our kpis by segment . truckload the following table presents the kpis for our truckload segment for the periods indicated , consistent with how revenues and expenses are reported internally for segment purposes . prior to 2020 , we reported kpis within our truckload segment by quadrant . going forward , kpis will be reported for our dedicated and network operations only .
| enterprise summary the following table includes key gaap and non-gaap financial measures for the consolidated enterprise . adjustments to arrive at non-gaap measures are made at the enterprise level , with the exception of fuel surcharge revenues , which are not included in segment revenues . replace_table_token_4_th ( 1 ) we define โ revenues ( excluding fuel surcharge ) โ as operating revenues less fuel surcharge revenues , which are excluded from revenues at the segment level . included below is a reconciliation of operating revenues , the most closely comparable gaap financial measure , to revenues ( excluding fuel surcharge ) . ( 2 ) we define โ adjusted income from operations โ as income from operations , adjusted to exclude material items that do not reflect our core operating performance . included below is a reconciliation of income from operations , which is the most directly comparable gaap measure , to adjusted income from operations . excluded items for the periods shown are explained in the table and notes below . ( 3 ) we define โ adjusted operating ratio โ as operating expenses , adjusted to exclude material items that do not reflect our core operating performance , divided by revenues ( excluding fuel surcharge ) . included below is a reconciliation of operating ratio , which is the most directly comparable gaap measure , to adjusted operating ratio . excluded items for the periods shown are explained below under our explanation of โ adjusted income from operations. โ ( 4 ) we define โ adjusted net income โ as net income , adjusted to exclude material items that do not reflect our core operating performance . included below is a reconciliation of net income , which is the most directly comparable gaap measure , to adjusted net income . excluded items for the periods shown are explained below under our explanation of โ adjusted income from operations.
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forward-looking statements this report , including , without limitation , the sections captioned `` business '' and `` management 's discussion and analysis of financial condition and results of operations , '' contains `` forward-looking statements '' as defined by the sec , including statements concerning contemplated transactions and strategic plans , expectations and objectives for future operations . forward-looking statements include , without limitation : statements , other than statements of historical fact , that address activities , events or developments that we expect , believe or anticipate will or may occur in the future ; statements relating to future financial or operational performance , future dividends , future capital sources and capital expenditures ; and any other statements preceded by , followed by or that include the words `` anticipates , '' `` believes , '' `` expects , '' `` plans , '' `` intends , '' `` estimates , '' `` projects , '' `` could , '' `` should , '' `` may , '' or similar expressions . although we believe that our plans , intentions and expectations reflected in or suggested by the forward-looking statements we make in this report , including this management 's discussion and analysis of financial condition and results of operations , are reasonable , we can give no assurance that such plans , intentions or expectations will be achieved . these statements are based on assumptions made by us based on our experience and perception of historical trends , current conditions , expected future developments and other factors that we believe are appropriate in the circumstances . such statements are subject to a number of risks and uncertainties , many of which are beyond our control . you are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements as a result of various factors , including but not limited to those set forth under the section captioned `` risk factors '' and contained elsewhere in this report . 56 all forward-looking statements contained in this report only speak as of the date of this report . we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after the date of this report , or to reflect the occurrence of unanticipated events , except to the extent required by law . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > on january 23 , 2013 , the refining partnership completed the refining partnership ipo . the refining partnership sold 24,000,000 common units at a price of $ 25.00 per unit , resulting in gross proceeds of $ 600.0 million . of the common units issued , 4,000,000 units were purchased by an affiliate of iep . additionally , on january 30 , 2013 , the underwriters closed their option to purchase an additional 3,600,000 common units at a price of $ 25.00 per unit resulting in gross proceeds of $ 90.0 million . the common units , which are listed on the nyse , began trading on january 17 , 2013 under the symbol `` cvrr . '' in connection with the refining partnership ipo , the refining partnership paid approximately $ 32.5 million in underwriting fees and incurred approximately $ 3.9 million of other offering costs . prior to the refining partnership ipo , cvr owned 100 % of the refining partnership and net income earned during this period was fully attributable to the company . following the refining partnership ipo and through may 19 , 2013 , cvr energy indirectly owned approximately 81 % of the refining partnership 's outstanding common units and 100 % of the refining partnership 's general partner , which holds a non-economic general partner interest . refining partnership underwritten offering on may 20 , 2013 , the refining partnership completed the underwritten offering by selling 12,000,000 common units to the public at a price of $ 30.75 per unit . american entertainment properties corporation ( `` aepc '' ) , an affiliate of iep , also purchased an additional 2,000,000 common units at the public offering price in a privately negotiated transaction with a subsidiary of cvr energy , which was completed on may 29 , 2013. in connection with the underwritten offering , on june 10 , 2013 , the refining partnership sold an additional 1,209,236 common units to the public at a price of $ 30.75 per unit in 58 connection with the exercise by the underwriters of their option to purchase additional common units . the transactions described in this paragraph are collectively referred to as the `` transactions . '' the refining partnership utilized proceeds of approximately $ 394.0 million from the underwritten offering ( including the underwriters ' option ) to redeem 13,209,236 common units from cvr refining holdings , llc ( `` cvr refining holdings '' ) , an indirect wholly-owned subsidiary of cvr energy . the net proceeds to a subsidiary of cvr energy from the sale of 2,000,000 common units to aepc were approximately $ 61.5 million . the refining partnership did not receive any of the proceeds from the sale of common units by cvr energy to aepc . following the closing of the transactions and prior to june 30 , 2014 , public security holders held approximately 29 % of total refining partnership common units ( including units owned by affiliates of iep , representing approximately 4 % of total refining partnership common units ) , and cvr refining holdings held approximately 71 % of total refining partnership common units . refining partnership second underwritten offering on june 30 , 2014 , the refining partnership completed a second underwritten offering ( the `` second underwritten offering '' ) by selling 6,500,000 common units to the public at a price of $ 26.07 per unit . the refining partnership paid approximately $ 5.3 million in underwriting fees and approximately $ 0.5 million in offering costs . story_separator_special_tag during 2013 , the cost of rins became extremely volatile as the epa 's proposed renewable fuel volume mandates approached the `` blend wall . '' the blend wall refers to the point at which refiners are required to blend more ethanol into the transportation fuel supply than can be supported by the demand for e10 gasoline ( gasoline containing 10 percent ethanol by volume ) . in november 2013 , the epa published the annual renewable fuel percentage standards for 2014 , which acknowledged the blend wall and were generally lower than the volumes for 2013 and lower than statutory mandates . the price of rins decreased significantly after the 2014 proposed mandate was published ; however , rin prices remained volatile and increased subsequently in 2014. in may 2014 , the epa lowered the 2013 cellulosic biofuel standard to 0.0005 % , and , in june 2014 , the epa extended the compliance demonstration deadline for the 2013 rfs to september 30 , 2014. in august 2014 , the epa further extended the compliance demonstration deadline for the 2013 rfs to 30 days following the publication of the final 2014 annual renewable fuel percentage standards . in november 2014 , the epa announced that it would not finalize the 2014 annual renewable fuel percentage standards before the end of 2014 , thereby extending the compliance deadline for the 2013 rfs as well . the cost of rins for the years ended december 31 , 2014 , 2013 and 2012 was approximately $ 127.2 million , $ 180.5 million and $ 21.0 million , respectively . the future cost of rins for the petroleum business is difficult to estimate , particularly until such time that the 2014 renewable fuel percentage standards are finalized and the 2015 renewable fuel percentage standards are announced . additionally , the cost of rins is dependent upon a variety of factors , which include epa regulations , the availability of rins for purchase , the price at which rins can be purchased , transportation fuel production levels , the mix of the petroleum business ' petroleum products , as well as the fuel blending performed at its refineries , all of which can vary significantly from quarter to quarter . based upon recent market prices of rins and current estimates related to the other variable factors , the petroleum business estimates that the total cost of rins will be approximately $ 95.0 million to $ 170.0 million for the year ending december 31 , 2015. if sufficient rins are unavailable for purchase at times when the petroleum business seeks to purchase rins , or if the 60 petroleum business has to pay a significantly higher price for rins or if the petroleum business is subject to penalties as a result of delays in its ability to timely deliver rins to the epa , its business , financial condition and results of operations could be materially adversely affected . many petroleum refiners blend renewable fuel into their transportation fuels and do not have to pass on the costs of compliance through the purchase of rins to their customers . therefore , it may be significantly harder for the petroleum business to pass on the costs of compliance with rfs to its customers . in order to assess the operating performance of the petroleum business , we compare net sales , less cost of product sold ( exclusive of depreciation and amortization ) , or the refining margin , against an industry refining margin benchmark . the industry refining margin benchmark is calculated by assuming that two barrels of benchmark light sweet crude oil is converted into one barrel of conventional gasoline and one barrel of distillate . this benchmark is referred to as the 2-1-1 crack spread . because we calculate the benchmark margin using the market value of nymex gasoline and heating oil against the market value of nymex wti , we refer to the benchmark as the nymex 2-1-1 crack spread , or simply , the 2-1-1 crack spread . the 2-1-1 crack spread is expressed in dollars per barrel and is a proxy for the per barrel margin that a sweet crude oil refinery would earn assuming it produced and sold the benchmark production of gasoline and distillate . although the 2-1-1 crack spread is a benchmark for the refinery margin , because the refineries have certain feedstock costs and logistical advantages as compared to a benchmark refinery and their product yield is less than total refinery throughput , the crack spread does not account for all the factors that affect refinery margin . the coffeyville refinery is able to process a blend of crude oil that includes quantities of heavy and medium sour crude oil that has historically cost less than wti . the wynnewood refinery has the capability to process blends of a variety of crude oil ranging from medium sour to light sweet crude oil , although isobutene , gasoline components , and normal butane are also typically used . we measure the cost advantage of the crude oil slate by calculating the spread between the price of the delivered crude oil and the price of wti . the spread is referred to as the consumed crude oil differential . the refinery margin can be impacted significantly by the consumed crude oil differential . the consumed crude oil differential will move directionally with changes in the wts differential to wti and the wcs differential to wti as both these differentials indicate the relative price of heavier , more sour , slate to wti . the correlation between the consumed crude oil differential and published differentials will vary depending on the volume of light medium sour crude oil and heavy sour crude oil the petroleum business purchases as a percent of its total crude oil volume and will correlate more closely with such published differentials the heavier and more sour the crude oil slate . the petroleum business produces a high volume of high value products , such as gasoline and distillates .
| overview and executive summary we are a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through our holdings in the refining partnership and the nitrogen fertilizer partnership . the refining partnership is an independent petroleum refiner and marketer of high value transportation fuels . the nitrogen fertilizer partnership produces nitrogen fertilizers in the form of uan and ammonia . we own the general partner and a majority of the common units representing limited partner interests in each of the refining partnership and the nitrogen fertilizer partnership . we operate under two business segments : petroleum and nitrogen fertilizer . for the fiscal years ended december 31 , 2014 , 2013 and 2012 , we generated consolidated net sales of $ 9.1 billion , $ 9.0 billion and $ 8.6 billion , respectively , and operating income of $ 264.3 million , $ 710.5 million and $ 1,034.9 million , respectively . the petroleum business generated net sales of $ 8.8 billion , $ 8.7 billion and $ 8.3 billion , and the nitrogen fertilizer business generated net sales of $ 298.7 million , $ 323.7 million and $ 302.3 million in each case for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the petroleum business generated operating income of $ 207.2 million , $ 603.0 million and $ 1,012.5 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the nitrogen fertilizer business generated operating income of $ 82.8 million , $ 124.9 million and $ 115.8 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . petroleum business . the petroleum business consists of our interests in the refining partnership . we own the general partner and approximately 66 % of the common units of the refining partnership .
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we believe that many water scarce countries in the caribbean basin and other select markets present opportunities for our business model . our operations and activities , and those of our affiliate oc-bvi , are presently conducted at 14 plants in five countries : the cayman islands , the bahamas , belize , the british virgin islands and indonesia . the following table sets forth the comparative combined production capacity of our retail , bulk and affiliate operations as of december 31 of each year . replace_table_token_5_th ( 1 ) in millions of gallons per day . 30 cayman islands we have been operating our business on grand cayman since 1973 and have been using reverse osmosis technology to convert seawater to potable water since 1989. the cayman islands have a limited natural supply of fresh water . we currently have an exclusive license from the cayman islands government to process potable water from seawater and then sell and distribute that water by pipeline to the seven mile beach and west bay areas of grand cayman . our operations consist of four company owned and three government owned reverse osmosis seawater conversion plants which provide water to approximately 5,800 retail residential and commercial customers within a government licensed area and bulk water sales to the water authority-cayman ( โ wac โ ) , respectively . our pipeline system in the cayman islands covers the seven mile beach and west bay areas of grand cayman and consists of approximately 90 miles of potable water pipe . our exclusive license from the cayman islands government was set to expire on july 30 , 2010 , however , we and the cayman islands government have extended the license several times in order to provide sufficient time to negotiate the terms of a new license . the most recent extension of our license was scheduled to expire december 31 , 2015 , however , we have been informed by the wac that our license will be extended through june 30 , 2016 and that formal documentation of such extension is in process . in 2011 , the cayman islands government enacted new water regulation laws pursuant to which the wac will issue any new retail license . we have been informed during our retail license negotiations that the cayman islands government seeks to restructure the terms of our license to employ a rate of return on invested capital model , the implementation of which could significantly reduce the operating income and cash flows we have historically generated from our retail license . see further discussion of this matter at item 1a . risk factors and item 7. management 's discussion and analysis of financial condition and results of operations - material commitments , expenditures and contingencies - renewal of retail license . the bahamas cw-bahamas produces potable water from three reverse osmosis seawater conversion plants . two of these plants , the windsor plant and the blue hills plant , are located in nassau , new providence and have a total installed capacity of 15.1 million gallons per day . cw-bahamas supplies water from these plants on a take-or-pay basis to the water and sewerage corporation of the bahamas ( โ wsc โ ) under long-term build , own and operate supply agreements . during 2015 , we supplied approximately 3.7 billion gallons ( 2014 : 4.3 billion gallons ) of water to the wsc from these plants . the windsor water supply agreement was scheduled to expire in july 2013 , but has been extended on a month-to-month basis while the bahamas government determines whether or not to enter into a new supply contract with us . cw-bahamas ' third plant is located in bimini , has a capacity of 115,000 gallons per day , and provides potable water to the bimini sands resort and to the bimini beach hotel . we have also sold water intermittently to the wsc from our bimini plant when their regular supply was unavailable . from time to time , cw-bahamas has experienced delays in collecting its accounts receivable . however , during 2014 , the government of the bahamas made significant incremental payments on its outstanding balances due to cw-bahamas and since such time cw-bahamas ' accounts receivable from the wsc , which totaled approximately $ 4.7 million as of december 31 , 2015 , have not been delinquent . representatives of the bahamas government have informed us that previous delays in paying our accounts receivables did not reflect any type of dispute with us with respect to the amounts owed . to date , we have not been required to provide an allowance for any delinquent cw-bahamas accounts receivable as such amounts were eventually paid in full . based upon our experience , we believe that the accounts receivable from the wsc are fully collectible and therefore have not provided any allowance for possible non-payment of these receivables as of december 31 , 2015. belize cw-belize was acquired on july 21 , 2000 , and consists of one reverse osmosis seawater conversion plant on ambergris caye , belize , capable of producing 600,000 gallons per day . we sell water to one customer , belize water services limited , which then distributes the water through its own distribution system to residential , commercial and tourist properties on ambergris caye . in 2009 , the minister of public utilities of the government of belize published a declaratory order designating cw-belize as a public utility provider . with this order the public utilities commission of belize ( โ puc โ ) has the authority to regulate cw-belize 's activities . in 2011 , the puc issued a second order that requires cw-belize to take various actions mandated by the puc that would be significant to its operations . hearings on this matter have been conducted in a belize court and the ruling on the matter is pending . see further discussion of this matter at item 1a . risk factors . story_separator_special_tag unless oc-bvi obtains an extension or modification of its bar bay agreement that results in a significant increase in the estimated future cash flows from its bar bay plant , we will be required to record impairment losses during 2016 to reduce the carrying value of our investment in oc-bvi to its then current fair value . these impairment losses will , in the aggregate , at least equal the underlying $ 900,000 in goodwill reflected in the carrying value of our investment in oc-bvi . the losses we record for our investment in oc-bvi in the future will exceed this $ 900,000 if oc-bvi ultimately ceases operations at its bar bay plant , as oc-bvi will be required to record an impairment loss to reduce the carrying value of its bar bay plant to its then estimated fair value . oc-bvi 's aggregate carrying value of the assets that comprise its bar bay plant was approximately $ 4.4 million as of december 31 , 2015. future impairment losses for our investment in oc-bvi and our equity in any future operating losses incurred by oc-bvi could have a material adverse impact on our results of operations . 32 goodwill and intangible assets goodwill represents the excess cost over the fair value of the assets of an acquired business . goodwill and intangible assets acquired in a business combination accounted for as a purchase and determined to have an indefinite useful life are not amortized , but are tested for impairment at least annually . intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment . we evaluate the possible impairment of goodwill annually as part of our reporting process for the fourth quarter of each fiscal year . management identifies our reporting units and determines the carrying value of each reporting unit by assigning the assets and liabilities , including the existing goodwill and intangible assets , to those reporting units . we determine the fair value of each reporting unit and compare the fair value to the carrying amount of the reporting unit . to the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit , we are required to perform the second step of the impairment test , as this is an indication that the reporting unit goodwill may be impaired . in this step , we compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all the assets ( recognized and unrecognized ) and liabilities of the reporting unit in a manner similar to a purchase price allocation . the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . if the implied fair value is less than its carrying amount , the impairment loss is recorded . for the years ended december 31 , 2015 and 2014 , we estimated the fair value of our reporting units by applying the discounted cash flow method , the subject company stock price method , the guideline public company method , and the mergers and acquisitions method . the discounted cash flow method relied upon seven-year discrete projections of operating results , working capital and capital expenditures , along with a terminal value subsequent to the discrete period . these seven-year projections were based upon historical and anticipated future results , general economic and market conditions , and considered the impact of planned business and operational strategies . the discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis . in preparing these seven-year projections for our retail unit we ( i ) identified possible outcomes of our on-going negotiations with the cayman islands government for the renewal of our retail license ; ( ii ) estimated the cash flows associated with each possible outcome ; and ( iii ) assigned a probability to each outcome and associated estimated cash flows . the weighted average estimated cash flows were then summed to determine the overall fair value of the retail unit under this method . the possible outcomes used for the discounted cash flow method for the retail unit included the implementation of a rate of return on invested capital model , the methodology proposed by cayman islands government representatives for the new retail license . we also estimated the fair value of each of our reporting units for the years ended december 31 , 2015 and 2014 through reference to the quoted market prices for our company and guideline companies and the market multiples implied by guideline merger and acquisition transactions . we weighted the fair values estimated for each of our reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit . the respective weightings we applied to each method as of december 31 , 2015 were consistent with those used as of december 31 , 2014 and were as follows : replace_table_token_6_th the fair values we estimated for our retail and bulk units exceeded their carrying amounts by 72 % and 20 % , respectively , as of december 31 , 2015. the fair values we estimated for our retail and bulk units exceeded their carrying amounts by 36 % and 29 % , respectively , as of december 31 , 2014. we also performed an analysis reconciling the conclusions of value for our reporting units to our market capitalization at october 1 , 2015. this reconciliation resulted in an implied control premium for our company of 5 % . long-lived assets we review the carrying amounts of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable .
| consolidated results net income attributable to consolidated water co. ltd. common stockholders for 2014 was $ 6,265,358 ( $ 0.42 per share on a fully-diluted basis ) , as compared to $ 8,594,519 ( $ 0.58 per share on a fully-diluted basis ) for 2013. total revenues for 2014 increased to $ 65,559,078 from $ 63,822,131 in 2013 due to increases in revenues for our services and retail segments . gross profit for 2014 was $ 23,115,498 or 35 % of total revenues , as compared to $ 23,505,879 or 37 % of total revenues , for 2013. gross profit for the bulk and service segments decreased from 2013 to 2014 while gross profit for the retail segment increased in 2014 from 2013. for further discussion of revenues and gross profit for 2014 , see the โ results by segment โ analysis that follows . general and administrative ( โ g & a โ ) expenses on a consolidated basis were $ 16,654,439 and $ 15,844,303 for 2014 and 2013 , respectively . the increase of approximately 5 % in consolidated g & a expenses in 2014 resulted from increases in ( i ) the project development expenses incurred by nsc , our mexico subsidiary , of approximately $ 544,000 ; and ( ii ) professional fees of approximately $ 378,000 reflecting consulting and legal fees incurred for the judicial review conducted in conjunction with our retail license negotiations . these increases were partially offset by decreases in ( i ) non-mexico related business development costs of approximately $ 108,000 ; and ( ii ) research and development costs of approximately $ 91,000. interest income increased to $ 1,440,631 for 2014 from $ 826,570 in 2013 due to interest on past due accounts receivables from the wsc . we recognized earnings and profit sharing on our investment in oc-bvi for 2014 and 2013 of $ 414,755 and $ 1,337,352 , respectively .
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the company also intends on supporting these services in other americatowne ventures at the invitation of the xiamen longyan city chamber of commerce , xiamen/longyan china and the xiamen city growth planning agency in developing an americatowne community and an international school in longyan county china . the related export services rendered to the company in the implementation of its business plan can not be provided by americatowne or through the americatowne relationship . in order to avoid conflicts of interest , mr. perkins is of the opinion that there must be a separate and distinct agreement between , in this case , the company and axp holding corporation . furthermore , although other similar ic-disc entities exist , the company is able to obtain better terms and conditions from axp holding corporation in light of mr. perkins ' control of axp holding corporation . americatowne 's board of directors determined that operating and controlling a separate but related entity focused on the development and the exporting of modular energy efficient technology and processes for government and private enterprises in china would be more prudent from a risk mitigation and operational standpoint than providing these services under the americatowne business plan . furthermore , the intent of the company is to expand its services and relationships to other similar endeavors in projects not related to americatowne , thus the need to maintain and operate a separate entity . cooperative agreement ( shexian county government , china ) the company 's majority and controlling shareholder โ americatowne , is a party under the cooperative agreement with the shexian county investment promotion bureau ( the โ shexian agreement โ ) . under the shexian agreement , americatowne and the shexian county bureau have agreed to a partnership in furthering the development of an americatowne community in the hanwang mountains . although not definitive at this time , the parties have agreed that , in consideration for americatowne 's investment of approximately $ 30,000,000 into the development , plus any additional tax paid to the local government , where applicable , the shexian county bureau will dedicate local resources , including land ( which americatowne would be required to obtain rights through local bid invitation ) , and participation with americatowne in an agreed upon equity split through a future definitive agreement . the company will be providing construction and technology services to americatowne in facilitating americatowne 's obligations under the shexian agreement . the company 's ability to generate revenue under its agreement with americatowne could be impaired in the event americatowne is not able to meet its obligations under the shexian agreement . furthermore , mr. perkins , as a control person of each entity , might elect to forego certain obligations of americatowne under the shexian agreement or not enter into a more definitive agreement with the shexian county bureau , which in turn , could impact the company 's ability to meet its business plan set forth herein . sales and support services agreement ( yilaime corporation ) on june 27 , 2016 , we entered into a sales and support services agreement with yilaime corporation , a nevada corporation ( โ yilaime โ ) . yilaime is controlled by alton perkins , who is our sole director and officer . yilaime , and another related-party โ yilaime corporation of nc , inc. ( โ yilaime nc โ ) , are the holders of the majority of issued and outstanding shares of common stock in americatowne , inc. ( โ ati โ ) , a delaware corporation and fully-reporting company with the united states securities and exchange commission ( the โ sec โ ) . mr. perkins is also the trustee of the alton & xiang mei lin perkins family trust ( โ perkins trust โ ) and the axp nevada asset protection trust 1 ( โ axp โ ) , which holds 5,100,367 and 120,000 shares , respectively , of the issued and outstanding common stock in ati . mr. perkins is the beneficial owner of 20,674,484 shares of ati , which equals 90.11 % of issued and outstanding shares . mr. perkins is the beneficial owner of the majority and controlling interest in the company through his direct holdings , and beneficial holdings through yilaime , axp and the perkins trust . ati , perkins trust and mr. perkins beneficially own 110,117,593 shares , or 86 % , of the company 's common stock . f- 11 - under the services agreement , yilaime will provide the company with marketing , sales and support services in the company 's pursuit of ati modular business in china in consideration of a commission equal to 10 % of the gross amount of monies procured for the company through yilaime 's services . in consideration of the right to receive this commission , yilaime has agreed to pay the company a quarterly fee of $ 250,000 starting on july 1 , 2016. the services agreement is set to expire on june 10 , 2020 , absent early termination story_separator_special_tag you should read the following discussion of our financial condition and results of operations together with the audited financial statements and the notes to the audited financial statements included in this annual report on form 10-k. this discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results may differ materially from those anticipated in these forward-looking statements . we qualify as an โ emerging growth company โ under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . story_separator_special_tag for so long as we are an emerging growth company , we will not be required to : have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; 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 ( i.e. , an auditor discussion and analysis ) ; submit certain executive compensation matters to shareholder advisory votes , such as `` say-on-pay '' and `` say-on-frequency ; '' and disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . - 12 - [ ] in addition , section 107 of the jobs act also provides that an emerging growth company can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . the company is in the early stages of its operations , and many of its plans and objectives are aspirational in nature , and thus might never come to fruition . at this time , the company plans to retain engineering and architectural firms based in the united states who have extensive experience in developing modular structures in the united states , china and other foreign locations based on market demand , which has not been thoroughly researched to date . the company has been focused on obtaining quotes , negotiating formal engagements and researching all aspects of the modular construction industry . while the infrastructure is still in the developmental stage , the company is confident that it has the experience , or access to those with experience , in the modular construction field . the company plans on engaging in onsite placement and delivery of modular structures . mr. perkins has extensive experience in operating business in china . one of the reasons that mr. perkins was sought out and invited to participate in developing the modular industry in china is that he was the co-chairman of a construction company in china - yilaime foreign partnership in henghsui china . his experience with yilaime foreign partnership allows ati modular to call on local companies in china as well as modular companies and experts in the united states to help provide on-site services . yilaime foreign partnership is not a related party to the company , ati , yilaime or axp . we intend on offering support services in all phases of modular construction . our approach will be to focus on exporting united states based technology , services and equipment , and general โ know-how. โ exporters in our related company , americatowne , are experienced in the modular field and we plan on allowing those experienced exporters to participate in various levels of our program . the company currently does not have a principal supplier of raw materials . the company has identified potential sources of raw materials in the united states through its membership in the modular building institute . one of our primary challenges will be pricing the source of raw materials and delivery to china . we are also looking to potential raw material sources in china . to operate within china , the company requires approval of government officials in china . in both cases where the company has signed cooperative agreements ( and in the case of the shexian agreement ) , and at the invitation of the local government , we have the approval to register and conduct business . fiscal year our fiscal year ends on december 31. story_separator_special_tag government to provide cash infusions and or loan guarantees as we complete our operations in china . other than chizhou , we do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time . there is no assurance that such additional financing will be available to us on acceptable terms , or at all or that our receivable plan will be effective in the future . plan of operation and cash requirements the company anticipates that its expenses over the next twelve months will be approximately $ 8,000,000 as described in the table below . these estimates may change significantly depending on the nature of our business activities and our ability to raise capital from our shareholders or other sources . replace_table_token_6_th - 16 - [ ] our other administrative expenses for the year will consist primarily of transfer agent fees , bank and interest charges and general office expenses . the professional fees are related to our regulatory filings throughout the year and include legal , accounting and auditing fees . the equipment purchases and plant set-up are related to the materially definitive agreement with jiangnan . based on our planned expenditures , we will require approximately $ 5,000,000 to proceed with our business plan over the next twelve months . if we secure less than the full amount of financing that we require , we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources . we intend to raise the balance of our cash requirements for the next twelve months pursuant to our agreement with jiangnan by accessing upon request bank
| results of operations we plan to raise capital following our recent change in status to an operating entity through the offering of shares of common stock or preferred stock to investors . we anticipate we will need to pursue capital to fund our operations over the next twelve months . we believe we will be able to raise the necessary capital to carry out our business plan , but there is no assurance that we will be able to do so . overview in fiscal year 2017 , the company achieved $ 500,000 in revenue . we can make no assurances that we will find commercial success in any of our products . we also rely upon the service agreements with americatowne , and yilaime for revenues . we are a new company and thus have very limited experience in sales expectations and forecasting . we also have not fully discovered any seasonality to our business as we began operations for the first quarter of 2017. we intend on relying on americatowne and yilaime for operational support . if we can not achieve independent commercial success , we may need to continue to rely on americatowne and yilaime for support . if americatowne or yilaime at any time decides to alter or change materially our arrangement , we could experience a material adverse effect on the company . - 13 - [ ] results of operations through december 31 , 2017 our operating results are summarized as follows : replace_table_token_2_th revenues pursuant to the company 's service agreements , americatowne and yilaime paid the company $ 500,000 in fiscal year 2017. in 2017 the company had paid an operating expenses of $ 438,654. the operation expenses primarily stem from implementing the company 's business plan , including legal and professional fees associated with the company 's filing requirements under the securities act and securities and exchange act and the merger between americatowne and the company .
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the option holder 's stock option agreement shall provide the rights , if any , that such holder has to exercise the stock option at such time that such holder 's service relationship with us , or any of our affiliates , ceases for any reason , including disability , death , with or without cause , or voluntary resignation . all unvested stock option awards are forfeited if the participant 's employment or service is terminated for any reason , unless our compensation committee determines otherwise . acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the committee and may include ( i ) check , bank draft or money order or wire transfer , ( ii ) if the company 's common stock is publicly traded , a broker-assisted cashless exercise , or ( iii ) such other methods as may be approved by the committee , including without limitation , the tender of shares of story_separator_special_tag the following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described . this discussion should be read in conjunction with our consolidated financial statements and the related notes included in item 8 of this form 10-k. this discussion contains forward-looking statements . please see the explanatory note concerning โ forward-looking statements โ in part i of this annual report on form 10-k and item 1a . risk factors for a discussion of the uncertainties , risks and assumptions associated with these forward-looking statements . the operating results for the periods presented were not significantly affected by inflation . company overview ageagle aerial systems inc. ( โ ageagle โ or โ the company โ ) designs , produces and supports technologically-advanced small , unmanned aerial vehicles ( โ uavs โ or โ drones โ ) . in addition , providing new utility to uavs , the company pioneers , and innovates advanced aerial imaging data collection and analytics technologies capable of addressing the impending food and environmental sustainability crises that threaten our planet . historically , the company has focused on delivering tools and strategies necessary to define and implement commercial drone construction and delivery , along with sustainability and precision farming solutions that solve important problems confronting the global agricultural industry . in fact , ageagle has spent eight years serving customers , covering more than two million acres in 50 countries monitoring 53 different crops . ageagle remains intent on earning distinction as a trusted partner to clients seeking to adopt and support productive agricultural approaches to better farming practices which limit the impact on our natural resources , reduce reliance on inputs and materially increase crop yields and profits . in early 2019 , ageagle further expanded its marketing efforts to provide for the introduction of parkview , its proprietary aerial imagery and data analytics platform , designed to support municipal , state and federal agencies charged with assessing and supporting sustainability initiatives involving public parks and recreation areas , also referred to as urban green spaces . in late may 2019 , ageagle announced the introduction of hempoverview , a proprietary web- and map-based software-as-a-solution ( saas ) technology designed to aid u.s. state and territorial departments of agriculture , growers and processors in efficiently optimizing oversight , compliance and enforcement of the new hemp cultivation industry fast emerging in the united states . growers , state administrators and or processors may connect and maintain proactive two-way communications and collaborate on developing best practices for hemp cultivation registration/permitting , planting/harvesting planning , regulatory oversight and compliance enforcement . moreover , anticipated benefits for state administrators include lower program management costs , new revenue channel development , real or near real-time remote , centralized oversight of hemp fields , and much more . on november 12 , 2019 , the company announced that the florida department of agriculture and consumer services ( fdacs ) had chosen ageagle 's hempoverview software-as-a-solution ( saas ) platform to manage the online application submission and registration process for hemp growers and their farms and hemp fields for the 2020 , 2021 and 2022 planting seasons . 27 the company also designs , produces , distributes and supports technologically advanced small unmanned aerial vehicles ( uavs or drones ) that ageagle offers for commercial sale to the precision agriculture industry . in addition to uav sales , in late 2018 , the company introduced a new drone-leasing program , alleviating farmers and agribusinesses from significant upfront costs associated with purchasing a drone , while also relieving them from ongoing drone maintenance and support requirements . additionally , the new program provides the option of engaging a trained ageagle pilot to operate the drone and manage the entire image collection process , creating a truly turnkey aerial imagery capture solution for its customers . on september 3 , 2019 , we announced that we actively begun pursuing expansion opportunities within the emerging drone logistics and transportation market โ a market forecasted by marketsandmarkets to grow to $ 29.06 billion by the year 2027. accordingly , companies , including alphabet ( google ) , fedex , intel , qualcomm , amazon , target , walmart , alibaba , ups , 7-eleven , uber and others , are developing commercial drone delivery service initiatives as part of their long-term strategic growth plans . we believe these companies intend to leverage the latest in unmanned aerial vehicle technologies to deliver consumer products , foods , medicines and other types of lightweight freight direct to consumers and businesses in the fastest , most cost efficient and environmentally responsible manner possible โ a practical alternative to costly auto transport . we received our first purchase orders from a major ecommerce company to manufacture and assemble uavs designed to meet the critical specifications for drones that are meant to carry goods in urban and suburban areas . story_separator_special_tag we are confident in the uav products and solutions we offer today and believe that these products and solutions could provide other industries the same kind of optimization we are currently providing the agriculture industry . these industries have yet to be identified by the ageagle team , but may include verticals such as land surveying and scanning , insurance , inspections and search and rescue . 29 competitive strengths ageagle believes the following attributes and capabilities provide us with long-term competitive advantages : โ proprietary technology and trade secrets - we believe our unique design and in-house manufacturing of key aerospace components differentiates our product in the marketplace . we are confident that our uavs are industry-leading in durability due to the lightweight laminated shell of the wing , which is made using a proprietary manufacturing process innovated over five years of research and development . this process , which hardens the material used to build the shell , allows the uav to perform in harsh weather conditions ( with wind speeds up to 30 miles per hour ) and bring itself to an unassisted landing , all at a total weight of about six pounds . this design is an important trade secret , and ageagle has non-disclosure agreements with our employees in order to keep it unique to our company . as of today , we manufacture all of our products at our manufacturing facility in neodesha , kansas , which allows us to avoid many of the potential difficulties that may arise if our manufacturing facilities were otherwise located outside the u.s. in addition , all our uavs are designed and assembled here in the u.s. โ solutions have global appeal - we believe that our technology addresses a need for better data and delivers actionable understanding of that data to stakeholders in the agriculture industry worldwide . given our global distribution platform , we believe that ageagle is well-positioned for its uavs , aerial imagery-enabled data capture and advanced data analytics solutions to be effectively marketed and sold to customers worldwide . โ advanced technology solutions allow users to remove the guesswork in effectively managing hemp cultivation oversight , compliance , enforcement , reporting and commerce - to our knowledge , there is no other saas solution available on the market today โ particularly one that has been developed by a proven agtech company with the level of experience and expertise of ageagle โ that provides the multi-faceted level of support and services that hempoverview offers to all stakeholders in the industry . โ increased margins for farmers - we believe our uavs will directly enhance margins for commercial farmers by reducing the amount of nutrients and chemicals needed to manage their farms . the software equipped on our uavs deliver a high-quality aerial map upon completion of the flight , allowing the user to accurately identify the specific areas that are malnourished . this software is compatible with precision applicator tractors , which assist users in applying a precise amount of nutrients in only the areas it is needed . in addition , our uavs are specially designed to provide users with a portable and easy to operate device , which can be controlled with a hand-held unit or tablet . through our farmlens platform , users are able to plan and track an efficient flight path for their uav . the uavs are equipped with a camera and nir filter whose images provide a holistic aerial view of the fields , along with meaningful data that is uploaded and delivered to the user within a very short time frame . as a result , this platform allows users to quickly detect any issues in their crops , which enables them to address such issues in a timely manner before any damage , or further damage , may affect their crops . โ increased transparency for food and consumer goods manufacturers - we believe our uavs and the data platform we continue to advance present us a unique opportunity to be one of the first companies to offer major manufacturers a way to connect to the sustainable efforts being made by the farmers from whom they purchase crops for their food and consumer goods products . this would allow manufacturers to confidently claim their products are made with less chemicals on their packaging and in their marketing . 30 critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( โ gaap โ ) . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period . our most critical estimates include those related to revenue recognition , inventories and reserves for excess and obsolescence , accounting for stock-based awards , and income taxes . on an ongoing basis , we evaluate our estimates and assumptions . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting estimates affect the more significant judgments and estimates used in preparing our consolidated financial statements . please see note 2 to our consolidated financial statements , which are included in item 8 โ financial statements and supplementary data โ of this annual report , for our summary of significant accounting policies . there have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements .
| results of operations year ended december 31 , 2019 as compared to year ended december 31 , 2018 during the year ended december 31 , 2019 , we recorded revenues of $ 296,677 compared to revenues of $ 107,813 for the same period in 2018 , a 175 % increase . the increase was largely due to new revenues derived from purchase orders to manufacture and assemble drones and related delivery products designed to meet specific criteria for package delivery in urban and suburban area . revenue growth was also positively impacted by continued focus on expansion of our platform , providing for aerial imaging and analytics solutions which serve new and emerging markets including management by municipal parks and recreation agencies of urban green spaces , as well as registration , oversight and compliance of hemp fields by state departments of agriculture . during the year ended december 31 , 2019 , cost of sales totaled $ 202,049 , a $ 140,369 , or 228 % , increase when compared to $ 61,680 in the year ended december 31 , 2018. we had a gross profit of $ 94,628 , or 32 % gross profit margin , during the year ended december 31 , 2019 compared to $ 46,133 , or 43 % gross profit margin , for the comparable 12-month period in 2018. the primary factors contributing to the increase in our cost of sales and decline in gross profit margin was due to the continued shift in mix of products and services we now offer customers in the new markets we serve . we recorded total operating expenses of $ 2,616,821 during 2019 , a 24 % increase as compared to operating expenses of $ 2,106,732 in the same period of 2018. our operating expenses are comprised of general and administrative expenses , professional fees , selling expenses , and research and development expenses .
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the members of our general partner selected mr. grimm to serve as a director because of his extensive experience in the energy industry and his service as a senior executive at several energy-related companies , in addition to his contacts in the industry gained through his involvement in energy-related organizations . james r. ( rick ) perry . mr. perry was appointed to the board of directors of our general partner in january 2020. he formerly served as u.s. secretary of energy from march 2017 until december 2019. prior story_separator_special_tag and results of operations ( tabular dollar and unit amounts , except per unit data , are in millions ) energy transfer lp is a delaware limited partnership whose common units are publicly traded on the nyse under the ticker symbol โ et. โ et was formed in september 2002 and completed its initial public offering in february 2006 . 75 the following discussion of our historical consolidated financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and accompanying notes thereto included in โ item 8. financial statements and supplementary data โ of this report . this discussion includes forward-looking statements that are subject to risk and uncertainties . actual results may differ substantially from the statements we make in this section due to a number of factors that are discussed in โ item 1a . risk factors โ of this report . unless the context requires otherwise , references to โ we , โ โ us , โ โ our , โ the โ partnership โ and โ et โ mean energy transfer lp and its consolidated subsidiaries , which include eto , etp gp , etp llc , panhandle , sunoco lp and lake charles lng . references to the โ parent company โ mean energy transfer lp on a stand-alone basis . overview energy transfer lp directly and indirectly owns equity interests in eto , sunoco lp and usac , all of which are limited partnerships engaged in diversified energy-related services . sunoco lp and usac have publicly traded common units . the parent company 's principal sources of cash flow are derived from its direct and indirect investments in the limited partner and general partner interests in eto . eto 's earnings and cash flows are generated by its subsidiaries , including eto 's investments in sunoco lp and usac . the amount of cash that eto , sunoco lp and usac distribute to their respective partners , including the parent company , each quarter is based on earnings from their respective business activities and the amount of available cash , as discussed below . in order to fully understand the financial condition and results of operations of the parent company on a stand-alone basis , we have included discussions of parent company matters apart from those of our consolidated group . general our primary objective is to increase the level of our distributable cash flow to our unitholders over time by pursuing a business strategy that is currently focused on growing our subsidiaries ' natural gas and liquids businesses through , among other things , pursuing certain construction and expansion opportunities relating to our subsidiaries ' existing infrastructure and acquiring certain strategic operations and businesses or assets . the actual amounts of cash that we will have available for distribution will primarily depend on the amount of cash our subsidiaries generate from their operations . our reportable segments are as follows : intrastate transportation and storage ; interstate transportation and storage ; midstream ; ngl and refined products transportation and services ; crude oil transportation and services ; investment in sunoco lp ; investment in usac ; and all other . the general partner of eto has separate operating management and boards of directors . we control eto through our owner ship of its respective general partners . recent developments eto series f and series g preferred units issuance on january 22 , 2020 , eto issued 500,000 of its 6.750 % series f preferred units at a price of $ 1,000 per unit and 1,100,000 of its 7.125 % series g preferred units at a price of $ 1,000 per unit . the net proceeds were used to repay amounts outstanding under eto 's revolving credit facility and for general partnership purposes . eto january 2020 senior notes offering and redemption on january 22 , 2020 , eto completed a registered offering ( the โ january 2020 senior notes offering โ ) of $ 1.00 billion aggregate principal amount of eto 's 2.900 % senior notes due 2025 , $ 1.50 billion aggregate principal amount of eto 's 3.750 % senior notes due 2030 , and $ 2.00 billion aggregate principal amount of eto 's 5.000 % senior notes due 2050 , ( collectively , the โ notes โ ) . 76 the notes are fully and unconditionally guaranteed by the partnership 's wholly-owned subsidiary , sunoco logistics partners operations l.p. , on a senior unsecured basis . utilizing proceeds from the january 2020 senior notes offering , eto redeemed its $ 400 million aggregate principal amount of 5.75 % senior notes due september 1 , 2020 , its $ 1.05 billion aggregate principal amount of 4.15 % senior notes due october 1 , 2020 , its $ 1.14 billion aggregate principal amount of 7.50 % senior notes due october 15 , 2020 , its $ 250 million aggregate principal amount of 5.50 % senior notes due february 15 , 2020 , et 's $ 52 million aggregate principal amount of 7.50 % senior notes due october 15 , 2020 and transwestern 's $ 175 million aggregate principal amount of 5.36 % senior notes due december 9 , 2020. eto term loan on october 17 , 2019 , eto entered into a term loan credit agreement ( the โ eto term loan โ ) providing for a $ 2.00 billion three-year term loan credit facility . story_separator_special_tag regulatory update interstate natural gas transportation regulation rate regulation effective january 2018 , the 2017 tax and jobs act ( the โ tax act โ ) changed several provisions of the federal tax code , including a reduction in the maximum corporate tax rate . on march 15 , 2018 , in a set of related proposals , the ferc addressed treatment of federal income tax allowances in regulated entity rates . the ferc issued a revised policy statement on treatment of income taxes ( โ revised policy statement โ ) stating that it will no longer permit master limited partnerships to recover an income tax allowance in their cost of service rates . the ferc issued the revised policy statement in response to a remand from the united states court of appeals for the district of columbia circuit in united airlines v. ferc , in which the court determined that the ferc had not justified its conclusion that a pipeline organized as a master limited partnership would not โ double recover โ its taxes under the current policy by both including an income-tax allowance in its cost of service and earning a return on equity calculated using the discounted cash flow methodology . on july 18 , 2018 , the ferc issued an order denying requests for rehearing and clarification of its revised policy statement . in the rehearing order , the ferc clarified that a pipeline organized as a master limited partnership will not be not be precluded in a future proceeding from arguing and providing evidentiary support that it is entitled to an income tax allowance and demonstrating that its recovery of an income tax allowance does not result in a double-recovery of investors ' income tax costs . in light of the rehearing order , the impacts of the ferc 's policy on the treatment of income taxes may have on the rates eto can charge for the ferc-regulated transportation services are unknown at this time . the ferc also issued a notice of inquiry ( โ 2017 tax law noi โ ) on march 15 , 2018 , requesting comments on the effect of the tax act on ferc jurisdictional rates . the 2017 tax law noi states that of particular interest to the ferc is whether , and if so how , the ferc should address changes relating to accumulated deferred income taxes and bonus depreciation . comments in response to the 2017 tax law noi were due on or before may 21 , 2018. in march 2019 , following the decision of the d.c. circuit in emera maine v. federal energy regulatory commission , the ferc issued a notice of inquiry regarding its policy for determining return on equity ( โ roe โ ) . the ferc specifically sought information and stakeholder views to help the ferc explore whether , and if so how , it should modify its policies concerning the determination of roe to be used in designing jurisdictional rates charged by public utilities . the ferc also expressly sought comment on whether any changes to its policies concerning public utility roes should be applied to interstate natural gas and oil pipelines . initial comments were due in june 2019 , and reply comments were due in july 2019. the ferc has not taken any further action with respect to the notice of inquiry as of this time , and therefore we can not predict what effect , if any , such development could have on our cost-of-service rates in the future . 78 also included in the march 15 , 2018 proposals is a notice of proposed rulemaking ( โ nopr โ ) proposing rules for implementation of the revised policy statement and the corporate income tax rate reduction with respect to natural gas pipeline rates . on july 18 , 2018 , the ferc issued a final rule adopting procedures that are generally the same as proposed in the nopr with a few clarifications and modifications . with limited exceptions , the final rule requires all ferc-regulated natural gas pipelines that have cost-based rates for service to make a one-time form no . 501-g filing providing certain financial information and to make an election on how to treat its existing rates . the final rule suggests that this information will allow the ferc and other stakeholders to evaluate the impacts of the tax act and the revised policy statement on each individual pipeline 's rates . the final rule also requires that each ferc-regulated natural gas pipeline select one of four options to address changes to the pipeline 's revenue requirements as a result of the tax reductions : file a limited natural gas act ( โ nga โ ) section 4 filing reducing its rates to reflect the reduced tax rates , commit to filing a general nga section 4 rate case in the near future , file a statement explaining why an adjustment to rates is not needed , or take no other action . for the limited nga section 4 option , the ferc clarified that , notwithstanding the revised policy statement , a pipeline organized as a master limited partnership does not need to eliminate its income tax allowance but , instead , can reduce its rates to reflect the reduction in the maximum corporate tax rate . trunkline , etc tiger pipeline , llc and panhandle filed their respective ferc form no . 501-gs on october 11 , 2018. fep , lake charles lng and certain other operating subsidiaries filed their respective ferc form no . 501-gs on or about november 8 , 2018 , and rover , fgt , transwestern and mep filed their respective ferc form no . 501-gs on or about december 6 , 2018. by order issued january 16 , 2019 , the ferc initiated a review of panhandle 's existing rates pursuant to section 5 of the natural gas act to determine whether the rates currently charged by panhandle are just and reasonable and set the matter for hearing . panhandle filed a cost and revenue study on april 1 , 2019.
| resulting from cash used in operating activities of $ 484 million , cash provided by investing activities of $ 3.21 billion , and changes in cash included in current assets held for sale of $ 11 million . year ended december 31 , 2017 cash provided by discontinued operations was $ 93 million for the year ended december 31 , 2017 resulting from cash provided by operating activities of $ 136 million , cash used in investing activities of $ 38 million and changes in cash included in current assets held for sale of $ 5 million . 105 description of indebtedness our outstanding consolidated indebtedness was as follows : replace_table_token_35_th the terms of our consolidated indebtedness and that of our subsidiaries are described in more detail below and in note 6 to our consolidated financial statements , included in โ item 8. financial statements and supplementary data. โ recent transactions eto january 2020 senior notes offering and redemption on january 22 , 2020 , eto completed a registered offering ( the โ january 2020 senior notes offering โ ) of $ 1.00 billion aggregate principal amount of eto 's 2.900 % senior notes due 2025 , $ 1.50 billion aggregate principal amount of eto 's 3.750 % senior notes due 2030 , and $ 2.00 billion aggregate principal amount of eto 's 5.000 % senior notes due 2050 , ( collectively , the โ notes โ ) . the notes are fully and unconditionally guaranteed by the partnership 's wholly-owned subsidiary , sunoco logistics partners operations l.p. , on a senior unsecured basis .
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we also own and control the entire non-economic general partner interest in wes operating gp , and our general partner is owned by occidental ; therefore , prior asset acquisitions from anadarko were classified as transfers of net assets between entities under common control . as such , subsequent to asset acquisitions from anadarko , we were required to recast our financial statements to include the activities of acquired assets from the date of common control . for reporting periods that required recast , the consolidated financial statements for periods prior to the acquisition of assets from anadarko were prepared from anadarko 's historical cost-basis accounts and may not be necessarily indicative of the actual results of operations that would have occurred if we had owned the assets during the periods reported . for ease of reference , we refer to the historical financial results of the partnership 's assets prior to the acquisitions from anadarko as being โ our โ historical financial results . story_separator_special_tag surfaces using cdc- and epa-approved products . our return-to-work protocols include daily required application-based health self-assessments that must be completed prior to accessing wes work locations . 68 items affecting the comparability of our financial results our historical results of operations and cash flows for the periods presented may not be comparable to future or historic results of operations or cash flows for the reasons described below . refer to operating results within this item 7 for a discussion of our results of operations as compared to the prior periods . commodity purchase and sale agreements . effective april 1 , 2020 , changes to marketing-contract terms with aesc terminated aesc 's prior status as an agent of the partnership for third-party sales and established aesc as a customer of the partnership . accordingly , we no longer recognize service revenues and or product sales revenues and the equivalent cost of product expense for the marketing services performed by aesc . year-over-year variances for the year ended december 31 , 2020 , include the following impacts related to this change ( i ) decrease of $ 130.9 million in service revenues โ fee based , ( ii ) decrease of $ 29.7 million in product sales , and ( iii ) decrease of $ 160.6 million in cost of product expense . these changes had no impact to operating income ( loss ) , net income ( loss ) , the balance sheets , cash flows , or any non-gaap metric used to evaluate our operations ( see how we evaluate our operations within this item 7 ) . see note 6โrelated-party transactions in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. gathering and processing agreements . certain of the gathering agreements for the west texas complex , springfield system , dj basin oil system , marcellus interest systems , and dbm oil and water systems allow for rate resets that target an agreed-upon rate of return over the life of the agreement . see note 1โsummary of significant accounting policies and basis of presentation in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. acquisitions and divestitures . in february 2019 , wes operating acquired ama from anadarko . in january 2019 , we acquired a 30 % interest in red bluff express . in june 2018 , we acquired a 20 % interest in whitethorn llc and a 15 % interest in cactus ii . in october 2020 , we ( i ) sold our 14.81 % interest in fort union , which was accounted for under the equity method of accounting , and ( ii ) entered into an option agreement to sell the bison treating facility to a third party exercisable during the first quarter of 2021. in december 2018 , the newcastle system in northeast wyoming was sold to a third party . see note 3โacquisitions and divestitures in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. impairments . we recognized long-lived asset and other impairments of $ 203.9 million , $ 6.3 million , and $ 230.6 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . during the year ended december 31 , 2020 , we also recognized a goodwill impairment of $ 441.0 million , which reduced the carrying value of goodwill for the gathering and processing reporting unit to zero . for a description of impairments recorded , see note 9โproperty , plant , and equipment , note 7โequity investments , and note 10โgoodwill and other intangibles in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. general and administrative expenses . on december 31 , 2019 , we entered into the december 2019 agreements , which helped facilitate our ability to operate more independently from occidental . as a result , during 2020 , we began incurring costs to ( i ) implement technology systems to manage the operations and administration of our day-to-day business , ( ii ) secure our dedicated workforce , and ( iii ) operate as a stand-alone entity . see note 1โsummary of significant accounting policies and basis of presentation in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. noncontrolling interests . for periods subsequent to merger completion , our noncontrolling interests in the consolidated financial statements consist of ( i ) the 25 % third-party interest in chipeta and ( ii ) the 2.0 % occidental subsidiary-owned limited partner interest in wes operating . story_separator_special_tag these metrics are significant factors in assessing our operating results and profitability and include ( i ) throughput , ( ii ) operating and maintenance expenses , ( iii ) general and administrative expenses , ( iv ) safety performance , ( v ) system availability , ( vi ) adjusted gross margin ( as defined below ) , ( vii ) adjusted ebitda ( as defined below ) , and ( viii ) free cash flow ( as defined below ) . throughput . throughput is a significant operating variable that we use to assess our ability to generate revenues . to maintain or increase throughput on our systems , we must connect to additional wells or production facilities . our success in maintaining or increasing throughput is impacted by the successful drilling of new wells by producers that are dedicated to our systems , recompletions of existing wells connected to our systems , our ability to secure volumes from new wells drilled on non-dedicated acreage , and our ability to attract natural-gas , crude-oil , ngls , or produced-water volumes currently serviced by our competitors . operating and maintenance expenses . we monitor operating and maintenance expenses to assess the impact of these costs on asset profitability and to evaluate the overall efficiency of our operations . operating and maintenance expenses include , among other things , field labor , insurance , repair and maintenance , equipment rentals , fleet management , contract services , utility costs , and services provided to us or on our behalf . for periods commencing on the date of and subsequent to the acquisition of assets from anadarko , certain of these expenses are incurred under our services and secondment agreement with occidental , which was amended and restated on december 31 , 2019. see further detail in note 6โrelated-party transactions in the notes to consolidated financial statements under part ii , item 8 of this form 10-k . general and administrative expenses . to assess the appropriateness of our general and administrative expenses and maximize our cash available for distribution , we monitor such expenses by way of comparison to prior periods and to the annual budget . pursuant to the services agreement entered into as part of the december 2019 agreements , occidental ( i ) seconded certain personnel employed by occidental to wes operating gp , in exchange for which wes operating gp paid a monthly secondment and shared services fee to occidental equivalent to the direct cost of the seconded employees until their transfer to us and ( ii ) agreed to continue to provide certain administrative and operational services to us for up to a two-year transition period , for which occidental is reimbursed accordingly . the services agreement also included provisions governing the transfer of certain employees to us and our assumption of liabilities relating to those employees at the time of their transfer . in late march 2020 , seconded employees ' employment was transferred to us . prior to the december 2019 agreements , occidental and our general partner performed centralized corporate functions for us pursuant to the now terminated wes and wes operating omnibus agreements . safety performance . maintaining a safe and incident free workplace is a critical component of our operational success . our management team uses both lagging and leading indicators to measure and manage safety performance . total recordable incident rate is a key lagging indicator reviewed by management . total recordable incident rate includes injuries or illnesses that result in any of the following : days away from work , restricted work or transfer to another job , medical treatment beyond first aid , loss of consciousness , or death . we also review leading indicators such as unplanned releases , safety observations , occupational and process safety audits and inspections , training completion , and corrective action item completion to enhance our view of safety performance . safety performance data is reported , tracked , and trended in a centralized database , which allows us to efficiently focus our incident prevention efforts . system availability . by consistently monitoring the availability of our gathering , processing , and water disposal systems to provide critical midstream services to our customers , we can ensure we are maximizing the ability of our assets to generate revenues , while providing a reliable service to our producer customers . we define system availability as the measure of the โ real โ average availability experienced by our customers related to its gas systems , oil systems , and water-disposal wells . it considers the ratio of average actual daily volumes to expected daily volumes and includes all experienced sources of downtime , such as scheduled and unscheduled downtime , logistic downtime , etc . 71 non-gaap financial measures adjusted gross margin . we define adjusted gross margin attributable to western midstream partners , lp ( โ adjusted gross margin โ ) as total revenues and other ( less reimbursements for electricity-related expenses recorded as revenue ) , less cost of product , plus distributions from equity investments , and excluding the noncontrolling interests owners ' proportionate share of revenues and cost of product . we believe adjusted gross margin is an important performance measure of our operations ' profitability and performance as compared to other companies in the midstream industry . cost of product expenses include ( i ) costs associated with the purchase of natural gas and ngls pursuant to our percent-of-proceeds , percent-of-product , and keep-whole contracts , ( ii ) costs associated with the valuation of gas imbalances , and ( iii ) costs associated with our obligations under certain contracts to redeliver a volume of natural gas to shippers , which is thermally equivalent to condensate retained by us and sold to third parties . to facilitate investor and industry analyst comparisons between us and our peers , we also disclose per-mcf adjusted gross margin for natural-gas assets , per-bbl adjusted gross margin for crude-oil and ngls assets , and per-bbl adjusted gross margin for produced-water assets . see key performance metrics within this item 7. adjusted ebitda .
| executive summary we are a midstream energy company organized as a publicly traded partnership , engaged in the business of gathering , compressing , treating , processing , and transporting natural gas ; gathering , stabilizing , and transporting condensate , ngls , and crude oil ; and gathering and disposing of produced water . in our capacity as a natural-gas processor , we also buy and sell natural gas , ngls , and condensate on behalf of ourselves and as an agent for our customers under certain contracts . we own or have investments in assets located in texas , new mexico , the rocky mountains ( colorado , utah , and wyoming ) , and north-central pennsylvania . as of december 31 , 2020 , our assets and investments consisted of the following : replace_table_token_9_th _ ( 1 ) includes the dbm water systems . 66 significant financial and operational events during the year ended december 31 , 2020 , included the following : in january 2020 , wes operating completed an offering of $ 3.2 billion in aggregate principal amount of fixed-rate senior notes and $ 300.0 million in aggregate principal amount of floating-rate senior notes . net proceeds from these offerings were used to repay and terminate the term loan facility , repay outstanding amounts under the rcf , and for general partnership purposes . see liquidity and capital resources within this item 7 for additional information .
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in identifying candidates for membership on the board , the board takes into account all factors it considers appropriate , which may include strength of character , mature judgment , career specialization , relevant technical skills , diversity and the extent to which the candidate would fill a present need on the board . as part of the process , the board , together with management , is responsible for conducting background searches , and is empowered to retain search firms to assist in the nominations process . once candidates have gone through a screening process and met with a number of the existing directors , they are formally put forward as nominees for approval by the board . assessments the board intends that individual director assessments be conducted by other directors , taking into account each director 's contributions at board meetings , service on committees , experience base , and their general ability to contribute to one or more of our company 's major needs . however , due to our stage of development and our need to deal with other urgent priorities , the board has not yet implemented such a process of assessment . item 14. principal accountant fees and services audit fees the aggregate fees billed for the most recently completed fiscal year ended december 31 , 2011 by stan jeong-ha lee , certified public accountant , for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on form 10-q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows : replace_table_token_7_th 49 the aggregate fees billed for the most recently completed fiscal year ended august 31 , 2011 by seale and beers , cpas , pcabo & cpab registered auditors , for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on form 10-q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows : replace_table_token_8_th policy on pre-approval by audit committee of services performed by independent auditors the board of directors pre-approves all services provided by our independent auditors . all of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered . the board of directors has considered the nature and amount of fees billed by stan jeong-ha lee and believes that the provision of services for activities unrelated to the audit is compatible with maintaining stan jeong-ha lee . 50 part iv item 15. exhibits and financial statement schedules . exhibit number description 3.1 articles of incorporation ( incorporated by reference from our registration statement on form s-1 , filed on november 19 , 2008 ) 3.2 bylaws ( incorporated by reference from our registration statement on form s-1 , filed on november 19 , 2008 ) 10.1 master agreement with kunekt corporation , ams-int asia limited , ferngrui yue , guangzhou xingwei communications story_separator_special_tag the following discussion and analysis presents the factors that had a material effect on our company 's financial position as of december 31 , 2011 and its results of operations for the two years then ended . you should read this discussion in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. prior to december 31 , 2011 , our company was a shell company . on february 20 , 2012 , we completed a transaction in which we purchased all of the issued and outstanding shares of ams-int asia limited in consideration for the issuance to 7,104,000 shares of our common stock , resulting in a change of control of our company . yiyueqiji and xingwei have signed contractual management agreements with ams , as discussed above under the heading ยvariable interest entities agreementsย . under these agreements , management of all sales and operations will be under the management of ams , a hong kong company . future investment and assets purchased and sold will also be under the full control of ams . chinese law forbids a non-hong kong company from acquiring these management agreements with mainland chinese companies . we anticipate that ams will continue to expand its presence and operations in hong kong and in china . the full acquisition of yiyueqiji and xingwei is anticipated to occur in the third calendar quarter of 2012. we also anticipate setting up other joint venture companies in china and in the u.s. the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed below and elsewhere in this annual report , particularly in the section entitled ยrisk factorsย of this annual report . our audited financial statements are stated in united states dollars and are prepared in accordance with united states generally accepted accounting principles . story_separator_special_tag align= '' justify '' style= '' margin-top:13px ; margin-bottom:0px '' > basis of presentation our financial statements and related notes are presented in accordance with accounting principles generally accepted in the united states of america ( ยus gaapย ) . the company maintains its books and accounting records in u.s. dollar ( ยus $ ย ) , and its reporting currency is us $ . accounting method our financial statements are prepared using the accrual method of accounting . we have elected a fiscal year ending on december 31. use of estimates the preparation of financial statements in conformity with us gaap requires management to make estimates and assumptions that affect the story_separator_special_tag in identifying candidates for membership on the board , the board takes into account all factors it considers appropriate , which may include strength of character , mature judgment , career specialization , relevant technical skills , diversity and the extent to which the candidate would fill a present need on the board . as part of the process , the board , together with management , is responsible for conducting background searches , and is empowered to retain search firms to assist in the nominations process . once candidates have gone through a screening process and met with a number of the existing directors , they are formally put forward as nominees for approval by the board . assessments the board intends that individual director assessments be conducted by other directors , taking into account each director 's contributions at board meetings , service on committees , experience base , and their general ability to contribute to one or more of our company 's major needs . however , due to our stage of development and our need to deal with other urgent priorities , the board has not yet implemented such a process of assessment . item 14. principal accountant fees and services audit fees the aggregate fees billed for the most recently completed fiscal year ended december 31 , 2011 by stan jeong-ha lee , certified public accountant , for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on form 10-q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows : replace_table_token_7_th 49 the aggregate fees billed for the most recently completed fiscal year ended august 31 , 2011 by seale and beers , cpas , pcabo & cpab registered auditors , for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on form 10-q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows : replace_table_token_8_th policy on pre-approval by audit committee of services performed by independent auditors the board of directors pre-approves all services provided by our independent auditors . all of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered . the board of directors has considered the nature and amount of fees billed by stan jeong-ha lee and believes that the provision of services for activities unrelated to the audit is compatible with maintaining stan jeong-ha lee . 50 part iv item 15. exhibits and financial statement schedules . exhibit number description 3.1 articles of incorporation ( incorporated by reference from our registration statement on form s-1 , filed on november 19 , 2008 ) 3.2 bylaws ( incorporated by reference from our registration statement on form s-1 , filed on november 19 , 2008 ) 10.1 master agreement with kunekt corporation , ams-int asia limited , ferngrui yue , guangzhou xingwei communications story_separator_special_tag the following discussion and analysis presents the factors that had a material effect on our company 's financial position as of december 31 , 2011 and its results of operations for the two years then ended . you should read this discussion in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. prior to december 31 , 2011 , our company was a shell company . on february 20 , 2012 , we completed a transaction in which we purchased all of the issued and outstanding shares of ams-int asia limited in consideration for the issuance to 7,104,000 shares of our common stock , resulting in a change of control of our company . yiyueqiji and xingwei have signed contractual management agreements with ams , as discussed above under the heading ยvariable interest entities agreementsย . under these agreements , management of all sales and operations will be under the management of ams , a hong kong company . future investment and assets purchased and sold will also be under the full control of ams . chinese law forbids a non-hong kong company from acquiring these management agreements with mainland chinese companies . we anticipate that ams will continue to expand its presence and operations in hong kong and in china . the full acquisition of yiyueqiji and xingwei is anticipated to occur in the third calendar quarter of 2012. we also anticipate setting up other joint venture companies in china and in the u.s. the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed below and elsewhere in this annual report , particularly in the section entitled ยrisk factorsย of this annual report . our audited financial statements are stated in united states dollars and are prepared in accordance with united states generally accepted accounting principles . story_separator_special_tag align= '' justify '' style= '' margin-top:13px ; margin-bottom:0px '' > basis of presentation our financial statements and related notes are presented in accordance with accounting principles generally accepted in the united states of america ( ยus gaapย ) . the company maintains its books and accounting records in u.s. dollar ( ยus $ ย ) , and its reporting currency is us $ . accounting method our financial statements are prepared using the accrual method of accounting . we have elected a fiscal year ending on december 31. use of estimates the preparation of financial statements in conformity with us gaap requires management to make estimates and assumptions that affect the
| overall results 26 in fiscal 2011 , our sales were higher than in fiscal 2010. this was primarily due to high demand within the telecom terminal devices market resulting from improved economic conditions . higher investment in telecom industries has improved operating margin and generated improved network expansion , especially the 3g network and related services . during fiscal 2011 , we had to overcome the impact of the tsunami that hit japan and which generated supply shortages and increased lead times for hardware components used to manufacture our products . despite the slowdown of the global economy , the emerging markets , especially china , has generated higher demand for our products and solutions by customers in the consumer and enterprise sectors . as a result of our continued commitment to research and development ( ยr & dย ) , fiscal 2011 brought many new enhancements to our product portfolio . we expanded our android family of products with additional mobile phones and tablets , including products designed for extreme situations ย like waterproof products . plan of operations we anticipate growth in north america as well as in our international business . we anticipate continuing to create new products including long term evolution ( ยlteย ) in 2012 and 2013. due to increased demand for products , many consumer electronics manufacturers are experiencing shortages for certain hardware components . we continue to work closely with our suppliers to secure adequate supply . we are committed to employing disciplined financial policies , achieving our financial plan , and optimizing our capital structure . we anticipate continuing to evaluate opportunities to return capital to shareholders as we further strengthen our balance sheet . meeting all of these challenges requires consistent operational planning and execution and investment in technology , resulting in innovative products that meet the needs of our customers globally .
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if the ceo position becomes vacant , the president will exercise the responsibilities of the ceo until a permanent or interim ceo is selected by the board of directors . 74 board role in risk oversight cfc 's management has primary responsibility for day-to-day management of the risks associated with cfc 's business , including operational , credit , loan , asset and liability management , legal , regulatory and political risks , while the board of directors is primarily responsible for the oversight and direction of risk management . management 's role includes identifying risks , establishing appropriate internal processes and an effective internal control environment to identify and manage risks , and communicating information about risk to the board . cfc 's management , consisting of the executive team and the operations and planning council , which is composed primarily of vice president-level employees , is assisted in its day-to-day duties related to risk by individuals working in the business units , in addition to an asset liability committee , corporate credit committee and disclosure committee , which are authorized by the board of directors and have their members appointed by the ceo . each of these internal , committees consists of certain management-level employees . in story_separator_special_tag . many of our significant accounting principles require complex judgments to estimate values of assets and liabilities . we have procedures and processes to facilitate making these judgments . we identified the allowance for loan losses and the determination of fair value of certain items on our balance sheet as critical accounting policies because they require significant estimations and judgments by management . these policies are summarized below and identify and describe the development of the variables most important in the estimation process . in many cases , there are numerous alternative judgments that could be used in the process of determining the inputs required for estimation . where alternatives exist , we used the factors we believe represent the most reasonable value in developing the inputs . actual performance that differs from our estimates of the key variables could affect net income . separate from the possible future effect to net income from our model inputs , market-sensitive assets and liabilities may change subsequent to the balance sheet date , often significantly , due to the nature and magnitude of future credit and market conditions . such credit and market conditions may change quickly and in unforeseen ways , and the resulting volatility could have a significant , negative effect on future operating results . below is a description of the process used in determining the adequacy of the allowance for loan losses and the determination of fair value for certain items on our balance sheet . allowance for loan losses gaap requires loans receivable to be reported on the consolidated balance sheets at net realizable value . the net realizable value is the total principal amount of loans outstanding less an estimate of the probable losses inherent in the portfolio . we maintain an allowance for loan losses at a level estimated by management to provide for probable losses inherent in the loan portfolio . the allowance for loan losses is reported separately on the consolidated balance sheet , and the provision for loan losses is reported as a separate line item on the consolidated statement of operations . there are significant subjective assumptions and estimates used in calculating the amount of the loss allowance required . we review the estimates and assumptions used in the calculations of the loan loss allowance on a quarterly basis . because of the subjective nature of these estimates , other estimates could be reasonable , and changes in the assumptions used and our estimates could have a material effect on our financial statements . the estimate of the allowance for loan losses is based on a review of the composition of the loan portfolio , past loss experience , specific problem loans , current economic conditions , available market data and or projection of future cash flows and other pertinent factors that in management 's judgment may contribute to incurred losses . the methodology used to calculate the loan loss allowance is summarized below . the loan loss allowance is calculated by dividing the portfolio into two categories of loans : ( 1 ) the general portfolio , which comprises loans that are performing according to the contractual agreements ; and ( 2 ) the impaired portfolio , which comprises loans that ( i ) are not currently performing or ( ii ) for various reasons we do not expect to collect all amounts as and when due and payable under the loan agreement or ( iii ) are performing according to a restructured loan agreement , but as a result of the troubled debt restructuring are required to be classified as impaired . general portfolio the general portfolio of loans consists of all loans not specifically identified in the impaired category . we disaggregate the loans in the general portfolio by company : cfc , rtfc and ncsc . we further disaggregate the cfc loan portfolio by member class : distribution , power supply and statewide and associates . during the fourth quarter of fiscal year 2013 we experienced an increase in the amount of loan advances . specifically , total loans outstanding increased $ 819 million during the fourth quarter of fiscal 2013 which represents 59 percent of the total increase for fiscal 2013 with a larger than usual amount in the form of unsecured loans . the shift to unsecured from secured as well as the recording of our first distribution system loss prompted us to assess the inputs and assumptions used in our allowance for loan losses . we have also seen a shift in the mix of our loan portfolio to primarily electric system loans over recent years . as of may 31 , 2013 , the company made refinements in the assumptions used to estimate its allowance for loan losses . story_separator_special_tag an increase or decrease of 1 percent in our recovery rates would result in a corresponding increase or decrease of $ 3 million to the general allowance for loan losses model . in addition to the loan loss allowance for the general portfolio , we maintain a qualitative reserve for the general portfolio based on risk factors not captured in the general allowance for loan losses . the overriding factor that creates the necessity for this additional component of loan loss reserves not captured in our loan loss model is lag in the timing of receipt of 33 information regarding our borrowers . we actively monitor the operations and financial performance of our borrowers through the review of audited financial statements , review of borrower prepared financial statements ( if required ) and discussions with borrower management . as a result of the lag , there could be credit events or circumstances that exist with our borrowers for which we have not been made aware that could potentially lead to reassessing/downgrading of certain brrs to better reflect the risk of default and ultimate loss . additional qualitative considerations include our expectations with respect to loan workouts , risks associated with large loan exposures and economic and environmental factors . to measure these additional risk factors supporting an additional reserve for the general portfolio , we perform an internal credit risk ratings portfolio stress test quantifying the impact that both upgrades and downgrades in internal credit risk ratings would have on our estimate of losses inherent in the portfolio . impaired loans a loan is considered to be impaired when we do not expect to collect all principal and interest payments as scheduled by the original loan terms , other than an insignificant delay or an insignificant shortfall in amount . factors considered in determining impairment may include , but are not limited to : ยท the review of the borrower 's audited financial statements and interim financial statements if available , ยท the borrower 's payment history , ยท communication with the borrower , ยท economic conditions in the borrower 's service territory , ยท pending legal action involving the borrower , ยท restructure agreements between us and the borrower and ยท estimates of the value of the borrower 's assets that have been pledged as collateral to secure our loans . an impairment loss on a loan receivable is recognized as the difference between the recorded investment in the loan and the present value of the estimated future cash flows associated with the loan discounted at the effective interest rate . if the current balance in the receivable is greater than the net present value , the impairment is equal to that difference and a portion of the loan loss allowance is specifically reserved based on the calculated impairment . if future cash flows can not be estimated , the loan is collateral dependent or foreclosure is probable , the impairment is calculated based on the estimated fair value of the collateral securing the loan . in calculating the impairment on a loan , the estimates of the expected future cash flows or collateral value are the key estimates made by management . changes in the estimated future cash flows or collateral value affect the amount of the calculated impairment . the change in cash flows required to make the change in the calculated impairment material will be different for each borrower and depend on the period covered , the effective interest rate at the time the loan became impaired and the amount of the loan outstanding . estimates are not used to determine our investment in the receivables or the discount rate since , in all cases , the investment is equal to the loan balance outstanding at the reporting date , and the discount rate is equal to the effective interest rate on the loan at the time the loan became impaired . our policy for recognizing interest income on impaired loans is determined on a case-by-case basis . an impaired loan to a borrower that is non-performing will typically be placed on non-accrual status and we will reverse all accrued and unpaid interest . we generally apply all cash received during the non-accrual period to the reduction of principal , thereby foregoing interest income recognition . interest income may be recognized on an accrual basis for restructured impaired loans where the borrower is performing and is expected to continue to perform based on agreed-upon terms . all loans are written off in the period that it becomes evident that collectability is highly unlikely ; however , our efforts to recover all charged-off amounts may continue . the determination to write off all or a portion of a loan balance is made based on various factors on a case-by-case basis including , but not limited to , cash flow analysis and the fair value of collateral securing the borrower 's loans . fair value we determined the accounting for certain items on our balance sheet at fair value to be a critical accounting policy because of the subjective nature and the requirement for management to make significant estimations in determining the amounts to be recorded . different assumptions and estimates could also be reasonable , and changes in the assumptions used and estimates made could have a material effect on our financial statements . the primary instruments recorded on our balance sheet at fair value are derivative financial instruments . derivative instruments must be recorded on the balance sheet as either an asset or liability measured at fair value . since these instruments generally do not qualify for hedge accounting , the accounting standards require that we record all changes in fair value through earnings . we record the change in the fair value of derivative instruments , along with realized gains and losses from cash settlements , in the derivative losses line item of the consolidated statement of operations each reporting period .
| results of operations section for further discussion . on a quarterly basis , we review all non-performing and restructured borrowers , as well as certain additional borrowers selected based on known facts and circumstances , to determine if the loans to the borrowers are impaired and or to determine if there are changes to a previously impaired loan . we calculate a borrower 's impairment based on the expected future cash flows or the fair value of the collateral securing our loans to the borrower if cash flow can not be estimated . as events related to the borrower take place and economic conditions and our assumptions change , the impairment calculations will change . at may 31 , 2013 and 2012 , there was a total specific loan loss allowance balance of $ 3 million and $ 25 million , respectively , related to impaired loans totaling $ 62 million and $ 497 million , respectively . 44 liabilities and equity outstanding debt the following table breaks out our debt outstanding and the weighted average interest rates by type of debt at may 31 : replace_table_token_26_th ( 1 ) includes variable-rate debt that has been swapped to a fixed rate net of any fixed-rate debt that has been swapped to a variable rate . ( 2 ) the rate on commercial paper notes does not change once the note has been issued . however , the rates on new commercial paper notes change daily , and commercial paper notes generally have maturities of less than 90 days . therefore , commercial paper notes are classified as variable-rate debt . also includes fixed-rate debt that has been swapped to a variable rate net of any variable-rate debt that has been swapped to a fixed rate .
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each warrant may be exercised using a cashless exercise procedure in the holder 's sole discretion and includes provisions providing for adjustments to the number of shares exercisable thereunder upon stock dividends , stock splits and similar events . 69 item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures ( 1 ) evaluation of disclosure controls and procedures . our chief executive officer and chief financial officer , after evaluating the effectiveness of our disclosure controls and procedures ( as defined in rule 13a-15 ( e ) and rule 15d-15 ( e ) of the securities story_separator_special_tag you should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes contained elsewhere in this prospectus . this discussion 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 a variety of factors , including those set forth under `` risk factors '' and elsewhere in this prospectus and those discussed in other documents we file with the sec . in light of these risks , uncertainties , and assumptions , readers are cautioned not to place undue reliance on such forward-looking statements . these forward-looking statements represent beliefs and assumptions only as of the date of this prospectus . except as required by applicable law , we do not intend to update or revise forward-looking statements contained in this prospectus to reflect future events or circumstances . overview we are a biotechnology company focused on the discovery and development of lipidomic-based therapeutics . lipidomics is an emerging field of medical science whereby bioactive signaling lipids are targeted to treat important human diseases . we have three product candidates , isonepย , asonepย , and lpathomabย . isonep is a monoclonal antibody against sphingosine-1-phosphate ( `` s1p '' ) formulated for treating retinal diseases . isonep has completed phase i clinical trials and demonstrated promising results in treating patients afflicted with wet age-related macular degeneration . studies conducted in models of human ocular disease indicate that isonep may also be useful in treating other ocular diseases including diabetic retinopathy and glaucoma . asonep ( another formulation of the same s1p-targeted antibody ) completed a phase 1 clinical trial in 2010 , and we believe that it holds promise for the treatment of cancer and other diseases . lpathomabย is an antibody against lysophosphatidic acid ( `` lpa '' ) , a key bioactive lipid that has been long recognized as a valid disease target . lpathomab is in pre-clinical testing in various animal models of disease relating to the central nervous system and to fibrosis . our ability to generate novel antibodies against bioactive lipids is based on our immuney2ย technology , a series of proprietary processes we have developed . we are currently applying the immune y2 process to other lipid-signaling agents that are validated targets for disease treatment , thereby potentially creating a further pipeline of monoclonal antibody-based drug candidates . in december 2010 , we entered into an agreement providing pfizer inc. the rights to develop and commercialize isonep ( the `` pfizer agreement '' ) . under the terms of that agreement , pfizer provided us with an upfront payment of $ 14 million and will share the cost of two human proof-of-concept clinical trials of isonep . the first trial ( called `` pedigree '' ) is designed to test isonep as a treatment for patients with pigment epithelial detachment ( `` ped '' ) , a complication of wet amd . the second , and larger , trial ( `` nexus '' ) is designed to further study isonep as a treatment for wet amd . the pedigree trial commenced in september 2011 , and the nexus trial began in october 2011. in january 2012 , we temporarily suspended dosing patients in our ped and wet-amd trials . we took this action because we learned from the fda that it determined our fill-and-finish contractor , formatech , inc. , was not in compliance with fda 's current good manufacturing practice ( `` cgmp '' ) requirements during the period in august 2010 that the isonep clinical vials were filled . after we suspended dosing , we were notified by the fda that the isonep trials were being placed on clinical hold . the fda has not informed us regarding any specific non-compliance issues at formatech that may have affected our drug product . isonep has been well tolerated by all patients in our phase 1 trial and by all patients treated thus far in our ped and wet-amd trials . we have initiated the process to manufacture the additional drug substance required to complete the ped and wet-amd trials , and have identified an alternate fill/finish contractor . while we plan to 38 resume dosing in both clinical trials in the third quarter of 2012 , subject to any necessary regulatory approvals , there is no assurance that we will be able to resume our clinical trials on our intended timeline , if at all . we currently expect to receive the preliminary results from our phase 1b/2a clinical trial of isonep in patients with ped by the end of 2012 and the preliminary results of our phase 2a clinical trial of isonep in wet-amd patients without ped by the end of 2013. the actual time required to complete our clinical trials will depend on a number of factors outside of our direct control , including those discussed in `` risk factorsยwe may have delays in completing our clinical trials and we may not complete them all . '' following completion of these two studies , pfizer has the right to exercise its option for exclusive worldwide rights to isonep . if pfizer exercises its option , we will receive an option fee as well as potential development , regulatory , and commercial milestone payments . story_separator_special_tag in addition , we can not forecast with any degree of certainty which product candidates will be subject to future partnering , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . as a result , we can not be certain when and to what extent we will receive cash inflows from the commercialization of our product candidates . general and administrative expenses our general and administrative expenses principally comprise salaries and benefits and professional fees related to our business development , intellectual property , finance , human resources , legal , and internal systems support functions . in addition , general and administrative expenses include insurance and an allocated portion of facilities and information technology costs . we anticipate increases in general and administrative expenses as we add personnel , increase our business development activities , become subject to the full sarbanes-oxley compliance obligations applicable to larger publicly-held companies , and continue to develop and prepare for the commercialization of our product candidates . 40 application of critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . research and development our sponsored research and development costs related to future products and redesign of present products are expensed as incurred . patent expenses legal and filing costs directly associated with obtaining patents are capitalized . upon issuance of a patent , amortization is computed using the straight-line method over the estimated remaining useful life of the patent . revenue recognition research and development revenue under collaborative agreements . we have and may in the future enter into collaborations where we receive non-refundable upfront payments . generally , these payments are made to secure licenses or option rights to our drug candidates . non-refundable payments are recognized as revenue when we have a contractual right to receive such payment , the contract price is fixed or determinable , the collection of the resulting receivable is reasonably assured , and we have no further performance obligations under the agreement . multiple-element arrangements , such as license and development arrangements , are analyzed to determine whether the deliverables , which often include a license together with performance obligations such as research and development responsibilities and steering committee services , can be separated or whether they must be accounted for as a single unit of accounting . we recognize up-front license payments as revenue upon delivery of the license only if the license has stand-alone value and the fair value of the undelivered performance obligations , typically including research and or steering committee services , can be determined . if the fair value of the undelivered performance obligations can be determined , such obligations would then be accounted for separately as performed . if the license is considered to either ( i ) not have stand-alone value or ( ii ) have stand-alone value but the fair value of any of the undelivered performance obligations can not be determined , the arrangement would then be accounted for as a single unit of accounting and the license payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations are performed . if we are involved in a steering committee as part of a multiple-element arrangement that is accounted for as a single unit of accounting , we assess whether our involvement constitutes a performance obligation or a right to participate . steering committee services that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement , if any , in determining the level of effort required in an arrangement and the period over which we expect to complete our aggregate performance obligations . when we receive reimbursement for our research costs under collaborative agreements , such reimbursements are recognized as revenue as the underlying costs are incurred . whenever we determine that an arrangement should be accounted for as a single unit of accounting , we must determine the period over which our performance obligations will be performed and revenue will be recognized . revenue will be recognized using either a relative performance or straight-line method . we recognize revenue using the relative performance method provided that we 41 can reasonably estimate the level of effort required to complete our performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis . revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned , as determined using the relative performance method , as of each reporting period . if we can not reasonably estimate the level of effort required to complete our performance obligations under an arrangement , the performance obligations are provided on a best-efforts basis and we can not reasonably estimate when the performance obligation ceases or the remaining obligations become inconsequential and perfunctory , then the total payments under the arrangement , excluding royalties and payments contingent upon achievement of substantive milestones , would be recognized as revenue on a straight-line basis over the period we expect to complete our performance obligations . revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned , as determined using the straight-line basis , as of the period ending date . if we can not reasonably estimate when our performance obligation either ceases or becomes inconsequential and perfunctory , then revenue is deferred until we can reasonably estimate when the performance obligation ceases or becomes inconsequential .
| results of operations comparison of years ended december 31 , 2011 and 2010 grant and royalty revenue . grant and royalty revenue for 2011 decreased to $ 1.6 million from $ 1.8 million in 2010. the decrease of $ 0.2 million is principally due to the revenue from two grants totaling $ 0.5 million received under the irs qualifying therapeutic discovery project program in november 2010. in addition , our level of activity on studies funded by grants from the national institutes of health ( `` nih '' ) increased slightly in 2011 compared to 2010. research and development revenue under collaborative agreements . in 2011 , we recognized $ 7.1 million in cost reimbursements and amortization of license option fees under the pfizer agreement . as described in note 2 to the consolidated financial statements , the merck agreement was terminated in april 2010. we recognized $ 0.7 million and $ 4.6 million in revenue under the merck agreement in 2011 and 2010 , respectively . in 2011 , revenue recognized pursuant to the merck agreement included $ 0.7 million received from merck to discharge certain payment obligations that survived termination of the license agreement . in 2010 , we recognized $ 2.0 million related to the achievement of certain asonep development objectives . research and development expenses . research and development expenses for 2011 totaled $ 9.7 million compared to $ 7.8 million for 2010 , an increase of $ 1.9 million . outside services , consulting , and lab supplies expenses increased by $ 1.5 million in 2011 due to expenses incurred in connection with the isonep phase 1b and phase 2a clinical trials . employee compensation and benefits increased by $ 0.5 million in 2011 compared to 2010 due to increased staffing . general and administrative expenses .
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we will continue to pay out net investment income and or realized capital gains , if any , on an annual basis as required under the investment company act of 1940. cash flows โfor purposes of the statements of cash flows , we consider all highly liquid temporary cash investments purchased with an original maturity of three months or less to be cash equivalents . we include our investing activities within cash flows from operations . we exclude โ restricted story_separator_special_tag overview equus is a bdc that provides financing solutions for privately held middle market and small capitalization companies . we began operations in 1983 and have been a publicly traded closed-end fund since 1991. our investment objective is to seek the highest total return , consisting of capital appreciation and current income . as a bdc , we are required to comply with certain regulatory requirements . for instance , we generally have to invest at least 70 % of the fund 's total assets in โ qualifying assets , โ including securities of private u.s. companies , certain public u.s. companies with a total market capitalization not in excess of $ 250 million , cash , cash equivalents , u.s. government securities and short-term high-quality debt investments . equus is a ric under subchapter m of the code . to qualify as a ric , we must meet certain source of income and asset diversification requirements . if we comply with the provisions of subchapter m , the fund generally does not have to pay corporate-level income taxes on any income that distributed to our stockholders . 20 investment income . we generate investment income from interest payable on the debt securities that the fund holds , dividends received on equity interests in our portfolio companies and capital gains , if any , realized upon sales of equity and , to a lesser extent , debt securities in the investment portfolio . our equity investments may include shares of common and preferred stock , membership interests in limited liability companies and warrants to purchase additional equity interests . these equity securities may or may not pay dividends , and the exercise prices of warrants that we acquire in connection with debt investments , if any , vary by investment . our debt investments in portfolio companies may be in the form of senior or subordinated loans and may be unsecured or have a first or second lien on some or all of the assets of the borrower . our loans typically have a term of three to seven years and bear interest at fixed or floating rates . interest on these debt securities is generally payable either quarterly or semiannually . some promissory notes held by the fund provide that a portfolio company may elect to pay interest in cash or provide that discount interest may accrete in the form of original issue discount or payment-in-kind ( pik ) over the life of the notes by adding unpaid interest amounts to the principal balance . amortization of principal on our debt investments is generally deferred for several years from the date of initial investment . the principal amount of these debt securities and any accrued but unpaid interest generally will become due at maturity . we also earn interest income at market rates on investments in short-term marketable securities . from time to time , we generate income from time to time in the form of commitment , origination , structuring , and extension fees in connection with our investments . we recognize all such fees when earned . expenses . currently , our primary operating expenses include director fees and expenses , professional fees , compensation expense , and general and administrative fees . during 2015 , we did not incur any non-recurring expenses . during 2014 , we incurred non-recurring expenses , including settlement expenses of $ 0.5 million , and legal expenses of $ 0.1 million related to certain legal proceedings involving champion window described in item 3 โ legal proceedings above . during 2013 , we incurred non-recurring expenses , including settlement expenses of $ 0.5 million , and legal expenses of $ 0.2 million related to the various legal proceedings described in item 3 above . non-operating subsidiary . we have established equus total return ( canada ) inc. as a wholly-owned subsidiary to facilitate payments to canadian personnel and contractors who provide services to the fund . we consider equus total return ( canada ) inc. a disregarded entity for accounting purposes , inasmuch as it does not have active operations . operating activities . we use cash to make new investments and follow-on investments in our existing portfolio companies . we record these investments at cost on the applicable trade date . realized gains or losses are computed using the specific identification method . on an ongoing basis , we carry our investments in our financial statements at fair value , as determined by our board of directors . see โ critical accounting policies โ valuation of investments โ below . as of december 31 , 2015 , we had invested 73.0 % of our assets in securities of portfolio companies that constituted qualifying investments under the 1940 act . at that time , we had invested 34.2 % by value in shares of common stock , 15.3 % in membership interests in limited liability companies , and 2.5 % in various debt instruments . commitments . under certain circumstances , we make follow-on investments in some of our portfolio companies . as of december 31 , 2015 , we had no outstanding commitments to our portfolio company investments . financing activities . from time to time , we use leverage to finance a portion of our investments . we then repay such debt from the sale of portfolio securities . story_separator_special_tag during this step , we consider three different valuation approaches : a market approach , an income approach , and an asset approach . the particular facts and circumstances of each portfolio company determine which approach , or combination of approaches , will be utilized . the second step when appraising equity investments of privately held companies involves allocating value to the various debt and equity securities of the company . we allocate value to these securities based on their relative priorities . for equity securities such as warrants , we may also incorporate alternative methodologies including the black-scholes option pricing model . market approach โ the market approach typically employed by management calculates the enterprise value of a company as a multiple of earnings before interest , taxes , depreciation and amortization ( โ ebitda โ ) generated by the company for the trailing twelve month period . adjustments to the company 's ebitda , including those for non-recurring items , may be considered . multiples are estimated based on current market conditions and past experience in the private company marketplace and are subjective in nature . we will apply liquidity and other discounts we deem appropriate to equity valuations where applicable . we may also use , when available , third-party transactions in a portfolio company 's securities as the basis of valuation ( the โ private market method โ ) . the private market method will be used only with respect to completed transactions or firm offers made by sophisticated , independent investors . 22 income approach โ the income approach typically utilized by management calculates the enterprise value of a company utilizing a discounted cash flow model incorporating projected future cash flows of the company . projected future cash flows consider the historical performance of the company as well as current and projected market participant performance . discount rates are estimated based on current market conditions and past experience in the private company marketplace and are subjective in nature . we will apply liquidity and other discounts we deem appropriate to equity valuations where applicable . asset approach โ we consider the asset approach to determine the fair value of significantly deteriorated investments demonstrating circumstances indicative of a liquidation analysis . this situation may arise when a portfolio company : 1 ) can not generate adequate cash flow to meet the principal and interest payments on its indebtedness ; 2 ) is not successful in refinancing its debt upon maturity ; 3 ) we believe the credit quality of a loan has deteriorated due to changes in the business and underlying asset or market conditions may result in the company 's inability to meet future obligations ; or 4 ) the portfolio company 's reorganization or bankruptcy . consideration is also given as to whether a liquidation event would be orderly or forced . our general intent is to hold our loans to maturity when appraising our privately held debt investments . as such , we believe that the fair value will not exceed the cost of the investment . however , in addition to the previously described analysis involving allocation of value to the debt instrument , we may perform a yield analysis to determine if a debt security has been impaired . certificates of deposit purchased by the fund generally will be valued at their face value , plus interest accrued to the date of valuation . the audit committee of the board of directors may engage independent , third-party valuation firms to conduct independent appraisals and review management 's preliminary valuations of each privately-held investment that the fund ( a ) has held for more than one year and ( b ) holds on its books at a fair value of at least $ 2.0 million in order to make their own independent assessment . any third-party valuation data would be considered as one of many factors in a fair value determination . the audit committee then would recommend the fair values for all privately-held securities based on all relevant factors to the board of directors for final approval . because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values , amounting to $ 16.2 million and $ 15.7 million as of december 31 , 2015 and 2014 , respectively , our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities . as of december 31 , 2015 , one of our portfolio investments , 428,662 common shares of mvc was publicly listed on the nyse . on february 20 , 2015 , we sold our opg notes for 846,059 [ $ 953,117 ] in net cash proceeds . as of december 31 , 2014 , one of our portfolio investments , 404,968 common shares of mvc was publicly listed on the nyse and our holding of 1,200,790 [ $ 1.5 million ] in opg notes was publicly listed on the luxembourg stock exchange . we adjust our net asset value for the changes in the value of our publicly held securities , if applicable , and material changes in the value of private securities , generally determined on a quarterly basis or as announced in a press release , and report those amounts to lipper analytical services , inc. our net asset value appears in various publications , including barron 's and the wall street journal . federal income taxes we intend to comply with the requirements of the code necessary for us to qualify as a ric . so long as we comply with these requirements , we generally will not be subject to corporate-level federal income taxes on otherwise taxable income ( including net realized capital gains ) distributed to stockholders . therefore , we did not record a provision for federal income taxes in our financial statements . as of december 31 , 2015 , we had a capital loss carry forward of $ 31.3 million which may be used to offset future capital gains .
| summary of portfolio investment activity year ended december 31 , 2015 during the year ended december 31 , 2015 , we received a 1-year subordinated note from 5 th element tracking in the original principal amount of $ 0.9 million , bearing interest at the rate of 14 % per annum in connection with the sale of our interest in spectrum . we also received 23,694 shares of mvc in the form of dividend payments . the following table includes significant investment activity during the year ended december 31 , 2015 ( in thousands ) : replace_table_token_3_th year ended december 31 , 2014 during the year ended december 31 , 2014 , we capitalized legal and consulting expenses of $ 0.3 million relating to spectrum management . we also received a semi-annual interest payment of $ 0.06 million in cash and $ 0.2 million in the form of pik 'd interest in respect of our 1.2 million [ $ 1.5 million ] in opg notes . on may 14 , 2014 , we sold to mvc 2,112,000 newly-issued shares of the fund 's common stock in exchange for 395,839 shares of mvc ( see โ significant eventsโplan of reorganization โ above ) . during the year ended december 31 , 2014 , we also received 9,129 shares of mvc in the form of dividend payments . 27 the following table includes significant investment activity during the year ended december 31 , 2014 ( in thousands ) : replace_table_token_4_th year ended december 31 , 2013 during the year ended december 31 , 2013 , we had investment activity of $ 0.8 million in two portfolio companies . we capitalized consulting expenses of $ 0.3 million relating to spectrum .
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( dollar amounts in thousands except share and per share data or as otherwise specified ) 19 cantel medical corp. 2019 annual report on form 10-k overview cantel is a leading provider of infection prevention and control products and services in the healthcare market , specializing in the following reportable segments : medical , life sciences , dental and dialysis . most of our equipment , consumables and supplies are used to help prevent the occurrence or spread of infections . we operate our four segments through wholly-owned subsidiaries in the united states and internationally . during the first quarter of fiscal 2019 , we changed the names of our reportable segments to better align with our key customers and the markets we serve . as a result of this change , our industrial biological and chemical indicator business has moved from the dental segment to the life sciences segment . prior year segment disclosures have been recast to conform to the current year presentation . fiscal 2019 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > medical . net sales increased by $ 49,732 , or 10.5 % , for fiscal 2019 compared with fiscal 2018 , which consisted of 11.5 % organic sales growth , a 0.7 % increase due to acquisitions and a decrease of 1.7 % due to foreign currency translation . the increase in organic net sales was primarily driven by increased sales of our reprocessing products ( across all product lines ) and to a lesser extent , our procedure room products and consumables . the sales growth was primarily driven by our domestic business , and also supported by international sales increases , mostly from the asia/pacific region . life sciences . net sales decreased by $ 16,008 , or 7.4 % , for fiscal 2019 compared with fiscal 2018 . the decrease was primarily due to continued softness in demand for capital equipment , primarily in the medical water business , and the divestiture of our high purity water business in canada , partially offset by acquisition-related growth . we expect this softness in demand to continue into the next fiscal year as orders for our hemodialysis water business were down throughout this fiscal year , primarily resulting from a key customer moving toward a dual source approach and a cyclical downturn in this business . for a more detailed discussion on the competitive threat to our hemodialysis water business , see part i , item 1a , โ risk factors. โ foreign currency translation decreased net sales by 0.3 % for fiscal 2019 . dental . net sales increased by $ 12,248 , or 8.2 % , for fiscal 2019 compared with fiscal 2018 . the increase was primarily driven by acquisition-related growth , partially offset by a decrease in sales to our distributor network due to inventory adjustments within our channel at the start of this fiscal year . we expect our dental segment 's net sales to increase in fiscal 2020 and beyond as a result of the previously discussed hu-friedy acquisition and its related operations . dialysis . net sales increased by $ 261 , or 0.8 % , for fiscal 2019 compared with fiscal 2018 . the increase was primarily due to the increase in sales volume for our domestic concentrate business , offset by decreases in reprocessing sales and the loss of concentrate business in certain international regions . gross profit gross profit increased by $ 13,483 , or 3.3 % , to $ 427,454 for fiscal 2019 from $ 413,971 for fiscal 2018 . gross profit as a percentage of net sales for fiscal 2019 and 2018 was 46.6 % and 47.5 % , respectively . the decrease in gross profit as a percentage of net sales for fiscal 2019 was due to increased labor costs resulting from livable wage increases , and the reclassification of certain compensation and benefit-related costs that had previously been recorded in operating expenses into cost of sales . the reclassification negatively impacted gross profit as a percentage of net sales by approximately 0.4 % for fiscal 2019 . excluding the impact of acquisition-related and restructuring-related items , gross profit as a percentage of net sales for fiscal 2019 and 2018 was 46.9 % and 47.8 % , respectively . ( dollar amounts in thousands except share and per share data or as otherwise specified ) 22 cantel medical corp. 2019 annual report on form 10-k operating expenses operating expenses as a percentage of net sales for fiscal 2019 and 2018 were 37.5 % and 33.5 % , respectively . as stated above , there was a reclassification of certain salary and benefit related costs that had previously been recorded in operating expenses into cost of sales , which positively impacted operating expenses as a percentage of net sales by approximately 0.4 % for fiscal 2019 . selling expenses increased by $ 10,590 , or 8.2 % , to $ 140,232 for fiscal 2019 from $ 129,642 for fiscal 2018 . the increase was due to primarily due to selling and marketing expenses of our recent acquisitions , and to a lesser extent higher compensation-related costs . selling expenses as a percentage of net sales were 15.3 % and 14.9 % for fiscal 2019 and 2018 , respectively . general and administrative expenses increased by $ 34,364 , or 24.9 % , to $ 172,383 for fiscal 2019 from $ 138,019 for fiscal 2018 . the increase was primarily due to erp implementation costs , including depreciation expense associated with the related erp assets , higher restructuring-related costs resulting from organizational leadership changes , acquisition-related items ( such as transaction and integration-related costs ) , depreciation expense associated with our medical segment 's new headquarters , and higher amortization expense as a result of our recent acquisitions . story_separator_special_tag these non-gaap financial measures are indicators of our performance that are not required by , or presented in accordance with , gaap . they are presented with the intent of providing greater transparency to financial information used by us in our financial analysis and operational decision-making . we believe that these non-gaap measures provide meaningful information to assist investors , stockholders and other readers of our consolidated financial statements in making comparisons to our historical operating results and analyzing the underlying performance of our results of operations . these non-gaap financial measures are not intended to be , and should not be , considered separately from , or as an alternative to , the most directly comparable gaap financial measures . to measure earnings performance on a consistent and comparable basis , we exclude certain items that affect comparability of operating results and the trend of earnings . these adjustments are irregular in timing , may not be indicative of our past and future performance and are therefore excluded to allow investors to better understand underlying operating trends . the following are examples of the types of adjustments that are excluded : ( i ) amortization of purchased intangible assets , ( ii ) acquisition-related items , ( iii ) business optimization and restructuring-related charges , ( iv ) certain significant and discrete tax matters and ( v ) other significant items management deems irregular or non-operating in nature . amortization expense of purchased intangible assets is a non-cash expense related to intangibles that were primarily the result of business acquisitions . our history of acquiring businesses has resulted in significant increases in amortization of intangible assets that reduce our net income . the removal of amortization from our overall operating performance helps in assessing our cash generated from operations including our return on invested capital , which we believe is an important analysis for measuring our ability to generate cash and invest in our continued growth . acquisition-related items consist of ( i ) fair value adjustments to contingent consideration and other contingent liabilities resulting from acquisitions , ( ii ) due diligence , integration , legal fees and other transaction costs associated with our acquisition program and ( iii ) acquisition accounting charges for the amortization of the initial fair value adjustments of acquired inventory and deferred revenue . the adjustments of contingent consideration and other contingent liabilities are periodic adjustments to record such amounts at fair value at each balance sheet date . given the subjective nature of the assumptions used in the determination of fair value calculations , fair value adjustments may potentially cause significant earnings volatility that are not representative of our operating results . similarly , due diligence , integration , legal and other acquisition costs associated with our acquisition program , including accounting charges relating to recording acquired inventory and deferred revenue at fair market value , can be ( dollar amounts in thousands except share and per share data or as otherwise specified ) 24 cantel medical corp. 2019 annual report on form 10-k significant and also adversely impact our effective tax rate as certain costs are often not tax-deductible . since these acquisition-related items are irregular and often mask underlying operating performance , we exclude these amounts for purposes of calculating these non-gaap financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance . restructuring-related and business optimization items consist of severance-related costs associated with work force reductions and other restructuring-related activities . such costs include ( i ) salary continuation , ( ii ) bonus payments , ( iii ) outplacement services , ( iv ) medical-related premium costs and ( v ) accelerated stock-based compensation expense . excess tax benefits resulting from stock compensation are recorded as an adjustment to income tax expense . the magnitude of the impact of excess tax benefits generated in the future , which may be favorable or unfavorable , are dependent upon our future grants of equity awards , our future share price on the date awards vest in relation to the fair value of awards on grant date and the exercise behavior of our stock award holders . since these tax benefits are largely unrelated to our results and unrepresentative of our normal effective tax rate , we excluded their impact on net income and diluted eps to arrive at our non-gaap financial measures . fiscal 2019 during fiscal 2019 , we recorded specific discrete tax items associated with our international operations that were unrelated to fiscal 2019. as these items were unrepresentative of our normal effective tax rate , we excluded their impact on net income and diluted eps for fiscal 2019 to arrive at our non-gaap financial measures . during fiscal 2019 , we completed the disposition of our high purity water business in canada . this resulted in a pre-tax gain of $ 1,305 through other income . since this gain was not representative of past or future operations , we made an adjustment to our net income and diluted eps for fiscal 2019 to exclude this gain to arrive at our non-gaap financial measures . during fiscal 2019 , we recorded an adjustment to a minor litigation matter in our consolidated financial statements . since these costs are irregular and mask our underlying operating performance , we made an adjustment to our net income and diluted eps for fiscal 2019 to exclude such costs to arrive at our non-gaap financial measures .
| summary key gaap financial results for fiscal 2019 compared with fiscal 2018 were as follows : net sales increased by 5.3 % to $ 918,155 from $ 871,922 , with organic sales growth of 3.9 % , net income decreased by 39.5 % to $ 55,042 from $ 91,041 , and earnings per diluted share decreased by 39.6 % to $ 1.32 from $ 2.18 . key non-gaap financial results for fiscal 2019 compared with fiscal 2018 were as follows : non-gaap net income decreased by 5.1 % to $ 98,999 from $ 104,346 , non-gaap earnings per diluted share decreased by 5.4 % to $ 2.37 from $ 2.51 , and adjusted ebitdas decreased by 1.9 % to $ 174,848 from $ 178,270 . please see a description of our non-gaap financial measures below . acquisitions post-fiscal 2019 on july 30 , 2019 , we signed a definitive agreement to acquire hu-friedy , a leading global manufacturer of instruments and instrument reprocessing workflow systems serving the dental industry . the acquisition is subject to regulatory approvals and other customary closing conditions , and is expected to close during our first quarter fiscal 2020. after closing , we plan to combine hu-friedy with our dental segment . under the terms of the acquisition , cantel will pay $ 725,000 upfront for hu-friedy , a portion of which will be paid in our stock ( with the specific amount at our election ) with the remainder to be paid in cash . an additional amount in potential cash and stock earnout payments may be payable to hu-friedy shareholders upon achievement of certain commercial milestones in the eighteen months following closing of the transaction . as a result of the transaction structure , the acquisition will generate an anticipated tax benefit , which we estimate at more than $ 100,000 , which we expect to use to reduce cash taxes over approximately 15 years .
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interest is recognized on such loans at the accrual rate subject to management 's determination that accrued interest is ultimately collectible , based on the underlying collateral and operations of the borrower . if management can not make this determination , interest income above the current pay rate is recognized only upon actual receipt . deferred origination fees , original issue discounts and loan origination costs , if any , are recognized as an adjustment to the interest income over the terms of the related investments using the effective interest method . fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield . discounts or premiums associated with the purchase of loans are amortized or accreted into interest income as a yield adjustment on the effective interest method based on expected cash flows through the expected maturity date of the related investment . if we purchase a debt or preferred story_separator_special_tag overview sl green realty corp. , which is referred to as sl green or the company , a maryland corporation , and sl green operating partnership , l.p. , which is referred to as slgop or the operating partnership , a delaware limited partnership , were formed in june 1997 for the purpose of combining the commercial real estate business of s.l . green properties , inc. and its affiliated partnerships and entities . the company is a self-managed real estate investment trust , or reit , with in-house capabilities in commercial and residential property management , acquisitions and dispositions , financing , development and redevelopment , construction and leasing . unless the context requires otherwise , all references to `` we , '' `` our '' and `` us '' means the company and all entities owned or controlled by the company , including the operating partnership . reckson associates realty corp. , or reckson , and reckson operating partnership , l.p. or rop , are wholly-owned subsidiaries of the sl green realty corp. the following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in item 8 of this annual report on form 10-k. the new york city commercial real estate market remained strong in 2016 , and we took advantage of this market in improving asking rents and strategically selling or forming joint venture properties at attractive market valuations . leasing and operating in 2016 , our same-store manhattan office property occupancy based on leases signed was 97.1 % compared to 97.2 % in the prior year . we signed office leases in manhattan encompassing approximately 3.2 million square feet , of which approximately 2.6 million square feet represented office leases that replaced previously occupied space . our mark-to-market on these approximately 2.6 million square feet of signed manhattan office leases that replaced previously occupied space was 27.6 % for 2016 . according to cushman & wakefield , new leasing activity in manhattan in 2016 totaled approximately 26.3 million square feet . of the total 2016 leasing activity in manhattan , the midtown submarket accounted for approximately 17.9 million square feet , or approximately 68.1 % . midtown 's overall office vacancy increased from 8.5 % at december 31 , 2015 to 9.3 % at december 31 , 2016 . overall average asking rents in manhattan increased in 2016 by 1.7 % from $ 71.58 per square foot at december 31 , 2015 to $ 72.82 per square foot at december 31 , 2016 . midtown manhattan average asking rents increased in 2016 by 2.3 % from $ 76.65 per square foot at december 31 , 2015 to $ 78.39 per square foot at december 31 , 2016 . the midtown south average asking rent rose 1.7 % year-over-year to $ 70.86 per square foot while downtown average asking rents decreased 0.5 % year-over-year to $ 59.30 per square foot . acquisition and disposition activity overall manhattan sales volume decreased by 31.5 % in 2016 to $ 39.6 billion as compared to $ 57.8 billion in 2015 . consistent with our multi-faceted approach to property acquisitions , we selectively sourced the off-market purchase of a retail and residential mixed-use property that provides value enhancement opportunities for $ 28.5 million . we also continued to take advantage of significant interest by both international and domestic institutions and individuals seeking ownership interests in manhattan properties to sell assets , disposing of a significant volume of properties that were non-core or had more limited growth opportunities , raising efficiently priced capital that was used primarily for debt reduction . during the year , we sold all or part of our interest in 11 madison avenue , 388-390 greenwich street , 885 third avenue , 248-252 bedford avenue , 400 east 57th street , 500 west putnam and 7 international drive for total gross valuations of $ 5.3 billion . debt and preferred equity in 2015 and 2016 , in our debt and preferred equity portfolio we continued to focus on the origination of financings , typically in the form of mezzanine debt , for owners , acquirers or developers of new york city properties . this investment strategy provides us with the opportunity to fill a need for additional debt financing by providing higher leverage than are often available through traditional lending sources , while achieving attractive risk adjusted returns to us on the investments and receiving a significant amount of additional information on the new york city real estate market . the typical investments made by us during 2015 and 2016 were to reputable owners or acquirers which have sizable equity subordinate to our last dollar exposure . during 2016 , our debt and preferred equity activities included purchases and originations , inclusive of advances under future funding obligations , discount and fee amortization , and paid-in-kind interest , net of premium amortization , of $ 1,015 million , and sales , redemption and participations of $ 1,045 million . story_separator_special_tag these acquisitions were previously accounted for as investments in unconsolidated joint ventures . we allocate the purchase price of real estate to land and building ( inclusive of tenant improvements ) and , if determined to be material , intangibles , such as the value of above- and below-market leases and origination costs associated with the in-place leases . we depreciate the amount allocated to building ( inclusive of tenant improvements ) over their estimated useful lives , which generally range from three to 40 years . we amortize the amount allocated to the above- and below-market leases over the remaining term of the associated lease , which generally range from one to 14 years , and record it as either an increase ( in the case of below-market leases ) or a decrease ( in the case of above-market leases ) to rental income . we amortize the amount allocated to the values associated with in-place leases over the expected term of the associated lease , which generally ranges from one to 14 years . if a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease , any unamortized balance of the related intangible will be written off . the tenant improvements and origination costs are amortized as an expense over the remaining life of the lease ( or charged against earnings if the lease is terminated prior to its contractual expiration date ) . we assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known trends , and market/economic conditions that may affect the property . to the extent acquired leases contain fixed rate renewal options that are below-market and determined to be material , we amortize such below-market lease value into rental income over the renewal period . investments in unconsolidated joint ventures we account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over , but do not control , these entities and are not considered to be the primary beneficiary . we consolidate those joint ventures that we control or which are vies and where we are considered to be the primary beneficiary . in all these joint ventures , the rights of the joint venture partner are both protective as well as participating . unless we are determined to be the primary beneficiary in a vie , these participating rights preclude us from consolidating these vie entities . these investments are recorded initially at cost , as investments in unconsolidated joint ventures , and subsequently adjusted for equity in net income ( loss ) and cash contributions and distributions . equity in net income ( loss ) from unconsolidated joint ventures is allocated based on our ownership or economic interest in each joint venture . when a capital event ( as defined in each joint venture agreement ) such as a refinancing occurs , if return thresholds are met , future equity income will be allocated at our increased economic interest . we recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature . distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support . none of the joint venture debt is recourse to us . the company has performance guarantees under master leases at two joint ventures . see note 6 , `` investments in unconsolidated joint ventures . '' we assess our investments in unconsolidated joint ventures for recoverability , and if it is determined that a loss in value of the investment is other than temporary , we write down the investment to its fair value . we evaluate our equity investments for impairment based on the joint ventures ' projected discounted cash flows . we do not believe that the values of any of our equity investments were impaired at december 31 , 2016 . we may originate loans for real estate acquisition , development and construction , where we expect to receive some of the residual profit from such projects . when the risk and rewards of these arrangements are essentially the same as an investor or joint venture partner , we account for these arrangements as real estate investments under the equity method of accounting for investments . otherwise , we account for these arrangements consistent with our loan accounting for our debt and preferred equity investments . revenue recognition rental revenue is recognized on a straight-line basis over the term of the lease . the excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets . we establish , on a current basis , an allowance for future potential tenant credit losses , which may occur against this account . the balance reflected on the consolidated balance sheets is net of such allowance . we record a gain on sale of real estate when title is conveyed to the buyer , subject to the buyer 's financial commitment being sufficient to provide economic substance to the sale and provided that we have no substantial economic involvement with the buyer . interest income on debt and preferred equity investments is accrued based on the contractual terms of the instruments and when , in the opinion of management , it is deemed collectible . some debt and preferred equity investments provide for accrual of interest at specified rates , which differ from current payment terms .
| results of operations comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 the following comparison for the year ended december 31 , 2016 , or 2016 , to the year ended december 31 , 2015 , or 2015 , makes reference to the following : ( i ) the effect of the โ same-store properties , โ which represents all operating properties owned by us at january 1 , 2015 and still owned by us in the same manner at december 31 , 2016 ( same-store properties totaled 55 of our 68 consolidated operating properties , representing 75.7 % of our share of annualized cash rent ) , ( ii ) the effect of the โ acquisition properties , โ which represents all properties or interests in properties acquired in 2016 and 2015 and all non-same-store properties , including properties that are under development , redevelopment or deconsolidated during the period , and ( iii ) โ other , โ which represents corporate level items not allocable to specific properties , as well as the service corporation and eemerge inc. any assets sold or held for sale are excluded from the income from continuing operations and from the following discussion . replace_table_token_24_th rental , escalation and reimbursement revenues rental revenues increased primarily as a result of the properties acquired ( $ 98.2 million ) , which included the acquisition of 11 madison in the third quarter of 2015 together with the subsequent sale of a 40 % interest in 11 madison in the third quarter of 2016 ( $ 59.2 million ) , the consolidation of 600 lexington avenue in the fourth quarter of 2015 ( $ 19.3 million ) , and an increase in rents at our same-store properties ( $ 19.1 million ) .
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accordingly , the current view is additional investment in lng supply will be needed to meet the expected long-term lng demand growth . currently , western canada does not have any operational lng export facilities . lng canada ( lngc ) , a joint venture among shell canada energy , an affiliate of royal dutch shell plc ( 40 percent ) , and affiliates of petronas , through its wholly-owned entity , north montney lng limited partnership ( 25 percent ) , petrochina ( 15 percent ) , mitsubishi corporation ( 15 percent ) and korea gas corporation ( 5 percent ) , is currently constructing a liquefaction and export facility in kitimat , british columbia ( kitimat lng facility ) . british columbia lng activity and related pipeline projects are a material driver of activity for our sitka lodge , as well as for our mobile assets , which are contracted to serve several portions of the related pipeline construction activity . the actual timing of when revenue is realized from the costal gas link pipeline and sitka lodge contracts could be impacted by any delays in the construction of the kitimat lng facility or the pipeline , including recent blockades that aim to delay pipeline construction . in late march 2020 , lngc announced steps being taken to reduce the spread of covid-19 , including reduction of the workforce at the project site to essential personnel only . this resulted in a reduction in occupancy at our sitka lodge during the second quarter of 2020. occupancy at the sitka lodge returned to expected levels during july 2020 and remained at expected levels thorough the end of 2020. australia . in australia , 82 % of our rooms are located in the bowen basin of queensland , australia and primarily serve met coal mines in that region . met coal pricing and production growth in the bowen basin region is predominantly influenced by the levels of global steel production , which decreased by 0.9 % during 2020 compared to 2019. as of february 22 , 2021 , met coal spot prices were $ 138.50 per metric tonne . long-term demand for steel is expected to be driven by global infrastructure spending and increased steel consumption per capita in developing economies , such as china and india , whose current consumption per capita is a fraction of developed countries . in 2020 , the impact of the outbreak of covid-19 led to a high level of uncertainty for demand of iron ore and met coal . the impact on the demand for steel with the closure or curtailment of manufacturing in economies affected by covid-19 , which will only return to normal levels of consumption once jurisdictions lift quarantine requirements and manufacturing facilities are reopened , is also uncertain . however , a new round of stimulus spending in china and recovering steel production in other regions continues to support demand for raw materials , particularly iron ore. currently , china and australia are in a trade dispute that has led to china implementing an unofficial trade embargo on australian coal . china has historically accounted for approximately 22 % of australia 's met coal exports . the continuing uncertainty in the chinese demand for australian met coal led to a decrease in the met coal spot price to us $ 103 per tonne at december 31 , 2020 , though , as noted above , prices recovered somewhat to $ 138.50 per metric tonne at february 22 , 2021. the softening of the met coal spot price has been exacerbated as chinese mills and traders resell stranded australian met coal at a discount . as a result , there is currently a shuffling of global export trade flows , coupled with growing demand for steel with an 46 infrastructure led recovery which may lead to near term volatility in australian met coal spot pricing . if this dispute continues , it could continue to negatively impact pricing and demand for australian met coal . to date , we have not seen an overall material decline in occupancy at our australian villages resulting from the covid-19 pandemic or the chinese trade dispute . activity in western australia is driven primarily by iron ore production , which is a key steel-making ingredient . as of february 22 , 2021 , iron ore spot prices were $ 168.48 per metric tonne . on july 1 , 2019 , we acquired action , a provider of integrated services to the mining industry in western australia . accordingly , we also have contracts in place to service customer-owned villages in western australia which service primarily iron ore mines in addition to gold , lithium and nickel mines . we believe prices are currently at a level that may contribute to increased activity over the long term if our customers view these price levels as sustainable . met coal and iron ore prices to date have remained at levels that should support the current levels of occupancy in our australia villages and the customer locations that we manage under our integrated services business . accordingly , we plan to continue focusing on enhancing the quality of our operations , maintaining financial discipline , proactively managing our business as market conditions continue to evolve . u.s. our u.s. business supports oil shale drilling and completion activity and is primarily tied to wti oil prices in the u.s. shale formations in the permian basin , the mid-continent , the bakken and the rockies . story_separator_special_tag during 2019 , the u.s. oil rig count and associated completion activity decreased due to the oil price decline in late 2018 and early 2019 coupled with other market dynamics negatively impacting exploration and production ( e & p ) spending , finishing the year at 677 rigs . in 2020 , the u.s. oil rig count and associated completion activity further decreased due to the global oil price decline discussed above . only 267 oil rigs were active at the end of 2020. the permian basin remains the most active u.s. unconventional play , representing 66 % of the oil rigs active in the u.s. at the end of 2020. the lower u.s. rig count and decline in oil prices resulted in decreased u.s. oil production from an average of 12.2 million barrels per day in 2019 to an average of 11.3 million barrels per day in 2020. as of february 19 , 2021 , there were 305 active oil rigs in the u.s. ( as measured by bakerhughes.com ) . with the recent volatility in oil prices and a resulting reduction in spending by e & p companies , we have exited the bakken and reduced our presence in the rockies regions for our u.s. mobile assets . those assets have either been sold or transported to our permian basin and mid-continent district locations . this process is underway and we expect it to be completed during the first half of 2021. u.s. oil shale drilling and completion activity will continue to be dependent on sustained higher wti oil prices , pipeline capacity and sufficient capital to support e & p drilling and completion plans . in addition , consolidation among our e & p customer base in the u.s. has historically created short-term spending and activity dislocations . should the current trend of industry consolidation continue , we may see activity , utilization and occupancy declines in the near term . 47 recent commodity prices . recent wti crude , wcs crude and met coal pricing trends are as follows : replace_table_token_6_th ( 1 ) source : wti crude prices are from u.s. energy information administration ( eia ) , and wcs crude prices are from bloomberg and hard coking coal prices are from ihs markit . foreign currency exchange rates . exchange rates between the u.s. dollar and each of the canadian dollar and the australian dollar influence our u.s. dollar reported financial results . our business has historically derived the vast majority of its revenues and operating income ( loss ) in canada and australia . these revenues and profits/losses are translated into u.s. dollars for u.s. gaap financial reporting purposes . the following tables summarize the fluctuations in the exchange rates between the u.s. dollar and each of the canadian dollar and the australian dollar : replace_table_token_7_th replace_table_token_8_th these fluctuations of the canadian and australian dollars have had and will continue to have an impact on the translation of earnings generated from our canadian and australian subsidiaries and , therefore , our financial results . capital expenditures . we continue to monitor the covid-19 global pandemic and the responses thereto , the global economy , the price of demand for crude oil , met coal , lng and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities . we currently expect that our 2021 capital expenditures , exclusive of any business acquisitions , will total approximately $ 20.0 million to $ 25.0 million , compared to 2020 capital expenditures of $ 10.1 million . see โ liquidity and capital resources โ below for further discussion of 2021 and 2020 capital expenditures . 48 results of operations unless otherwise indicated , discussion of results for the year ended december 31 , 2020 is based on a comparison with the corresponding period of 2019. story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > pre-tax impairment expense of $ 12.4 million associated with long-lived assets in our u.s. segment . impairment expense . impairment expense of $ 26.1 million in 2019 included the following items : pre-tax impairment expense of $ 19.9 million related to the impairment of goodwill in our canadian reporting unit . pre-tax impairment expense of $ 0.7 million associated with long-lived assets in our canadian segment . pre-tax impairment expense of $ 5.5 million associated with long-lived assets in our australian segment . this includes $ 1.0 million of impairment expense related to an error corrected in the second quarter 2019. we identified a liability related to an aro at one of our villages in australia that should have been recorded in 2011. we determined that the error was not material to our previously issued financial statements included in our annual report on form 10-k for the year ended december 31 , 2018 , and therefore , corrected the error in the second quarter of 2019. specifically , we recorded the following amounts in our second quarter 2019 unaudited consolidated statements of operations related to prior periods : ( 1 ) additional accretion expense related to the aro of $ 0.9 million , ( 2 ) additional depreciation and amortization expense of $ 0.5 million related to amortization of the asset retirement cost and ( 3 ) additional impairment expense related to the impairment of the asset retirement cost of $ 1.0 million offset by recognition of an aro liability totaling $ 2.3 million as of june 30 , 2019. see note 4 - impairment charges to the notes to the consolidated financial statements included in item 8 of this annual report for further discussion . operating loss . operating loss increased $ 98.1 million , or 200 % , in 2020 compared to 2019 primarily due to impairments of goodwill and long-lived assets , partially offset by increased operating profit in australia , as
| results of operations โ year ended december 31 , 2020 compared to year ended december 31 , 2019 replace_table_token_9_th we reported net loss attributable to civeo for 2020 of $ 136.1 million , or $ 9.64 per diluted share . as further discussed below , net loss included ( i ) a $ 93.6 million pre-tax loss ( $ 93.6 million after-tax , or $ 6.63 per diluted share ) resulting from the impairment of goodwill in our canada segment included in impairment expense , ( ii ) a $ 38.1 million pre-tax loss ( $ 38.1 million after-tax , or $ 2.69 per diluted share ) resulting from the impairment of long-lived assets in our canada segment included in impairment expense and ( iii ) a $ 12.4 million pre-tax loss ( $ 12.4 million after-tax , or $ 0.88 per diluted share ) resulting from the impairment of long-lived assets in our u.s. segment included in impairment expense . net loss was partially offset by $ 4.7 million pre-tax income ( $ 4.7 million after-tax , or $ 0.33 per diluted share ) associated with the settlement of a representations and warranties claim related to the noralta acquisition included in our canada segment in other income . we reported net loss attributable to civeo for 2019 of $ 60.3 million , or $ 4.33 per diluted share .
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in our opinion , the consolidated financial statements referred to above present fairly , in all material respects , the financial position of cvd equipment corporation and subsidiaries as of december 31 , 2017 and 2016 , and the results of their operations and their cash flows for each of the years in the two-year period ended december 31 , 2017 , in conformity with accounting principles generally accepted in the united states of america . basis for opinion these consolidated financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on the company 's consolidated financial statements based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( pcaob ) and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement , whether due to error or fraud . our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the consolidated financial statements . our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the consolidated financial statements . we believe that our audits provide a reasonable basis for our opinions . mspc certified public accountants and advisors , a professional corporation we have served as the company 's auditor since 2004. new york , new york april 2 , 2018 the accompanying notes are an integral part of the consolidated financial statements f-1 cvd equipment corporation and subsidiar ies consolidated balance sheets as of december 31 , replace_table_token_7_th the accompanying notes are an integral part of the consolidated financial statements f-2 cvd equipment corporation and subsidiar ies consolidated statements of operations years ended december 31 , replace_table_token_8_th the accompanying notes are an integral part of the consolidated financial statements f-3 cvd equipment corporation and subsidiar ies consolidated statements of changes in stockholders ' equity replace_table_token_9_th the accompanying notes are an integral part of the consolidated financial statements f-4 cvd equipment corporation and subsidiar ies consolidated statements of cash flows years ended december 31 , replace_table_token_10_th the accompanying notes are an integral part of the consolidated financial statements f-5 cvd equipment corporation and subsidiar ies notes to consolidated financial statements december 31 , 20 17 and 2016 note 1 โ business description cvd equipment corporation and its subsidiaries ( the โ company โ ) , a new york corporation , was organized and commenced operations in october 1982. its principal business activities include the manufacturing of chemical vapor deposition equipment , customized gas control systems , the manufacturing of process equipment suitable for the synthesis of a variety of one -dimensional nanostructures and nanomaterials and a line of furnaces , all of which are used primarily to produce semiconductors and other electronic components . the company engages in business throughout the united states and internationally . note 2 - summary of significant accounting policies principles of consolidation the consolidated financial statements include the accounts of cvd equipment corporation and its wholly owned subsidiar ies . in december 1998 , a subsidiary , stainless design concepts , ltd. , was formed as a new york corporation . in april 1999 , this subsidiary was merged into cvd equipment corporation . the company has five wholly owned subsidiaries : cvd materials corporation , which provides material coatings , process development support and process startup assistance through tantaline aps and cvd mesoscribe technologies corporation , fae holdings 411519r , llc , a real estate holding company whose sole asset is its interest in the real estate and building housing our corporate headquarters and 555 n research corporation whose sole asset is its interest in the real estate and building located at 555 north research place , central islip , ny . all significant intercompany accounts and transactions have been eliminated in consolidation . use of estimates the preparation of financial story_separator_special_tag of financial condition and results of operations . except for historical information contained herein , this โ management 's discussion and analysis of financial condition and results of operations โ contains forward-looking statements within the meaning of the u.s. private securities litigation reform act of 1995 , as amended . these statements involve known and unknown risks , uncertainties and other factors which may cause the actual results , performance , or achievements of the company to be materially different from any future results , performance , or achievements expressed or implied by such forward-looking statements . these forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements . important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements , include but are not limited to : competition in the company 's existing and potential future product lines of business ; the company 's ability to obtain financing on acceptable terms if and when needed ; uncertainty as to the company 's future profitability , uncertainty as to the future profitability of acquired businessesor product lines , uncertainty as to any future expansion of the company . story_separator_special_tag net cash decreased by $ 7.5 million as a result of cash used in investing activities primarily related to the acquisition of the land and building located at 555 north research place and the acquisition of mesoscribe technologies inc. this was partially offset by cash provided by financing activities , specifically the mortgage obtained from hsbc on the property at 555 north research place and operating activities of $ 1.9 million which was primarily attributed to an increase in billings in excess of costs and estimated earnings on contracts in progress . accounts receivable , net of allowance for doubtful accounts , increased by $ 1.5 million or 238.9 % at december 31 , 2017 to $ 2.1 million compared to $ 0.6 million at december 31 , 2016. this increase is principally due to the timing of shipments and customer payments . inventories as of december 31 , 2017 were approximately $ 3.0 million representing a decrease of approximately $ 300,000 or 9.8 % compared to the balance of approximately $ 3.3 million as of december 31 , 2016. we maintain a revolving credit facility with hsbc bank , usa , n.a . ( โ hsbc โ ) providing up to $ 7 million , although we have never utilized this facility . this credit facility remains available until september 1 , 2018. the credit facility also contains certain financial covenants , all of which we were in compliance with at december 31 , 2017. on august 1 , 2016 we made the final payment on a $ 2.1 million term loan that was initially entered into in august 2011. the company has a loan agreement with hsbc which is secured by a mortgage against our central islip facility at 355 south technology drive . the loan is payable in 120 consecutive equal monthly installments of $ 25,000 in principal plus interest and a final balloon payment upon maturity in march 2022. the balances as of december 31 , 2017 and december 31 , 2016 were approximately $ 3.0 million and $ 3.3 million respectively . interest accrues on the loan , at our option , at the variable rate of libor plus 1.75 % which was 3.3118 % and 2.5618 % at december 31 , 2017 and 2016 respectively . on december 16 , 2016 , we purchased certain assets formerly owned by tantaline a/s of nordborg , denmark through our wholly owned subsidiary , cvd materials corporation . formed in 2007 , as a spin off from the danfoss group , tantaline a/s established itself as a leader in the commercialization of tantalum treated parts for corrosion resistance . we have now established in nordborg a new and wholly owned cvd subsidiary operating under the name tantaline cvd aps ( โ tantaline โ ) . 30 on october 31 , 2017 , through our newly formed and wholly-owned subsidiary , cvd mesoscribe technologies corporation ( โ mesoscribe technologies โ ) , we acquired substantially all of the operating assets and business of mesoscribe technologies , inc. ( โ mti โ ) . formed in 2002 , by a group out of stony brook university , mti established itself as a pioneer and leader in the direct deposition of thermal sensors , heaters , and instrumentation for harsh environments . on november 30 , 2017 , we closed on the purchase of the premises located at 555 north research place , central islip , ny 11722. the purchase price of the land and the building was $ 13,850,000 exclusive of closing costs . as part of the acquisition , the company 's newly formed wholly-owned subsidiary , 555 n research corporation ( the โ assignee โ ) and the islip ida , entered into a fee and leasehold mortgage and security agreement ( the โ loan โ ) with hsbc usa , n.a . ( the โ bank โ ) in the amount of $ 10,387500 , which was used to finance a portion of the purchase price to acquire the premises located at 555 north research place , central islip , new york 11722 ( the โ premises โ ) . the loan was evidenced by the certain note , dated november 30 , 2017 ( the โ note โ ) , by and between assignee and the bank , and secured by a certain fee and leasehold mortgage and security agreement , dated november 30 , 2017 ( the โ mortgage โ ) , as well as a collateral assignment of leases and rents ( โ assignment of leases โ ) . the loan is payable in 60 consecutive equal monthly installments of $ 62,777.60 including interest . the loan shall bear interest for each interest period ( as defined in the note ) , at the fixed rate of 3.9148 % . the maturity date for the note is december 1 , 2022. as a condition of the bank making the loan , the company was required to guaranty assignee 's obligations under the loan pursuant to that certain unlimited guaranty , dated november 30 , 2017 ( the โ guaranty โ ) . we believe that our cash and cash equivalent positions and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months . we may also raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses , technologies or products . in addition , we may elect to raise additional funds even before we need them if the conditions for raising capital are favorable . any equity or equity-linked financing could be dilutive to existing shareholders .
| results of operations twelve months ended december 31 , 201 7 vs twelve months ended december 31 , 201 6 replace_table_token_2_th 27 revenue our revenue for the year ended december 31 , 2017 was $ 41.1 million compared to $ 21 million for the year ended december 31 , 2016 , resulting in an increase of 96.3 % . this increase was primarily attributable to the work performed on the increased orders received over the past 18 months , in particular those orders received from our largest customer . our largest customer , in the aerospace industry , from which we have secured multiple orders , represented $ 27.2 million or approximately 66.2 % of our revenue for the twelve months ended december 31 , 2017 compared to $ 9.5 million or approximately 45.3 % of our revenue for the year ended december 31 , 2016. we continue to receive additional orders and opportunities with new and current customers . the revenue contributed for the year ended december 31 , 2017 , by the cvd/first nano division , of $ 35.7 million , which totaled 86.6 % of our overall revenue , was 91.9 % or $ 17.1 million more than the division 's $ 18.6 million contribution made in the prior year , which totaled 88.6 % of our overall revenue . annual revenue for the sd c division increased to $ 5.6 million in 2017 compared to $ 2.4 million in 2016 , an increase of 132.9 % . the increase is primarily attributable to a general increase in activity for the year as well as having received a significant order from one customer that comprised approximately $ 1.4 million or 25 % of the total . the sdc division represented 13.5 % and 11.4 % of our total revenue during the years ended december 31 , 2017 and december 31 , 2016 respectively .
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financial assets and ( liabilities ) measured at fair value as of december 31 , 2011 are set forth in the table below : replace_table_token_30_th fair values of the financial assets and liabilities listed above are determined using inputs that use as their basis readily observable market data that are actively quoted and are validated through external sources , including third-party story_separator_special_tag the information contained in this section should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this form 10-k under the captions ยrisk factors , ย ยselected financial data , ย and ยbusiness.ย overview we are a leading developer , marketer and distributor of branded performance apparel , footwear and accessories . the brand 's moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products . our products are sold worldwide and worn by athletes at all levels , from youth to professional , on playing fields around the globe , as well as by consumers with active lifestyles . 26 our net revenues grew to $ 1,472.7 million in 2011 from $ 606.6 million in 2007. we believe that our growth in net revenues has been driven by a growing interest in performance products and the strength of the under armour brand in the marketplace . we plan to continue to increase our net revenues over the long term by increased sales of our apparel , footwear and accessories , expansion of our wholesale distribution sales channel , growth in our direct to consumer sales channel and expansion in international markets . our direct to consumer sales channel includes our factory house and specialty stores and websites . new offerings for 2011 include hats and bags , as well as charged cotton ยฎ products . our products are currently offered in approximately twenty five thousand retail stores worldwide . a large majority of our products are sold in north america ; however , we believe our products appeal to athletes and consumers with active lifestyles around the globe . outside of north america , our products are offered primarily in austria , france , germany , ireland and the united kingdom , as well as in japan through a licensee , and through distributors located in other foreign countries . we hold a minority investment in our licensee in japan . our operating segments are geographic and include north america ; latin america ; europe , the middle east and africa ( ยemeaย ) ; and asia . due to the insignificance of the emea , latin america and asia operating segments , they have been combined into other foreign countries for disclosure purposes . we believe there is an increasing recognition of the health benefits of an active lifestyle . we believe this trend provides us with an expanding consumer base for our products . we also believe there is a continuing shift in consumer demand from traditional non-performance products to our performance products , which are intended to provide better performance by wicking perspiration away from the skin , helping to regulate body temperature and enhancing comfort . we believe that these shifts in consumer preferences and lifestyles are not unique to the united states , but are occurring in a number of markets globally , thereby increasing our opportunities to introduce our performance products to new consumers . although we believe these trends will facilitate our growth , we also face potential challenges that could limit our ability to take advantage of these opportunities , including , among others , the risk of general economic or market conditions that could affect consumer spending and the financial health of our retail customers . in addition , we may not be able to effectively manage our growth and a more complex business . we may not consistently be able to anticipate consumer preferences and develop new and innovative products that meet changing preferences in a timely manner . furthermore , our industry is very competitive , and competition pressures could cause us to reduce the prices of our products or otherwise affect our profitability . we also rely on third-party suppliers and manufacturers outside the u.s. to provide fabrics and to produce our products , and disruptions to our supply chain could harm our business . for a more complete discussion of the risks facing our business , refer to the ยrisk factorsย section included in item 1a . general net revenues comprise both net sales and license revenues . net sales comprise sales from our primary product categories , which are apparel , footwear and accessories . our license revenues consist of fees paid to us by our licensees in exchange for the use of our trademarks on core products of socks , team uniforms , baby and kids ' apparel , eyewear , custom-molded mouth guards , as well as the distribution of our products in japan . prior to 2011 , hats and bags were sold by a licensee . net revenues increased by approximately $ 65 million from 2010 to 2011 as a result of developing our own hats and bags , which includes an increase in accessories revenues and a decrease in our license revenues in 2011. in addition , related cost of goods sold increased . cost of goods sold consists primarily of product costs , inbound freight and duty costs , outbound freight costs , handling costs to make products floor-ready to customer specifications , royalty payments to endorsers based on a predetermined percentage of sales of selected products and write downs for inventory obsolescence . the fabrics in many of our products are made primarily of petroleum-based synthetic materials . therefore our product costs , as well as our inbound and outbound freight costs , could be affected by long term pricing trends of 27 oil . story_separator_special_tag other expense , net increased $ 0.9 million to $ 2.1 million in 2011 from $ 1.2 million in 2010. this increase was due to higher net losses in 2011 on the combined foreign currency exchange rate changes on transactions denominated in foreign currencies and our derivative financial instruments as compared to 2010. provision for income taxes increased $ 19.5 million to $ 59.9 million in 2011 from $ 40.4 million in 2010. our effective tax rate was 38.2 % in 2011 compared to 37.1 % in 2010 , primarily due to federal and state tax credits that reduced the effective tax rate in the prior year period , partially offset by the 2011 reversal of a valuation allowance established in 2010 against a portion of our deferred tax assets related to foreign net operating loss carryforwards . 31 year ended december 31 , 2010 compared to year ended december 31 , 2009 net revenues increased $ 207.5 million , or 24.2 % , to $ 1,063.9 million in 2010 from $ 856.4 million in 2009. net revenues by product category are summarized below : replace_table_token_10_th net sales increased $ 201.5 million , or 24.5 % , to $ 1,024.6 million in 2010 from $ 823.1 million in 2009 as noted in the table above . the increase in net sales primarily reflects : $ 88.9 million , or 56.8 % , increase in direct to consumer sales , which includes 19 additional stores in 2010 ; and unit growth driven by increased distribution and new offerings in multiple product categories , most significantly in our training , base layer , mountain , golf and underwear categories ; partially offset by $ 9.0 million decrease in footwear sales driven primarily by a decline in running and training footwear sales . license revenues increased $ 6.1 million , or 18.1 % , to $ 39.4 million in 2010 from $ 33.3 million in 2009. this increase in license revenues was primarily a result of increased sales by our licensees due to increased distribution and continued unit volume growth . we have developed our own headwear and bags , and beginning in 2011 , these products are being sold by us rather than by one of our licensees . gross profit increased $ 120.4 million to $ 530.5 million in 2010 from $ 410.1 million in 2009. gross profit as a percentage of net revenues , or gross margin , increased 200 basis points to 49.9 % in 2010 compared to 47.9 % in 2009. the increase in gross margin percentage was primarily driven by the following : approximate 100 basis point increase driven by increased direct to consumer higher margin sales ; approximate 50 basis point increase driven by decreased sales markdowns and returns , primarily due to improved sell-through rates at retail ; and approximate 50 basis point increase driven primarily by liquidation sales and related inventory reserve reversals . the current year period benefited from reversals of inventory reserves established in the prior year relative to certain cleated footwear , sport specific apparel and gloves . these products have historically been more difficult to liquidate at favorable prices . selling , general and administrative expenses increased $ 93.3 million to $ 418.2 million in 2010 from $ 324.9 million in 2009. as a percentage of net revenues , selling , general and administrative expenses increased to 39.3 % in 2010 from 37.9 % in 2009. these changes were primarily attributable to the following : marketing costs increased $ 19.3 million to $ 128.2 million in 2010 from $ 108.9 million in 2009 primarily due to an increase in sponsorship of events and collegiate and professional teams and athletes , increased television and digital campaign costs , including media campaigns for specific customers and additional personnel costs . in addition , we incurred increased expenses for our performance incentive plan as compared to the prior year . as a percentage of net revenues , marketing costs decreased to 12.0 % in 2010 from 12.7 % in 2009 primarily due to decreased marketing costs for specific customers . 32 selling costs increased $ 25.0 million to $ 94.6 million in 2010 from $ 69.6 million in 2009. this increase was primarily due to higher personnel and other costs incurred for the continued expansion of our direct to consumer distribution channel and higher selling personnel costs , including increased expenses for our performance incentive plan as compared to the prior year . as a percentage of net revenues , selling costs increased to 8.9 % in 2010 from 8.1 % in 2009 primarily due to higher personnel and other costs incurred for the continued expansion of our factory house stores . product innovation and supply chain costs increased $ 25.0 million to $ 96.8 million in 2010 from $ 71.8 million in 2009 primarily due to higher personnel costs for the design and sourcing of our expanding apparel , footwear and accessories lines and higher distribution facilities operating and personnel costs as compared to the prior year to support our growth in net revenues . in addition , we incurred higher expenses for our performance incentive plan as compared to the prior year . as a percentage of net revenues , product innovation and supply chain costs increased to 9.1 % in 2010 from 8.4 % in 2009 primarily due to the items noted above . corporate services costs increased $ 24.0 million to $ 98.6 million in 2010 from $ 74.6 million in 2009. this increase was attributable primarily to higher corporate facility costs , information technology initiatives and corporate personnel costs , including increased expenses for our performance incentive plan as compared to the prior year . as a percentage of net revenues , corporate services costs increased to 9.3 % in 2010 from 8.7 % in 2009 primarily due to the items noted above .
| results of operations the following table sets forth key components of our results of operations for the periods indicated , both in dollars and as a percentage of net revenues : replace_table_token_7_th replace_table_token_8_th consolidated results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 net revenues increased $ 408.8 million , or 38.4 % , to $ 1,472.7 million in 2011 from $ 1,063.9 million in 2010. net revenues by product category are summarized below : replace_table_token_9_th 29 net sales increased $ 411.5 million , or 40.2 % , to $ 1,436.1 million in 2011 from $ 1,024.6 million in 2010 as noted in the table above . the increase in net sales primarily reflects : $ 152.7 million , or 62.2 % , increase in direct to consumer sales , which include 26 additional factory house stores , or a 48 % increase , since december 31 , 2010 , along with the launch of our updated e-commerce website ; unit growth driven by increased distribution and new offerings in multiple product categories , most significantly in our training ( including fleece and our new charged cotton ยฎ product ) , graphics ( primarily including tech-tees ) , baselayer , running , hunting and golf apparel categories , along with running and basketball shoes ; and $ 88.5 million , or 201.7 % , increase in wholesale accessories sales primarily due to bringing hats and bags sales in-house effective january 2011. license revenues decreased $ 2.8 million , or 7.1 % , to $ 36.6 million for the year ended december 31 , 2011 from $ 39.4 million during the same period in 2010. this decrease in license revenues was a result of a $ 9.7 million reduction in license revenues related to hats and bags , partially offset by increased sales by our licensees due to increased distribution and continued unit volume growth .
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natural gas and weather derivative instruments the fair value of the natural gas derivative instruments that we use to manage exposures arising from changing natural gas prices and warmer-than-normal weather risk reflects the estimated amounts that we would receive or pay to terminate or close the contracts at the reporting date , taking into account the current unrealized gains or losses on open contracts . we use external market quotes and indices to value substantially all of our derivative instruments . see note 6 for additional derivative disclosures . distribution operations nicor gas , subject to review by the illinois commission , and story_separator_special_tag executive summary we are an energy services holding company whose principal business is the safe , reliable and cost-effective distribution of natural gas in seven states โ illinois , georgia , virginia , new jersey , florida , tennessee and maryland โ through our seven natural gas distribution utilities . we are also involved in several other businesses that are complementary to our primary business . we have four reportable segments โ distribution operations , retail operations , wholesale services and midstream operations โ and one non-reportable segment โ other . these segments are consistent with how management views and operates our business . amounts shown in this item 7 , unless otherwise indicated , exclude discontinued operations . see note 15 to our consolidated financial statements under item 8 herein for additional information regarding discontinued operations . the following table shows the proportion of certain financial metrics attributable to our segments . replace_table_token_9_th business objectives our priorities for 2016 are consistent with the direction we have taken the company over the last several years . we will remain focused on safe and efficient operations across all of our businesses , improving customer satisfaction and awareness of the benefits of our product and investment in infrastructure for the future . several of our specific business objectives are detailed as follows : distribution operations : invest necessary capital to enhance and maintain safety and reliability in delivering natural gas ; remain an efficiency leader within the industry while maintaining a focus on customer satisfaction ; expand the natural gas distribution system and educate energy consumers on the benefits of converting to natural gas . we intend to continue investing in our regulatory infrastructure programs to minimize the lag in recovery of our capital . we continue to effectively manage costs and leverage our shared services model across our businesses to combat inflationary effects . retail operations : maintain our current customer base in georgia and illinois while continuing to expand into other profitable retail markets and expand our warranty businesses through partnership opportunities with affiliates and third parties . we will focus on products that are responsive to our customers ' needs . wholesale services : we continue to position our business to secure sufficient supplies of natural gas to meet the needs of our utility and third-party customers and to hedge natural gas prices to manage costs effectively , reduce price volatility and maintain a competitive advantage relative to other marketers . midstream operations : invest in natural gas based projects , some of which remain subject to regulatory approvals , along with our existing pipelines and storage to support our efforts to provide diverse sources of natural gas supplies to our customers , resolve current and long-term supply planning for new capacity , enhance system reliability and generate economic development in the areas served . for additional information on our pipeline projects , see note 3 and note 11 to our consolidated financial statements under item 8 herein and item 1 , โ business โ under the caption โ midstream operations. โ additionally , we intend to maintain our strong balance sheet and liquidity profile , solid investment grade ratings and our commitment to sustainable annual dividend growth . for additional information on our reportable segments , see note 14 to our consolidated financial statements under item 8 herein and item 1 , โ business. โ performance and non-gaap measures we evaluate segment performance using the measures of ebit and operating margin . ebit includes operating income and other income and expenses and excludes interest expense and income taxes , which we evaluate on a consolidated basis . operating margin is a non-gaap measure that is calculated as operating revenues minus cost of goods sold and revenue tax expense in distribution operations . operating margin excludes operation and maintenance expenses , depreciation and amortization , taxes other than income taxes , merger-related expenses , goodwill impairment charges and the gain or loss on the sale of our assets , which are included in our calculation of operating income as calculated in accordance with gaap and reflected on our consolidated statements of income . we believe that the presentation of operating margin provides useful information to management and investors regarding the contribution resulting from customer growth in our distribution operations segment since the cost of goods sold and revenue tax expenses can vary significantly and are generally billed directly to our customers . we further believe that operating margin at our retail operations , wholesale services and midstream operations segments allows us to focus on a direct measure of operating margin before overhead costs . glossary 26 we present the non-gaap measure of diluted earnings per share - as adjusted , which exclude merger-related expenses and a non-cash goodwill impairment charge at midstream operations . as we do not regularly engage in transactions of the magnitude of the proposed merger with southern company , and consequently do not regularly incur merger expenses of correlative size , we believe presenting diluted earnings per share excluding merger expenses provides investors with an additional measure of our core operating performance . we also have chosen to exclude a non-cash goodwill impairment related to our midstream operations segment because management believes that investors may find it useful to assess our core operating performance without this non-cash item . story_separator_special_tag the rates at which we may re-contract expiring capacity may not be as high as expected and may also remain below historical averages in 2016. the prices for natural gas storage capacity are expected to increase as supply and demand quantities reach equilibrium with continued economic improvement , expected exports of lng , and projected demand increases in response to low prices and expanded uses for natural gas . the following table contains the overall monthly average firm subscription rates per facility and amount of firm capacity subscription for all periods presented . these amounts exclude 5 bcf contracted by sequent as of december 31 , 2015 , at an average monthly rate of $ 0.080 and 7 bcf as of december 31 , 2014 , at an average monthly rate of $ 0.050 . replace_table_token_15_th seasonality of our results during the heating season , natural gas usage and operating revenues are generally higher as more customers are connected to our distribution systems and natural gas usage is higher in periods of colder weather . occasionally in the summer , wholesale services ' operating revenues are impacted due to peak usage by power generators in response to summer energy demands . seasonality also affects the comparison of certain consolidated balance sheets items across quarters , including receivables , unbilled revenue , inventories and short-term debt . however , these items are comparable when reviewing our annual results . our base operating expenses , excluding cost of goods sold , interest expense , bad debt expense and certain incentive compensation costs , are incurred relatively equally over any given year . thus , our operating results can vary significantly from quarter to quarter as a result of seasonality , which is illustrated in the table below . replace_table_token_16_th glossary 30 segment information three years of operating margin , operating expenses and ebit information for each of our segments is contained in the following table . see note 14 to our consolidated financial statements under item 8 herein for additional segment information . replace_table_token_17_th ( 1 ) operating margin is a non-gaap measure . a reconciliation of operating margin to operating revenues and operating income , and a reconciliation of ebit to income before income taxes and net income is contained in โ results of operations โ herein . ( 2 ) operating margin and operating expenses are adjusted for revenue tax expenses , which are passed through directly to our customers . ( 3 ) operating expenses for 2015 include a $ 14 million goodwill impairment charge recorded during the third quarter at midstream operations and $ 44 million of merger-related expenses recorded within our other segment . ( 4 ) ebit for 2013 includes an $ 11 million pre-tax gain on the sale of compass energy in wholesale services and an $ 8 million pre-tax loss associated with the termination of the sawgrass storage project within midstream operations . distribution operations our distribution operations segment is the largest component of our business and is subject to regulation and oversight by agencies in each of the states we serve . these agencies approve natural gas rates designed to provide us the opportunity to generate revenues to recover the cost of natural gas delivered to our customers and our fixed and variable costs , such as depreciation , interest , maintenance and overhead costs , and to earn a reasonable return for our shareholders . with the exception of atlanta gas light , our second largest utility , the earnings of our regulated utilities can be affected by customer consumption patterns that are a function of weather conditions , price levels for natural gas and general economic conditions that may impact our customers ' ability to pay for natural gas consumed . we have various weather mechanisms , such as weather normalization mechanisms and weather derivative instruments , that limit our exposure to weather changes within typical ranges in their respective service areas . replace_table_token_18_th retail operations our retail operations segment consists of several businesses that provide energy related products and services to retail markets . retail operations is weather sensitive and uses a variety of hedging strategies , such as weather derivative instruments and other risk management tools , to partially mitigate potential weather impacts . in 2015 , we recovered $ 15 million of prior period hedge losses and locom adjustments as the underlying transactions were recognized at higher margins . the net effect is that the transactions ultimately resulted in the expected economic outcome at the time the derivatives were executed to manage the associated price risk . glossary 31 replace_table_token_19_th wholesale services our wholesale services segment is involved in asset management and optimization , storage , transportation , producer and peaking services , natural gas supply , natural gas services and wholesale marketing . we have positioned the business to generate positive economic earnings even under low volatility market conditions that can result from a number of factors , including weather fluctuations and changes in supply or demand for natural gas in different regions of the country . however , when market price volatility increases as we experienced in both 2015 and 2014 , we are well positioned to capture significant value and generate stronger results . we principally use physical and financial arrangements to reduce the risks associated with fluctuations in market conditions and changing commodity prices . these economic hedges may not qualify , or are not designated for , hedge accounting treatment . as a result , our reported earnings for wholesale services reflect changes in the fair values of certain derivatives . these values may change significantly from period to period and are reflected as gains or losses within our operating revenues . replace_table_token_20_th the following table illustrates the components of wholesale services ' operating margin for the periods presented .
| 2014 results in 2014 , our income from continuing operations attributable to agl resources increased by $ 272 million , or 94 % , compared to 2013 . this increase was primarily the result of the following : significantly higher commercial activity primarily in the first quarter of 2014 , and mark-to-market hedge gains , net of locom adjustments at wholesale services in 2014 from price volatility generated by colder-than-normal weather , which increased operating margin by $ 462 million compared to 2013 . increased operating margin at distribution operations and retail operations of $ 50 million mainly due to significantly colder-than-normal weather in 2014 as well as customer usage and customer growth . we also achieved growth as a result of our 2013 acquisitions and expansion into additional markets at retail operations . these increases were partially offset by a decrease in margin of $ 10 million at midstream operations primarily due to a retained fuel true-up at one of our storage facilities from a reduction in the estimated cavern capacity as a result of naturally occurring shrinkage , as well as lower contracted firm rates at jefferson island and central valley . favorability year-over-year was negatively impacted by higher incentive compensation expenses primarily related to higher earnings in 2014 and increased outside services expenses of $ 49 million , and an $ 8 million higher pre-tax gain in 2013 related to the sale of compass energy . our income tax expense from continuing operations increased by $ 173 million for 2014 compared to 2013 , primarily due to higher consolidated earnings . the increase was primarily a result of increased earnings at wholesale services . the variances for each reportable segment are contained within the year-over-year discussions on the following pages .
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we own , operate and invest in a diversified group of infrastructure businesses that provide basic services , such as chilled water for building cooling and utility gas services to businesses and individuals primarily in the u.s. the businesses we own and operate are a 50 % interest in international matex tank terminals , or imtt , hawaii gas , our controlling interest in district energy and mic solar , and atlantic aviation . our infrastructure businesses generally operate in sectors with significant barriers to entry , including high initial development and construction costs , the existence of long-term contracts or the requirement to obtain government approvals and a lack of immediate cost-efficient alternatives to the services provided . overall they tend to generate sustainable long-term cash flows . overview in analyzing the financial condition and results of operations of our businesses , we focus primarily on cash generation , and our ability to distribute cash to shareholders in particular . the ability of our businesses to generate cash , broadly , is tied to their ability to effectively manage the volume of products/services sold and the margin earned on those sales . offsetting these are required payments on debt facilities , taxes and capital expenditures necessary to maintain the productivity of the fixed assets of the businesses , among others . at imtt , we focus on the amount of storage under contract and the rates at which that storage is leased to third parties and on making appropriate expenditures in maintaining fixed assets of the business . both storage rates and aggregate capacity grew in 2012. consistent with expectations for 2012 , mic believes that the average rates on all storage contracts in 2013 will increase between 5 % and 7 % . capacity is expected to increase during 2013 with the commissioning of storage currently or soon to be under construction , while utilization may decline temporarily as tanks are removed from service for cleaning and inspection . during the third quarter of 2012 , our gas processing and distribution business rebranded itself as hawaii gas . at hawaii gas , our focus is on the number of customers served by each of the utility and non-utility portions of the business , and in the case of the non-utility portion , the margins achieved on sales of gas as well . hawaii gas has an active marketing program that seeks to develop new customers throughout hawaii . we periodically pursue rate cases that allow for adjustment of the rates in the utility portion of the business , although we do not intend to pursue any significant rate case in 2013. the pricing of non-utility gas is adjusted to reflect changes in the cost of the product and the costs associated with delivering it to customers . in addition to the existing utility and non-utility operations , hawaii gas is advancing initiatives related to the distribution of liquefied natural gas , or lng . this initiative to bring lng on a small scale is expected to begin in 2013. variation in the volume of gas sold by hawaii gas is a function of tourism and economic activity in hawaii generally . the volume of gas sold in 2013 is expected to increase compared with 2012 net of decreases in demand related to conservation and substitution . at district energy , we focus on attracting and maintaining relationships with building owners and managers such that they choose to install or continue to use the business ' cooling services . absent a resurgence in new construction in downtown chicago , we expect district energy to produce financial results consistent with prior years , although full year results remain subject to slight variation based on the extent to which the temperatures and humidity in chicago are above or below historic norms . the investment in mic solar affords us the opportunity to generate what we believe to be an attractive return . we believe mic solar will generate a predictable and stable level of distributable cash with minimal operational risk and costs due to the simplicity of the physical facility and the existence of a robust operations and maintenance agreement with a highly reputable and experienced service provider . mic solar constitutes a business segment that does not meet the threshold of a reportable segment . accordingly , the results of operations of mic solar are aggregated with our corporate and other results . 50 imtt , hawaii gas , district energy and mic solar are largely resistant to economic downturns , primarily due to the contracted or utility-like nature of their revenues combined with the essential services they provide and the contractual or regulatory ability to pass through most cost increases to customers . we believe these businesses are generally able to generate consistent cash flows throughout the business cycle . at atlantic aviation , our focus is on attracting and maintaining relationships with general aviation aircraft owners and pilots such that they are incentivized to use our fbos . general aviation activity has improved since the first quarter of 2009 , although , forecasting flight activity levels remains difficult . we believe that flight activity levels will continue to increase in 2013 , subject to continued economic recovery in the united states . improvement in general aviation activity levels has resulted in improvement in the operating performance of atlantic aviation . atlantic aviation is generating a substantial amount of cash ; however a significant amount of the cash is being used to reduce atlantic aviation 's indebtedness . those repayments are expected to enhance the terms on which we may be able to refinance this debt . story_separator_special_tag imtt 's largest terminals are located in the lower mississippi river near new orleans and in new york harbor . imtt stores and handles petroleum products , various chemicals , renewable fuels , and vegetable and animal oils . based on storage capacity , imtt operates one of the largest independent bulk liquid storage terminal businesses in the united states . the key drivers of imtt 's revenue and gross profit include the amount of tank capacity rented to customers and the rental rates . customers generally rent tanks under contracts with terms of three to five years . payments are due regardless of actual tank usage . demand for storage capacity within a particular region ( e.g . new york harbor ) serves as the key driver of storage capacity utilization and tank rental rates . this demand reflects both the level of consumption of the bulk liquid products stored by the terminals as well as import and export activity of such products . we believe major constraints on increases in the supply of new bulk liquid storage capacity in imtt 's key markets have been and will continue to be limited by availability of waterfront land with access to the infrastructure necessary for land based receipt and distribution of stored product ( road , rail and pipelines ) , lengthy environmental permitting processes and high capital costs . we believe a favorable supply/demand imbalance for bulk liquid storage currently exists in many of the markets served by imtt 's facilities . this condition , when combined with the attributes of imtt 's facilities such as deep water drafts and access to land based infrastructure , have allowed imtt to increase rental rates while maintaining high storage capacity utilization rates . imtt earns revenue at its terminals from a number of sources including storage charges for bulk liquids ( per barrel , per month rental ) , throughput of liquids ( handling charges ) , heating ( a pass through of the cost associated with heating liquids to maintain viscosity ) and other revenue ( blending , packaging , warehousing , etc. ) . most customer contracts include provisions for annual price increases based on inflation . 52 imtt ย ( continued ) in operating its terminals , imtt incurs labor costs , fuel costs , repair and maintenance costs , real and personal property taxes and other costs ( which include insurance and other operating costs such as utilities and inventory used in packaging and drumming activities ) . imtt owns the majority of the land on which it operates and therefore does not incur significant land lease or rental payments . in 2012 , imtt generated approximately 43 % of its total terminal revenue and approximately 48 % of its terminal gross profit at its st. rose , gretna , avondale and geismar facilities , which together service the lower mississippi river region ( with st. rose being the largest contributor ) , and approximately 43 % of its total terminal revenue and approximately 42 % of its terminal gross profit at its bayonne facility , which serves the new york harbor market . imtt also owns omi environmental solutions , or oil mop , an environmental emergency response , industrial services , waste transportation and disposal business . oil mop has a network of facilities along the u.s. gulf coast between houston and new orleans . these facilities predominantly service the gulf region , but also respond to spill events and provide services as needed throughout the united states and internationally . in 2010 , oil mop was involved in the clean up of the bp oil spill in the gulf of mexico and generated 33 % of imtt 's total revenues . oil mop 's contribution to imtt 's total revenues returned to a historical level of less than 10 % of imtt 's total revenues during 2011 and 2012. our interest in imtt holdings , from the date of closing our acquisition on may 1 , 2006 , is reflected in our equity in earnings and amortization charges of investee line in our consolidated statements of operations . cash distributions received by us in excess of our 50 % interest in imtt 's earnings less amortization charges are reflected in our consolidated statements of cash flows from investing activities under return on investment in unconsolidated business . hawaii gas hawaii gas is hawaii 's only government franchised full-service gas company , processing and distributing gas products and services in hawaii . the market includes hawaii 's approximately 1.4 million residents and approximately 8.0 million visitors in 2012. hawaii gas processes and distributes synthetic natural gas , or sng , for its utility customers on oahu , and distributes liquefied petroleum gas , or lpg , to utility and non-utility customers throughout the state 's six primary islands . hawaii gas has two primary businesses : utility ( or regulated ) and non-utility ( or unregulated ) : the utility business serves approximately 35,200 customers through localized distribution systems located on the islands of oahu , hawaii , maui , kauai , molokai and lanai . over 90 % of these customers are on oahu . the utility business includes the processing , distribution and sale of sng on the island of oahu and distribution and sale of lpg on all of the islands mentioned above . utility revenue consists principally of sales of sng and lpg . the operating costs for the utility business include the cost of locally purchased feedstock , the cost of processing sng from the feedstock , lpg purchase costs and the cost of distributing sng and lpg to customers . utility sales represented approximately 38 % of hawaii gas 's total contribution margin in 2012. the non-utility business sells and distributes lpg to approximately 33,400 customers . trucks deliver lpg to individual tanks located on customer sites on oahu , hawaii , maui , kauai , molokai and lanai . non-utility revenue is generated primarily from the sale of lpg delivered to customers .
| key factors affecting operating results : terminal gross profit increased principally due to an increase in average tank rental rates , other services & fees and fuel cost savings ; partially offset by higher repairs and maintenance costs ; and a decrease in environmental response service gross profit , principally due to a lower level of spill response activity . revenue and gross profit the increase in terminal revenue primarily reflects growth in storage revenue . storage revenue grew due to an increase in average rental rates of 7.0 % for 2012 as compared with 2011. consistent with our expectations for 2012 , mic believes that full year average storage rates in 2013 will increase between 5 % and 7 % . capacity utilization was 94.1 % for 2012 compared with 94.3 % for 2011 due to the timing of tanks taken out of service for cleaning and inspection during 2012 as compared with 2011. capacity utilization for 2013 could be lower than 2012 depending on the timing of tank cleanings yet to be completed . the following table illustrates historical storage utilization rates and year-on-year average storage rate changes : replace_table_token_16_th terminal operating costs were higher for 2012 as compared with 2011 primarily due to higher repairs and maintenance as a result of hurricane isaac and hurricane sandy as well as increased tank repair , cleaning and conversion costs . the tank conversion costs were associated with the conversion of some tanks from residual oil to distillate service . this conversion will allow for increased revenue in 2013. these cost increases were partially offset by lower fuel costs , reflecting a lower cost of natural gas , and labor costs , primarily as a result of lower health insurance claims .
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forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements . these risks and uncertainties include , but are not limited to , the following : changes to or new interpretations of u.s. or international tax regulations ; the global financial and economic situation ; changes in levels of unemployment and other economic conditions in the united states or foreign countries where the company does business , or in particular regions or industries ; reduction in the supply of candidates for temporary employment or the company 's ability to attract candidates ; the entry of new competitors into the marketplace or expansion by existing competitors ; the ability of the company to maintain existing client relationships and attract new clients in the context of changing economic or competitive conditions ; the impact of competitive pressures , including any change in the demand for the company 's services , on the company 's ability to maintain its margins ; the possibility of the company incurring liability for its activities , including the activities of its temporary employees , or for events impacting its temporary employees on clients ' premises ; the possibility that adverse publicity could impact the company 's ability to attract and retain clients and candidates ; the success of the company in attracting , training , and retaining qualified management personnel and other staff employees ; the company 's ability to comply with governmental regulations affecting personnel services businesses in particular or employer/employee relationships in general ; whether there will be ongoing demand for sarbanes-oxley or other regulatory compliance services ; the company 's reliance on short-term contracts for a significant percentage of its business ; litigation relating to prior or current transactions or activities , including litigation that may be disclosed from time to time in the company 's securities and exchange commission ( โ sec โ ) filings ; the ability of the company to manage its international operations and comply with foreign laws and regulations ; the impact of fluctuations in foreign currency exchange rates ; the possibility that the additional costs the company will incur as a result of health care reform legislation may adversely affect the company 's profit margins or the demand for the company 's services ; the possibility that the company 's computer and communications hardware and software systems could be damaged or their service interrupted ; and the possibility that the company may fail to maintain adequate financial and management controls and as a result suffer errors in its financial reporting . additionally , with respect to protiviti , other risks and uncertainties include the fact that future success will depend on its ability to retain employees and attract clients ; there can be no assurance that there will be ongoing demand for sarbanes-oxley or other regulatory compliance services ; failure to produce projected revenues could adversely affect financial results ; and there is the possibility of involvement in litigation relating to prior or current transactions or activities . because long-term contracts are not a significant part of the company 's business , future results can not be reliably predicted by considering past trends or extrapolating past results . further information regarding these and other risks and uncertainties is contained in item 1a . โ risk factors. โ executive overview demand for the company 's temporary and consultant staffing , permanent placement staffing and risk consulting and internal audit services is largely dependent upon general economic and labor trends both domestically and abroad . correspondingly , financial results for the year ended december 31 , 2017 , were positively impacted by improving global economic conditions as the year progressed . annual net service revenues reached $ 5.27 billion in 2017 , a slight increase from the prior year . full-year 2017 net income decreased 15 % to $ 291 million and diluted net income per share decreased 13 % to $ 2.33 . included in 2017 net income was a one-time , non-cash charge to the company 's provision for income taxes of $ 34 million , or $ .27 per share , resulting from the recently enacted tcja . for 2017 , revenue growth for temporary and consultant staffing was essentially flat compared to last year while permanent placement staffing and risk consulting and internal audit services increased 5 % and 2 % , respectively . we believe that the company is well positioned in the current macroeconomic environment . the united states economic backdrop during 2017 was stable for the company as real gross domestic product ( โ gdp โ ) grew 2.3 % , while the unemployment rate declined from 4.7 % in december 2016 to 4.1 % in december 2017 . in the united states , the number of job openings has exceeded the number of hires since february 2015 , creating competition for skilled talent that increases the company 's value to clients . the u.s. labor market continues to tighten , resulting in talent shortages in some occupations and higher demand for our services . the secular demand for temporary staffing is also ongoing . the number of temporary workers as a percentage of the overall u.s. workforce remains near an all-time high , a sign employers are building flexible staffing options into their human resource plans with increasing frequency . 13 protiviti continues to see solid growth in its risk and compliance and internal audit and financial advisory practice areas . protiviti also is expanding its solutions in areas such as data and analytics , and cybersecurity . we monitor various economic indicators and business trends in all of the countries in which we operate to anticipate demand for the company 's services . we evaluate these trends to determine the appropriate level of investment , including personnel , which will best position the company for success in the current and future global macroeconomic environment . the company 's investments in headcount are typically structured to proactively support and align with expected revenue growth trends . story_separator_special_tag the valuation allowances recorded relate primarily to net operating losses in certain foreign operations . if such losses are ultimately utilized to offset future operating income , the company will recognize a tax benefit up to the full amount of the related valuation reserve . while management believes that its judgments and interpretations regarding income taxes are appropriate , significant differences in actual experience may materially affect the future financial results of the company . goodwill impairment . the company assesses the impairment of goodwill annually in the second quarter , or more often if events or changes in circumstances indicate that the carrying value may not be recoverable in accordance with financial accounting standards board ( โ fasb โ ) authoritative guidance . the company completed its annual goodwill impairment analysis as of june 30 , 2017 , and determined that no adjustment to the carrying value of goodwill was required . there were no events or changes in circumstances since the annual goodwill impairment assessment that caused the company to perform an interim impairment assessment . the company follows fasb authoritative guidance utilizing a two-step approach for determining goodwill impairment . in the first step the company determines the fair value of each reporting unit utilizing a present value technique derived from a discounted cash flow methodology . for purposes of this assessment the company 's reporting units are its lines of business . the fair value of the reporting unit is then compared to its carrying value . if the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit , goodwill is not impaired and no further testing is performed . the second step under the fasb guidance is contingent upon the results of the first step . to the extent a reporting unit 's carrying value exceeds its fair value , an indication exists that the reporting unit 's goodwill may be impaired and the company must perform a second more detailed impairment assessment . the second step involves allocating the reporting unit 's fair value to its net assets in order to determine the implied fair value of the reporting unit 's goodwill as of the assessment date . the implied fair value of the reporting unit 's goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date . the company 's reporting units are accountemps , robert half finance & accounting , officeteam , robert half technology , robert half management resources and protiviti , which had goodwill balances at december 31 , 2017 , of $ 127.5 million , $ 26.2 million , $ 0.0 million , $ 7.0 million , $ 0.0 million and $ 50.2 million , respectively , totaling $ 210.9 million . there were no changes to the company 's reporting units or to the allocations of goodwill by reporting unit for the year ended december 31 , 2017 . the goodwill impairment assessment is based upon a discounted cash flow analysis . the estimate of future cash flows is based upon , among other things , a discount rate and certain assumptions about expected future operating performance . the discount rate for all reporting units was determined by management based on estimates of risk free interest rates , beta and market risk premiums . the discount rate used was compared to the rate published in various third party research reports , which indicated that the rate was within a range of reasonableness . the primary assumptions related to future operating performance include revenue growth rates and profitability levels . in addition , the impairment assessment requires that management make certain judgments in allocating shared assets and liabilities to the balance sheets of the reporting units . solely for purposes of establishing inputs for the fair value calculations described above related to its annual goodwill impairment testing , the company made the following assumptions . the company assumed that year-to-date trends through the date of the most recent assessment would continue for all reporting units through 2017 , using unique assumptions for each reporting unit . in addition , the company applied profitability assumptions consistent with each reporting unit 's historical trends at various revenue levels and , for years 2019 and beyond , used a 3.5 % growth factor . this rate is comparable to the company 's most recent ten-year annual compound revenue growth rate . the model used to calculate fair value extends a total of 10 years with a terminal value calculation at the end of the 10 year period . in its most recent calculation , the company used a 10.3 % discount rate , which is slightly higher than the 9.8 % discount rate used for the company 's test during the second quarter of 2016. this increase in discount rate is attributable to increases in the risk free rate and the equity market risk premium , offset by a slight decrease in beta . 15 in order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test , the company applied hypothetical decreases to the fair values of each reporting unit . the company determined that hypothetical decreases in fair value of at least 62 % would be required before any reporting unit would have a carrying value in excess of its fair value . given the current economic environment and the uncertainties regarding the impact on the company 's business , there can be no assurance that the company 's estimates and assumptions made for purposes of the company 's goodwill impairment testing will prove to be accurate predictions of the future . if the company 's assumptions regarding forecasted revenue or profitability growth rates of certain reporting units are not achieved , the company may be required to recognize goodwill impairment charges in future periods . it is not possible at this time to determine if any such future impairment charge would result or , if it does , whether such charge would be material . workers ' compensation .
| results of operations demand for the company 's temporary and consultant staffing , permanent placement staffing and risk consulting and internal audit services is largely dependent upon general economic and labor market conditions both domestically and abroad . correspondingly , results of operations for the year ended december 31 , 2017 , were positively impacted by improving global economic conditions as the year progressed . because of the inherent difficulty in predicting economic trends and the absence of 16 material long-term contracts in any of the company 's business units , future demand for the company 's services can not be forecasted with certainty . we believe the company is well positioned in the current united states macroeconomic environment . the company 's temporary and permanent staffing business has 323 offices in 42 states , the district of columbia and 17 foreign countries , while protiviti has 56 offices in 23 states and 11 foreign countries . non-gaap financial measures the financial results of the company are prepared in conformity with accounting principles generally accepted in the united states of america ( โ gaap โ ) and the rules of the sec . to help readers understand the company 's financial performance , the company supplements its gaap financial results with revenue growth rates derived from non-gaap revenue amounts . variations in the company 's financial results include the impact of changes in foreign currency exchange rates and billing days . the company provides โ same billing days and constant currency โ revenue growth calculations to remove the impact of these items . these calculations show the year-over-year revenue growth rates for the company 's reportable segments on both a reported basis and also on a same day , constant-currency basis for global , u.s. and international operations . the company has provided this data because management believes it better reflects the company 's actual revenue growth rates and aids in evaluating revenue trends over time .
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other income , net for the year ended december 31 , 2018 consisted of $ 2,255 related to a gain , net of costs incurred of $ 745 , that was realized upon execution of a favorable story_separator_special_tag our management 's discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated . see โ item 1a . risk factors. โ overview we are a national provider of a wide range of information technology , or it , solutions . we help our customers design , enable , manage , and service their it environments . we provide it products , including computer systems , data center solutions , software and peripheral equipment , networking communications , and other products and accessories that we purchase from manufacturers , distributors , and other suppliers . we also offer services involving design , configuration , and implementation of it solutions . these services are performed by our personnel and by third-party providers . we operate through three sales segments , which serve primarily : ( a ) small- to medium-sized businesses , or in our business solutions segment , through our pc connection sales subsidiary , ( b ) large enterprise customers , in our enterprise solutions segment , through our moredirect subsidiary , and ( c ) federal , state , and local government and educational institutions , in our public sector solutions segment , through our govconnection subsidiary . we generate sales primarily through outbound telemarketing and field sales contacts by account managers focused on the business , education , and government markets , our websites , and direct responses from customers responding to our advertising media . we seek to recruit , retain , and increase the productivity of our sales personnel through training , mentoring , financial incentives based on performance , and updating and streamlining our information systems to make our operations more efficient . as a value added reseller in the it supply chain , we do not manufacture it hardware or software . we are dependent on our suppliersโmanufacturers and distributors that historically have sold only to resellers rather than directly to end users . however , certain manufacturers have , on multiple occasions , attempted to sell directly to our customers , and in some cases , have restricted our ability to sell their products directly to certain customers , thereby attempting to eliminate our role . we believe that the success of these direct sales efforts by suppliers will depend on their ability to meet our customers ' ongoing demands and provide objective , unbiased solutions to meet their needs . we believe more of our customers are seeking comprehensive it solutions , rather than simply the acquisition of specific it products . our advantage is our ability to be product-neutral and provide a broader combination of products , services , and advice tailored to customer needs . by providing customers with customized solutions from a variety of manufacturers , we believe we can mitigate the negative impact of continued direct sales initiatives from individual manufacturers . through the formation of our technical solutions group , we are able to provide customers complete it solutions , from identifying their needs , to designing , developing , and managing the integration of products and services to implement their it projects . such service offerings carry higher margins than traditional product sales . additionally , the technical certifications of our service engineers permit us to offer higher-end , more complex products that generally carry higher gross margins . we expect these service offerings and technical certifications to continue to play a role in sales generation and improve gross margins in this competitive environment . the primary challenges we continue to face in effectively managing our business are ( 1 ) increasing our revenues while at the same time improving our gross margin in all three segments , ( 2 ) recruiting , retaining , and improving the productivity of our sales and technical support personnel , and ( 3 ) effectively controlling our selling , general , and administrative , or sg & a , expenses while making major investments in our it systems and solution selling personnel , especially in relation to changing revenue levels . to support future growth , we are expanding our it solutions business , which requires the addition of highly-skilled service engineers . although we expect to realize the ultimate benefit of higher-margin service revenues under this multi-year initiative , we believe that our cost of services will increase as we add service engineers . if our service revenues do not grow enough to offset the cost of these headcount additions , our operating results may decline . 21 market conditions and technology advances significantly affect the demand for our products and services . virtual delivery of software products and advanced internet technology providing customers enhanced functionality have substantially increased customer expectations , requiring us to invest on an ongoing basis in our own it development to meet these new demands . our investments in it infrastructure are designed to enable us to operate more efficiently and provide our customers enhanced functionality . story_separator_special_tag style= '' width:100 % '' > ยท net sales of $ 566.2 million for the public sector solutions segment reflect an increase of $ 59.7 million , or 11.8 % . we experienced growth year-over-year in each of our product categories , highlighted by increases in net sales of notebooks/mobility , desktop , and software products of $ 27.3 million , $ 10.4 million , and $ 9.6 million , respectively . story_separator_special_tag income from operations increased by $ 26.3 million , or 30.7 % , to $ 112.0 million in 2019 compared to 2018. income from operations as a percentage of net sales was 4.0 % in 2019 compared to 3.2 % in 2018. the increase in operating income resulted primarily from gross profits increasing at a higher rate than sg & a costs . the increase in operating income as a percentage of net sales resulted primarily from the increase in gross margin . income taxes . our effective tax rate was 27.1 % for the year-ended december 31 , 2019 and 2018. we expect our corporate income tax rate for 2020 to range from 27 % to 29 % . net income increased by $ 17.5 million to $ 82.1 million in 2019 , from $ 64.6 million in 2018 , which resulted from the increase in operating income in the current year . 27 year ended december 31 , 2018 compared to year ended december 31 , 2017 net sales decreased by 7.3 % to $ 2,699.5 million in 2018 from $ 2,911.8 million in 2017. changes in net sales and gross profit by operating segment are shown in the following table ( dollars in millions ) : replace_table_token_13_th ยท net sales of $ 1,165.1 for the enterprise solutions segment increased by $ 33.3 million compared to the prior year . this year-over-year increase was driven by increased sales of notebooks and mobility products of $ 59.2 million , and increased sales of desktop products of $ 19.9 million . sales of servers and storage equipment also increased by $ 17.6 million as large enterprises looked to upgrade their it workplace with these product solutions . increased sales of other hardware products accounted for $ 86.9 million of the increase , which was driven primarily by large orders of handheld devices used by our retail customers . these increases were partially offset by lower net sales of software products of $ 148.6 million , which resulted primarily from the adoption of asc 606 where the company is considered to be the agent on the transaction . had the year been reported under the previous revenue recognition guidance , net sales for the enterprise solutions segment would have increased by $ 202.5 million , or 17.9 % . ยท net sales of $ 1,027.9 for the business solutions segment reflect a decrease of $ 130.7 million due to lower net sales of software products of $ 137.7 million , primarily as a result of the adoption of asc 606 where the company is considered to be the agent on the transaction , and desktops of $ 8.8 million . these decreases were partially offset by increased net sales of net/com products of $ 14.7 million as small- to medium-sized businesses increased their it investments to transform their workplace . had the year been reported under the previous revenue recognition guidance , net sales for the business solutions segment would have increased by $ 42.8 million , or 3.7 % . ยท net sales of $ 506.5 million for the public sector solutions segment reflect a decrease of $ 114.9 million , primarily driven by lower net sales of software products of $ 58.3 million , which resulted primarily from the adoption of asc 606 where the company is considered to be the agent on the transaction , lower net sales of desktops of $ 44.6 million and lower net sales of other hardware/services of $ 23.3 million . net sales to the federal government reflected a decrease of $ 79.8 million in 2018 , which resulted primarily from a decrease in net sales of software products due to the adoption of asc 606 , and from a large sale of desktops to a federal agency in the first half of 2017 that did not repeat in 2018. net sales to state and local government and educational institutions reflect a decrease of $ 35.1 million , primarily driven by a decrease in net sales of software product due to the adoption of asc 606 , and to lower net sales to higher education customers . gross profit for 2018 increased year-over-year both in dollars and as a percentage of net sales ( gross margin ) , as explained below : ยท gross profit for the enterprise solutions segment increased primarily due to higher invoice selling margins , which increased by 120 basis points and was driven by the increase in revenues reported on a net basis as a result of the adoption of asc 606. agency fees from enterprise software agreements represented a 28 basis-point increase due to the reduction in net sales year-over-year and cash discounts increased by 7 basis points year-over-year . 28 ยท gross profit for the business solutions segment increased due to higher invoice selling margins . invoice selling margins increased by 224 basis points primarily due to the increase in revenues reported on a net basis as a result of the adoption of asc 606. we also receive agency fees and early pay discounts from vendors for certain software and hardware sales . agency fees are recorded as revenue with no corresponding cost of goods sold , and accordingly such fees have a positive impact on gross margin . agency fees from enterprise software agreements represented a 20 basis-point increase due to the reduction in net sales year-over-year . cash discounts increased by 13 basis points year-over-year . ยท gross profit for the public sector solutions segment increased due to higher invoice selling margins . invoice selling margins increased by 221 basis points primarily due to the increase in revenues reported on a net basis as a result of the adoption of asc 606. agency fees from enterprise software agreements represented a 5 basis-point increase due to the reduction in net sales year-over-year and cash discounts increased by 2 basis points year-over-year . selling , general and administrative expenses in 2018 increased both in dollars and as a percentage of net sales compared to the prior year .
| results of operations the following table sets forth information derived from our statements of income expressed as a percentage of net sales for the periods indicated : replace_table_token_6_th net sales of $ 2,820.0 million in 2019 reflected an increase of $ 120.5 million compared to 2018 , primarily as a result of increased sales across all three of our sales segments . our investments in advance solutions sales and a strategic focus by customers across all three segments led to an increase in net sales of notebooks/mobility and desktop products . we also saw an increase in net sales of software products , despite being negatively impacted by a higher percentage of our software sales recognized on a net basis in the current period in transactions where we are considered to be the agent . gross profit dollars increased year-over-year by $ 40.2 million due to increased sales and higher invoice selling margins . sg & a expenses increased by $ 14.2 million , mostly due to higher personnel costs and increased advertising expense , but remained flat as a percentage of net sales . operating income in 2019 increased year-over-year , both in dollars and as a percentage of net sales , by $ 26.3 million and 80 basis points , respectively , primarily as a result of gross profit increasing at a higher rate than sg & a expenses . 22 sales distribution the following table sets forth our percentage of net sales by sales segment and product mix : replace_table_token_7_th ( 1 ) the company adopted asc 606โ revenue from contracts with customers in 2018 using the modified retrospective approach , which primarily resulted in certain software sales being reported on a net basis where they would have otherwise been reported on a gross basis under the previous revenue recognition guidance . as a result , net sales for 2019 and 2018 are not comparable to 2017 amounts .
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due to the impacts of covid-19 and the closure of our owned and operated stores , our financial performance in the first quarter of fiscal 2020 will be negatively impacted . as a result , it is likely that we will be unable to comply story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from the results discussed in the forward-looking statements . factors that might cause such a difference include , but are not limited to , those discussed in โ risk factors โ and elsewhere in this annual report on form 10-k. the following section is qualified in its entirety by the more detailed information , including our financial statements and the notes thereto , which appears elsewhere in this annual report on form 10-k. recent developments as described elsewhere in this report , the covid-19 pandemic has recently had far-reaching adverse impacts on many aspects of our operation , directly and indirectly , including our employees , consumer behavior , distribution and logistics , our suppliers , and the market overall . the scope and nature of these impacts continue to evolve each day . in light of the uncertain and rapidly evolving situation relating to the covid-19 pandemic , we have taken a number of precautionary measures to manage our resources conservatively by reducing and or deferring capital expenditures , inventory purchases and operating expenses to mitigate the adverse impact of the pandemic , which is intended to help minimize the risk to our company , employees , customers , and the communities in which we operate . such steps include the following : on march 17 , 2020 , we announced the temporary closure of all owned and operated stores in the united states , canada , the united kingdom , denmark and ireland . on march 26 , 2020 , we announced the temporary closure of our warehouse and e-commerce fulfillment center in ohio as we reviewed our processes related to workplace safety , including social distancing and sanitation practices recommended by the centers for disease control and prevention , among others . the ohio warehouse was reopened on april 1 , 2020 following the review and reconfiguration of workflow and workspaces to further promote social distancing and minimize interaction as orders are fulfilled . on march 26 , 2020 , we announced the furlough of over 90 % of our workforce , effective march 29 , 2020. on march 26 , 2020 , we announced pay reductions of 20 % for those employees not placed on temporary leave , and that the salaries of the company 's executive officers and each of its name executive officers would be reduced by 20 % effective march 29 , 2020. on march 26 , 2020 , we announced that the annual cash retainers for all non-employee directors serving on our board of directors will be eliminated for the first fiscal quarter of 2020. we are delaying the payment of 100 % of the bonus earned by our executive officers for fiscal 2019 performance and 80 % of such bonuses earned by our non-executive officer associates . in accordance with plan provisions , we are delaying the company 's contribution to its 401 ( k ) plan . we are actively working with our landlords to minimize costs associated with closed retail facilities . in addition to the effects described above , our supply chain has been affected by covid-19 . vendors in china were temporarily closed as a result of the pandemic . although their operations ceased in january and february , the vendors resumed production in march and are expected to continue to ramp up unless the pandemic comes back in china , causing our vendors to cease production again . seasonal merchandise supporting our sales plans for the easter holiday and spring season , were produced and delivered by our vendors prior to the temporary halt in their operations . as a result , we have sufficient inventory and supplies to support our e-commerce demand and any stores which may reopen in the near future . for our vendors with operations in vietnam , the pandemic continues to evolve on a daily basis and we are in communication with these vendors to ensure we can respond as needed to supply chain interruptions if they occur . 23 although each of the remedial measures was taken by the company to protect the business and preserve liquidity , each may also have the potential to have a material adverse impact on our current business , financial condition and results of operations , and may create additional risks for our company . while we anticipate that the foregoing measures are temporary , we can not predict the specific duration for which these precautionary measures will stay in effect , and we may elect or need to take additional measures as the information available to us continues to develop , including with respect to our employees , distribution centers , relationships with our third-party vendors , and our customers . subject to certain assumptions regarding the duration and severity of the covid-19 pandemic , and our responses thereto ( including such actions we have taken or may take in the future as disclosed elsewhere in this report ) , based on our current projections we believe our cash and marketable securities on hand , ongoing cash generated from e-commerce and eventual resumption and ramp up of store operations , will be sufficient to cover our working capital requirements and anticipated capital expenditures for the next 12 months from the issuance of this report . however , the extent to which the covid-19 pandemic and our precautionary measures in response thereto may impact our business will depend on future developments , which are highly uncertain and can not be precisely predicted at this time . story_separator_special_tag we did not repurchase any shares during fiscal 2019. although the company has $ 8.8 million remaining on our share repurchase authorization from august 2017 , it does not plan to utilize its cash in the near term to commence share repurchase in fiscal 2020. following is a description and discussion of the major components of our statement of operations : revenues net retail sales , commercial revenue and international franchising : see note 3 โ revenue to the consolidated financial statements for additional accounting information . we use net retail sales per square foot as a performance measure for our business . the following table details net retail sales per square foot for stores open throughout the fiscal year for the periods presented : replace_table_token_0_th ( 1 ) net retail sales per square foot in north america represents net retail sales from stores open throughout the entire period in north america , excluding e-commerce sales , divided by the total leased square footage of such stores . ( 2 ) net retail sales per square foot in the u.k. represents net retail sales from stores open throughout the entire period in the u.k. , excluding e-commerce sales , divided by the total selling square footage of such stores . costs and expenses cost of merchandise sold : cost of merchandise sold is driven primarily by our retail segment . cost of merchandise sold โ retail includes the cost of the merchandise , including royalties paid to licensors of third party branded merchandise ; store occupancy cost , including store depreciation and store asset impairment charges ( see note 5 โ property and equipment , net to the consolidated financial statements for additional accounting information regarding store asset impairment ) ; cost of warehousing and distribution ; packaging ; stuffing ; damages and shortages ; and shipping and handling costs incurred in shipment to customers . retail gross margin is defined as net retail sales less the cost of merchandise sold - retail . for the commercial segment , cost of merchandise includes the cost of merchandise sold to third-party retailers on a wholesale basis for sale within their stores . for the franchise segment , cost of merchandise includes the sale of furniture , fixtures , and supplies to our franchise partners . 25 selling , general and administrative expense ( โ sga โ ) : these expenses include store payroll and benefits , advertising , credit card fees , store supplies and normal store pre-opening and closing expenses as well as central office general and administrative expenses , including costs for management payroll , benefits , incentive compensation , travel , information systems , accounting , insurance , legal and public relations . these expenses also include depreciation of central office assets as well as the amortization of intellectual property and other assets . certain store expenses such as credit card fees historically have increased or decreased proportionately with net retail sales . in addition , bad debt expenses and accounts receivable related charges are recorded . further , sga expenses may include store impairment as we consider a more likely than not assessment that an individual location will close or be remodeled prior to the end of its original lease term . see note 5 โ property and equipment , net to the consolidated financial statements for additional accounting information regarding store asset impairment . s tores co rporately-managed locations : the number of build-a-bear workshop stores in the u.s. , canada and puerto rico ( collectively , north america ) , the u.k. , ireland and denmark ( collectively , europe ) and china for the last two fiscal years is summarized as follows : replace_table_token_1_th during fiscal 2019 , our retail business model continued to evolve to address changing shopping patterns by diversifying our locations , formats and geographies . we are updating our store portfolio with the discovery format , which represented 41 % of our store base as of february 1 , 2020 . during the second half of fiscal 2019 , we opened 16 full service , stand-alone stores inside select walmart locations , resulting in a total of 22 shop-in-shops at walmart locations at the end of the fiscal year . we also continued to open concourse shops , stand-alone retail units t hat occupy approximately 200 square feet , in places where families go for entertainment , including tourist destinations , as well as to convert certain existing locations , in conjunction with natural lease events , to continue to generate profit while leveraging reduced cost structure of concourse shops . through its third-party retail model , there were 60 stores in operation with relationships that included carnival cruise line , great wolf lodge resorts , landry 's and beaches family resorts . as in prior years , we operated in a number of other non-traditional locations , such as ballparks , as well as shop-in-shop arrangements within other retailers ' stores . in certain locations throughout the year , we deployed temporary stores , which generally have lease terms of two to eighteen months . these specific sites are designed to capitalize on short-term opportunities . further , we expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans . international franchise locations : our first franchisee location was opened in november 2003. all franchised stores have similar signage , store layout and merchandise assortments as our corporately-managed stores . as of february 1 , 2020 , we had nine master franchise agreements , which typically grant franchise rights for a particular country or group of countries , covering an aggregate of 12 countries .
| results of operations 2019 overview although the 2019 year did not unfold on a by-quarter basis as expected , we ultimately delivered annual results that included a return to profitability and a growth in total revenues . revenue growth compared to the prior fiscal year was driven by a strong growth in our commercial segment and in our e-commerce sales . an increase in revenue of 81.3 % in our commercial segment was primarily the result of expansion of our third-party retail locations to 60 locations as of february 1 , 2020 from 40 locations as of february 2 , 2019 . the strong growth from our e-commerce channel is the result of improved segmentation models as well as targeted , digital advertising , including web-only exclusives , which increased website traffic . the return to profitability was primarily driven by an expansion of retail gross margin , a reduction of lease costs through strategic negotiations with land lords , and through a reduction of advertising expense by focusing our resources on digital marketing offsetting a reduction in national tv advertising . 27 the following table sets forth , for the periods indicated , selected statement of operations data expressed as a percentage of total revenues , except where otherwise indicated . percentages will not total due to immaterial rounding : replace_table_token_4_th ( 1 ) cost of merchandise sold โ retail is expressed as a percentage of net retail sales . cost of merchandise sold โ commercial is expressed as a percentage of commercial revenue . cost of merchandise sold - international franchising is expressed as a percentage of international franchising revenue . ( 2 ) store asset impairment was disclosed as a separate line item in fiscal 2018 and expressed as a percentage of net retail sales .
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overview the corporation reported consolidated net income available to common stockholders of $ 4.0 million , or $ 1.85 per diluted common share , for 2016 , compared to $ 4.1 million , or $ 2.05 per diluted common share , for 2015 . net income available to common stockholders was impacted by the following : net interest income increased $ 1.7 million , or 9.8 % , in 2016. this increase primarily related to an increase in interest income of $ 2.8 million , or 13.8 % , partially offset by an increase in interest expense of $ 1.1 million , or 39.2 % . driving the increase in interest income was an $ 84.4 million increase in the average balance of loans . the increase in interest expense was driven by increases in the corporation 's average balances of interest-bearing deposits and borrowed funds of $ 52.5 million and $ 16.0 million , respectively . the increases in the corporation 's interest-earning assets and interest-bearing liabilities includes the impact of the uasb acquisition , which added $ 66.1 million in loans and $ 72.7 million in deposits at the time of the acquisition . noninterest income decreased $ 439,000 , or 10.7 % , in 2016. net gains realized on the sale of securities decreased $ 772,000 , or 90.4 % , to $ 82,000 in 2016 from $ 854,000 in 2015 , while fees and service charges and gains on loans sold to the fhlb increased $ 139,000 and $ 119,000 , respectively . noninterest expense increased $ 1.3 million , or 7.9 % , to $ 17.4 million for the year ended december 31 , 2016 from $ 16.2 million for 2015 . the increase primarily related to increases in compensation and benefits , other noninterest expense , acquisition costs and premises and equipment of $ 407,000 , $ 269,000 , $ 267,000 and $ 198,000 , respectively . acquisition costs related to the uasb acquisition totaled $ 401,000 in 2016 and $ 134,000 in 2015. contributing to the increase in noninterest expense was the addition of the uasb branch in april 2016 and the opening of a new branch banking office in aspinwall , pennsylvania in august 2016. changes in financial condition total assets increased $ 91.5 million , or 15.2 % , to $ 692.1 million at december 31 , 2016 from $ 600.6 million at december 31 , 2015 . this increase primarily related to increases in net loans receivable and cash and equivalents of $ 85.5 million and $ 6.0 million , respectively , partially offset by a decrease in securities available for sale of $ 11.4 million . liabilities increased $ 90.3 million , or 16.5 % , to $ 638.1 million at december 31 , 2016 from $ 547.8 million at december 31 , 2015 due to an increase in customer deposits of $ 95.1 million , partially offset by a $ 5.3 million decrease in borrowed funds . loans and deposits acquired from uasb totaled $ 66.1 million and $ 72.7 million , respectively , at the time of the acquisition in april 2016. cash and cash equivalents . cash and cash equivalents increased $ 6.0 million , or 52.2 % , to $ 17.6 million at december 31 , 2016 from $ 11.5 million at december 31 , 2015 . this increase primarily resulted from an increase in customer deposits , partially offset by the funding of loans and the repayment of borrowed funds . k-21 securities . securities decreased $ 11.4 million , or 10.1 % , to $ 101.6 million at december 31 , 2016 from $ 113.0 million at december 31 , 2015 . this decrease primarily resulted from investment security sales , maturities , calls and repayments totaling $ 29.4 million , partially offset by purchases totaling $ 18.5 million during the year . loans receivable . net loans receivable increased $ 85.5 million , or 19.9 % , to $ 515.4 million at december 31 , 2016 from $ 429.9 million at december 31 , 2015 . the increase was driven by growth in the corporation 's residential mortgage , commercial mortgage and home equity portfolios of $ 58.9 million , $ 37.3 million and $ 3.9 million , respectively , partially offset by decreases in the home equity and consumer portfolios of $ 14.2 million and $ 70,000 , respectively . loans acquired from uasb totaled $ 66.1 million at the time of the acquisition in april 2016 and $ 58.9 million at december 31 , 2016. the growth of the corporation 's residential mortgage portfolio also included a loan pool purchase totaling $ 6.9 million . nonperforming assets . nonperforming assets include nonaccrual loans , loans 90 days past due and still accruing , repossessions and real estate owned . nonperforming assets were $ 3.6 million , or 0.52 % of total assets , at december 31 , 2016 compared to $ 3.2 million , or 0.54 % of total assets , at december 31 , 2015 . nonperforming assets consisted of nonperforming loans and real estate owned of $ 3.3 million and $ 291,000 , respectively , at december 31 , 2016 and $ 3.1 million and $ 160,000 , respectively , at december 31 , 2015 . at december 31 , 2016 , nonperforming loans consisted primarily of residential mortgage , commercial mortgage and commercial business loans . federal bank stocks . federal bank stocks were comprised of fhlb stock and frb stock of $ 3.6 million and $ 1.3 million , respectively , at december 31 , 2016 . these stocks are purchased and redeemed at par as directed by the federal banks and levels maintained are based primarily on borrowing and other correspondent relationships between the corporation and the federal banks . bank-owned life insurance ( boli ) . the corporation maintains single premium life insurance policies on certain current and former officers and employees of the bank . story_separator_special_tag the information is based on average daily balances during the periods presented . replace_table_token_12_th k-24 analysis of changes in net interest income . the following table analyzes the changes in interest income and interest expense in terms of : ( 1 ) changes in volume of interest-earning assets and interest-bearing liabilities and ( 2 ) changes in yields and rates . the table reflects the extent to which changes in the corporation 's interest income and interest expense are attributable to changes in rate ( change in rate multiplied by prior year volume ) , changes in volume ( changes in volume multiplied by prior year rate ) and changes attributable to the combined impact of volume/rate ( change in rate multiplied by change in volume ) . the changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances . changes in interest income on loans and securities reflect the changes in interest income on a fully tax equivalent basis . replace_table_token_13_th 2016 results compared to 2015 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2015 . the average rate on interest-bearing deposits increased by 8 basis points to 0.63 % for 2016 versus 0.55 % for 2015 causing a $ 339,000 increase in interest expense . the average balance of interest-bearing deposits increased $ 52.5 million , or 13.4 % , causing a $ 308,000 increase in interest expense . interest expense on borrowed funds increased $ 463,000 , or 67.0 % , to $ 1.2 million for 2016 , compared to $ 691,000 for 2015 . the average balance of borrowed funds increased $ 16.0 million , or 74.4 % , to $ 37.5 million for 2016 , compared to $ 21.5 million for 2015 causing a $ 559,000 increase in interest expense . this increase resulted primarily from the addition of four $ 5.0 million long-term advances late in the fourth quarter of 2015 , one of which was repaid during the second quarter of 2016. partially offsetting this unfavorable variance , the average cost of borrowed funds decreased 13 basis points to 3.08 % for 2016 versus 3.21 % for 2015 causing a $ 96,000 decrease in interest expense . this was primarily the result of the relatively lower cost of the borrowings added late in 2015. provision for loan losses . the corporation records provisions for loan losses to maintain a level of total allowance for loan losses that management believes , to the best of its knowledge , covers all probable incurred losses estimable at each reporting date . management considers historical loss experience , the present and prospective financial condition of borrowers , current conditions ( particularly as they relate to markets where the corporation originates loans ) , the status of nonperforming assets , the estimated underlying value of the collateral and other factors related to the collectability of the loan portfolio . nonperforming loans increased $ 254,000 , or 8.3 % , to $ 3.3 million at december 31 , 2016 from $ 3.1 million at december 31 , 2015 . the increase in nonperforming loans was primarily related to a $ 557,000 loan being placed on nonaccrual status during the year , partially offset by the payoff of a $ 161,000 nonperforming loan . the provision for loan losses increased $ 83,000 , or 21.8 % , to $ 464,000 for 2016 from $ 381,000 for 2015 . the corporation 's allowance for loan losses amounted to $ 5.5 million , or 1.06 % of the corporation 's total loan portfolio at december 31 , 2016 compared to $ 5.2 million or 1.20 % of total loans at december 31 , 2015 . the allowance for loan losses , as a percentage of nonperforming loans at december 31 , 2016 and 2015 , was 166.9 % and 169.6 % , respectively . the allocation of the allowance for loan losses related to residential mortgage loans and commercial mortgage loans increased during the year as a result of growth in the loan portfolios , while the allocation related to commercial business loans decreased as the portfolio decreased . at december 31 , 2016 , there was no provision for loan losses allocated to loans acquired in the acquisition of uasb in april 2016. if the loans acquired from uasb with balances of $ 58.9 million were excluded , the ratio of allowance to total loans at the december 31 , 2016 would have been 1.20 % . k-26 noninterest income . noninterest income includes revenue that is related to services rendered and activities conducted in the financial services industry , including fees on depository accounts , general transaction and service fees , commissions on financial services , title premiums , security and loan sale gains and losses , and earnings on bank-owned life insurance ( boli ) . noninterest income decreased $ 439,000 , or 10.7 % , to $ 3.7 million in 2016 from $ 4.1 million in 2015 . this decrease was primarily due to a $ 772,000 decrease in gains on the sale of securities . in 2016 , the corporation realized securities gains of $ 82,000 compared to $ 854,000 realized in 2015 , of which $ 298,000 related to the sale of community bank stock and $ 556,000 related to the sale of securities to accommodate loan growth . partially offsetting this decrease in noninterest income , fees and service charges and other noninterest income increased by $ 139,000 and $ 11,000 , respectively . additionally , the corporation recognized $ 119,000 in gains on loans sold to the fhlb during 2016. noninterest expense . noninterest expense increased $ 1.3 million , or 7.9 % , to $ 17.4 million for 2016 , compared to $ 16.2 million for 2015 . this increase was primarily related to increases in compensation and employee benefits , other noninterest expense , acquisition costs , premises and equipment expense , professional fees , federal deposit insurance and intangible asset amortization .
| results the corporation reported net income before preferred stock dividends of $ 4.0 million and $ 4.2 million for 2016 and 2015 , respectively . the $ 168,000 , or 4.0 % , decrease in net income was attributed to increases in noninterest expense , the provision for income taxes and the provision for loan losses of $ 1.3 million , $ 107,000 and $ 83,000 , respectively , and a decrease in noninterest income of $ 439,000 , partially offset by an increase in net interest income of $ 1.7 million . returns on average equity and assets were 7.32 % and 0.60 % , respectively , for 2016 . net interest income . the primary source of the corporation 's revenue is net interest income . net interest income is the difference between interest income on earning assets , such as loans and securities , and interest expense on liabilities , such as deposits and borrowed funds , used to fund the earning assets . net interest income is impacted by the volume and composition of interest-earning assets and interest-bearing liabilities , and changes in the level of interest rates . tax equivalent net interest income increased $ 1.6 million to $ 20.1 million for 2016 , compared to $ 18.4 million for 2015 . this increase in net interest income can be attributed to an increase in tax equivalent interest income of $ 2.7 million , partially offset by an increase in interest expense of $ 1.1 million . interest income . tax equivalent interest income increased $ 2.7 million , or 12.9 % , to $ 24.0 million for 2016 , compared to $ 21.3 million for 2015 .
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private equity investments include those owned by lazard and those consolidated but not owned by lazard . private equity investments owned by lazard are primarily comprised of investments in private equity funds . such investments primarily include ( i ) a mezzanine fund , which invests in mezzanine debt of a diversified selection of small- to mid-cap european companies , ( ii ) a private equity fund targeting significant noncontrolling-stake investments story_separator_special_tag the following discussion should be read in conjunction with lazard ltd 's consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k ( this ยform 10-kย ) . this discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties . actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors , including those set forth in the section entitled ยrisk factorsย and elsewhere in this form 10-k. business summary lazard is one of the world 's preeminent financial advisory and asset management firms . we have long specialized in crafting solutions to the complex financial and strategic challenges of a diverse set of clients around the world , including corporations , governments , institutions , partnerships and individuals . founded in 1848 in new orleans , we currently operate from 42 cities in key business and financial centers across 27 countries throughout europe , north america , asia , australia , the middle east and central and south america . our primary business purpose is to serve our clients . our deep roots in business centers around the world form a global network of relationships with key decision-makers in corporations , governments and investing institutions . this network is both a competitive strength and a powerful resource for lazard and our clients . as a firm that competes on the quality of our advice , we have two fundamental assets : our people and our reputation . we operate in cyclical businesses across multiple geographies , industries and asset classes . in recent years , we have expanded our geographic reach , bolstered our industry expertise and continued to build in growth areas . companies , government bodies and investors seek independent advice with a geographic perspective , deep understanding of capital structure , informed research and knowledge of global economic conditions . we believe that our business model as an independent advisor will continue to create opportunities for us to attract new clients and key personnel . our principal sources of revenue are derived from activities in the following business segments : financial advisory , which offers corporate , partnership , institutional , government , sovereign and individual clients across the globe a wide array of financial advisory services regarding mergers and acquisitions ( ยm & aย ) and other strategic matters , restructurings , capital structure , capital raising and various other financial matters , and asset management , which offers a broad range of global investment solutions and investment management services in equity and fixed income strategies , alternative investments and private equity funds to corporations , public funds , sovereign entities , endowments and foundations , labor funds , financial intermediaries and private clients . in addition , we record selected other activities in our corporate segment , including management of cash , certain investments and the commercial banking activities of lazard group 's paris-based lazard frรจres banque sa ( ยlfbย ) . we also record outstanding indebtedness in our corporate segment . lfb is a registered bank regulated by the autoritรฉ de contrรดle prudentiel . it is engaged primarily in commercial and private banking services for clients and funds managed by lazard frรจres gestion sas ( ยlfgย ) and other clients , investment banking activities , including participation in underwritten offerings of securities in france , asset-liability management and limited trading in securities and foreign exchange . 37 our consolidated net revenue was derived from the following segments : replace_table_token_4_th we also invest our own capital from time to time , generally alongside capital of qualified institutional and individual investors in alternative investments or private equity investments , and , since 2005 , we have engaged in a number of alternative investments and private equity activities , including investments through ( i ) the edgewater funds ( ยedgewaterย ) , our chicago-based private equity firm ( see note 12 of notes to consolidated financial statements ) , ( ii ) lazard australia corporate opportunities fund 2 ( ยcof2ย ) , a lazard-managed australian private equity fund targeting australasian mid-market investments , ( iii ) a mezzanine fund , which invests in mezzanine debt of a diversified selection of small-to mid cap european companies and ( iv ) a private equity fund targeting significant non-controlling investments in established public and private companies . we may explore and discuss opportunities to expand the scope of our alternative investment and private equity activities in europe , the u.s. and elsewhere . these opportunities could include internal growth of new funds and direct investments by us , partnerships or strategic relationships , investments with third parties or acquisitions of existing funds or management companies . also , consistent with our obligations to lfcm holdings llc ( ยlfcm holdingsย ) , we may explore discrete capital markets opportunities . business environment and outlook economic and global financial market conditions can materially affect our financial performance . as described above , our principal sources of revenue are derived from activities in our financial advisory and asset management business segments . as our financial advisory revenues are for the most part dependent on the successful completion of merger , acquisition , restructuring , capital raising or similar transactions , and our asset management revenues are primarily driven by the levels of assets under management ( ยaumย ) , weak economic and global financial market conditions can result in a challenging business environment for m & a and capital-raising activity as well as our asset management business , but may provide opportunities for our restructuring business . story_separator_special_tag however , global and trans-atlantic announced m & a transactions increased in value during 2012 compared to 2011 , but the number of transactions decreased in 2012 from 2011. replace_table_token_5_th source : thomson reuters as of january 11 , 2013. global restructuring activity during 2012 , as measured by the value of debt defaults , decreased in 2012 from 2011. however , the number of issuers defaulting increased to 58 in 2012 , according to moody 's investors service , inc. , as compared to 38 in 2011. asset management as shown in the table below , major equity market indices at december 31 , 2012 increased when compared to such indices at december 31 , 2011. global market indices at december 31 , 2011 were mixed in the u.s. , but declined outside the u.s. , versus the corresponding indices at december 31 , 2010. replace_table_token_6_th the fees that we receive for providing investment management and advisory services are primarily driven by the level of aum and the nature of the aum product mix . accordingly , market movements , foreign currency volatility and changes in our aum product mix will impact the level of revenues we receive from our asset management business when comparing periodic results . a substantial portion of our aum is invested in equities , 40 and market movements reflected in the changes in lazard 's aum during the period generally correspond to the changes in global equity market indices . while our aum at december 31 , 2012 increased 18 % versus aum at december 31 , 2011 ( primarily reflecting market appreciation ) , our average aum for 2012 increased 2 % as compared to our average aum in 2011. cost saving initiatives on october 25 , 2012 , we announced a number of cost saving initiatives to reduce our expenses . these initiatives include streamlining our corporate structure and consolidating support functions ; realigning our investments into areas with potential for the greatest long-term return ; and creating greater flexibility to retain and attract the best people and invest in new growth areas . we expect these initiatives will result in improved profitability with minimal impact on revenue growth . a majority of these initiatives were implemented during the fourth quarter of 2012. our objective is to realize approximately $ 125 million in annual savings from our existing cost base , with approximately $ 85 million relating to compensation and benefits expense , and approximately $ 40 million relating to non-compensation expense . we expect at least two-thirds of the expense savings to be realized in 2013 , and we expect the full impact of the expense savings to be realized in 2014. we expect pre-tax implementation expenses to range between $ 110 million and $ 130 million and to primarily consist of compensation expense . we incurred $ 103 million of these expenses in the fourth quarter of 2012 , and expect to incur the remainder of these expenses in the first half of 2013. approximately 75 % of the implementation expenses are expected to be paid in cash . financial statement overview net revenue the majority of lazard 's financial advisory net revenue historically has been earned from the successful completion of m & a transactions , strategic advisory matters , restructuring and capital structure advisory services , capital raising and similar transactions . the main drivers of financial advisory net revenue are overall m & a activity , the level of corporate debt defaults and the environment for capital raising activities , particularly in the industries and geographic markets in which lazard focuses . in some client engagements , often those involving financially distressed companies , revenue is earned in the form of retainers and similar fees that are contractually agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction . in addition , lazard also earns fees from providing strategic advice to clients , with such fees not being dependent on a specific transaction , and may also earn fees in connection with public and private securities offerings and for referring opportunities to lfcm holdings for underwriting , distribution and placement of securities . the referral fees received from lfcm holdings are generally one-half of the revenue recorded by lfcm holdings in respect of such activities . significant fluctuations in financial advisory net revenue can occur over the course of any given year , because a significant portion of such net revenue is earned upon the successful completion of a transaction , restructuring or capital raising activity , the timing of which is uncertain and is not subject to lazard 's control . lazard 's asset management segment principally includes lazard asset management llc ( together with its subsidiaries , ยlamย ) , lfg and edgewater . asset management net revenue is derived from fees for investment management and advisory services provided to clients . as noted above , the main driver of asset management net revenue is the level and product mix of aum , which is generally influenced by the performance of the global equity markets and , to a lesser extent , fixed income markets and lazard 's investment performance , which impacts its ability to successfully attract and retain assets . as a result , fluctuations ( including timing thereof ) in financial markets and client asset inflows and outflows have a direct effect on asset management net revenue and operating income . asset management fees are generally based on the level of aum measured daily , monthly or quarterly , and an increase or reduction in aum , due to market price fluctuations , currency fluctuations , changes in product mix , or net client asset flows will result in a corresponding increase or decrease in management fees . the majority of our investment advisory contracts are generally terminable at any time or on notice of 30 days or less .
| financial advisory results of operations year ended december 31 , 2012 versus december 31 , 2011 total strategic advisory net revenue , representing fees from m & a and other advisory and capital raising businesses , increased $ 72 million , or 9 % , and restructuring revenue decreased $ 15 million , or 8 % , as compared to 2011. m & a and other advisory revenue increased $ 92 million , or 13 % , as compared to 2011. capital raising revenue decreased $ 20 million , or 22 % . the increase in m & a and other advisory revenue was primarily due to the strong performance of lazard middle market and a higher level of fees earned from our top 10 clients , reflecting the closing of several significant m & a and sovereign advisory transactions . our major clients , which in the aggregate represented 25 % of our m & a and other advisory revenue for the year , included aeroporti di roma , azur pharm , bta bank jsc , caisse des dรฉpรดts , delphi financial group , glaxosmithkline , google , government of greece , medco health solutions , pireaus bank and progress energy . the decrease in capital raising revenue in 2012 was primarily attributable to a decrease in referral fees from lfcm holdings and a decrease in private placement activity . restructuring revenue is derived from various activities including bankruptcy assignments , global debt and financing restructurings , distressed asset sales and advice on complex on- and off-balance sheet assignments . the decrease in restructuring revenue in 2012 was generally in line with the industry-wide low level of corporate restructuring activity . notable assignments completed in 2012 included assignments for cemex , eastman kodak , lehman brothers , newpage corporation and tribune company .
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however , as a result of the covid-19 pandemic , we experienced sharp declines in passenger demand and bookings beginning in march 2020 , which continued through the remainder of the year , and we had unprecedented levels of cancellations and capacity reductions . as a result , our operations for 2020 were adversely affected by this reduction in air travel demand . with the sudden and significant reduction in air travel demand resulting from the covid-19 pandemic , our load factor significantly decreased beginning in the latter part of march 2020 and remained as such through the remainder of the year . load factor for 2020 was 69.7 % as compared to 84.4 % for the prior year . we continued to experience weak passenger demand and bookings during the last three quarters of 2020 driving a decrease in operating revenues of 52.7 % , year over year , and a decrease in capacity of 33.7 % , year over year . as the covid-19 pandemic continues to evolve , our financial and operational outlook remains subject to change . we continue to monitor the impact of the pandemic on our operations and financial condition , and to implement and adapt mitigation strategies while working to preserve our cash and protect our long-term sustainability . we have implemented measures for the safety of our guests and team members as well as to mitigate the impact of covid-19 on our financial position and operations . caring for guests and team members our operations and task force teams remain in constant contact with authorities , continuing to evolve its response to ensure the safety of guests and team members . in addition to previously existing procedures including utilization of hospital-grade disinfectants and state-of-the-art hepa filters that capture 99.97 % of airborne particles on board the aircraft , we have implemented and continued the following steps to protect our guests and team members : secured and distributed additional supplies of gloves and sanitizer across our network and augmented the contents of onboard supply kits to contain additional cleaning and sanitizing materials ; secured and provided face coverings for all crew and guest facing team members ; required all guests to complete a health acknowledgement at check-in ; expanded cleaning protocols at airports and other facilities , including the use of epa-registered disinfectants in all check-in and gate areas and the use of electrostatic sprayers at high-traffic airports ; expanded aircraft turn and overnight cleaning protocols focusing on high frequency touch points as well as enhanced cockpit cleaning and the use of ultra-low volume ( `` ulv '' ) fogging process to apply a safe , high-grade epa-registered airborne disinfectant that is effective against coronaviruses ; launched a new antimicrobial fogging tool in our facilities and aircraft that uses a product that forms an invisible barrier on all surfaces killing bacteria and viruses on contact for 30 days ; split the company 's operational control center ( `` occ '' ) into multiple units to enable social distancing and prepared the occ to work remotely to minimize potential operational disruption ; implemented a remote work policy for the support center teams to maintain support of our operations ; automated the team member screening process upon entry to all company-operated facilities by installing an automatic temperature scanner which is activated and monitored 24 hours a day ; required all guests and guest-facing team members to wear an appropriate face covering when traveling through the airport or onboard aircraft ; limited face to face interaction through automated baggage systems and biometric photo-matching check in ; 50 offered future flight credits with extended expiration dates to guests with impacted travel plans and waived change and cancellation fees for guests who booked travel to occur by february 28 , 2021. as the covid-19 pandemic continues to evolve , we will evaluate any continued impact to travel plans and may decide to further extend credit shell expiration dates and or waive change and cancellation fees in the future . supporting communities during this unprecedented time , many travelers have been stranded abroad with bans and other restrictions on travel implemented globally and domestically . we worked with embassies and local governments in aruba , colombia , dominican republic , ecuador , haiti , honduras , panama , costa rica , st. martin and the u.s. to operate special flights for stranded travelers in such countries . during 2020 , we provided over 260 flights to more than 30,000 stranded travelers . in addition , during 2020 , we pledged $ 250,000 in vouchers for flights to u.s. organizations advocating for social justice and civil rights . we have also made efforts to address the growing needs of its communities through the spirit airlines charitable foundation ( the โ foundation โ ) . as part of the its focus on supporting families , the foundation partnered with other non-profit organizations including the ymca and jack and jill children 's center to provide food to seniors and families struggling during this time and supported organizations creating face coverings for healthcare workers . in addition , we have partnered to offer guests face coverings for a small contribution to the red cross . capacity reductions at the onset of the covid-19 pandemic in march 2020 , in response to government restrictions on travel and drastically reduced consumer demand , we began to significantly reduce capacity each month with the largest capacity reduction in may 2020 at approximately 94 % , year over year . in response to modest demand recovery , we strategically added back capacity during certain peak travel periods . during the holiday months of november and december , capacity was reduced to a lesser extent with reductions of 20.8 % and 20.1 % , year over year . we continue to closely monitor demand and will make adjustments to the flight schedule as appropriate . story_separator_special_tag in addition , in connection with our participation in the psp2 , we expect to issue to treasury warrants to purchase up to 103,761 shares of our common stock at a strike price of $ 24.42 ( the closing price of the shares of our common stock on december 24 , 2020 ) . in connection with our participation in the psp2 , we are subject to certain restrictions and limitations , including , but not limited to : restrictions on payment of dividends and stock buybacks through march 31 , 2022 ; limits on executive compensation through october 1 , 2022 ; restrictions from conducting involuntary furloughs or reducing pay rates and benefits until march 31 , 2021 ; requirements to maintain certain levels of scheduled services through march 1 , 2022 ; reporting requirements ; and a recall of all employees that were involuntarily furloughed or terminated between october 1 , 2020 and the date the carrier enters into the new payroll support agreement with the treasury . such employees , if returning to work , must be compensated for lost pay and benefits between december 1 , 2020 and the date of such new payroll support agreement . the cares act also provided an employee retention credit ( โ cares employee retention credit โ ) which is a refundable tax credit against certain employment taxes of up to $ 5,000 per employee for eligible employers . the credit is equal to 50 % of qualified wages paid to employees during a quarter , capped at $ 10,000 of qualified wages through year end . we qualified for the credit beginning on april 1 , 2020 and received additional credits for qualified wages through december 31 , 2020. during the twelve months ended december 31 , 2020 , we recorded $ 38.5 million related to the cares employee retention credit within special charges ( credits ) on our consolidated statements of operations . refer to โ notes to the consolidated financial statementsโ 5 , special charges and credits '' for additional information . 52 the consolidated appropriations act , 2021 also extends and expands the availability of the cares employee retention credit through june 30 , 2021 , however , certain provisions apply only after december 31 , 2020. this new legislation amends the employee retention credit to be equal to 70 % of qualified wages paid to employees after december 31 , 2020 , and before july 1 , 2021. during the first two quarters of 2021 , a maximum of $ 10,000 in qualified wages for each employee per calendar quarter may be counted in determining the 70 % credit . therefore , the maximum tax credit that can be claimed by an eligible employer in 2021 is $ 7,000 per employee per calendar quarter for the first and second quarters of 2021. the cares act also provides for certain tax loss carrybacks and a waiver on federal fuel taxes through december 31 , 2020. as of december 31 , 2020 , we had recognized $ 142.0 million in federal r elated tax loss carrybacks and $ 6.5 million in federal fuel tax savings reflected within aircraft fuel in our consolidated statements of operations . finally , the cares act also provides for deferred payment of the employer portion of social security taxes through the end of 2020 , with 50 % of the deferred amount due december 31 , 2021 and the remaining 50 % due december 31 , 2022. as of december 31 , 2020 , we had deferred $ 23.2 million in social security tax payments . the deferred amounts are recorded within other current liabilities and within deferred gains and other long-term liabilities on our consolidated balance sheet . income taxes our effective tax rate for the twelve months ended december 31 , 2020 was 30.9 % compared to 23.2 % for the twelve months ended december 31 , 2019. the increase in tax rate , as compared to the prior year period , is primarily due to a $ 56.1 million discrete federal tax benefit recorded during the twelve months ended december 31 , 2020 related to the passage of the cares act . the cares act allows for carryback of net operating losses generated at a 21 % tax rate to recover taxes paid at a 35 % tax rate . excluding this discrete tax benefit , our effective tax rate for the twelve months ended december 31 , 2020 would have been 21.8 % . while we expect our tax rate to be fairly consistent in the near term , it will tend to vary depending on recurring items such as the amount of income we earn in each state and the state tax rate applicable to such income . discrete items particular to a given year may also affect our effective tax rates . refer to โ notes to the consolidated financial statementsโ1 7 , income taxes '' for additional information . balance sheet , cash flow and liquidity since the onset of the spread of covid-19 in the u.s. in the first quarter of 2020 , we have taken several actions to increase liquidity and strengthen our financial position . as a result of these actions , as of december 31 , 2020 , we had unrestricted cash and cash equivalents and short-term investment securities of $ 1,896.1 million . in march 2020 , we entered into a senior secured revolving credit facility ( the `` 2022 revolving credit facility '' ) for an initial commitment amount of $ 110.0 million , and subsequently , in the second quarter of 2020 , increased its commitment amount to $ 180.0 million . as of december 31 , 2020 , we had fully drawn the available amount of $ 180.0 million under the 2022 revolving credit facility . the 2022 revolving credit facility matures on march 30 , 2022. refer to โ notes to the consolidated financial statementsโ1 4 , debt and other obligations '' for additional information on our 2022 revolving credit facility .
| summary of results during 2020 , we had a net loss of $ 428.7 million ( $ 5.06 per share , diluted ) , compared to a net income of $ 335.3 million ( $ 4.89 per share , diluted ) in 2019. the decrease in earnings was primarily driven by a 45.2 % decrease in our traffic and a 13.8 % decrease in average yield , year over year . due to reduced air travel demand resulting from the covid-19 pandemic , in 2020 we decreased our capacity by 33.7 % , as compared to the prior year period . partially offsetting the net loss incurred in the period was a $ 302.8 million special credit recorded within special charges ( credits ) , operating . refer to โ notes to the consolidated financial statementsโ5 . special charges and credits '' for additional information . for the year ended december 31 , 2020 , we had a negative operating margin of 28.1 % on $ 1,810.0 million in operating revenues . trasm in 2020 was 6.53 cents , a decrease of 28.8 % compared to the prior year . total revenue per passenger flight segment decreased 11.5 % , year over year , from $ 110.91 to $ 98.14. fare revenue per passenger flight segment decreased 24.9 % partially offset by a 1.5 % increase in non-ticket revenue per passenger flight segment , as compared to the prior year . the decrease in total fare revenue per passenger flight segment was primarily due to a decrease of 13.8 % in average yield , year over year . our operating cost structure is a primary area of focus and is at the core of our ulcc business model . our unit operating costs continue to be among the lowest of any airline in the united states . during 2020 , our adjusted casm ex-fuel increased by 42.2 % to 7.89 cents .
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the company does not have fair valued assets classified under level 3 as of december 31 , 2018 and 2017. as of december 31 , 2018 , financial assets measured at fair value on a recurring basis are categorized in the table below based upon the lowest level of significant input to the valuations ( in thousands ) : replace_table_token_19_th as of december 31 , 2017 , the company had no financial assets measured at fair value on a recurring basis . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( โ gaap โ ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . significant estimates include valuation of short-term investments , the useful lives of property and equipment , accounting for potential liabilities , the valuation allowance associated with the company 's deferred tax assets , and the assumptions made in valuing stock instruments issued for services . f- 10 iovance biotherapeutics , inc. notes to consolidated financial statements principles of consolidation the accompanying consolidated financial statements include the accounts of iovance biotherapeutics , inc. and its wholly-owned subsidiary , iovance biotherapeutics gmbh ( formerly lion biotechnologies gmbh ) . all intercompany accounts and transactions have been eliminated . the u.s. dollar is the functional currency for all the company 's consolidated operations . stock-based compensation the company periodically grants stock options and warrants to employees and non-employees in non-capital raising transactions as compensation for services rendered . the company accounts for stock option grants to employees based on the authoritative guidance provided by the fasb where the value of the award is measured on the date of grant and recognized over the vesting period . the company accounts for stock option grants to non-employees in accordance with the authoritative guidance of the fasb where the value of the stock compensation is determined based upon the measurement date at either a ) the date at which a performance commitment is reached , or b ) at the date at which the necessary performance to earn the equity instruments is complete . non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis . in certain circumstances where there are no future performance requirements by the non-employee , option grants are immediately vested , and the total stock-based compensation charge is recorded in the period of the measurement date . the fair value of the company 's common stock option grants is estimated using a black-scholes option pricing model , which uses certain assumptions related to risk-free interest rates , expected volatility , expected life story_separator_special_tag the following discussion and analysis of our results of operations and financial condition should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under the โ business โ section and elsewhere in this report . we use words such as โ anticipate , โ โ estimate , โ โ plan , โ โ project , โ โ continuing , โ โ ongoing , โ โ expect , โ โ believe , โ โ intend , โ โ may , โ โ will , โ โ should , โ โ could , โ and similar expressions to identify forward-looking statements . all forward-looking statements included in this report are based on information available to us on the date hereof and , except as required by law , we assume no obligation to update any such forward-looking statements . story_separator_special_tag serif ; margin : 0pt 0 ; text-indent : 27.35pt '' > in october 2018 , we closed an underwritten public offering of 25,300,000 shares of the company 's common stock at a public offering price of $ 9.97 per share , before underwriting discounts , which included 3,300,000 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount . the net proceeds from the offering , after deducting the underwriting discounts and commissions and other offering expenses payable by the company were $ 236.7 million . financial overview research and development activities are central to our business model . product candidates in later stage 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 . as a clinical stage company that is currently engaged in the development of novel cancer immunotherapy products , we have not yet generated any revenues from our biotechnology business or otherwise since our formation . our ability to generate revenues in the future will depend on our ability to complete the development of our product candidates and to obtain regulatory approval for them . our major sources of funding to date have been proceeds from various public and private offerings of our equity securities ( both common stock and preferred stock ) , option and warrant exercises , and interest income . story_separator_special_tag in addition , research and alliance costs increased by $ 1.7 million for clinical trials run by our alliance partners and internal research programs . general and administrative expense ( in thousands ) replace_table_token_8_th 69 general and administrative expense for the year ended december 31 , 2017 decreased by $ 5.4 million , or 20 % , compared to the year ended december 31 , 2016. the change was primarily attributable to a $ 8.9 million decrease in stock-based compensation expense , driven by expense incurred in connection with the separation of our former chief executive officer and chief financial officer from our company in june and august of 2016 , respectively , which was partially offset by a $ 2.4 million increase in legal fees in consulting and legal-related expenses . interest income ( in thousands ) replace_table_token_9_th interest income results from our interest-bearing cash and investment balances . interest income for the year ended december 31 , 2017 increased due to the higher average cash balances as a result of the proceeds received from our equity financings in september 2017 and june 2016 , and higher interest rates in 2017. net loss replace_table_token_10_th net loss for the year ended december 31 , 2017 increased by $ 39.2 million or 74 % , compared to the year ended december 31 , 2016. the increase in our net loss was due to the continued expansion of our research and development activities , increased clinical trials and manufacturing activities , and the overall growth of our corporate infrastructure . we anticipate that we will continue to incur net losses in the future as we further invest in our research and development activities , including our clinical development . liquidity and capital resources we have incurred losses and generated negative cash flows from operations since inception . we expect to continue to incur significant losses in 2019 and may incur significant losses and negative cash flows from operations for the foreseeable future . we have funded our operations from various public and private offerings of our equity securities ( both common stock and preferred stock ) , from option and warrant exercises , and from interest income . corporate capitalization . as of december 31 , 2018 , we had outstanding 123,415,576 shares of our $ 0.000041666 par value common stock , 194 shares of our $ 0.001 par value series a convertible preferred stock , and 5,854,845 shares of our $ 0.001 par value series b convertible preferred stock . the outstanding shares of series a convertible preferred stock are currently convertible into 97,000 shares of our common stock , and the outstanding shares of series b convertible preferred stock are currently convertible into 5,854,845 shares of our common stock . the shares of series a convertible preferred stock and series b convertible preferred stock do not have voting rights or accrue dividends . on december 28 , 2017 , we filed a shelf registration statement with the sec for the issuance of common stock , preferred stock , warrants , rights , debt securities and units up to an aggregate amount of $ 250 million , which we refer to as the 2017 shelf registration statement . the 2017 shelf registration statement was declared effective on january 19 , 2018. on january 29 , 2018 , we sold 15,000,000 shares of our common stock at a public offering price of $ 11.50 per share pursuant to the 2017 shelf registration statement . we received gross proceeds of approximately $ 172.5 million and net proceeds of approximately $ 162.0 million , after deducting underwriting discounts and offering expenses . the 2017 shelf registration statement was terminated upon effectiveness of the 2018 shelf registration statement ( as discussed below ) . on september 7 , 2018 , we filed a shelf registration statement with the sec for the issuance of common stock , preferred stock , warrants , rights , debt securities and units up to an aggregate amount of $ 250 million , which we refer to as the 2018 shelf registration statement . the 2018 shelf registration statement was declared effective on october 3 , 2018 and the aggregate amount of securities we could issue thereunder was subsequently increased by $ 50 million through a post-effective amendment that we filed on october 11 , 2018 , pursuant to rule 462 ( b ) of the securities act . on october 17 , 2018 , we sold 25,300,000 shares of our common stock at a public offering price of $ 9.97 per share pursuant to the 2018 shelf registration statement . we received gross proceeds of approximately $ 252.2 million and net proceeds of $ 236.7 million , after deducting underwriting discounts and offering expenses . in the future , we may periodically offer one or more of these securities in amounts , prices and terms to be announced when and if the securities are offered . if any of the securities covered by the 2018 shelf registration statement are offered for sale , a prospectus supplement will be prepared and filed with the sec containing specific information about the terms of such offering at that time . 70 we are currently engaged in the development of therapeutics to fight cancer . we do not have any commercial products and have not yet generated any revenues from our biopharmaceutical business . we currently do not anticipate that we will generate any revenues during 2019 from the sale or licensing of any products .
| overview we are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient 's own immune system to eradicate cancer cells . tumor infiltrating lymphocyte , or til , therapy is a platform technology that has already been studied for the treatment of metastatic melanoma and metastatic cervical cancer and other solid tumors by the national cancer institute , or nci . our lead product candidate , lifileucel for metastatic melanoma , previously known as ln-144 , is an autologous adoptive cell therapy utilizing til , which are t cells derived from patients ' tumors . we are also developing a second product candidate , an autologous adoptive cell therapy utilizing til for the treatment of cancers other than metastatic melanoma , which is known as ln-145 . we are investigating the effectiveness and safety of til therapy for the treatment of metastatic melanoma , squamous cell carcinoma of the head and neck , cervical cancer and metastatic non-small cell lung cancer through company sponsored trials , as well as for other oncology indications in investigator-sponsored trials . our sponsored clinical trials and our investigator-sponsor clinical trials are described in more detail below . we have an on-going phase 2 clinical trial , c-144-01 , of our lead product candidate , lifileucel , for the treatment of metastatic melanoma . this multicenter trial is enrolling patients with melanoma whose disease has progressed following treatment with at least one systemic therapy , including a pd-1 inhibitor and if braf mutated , a braf , or braf/mek inhibitor ( national clinical trial identification number nct02360579 ) . the purpose of the trial is to evaluate the efficacy and safety of lifileucel . the c-144-01 trial uses our proprietary generation 2 , or gen 2 , manufacturing process .
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the february spa provides that for a period of 24 months after the later of ( i ) february 22 , 2013 , or ( ii ) the public announcement of fda approval for renalguard for sale in the united states , and so long as the investors hold the shares purchased pursuant to the february spa ; in the event that the company issues or sells any shares of common stock or any common stock equivalent at a price less than the purchase price ( a โ share dilutive issuance โ ) , the company shall issue additional shares of common stock so that total amount paid by the investor to acquire the shares , divided by the number of shares held by the investor pursuant to the february spa , plus the additional shares issued as a result of a share dilutive issuance , equals the price per share paid in the share dilutive issuance . this provision also extends to any common shares that are issued pursuant to an exercise of the february 2013 warrants . as required under the terms of the february spa , in connection with the september spa , the company issued to the investors in the february 2013 financing an additional 40,400,001 shares of common stock due to these anti-dilutive provisions being triggered by the lower purchase price for shares issued in the september spa . in conjunction with the february spa , the company entered into a right to shares agreement with one of the investors . pursuant to this agreement , in lieu of issuing 7,000,000 of the common shares purchased by the investor , the company shall be obligated to issue , and the investor has the right to up to 7,000,000 shares of the company 's common stock . no additional consideration will be paid upon the issuance of the shares and the subscription amount has been paid in full by the investor and is non-refundable . the company is obligated to deliver the shares to the investor within 3 days of the investor 's request for the share issuance . if the company fails to deliver the shares within 3 days of the request , under certain circumstances defined in the right to shares agreement , the company may be obligated to reimburse the investor in cash for losses that the investor incurs as a result of not having access to the shares ( the โ buy-in shares โ ) . as of december 31 , 2013 , the company has reserved , but not issued 19,000,000 shares of common stock pursuant to the right to shares agreement , as adjusted for the anti-dilution issuance described above . the february spa also provided the investors with the option , for a period through november 21 , 2013 , to purchase on the same terms and with the same rights as the february 2013 spa up to 50 % of the shares of common stock purchased by the purchaser at the initial closing ( โ february 2013 spa option โ ) . the investors would also receive a warrant for every option share exercised with the same terms as the warrant issued in the february spa . no shares were purchased under the february 2013 spa option prior to the expiration date . the following is a summary of the february 2013 spa option for the year ended december 31 , 2013 : february 2013 spa option shares exercise price beginning balance at february 22 , 2013 13,466,667 0.15 less : expired ( 13,466,667 ) 0.15 ending balance at december 31 , 2013 -- -- the february 2013 warrants have a term of five-years and were immediately exercisable for an aggregate 28,818,666 shares of common stock purchased at an exercise price of $ 0.20 per share . the exercise price of the 2013 warrants shall be adjusted in the event of ( a ) stock splits , stock dividends , combinations , reclassifications , mergers , consolidations , distributions of assets or evidence of indebtedness , sales or transfers of substantially all assets , share exchanges or similar events , and ( b ) dilutive issuances of ( i ) common stock or ( ii ) common stock equivalents at an effective price per share that is lower than the then exercise price . due to the september spa , certain anti-dilution rights were triggered , resulting in the issuance of an additional 43,228,001 warrants with an exercise price of $ 0.08 . all previously issued warrants related to the february 2013 financing have been repriced to $ 0.08 . the february 2013 warrants may be exercised on a cashless basis if at any time there is no effective registration statement within 180 days after the closing date of the private placement covering the resale of the shares of common stock underlying the february 2013 warrants . the february 2013 warrants contain limitations on the holder 's ability to exercise the february 2013 warrant in the event such exercise causes the holder to beneficially own in excess of 4.99 % of the company 's issued and outstanding common stock , subject to a discretionary increase in such limitation by the holder to 9.99 % upon 61 days ' notice . the following is a summary of the february 2013 warrants story_separator_special_tag overview we are a medical device company specializing in innovative technologies for the cardiac and vascular markets . our key strategic growth initiative is our newest marketable product , renalguard . renalguard is designed to reduce the potentially toxic effects that contrast media can have on the kidneys when it is administered to patients during certain medical imaging procedures . story_separator_special_tag determination of criteria ( 3 ) and ( 4 ) are based on management 's judgments regarding the fixed nature of the price to the buyer charged for products delivered or services rendered and collectability of the sales price . we assess credit worthiness of customers based upon prior history with the customer and assessment of financial condition . our shipping terms are customarily free on board ( โ fob โ ) shipping point . we generally record product revenue , including sales of renalguard consoles and single-use sets at the time of shipment , if all other revenue recognition criteria have been met . as of december 31 , 2013 and 2012 , we had deferred revenue balances of $ 0 and $ 317,000 , respectively , related to shipments to our distributor in italy , artech , because not all revenue recognition criteria were met . during the years ended december 31 , 2013 and 2012 , we recognized $ 317,000 and $ 381,000 , respectively , in revenue previously deferred upon the receipt of cash . 11 story_separator_special_tag debt securities would have rights , preferences and privileges senior to our common stock and we may sell equity or other convertible debt financing securities which would have rights , preferences and privileges senior to our common stock . if we are unable to generate adequate cash flows or obtain sufficient additional funding when needed , we may have to take certain actions including , but not limited to , cutting back our operations , selling some or all of our assets , licensing potentially valuable technologies to third parties , and or ceasing some or all of our operations . as a result of this , our auditors have issued a going concern opinion on our financial statements . cash flows used in operating activities in the twelve months ended december 31 , 2013 were $ 4,804,000 due to our net income , offset by non-cash activity including 1 ) the change in fair value of convertible notes and warrant liabilities 2 ) non-cash interest expense ; 3 ) depreciation expense ; 4 ) stock-based compensation expense ; 5 ) modification of convertible notes and warrants ; and 6 ) retirement of warrants . cash flows from financing activities in the twelve months ended december 31 , 2013 were $ 5,329,000 from the issuance of 56,100,000 shares of common stock with net proceeds of $ 5,079,000 and convertible notes with proceeds of $ 250,000. the effect of exchange rate changes was a $ 14,000 decrease in cash . forward-looking statements this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities act and section 21e of the exchange act . statements containing terms such as `` believes '' , `` plans '' , `` expects '' , `` anticipates '' , `` intends '' , `` estimates '' and similar expressions contain uncertainty and are forward-looking statements . forward-looking statements are based on current plans and expectations and involve known and unknown important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements . such important factors and uncertainties include , but are not limited to : โ we expect to incur significant net losses in future quarters ; โ we will require additional capital in the immediate future . such capital may not be available , or if available , may not be on terms acceptable to us . if we are unable to raise such capital , we will need to suspend or cease operations ; โ we have received a 'going concern ' opinion in our consolidated financial statements indicating that our cash balance as of december 31 , 2013 , combined with recurring net losses and negative cash flows from operations , raises substantial doubt about our ability to continue as a going concern for the next 12 months . as noted above , we are investigating ways to raise additional capital to continue our operations ; โ our quarterly operating results have varied in the past and will continue to vary significantly in the future , causing volatility in our stock price ; 14 โ with the sale of our tmr business in february 2011 , our future prospects are solely dependent upon the successful commercialization of renalguard . to date we have recorded only a limited amount of sales of renalguard , principally to a single customer in one country , italy . sales of renalguard alone are currently insufficient , and may never grow to be sufficient , to sustain our ongoing operations ; โ our ability to effectively market renalguard outside the u.s. is largely dependent on the reception of the results of the mythos and remedial ii investigator-sponsored clinical trials . we have no assurance that the results from these two trials will be viewed as clinically meaningful or that they will lead to increased sales of renalguard ; โ we may never be successful in establishing a broad distribution channel for renalguard outside the u.s. , and any distribution channel we may establish may never generate sufficient sales for us to attain profitability ; โ if we are required to change our pricing models to compete successfully , our margins and operating results may be adversely affected ; โ we commenced our u.s. pivotal clinical trial in 2012 to study renalguard , which is necessary to obtain fda pre-market approval to market renalguard in the u.s. this study will take us a significant amount of time and money to complete and will require us to raise additional capital in the future .
| results of operations results for the past two years and the related percent of total revenues were as follows : replace_table_token_2_th product sales revenues increased $ 194,000 or 18 % in 2013 as compared to 2012. renalguard console sales decreased $ 91,000 or 24 % in 2013 as compared to 2012 due to a lower volume of renalguard consoles sold to international distributors . renalguard single use set revenues increased $ 297,000 or 44 % in 2013 as compared to 2012 due to a higher volume of renalguard single-use sets sold to international distributors . as of december 31 , 2012 , we had deferred revenue of $ 317,000 related to shipments to our distributor in italy , artech , because not all revenue recognition criteria were met . during 2013 and 2012 we recognized revenue of $ 317,000 and $ 381,000 , respectively , related to artech sales which had previously been deferred . gross profit gross profit was $ 743,000 , or 58 % of total revenues , in 2013 , as compared with gross profit of $ 539,000 , or 50 % of total revenues , in 2012. gross margin generated from the low volume of renalguard revenues was sufficient to offset the fixed manufacturing costs incurred during 2013. selling , general and administrative expenses selling , general and administrative expenditures increased 26 % in 2013 as compared to 2012. the increase was due to higher investor relations expense incurred in relation to the february 2013 financing during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 ( see note 8 ) . research and development expenses research and development expenditures increased 4 % in 2013 as compared to 2012 due to continued costs of operating the renalguard u.s. clinical trial costs . as we continue our u.s clinical trial for our renalguard program , we expect our research and development expenses to significantly increase in 2014 .
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it contains management 's view about industry trends , risks , uncertainties , accounting policies that bancorp views as critical in light of its business , results of operations including discussion of the key performance drivers , financial position , cash flows , commitments and contingencies , important events , transactions that have occurred over the last three years , and forward-looking information , as appropriate . financial statements include consolidated balance sheets as of the end of the last two years , and consolidated statements of income , comprehensive income , changes in stockholders ' equity , and cash flows , for each of the last three years . bancorp 's financial statements are prepared in accordance with us gaap . notes to the financial statements provide insight into , and are an integral part of , the financial statements . the notes contain explanations of significant accounting policies , details about certain captions on the financial statements , information about significant events or transactions that have occurred , discussions about legal proceedings , commitments and contingencies , and selected financial information relating to business segments . the notes to the financial statements also are prepared in accordance with us gaap . reports related to the financial statements and internal control over financial reporting include the following : โ a report from kpmg llp , an independent registered public accounting firm , which includes their opinion on the presentation of bancorp 's consolidated financial statements in conformity with us gaap based on their audits ; โ a report from management indicating bancorp 's responsibility for financial reporting and the financial statements ; โ a report from management indicating bancorp 's responsibility for the system of internal control over financial reporting , including an assessment of the effectiveness of those controls ; and โ a report from kpmg llp , which includes their opinion on the effectiveness of bancorp 's internal control over financial reporting . our business stock yards bancorp , inc. , incorporated in 1988 , and its business is substantially the same as that of its wholly owned subsidiary , stock yards bank & trust company . the bank has operated continuously since it opened in 1904. the bank conducted business at one location for 85 years and began branching in 1989. at december 31 , 2015 , the bank had 28 full service banking locations in the louisville msa , four full service banking locations in the indianapolis msa , and five full service banking locations in the cincinnati msa . in 2015 , bancorp opened two full-service branches in the cincinnati msa and one full-service branch in the indianapolis msa . bancorp 's focus on flexible , attentive customer service has been key to its growth and profitability . the wide range of services provided by investment management and trust , securities brokerage , and mortgage origination helps support the corporate philosophy of capitalizing on full service customer relationships . 15 forward-looking statements this report contains forward-looking statements under the private securities litigation reform act that involve risks and uncertainties . these forward-looking statements may be identified by the use of words such as โ expect โ , โ anticipate โ , โ plan โ , โ foresee โ , โ believe โ or other words with similar meaning . although bancorp believes the assumptions underlying the forward-looking statements contained herein are reasonable , any of these assumptions could be inaccurate . factors that could cause actual results to differ from results discussed in forward-looking statements include , but are not limited to : economic conditions both generally and more specifically in the markets in which bancorp and its subsidiaries operate ; competition for bancorp 's customers from other providers of financial services ; government legislation and regulation which change from time to time and over which bancorp has no control ; changes in interest rates ; material unforeseen changes in liquidity , deterioration in the real estate market , results of operations or financial condition of bancorp 's customers ; or other risks detailed in bancorp 's filings with the securities and exchange commission and item 1a of this form 10-k , all of which are difficult to predict and many of which are beyond the control of bancorp . critical accounting policies bancorp has prepared the consolidated financial information in this report in accordance with us gaap . in preparing the consolidated financial statements in accordance with us gaap , bancorp makes estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . there can be no assurances that actual results will not differ from those estimates . management has identified the accounting policy related to the allowance and provision for loan losses as critical to the understanding of bancorp 's results of operations and discussed this conclusion with the audit committee of the board of directors . since the application of this policy requires significant management assumptions and estimates , it could result in materially different amounts to be reported if conditions or underlying circumstances were to change . the provision reflects an allowance methodology that is driven by risk ratings , historical losses , and qualitative factors . assumptions include many factors such as changes in borrowers ' financial condition which can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicative of future losses . in the second quarter of 2015 , bancorp extended the historical period used to capture bancorp 's historical loss ratios from 12 quarters to 24 quarters . management believes the extension of the look-back period is appropriate to capture the impact of a full economic cycle and more accurately represents the current level of risk inherent in the loan portfolio . to the extent that management 's assumptions prove incorrect , the results from operations could be materially affected by a higher or lower provision for loan losses . story_separator_special_tag the ratio of tangible common equity to total tangible assets was 10.10 % as of december 31 , 2015 , compared to 10.05 % at december 31 , 2014. see the non-gaap financial measures section for details on reconcilement to us gaap measures . challenges for 2016 will include maintaining a stable net interest margin , achieving continued loan growth , managing credit quality and increasing regulatory requirements . โ bancorp expects net interest margin to decline somewhat in 2016. loan prepayments are expected to diminish below 2015 levels while competitive pressure on rates for new loans will likely result in a pressure on the net interest margin for 2016. increased deposit rate competition could negatively impact this expectation , as could a decrease in longer term interest rates . โ the federal reserve board increased its key short term rate in december 2015 for the first time since 2008. indications are that the federal reserve may increase short term rates during 2016 if market conditions warrant . approximately 20 % of bancorp 's loans are indexed to the prime interest rate and reprice immediately with federal reserve rate changes . however , approximately 15 % of total loans have reached their contractual floor of 4 % or higher , meaning they will not reprice until the prime rate increases 50 bp from today 's levels . deposit rates generally do not reprice as quickly as loans . โ bancorp 's goals for 2016 include net loan growth at a pace comparable to that experienced in 2015. this will be impacted by competition , prevailing economic conditions , line of credit utilization and the impact of prepayments in the loan portfolio . bancorp believes there is continued opportunity for loan growth , and bancorp 's ability to deliver attractive loan growth over the long-term is linked to bancorp 's success . 17 โ bancorp expects growth of our investment management and trust services revenue in 2016. however , the overall market is a significant driver of investment and trust revenue , which could decline if the broader market continues to experience a decline . โ bancorp expects a modest decrease in non-interest income for 2016 from gains on sales of mortgage loans held for sale ; expected refinance activity tends to slow as rates rise . โ bancorp expects year-over-year increases in non-interest expense including personnel , data processing and occupancy expenses to support overall growth of the company . bancorp also anticipates higher amortization of investments in partnerships which generate historic and new markets federal income tax credits . the following sections provide more details on subjects presented in this overview . story_separator_special_tag income . because of matching terms of offsetting contracts , in addition to collateral provisions which mitigate the impact of non-performance risk , changes in fair value subsequent to initial recognition have a minimal effect on earnings , and are therefore not included in the simulation analysis results above . derivatives designated as cash flow hedges described in note 22 to bancorp 's consolidated financial statements are recognized on the consolidated balance sheet at fair value , with changes in fair value due to changes in prevailing interest rates , recorded net of tax in other comprehensive income . the following table presents the increases in net interest income due to changes in rate and volume computed on a tax-equivalent basis and indicates how net interest income in 2015 and 2014 was impacted by volume increases and the lower average interest rate environment . the tax-equivalent adjustments are based on a 35 % federal tax rate . the change in interest due to both rate and volume has been allocated to the change due to rate and the change due to volume in proportion to the relationship of the absolute dollar amounts of the change in each . 20 taxable equivalent rate/volume analysis replace_table_token_7_th bancorp 's tax equivalent net interest income increased $ 4.5 million for the year ended december 31 , 2015 compared to the same period of 2014 , while 2014 increased $ 6.4 million compared to 2013. net interest income for 2015 compared to 2014 was positively impacted by an increase in loan volume , securities volume , a decrease in deposit rates , a more favorable mix of deposits , and a decrease in rates of fhlb advances . net interest income was negatively impacted by a decline in the average rate earned on assets and higher volume of fhlb advances . volume increases of loans and securities boosted net interest income by $ 7.3 million , while declining rates on liabilities contributed $ 0.4 million to the increase of net interest income . partially offsetting the increases , declining rates on assets negatively impacted net interest income by $ 3.2 million . fhlb advance interest increased $ 99 thousand attributable to higher volume , net of the effect of lower rates . for the year 2014 compared to 2013 , net interest income was positively impacted by an increase in loan volume , securities volume and rates , a decrease in deposit rates , a more favorable mix of deposits , and decreases in the rates of fhlb advances , and the redemption of long-term debt . net interest income was negatively impacted by a decline in the average rate earned on loans and higher volume of fhlb advances . volume increases of loans and securities increased net interest income by $ 6.6 million , while redemption of long-term debt contributed $ 3.0 million to net interest income for 2014. higher rates on securities resulted in $ 0.26 million while declining rates on deposits , particularly time deposits , contributed $ 0.6 million to the increase of net interest income . partially offsetting the increases , declining rates on loans negatively impacted net interest income by $ 4.3 million . fhlb advance interest decreased $ 47 thousand attributable to lower rates , net of the effect of higher volume . 21 provision for loan losses in determining the provision for loan losses , management considers many factors .
| results of operations net income was $ 37.2 million or $ 2.48 per share on a diluted basis for 2015 compared to $ 34.8 million or $ 2.36 per share for 2014 and $ 27.2 million or $ 1.89 per share for 2013. net income for 2015 was positively impacted by : โ a $ 4.6 million or 5 % increase in net interest income , and โ a $ 795 thousand or 2 % increase in non-interest income . net income for 2015 was negatively impacted by : โ a $ 189 thousand or 0.3 % increase in non-interest expenses , โ a $ 750 thousand provision for loan losses in 2015 , compared to a release of $ 400 thousand in 2014 , and โ a $ 1.7 million or 11 % increase in income tax expense . the following paragraphs provide a more detailed analysis of significant factors affecting operating results . net interest income net interest income , the most significant component of bancorp 's earnings , represents total interest income less total interest expense . net interest spread is the difference between the taxable equivalent rate earned on average interest earning assets and the rate expensed on average interest bearing liabilities . net interest margin represents net interest income on a taxable equivalent basis as a percentage of average earning assets . net interest margin is affected by both the interest rate spread and the level of non-interest bearing sources of funds . the level of net interest income is determined by the mix and volume of interest earning assets , interest bearing deposits and interest bearing liabilities and by changes in interest rates . the discussion that follows is based on tax-equivalent interest data .
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total depreciation expense related to our purchased property and equipment was $ 0.7 million and $ 0.3 million for the years ended december 31 , 2020 and 2019 , respectively . total depreciation expense related to devices out on lease was $ 0.8 million and $ 0.5 million for the years ended december 31 , 2020 and 2019 , respectively . depreciation on leased units is reflected on the income statement as cost of revenue . โ during the year ended december 31 , 2020 , the company began capitalizing product demo units sent to its territory managers to use in the field . the company monitors these devices for potential losses and places an estimated reserve on the net book value based on an analysis of terminated territory managers that have not yet returned their units . total depreciation expense related to demo unit devices out with sales rep was $ 0.2 million for the year ended december 31 , 2020. deprecation on demo units is reflected on the income statement as sales and marketing expense . โ ( 4 ) earnings per share the calculation of basic and diluted earnings per share for the years ended december 31 , 2020 and 2019 are as follows : replace_table_token_11_th โ for the years ended december 31 , 2020 and 2019 , 0.2 million and 0.3 million shares of common stock were excluded from the dilutive stock calculation because their effect would have been anti-dilutive . โ f-12 โ โ โ ( 5 ) stock-based compensation plans zynex , inc. 2017 stock incentive plan the company currently has one active long-term incentive plan . the company 's 2017 stock incentive plan ( the โ 2017 stock plan โ ) is the company 's equity compensation plan and provides for grants of stock-based awards to employees , directors and other individuals providing services to the company . awards issued under the 2017 stock plan are at the discretion of the board of directors . the 2017 stock plan mandates a maximum award term of 10 years and stipulates that stock options be granted with prices not less than fair market value on the date of grant . stock option awards generally vest over four years . restricted stock awards typically vest quarterly over three years for grants issued to members of our board of directors and quarterly or annually over two to four years for grants issued to employees . for stock option awards , all awards granted under the 2017 stock plan are stock-settled with common stock issued upon exercise . for restricted stock awards , shares are issued to the recipient upon grant with a restrictive legend and are not included in the calculation of outstanding shares until vesting occurs . at december 31 , 2020 , there were 3.6 million shares available for story_separator_special_tag this annual report on form 10-k contains statements that are forward-looking , such as statements relating to plans for future organic growth and other business development activities , as well as the impact of reimbursement trends , other capital spending and financing sources . such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and , accordingly , such results may differ from those expressed in any forward-looking statements made by or on behalf of the company . these risks include the ability to engage effective sales representatives , the need to obtain fda clearance and ce marking of new products , the acceptance of new products as well as existing products by doctors and hospitals , our dependence on the reimbursement from insurance companies for products sold or leased to our customers , acceptance of our products by health insurance providers for reimbursement , larger competitors with greater financial resources , the need to keep pace with technological changes , our dependence on third-party manufacturers to produce key components of our products on time and to our specifications , implementation of our sales strategy including a strong direct sales force , and other risks described herein and included in โ item 1a-risk factors. โ overview we operate in one primary business segment , electrotherapy and pain management products . as of december 31 , 2020 , the company 's only active subsidiary is zmi , a wholly-owned colorado corporation , through which the company conducts its u.s. electrotherapy and pain management operations . zms , a wholly-owned colorado corporation , has developed a blood volume monitoring device , which has received two utility patents and fda approval in the u.s. however , zms has achieved no revenues to date . the following information should be read in conjunction with our consolidated financial statements and related notes contained in this annual report . story_separator_special_tag roman ' ; font-size:10pt ; vertical-align : text-top ; white-space : nowrap ; width:18pt ; padding:0pt ; '' > โ an increase of $ 0.6 million in rent and facilities expenses as we further expanded our corporate offices in april 2020 to include all four floors at our current corporate headquarters . 21 โ โ โ as a percentage of revenue , general and administrative expense decreased to 23 % for the year ended december 31 , 2020 from 24 % for the year ended december 31 , 2019. the decrease as a percentage of revenue is primarily due to leveraging our investment in general and administrative functions from prior years . the company expects that general and administrative expenses will continue to increase through 2021 as the company continues to expand its corporate headcount to accommodate continued order growth . other income ( expense ) other expense was $ 96,000 for the year ended december 31 , 2020 , of which $ 19,000 was related to interest on our finance lease obligations and $ 77,000 was related to the dissolution of our zbc subsidiary . story_separator_special_tag the company also leases office equipment for its corporate and warehouse facilities under non-cancelable finance lease agreements . off โ balance sheet arrangements as of december 31 , 2020 , and 2019 , we had no off-balance sheet arrangements or obligations . subsequent event appointment of chief operating officer on january 28 , 2021 , the company announced the promotion of anna lucsok to chief operating officer . additionally , on such date , the company entered into an employment agreement with ms. lucsok which was included as an exhibit to the current report on form 8-k filed on the same date . 23 โ โ โ critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( โ gaap โ ) . we have identified the policies below as critical to our business operations and the understanding of our results of operations . revenue recognition and accounts receivable revenue is generated primarily from sales and leases of our electrotherapy devices and related supplies and complimentary products . sales are primarily made with , and shipped , direct to the patient with a small amount of revenue generated from sales to distributors . in the healthcare industry there is often a third party involved that will pay on the patients ' behalf for purchased or leased devices and supplies . the terms of the separate arrangement impact certain aspects of the contract with patients covered by third party payers , such as contract type , performance obligations and transaction price , but for purposes of revenue recognition the contract with the customer refers to the arrangement between the company and the patient . the company does not have any material deferred revenue in the normal course of business as each performance obligation is met upon delivery of goods to the patient . device sales device sales can be in the form of a purchase or a lease . revenue for purchased devices is recognized in accordance with asc 606 โ โ revenue from contracts with customers โ ( โ asc 606 ) when the device is delivered to the patient . revenue related to devices out on lease is recognized in accordance with asc 842 , leases . using the guidance in asc 842 , we concluded our transactions should be accounted for as operating leases based on the following criteria below : โ the lease does not transfer ownership of the underlying asset to the lessee by the end of the lease term . โ the lease does not grant the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise . โ the lease term is month to month , which does not meet the major part of the remaining economic life of the underlying asset . however , if the commencement date falls at or near the end of the economic life of the underlying asset , this criterion shall not be used for purposes of classifying the lease . โ there is no residual value guaranteed and the present value of the sum of the lease payments does not equal or exceed substantially all of the fair value of the underlying asset โ the underlying asset is expected to have alternative uses to the lessor at the end of the lease term . lease commencement occurs upon delivery of the device to the patient . the company retains title to the leased device and those devices are classified as property and equipment on the balance sheet . since our leases are month-to-month and can be returned by the patient at any time , revenue is recognized monthly for the duration of the period in which the patient retains the device . supplies supplies revenue is recognized once delivered to the patient . supplies needed for the device can be set up as a recurring shipment or ordered through the customer support team or online store as needed . 24 โ โ โ variable consideration a significant portion of the company 's revenues are derived , and the related receivables are due , from patients with commercial or government health plans . revenues are estimated using the portfolio approach by third party payer type based upon historical rates of collection , the aging of receivables , trends in the historical reimbursement rates by third-party payer types and current relationships and experience with the third-party payers , which includes estimated constraints for third-party payer refund requests , deductions and adjustments . inherent in these estimates is the risk that they will have to be revised as additional information becomes available and constraints are released . specifically , the complexity of third-party billing arrangements and the uncertainty of reimbursement amounts for certain products from third-party payers or unanticipated requirements to refund payments previously received may result in adjustments to amounts originally recorded . due to continuing changes in the health care industry and third-party payer reimbursement , it is possible our forecasting model to estimate collections could change , which could have an impact on our results of operations and cash flows . any differences between estimated settlements and final determinations are reflected as an increase or a reduction to revenue in the period when such final determinations are known . historically these differences have been immaterial and the company has not had to go back and reassess the adjustments of future periods for past billing adjustments . the company monitors the variability and uncertain timing over third-party payer types in our portfolios . if there is a change in our third-party payer mix over time , it could affect our net revenue and related receivables . we believe we have a sufficient history of collection experience to estimate the net collectible amounts by third-party payer type . however , changes to constraints related to billing adjustments have historically
| highlights during the year ended december 31 , 2020 , the company achieved the following : โ expanded our sales force as we exceeded 500 sales reps at year-end . that represented a 227 % increase over 2019 and allowed us to expand into 170 territories during 2020. we expect to have approximately 600 sales reps by the end of 2021 ; โ achieved a 96 % increase in order growth and a 76 % growth in revenue from the prior year ; โ completed an equity offering in july 2020 which netted us $ 25.2 million . this allowed us to further strengthen our balance sheet without adding debt ; โ increased inventory on-hand at year-end by 263 % , ensuring that we have enough product to meet future demand and serve more patients in pain ; and 18 โ โ โ โ leased a 50,488 square foot warehouse facility , which will improve the efficiency of our production and assembly teams and allow us to scale our distribution operations . this new facility also allows expansion at our corporate headquarters to support the growth of our reimbursement , sales support , and other g & a functions . summary net revenue increased 76 % in 2020 to $ 80.1 million from $ 45.5 million in 2019. net income was $ 9.1 million and $ 9.5 million for the years ended december 31 , 2020 and 2019 , respectively . net income decreased during 2020 as a result of an increased investment in our sales force and accompanying infrastructure . we generated cash flows from operating activities of $ 0.8 million during the year ended december 31 , 2020. increased orders for our devices and supplies and the related receivables and cash flows , along with an equity raise completed in july 2020 , allowed us to grow our working capital at december 31 , 2020 to $ 52.9 million , compared to $ 17.4
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you should read the following discussion and analysis of financial condition and operating results together with the section titled โ selected financial data โ and our consolidated financial statements and the related notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth in the section titled โ risk factors โ and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in or implied by these forward-looking statements . for convenience of presentation some of the numbers have been rounded in the text below . overview we are a biopharmaceutical company dedicated to improving the lives of patients suffering from debilitating and life-threatening diseases through the discovery , development and commercialization of therapies to degrade disease-causing proteins . we use our proprietary technology platform to engineer proteolysis targeting chimeras , or protac targeted protein degraders , that are designed to harness the body 's own natural protein disposal system to selectively and efficiently degrade and remove disease-causing proteins . we believe that our targeted protein degradation approach is a new therapeutic modality that may provide distinct advantages over existing modalities , including traditional small molecule therapies and gene-based medicines . our small molecule protac technology has the potential to address a broad range of intracellular disease targets , including those representing the up to 80 % of proteins that can not be addressed by existing small molecule therapies , commonly referred to as undruggable targets . we are using our protac platform to build an extensive pipeline of protein degradation product candidates to target diseases in a wide range of organ systems and tissues . we are advancing our lead product candidates , arv-110 and arv-471 , into phase 1 clinical trials . in march 2019 , we initiated a phase 1 clinical trial for arv-110 in men with metastatic castration-resistant prostate cancer , or mcrpc , and we expect to initiate a phase 1 clinical trial for arv-471 in women with locally advanced or metastatic er positive / her2 negative breast cancer in the third quarter of 2019. our two lead product candidates are arv-110 and arv-471 . we are developing arv-110 , a protac targeted protein degrader targeting the androgen receptor protein , or ar , for the treatment of men with mcrpc . in march 2019 , we initiated a phase 1 trial and we expect to receive preliminary clinical data in the second half of 2019. we are developing arv-471 , a protac targeted protein degrader targeting the estrogen receptor protein , or er , for the treatment of women with locally advanced or metastatic er positive / her2 negative breast cancer . we expect to submit an investigational new drug , or ind , application to the u.s. food and drug administration , or fda , for arv-471 in the second quarter of 2019 , initiate a phase 1 trial in the third quarter of 2019 and receive preliminary clinical data in 2020. we commenced operations in 2013 , and our operations to date have been limited to organizing and staffing our company , business planning , raising capital , conducting discovery and research activities , filing patent applications , identifying potential product candidates , undertaking preclinical studies and establishing arrangements with third parties for the manufacture of initial quantities of our product candidates . to date , we have not generated any revenue from product sales and have financed our operations primarily through sales of our equity interests , proceeds from our collaborations , grant funding and debt financing . through december 31 , 2018 , we raised approximately $ 235.1 million in gross proceeds from the sale of common stock , and series a , series b and series c convertible preferred units , and had received an aggregate of $ 89.2 million in payments from collaboration partners , grant funding and loans from the state of connecticut . we are a development stage company and our lead product candidates and our research initiatives are at a preclinical stage of development . our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates . since inception , we have incurred significant operating losses . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . our net loss was $ 41.5 million for the year ended december 31 , 2018 and $ 24.0 million for the year ended december 31 , 2017. as of december 31 , 2018 , we had an accumulated deficit of $ 302.3 million . our total operating expenses were $ 58.1 million for the year ended december 31 , 2018 and $ 32.3 million for the year ended december 31 , 2017. we anticipate that our expenses will increase substantially due to costs associated with our preclinical activities for our lead product candidates and the advancement of these candidates into phase 1 clinical trials in the united states , which we initiated in the first quarter of 2019 for arv-110 and expect to initiate in the third quarter of 2019 for arv-471 , development activities associated with our other product candidates , research activities in oncology , neurological and other disease areas to expand our pipeline , hiring additional personnel in research , clinical trials , quality and other functional areas , increased expenses incurred with contract manufacturing organizations , or cmos , to supply us with product for our preclinical and clinical studies , as well as other associated costs including the management of our intellectual property portfolio . 93 we do not expect to generate revenue from sales of any product for many years , if ever . accordingly , we will need to obtain substantial additional funding in connection with our continuing operations . story_separator_special_tag research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , and include : salaries , benefits and other related costs , including stock-based compensation expense , for personnel engaged in research and development functions ; expenses incurred under agreements with third parties , including contract research organizations and other third parties that conduct research and preclinical activities on our behalf as well as third parties that manufacture our product candidates for use in our preclinical and potential future clinical trials ; costs of outside consultants , including their fees , equity-based compensation and related travel expenses ; the costs of laboratory supplies and acquiring , developing preclinical studies and clinical trial materials ; facility-related expenses , which include direct depreciation costs of equipment and allocated expenses for rent and maintenance of facilities and other operating costs ; and third-party licensing fees . we expense research and development costs as incurred . we typically use our employee and infrastructure resources across our development programs , and as such , do not track our internal research and development expenses on a program-by-program basis . we track outsourced development costs and certain personnel costs by product candidate . other internal costs are not allocated . the following table summarizes our external research and development expenses by product candidate or development program : replace_table_token_3_th 95 research and development activities are central to our business model . we expect that our research and development expenses will continue to increase substantially for the foreseeable future as we continue to advance arv-110 and arv-471 into clinical trials , including our phase 1 clinical trials , and continue to discover and develop additional product candidates . we can not reasonably estimate or determine with certainty the duration and costs of future clinical trials of arv-110 and arv-471 or any other product candidate we may develop or if , when , or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval . we may never succeed in obtaining marketing approval for any product candidate . the successful development and commercialization of our product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : successful completion of preclinical studies ; successful initiation of clinical trials ; successful patient enrollment in and completion of clinical trials ; receipt and related terms of marketing approvals from applicable regulatory authorities ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; making arrangements with third-party manufacturers , or establishing manufacturing capabilities , for both clinical and commercial supplies of our product candidates ; establishing sales , marketing and distribution capabilities and launching commercial sales of our products , if and when approved , whether alone or in collaboration with others ; acceptance of our products , if and when approved , by patients , the medical community and third-party payors ; obtaining and maintaining third-party coverage and adequate reimbursement ; maintaining a continued acceptable safety profile of the products following approval ; and effectively competing with other therapies . 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 anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in our clinical trials due to patient enrollment or other reasons , we would 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 salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , business development and administrative functions . general and administrative expenses also include legal fees relating to intellectual property and corporate matters ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support increased research and development activities relating to our product candidates . we also expect to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with nasdaq and securities and exchange commission requirements ; director and officer insurance costs ; and investor and public relations costs . 96 interest income ( expense ) interest income consists of interest earned on our cash , cash equivalents and short-term investments . interest income increased in 2018 as we invested our excess cash from the proceeds of our initial public offering and series c financing , and the payments received under the collaboration agreements . our interest income had decreased due to lower investment balances as we proceeded through 2017. interest expense consists of interest paid or accrued on our outstanding debt . interest expense was approximately $ 57,000 in 2018 and we expect that it will increase in 2019 with the additional interest payment on the state of connecticut partially forgivable loan borrowed in september 2018. income taxes since our inception in 2013 , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in any year or for our federal earned research and development tax credits , due to our uncertainty of realizing a benefit from those items .
| results of operations comparison of years ended december 31 , 2018 and 2017 revenues revenues for the year ended december 31 , 2018 were $ 14.3 million , compared with $ 7.6 million for the year ended december 31 , 2017. the increase in revenues of $ 6.7 million was due to an increase in license and rights to technology fees and research and development activities primarily related to the pfizer collaboration agreement initiated in january 2018 and the restated genentech agreement that was initiated in november 2017 . 99 research and development expenses research and development expenses for the year ended december 31 , 2018 were $ 45.2 million , compared with $ 28.8 million for the year ended december 31 , 2017. the increase of $ 16.4 million was primarily due to an increase in personnel and personnel costs utilized across all our programs of $ 9.8 million , including an increase in stock compensation expense of $ 6.0 million . direct expenses related to our platform and exploratory targets increased $ 5.0 million as we expand the number of protein targets in the exploratory phase . direct research expenses related to our androgen receptor , or ar , program increased by $ 2.8 million as we incurred a full-year of ind enabling activities in 2018. direct research expenses related to our estrogen receptor , or er , program decreased by $ 1.2 million due to the timing of ind enabling studies extending into 2019. general and administrative expenses general and administrative expenses were $ 12.9 million for the year ended december 31 , 2018 , compared with $ 3.5 million for the year ended december 31 , 2017. the increase of $ 9.4 million was primarily due to an increase of $ 7.1 million in personnel related costs , including $ 5.4 million related to stock compensation expense .
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the company 's principal subsidiaries include two independently certificated airlines , abx air , inc. ( โ abx โ ) and air transport international , inc. ( โ ati โ ) , and an aircraft leasing company , cargo aircraft management , inc. ( โ cam โ ) . the company has two reportable segments : acmi services , which primarily includes the cargo transportation operations of its airlines , and the cam segment , which owns and leases cargo aircraft . the company 's other business operations , which primarily provide support services to the transportation industry , include aircraft maintenance , aircraft parts sales , ground equipment leasing and mail handling services . these operations do not constitute reportable segments due to their size . at december 31 , 2015 , the company owned 55 cargo aircraft that were in revenue service . the combined fleets consisted of 36 boeing 767-200 aircraft , 11 boeing 767-300 aircraft , four boeing 757-200 aircraft and four boeing 757 `` combi '' aircraft . the company has had long term contracts with dhl network operations ( usa ) , inc. and its affiliates ( `` dhl '' ) , since august 2003. dhl is the company 's largest customer and accounted for 46 % , 55 % and 54 % of the company 's consolidated revenues during the years ended december 31 , 2015 , 2014 and 2013 , respectively . in 2010 the company and dhl executed commercial agreements under which dhl leased thirteen boeing 767 freighter aircraft from cam and abx operates those aircraft under a separate crew , maintenance and insurance ( โ cmi โ ) agreement . the initial term of the cmi agreement was five years while the terms of the aircraft leases were seven years . in 2015 , the company and dhl amended and restated the cmi agreement ( `` restated cmi agreement '' ) . as a result , effective april 1 , 2015 , the existing monthly aircraft lease rates for the thirteen boeing 767-200 freighter aircraft declined approximately 5 % , dhl agreed to lease an additional two boeing 767 aircraft which were previously supporting dhl under short-term operating arrangements , and the boeing 767 aircraft lease terms with dhl were extended through march 2019. under the restated cmi agreement , abx continues to operate and maintain the aircraft through march 2019. similar to the previous agreement , pricing for services provided under the restated cmi agreement is based on pre-defined fees scaled for the number of aircraft hours flown , aircraft scheduled and flight crews provided to dhl for its network . under the pricing structure of the restated cmi agreement , abx assumed responsibility for the cost of complying with faa airworthiness directives , the cost of boeing 767 airframe maintenance and certain engine maintenance events for the dhl-leased aircraft that it operates . although provisions of the restated cmi agreement negatively impact the company 's operating results , we project that the reduced earnings from the cmi operations for dhl will be offset through additional aircraft lease revenues , international acmi opportunities , cost controls and aircraft maintenance growth . during june and november of 2015 , dhl began a long-term lease for two more boeing 767 aircraft from cam which abx operates under the restated cmi agreement . as of december 31 , 2015 , the company , through cam , leased 17 boeing 767 aircraft to dhl ; 15 of those were being operated by the company 's airlines for dhl . additionally , the airlines operated seven cam owned boeing aircraft and one dhl leased aircraft under other operating arrangements with dhl . 23 the u.s. military comprised 16 % , 16 % and 17 % of the company 's consolidated revenues during the years ended december 31 , 2015 , 2014 and 2013 , respectively . the company 's airlines contract their services to the air mobility command ( `` amc '' ) , through the u.s. transportation command ( `` ustc '' ) , both of which are organized under the u.s. military . during 2013 , ati retired its four dc-8 combi aircraft and replaced them with three boeing 757 combi aircraft operating for the u.s. military . our fourth and final boeing 757 combi aircraft entered service in the first quarter of 2014 , after completing the necessary regulatory certification , and serves as a maintenance spare . results of operations summary external customer revenues from continuing operations increased by $ 29.7 million to $ 619.3 million during 2015 compared to 2014. excluding directly reimbursed revenues , customer revenues increased 6 % , or by $ 32.6 million during 2015 compared with 2014. increased external customer revenues from cam 's leasing operations , aircraft maintenance services and parcel handling operations were offset by lower revenues from acmi services during 2015 , which reflect six fewer boeing 767 aircraft under acmi operations compared to 2014. the consolidated net earnings from continuing operations were $ 39.2 million for 2015 compared to $ 32.1 million for 2014. the pre-tax earnings from continuing operations were $ 62.6 million for 2015 compared to $ 51.8 million , which included a one-time charge of $ 6.7 million for pension obligation settlements , for 2014. adjusted pre-tax earnings from continuing operations , a non-gaap measure ( a definition and reconciliation of adjusted pre-tax earnings follows ) , after removing the pension settlement charge , were $ 61.6 million for 2015 compared to $ 57.4 million for 2014. adjusted pre-tax earnings from continuing operations for 2015 improved compared to 2014 due to additional aircraft lease revenues and better acmi services aircraft utilization , offset by higher aircraft depreciation and more employee expenses , particularly in our support services businesses . during 2014 , we offered vested , former employee participants of the qualified pension plan and vested employee participants of the crewmembers qualified pension plan a one-time option to settle their pension benefit with the company through a single payment or a nonparticipating annuity contract . story_separator_special_tag ( `` afs ' ) a subsidiary of amazon.com , inc. ( โ amazon โ ) , including 12 boeing 767-200 freighter aircraft for a term of five years and eight boeing 767-300 freighter aircraft for a term of seven years . leases for six of these aircraft will commence april 1 , 2016 and nine more aircraft leases are expected to be executed by the end of 2016. to meet the 20 aircraft requirement for afs , cam plans to add eight more boeing 767-300 freighter aircraft to its fleet by mid-2017 . the remaining aircraft commitment for afs will be filled by five aircraft currently operated for afs by the company 's airlines , expiring aircraft leases presently with external cam lessees , as well as aircraft currently being utilized by the company 's airlines for charter operations and other customer services . acmi services the acmi services segment provides airline operations to its customers , typically under contracts providing for a combination of aircraft , crews , maintenance and insurance ( `` acmi '' ) . our customers are usually responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses such as landing fees , ramp expenses , certain aircraft maintenance expenses and fuel procured directly by the airline . aircraft charter agreements , including those for the u.s. military , usually require the airline to provide full service , including fuel and other operating expenses for a fixed , all-inclusive price . as of december 31 , 2015 , acmi services included 41 in-service aircraft , including 25 leased internally from cam , one dhl-supplied aircraft operated by ati and 15 cam-owned freighter aircraft which are under lease to dhl and operated by abx under the restated cmi agreement . revenues from acmi services declined $ 6.8 million during 2015 compared with 2014 to $ 433.1 million . airline services revenues from external customers , which do not include revenues for the reimbursement of fuel and certain operating expenses , declined $ 3.9 million . lower revenues reflect fewer aircraft being operated for our customers and contract rate changes under the restated cmi agreement with dhl compared to 2014. billable block hours declined 2 % for 2015 compared to 2014. excluding billable block hours for dhl , block hours grew 22 % for 2015 compared to 2014. block hours flown for the u.s. military were up 3 % compared to 2014. acmi services incurred pre-tax losses of $ 2.7 million during 2015 , compared to pre-tax losses of $ 12.1 million for 2014. excluding pension settlement charges of $ 6.7 million recorded during 2014 , acmi services incurred pre-tax losses of $ 2.7 million and $ 5.4 million in 2015 and 2014 , respectively . smaller pre-tax losses in 2015 compared to 2014 were primarily a result of improved fleet utilization and more routes for our customers , other than dhl . since mid 2014 , acmi services returned under-utilized aircraft to cam , which subsequently leased those aircraft to external customers . 27 the acmi services segment contributed positively to the company 's pre-tax earnings for the fourth quarter of 2015 , reflecting a fully deployed fleet and a trial air network in the u.s. for afs . the network , which began in mid-september 2015 and grew to utilize five aircraft , will expand during 2016 and 2017 to 20 cam aircraft under an air transportation services agreement executed with afs ( the โ atsa โ ) in march 2016. during 2016 , we expect higher expenses for start-up costs related to the afs network , pension as actuarially determined , and aircraft maintenance expenses due to the schedule of heavy maintenance checks . achieving profitability in acmi services will depend on a number of factors , including revenue levels for airline services , crewmember training costs , crewmember productivity , employee benefits , aircraft maintenance schedules and the number of aircraft we operate . other activities the company sells aircraft parts and provides aircraft maintenance and modification services primarily through its aircraft maintenance and repair business , airborne maintenance and engineering services , inc. ( `` ames '' ) . the company also provides services to the u.s. postal service ( โ usps โ ) , which mainly consists of mail and package sorting services at five usps facilities . the company also leases and maintains ground support equipment and provides facility maintenance services . other activities also include the management of workers ' compensation claims under an agreement with dhl and gains from the reduction in employee post-retirement obligations . external customer revenues from all other activities were $ 93.9 million and $ 72.0 million for 2015 and 2014 , respectively . revenues from our mail and package handling services increased $ 13.3 million during 2015 compared to 2014 , reflecting higher contractual costs and increased mail volumes at the usps facilities we operate , as well as parcel handling services , during the fourth quarter of 2015 , for the afs trial u.s. network . additionally , aircraft maintenance revenues from external customers increased by $ 7.3 million . revenues from aircraft maintenance can vary among periods due to the timing of scheduled maintenance events and the completion level of work during a period . the pre-tax earnings from other activities decreased by $ 2.8 million to $ 8.6 million in 2015. improved earnings from increased revenues during 2015 , were offset by lower gains from the reduction of employee benefit obligations compared to 2014 , and additional unallocated corporate expenses to support growth initiates . expenses from continuing operations salaries , wages and benefits expense increased $ 15.3 million during 2015 compared to 2014 driven by higher headcount for maintenance and other support services .
| summary external customer revenues from continuing operations increased by $ 9.6 million to $ 589.6 million during 2014 compared to 2013. excluding directly reimbursed revenues , customer revenues decreased 1 % , or by $ 4.6 million during 2014 compared with 2013. increased external customer revenues from cam , aircraft maintenance and support services were offset by lower revenues from airline services . airline service revenues declined primarily due to the discontinuation of acmi service for dhl 's middle east operations in the first quarter of 2014. the consolidated net earnings from continuing operations were $ 32.1 million for 2014 compared with a net loss of $ 19.6 million for 2013. the pre-tax earnings from continuing operations were $ 51.8 million for 2014 , including a one-time charge of $ 6.7 million for pension obligation settlements . the pre-tax loss from continuing operations for 2013 was $ 0.4 million which included a goodwill impairment charge of $ 52.6 million that is not deductible for u.s. federal income tax purposes . adjusted pre-tax earnings from continuing operations , a non-gaap measure ( a definition and reconciliation of adjusted pre-tax earnings follows ) , after removing the pension settlement charge and the impairment charge , were $ 57.4 million for 2014 compared to $ 51.6 million for 2013. adjusted pre-tax earnings from continuing operations for 2014 increased compared to 2013 due to operating improvements primarily in the acmi services segment .
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we believe that our preliminary calculations result in a reasonable estimate of the transition tax and related foreign tax credit and , as such have included an estimate of story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , which present our results of operations for t he years ended december 31 , 2017 , 2016 and 2015 , as well as our financia l positions at december 31 , 2017 and 2016 , contained elsewhere in this form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the โ special note regarding forward looking statements โ and โ risk factors โ sections of this form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . recent acquisitions as described in โ item 1. business โ overview , โ on march 8 , 2016 , the company closed on the acquisition of substantially all of the assets of bamko , inc. with an effective date of march 1 , 2016. bamko is a full-service merchandise sourcing and promotional products company based in los angeles , ca . the purchase price for the asset acquisition consisted of approximately $ 15.2 million cash , net of cash acquired , the issuance of approximately 324,000 restricted shares of superior 's common stock that vests over a five-year period , the potential future payments of approximately $ 5.5 million in additional contingent consideration through 2021 , and the assumption of certain liabilities of bamko . depending on the context , when using the term โ bamko โ in this form 10-k , we refer either to the company 's wholly-owned subsidiary housing the acquired business ( bamko , llc ) or to the business acquired in the transaction , as subsequently grown through additional acquisitions . on august 21 , 2017 , the company , bamko , acquire d substantially all of the assets of publicidentity , inc. ( โ public identity โ ) . public identity is a promotional products and branded merchandise agency that provides promotional products and branded merchandise to corporate clients and universities . the purchase price consisted of $ 0.8 million in cash , the issuance of approximately 54,000 restricted shares of superior 's common stock and future payments of approximately $ 0.4 million in additional consideration through 2020. the majority of the shares issued vest over a three-year period . on november 30 , 2017 , bamko closed on the acquisition of substantially all of the assets of tangerine promotions , ltd. and tangerine promotions west , inc. ( collectively โ tangerine โ ) . the transaction had an effective date of december 1 , 2017. tangerine is a promotional products and branded merchandise agency that serves many well-known brands . the company is one of the leading providers of point-of-purchase ( pop ) and point-of-sale ( pos ) merchandise in the country . the purchase price for the asset acquisition consisted of approximately $ 7.2 million in cash , subject to adjustment , the issuance of approximately 83,000 restricted shares of superior 's common stock that vests over a four-year period , the potential future payments of approximately $ 5.5 million in additional contingent consideration through 2021 , and the assumption of certain liabilities of tangerine . primarily as a result of its acquisition of bamko , superior realigned its organizational structure and updated its reportable operating segments . a new promotional products segment has been created and consists of sales to customers o f promotional products . superior is now comprised of three reportable business segments : ( 1 ) uniforms and related products , ( 2 ) remote staffing solutions , and ( 3 ) promotional products . business outlook uniforms and related products historically , we have manufactured and sold a wide range of uniforms , career apparel and accessories , which comprises our uniforms and related products segment . our primary products are provided to workers employed by our customers and , as a result , our business prospects are dependent upon levels of employment and overall economic conditions , among other factors . our revenues are impacted by our customers ' opening and closing of locations and reductions and increases in headcount . additionally , voluntary employee turnover at our customers can have a significant impact on our business . the current economic environment in the united states is continuing to see moderate improvement in the employment environment and voluntary employee turnover has been increasing . we also continue to see an increase in the demand for employees in the healthcare sector . these factors are expected to have positive impacts on our prospects for growth in net sales in 2018. we have continued our efforts to increase penetration of the health care market . we have been and continue to pursue acquisitions to increase our market share in the uniforms and related products segment . 16 remote staffing solutions this business segment , which operates in el salvador , belize and the united states , was initially started to provide remote staffing services for the company at a lower cost structure in order to improve our own operating results . it has in fact enabled us to reduce operating expenses in our uniforms and related products segment and to more effectively service our customers ' needs in that segment . story_separator_special_tag selling and administrative expenses as a percentage of net sales , selling and administrative expenses for our uniforms and related products segment approximated 24.8 % in 2016 and 26.4 % in 2017. the increase as a percentage of net sales was primarily due to lower net sales in 2017 to cover operating expenses ( contributing 0.7 % ) and increased salaries , wages and benefits exclusive of medical costs ( contributing 0.5 % ) , higher bad debt expense due primarily to a customer bankruptcy ( contributing 0.3 % ) and other minor increases ( contributing 0.3 % ) . these increases were partially offset by lower medical claims in 2017 ( contributing 0.2 % ) . as a percentage of net sales , selling and administrative expenses for our remote staffing sol utions segment approximated 34.2 % in 2017 and 34.0 % in 2016. the increase as a percentage of net sales is attributed primarily to an increase in payroll related costs ( contributing 3.3 % ) , higher broker fees ( contributing 1.1 % ) , higher facilities costs and depreciation due to our expanded facility in el salvador ( contributing 2.2 % ) and other minor increases ( contributing 3.4 % ) . these increases were mostly offset by higher net sales to cover operating expenses ( contributing 9.8 % ) . as a percentage of net sales , selling and administrative expenses for our promotional products segment were 28.4 % in 2017 and 37.3 % from the bamko acquisition date of march 1 , 2016 through december 31 , 2016. included within these expenses for 2017 was approximately $ 0.3 million in of expenses for acquisitions . included within these expenses for 2016 was approximately $ 1.1 million of expenses associated with the bamko acquisition . net of these acquisition related expenses , selling and administrative expenses would have been 27.3 % of net sales in 2017 and 33.2 % of net sales in 2016. the decrease is primarily related to higher sales to cover operating costs , partially offset by a higher payroll related costs ( contributing 1.8 % ) and a lower gain on foreign currency ( contributing 0.9 % ) . gain on sale of property , plant and equipment in the quarter ended march 31 , 2017 , we sold our former call center building and related assets in el salvador in our remote staffing solutions segment for net proceeds of $ 2.8 million and realized a gain on sale of $ 1.0 million . interest expense interest expense increased to $ 0.8 million for the year ended december 31 , 2017 from $ 0.7 million for the year ended december 31 , 2016. this increase is attributed primarily to higher average borrowings outstanding primarily due to the bamko acquisition . 18 income taxes on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( โ tax act โ ) that instituted fundamental changes to the u.s. tax system . the tax act includes changes to the taxation of foreign earnings by implementing a dividend exemption system , expansion of the current anti-deferral rules , a minimum tax on low-taxed foreign earnings and new measures to deter base erosion . the tax act also permanently reduces the corporate tax rate from 34 % to 21 % , imposes a one-time mandatory transition tax on the historical earnings of foreign affiliates and implements a territorial style tax system . the impacts of these changes are reflected in the 2017 tax expense which resulted in a provisional charge of approximately $ 4.0 million , which is subject to adjustment given the provisional nature of the charge . this resulted in an effective tax rate higher than the statutory rate in 2017. as a result of the transition tax under the act , the company will no longer consider its undistributed earnings from foreign subsidiaries as indefinitely reinvested and has provided a deferred tax liability primarily for foreign withholding taxes that would be expected to apply when the company dividends these earnings back to the united states . the effective income tax rate in 2017 was 39.4 % and in 2016 was 26.4 % . the 13.0 % increase in the effective tax rate is attributed primarily to the tax act ( 17.1 % ) and other increases ( 0.1 ) , partially offset by an increase in the benefit of foreign sourced income ( 1.4 % ) and an increase in the excess tax benefit associated with share based compensation ( 2.8 % ) . the company currently expects an effective tax rate for 2018 to be slightly below the statutory rate . the effective tax rate may vary from quarter to quarter due to unusual or infrequently occurring items , the resolution of income tax audits , changes in tax laws , the tax impact from employee share-based payments , taxes incurred in connection to the territorial style tax system , or other items . the tax act imposes a u.s. tax on global intangible low taxed income ( โ gilti โ ) that is earned by certain foreign affiliates owned by a u.s. shareholder . the computation of gilti is still subject to interpretation and additional clarifying guidance is expected , but is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment . in accordance with guidance issued by fasb , the company has made a policy election to treat future taxes related to gilti as a current period expense in the reporting period in which the tax is incurred . the company does expect to be impacted by gilti relative to the earnings of its foreign subsidiaries in 2018 and beyond . for further discussion of changes in the effective tax rate , refer to the note 7 to the consolidated financial statements . year ended december 31 , 2016 vs .
| overview the company uses a number of standards for its own purposes in measuring its liquidity , such as : working capital , profitability ratios , long-term debt as a percentage of long-term debt and equity , and activity ratios . the company 's balance sheet is very strong at this point and provides the ability to pursue acquisitions , to invest in new product lines and technologies , and to invest in additional working capital as necessary . as of december 31 , 2017 , approximately $ 5.8 million of our cash is held in our foreign subsidiaries . as a result of the tax act , the company no longer intends to permanently reinvest its historical foreign earnings and plans to repatriate the funds as needed for liquidity . the company 's primary source of liquidity has been its net income and the use of credit facilities and term loans as described further below . in the future , the company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity . the company may also begin relying on the issuance of equity or debt securities . there can be no assurance that any such financings would be available to us on reasonable terms . any future issuances of equity securities or debt securities with equity features may be dilutive to our shareholders . additionally , the cost of the company 's future sources of liquidity may differ from the costs of the company 's sources of liquidity to date . 20 balance sheet acco unts receivable-trade increased 20.9 % from $ 41.8 million on december 31 , 2016 to $ 50.6 million december 31 , 2017. approximately $ 6.5 million of this increase is attributed to acquisitions in our promotional products segment .
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the asu is effective for fiscal years beginning after december 15 , 2017. we are currently assessing the impact across our operations and on our consolidated financial statements . in november 2015 , the fasb issued an asu that requires all deferred tax liabilities and assets be classified as noncurrent in the balance sheet . the new standard did not change the current requirement to offset deferred tax liabilities and assets within a tax-paying component of an entity . the asu is effective for fiscal years beginning after december 15 , 2016 , with early adoption permitted . it can also be applied either prospectively or retrospectively to all periods presented . we early adopted the new standard on december 31 , 2015 on a prospective basis . we classified deferred taxes as non-current on our consolidated balance sheets as of december 31 , 2015. no prior periods were retrospectively adjusted . in september 2015 , the fasb issued an asu that eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively . under the new guidance , measurement-period adjustments should be accounted for during the period in which the entity determines the amount of the adjustment . the asu is effective for fiscal years beginning after december 15 , 2015 , with early adoption permitted , and should be applied prospectively to open measurement periods after the effective date , regardless of the acquisition date . we elected to early adopt and will apply the standard in our accounting for the acquisitions that we closed during the third quarter of 2015. see note 2 , divestitures and acquisitions , for more information . in july 2015 , the fasb issued an asu that simplifies the guidance on the subsequent measurement of inventory . u.s. gaap currently requires an entity to measure inventory at the lower of cost or market . previously , market could be replacement cost , net realizable value or net realizable value less an approximate normal profit margin . under the new standard , inventory should be valued at the lower of cost or net realizable value . the asu is effective for fiscal years beginning after december 15 , 2016 , with early adoption permitted . we early adopted the new standard on january 1 , 2016 on a prospective basis . the adoption of the standard is not expected to have a material impact on our consolidated financial statements . in may 2015 , the fasb issued an asu that applies to reporting entities that elect to measure the fair value of an investment using the net asset value ( ยnavย ) per share ( or its equivalent ) practical expedient . this asu removes the requirement to include investments measured using the practical expedient within fair value hierarchy disclosures . also , practical expedient disclosures previously required for all eligible investments are now only required for investments for which the practical expedient has been elected . the update is effective for fiscal years beginning after december 15 , 2015 , with early adoption permitted . as we measure certain defined benefit plan assets using the nav practical expedient , we adopted the new standard on january 1 , 2016. the new standard will impact our future pension disclosures and is not expected to otherwise have an impact on our consolidated financial statements . in april 2015 , the fasb issued an asu that provides guidance on evaluating whether a cloud computing arrangement includes a software license . if there is a software license component , software licensing accounting should be applied ; otherwise , service contract accounting should be applied . the asu is effective for fiscal years beginning after december 15 , 2015 , with early adoption permitted . we adopted the new standard on january 1 , 2016 and on a prospective basis . the standard is not expected to have a material impact on our consolidated financial statements . in april 2015 , the fasb issued an asu that simplifies the presentation of debt issuance costs . the standard requires debt issuance costs related to a recognized debt obligation to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt instead of being presented as an asset , similar to the presentation of debt discounts . 71 in august 2015 , the fasb issued an update clarifying that for line-of-credit arrangements entities may continue to defer debt issuance costs as an asset . the asu represents a change in accounting principle and requires retrospective application . the asu is effective for fiscal years beginning after december 15 , 2015 , with early adoption permitted . we early adopted the new standard on story_separator_special_tag . we continue to have an ongoing interest in the coffee business . beginning in the third quarter of 2015 , we have included the after-tax earnings of jde and of our historical coffee business results within continuing results of operations . for adjusted eps , we have included these earnings in equity method investment earnings and have deconsolidated our historical coffee business results from organic net revenue and adjusted operating income to facilitate comparisons of past and future coffee operating results . ( 3 ) historically , we have recorded income from equity method investments within our operating income as these investments operated as extensions of our base business . beginning in the third quarter of 2015 , we began to record the earnings from our equity method investments in after-tax equity method investment earnings outside of operating income following the deconsolidation of our coffee business . see note 1 , summary of significant accounting policies ย principles of consolidation , for more information . in periods prior to july 2 , 2015 , we have reclassified the equity method earnings from our adjusted operating income to after-tax equity method investment earnings within adjusted eps to be consistent with the deconsolidation of story_separator_special_tag the asu is effective for fiscal years beginning after december 15 , 2017. we are currently assessing the impact across our operations and on our consolidated financial statements . in november 2015 , the fasb issued an asu that requires all deferred tax liabilities and assets be classified as noncurrent in the balance sheet . the new standard did not change the current requirement to offset deferred tax liabilities and assets within a tax-paying component of an entity . the asu is effective for fiscal years beginning after december 15 , 2016 , with early adoption permitted . it can also be applied either prospectively or retrospectively to all periods presented . we early adopted the new standard on december 31 , 2015 on a prospective basis . we classified deferred taxes as non-current on our consolidated balance sheets as of december 31 , 2015. no prior periods were retrospectively adjusted . in september 2015 , the fasb issued an asu that eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively . under the new guidance , measurement-period adjustments should be accounted for during the period in which the entity determines the amount of the adjustment . the asu is effective for fiscal years beginning after december 15 , 2015 , with early adoption permitted , and should be applied prospectively to open measurement periods after the effective date , regardless of the acquisition date . we elected to early adopt and will apply the standard in our accounting for the acquisitions that we closed during the third quarter of 2015. see note 2 , divestitures and acquisitions , for more information . in july 2015 , the fasb issued an asu that simplifies the guidance on the subsequent measurement of inventory . u.s. gaap currently requires an entity to measure inventory at the lower of cost or market . previously , market could be replacement cost , net realizable value or net realizable value less an approximate normal profit margin . under the new standard , inventory should be valued at the lower of cost or net realizable value . the asu is effective for fiscal years beginning after december 15 , 2016 , with early adoption permitted . we early adopted the new standard on january 1 , 2016 on a prospective basis . the adoption of the standard is not expected to have a material impact on our consolidated financial statements . in may 2015 , the fasb issued an asu that applies to reporting entities that elect to measure the fair value of an investment using the net asset value ( ยnavย ) per share ( or its equivalent ) practical expedient . this asu removes the requirement to include investments measured using the practical expedient within fair value hierarchy disclosures . also , practical expedient disclosures previously required for all eligible investments are now only required for investments for which the practical expedient has been elected . the update is effective for fiscal years beginning after december 15 , 2015 , with early adoption permitted . as we measure certain defined benefit plan assets using the nav practical expedient , we adopted the new standard on january 1 , 2016. the new standard will impact our future pension disclosures and is not expected to otherwise have an impact on our consolidated financial statements . in april 2015 , the fasb issued an asu that provides guidance on evaluating whether a cloud computing arrangement includes a software license . if there is a software license component , software licensing accounting should be applied ; otherwise , service contract accounting should be applied . the asu is effective for fiscal years beginning after december 15 , 2015 , with early adoption permitted . we adopted the new standard on january 1 , 2016 and on a prospective basis . the standard is not expected to have a material impact on our consolidated financial statements . in april 2015 , the fasb issued an asu that simplifies the presentation of debt issuance costs . the standard requires debt issuance costs related to a recognized debt obligation to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt instead of being presented as an asset , similar to the presentation of debt discounts . 71 in august 2015 , the fasb issued an update clarifying that for line-of-credit arrangements entities may continue to defer debt issuance costs as an asset . the asu represents a change in accounting principle and requires retrospective application . the asu is effective for fiscal years beginning after december 15 , 2015 , with early adoption permitted . we early adopted the new standard on story_separator_special_tag . we continue to have an ongoing interest in the coffee business . beginning in the third quarter of 2015 , we have included the after-tax earnings of jde and of our historical coffee business results within continuing results of operations . for adjusted eps , we have included these earnings in equity method investment earnings and have deconsolidated our historical coffee business results from organic net revenue and adjusted operating income to facilitate comparisons of past and future coffee operating results . ( 3 ) historically , we have recorded income from equity method investments within our operating income as these investments operated as extensions of our base business . beginning in the third quarter of 2015 , we began to record the earnings from our equity method investments in after-tax equity method investment earnings outside of operating income following the deconsolidation of our coffee business . see note 1 , summary of significant accounting policies ย principles of consolidation , for more information . in periods prior to july 2 , 2015 , we have reclassified the equity method earnings from our adjusted operating income to after-tax equity method investment earnings within adjusted eps to be consistent with the deconsolidation of
| organic net revenue applying the definition of ยorganic net revenueย , the adjustments made to ยnet revenuesย ( the most comparable u.s. gaap financial measure ) were to exclude the impact of currency , the adjustment for deconsolidating our historical coffee business , divestitures , acquisitions and accounting calendar changes . we believe that organic net revenue better reflects the underlying growth from the ongoing activities of our business and provides improved comparability of results . we also evaluate our organic net revenue growth from emerging markets and power brands , and these underlying measures are also reconciled to u.s. gaap below . replace_table_token_28_th ( 1 ) includes our historical global coffee business prior to the july 2 , 2015 coffee business transactions . refer to note 2 , divestitures and acquisitions , and our non-gaap definitions appearing earlier in this section for more information . ( 2 ) includes the 2013 divestures of a salty snacks business in turkey , a confectionary business in south africa and a chocolate business in spain and does not include the deconsolidation of our coffee businesses . refer to note 2 , divestitures and acquisitions , and our non-gaap definitions appearing earlier in this section for more information .
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miso requires that dte electric submit hourly day-ahead , real-time , and ftr bids and offers for energy at locations across the miso region . dte electric accounts for miso transactions on a net hourly basis in each of the day-ahead , real-time , and ftr markets . in any single hour , transactions in each of the miso energy markets are netted based on mwh to determine if dte electric is in a net sale story_separator_special_tag the following combined discussion is separately filed by dte energy and dte electric . however , dte electric does not make any representations as to information related solely to dte energy or the subsidiaries of dte energy other than itself . executive overview dte energy is a diversified energy company with 2020 operating revenues of approximately $ 12.2 billion and total assets of approximately $ 45.5 billion . dte energy is the parent company of dte electric and dte gas , regulated electric and natural gas utilities engaged primarily in the business of providing electricity and natural gas sales , distribution , and storage services throughout michigan . dte energy also operates three energy-related non-utility segments with operations throughout the united states . the following table summarizes dte energy 's financial results : replace_table_token_10_th the increase in 2020 net income attributable to dte energy company was primarily due to higher earnings in the electric , gas storage and pipelines , and corporate and other segments , partially offset by lower earnings in the energy trading segment . the increase in 2019 net income attributable to dte energy company was due to higher earnings in the electric , gas , energy trading , and corporate and other segments , partially offset by lower earnings in the gas storage and pipelines and power and industrial projects segments . 30 covid-19 pandemic during the first quarter of 2020 , the covid-19 pandemic began impacting michigan and other service territories throughout the united states in which the registrants operate . dte energy took certain safety precautions including directing employees to work remotely whenever possible and pausing all non-critical business activities . the spread of covid-19 and efforts to contain the virus resulted in closures and reduced operations of businesses , governmental agencies , and other institutions . beginning in may 2020 , dte energy resumed business activities that had been temporarily suspended . local businesses and other institutions also resumed operations as new cases of covid-19 began to decline and government restrictions were reduced . impacts from the covid-19 pandemic have included a reduction in sales volumes from commercial and industrial customers and an increase in sales volumes from residential customers within the electric segment . covid-19 has also impacted the power and industrial projects segment , contributing to lower production in the ref business and lower demand in the steel business . operation and maintenance expense has been impacted by covid-19 , primarily in the electric segment , due to higher costs for personal protective equipment and other health and safety-related costs , including shift premiums and related expenses associated with the sequestration of certain employees critical to continued operations . the registrants implemented certain cost savings initiatives to offset some of these impacts , to the extent they did not affect safety or reliability of service . to date , impacts from the covid-19 pandemic have not had a material effect on the registrants ' uncollectible expense or capital spend . in addition , the cares act was signed into law in march 2020 to assist individuals and employers with the impacts of the covid-19 pandemic . this legislation resulted in various tax impacts to the registrants . refer to note 11 to the consolidated financial statements in item 8 of this report , `` income taxes , '' for additional information . please see detailed explanations of segment performance in the `` results of operations '' section below , including impacts from the covid-19 pandemic where applicable . also refer to the `` capital resources and liquidity '' section for information on the impact of covid-19 on the registrants ' liquidity and cost of capital . strategy dte energy 's strategy is to achieve long-term earnings growth , a strong balance sheet , and an attractive dividend yield . dte energy 's utilities are investing capital to improve customer reliability through investments in base infrastructure and new generation , and to comply with environmental requirements . dte energy expects that planned significant capital investments will result in earnings growth . dte energy is focused on executing plans to achieve operational excellence and customer satisfaction with a focus on customer affordability . dte energy operates in a constructive regulatory environment and has solid relationships with its regulators . dte energy is committed to reduce the carbon emissions of its electric utility operations by 32 % by 2023 , 50 % by 2030 , and 80 % by 2040 from 2005 carbon emissions levels . dte energy is also committed to a net zero carbon emissions goal by 2050 for its electric utility , gas utility , and dte midstream operations . to achieve the reduction goals in the near term , dte energy will transition away from coal-powered sources and incorporate more renewable energy , energy waste reduction projects , demand response , and natural gas fueled generation . dte energy has already begun the transition in the way it produces power through the continued retirement of its aging coal-fired plants . refer to the `` capital investments '' section below for further discussion . dte energy has significant investments in non-utility businesses . dte energy employs disciplined investment criteria when assessing growth opportunities that leverage its assets , skills , and expertise , and provides diversity in earnings and geography . specifically , dte energy invests in targeted energy markets with attractive competitive dynamics where meaningful scale is in alignment with its risk profile . dte energy expects growth opportunities in the gas storage and pipelines and power and industrial projects segments . story_separator_special_tag the registrants can not predict the ultimate impact of these factors to our consolidated financial statements as future developments involving covid-19 and related impacts on economic and operating conditions are highly uncertain . for further discussion of these uncertainties , refer to `` risk factors '' in item 1a . of this report . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:400 ; line-height:120 % '' > operating revenues โ non-utility operations increased $ 9 million in 2020 and $ 5 million in 2019. the increase in both periods was due to renewable energy projects acquired by dte sustainable generation in september 2019 and january 2020. operation and maintenance expense increased $ 55 million in 2020 and decreased $ 3 million in 2019. the increase in 2020 was primarily due to covid-19 related expenses of $ 50 million associated with the health and safety of employees , higher benefits expense of $ 15 million , higher ewr program expense of $ 11 million , higher rps program expense of $ 9 million , and an $ 11 million adjustment in 2019 to defer expenses previously accrued for a new customer billing system . these increases were partially offset by lower generation expense of $ 25 million and lower distribution expense of $ 12 million . the decrease in 2019 was primarily due to lower uncollectible expense of $ 19 million , an $ 11 million deferral of expenses previously accrued for a new customer billing system , and decreased generation expense of $ 3 million . these decreases were partially offset by higher tree trim expense of $ 20 million ( tree trim expenses increased by $ 63 million but were offset by amounts deferred to a regulatory asset of $ 43 million ) and higher rps program expense of $ 11 million . depreciation and amortization expense increased $ 108 million in 2020 and $ 113 million in 2019. in 2020 , the increase was primarily due to a $ 108 million increase resulting from a higher depreciable base and change in depreciation rates effective may 2019 and a $ 10 million increase resulting from new non-utility assets at dte sustainable generation , partially offset by a decrease of $ 11 million associated with the trm . in 2019 , the increase was primarily due to a $ 126 million increase resulting from a higher depreciable base and change in depreciation rates effective may 2019 and a $ 4 million increase resulting from new non-utility assets at dte sustainable generation , partially offset by a decrease of $ 17 million associated with the trm . taxes other than income decreased $ 14 million in 2020 and increased $ 4 million in 2019. in 2020 , the decrease was primarily due to lower property taxes of $ 9 million as a result of a property tax settlement and lower payroll taxes of $ 3 million , which was primarily attributable to employee retention credits recognized pursuant to the cares act . in 2019 , the increase was primarily due to a $ 2 million tax reserve released in 2018 , higher property taxes of $ 1 million , and a $ 1 million increase resulting from new non-utility assets at dte sustainable generation . asset ( gains ) losses and impairments , net increased $ 28 million in 2020 and $ 14 million in 2019. the increase in 2020 was primarily due to a $ 41 million write-off of capital expenditures related to incentive compensation , which were disallowed in the may 8 , 2020 rate order from the mpsc , compared to losses of $ 13 million in 2019. the increase in 2019 was primarily due to previously recorded capital expenditures of $ 13 million that were disallowed in the may 2 , 2019 rate order . 36 other ( income ) and deductions increased $ 81 million in 2020 and decreased $ 26 million in 2019. the increase in 2020 was primarily due to a change in investment earnings ( loss of $ 3 million in 2020 compared to a gain of $ 37 million in 2019 ) , $ 30 million of contributions to the dte energy foundation and other not-for-profit organizations , and $ 22 million of higher interest expense . these increases were partially offset by a 2019 accrual of $ 6 million associated with an environmental-related settlement . the decrease in 2019 was primarily due to a change in investment earnings ( gain of $ 37 million in 2019 compared to a loss of $ 11 million in 2018 ) and lower non-operating retirement benefits expense of $ 12 million , partially offset by higher interest expense of $ 32 million . income tax expense decreased $ 29 million in 2020 and $ 56 million in 2019. the decrease in 2020 was primarily due to higher amortization of the tcja regulatory liability and higher production tax credits , partially offset by higher earnings . the decrease in 2019 was primarily due to tcja regulatory liability amortization of $ 35 million and higher production tax credits . outlook โ dte electric will continue to move forward in its efforts to achieve operational excellence , sustain strong cash flows , and earn its authorized return on equity . dte electric expects that planned significant capital investments will result in earnings growth . dte electric will maintain a strong focus on customers by increasing reliability and satisfaction while keeping customer rate increases affordable . looking forward , additional factors may impact earnings such as weather , the outcome of regulatory proceedings , benefit plan design changes , investment returns and changes in discount rate assumptions in benefit plans and health care costs , uncertainty of legislative or regulatory actions regarding climate change , and effects of energy waste reduction programs . dte electric is also monitoring the impacts of the covid-19 pandemic on future operations and financial results .
| results of operations management 's discussion and analysis of financial condition and results of operations includes financial information prepared in accordance with gaap , as well as the non-gaap financial measures , utility margin and non-utility margin , discussed below , which dte energy uses as measures of its operational performance . generally , a non-gaap financial measure is a numerical measure of financial performance , financial position or cash flows that excludes ( or includes ) amounts that are included in ( or excluded from ) the most directly comparable measure calculated and presented in accordance with gaap . 33 dte energy uses utility margin and non-utility margin , non-gaap financial measures , to assess its performance by reportable segment . utility margin includes electric utility and gas utility operating revenues net of fuel , purchased power , and gas expenses . the utilities ' fuel , purchased power , and natural gas supply are passed through to customers , and therefore , result in changes to the utilities ' revenues that are comparable to changes in such expenses . as such , dte energy believes utility margin provides a meaningful basis for evaluating the utilities ' operations across periods , as it excludes the revenue effect of fluctuations in these expenses . for the electric segment , non-utility operating revenues are reported separately so that utility margin can be used to assess utility performance . the non-utility margin relates to the power and industrial projects and energy trading segments . for the power and industrial projects segment , non-utility margin primarily includes operating revenues net of fuel , purchased power , and gas expenses . operating revenues include sales of refined coal to third parties and the affiliated electric utility , metallurgical coke and related by-products , petroleum coke , renewable natural gas and related credits , and electricity , as well as rental income and revenues from utility-type consulting , management , and operational services .
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factors that could cause or contribute to such differences include , but are not limited to , those discussed in this section as well as factors described in ยpart i , item 1aย risk factors.ย overview we are an rna interference-based biopharmaceutical company focused on the discovery and development of innovative treatments for rare inherited diseases involving the liver and for cancers that are genetically defined . we are using our rna interference ( rnai ) technology platform to build a broad pipeline in these therapeutic areas . in both rare diseases and oncology , we are pursuing targets that have historically been difficult to inhibit using conventional approaches , but where we believe connections between targets and diseases are well understood and documented . we aim to discover , develop and commercialize these novel therapeutics either on our own or in collaboration with pharmaceutical partners . in indications such as rare diseases in which a small sales force will suffice , we seek to retain substantially all commercial rights in key markets . in oncology and other more prevalent disease areas , we may partner our products while seeking to retain significant portions of the commercial rights in north america . in the rare disease field , we are developing a proprietary treatment , dcr-ph1 , for the rare and serious inherited disorder ph1 . we seek to begin clinical trials of dcr-ph1 in mid to late of 2015. we also have discovery and early development programs against a series of additional disease targets in the liver . in oncology , we are currently directing our development efforts towards our proprietary product candidate dcr-myc for the treatment of myc-related cancers , including hepatocellular carcinoma ( hcc ) . we submitted an ind application for dcr-myc for the treatment of solid tumors , multiple myeloma , and lymphoma to the u.s. food and drug administration in the second quarter of 2014 and began our clinical trials of dcr-myc shortly thereafter in the second quarter of 2014. in the fourth quarter of 2014 we initiated a global phase 1b/2 clinical trial of dcr-myc in patients with advanced hcc . as part of our collaboration with kyowa hakko kirin co. , ltd. ( khk ) , a global pharmaceutical company , we are developing a product candidate that targets the oncogene kras , which is frequently mutated in numerous major cancers , including non-small cell lung cancer , colorectal cancer , and pancreatic cancer . khk is responsible for global development of the kras program , including all development expenses . for the kras product candidate , we retain an option to co-promote in the u.s. for an equal share of the profits from u.s. net sales . we are also developing a product candidate targeting a cancer-related gene in collaboration with khk . for each product candidate in our collaboration with khk , we have the potential to receive clinical , regulatory and commercialization milestone payments of up to $ 110.0 million and royalties on net sales of each such product candidate . we expect that our strategy to partner the development of product candidates will help us fund the costs of clinical development and enable us to diversify risk across a number of programs . since our inception in october 2006 , we have devoted substantial resources to the research and development of dsirna molecules and drug delivery technologies and the protection and enhancement of our intellectual property estate . we have no products approved for sale and all of our revenue to date has been collaboration revenue or government grant revenue . to date , we have funded our operations primarily through the recent initial public offering of our common stock , previous private placements of preferred stock and convertible debt securities , from research funding , license fees , option exercise fees and preclinical payments under our research collaboration and license agreement with khk and from a government grant . in addition , we have borrowed under a secured term loan from hercules technology ii , l.p. ( hercules loan ) to fund our operations . more particularly , since our inception and through december 31 , 2014 , we have raised an aggregate of $ 233.2 million to fund our operations , of which $ 92.7 million was from the initial public offering of our common stock , which closed on february 4 , 2014 , $ 110.5 million was from the sale of preferred stock and convertible debt securities ( including $ 3.0 million from the 2013 bridge note financing ) , $ 17.5 million was through our collaboration and 78 license agreement with khk , $ 0.5 million was from a federal government grant for our qualifying therapeutic discovery project in november 2010 and $ 12.0 million was from borrowings under the hercules loan . as of december 31 , 2014 , we had cash and cash equivalents and held-to-maturity investments of $ 98.6 million and we also had $ 1.4 million in assets held in restriction . on april 7 , 2014 , we repaid the remaining amount of the hercules loan of approximately $ 3.6 million . on february 4 , 2014 , we completed the initial public offering of our common stock , in which we issued and sold a total of 6,900,000 shares of common stock , including 900,000 shares sold pursuant to the exercise in full by the underwriters of an option to purchase additional shares , at a public offering price of $ 15.00 per share . we received net proceeds of approximately $ 92.7 million after deducting the underwriting commissions and discounts and offering expenses payable by us . all of the shares of our preferred stock were converted into shares of common stock and our warrants to purchase preferred stock became exercisable to purchase common stock immediately prior to the completion of our initial public offering . since inception , we have incurred significant operating losses . story_separator_special_tag the expiration date of this patent is july 17 , 2027. pursuant to the terms of the agreement , we paid coh a one-time , non-refundable license fee and issued shares of our common stock to coh and a co-inventor of the core dsirna patent . coh is entitled to receive milestone payments in an aggregate amount within the range of $ 5.0 million to $ 10.0 million upon achievement of certain clinical and regulatory milestones . coh is further entitled to receive royalties at a low single-digit percentage of any net sale revenue of the licensed products sold by us and our sublicensees . if we sublicense the licensed patent rights to a third party , coh has the right to receive a double digit percentage of sublicense income , the percentage of which decreases after we have expended $ 12.5 million in development and commercialization costs . we are also obligated to pay coh an annual license maintenance fee , which may be credited against any royalties due to coh in the same year , and reimburse coh for expenses associated with the prosecution and maintenance of the license patent rights . the license agreement will remain in effect until the expiration of the last to expire of the patents or copyrights licensed under the agreement . we have not included our obligations to make future milestone payments on our balance sheet because the achievement and timing of the related milestones is not probable and estimable . in september 2013 , we entered into a commercial license agreement with plant bioscience limited ( pbl ) , pursuant to which pbl has granted a license to us for certain of its u.s. patents and patent applications to research , discover , develop , manufacture , sell , import and export , products incorporating one or more short rna molecules ( srms ) . 80 we have paid pbl a one-time , non-refundable signature fee and will pay pbl a nomination fee for any additional srms nominated by us under the agreement . we are further obligated to pay pbl milestone payments upon achievement of certain clinical and regulatory milestones . in addition , pbl is entitled to receive royalties on any net sale revenue of any licensed product candidates sold by us . during 2014 , the company paid $ 0.1 million to pbl upon the commencement of our myc clinical trial . in november 2014 , we entered into a licensing and collaboration agreement with tekmira to license tekmira 's lnp delivery technology for exclusive use in our ph1 development program . we will use tekmira 's lnp technology to deliver dcr-ph1 , for the treatment of ph1 . as of december 31 , 2014 , we paid $ 3.0 million in license fees . tekmira is entitled to receive additional payments of $ 22.0 million in aggregate development milestones , plus a mid-single-digit royalty on future ph1 sales . this new partnership also includes a supply agreement with tekmira providing clinical drug supply and regulatory support . in december 2014 , we licensed all of our non-u.s. intellectual property rights to a non-u.s. wholly-owned subsidiary . financial operations overview revenue our revenue to date has been generated primarily through research funding , license fees , option exercise fees and preclinical development payments under our research collaboration and license agreement with khk and a government grant . we have not generated any commercial product revenue . for each product candidate under our research collaboration and license agreement with khk , we are also entitled to receive clinical , regulatory and commercialization milestone payments of up to $ 110.0 million and royalties on net sales of such product candidate . we did not receive any royalty payments during 2014 or 2013. we did not have revenue for the years ended december 31 , 2014 and 2013. in the future , we may generate revenue from a combination of research and development payments , license fees and other upfront payments , milestone payments , product sales and royalties in connection with our collaboration with khk or future collaborations and licenses . we expect that any revenue we generate will fluctuate in future periods as a result of the timing of our or a collaborator 's achievement of preclinical , clinical , regulatory and commercialization milestones , if at all , the timing and amount of any payments to us relating to such milestones and the extent to which any of our product candidates are approved and successfully commercialized by us or a collaborator . if we , khk or any future collaborator fails to develop product candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . research and development expenses research and development expenses consist of costs associated with our research activities , including discovery and development of our dsirna and dsirna-ex molecules and drug delivery technologies and our research activities under our research collaboration and license agreement with khk . our research and development expenses include : direct research and development expenses incurred under arrangements with third parties , such as contract research organizations , contract manufacturing organizations , and consultants ; platform-related lab expenses , including lab supplies , license fees consultants and our scientific advisory board ; employee-related expenses , including salaries , benefits and stock-based compensation expense ; and 81 facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment and laboratory and other supplies . we expense research and development costs as they are incurred . we account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received .
| general and administrative expenses general and administrative expenses were $ 15.6 million and $ 5.8 million for the years ended december 31 , 2014 and 2013 , respectively . the increase of $ 9.8 million , or 169 percent , was primarily due to an increase in payroll-related expenses of $ 3.6 million , which includes an increase in stock-based compensation of $ 2.6 million , an increase in professional fees of $ 2.9 million and an increase in non-employee stock based compensation of $ 1.1 million . the remaining increase in general and administrative expenses during 2014 was primarily due to the transition and increased costs associated with operating as a public company . we expect that general and administrative expenses will continue to increase in 2015 as we expand our operating activities and incur additional costs associated with being a publicly-traded company . these increases will likely include legal , accounting and filing fees , directors ' and officers ' liability insurance premiums and fees associated with investor relations . other expense other expense was $ 2.8 million and $ 1.1 million for the years ended december 31 , 2014 and 2013 , respectively . the increase of $ 1.7 million , or 149 % , was primarily due to the re-measurement of the preferred stock warrant liability of $ 2.7 million , which was partially offset by a decrease in interest and other expense of $ 1.0 million .
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we estimate the fair value of our investments using the closing prices on the 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 in part ii , item 8 of this form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . actual results may differ materially from those expressed or implied in these forward-looking statements as a result of certain known and unknown risks and uncertainties . see โ forward-looking statements . โ overview united insurance holding corp. is a holding company primarily engaged in residential and commercial property and casualty insurance in the united states . we conduct our business principally through four wholly-owned insurance subsidiaries : upc , acic , fsic , and iic . collectively , we refer to the holding company and all our subsidiaries , including non-insurance subsidiaries , as โ upc insurance , โ which is the preferred brand identification for our company . our company 's primary source of revenue is generated from writing insurance in connecticut , florida , georgia , hawaii , louisiana , massachusetts , new jersey , new york , north carolina , rhode island , south carolina and texas . our target market in such areas consists of states where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies . we believe an opportunity exists for upc insurance to write profitable business in such areas . we have historically grown our business through strong organic growth complemented by strategic acquisitions , including our acquisition of amco in april 2017 , iic in april 2016 , and family security holdings , llc ( fsh ) in february 2015. as a result of these acquisitions , along with organic growth of premium in states in which we currently write premium , we have grown our policies in-force by 17.1 % from 451,155 policies in-force at december 31 , 2016 to 528,193 policies in-force at december 31 , 2017 . our business is subject to the impact of weather-related catastrophes on our loss and loss adjustment expenses . during the third quarter of 2017 , hurricane harvey made landfall in texas and hurricane irma made landfall in florida . during the fourth quarter of 2016 , hurricane matthew impacted florida and georgia before making landfall in south carolina and also impacting north carolina . in 2017 , we retained $ 83,000,000 of pre-tax catastrophe losses , net of reinsurance recoverable as a result of hurricanes . the following discussion highlights significant factors influencing the consolidated financial position and results of operations of upc insurance . in evaluating our results of operations , we use premiums written and earned , policies in-force and new and renewal policies by geographic concentration . we also consider the impact of catastrophe losses and prior year development on our loss ratios , expense ratios and combined ratios . in monitoring our investments , we use credit quality , investment income , cash flows , realized gains and losses , unrealized gains and losses , asset diversification and portfolio duration . to evaluate our financial condition , we consider our : liquidity , financial strength , ratings , book value per share and return on equity . 30 united insurance holdings corp. replace_table_token_8_th ( 1 ) loss ratio , net is calculated as losses and loss adjustment expenses ( lae ) relative to net premiums earned . ( 2 ) expense ratio , net is calculated as the sum of all operating expenses less interest expense relative to net premiums earned . ( 3 ) combined ratio is the sum of the loss ratio , net and expense ratio , net . ( 4 ) underlying combined ratio , a measure that is not based on gaap , is reconciled above to the combined ratio , the most directly comparable gaap measure . additional information regarding non-gaap financial measures presented in this form 10-k can be found in โ definitions of non-gaap measures โ , below . ( 5 ) included in both the expense ratio and the combined ratio are $ 38,104,000 , $ 11,108,000 , and $ 1,675,000 for the years ended december 31 , 2017 , 2016 , and 2015 , respectively , of merger professional fees and amortization expense predominately associated with the amco , iic , and fsh acquisitions . excluding these additional expenses , the company would have reported underlying combined ratios of 78.9 % , 85.1 % , and 85.7 % for the year ended december 31 , 2017 , 2016 , and 2015 respectively . 31 united insurance holdings corp. definitions of non-gaap measures we believe that investors ' understanding of upc insurance 's performance is enhanced by our disclosure of the following non-gaap measures . our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited . combined ratio excluding the effects of current year catastrophe losses , prior year reserve development and ceding commission income earned ( underlying combined ratio ) is a non-gaap ratio , which is computed by subtracting the effect of current year catastrophe losses , prior year development , and ceding commission income earned related to our quota share reinsurance agreement from the combined ratio . we believe that this ratio is useful to investors and it is used by management to reveal the trends in our business that may be obscured by current year catastrophe losses , losses from lines in run-off , prior year development , and ceding commission income earned . current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude , and can have a significant impact on the combined ratio . prior year development is caused by unexpected loss development on historical reserves . story_separator_special_tag 33 united insurance holdings corp. expenses expenses for the year ended december 31 , 2017 increased $ 173,449,000 , or 36.1 % , to $ 653,663,000 for the year ended december 31 , 2017 from $ 480,214,000 for the same period in 2016 , primarily due to increased losses , policy acquisition costs , operating costs and general and administrative expenses . the calculation of our combined and underlying loss ratios is shown below . replace_table_token_11_th ( 1 ) underlying loss and lae is a non-gaap financial measure and is reconciled above to loss and lae , the most directly comparable gaap measure . additional information regarding non-gaap financial measures presented in this form 10-k can be found in the โ definitions of non-gaap measures โ section , above . the calculations of the company 's expense ratio and underlying expense ratios are shown below . replace_table_token_12_th ( 1 ) underlying expense is a non-gaap financial measure and is reconciled above to total operating expenses , the most directly comparable gaap measure . additional information regarding non-gaap financial measures presented in this form 10-k can be found in the โ definitions of non-gaap measures โ section , above . loss and lae increased by $ 67,182,000 , or 22.5 % , to $ 365,535,000 for the year ended december 31 , 2017 from $ 298,353,000 for the year ended december 31 , 2016 . loss and lae expense as a percentage of net earned premiums decreased 2.9 points to 62.4 % for the year , compared to 65.3 % last year . excluding catastrophe losses and reserve development , our gross underlying loss and lae ratio for the year was 25.5 % , a decrease of 8.3 points from 33.8 % during the year ended december 31 , 2016 . during the third quarter of 2017 , our catastrophe losses included claims from hurricane harvey , which made landfall as a category 4 storm in texas , and hurricane irma , which was also a category 4 storm making landfall in florida . our catastrophe excess of loss reinsurance limits retained losses to $ 91,000,000 in total for these two events , which was further reduced to $ 83,000,000 by our quota share reinsurance . 34 united insurance holdings corp. policy acquisition costs increased by $ 57,786,000 , or 49.1 % , to $ 175,444,000 for the year ended december 31 , 2017 from $ 117,658,000 for the year ended december 31 , 2016 . the primary driver of the increase in costs was the result of the managing general agent fees paid to amrisc in relation to amco commercial premium which was a cost increase anticipated with the acquisition of amco . the remaining change was the result of policy acquisition costs varying directly with changes in gross premiums earned and were generally consistent with our growth in premium production and higher average market commission rates outside of florida . operating and underwriting expenses increased by $ 7,151,000 , or 34.8 % , to $ 27,675,000 for the year ended december 31 , 2017 from $ 20,524,000 for the year ended december 31 , 2016 , primarily due to increased costs related to our ongoing growth , incurred expenses related to software improvements and costs related to the increase in underwriting reports . general and administrative expenses increased by $ 38,806,000 , or 90.3 % , to $ 81,762,000 for the year ended december 31 , 2017 from $ 42,956,000 for the year ended december 31 , 2016 , primarily due to amortization costs related to the merger with amco . we experienced favorable reserve development in the current year and its historical impact on our net loss and net underlying loss ratios is outlined in the following table . replace_table_token_13_th ( 1 ) underlying net loss ratio is a non-gaap measure and is reconciled above to the consolidated net loss ratio , the most directly comparable gaap measure . additional information regarding non-gaap financial measures presented in this form 10-k can be found in the โ definitions of non-gaap measures โ section , above . 35 united insurance holdings corp. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , approximately 86.5 % of our fixed maturities were u.s. treasuries , or corporate bonds rated โ a โ or better , and 13.5 % were corporate bonds rated โ bbb โ or โ bb โ . at december 31 , 2017 , there were 214 fixed maturity securities in an unrealized loss position for a period of 12 months or longer reflecting unrealized losses of $ 2,394,000 and no equity securities in an unrealized loss position for a period of 12 months or longer . we currently have no plans to sell these 214 securities , and we expect to fully recover our cost basis . we 39 united insurance holdings corp. reviewed all of our securities and determined that we did not need to record impairment charges at december 31 , 2017 . similarly , we did not record impairment charges at december 31 , 2016 . reinsurance we follow industry practice of reinsuring a portion of our risks . reinsurance involves transferring , or โ ceding โ , all or a portion of the risk exposure on policies we write to another insurer , known as a reinsurer . to the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements , we remain primarily liable for the entire insured loss under the policies we write . during the second quarter of 2017 we placed our reinsurance program for the 2017 hurricane season . we purchased catastrophe excess of loss reinsurance protection of $ 2,747,500,000 . the contracts reinsure for personal lines property excess catastrophe losses caused by multiple perils including hurricanes , tropical storms , and tornadoes . the agreements were effective as of june 1 , 2017 , for a one-year term and incorporate the mandatory coverage required by and placed with the florida hurricane catastrophe fund .
| results of operations - 2016 compared to 2015 revenues net income for the year ended december 31 , 2016 was $ 5,698,000 , or $ 0.26 per diluted share , compared to $ 27,358,000 , or $ 1.28 per diluted share , for the year ended december 31 , 2015 . the decrease in net income was primarily due to increases in losses and lae during 2016 as compared to 2015. our gross written premium increased by $ 138,420,000 , or 24.3 % , to $ 708,156,000 year ended december 31 , 2016 from $ 569,736,000 the year ended december 31 , 2015 , primarily due to strong organic growth in new and renewal business generated in our gulf and northeast regions . increases in direct written premium of over $ 159,335,000 were partially offset by reductions in assumed premium as we sharply curtailed our takeout activity in 2016 compared to the prior year . the breakdown of the yearโoverโyear changes in both direct written and assumed premiums by region and gross written premium by line of business is shown in the following table : replace_table_token_14_th ( 1 ) โ gulf โ is comprised of hawaii , louisiana and texas ; โ northeast โ is comprised of connecticut , massachusetts , new jersey , new york and rhode island ; and โ southeast โ is comprised of georgia , north carolina and south carolina . ( 2 ) assumed premiums written includes $ 1,610,000 of homeowners ' premium assumed from maidstone insurance company in conjunction with the iic acquisition in 2016 , as well as premiums assumed from citizens in 2015 and 2016 as well as twia in 2016 . ( 3 ) includes gross written premium from flood policies . replace_table_token_15_th ( 1 ) only includes new and renewal homeowner , commercial and dwelling fire policies written during the year .
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general the preparation of financial statements in conformity with united states generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we base our estimates and judgments on historical experience , current market conditions , and various other factors we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from these estimates under different assumptions or conditions . the most significant estimates and assumptions relate to the carrying value of our inventory and , to a lesser extent , the adequacy of our allowance for doubtful accounts . inventory valuation our position in the industry requires us to carry large inventory quantities relative to annual sales , but it also allows us to realize high overall gross profit margins on our sales . we market our products primarily to msos and other users of cable television equipment who are seeking products for which manufacturers have discontinued production or can not ship new equipment on a same-day basis . carrying these large inventory quantities represents our largest risk . 13 our inventory consists of new and used electronic components for the cable television industry . inventory is stated at the lower of cost or market , with cost determined using the weighted-average method . at september 30 , 2013 , we had total inventory of $ 22.5 million , consisting of $ 16.5 million in new products and $ 6.0 million in used or refurbished products against which we have a reserve of $ 1.8 million for excess and obsolete inventory , leaving us a net inventory of $ 20.7 million . we are required to make judgments as to future demand requirements from our customers . we regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affect future customer demand . for individual inventory items , we may carry inventory quantities that are excessive relative to market potential , or we may not be able to recover our acquisition costs for sales that we do make . in order to address the risks associated with our investment in inventory , we review inventory quantities on hand and reduce the carrying value when the loss of usefulness of an item or other factors , such as obsolete and excess inventories , indicate that cost will not be recovered when an item is sold . during 2013 , we increased our reserve for excess and obsolete inventory by approximately $ 1.0 million and wrote down the carrying value of certain inventory items by approximately $ 0.3 million to reflect deterioration in the market demand of that inventory . if actual market conditions are less favorable than those projected by management , and our estimates prove to be inaccurate , we could be required to increase our inventory reserve and our gross margins could be materially adversely affected . inbound freight charges are included in cost of sales . purchasing and receiving costs , inspection costs , warehousing costs , internal transfer costs and other inventory expenditures are included in operating expenses , since the amounts involved are not considered material . accounts receivable valuation management judgments and estimates are made in connection with establishing the allowance for doubtful accounts . specifically , we analyze the aging of accounts receivable balances , historical bad debts , customer concentrations , customer credit-worthiness , current economic trends and changes in our customer payment terms . significant changes in customer concentration or payment terms , deterioration of customer credit-worthiness , or weakening in economic trends could have a significant impact on the collectability of receivables and our operating results . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , an additional provision to the allowance for doubtful accounts may be required . the reserve for bad debts was $ 0.3 million at september 30 , 2013 and september 30 , 2012. at september 30 , 2013 , accounts receivable , net of allowance for doubtful accounts , was $ 3.0 million . goodwill goodwill represents the excess of purchase price of acquisitions over the acquisition date fair value of the net assets of businesses acquired . goodwill and intangible assets with indefinite useful lives are not amortized and are tested at least annually for impairment . we perform our annual analysis during the fourth quarter of each fiscal year and in any other period in which indicators of impairment warrant additional analysis . goodwill is evaluated for impairment by first comparing our estimate of the fair value of the reporting unit , or operating segment , with the reporting unit 's carrying value , including goodwill . our reporting unit for purposes of the goodwill impairment calculation is our consolidated entity . management utilizes a discounted cash flow analysis to determine the estimated fair value of our reporting unit . significant judgments and assumptions including the discount rate and anticipated revenue growth rate , gross margins and operating expenses are inherent in these fair value estimates , which are based on historical operating results . as a result , actual results may differ from the estimates utilized in our discounted cash flow analysis . the use of alternate judgments and or assumptions could result in the recognition of different levels of impairment charges in the financial statements . if the carrying value of the reporting unit exceeds its fair value , a computation of the implied fair value of goodwill would then be compared to its related carrying value . if the carrying value of the story_separator_special_tag general the preparation of financial statements in conformity with united states generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we base our estimates and judgments on historical experience , current market conditions , and various other factors we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from these estimates under different assumptions or conditions . the most significant estimates and assumptions relate to the carrying value of our inventory and , to a lesser extent , the adequacy of our allowance for doubtful accounts . inventory valuation our position in the industry requires us to carry large inventory quantities relative to annual sales , but it also allows us to realize high overall gross profit margins on our sales . we market our products primarily to msos and other users of cable television equipment who are seeking products for which manufacturers have discontinued production or can not ship new equipment on a same-day basis . carrying these large inventory quantities represents our largest risk . 13 our inventory consists of new and used electronic components for the cable television industry . inventory is stated at the lower of cost or market , with cost determined using the weighted-average method . at september 30 , 2013 , we had total inventory of $ 22.5 million , consisting of $ 16.5 million in new products and $ 6.0 million in used or refurbished products against which we have a reserve of $ 1.8 million for excess and obsolete inventory , leaving us a net inventory of $ 20.7 million . we are required to make judgments as to future demand requirements from our customers . we regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affect future customer demand . for individual inventory items , we may carry inventory quantities that are excessive relative to market potential , or we may not be able to recover our acquisition costs for sales that we do make . in order to address the risks associated with our investment in inventory , we review inventory quantities on hand and reduce the carrying value when the loss of usefulness of an item or other factors , such as obsolete and excess inventories , indicate that cost will not be recovered when an item is sold . during 2013 , we increased our reserve for excess and obsolete inventory by approximately $ 1.0 million and wrote down the carrying value of certain inventory items by approximately $ 0.3 million to reflect deterioration in the market demand of that inventory . if actual market conditions are less favorable than those projected by management , and our estimates prove to be inaccurate , we could be required to increase our inventory reserve and our gross margins could be materially adversely affected . inbound freight charges are included in cost of sales . purchasing and receiving costs , inspection costs , warehousing costs , internal transfer costs and other inventory expenditures are included in operating expenses , since the amounts involved are not considered material . accounts receivable valuation management judgments and estimates are made in connection with establishing the allowance for doubtful accounts . specifically , we analyze the aging of accounts receivable balances , historical bad debts , customer concentrations , customer credit-worthiness , current economic trends and changes in our customer payment terms . significant changes in customer concentration or payment terms , deterioration of customer credit-worthiness , or weakening in economic trends could have a significant impact on the collectability of receivables and our operating results . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , an additional provision to the allowance for doubtful accounts may be required . the reserve for bad debts was $ 0.3 million at september 30 , 2013 and september 30 , 2012. at september 30 , 2013 , accounts receivable , net of allowance for doubtful accounts , was $ 3.0 million . goodwill goodwill represents the excess of purchase price of acquisitions over the acquisition date fair value of the net assets of businesses acquired . goodwill and intangible assets with indefinite useful lives are not amortized and are tested at least annually for impairment . we perform our annual analysis during the fourth quarter of each fiscal year and in any other period in which indicators of impairment warrant additional analysis . goodwill is evaluated for impairment by first comparing our estimate of the fair value of the reporting unit , or operating segment , with the reporting unit 's carrying value , including goodwill . our reporting unit for purposes of the goodwill impairment calculation is our consolidated entity . management utilizes a discounted cash flow analysis to determine the estimated fair value of our reporting unit . significant judgments and assumptions including the discount rate and anticipated revenue growth rate , gross margins and operating expenses are inherent in these fair value estimates , which are based on historical operating results . as a result , actual results may differ from the estimates utilized in our discounted cash flow analysis . the use of alternate judgments and or assumptions could result in the recognition of different levels of impairment charges in the financial statements . if the carrying value of the reporting unit exceeds its fair value , a computation of the implied fair value of goodwill would then be compared to its related carrying value . if the carrying value of the
| results of operations year ended september 30 , 2013 , compared to year ended september 30 , 2012 ( all references are to fiscal years ) total net sales . total net sales decreased $ 1.8 million , or 5 % , to $ 33.4 million for 2013 from $ 35.2 million for 2012. the decrease in equipment sales was primarily due to the continued decrease in plant expansions and bandwidth upgrades in the cable television industry , partially offset by increased equipment sales as a result of hurricane sandy . new equipment sales decreased $ 0.8 million , or 4 % , to $ 20.3 million for 2013 from $ 21.1 million for 2012. net refurbished sales decreased $ 0.8 million , or 8 % , to $ 9.0 million for 2013 from $ 9.8 million for the same period last year . net repair service revenues decreased $ 0.3 million , or 8 % , to $ 4.0 million for 2013 from $ 4.3 million for the same period last year . cost of sales . cost of sales includes ( i ) the costs of new and refurbished equipment , on a weighted average cost basis , sold during the period , ( ii ) the equipment costs used in repairs , ( iii ) the related transportation costs , and ( iv ) the labor and overhead directly related to these sales . cost of sales decreased $ 1.1 million , or 4 % , to $ 23.8 million for 2013 from $ 24.9 million for 2012. the decrease in cost of sales was primarily due to lower overall net sales . cost of sales was also impacted by an increase in the provision for excess and obsolete inventory of $ 0.4 million to $ 1.0 million for 2013 from $ 0.6 million for 2012. cost of sales as a percent of revenue was 71 % for both 2013 and 2012. gross profit .
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md & a contains forward-looking statements and should be read in conjunction with our consolidated financial statements , accompanying notes , and other financial information included in this report . unless the context suggests otherwise , the terms โ first community , โ โ company , โ โ we , โ โ our , โ and โ us โ refer to first community bankshares , inc. and its subsidiaries as a consolidated entity . executive overview first community bankshares , inc. ( the โ company โ ) is a financial holding company , headquartered in bluefield , virginia , that provides banking products and services through its wholly owned subsidiary first community bank ( the โ bank โ ) , a virginia chartered bank institution . as of december 31 , 2020 , the bank operated 50 branches in virginia , west virginia , north carolina and tennessee . our primary source of earnings is net interest income , the difference between interest earned on assets and interest paid on liabilities , which is supplemented by fees for services , commissions on sales , and various deposit service charges . we fund our lending and investing activities primarily through the retail deposit operations of our branch banking network and , to a lesser extent , retail and wholesale repurchase agreements and federal home loan bank ( โ fhlb โ ) borrowings . we invest our funds primarily in loans to retail and commercial customers and various investment securities . the bank offers trust management , estate administration , and investment advisory services through its trust division and wholly owned subsidiary first community wealth management ( โ fcwm โ ) . the trust division manages inter vivos trusts and trusts under will , develops and administers employee benefit and individual retirement plans , and manages and settles estates . fiduciary fees for these services are charged on a schedule related to the size , nature , and complexity of the account . revenues consist primarily of commissions on assets under management and investment advisory fees . as of december 31 , 2020 , the trust division and fcwm managed and administered $ 1.18 billion in combined assets under various fee-based arrangements as fiduciary or agent . our acquisition and divestiture activity during the last three years includes the december 31 , 2019 , acquisition of highlands bankshares , inc. ( โ highlands โ ) , headquartered in abingdon , virginia with total assets of $ 563 million . the completion of the transaction resulted in total consolidated assets increasing to $ 2.80 billion immediately after the transaction . activity in prior years include the completion of our agreement and plan of reincorporation and merger changing our corporate domicile from nevada to virginia on october 2 , 2018 , as well as the sale of our remaining insurance agency assets to bankers insurance , llc on october 1 , 2018. for additional information , see note 2 , โ acquisitions and divestitures , โ to the consolidated financial statements in item 8 of this report . recent developments : covid-19 and the cares act the outbreak of covid-19 has significantly disrupted local , national , and global economies and has adversely impacted a broad range of industries in which the company 's customers operate and could impair their ability to fulfill their financial obligations to the company . the world health organization has declared covid-19 to be a global pandemic and almost all public commerce and related business activities have been curtailed , to varying degrees , with the goal of decreasing the rate of new infections . the spread of the outbreak has caused significant disruptions in the u.s. economy and has disrupted banking and other financial activity in the areas in which the company operates . while there has been no material impact to the company 's employees to date , covid-19 has the potential to create widespread business continuity issues for the company . congress , the executive branch , and the federal reserve have taken several actions designed to cushion the economic fallout . most notably , the coronavirus aid , relief and economic security ( โ cares โ ) act was signed into law at the end of march 2020 as a $ 2 trillion legislative package . the goal of the cares act is to curb the economic downturn through various measures , including direct financial aid to american families and economic stimulus to significantly impacted industry sectors through programs like the paycheck protection program ( โ ppp โ ) . 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 a material impact on the company 's operations and could continue to impact operations going forward . the company 's business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions . while progress has been made on the vaccine front , if the global response to contain covid-19 is prolonged or is unsuccessful , the company could experience further adverse effects on its business , financial condition , results of operations and cash flows . while it is not possible to know the full universe or extent that the impact of covid-19 , and resulting measures to curtail its spread , will have on the company 's operations , the company is disclosing potentially material items of which it is aware . financial position and results of operations pertaining to our december 31 , 2020 , financial condition and results of operations , covid-19 had a material impact on our allowance for loan losses ( โ all โ ) . while we have not yet experienced any significant charge-offs related to covid-19 , our all calculation and resulting provision for loan losses were significantly impacted by expectations for future losses due to governmental reactions to the pandemic . story_separator_special_tag upon the who 's pandemic declaration , the company 's enterprise risk management team implemented its board approved business continuity plan . the company appointed an internal pandemic preparedness task force comprised of the company 's management to address both operational and financial risks posed by covid-19 . shortly after invoking the plan , the company deployed a successful remote working strategy , provided timely communication to team members and customers , implemented protocols for team member safety , and initiated strategies for monitoring and responding to local covid-19 impacts - including customer relief efforts . the company 's preparedness efforts , coupled with quick and decisive plan implementation , resulted in minimal impacts to operations as a result of covid-19 . at december 31 , 2020 , a significant portion of our backroom operations employees continue to work remotely with no disruption to our operations . we have not incurred additional material cost related to our remote working strategy to date , nor do we anticipate incurring material cost in future periods . as of december 31 , 2020 , we do n't anticipate significant challenges to our ability to maintain our systems and controls in light of the measures we have taken to prevent the spread of covid-19 . the company does not currently face any material resource constraint through the implementation of our business continuity plans . lending operations and accommodations to borrowers the coronavirus aid , relief and economic security ( โ cares โ ) act included a provision allowing banks to not apply the guidance on accounting for troubled debt restructurings to loan modifications , such as extensions or deferrals , related to covid-19 made between march 1 , 2020 , and the earlier of ( i ) december 31 , 2020 , or ( ii ) 60 days after the end of the covid-19 national emergency . the relief can only be applied to modifications for borrowers that were not more than 30 days past due as of december 31 , 2019. the company elected to adopt this provision of the cares act . through december 31 , 2020 , we have modified 3,625 commercial and consumer loans totaling $ 458.17 million . those modifications were generally short-term payment deferrals and are not considered tdr 's based on the cares act . our policy is to downgrade commercial loans modified for covid-19 to special mention , which caused the significant increase in loans in that rating . subsequent upgrade or downgrade will be on a case by case basis . the company is upgrading these loans back to pass once the modification period has ended and timely contractual payments resume . further downgrade would be based on a number of factors , including but not limited to additional modifications , payment performance and current underwriting . as of december 31 , 2020 , current commercial and consumer covid-19 loan deferrals stood at $ 26.54 million and $ 5.72 million , respectively . it is possible that these deferrals could be extended further under the cares act ; as amended by the consolidated appropriations act of 2021 ( `` caa '' ) signed into law on december 27 , 2000 , that extended the ability to provide necessary loan modifications to our customers and not consider these troubled debt restructurings . however , the volume of these future potential extensions is unknown . it is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment , these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings ; however , the amount of any future charge-offs on deferred loans is unknown . 22 with the passage of the ppp , administered by the small business administration ( โ sba โ ) small businesses and other entities and individuals can apply for loans from existing sba lenders and other approved regulated lenders that enroll in the program , subject to numerous limitations and eligibility criteria . the bank is participating as a lender in the ppp . the ppp opened on april 3 , 2020 , and on or about april 16 , 2020 , the sba notified lenders that the $ 349 billion earmarked for the ppp was exhausted . congress approved additional funding for the ppp of approximately $ 320 billion on april 24 , 2020. as part of the economic aid to hard-hit small businesses , nonprofits , and venues act ( `` economic aid act '' ) enacted on december 27 , 2020 , in january , 2021 , the sba released applications for the second round of ppp loans for second draw loans for borrowers who received funding in the first round and first draw loans to first time borrowers . as of december 31 , 2020 , we have funded approximately 803 loans with original principal balances totaling $ 62.74 million through the ppp program . through december 31 , 2020 , $ 3.94 million , or 6.46 % , of the company 's ppp loan balances had been forgiven by the sba . it is the company 's understanding that loans funded through the ppp program are fully guaranteed by the u.s. government . should those circumstances change , the company could be required to establish an allowance for credit loss through additional credit loss expense charged to earnings . the company is committed to assisting our customers in this time of need . branch locations have converted to drive-thru only in order to ensure the health and safety of our customers and team members with lobbies available on a limited appointment-only basis . in addition , we have increased our emphasis on digital banking platforms . the safety , health and wellness of our employees is a top priority . the covid-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations .
| results o f operations net income the following table presents the changes in net income and related information for the periods indicated : replace_table_token_4_th 2020 compared to 2019 . pre-tax income decreased $ 3.68 million , or 7.40 % , due to an increase in noninterest expense of $ 9.86 million , an increase in the provision for loan losses of $ 9.10 million , and a decrease in noninterest income of $ 3.84 million . the decreases to income were offset by a increase in net interest income of $ 19.12 million . income tax expense decreased $ 808 thousand primarily as a result of the decrease in pre-tax income . 2019 compared to 2018 . pre-tax income increased $ 4.67 million , or 10.36 % , due to an increase in noninterest income of $ 7.23 million partially offset by a decrease in net interest income of $ 1.39 million and an increase in the provision for loan losses of $ 1.18 million . income tax expense increased $ 2.21 million due to an increase in the effective rate from 19.46 % in 2019 to 22.08 % in 2020 . 25 net interest income net interest income , our largest contributor to earnings , is analyzed on a fully taxable equivalent ( โ fte โ ) basis , a non-gaap financial measure . for additional information , see โ non-gaap financial measures โ above . the following table presents the consolidated average balance sheets and net interest analysis on a fte basis for the dates indicated : replace_table_token_5_th ( 1 ) fte basis based on the federal statutory rate of 21 % . ( 2 ) nonaccrual loans are included in average balances ; however , no related interest income is recognized during the period of nonaccrual . ( 3 ) interest on loans include non-cash purchase accounting accretion of $ 7.99 million in 2020 , $ 3.23 million in 2019 , and $ 6.39 million in 2018 .
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initially focused on disease-causing genes in the liver , dicerna has continued to innovate and is exploring new applications of its rnai technology with galxc-plus , which expands on the functionality and application of our flagship liver-based galxc technology , yet has the potential to treat diseases across multiple therapeutic areas . in addition to our own pipeline of core discovery and clinical candidates , dicerna has established collaborative relationships with some of the world 's leading pharmaceutical companies , including novo nordisk a/s ( โ novo โ ) , roche , eli lilly and company ( โ lilly โ ) , alexion pharmaceuticals , inc. ( together with its affiliates , โ alexion โ ) , boehringer ingelheim international gmbh ( โ bi โ ) , and alnylam pharmaceuticals , inc. ( โ alnylam โ ) . between dicerna and our collaborative partners , we currently have more than 20 active discovery , preclinical , or clinical programs focused on rare , cardiometabolic , viral , chronic liver , and complement-mediated diseases , as well as neurodegenerative diseases and pain . most of our drug discovery and development efforts are based on the therapeutic modality of rnai , a highly potent , natural , and specific mechanism that can be directed to reduce expression of a target gene . in this naturally occurring biological process , a short , synthetic , double-stranded rna duplex induces the enzymatic destruction of the messenger ribonucleic acid ( โ mrna โ ) of a target gene that contains sequences complementary to one strand of a double-stranded rna . our approach is to design proprietary rna molecules that have the potential to engage the enzyme dicer and direct the endogenous cellular rnai machinery to silence a specific therapeutic target gene . our galxc technology utilizes a proprietary galnac-mediated conjugate to cause the liver to efficiently internalize our synthetic rna molecules . in contrast , our galxc-plus technology incorporates new chemistries and secondary structures to enable the targeting of genes in tissues and cell types beyond the liver . our current clinical programs utilize the galxc technology . our galxc-plus technology utilizes modified rna structures and various fully-synthetic conjugated ligands to deliver to non-liver tissues and is used in a number of our preclinical programs . due to the enzymatic nature of rnai , a single galxc or galxc-plus molecule incorporated into the rnai machinery can destroy hundreds or thousands of mrnas from the targeted gene . the galxc rnai platform and other proprietary rnai delivery technologies support dicerna 's long-term strategy to retain a full or substantial ownership stake in our programs , subject to the evaluation of potential licensing opportunities as they may arise , and to invest internally in programs for diseases with focused patient populations , such as certain rare diseases or diseases with well-characterized genetic targets . these certain rare disease programs , which include our nedosiran and alpha-1 antitrypsin ( โ aat โ ) programs , represent opportunities that we believe carry a relatively higher probability of success , with genetically and molecularly defined disease markers , high unmet medical need , a limited number of centers of excellence to facilitate reaching these patients , and the potential for more rapid clinical development paths to regulatory approval . for more complex diseases with multiple gene dysfunctions and or larger patient populations , we continue to pursue collaborations that can provide the enhanced scale , resources , and commercial infrastructure required to maximize these prospects . we currently view our operations and manage our business as one segment which encompasses the discovery , research , and development of treatments based on our rnai technology platform . executive summary the following table provides a summary of revenue recognized for the year ended december 31 , 2020 ( amounts in thousands ) : 79 replace_table_token_1_th payments received from our collaboration partners during the three months and year ended december 31 , 2020 were as follows ( amounts in thousands ) : replace_table_token_2_th our results of operations for and liquidity and capital resources as of the year ended december 31 , 2020 include the following : in january 2020 , we entered into a non-cancelable real property lease agreement for 61,282 square feet of office space at 75 hayden avenue in lexington , massachusetts . the original term commenced during the fourth quarter of 2020 and is for 125 months with options to extend for two additional successive periods of five years thereafter . the aggregate total fixed rent is approximately $ 41.8 million . in july 2020 , we entered into an amendment to the 75 hayden avenue lease . the 75 hayden avenue lease amendment expands the square footage leased under the 75 hayden avenue lease to comprise a total of 91,728 rentable square feet . the 75 hayden avenue lease amendment increases monthly base rent by an average of $ 0.2 million per month . in february 2020 , we issued and sold approximately $ 40.0 million of shares of our common stock to a single institutional investor through our โ at-the-market โ sales facility with cowen and company , llc . in this transaction , we sold an aggregate of 2,077,500 shares of common stock at a price of $ 19.25 per share , resulting in approximately $ 39.2 million after a deduction of approximately $ 0.8 million in sales commissions . the shares in the offering were sold pursuant to a shelf registration statement declared effective by the securities and exchange commission ( โ sec โ ) on may 31 , 2018 and a prospectus supplement filed with the sec on june 1 , 2018. in april 2020 , we and alnylam entered into a collaboration and license agreement ( the โ a1at agreement โ ) and a patent cross-license agreement ( the โ ph agreement โ ) . under the a1at agreement , we and alnylam will work to develop and commercialize investigational rnai therapeutics for the treatment of alpha-1 antitrypsin ( โ aat โ ) deficiency-associated liver disease ( โ aatld โ ) . story_separator_special_tag in addition , depending on the duration and impact of the recurrence or resurgence of covid-19 cases or continued evolution of other strains causing covid-19 , and depending on where the infection rates are highest , and including the ability of regulators to continue ensuring the timely review and approval of applications , our business , results of operations , and financial condition may be negatively impacted . we will continue to monitor developments as we deal with the disruptions and uncertainties relating to the covid-19 pandemic . please refer to the โ financial operations overview โ section below for specific anticipated effects on our financial statement line items . 81 development approach in choosing which development programs to internally advance , we apply the scientific , clinical , and commercial criteria that we believe allow us to best leverage our galxc and galxc-plus rnai technologies and maximize value . using our galxc rnai technology , and applying the criteria of our development focus , we have created a pipeline of core liver-focused therapeutic programs for development by dicerna . for opportunities that were not selected as a core program opportunity , we have sought partners to fund the discovery , and subsequently drive the development of , these non-core opportunities in exchange for upfront payments , milestone payments , royalties on product sales , and potentially other economic and operational arrangements . our current collaborations with novo , lilly , alexion , and bi resulted from this effort . for core programs targeting rare diseases , we intend to develop these programs internally through approval . for core programs targeting larger populations , we may seek development partners , such as our collaboration with roche on rg6346 , under various economic and operational arrangements . together , our core program pipeline and our pipeline of non-core collaborative programs constitute a broad and growing therapeutic pipeline that we believe may result in multiple valuable approved products based on our galxc and galxc-plus technologies . in addition to the programs listed in our pipeline , we are exploring a variety of potential programs involving gene targets in diverse tissues addressable with our galxc and galxc-plus technologies . some of these programs may be elevated in the future to be either a core program or a non-core collaborative program . under our collaborations with novo , roche , and lilly , our collaborators have rights to nominate additional programs for discovery by dicerna and subsequent development by the nominating collaborator , which will become part of our non-core pipeline . in the case of our collaboration with novo , we retain rights to opt in to deeper participation , including enhanced economic rights , at defined points in clinical development , for two programs nominated by novo . our four current core galxc development programs are : nedosiran for the treatment of primary hyperoxaluria ( โ ph โ ) , rg6346 for the treatment of chronic hepatitis b virus ( โ hbv โ ) infection , belcesiran ( formerly dcr-a1at ) for the treatment of aatld , and dcr-aud for the treatment of alcohol use disorder ( โ aud โ ) . we conduct clinical trials in various countries around the world , including the u.s. and other areas heavily impacted by the covid-19 pandemic . the current supply of our investigational medicines is sufficient to support ongoing and planned clinical trials . based on current evaluations , our supply chain continues to appear intact to meet at least the next 12 months of clinical , nonclinical , and cmc supply demands across all programs . we have undertaken efforts to mitigate potential future impacts to the supply chain by increasing our stock of critical starting materials required to meet our needs and our collaborative partners ' needs through 2021 and by identifying and engaging alternative suppliers . in 2020 , there were delays related to several nedosiran phyox programs and the belcesiran clinical trial in healthy volunteers as a result of covid-19 . as a result , and based on the most recent updates from clinical sites impacted by covid-19 and precautionary measures related to the pandemic , we regularly evaluate our expectations related to clinical development milestones . 82 the table below sets forth the state of development of our various galxc rnai platform product candidates as of february 25 , 2021 : our galxc platform the galxc rnai platform dicerna 's galxc platform consists of our liver-targeted galxc technology and our galxc-plus technology for tissues outside the liver . each utilizes a set of proprietary double-stranded rna structures capable of inducing rnai and associated chemical modifications and additions to these structures that enhance their properties and help confer useful โ drug-like โ properties . our rnai-inducing rna structures consist of two strands of rna . one of these strands , called the guide strand , is complementary to the mrna sequence of the gene one is seeking to inhibit . the other strand , called the passenger strand , includes sequences complementary to the guide strand , forming a double-stranded rna duplex with it . in the case of our galxc and galxc-plus technologies , additional sequences may be added to the passenger strand , including a four-base sequence , known as a tetraloop , which is designed to enhance stability and engineer out immunostimulatory activity and can serve as an attachment point for various chemical additions that can facilitate delivery to diverse tissues . galxc rnai technology targeted to the liver to target the liver , we conjugate the tetraloop region of our galxc molecules to a simple sugar , galnac , that is specifically recognized by a receptor on the surface of liver hepatocytes . this leads to internalization , ultimately enabling the galxc molecules to access the rnai machinery inside the hepatocyte and deliver our targeted oligonucleotide to the risc complex . due to the efficiency of this process , a full human dose may be administered via a single subcutaneous injection .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes the results of our operations for the periods indicated ( amounts in thousands , except percentages ) : replace_table_token_3_th * percentage change not meaningful 91 revenue the following tables provide a summary of revenue recognized ( amounts in thousands ) : replace_table_token_4_th * percentage change not meaningful revenue primarily includes amounts recognized on upfront and milestone payments . the increase in revenue for the year ended december 31 , 2020 is primarily attributable to increased activities and associated costs under the recent collaboration agreement with roche , as well as under the alexion and lilly collaboration agreements , as all three agreements are recognized as revenue on a cost-to-cost measure of progress method . research and development expenses the following table summarizes our research and development expenses incurred during the periods indicated ( amounts in thousands , except percentages ) : replace_table_token_5_th research and development expenses increased $ 96.0 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 primarily due to a $ 54.8 million increase in direct research and development expenses . direct research and development expenses include expenses incurred under arrangements with third parties , such as contract research organizations , contract manufacturing organizations , and consultants . the $ 54.8 million increase in total direct research and development expenses for the year ended december 31 , 2020 is primarily due to a $ 36.1 million increase in partner and additional core programs direct research and development expenses , which includes increases of $ 16.3 million in manufacturing costs and $ 13.5 million in other direct research and development costs , largely reflective of increased activities primarily associated with our collaborations with lilly , alexion , and novo .
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15 comparison of year ended november 30 , 2017 to year ended november 30 , 2016 i. overview the corporation has $ 292,508 of revenue during the year ended november 30 , 2017 ( 2016 : $ 154,015 ) and the company continues to operate at a loss . the company expects their operating losses to continue for so long as the company does not generate adequate revenue . as of november 30 , 2017 , the company had accumulated losses of $ 31,098,864 ( november 30 , 2016 - $ 28,298,613 ) . the company 's ability to generate significant revenue and conduct business operations is dependent , in large part , upon our raising additional equity financing . as described in greater detail below , the company 's major financial endeavor over the years has been its effort to raise additional capital . ii . assets total assets as of november 30 , 2017 , includes cash of $ 1,965,043 , accounts receivable of $ 36,412 , prepaid expenses and other receivables of $ 6,648 , inventory of $ 157,303 , and plant and equipment for $ 26,951 , net of depreciation . total assets as of november 30 , 2016 , includes cash of $ 192,826 , accounts receivable of $ 32,534 , prepaid expenses and other receivables of $ 50,037 , inventory of $ 7,323 , deferred financing costs for $ 36,874 and plant and equipment for $ 50,496 net of depreciation . total assets increased from $ 370,090 on november 30 , 2016 to $ 2,192,357 on november 30 , 2017. this increase is primarily the result of additional raise of funds during the current year . iii . revenues revenue from operations during the year ended november 30 , 2017 was $ 292,508 as compared to $ 154,015 during the year ended november 30 , 2016. iv . net loss the company 's expenses are reflected in the consolidated statements of operation and comprehensive loss under the category of operating expenses . the significant components of expense that have contributed to the total operating expense are discussed as follows : ( a ) selling , general and administration expense selling , general and administration expense represents professional , consulting , office and general , stock- based compensation and other miscellaneous costs incurred during the years covered by this report . selling , general and administration expense for the year ended november 30 , 2017 was $ 1,919,789 , as compared with $ 1,723,310 for the year ended november 30 , 2016. general and administration expense increased by $ 196,479 in the current year , as compared to the prior year . the primary reasons for the change in general and administrative costs is as follows : the company expensed stock-based compensation expense ( included in general and administrative expenses ) for issue of options for $ 214,112 during the year ended november 30 , 2017. in 2016 , the company expensed stock-based compensation expense ( included in general and administrative expenses ) for issue of options and modification of warrants for $ 77,936. stock based compensation expense does not require the use of cash ( non-cash expenses ) , associated with the issuance of options and modification of warrants . v. quarterly results the net loss and comprehensive loss ( unaudited ) of the company for the quarter ended november 30 , 2017 as well as the seven quarterly periods completed immediately prior thereto are set out below : 16 for the for the for the for the for the three for the for the for the three three three three months three three three months months months months ended months months months ended ended ended ended november ended ended ended november august may 31 , february 30 , 2016 august may 31 , february 30 , 2017 31 , 2017 2017 28 , 2017 ( $ ) 31 , 2016 2016 28 , 2016 ( restated ) * ( restated ) * ( restated ) * ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) story_separator_special_tag valign= '' bottom '' width= '' 1 % '' > year ended our financings giving rise to derivative financial instruments and the income effects : november 30 , 2017 compound embedded derivatives : series b convertible secured debentures december 7 , 2016 $ ( 285,612 ) change in fair value of derivative liabilities ( 239,802 ) foreign currency translation loss ( 14,446 ) $ ( 539,860 ) vi . liquidity and capital resources the following table summarizes the company 's cash flows and cash in hand : replace_table_token_6_th as of november 30 , 2017 , the company had working capital of $ 1,191,848 as compared to working capital deficit of $ ( 1,080,962 ) as of november 30 , 2016. working capital increased primarily as a result of raising additional funds during the year . refer to the note on capital raise . net cash used in operations for the year ended november 30 , 2017 , was $ 1,471,031 as compared to $ 1,660,139 used for the year ended november 30 , 2016. the major components of change relate to : 1 ) items not affecting cash : stock based compensation of $ 214,112 in 2017 , as compared to $ 77,936 in 2016. november 30 , 2017 on march 27 , 2017 , the board of directors granted options to the ceo to acquire a total of 1,150,000 common shares . these options were issued at an exercise price of cad $ 0.13 ( $ 0.10 ) per share and vest thirty-three and one-third ( 33 1/3 ) percent every six months commencing january 1 , 2017 , with an expiry term of five years . the company expensed stock- based compensation expense for $ 61,358. on may 26 , 2017 , the board of directors granted 895,000 options to directors and 75,000 options to a consultant to acquire a total of 970,000 common shares . story_separator_special_tag the company entered a license and supply agreement with safariland , llc on may 1 , 2017. this agreement provides the company to license and sell only to safariland , llc for certain bip standard payloads for integration with and production of certain less-lethal impact munitions in north america . this agreement is for a term of four years with an automatic extension for an additional one-year term if neither party have given written notice of termination at least ninety ( 90 ) days prior to the end of the then-current term . cash requirements at november 30 , 2017 , the company had cash of $ 1,965,043 , accounts receivable of $ 36,412 , inventory of $ 157,303 and prepaid expense and other receivables of $ 6,648. current liabilities comprise accounts payable and accrued liabilities for $ 393,341 , unsecured convertible debentures for $ 40,357 and derivative liability for $ 539,860. for the year ended november 30 , 2017 , the company 's cash outflow from operations was $ 1,471,031. as such , the company has cash to meet its expenses over the next twelve months of its operations . capital stock year ended november 30 , 2017 in january 2017 , the company made the second share issuance to northeast industrial partners pursuant to a consulting agreement . the company issued 589,414 common shares at a price of $ 0.0848 per share to satisfy the payment of $ 50,000 due on november 15 , 2016. in march 2017 , the company made the third share issuance to northeast industrial partners pursuant to a consulting agreement . the company issued 503,251 common shares at a price of $ 0.0994 per share to satisfy the payment of $ 50,000 due on february 15 , 2017. in june 2017 , the company made the fourth and final share issuance to northeast industrial partners pursuant to a consulting agreement . the company issued 534,941 common shares at a price of $ 0.0935 per share to satisfy the payment of $ 50,000 due on may 15 , 2017. in october 2017 , the company made a further share issuance to northeast industrial partners under the consulting agreement announced on june 20 , 2016 and extended as announced on june 16 , 2017. the company issued 498,423 common shares at a price of $ 0.1254 per share to satisfy the payment of $ 62,500 due in august 2017. on november 28 , 2017 , the company closed the sale of 35,783,612 units on a private placement basis for gross proceeds of $ 3,793,063 ( net proceeds of $ 3,669,120 ) . share issue costs related to this issuance totaled $ 123,943. this includes the issuance of 17,648,258 units , issued to settle the 2016 secured convertible debt for $ 1,500,000 along with interest as well as additional $ 113,044 in debt which comprised of a promissory note for $ 72,585 ( cad $ 89,040 ) and unsecured convertible debentures for $ 39,159 ( cad $ 50,000 ) plus accrued interest of $ 1,300 . 22 each unit consists of one common share of company stock and one-half of a warrant . each whole warrant is exercisable for one common share of the company stock on or before november 28 , 2022 at an exercise price of $ 0.18. if the average closing price of the common shares is over $ 0.36 per share for a period of 20 consecutive trading days ending after november 28 , 2019 , the company may give notice to the registered holders of the warrants accelerating the expiry date to a date not less than 30 days following the date of that notice . j streicher capital , llc ( the ยagentย ) acted as exclusive agent for the brokered portion of the private placement which totaled $ 1,922,348. the agent received a cash commission of $ 60,669 and 572,354 agent warrants . each agent warrant is exercisable for one common share of the company stock on or before november 28 , 2022 at an exercise price of $ 0.15. if the closing price of the common shares is over $ 0.30 per share for a period of 20 consecutive trading days ending after november 28 , 2019 , the company may give notice accelerating the expiry date of the agent warrants to a date not less than 30 days following the date of that notice . related parties as of year-end , there are no amounts receivable from related parties . effective july 21 , 2016 , bryan ganz was elected as a director of the company . prior to his appointment , effective may 1 , 2016 , the company executed a one-year consulting agreement with northeast industrial partners , llc ( ยneipย ) , a corporation in which the said director has an ownership interest . in january 2017 , the company issued 589,414 common shares at a price of $ 0.1142 per share to satisfy the payment of $ 50,000 due on november 15 , 2016. in march 2017 , the company issued 503,251 common shares at a price of $ 0.0994 per share to satisfy the payment of $ 50,000 due on february 15 , 2017. in may 2017 , the company made the final share issuance and issued 534,941 common shares at a price of $ 0.0935 per share to satisfy the payment of $ 50,000 due on may 15 , 2017. effective may 1 , 2017 , the company and neip renewed the agreement . for services rendered by neip during the extension , sdi shall pay neip $ 62,500 within 15 days following every consecutive three-month period during the extension . the payment shall be made by issuance of stock .
| revenues 82,550 70,353 97,172 42,433 71,166 30,627 21,719 30,503 net loss ( 1,416,994 ) ( 561,701 ) ( 681,588 ) ( 139,968 ) ( 580,156 ) ( 491,928 ) ( 472,224 ) ( 379,802 ) loss per weighted average number of shares outstanding ยbasic and fully diluted ( 0.02 ) ( 0.01 ) ( 0.001 ) ( 0.002 ) ( 0.02 ) ( 0.01 ) ( 0.01 ) ( 0.007 ) quarterly activities and financial performance are impacted by the company 's ability to raise capital for its activities and the change in fair value of derivative liabilities . * revisions to quarterly financial statements the financial statements for the quarters ended february 28 , 2017 , may 31 , 2017 and august 31 , 2017 are revised to record the bifurcation of the derivative liability from the host series b secured convertible debentures issued on december 7 , 2016 , following further analysis of convertible debt instrument issued by the company in canadian dollars . the analysis was conducted during the preparation of annual financial statements for 2017 . 17 the effect of changes in the financial statements is summarized as follows : replace_table_token_5_th series b secured convertible debentures the cad $ 1,363,000 ( $ 1,015,026 ) of series b secured convertible debentures ( subordinate secured debentures ) were issued pursuant to the trust indenture agreement dated december 7 , 2016 ( the ยindentureย ) in exchange for the unsecured debentures in equal principal amount and an additional cad $ 36,000 ( $ 26,809 ) of series b secured convertible debentures were issued pursuant to the indenture in payment of accrued interest . these debentures mature on june 6 , 2019 and bear interest at 12 % per annum , payable semiannually . the debentures are secured by all the assets of the company .
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the following debt payments are expected to be paid in accordance with the following schedule : replace_table_token_47_th 13. shareowners ' equity the company has the authority story_separator_special_tag the company changed the accounting principle by which it values certain inventory from the last-in , first-out ( `` lifo '' ) method to the first-in , first-out ( `` fifo '' ) method and has adjusted the prior year inventory balances to reflect the change . as a result of the retrospective application of this change in accounting principle , certain financial statement line items in the company 's consolidated balance sheet as of january 1 , 2011 , and its consolidated statements of income and statements of cash flows for the years ended january 1 , 2011 and january 2 , 2010 , were adjusted . 2011 vs. 2010 overview sales and earnings in 2011 were up from last year . the sales increase was related to the company 's acquisitions , as well as sales volume and price increases and the impact of foreign currency translation . the company 's consolidated gross profit was $ 272.3 million for 2011 , an increase of $ 42.1 million or about 18 percent from 2010. the gross profit as a percent of net sales increased 100 basis points to 33.2 percent in 2011 from 32.2 percent in 2010. the gross profit margin improvement was due to leveraging fixed costs on higher sales and lower labor and burden cost , partially offset by higher material costs . story_separator_special_tag increases in sg & a costs during 2011 resulted from information technology ( `` it '' ) related expenditures for acquisition integrations , higher research , development , and engineering ( `` rd & e '' ) expenses , and increased costs for marketing and selling-related expenses . there were also additional fueling systems legal matters expenses in 2011 of $ 0.7 million . restructuring expenses restructuring expenses for 2011 were $ 1.6 million and reduced diluted earnings per share by approximately $ 0.05. restructuring expenses in 2011 included $ 1.1 million in phase iii costs primarily related to the closing of the siloam springs facility and $ 0.5 million in costs related to phase iv of the global manufacturing realignment program announced in the second quarter of 2011. restructuring expenses in 2011 included asset write-down , severance cost and manufacturing equipment relocation costs . in total , the company had previously estimated the cost for phase iii to be between $ 10.0 million and $ 12.8 million . the company actually incurred $ 12.9 million in phase iii expenses , from december 2008 through the third quarter of 2011. approximately $ 9.1 million of the $ 12.9 million was for non-cash items . 15 the company has estimated the pretax charge for phase iv to be between $ 2.6 million and $ 5.2 million , of which $ 1.2 million to $ 3.5 million is for closing the oklahoma city manufacturing facility . the charges began in the second quarter of 2011 and will substantially end in the fourth quarter 2012 and include severance , pension curtailments , asset write-offs , and equipment relocation . the company incurred $ 0.5 million in phase iv , none of which was related to non-cash items . restructuring expenses in 2010 were $ 5.3 million and reduced diluted earnings per share by approximately $ 0.15. restructuring expenses last year included asset write-down expenses , severance expenses , pension curtailment and manufacturing equipment relocation costs primarily related to the closing of the siloam springs facility . operating income operating income was $ 93.4 million in 2011 , up $ 29.4 million from $ 64.0 million in 2010. replace_table_token_7_th there were specific items in 2011 and 2010 that impacted operating income that were not operational in nature . 2011 included $ 1.6 million of restructuring charges and $ 0.7 million for certain legal matters . in 2010 there were three such items : a pre-tax expense of $ 5.3 million in restructuring charges ; $ 4.3 million of expenses for certain legal matters ; and a reduction in sg & a of $ 1.2 million in expenses from the gain on sale of land and building in south africa . the company refers to these items as โ non-gaap adjustments โ for purposes of presenting the non-gaap financial measures of operating income after non-gaap adjustments and percent operating income to net sales after non-gaap adjustments to net sales ( operating income margin after non-gaap adjustments ) . the company believes this information helps investors understand underlying trends in the company 's business more easily . the differences between these non-gaap financial measures and the most comparable gaap measures are reconciled in the following tables : 16 replace_table_token_8_th operating income-water systems water systems operating income , after non-gaap adjustments , was $ 106.8 million in 2011 , an increase of 21 percent versus 2010. the 2011 operating income margin after non-gaap adjustments was 16.3 percent and increased by 120 basis points compared to 2010. this increased profitability was the result of operating leverage , increases in pricing , and productivity improvements . operating income-fueling systems fueling systems operating income after non-gaap adjustments was $ 32.1 million in 2011 compared to $ 21.7 million after non-gaap adjustments in 2010 , an increase of 48 percent . the 2011 operating income margin after non-gaap adjustments was 19.2 percent and increased by 260 basis points compared to the 16.6 percent of net sales in 2010. operating income-other operating income-other is composed primarily of unallocated general and administrative expenses . general and administrative expenses were higher due to it expenses and higher rd & e spending . interest expense interest expense for 2011 and 2010 was $ 10.5 million and $ 9.7 million , respectively . story_separator_special_tag sales of large groundwater pumping systems for industrial and agricultural applications in the u.s. and canadian market grew by about 15 percent during the year , and appear to be primarily from farm spending despite relatively wet weather in several important agricultural regions of the u.s. internationally , water systems sales in the developing markets of latin america , asia pacific and southern africa , represented about 33 percent of total water systems sales and increased by 23 percent in 2010 versus 2009. sales in europe , middle east and north africa grew by about 5 percent . in response to rising commodity costs ( e.g . , aluminum , copper and steel ) , the company implemented market price increases for all of the water systems businesses globally . the price increases did not apply to all sales and varied by market and product but generally averaged between 3 and 5 percent . net sales-fueling systems fueling systems sales worldwide were $ 130.5 million , an increase of $ 9.3 million or about 8 percent for 2010 compared to 2009. fueling systems revenues represent about 20 percent of the company 's total revenues . sales from businesses acquired during 2010 were $ 11.3 million or 9 percent of total sales . excluding the acquisition , 2010 sales were $ 119.2 million a decline of about 2 percent . changes in selling price increased net sales by $ 2.4 million or about 2 percent . sales revenue decreased by $ 0.5 million in 2010 due to foreign currency translation . fueling systems sales in the u.s. and canada fell by about $ 11 million . the decline was caused entirely by reduced sales of the company 's vapor recovery products in the state of california , a reduction of 61 percent compared to the prior year or about $ 16 million in sales revenue in 2010 compared to the prior year . 2010 fueling systems sales in the u.s and canada outside of california grew by about 9 percent . the first quarter 2010 was the last quarter which included significant sales in california to meet that state 's regulatory mandates . fueling systems sales in international markets increased by about 30 percent during 2010 primarily due to continued demand for vapor control systems in china . fueling systems implemented price increases for a portion of its global products averaging approximately 5 percent to offset raw material costs inflation . cost of sales cost of sales as a percent of net sales for 2010 and 2009 was 67.8 percent and 70.7 percent , respectively . correspondingly , the gross profit margin was 32.2 percent for 2010 compared to 29.3 percent for 2009. the company 's gross profit was $ 230.2 million , an increase of $ 46.6 million from the $ 183.6 million in 2009. the gross profit margin improvement was primarily due to leveraging fixed costs on lower fixed cost spending and higher sales . the second largest improvement in gross profit was a result of reduced direct labor and burden costs due to the consolidation of portions of north american manufacturing into the factory complex in linares , mexico . the benefit from earnings attributable to acquisitions was about $ 3.2 million . selling , general and administrative ( โ sg & a โ ) selling , general , and administrative ( โ sg & a โ ) expenses increased by $ 27.2 million or about 20 percent in 2010 compared to 2009. the petrotechnik acquisition added $ 3.1 million of sg & a expenses to the fueling systems segment in 2010. sg & a expense as a percent of net sales for 2010 and 2009 was 22.5 percent and 21.3 percent , respectively . the increase in sg & a expenses was primarily a result of higher sales commissions and expenses related to performance-based compensation of $ 12.7 million . other increases in sg & a included $ 7.4 million for various legal matters primarily recognized in the fueling systems segment . during the second quarter 2010 , fueling systems incurred $ 3.8 million in sg & a expenses for various legal matters . fueling systems incurred an additional $ 1.4 million of sg & a expense principally for legal fees related to these matters . the expenses result from an agreement with a key competitor to settle numerous patent , licensing and fair trade disputes ; claims by both the california air resources board and individual air districts in that state relating to components of fueling systems ' vapor recovery systems products , and other claims involving litigation with james healy , who sold healy systems to the company in 2006 , regarding payments from an escrow fund and earn-out fees under the purchase agreement . certain of the amounts incurred in these matters , which are subject to indemnification provisions in the healy purchase agreement , were not expensed and were also at issue in the healy litigation . during the fourth quarter 2010 , the ongoing litigation between fueling systems and james healy was adjudicated in federal court and as a result fueling systems incurred charges of $ 0.5 million in sg & a expenses . the healy litigation was fully resolved by agreement of the parties in 2011. additionally , research , development and engineering expenditures increased in 2010 by $ 0.8 million . 19 restructuring expenses there were $ 5.3 million of restructuring expenses in 2010 compared to $ 6.2 million in 2009. restructuring expenses include asset impairments , severance expenses , pension charges and manufacturing equipment relocation costs . the majority of these expenses were related to the previously announced phase iii of the company 's global manufacturing realignment program which primarily related to the consolidation of the siloam springs , arkansas facility with the linares , mexico operation . in 2010 , there were additional restructuring expenses of about $ 1.9 million that were related to acquisitions and other restructuring consistent with the goals of the company 's global manufacturing realignment program .
| results of operations net sales net sales in 2011 were $ 821.1 million , an increase of $ 107.3 million or 15 percent compared to 2010 sales of $ 713.8 million . the incremental impact of sales from acquired businesses was $ 43.3 million or about 6 percent . sales revenue increased by $ 18.8 million or about 3 percent in 2011 due to foreign currency translation . the sales change in 2011 , excluding acquisitions and foreign currency translation , was an increase of $ 45.2 million or about 6 percent . replace_table_token_6_th during the fourth quarter 2011 , a long term submersible motor supply agreement with a major fueling equipment competitor expired and was not renewed . over the past several years sales under this agreement have represented about 1 percent of the company 's consolidated sales and these sales have been reflected in the water systems segment . net sales-water systems water systems sales were $ 654.1 million in 2011 , an increase of $ 70.8 million or 12 percent versus 2010. the incremental impact of sales from acquired businesses was $ 18.9 million or about 3 percent . foreign currency translation rate changes increased sales $ 17.8 million , or about 3 percent , compared to sales in 2010. the sales change in 2011 , excluding acquisitions and foreign currency translation , was an increase of $ 34.1 million or about 6 percent .
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you can identify these forward-looking statements by words such as โ may , โ โ will , โ โ would , โ โ should , โ โ could , โ โ expect , โ โ anticipate , โ โ believe , โ โ estimate , โ โ intend , โ โ plan โ and other similar expressions . these forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements . such risks and uncertainties include , among others , those discussed in โ item 1a : risk factors โ of this annual report on form 10-k , as well as in our consolidated financial statements , related notes , and the other information appearing elsewhere in this report and our other filings with the sec . we do not intend , and undertake no obligation , to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances . given these risks and uncertainties , readers are cautioned not to place undue reliance on such forward-looking statements . you should read the following management 's discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included in this report . overview we have three reportable business segments : marketplaces , payments and enterprise . our marketplaces segment includes our ebay.com platform and its localized counterparts and our other online trading platforms , such as our online classifieds sites and stubhub . our payments segment is comprised of paypal and bill me later . our enterprise segment was added upon the completion of our acquisition of gsi commerce , inc. ( gsi ) on june 17 , 2011. the results of our enterprise segment have been included in our consolidated results of operations from the acquisition date . in 2013 , net revenues increased 14 % to $ 16.0 billion compared to $ 14.1 billion in 2012 , driven primarily by increases in net revenues from each of our business segments . we achieved an operating margin of 21 % in each of 2013 and 2012 . our diluted earnings per share increased to $ 2.18 in 2013 , a $ 0.19 increase per share compared to 2012 , driven primarily by growth in 2013 net revenues partially offset by a higher effective tax rate . we generated cash flow from operations of approximately $ 5.0 billion in 2013 compared to $ 3.8 billion in 2012 . our marketplaces segment total net revenues increased $ 886 million , or 12 % , in 2013 compared to 2012 . the increase in total net revenues was driven primarily by an increase in gmv ( as defined below ) excluding vehicles of 13 % , which was due to continued growth in the u.s. and internationally . our marketplaces segment operating margin increased 0.7 percentage points in 2013 compared to 2012 due primarily to marketing program efficiencies that were partially offset by continued investments in our site operations infrastructure and business initiatives . our payments segment total net revenues increased $ 1.1 billion , or 19 % , in 2013 compared to 2012 . the increase in total net revenues was driven primarily by an increase in net tpv ( as defined below ) of 24 % and strong growth in bill me later . our payments segment operating margin decreased 0.4 percentage points in 2013 compared to 2012 , due primarily to a lower take rate partially offset by operating efficiencies . our enterprise segment total net revenues increased $ 29 million , or 3 % , in 2013 compared to 2012 . the increase in total net revenues was driven primarily by an increase in merchandise sales ( as defined below ) of 14 % in 2013 compared to 2012. our enterprise segment operating margin decreased 3.6 percentage points for 2013 compared to 2012 due primarily to a lower take rate on merchandise sales as well as continued investment in our enterprise commerce technologies . in 2012 , net revenues increased 21 % to $ 14.1 billion compared to $ 11.7 billion in 2011 , driven primarily by increases in net revenues from each of our business segments . we achieved an operating margin of 21 % in 2012 compared to 20 % in 2011. our diluted earnings per share decreased to $ 1.99 in 2012 , a $ 0.47 decrease per share compared to 2011 , driven primarily by the gain resulting from the sale of our remaining 30 % equity interest in skype in 2011 , offset in part by growth in 2012 net revenues and a lower effective tax rate . we generated cash flow from operations of approximately $ 3.8 billion in 2012 compared to $ 3.3 billion in 2011 . 62 we define gmv as the total value of all successfully closed items between users on our marketplaces trading platforms ( excluding ebay 's classifieds websites , brands4friends and shopping.com ) during the applicable period , regardless of whether the buyer and seller actually consummated the transaction . we define net tpv as the total dollar volume of payments , net of payment reversals , successfully completed through our payments networks , including bill me later , during the period , excluding paypal 's payment gateway business . we define merchant services net tpv as the total dollar volume of payments , net of payment reversals , successfully completed through our payments networks , including bill me later , during the period , excluding paypal 's payment gateway business and payments for transactions on our marketplaces platform . we define on ebay net tpv as the total dollar volume of payments , net of payment reversals , successfully completed through our payments networks , including bill me later , during the period for transactions on our marketplaces platform . story_separator_special_tag marketing services and other revenues increased $ 382 million , or 23 % , in 2012 compared to 2011 , and represented 14 % of total net revenues for both periods . the increase in marketing services and other revenues was due primarily to growth in our bill me later portfolio of receivables from loans , as well as increased revenue from our advertising business . summary of cost of net revenues the following table summarizes changes in cost of net revenues for the periods presented : replace_table_token_9_th ( 1 ) cost of net revenues attributable to the enterprise segment for 2011 are reflected from june 17 , 2011 ( the date the acquisition of gsi was completed ) . accordingly , the percent changes in enterprise 's cost of revenues between 2011 and 2012 are not meaningful . 67 cost of net revenues consists primarily of costs associated with payment processing , customer support , site operations , fulfillment and interest expense on borrowings incurred to finance bill me later 's portfolio of loan receivables . significant components of these costs include bank transaction fees , credit card interchange and assessment fees , interest expense on indebtedness incurred to finance the purchase of consumer loan receivables related to bill me later accounts , employee compensation , contractor costs , facilities costs , depreciation of equipment and amortization expense . marketplaces marketplaces cost of net revenues increased $ 247 million , or 19 % , in 2013 compared to 2012 . the increase was due primarily to the growth in gmv . marketplaces cost of net revenues as a percentage of marketplaces net revenues increased by 1.1 percentage points during 2013 compared to 2012 due primarily to our investment in site operations infrastructure and customer support programs . marketplaces cost of net revenues increased $ 63 million , or 5 % , in 2012 compared to 2011. the increase was due primarily to increases in our customer support costs and site operations associated with our gmv growth . marketplaces cost of net revenues as a percentage of marketplaces net revenues decreased during 2012 compared to the prior year due primarily to improved operating leverage in our site operations infrastructure , partially offset by investment in customer support programs . payments payments cost of net revenues increased $ 466 million , or 21 % , in 2013 compared to 2012 due primarily to the impact of growth in net tpv and growth in our customer support initiatives . payments cost of net revenues as a percentage of payments net revenues increased by 0.8 percentage points during 2013 compared to 2012 due primarily to these same factors . payments cost of net revenues increased $ 343 million , or 18 % , in 2012 compared to 2011 due primarily to the impact of growth in net tpv . payments cost of net revenues as a percentage of payments net revenues decreased during 2012 compared to 2011 due primarily to a lower transaction expense rate driven largely by the impact of certain regulatory changes , primarily the durbin amendment of the dodd-frank wall street reform and consumer protection act . enterprise enterprise cost of net revenues increased $ 125 million , or 18 % , during 2013 compared to 2012 due primarily to the impact of growth in merchandise sales as well as amortization expense driven by the initial roll out of the new suite of commerce technologies . enterprise cost of net revenues as a percentage of enterprise net revenues increased by 9.6 percentage points during 2013 compared to 2012 due primarily to these same factors . enterprise cost of net revenues were $ 696 million during 2012 and $ 374 million in 2011. cost of net revenues attributable to the enterprise segment for 2011 are reflected from june 17 , 2011 ( the date the acquisition of gsi was completed ) . accordingly , comparisons with enterprise 's cost of revenues for 2012 to 2011 are not meaningful . summary of operating expenses , non-operating items and provision for income taxes the following table summarizes changes in operating expenses , non-operating items and provision for income taxes for the periods presented : replace_table_token_10_th 68 the following table summarizes operating expenses , non-operating items and provision for income taxes as a percentage of net revenues for the periods presented : replace_table_token_11_th sales and marketing sales and marketing expenses consist primarily of advertising costs and marketing programs ( both online and offline ) , employee compensation , contractor costs , facilities costs and depreciation on equipment . online marketing expenses represent traffic acquisition costs in various channels such as paid search , affiliates marketing and display advertising . offline advertising includes brand campaigns , buyer/seller communications and general public relations expenses . sales and marketing expense increased by $ 147 million , or 5 % , in 2013 compared to 2012 . the increase in sales and marketing expense was due primarily to higher employee-related expenses ( including consultant costs , facility costs and equipment-related costs ) , partially offset by a decrease in professional services fees and marketing program efficiencies . the decrease in marketing program costs was due primarily to a shift in focus from customer acquisition to customer retention ( for which certain associated expenses are recorded as a reduction in revenue instead of sales and marketing expense ) . sales and marketing expense as a percentage of net revenues were 19 % and 21 % in 2013 and 2012 , respectively . sales and marketing expense increased by $ 478 million , or 20 % , in 2012 compared to 2011. the increase in sales and marketing expense was due primarily to higher employee-related expenses ( including consultant costs , facility costs and equipment-related costs ) , marketing program costs to drive consumer engagement and the impact from acquisitions , primarily gsi .
| summary of net revenues we generate two types of net revenues : net transaction revenues and marketing services and other revenues . our net transaction revenues are derived principally from listing fees and final value fees ( which are fees payable on transactions closed on our marketplaces trading platforms ) , fees paid by merchants for payment processing services and ecommerce service fees . our marketing services revenues are derived principally from the sale of advertisements , revenue sharing arrangements , classifieds fees , marketing service fees and lead referral fees . other revenues are derived principally from interest and fees earned on the bill me later portfolio of receivables from loans , interest earned on certain paypal customer account balances and fees from contractual arrangements with third parties that provide services to our users . 63 the following table sets forth the breakdown of net revenues by type and geography for the periods presented . replace_table_token_6_th ( 1 ) includes data for enterprise since june 17 , 2011 , the date the acquisition of gsi was completed . ( 2 ) represents net revenue generated between our reportable segments . revenues are attributed to u.s. and international geographies based primarily upon the country in which the seller , payment recipient , customer , website that displays advertising , or other service provider , as the case may be , is located . because we generated a majority of our net revenues internationally in recent periods , including the years ended december 31 , 2013 , 2012 and 2011 , we are subject to the risks of doing business in foreign countries as discussed under โ item 1a : risk factors. โ in that regard , fluctuations in foreign currency exchange rates impact our results of operations .
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our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include without limitation those discussed in this management 's discussion and analysis of financial condition and results of operations and those identified in part i , โ item 1a โ risk factors . '' overview today , bumble operates two apps , bumble and badoo . we are a leader in the fast-growing online dating space , which has become increasingly popular over the last decade . we launched the bumble app in 2014 to address antiquated gender norms and a lack of kindness and accountability on the internet . by placing women at the center โ where women make the first move โ we are building a platform that is designed to be safe and empowering for women , and in turn , provide a better environment for everyone . the badoo app , launched in 2006 , was one of the pioneers of web and mobile free-to-use dating products . badoo 's mantra of โ date honestly โ extends our focus on building meaningful connections to everyone . how we generate revenue we monetize both the bumble and badoo apps via a freemium model where the use of our service is free and a subset of our users pay for subscriptions or in-app purchases to access premium features . these features maximize the probability of developing meaningful connections , improving their experience and saving them valuable time . on the bumble app , our subscription offerings are called bumble boost and bumble premium . these subscription plan offerings currently include 1-day , 7-day , 1-month , 3-month , 6-month , or lifetime packages . bumble users , both subscribers and non-subscribing users , can also access additional features through in-app purchases . on the badoo app , our subscription offering is called badoo premium . badoo premium subscription plan offerings currently include 1-day , 7-day , 1-month , 3-month , 6-month , or lifetime packages . in addition , badoo users , both subscribers and non-subscribing users , can also purchase badoo credits which they can use to acquire in-app features such as one-off popularity boosts . we also selectively monetize through video and banner advertising . overview of financial results for the period from january 29 , 2020 to december 31 , 2020 , the period from january 1 , 2020 to january 28 , 2020 and the year ended december 31 , 2019 , we generated : total revenue of $ 542.2 million , $ 40.0 million and $ 488.9 million , respectively ; bumble app revenue of $ 337.2 million , $ 23.3 million and $ 275.5 million , respectively ; badoo app and other revenue of $ 205.0 million , $ 16.7 million and $ 213.4 million , respectively ; net ( loss ) earnings of $ ( 110.2 ) million , $ ( 32.6 ) million and $ 85.8 million , respectively , representing net ( loss ) earnings margins of ( 20.3 ) % , ( 81.4 ) % and 17.6 % respectively ; adjusted ebitda of $ 143.1 million , $ 9.4 million and $ 101.8 million respectively , representing adjusted ebitda margins of 26.4 % , 23.4 % and 20.8 % , respectively ; net cash provided by ( used in ) operating activities of $ 56.3 million , $ ( 3.3 ) million and $ 101.4 million , respectively , and operating cash flow conversion of ( 51.1 % ) , 10.2 % and 118.1 % , respectively ; and free cash flow of $ 45.6 million , $ ( 4.4 ) million and $ 91.7 million , respectively , representing free cash flow conversion of 31.9 % , ( 46.4 ) % and 90.1 % , respectively 51 key operating metrics we regularly review a number of metrics , including the following key operating metrics , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . we believe these operational measures are useful in evaluating our performance , in addition to our financial results prepared in accordance with gaap . refer to the section โ certain definitions โ at the beginning of this annual report for the definitions of our key operating metrics . replace_table_token_2_th key factors affecting our performance our results of operations and financial condition have been , and will continue to be , affected by a number of factors that present significant opportunities for us but also pose risks and challenges , including those discussed below and elsewhere in this annual report on form 10-k , particularly in part i , โ item 1aโrisk factors โ . growth in users we acquire new users through investments in marketing and brand as well as through word of mouth from existing users and others . we convert these users to paying users by introducing premium features which maximize the probability of developing meaningful connections and improving their experience . as we scale and our community grows larger , we are able to facilitate more meaningful connections as a result of the wider selection of potential matches . this in turn increases our brand awareness and increases conversion to one of our premium products . our revenue growth primarily depends on paying users . while we believe we are in the early days of our opportunity , at some point we may face challenges increasing our paying users , including competition from alternative products and a lack of appealing product features . we may also at some point find that growth in paying users slows due to saturation of the online dating market . expansion into new geographic markets we are focused on growing our platform globally , including through entering new markets and investing in under-penetrated markets . as we introduce the bumble app to new markets throughout europe , asia , and latin america we can leverage the local insights , scale , and infrastructure of badoo 's existing global footprint to efficiently enter new markets . story_separator_special_tag the purchase consideration was allocated to the identifiable assets and liabilities of worldwide vision limited measured at their fair value as of the effective date of the sponsor acquisition . any excess of the purchase consideration over the fair value of the identifiable assets and liabilities of worldwide vision limited was recognized as goodwill in our consolidated financial statements . in addition , we have recorded an increase in depreciation and amortization . in connection with the sponsor acquisition , in january 2020 , we entered into a 7-year senior secured term loan facility in an original aggregate principal amount of $ 575.0 million ( the โ initial term loan facility โ ) and a 5-year senior secured revolving credit facility in an aggregate principal amount of up to $ 50.0 million ( the โ revolving credit facility โ ) . the borrower under the initial term loan facility and the revolving credit facility is a wholly owned subsidiary of bumble holdings , buzz finco l.l.c . accordingly , in periods after the sponsor acquisition , we have recorded an increase in interest expense . concurrent with the sponsor acquisition , the company also decided to no longer actively maintain and market certain platforms , including chappy , lumen and huggle ( โ inactive platforms โ ) . the decision to do so was based on the company 's greater focus on , and decision to use its resources for strengthening , its brands bumble and badoo . during the period from january 29 , 2020 to december 31 , 2020 , the period from january 1 , 2020 to january 28 , 2020 and the years ended december 31 , 2019 and 2018 , the revenue associated with the inactive platforms is deemed immaterial . as a result of the sponsor acquisition , the company incurred significant transaction costs such as legal , accounting , consulting , shadow equity and other expenses . these were incurred both in the period from january 1 , 2020 to january 28 , 2020 and the period from january 29 , 2020 to december 31 , 2020 and resulted primarily in an increase in general and administrative expense . the distribution financing transaction in october 2020 , we entered into an incremental senior secured term loan facility ( the โ incremental term loan facility โ and , together with the initial term loan facility , the โ term loan facility โ ; the term loan facility , together with the revolving credit facility , the โ senior secured credit facilities โ ) with the same maturity as the initial term loan facility in an original aggregate principal amount of $ 275.0 million . the incremental term loan provides for additional senior secured term loans with substantially identical terms as the initial term loan facility ( other than the applicable margin ) . the borrower under the incremental term loan facility is a wholly owned subsidiary of bumble holdings , buzz finco l.l.c . bumble holdings used the proceeds from the incremental borrowings under the incremental term loan facility , together with available cash , to declare a distribution of $ 360.0 million , of which approximately $ 334.3 million was paid to our pre-ipo owners on october 28 , 2020 and $ 25.6 million was used to partially repay the loan to our founder , and to pay related fees and expenses in connection therewith . initial public offering and offering transactions on february 10 , 2021 , our registration statement on form s-1 relating to our initial public offering ( โ ipo โ ) was declared effective by the sec , and our class a common stock began trading on the nasdaq on february 11 , 2021. our ipo closed on february 16 , 2021. for additional information , see note 1 , organization and basis of preparation , to our consolidated financial statements included in part ii , `` item 8 โfinancial statements and supplementary data `` of this annual report on form 10-k. bumble inc. issued and sold 57.5 million shares of its class a common stock in the ipo , including 7.5 million shares sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares . bumble inc. used the proceeds ( net of underwriting discounts ) from the issuance of 9 million shares ( $ 369.6 million ) to acquire an equivalent number of newly-issued common units from buzz holdings l.p , which buzz holdings l.p. will in turn use to repay outstanding indebtedness under our term loan facility totaling approximately $ 200.0 million in aggregate principal amount and approximately $ 148.3 million for general corporate purposes , and to bear all of the expenses of the ipo . bumble inc. used the proceeds ( net of underwriting discounts ) from the issuance of 48.5 million shares ( $ 1,991.6 million ) to purchase or redeem an equivalent aggregate number of shares of class a common stock and common units from our pre-ipo owners . we refer to the foregoing transactions as the โ offering transactions โ . 54 reorganization transactions prior to the completion of the ipo , we undertook certain reorganization transactions ( the โ reorganization transactions โ ) such that bumble inc. is now a holding company , and its sole material asset is a controlling equity interest in bumble holdings . as the general partner of bumble holdings , bumble inc. now operates and controls all of the business and affairs of bumble holdings , has the obligation to absorb losses and receive benefits from bumble holdings and , through bumble holdings and its subsidiaries , conduct our business . the reorganization transactions were accounted for as a reorganization of entities under common control . as a result , the consolidated financial statements of bumble inc. will recognize the assets and liabilities received in the reorganization transactions at their historical carrying amounts , as reflected in the historical financial statements of bumble holdings , the accounting predecessor .
| components of results of operations our business is organized into a single reportable segment . revenue we monetize both the bumble and badoo apps via a freemium model where the use of our service is free and a subset of our users pay for subscriptions or in-app purchases to access premium features . subscription revenue is presented net of taxes , refunds and credit card chargebacks . this revenue is initially deferred and is recognized using the straight-line method over the term of the applicable subscription period . revenue from lifetime subscriptions is deferred over the average estimated expected period of the subscriber relationship , which is currently estimated to be twelve months . revenue from the purchase of in-app features is recognized based on usage . we also earn revenue from online advertising and partnerships , which are not a significant part of our business . online advertising revenue is recognized when an advertisement is displayed . revenue from partnerships is recognized according to the contractual terms of the partnership . cost of revenue cost of revenue consists primarily of in-app purchase fees due on payments processed through the apple app store and google play store . purchases on android , mobile web and desktop have additional payment methods , such as credit card or via telecom providers . these purchases incur fees which vary depending on payment method . purchase fees are deferred and expensed over the same period as revenue . 55 cost of revenue also includes data center expenses such as rent , power and bandwidth for running servers and associated employee costs . expenses relating to customer care functions such as customer service , moderators and other auxiliary costs associated with providing services to customers such as fraud prevention are also included within cost of revenue .
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we also consider writing off loans in the event of any of the following circumstances : 1 ) the loan , or a portion of the loan is deemed uncollectible due to : a ) the borrower 's inability to make recurring payments , b ) material changes in the borrower 's financial condition , or c ) the expected sale of all or a portion of the borrower 's business is insufficient to repay the loan in full , or 2 ) the loan has been identified story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with `` selected consolidated financial data '' under part ii , item 6 and our audited consolidated financial statements and supplementary data as presented under part ii , item 8 of this report . certain prior period amounts have been reclassified to conform to current period presentations . the following discussion and analysis of our financial condition and results of operations contains forward-looking statements . these statements are based on current expectations and assumptions , which are subject to risks and uncertainties . see our cautionary language at the beginning of this report under โ forward-looking statements โ . actual results could differ materially because of various factors , including but not limited to those discussed in โ risk factors , โ under part i , item 1a of this report . our fiscal year ends december 31 st and , unless otherwise noted , references to years or fiscal years are for fiscal years ended december 31 st . overview of company operations svb financial is a diversified financial services company , as well as a bank holding company and a financial holding company . svb financial was incorporated in the state of delaware in march 1999. through our various subsidiaries and divisions , we offer a variety of banking and financial products and services . for more than 30 years , we have been dedicated to helping innovative companies and their investors succeed , especially in the technology , life science/healthcare , private equity/venture capital and premium wine industries . we provide our clients of all sizes and stages with a diverse set of products and services to support them through all stages of their life cycles , and key innovation markets around the world . we offer commercial and private banking products and services through our principal subsidiary , the bank , which is a california-state chartered bank founded in 1983 and a member of the federal reserve system . through its subsidiaries , the bank also offers , investment advisory , asset management , private wealth management and brokerage services . we also offer non-banking products and services , such as funds management , venture capital and private equity investment , and business valuation services , through our subsidiaries and divisions . 39 management 's overview of 2016 financial performance overall , we had a strong year in 2016 , despite lower gains from our equity warrants and private equity and venture capital investments as a result of the slowdown in ipo 's and overall softening in the venture capital-backed exit markets , primarily during the first half of the year . our strong performance is reflective of healthy loan growth , credit quality that remained sound overall despite higher levels of net loan charge-offs , and strong growth in core fee income . our core business continues to perform well as a result of our ongoing focus on innovation companies and their investors and continued efforts to secure client relationships . we saw continued success in working with private equity/venture capital firms as well as growth of our private bank offerings to private equity/venture capital professionals and executive leaders of the innovation companies they support . results for the fiscal year ended , and as of , december 31 , 2016 results ( compared to the fiscal year ended , and as of , december 31 , 2015 , where applicable ) : balance sheet earnings assets . $ 44.0 billion in average total assets ( up 7.7 % ) . $ 44.7 billion in period-end total assets ( was flat ) . cash and cash equivalents . $ 2.5 billion in average cash and cash equivalents ( up 11.9 % ) . $ 2.5 billion in period-end cash and cash equivalents ( up 69.3 % ) . loans . $ 18.3 billion in average total loan balances , net of unearned income ( up 23.8 % ) . $ 19.9 billion in period-end total loan balances , net of unearned income ( up 18.9 % ) . deposits . $ 38.8 billion in average total deposit balances ( up 6.8 % ) . $ 39.0 billion in period-end total deposit balances ( was flat ) . off-balance sheet client investment funds . $ 43.4 billion in total average client investment fund balances ( up 10.5 % ) . $ 45.8 billion in total period-end client investment fund balances ( up 4.1 % ) . eps . earnings per diluted share of $ 7.31 ( up 10.4 % ) . net income . consolidated net income available to common stockholders of $ 382.7 million ( up 11.3 % ) . - net interest income of $ 1.2 billion ( up 14.3 % ) . - net interest margin of 2.72 % ( up 15 bps ) . - noninterest income of $ 456.6 million , with non-gaap core fee income + of $ 316.2 million ( up 19.1 % ) . - noninterest expense of $ 870.8 million ( up 11.9 % ) . roe . return on average equity ( โ roe โ ) performance of 10.90 % . capital credit quality capital . continued strong capital , with all capital ratios considered `` well-capitalized '' under banking regulations svbfg and svb capital ratios , respectively , were : - cet 1 risk-based capital ratio of 12.80 % and 12.65 % compared to 12.28 % and 12.52 % . story_separator_special_tag we also supplement our allowance by applying qualitative allocations to the results we obtained through our historical loan loss migration model to ascertain the total allowance for loan losses . these qualitative allocations are based upon management 's assessment of the risks that may lead to a loan loss experience different from our historical loan loss experience . these risks are aggregated to become our qualitative allocation . refer to note 2โ '' summary of significant accounting policies '' of the `` notes to the consolidated financial statements '' under part ii , item 8 of this report for a summary of the factors management considers for its qualitative allocation as part of management 's estimate of the changing risks in the lending environment . in 2016 , we made certain enhancements to factors included in our qualitative allocation . we changed from a total loan portfolio weighted average loss factor to a portfolio segment specific loss factor for our estimated reserve floor for portfolio segments that would not draw a minimum reserve based on the lack of historical loan loss experience . additionally , in response to increased average borrowing amounts by our clients , we increased our definition of a large loan used for our qualitative reserve for large funded loan exposure . these enhancements were applied during the fourth quarter of 2016 and decreased our qualitative 42 allowance by $ 7.9 million , net . the net decrease was primarily due to the application of a lower loss factor for our private equity/venture capital loan portfolio . reserve for unfunded credit commitments the reserve for unfunded credit commitments is determined using a methodology that is inherently similar to the methodology used for calculating the allowance for loan losses adjusted for factors specific to binding commitments , including the probability of funding and exposure at funding . we consider our accounting policy for the reserve for unfunded credit commitments to be critical as estimation of the reserve involves material estimates by management and is susceptible to changes in the near term . the reserve for unfunded credit commitments equals management 's best estimate of probable credit losses that are inherent in the portfolio at the balance sheet date . in 2016 , we made certain enhancements to our methodology for the reserve for unfunded loan commitments by applying segment specific historical loss experience for our funded loan portfolio and segment specific probability of funding factors to estimate the reserve for unfunded credit commitments . historically , we used blended results at the overall portfolio level for both historical loss experience and funding probability . these enhancements were applied during the fourth quarter of 2016 and increased our reserve for unfunded credit commitments by $ 8.1 million , net . the increase was primarily due to higher loss and probability of funding factors for our software and internet and hardware loan portfolios , partially offset by lower loss factors for our private equity/venture capital loan portfolio . the reserve for unfunded credit commitments also includes certain qualitative allocations as deemed appropriate by management . fair value measurements we use fair value measurements to record fair value for certain financial instruments and to determine fair value disclosures . we disclose our method and approach for fair value measurements of assets and liabilities in note 2โ '' summary of significant accounting policies '' of the `` notes to the consolidated financial statements '' under part ii , item 8 of this report . asc 820 , fair value measurements and disclosures , establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the significant inputs to the valuation methodology used for measurement are observable or unobservable and the significance of the level of the input to the entire measurement . observable inputs reflect market-derived or market-based information obtained from independent sources , while unobservable inputs reflect our estimates about market data . the three levels for measuring fair value are defined in note 2โ '' summary of significant accounting policies '' of the `` notes to the consolidated financial statements '' under part ii , item 8 of this report . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters . for financial instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value ( level 1 measurements ) . when observable market prices and parameters are not fully available , management judgment is necessary to estimate fair value . for inactive markets , there is little information , if any , to evaluate if individual transactions are orderly . accordingly , we are required to estimate , based upon all available facts and circumstances , the degree to which orderly transactions are occurring and provide more weighting to price quotes that are based upon orderly transactions ( level 2 measurements ) . in addition , changes in the market conditions may reduce the availability of quoted prices or observable data . for example , reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable . therefore , when market data is not available , we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement ( level 3 measurements ) . significant judgment is required to determine whether certain assets measured at fair value are included in level 2 or level 3. when making this judgment , we consider available information and our understanding of the valuation techniques and significant inputs used . the classification of level 2 or level 3 is based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the level 3 inputs to the instrument 's fair value measurement in its entirety .
| results of operations net interest income and margin ( fully taxable equivalent basis ) net interest income is defined as the difference between interest earned from loans , our fixed income investment portfolio ( available-for-sale and held-to-maturity securities ) and our short-term investment securities and interest paid on funding sources . net interest margin is defined as net interest income , on a fully taxable equivalent basis , as a percentage of average interest-earning assets . net interest income and net interest margin are presented on a fully taxable equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on the federal statutory tax rate of 35.0 percent . analysis of net interest income changes due to volume and rate ( fully taxable equivalent basis ) net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities , referred to as โ volume change. โ net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities , referred to as โ rate change. โ the following table sets forth changes in interest income for each major category of interest-earning assets and interest expense for each major category of interest-bearing liabilities . the table also reflects the amount of simultaneous changes attributable to both volume and rate changes for the years indicated . for this table , changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate . 45 replace_table_token_5_th net interest income ( fully taxable equivalent basis ) 2016 compared to 2015 net interest income increased by $ 143.7 million to $ 1.2 billion in 2016 , compared to $ 1.0 billion in 2015 . overall , the increase in our net interest income was due primarily to higher average loan balances .
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the company has classified certain warrants issued during 2016 as derivative liabilities due to the existence of full-ratchet down round provisions in the warrants see story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited historical consolidated financial statements and the notes thereto , which are included elsewhere in this annual report on form 10-k for the year ended december 31 , 2017 ( ย2017 form 10-kย ) . the following discussion includes forward-looking statements that involve certain risks and uncertainties , including , but not limited to , those described in item 1a . risk factors . our actual results may differ materially from those discussed below . see ยspecial note regarding forward-looking statementsย and item 1a . risk factors . overview we are a leading independent entertainment marketing and premium content development company . through our acquisition of 42west , we provide expert strategic marketing and publicity services to all of the major film studios , and many of the leading independent and digital content providers , as well as for hundreds of a-list celebrity talent , including actors , directors , producers , recording artists , athletes and authors . the strategic acquisition of 42west brings together premium marketing services with premium content production , creating significant opportunities to serve our respective constituents more strategically and to grow and diversify our business . our content production business is a long established , leading independent producer , committed to distributing premium , best-in-class film and digital entertainment . we produce original feature films and digital programming primarily aimed at family and young adult markets . on march 30 , 2017 , we acquired 42west , an entertainment public relations agency offering talent , entertainment and targeted marketing , and strategic communications services . as consideration for the 42west acquisition , we paid approximately $ 18.7 million in shares of our common stock based on the 30-trading-day average stock price prior to the closing date of $ 9.22 per share ( less certain working capital and closing adjustments , transaction expenses and payments of indebtedness ) , plus the potential to earn up to an additional $ 9.3 million in shares of common stock based on the achievement of specified financial performance targets as set forth in the membership interest purchase agreement . during the year ended december 31 , 2017 , 42west achieved the required financial performance targets , and the principal sellers earned the additional consideration , which will be paid in shares of common stock in equal installments over a three-year period . prior to its acquisition , 42west grew to become one of the largest independently-owned public-relations firms in the entertainment industry . among other benefits , we believe that the 42west acquisition will strengthen and complement our current content production business , while expanding and diversifying our operations . 23 in connection with the 42west acquisition , pursuant to put agreements we granted the sellers the right , but not the obligation , to cause us to purchase up to an aggregate of 1,187,094 ( including the shares from the earn out consideration ) of shares of our common stock that they received as consideration for a purchase price of $ 9.22 per share during certain specified exercise periods up until december 2020. during the year ended december 31 , 2017 , we purchased 132,859 shares of our common stock from certain of the sellers in accordance with the put agreements for an aggregate purchase price of $ 1,225,000. subsequent to december 31 , 2017 , we purchased an additional 56,940 shares of our common stock for $ 525,000 from certain of the sellers in accordance with the put agreements . additionally , subsequent to december 31 , 2017 , we agreed to purchase 51,484 shares of common stock and up to an additional 85,472 shares of common stock in july of 2018 at a purchase price of $ 9.22 , from certain 42west employees , with change of control provisions in their employment agreements and who received shares of our common stock at the time of the 42west acquisition and will receive additional shares in july 2018 and in 2019 related to the earn out consideration . in connection with the 42west acquisition , we acquired an estimated $ 9.5 million of intangible assets and recorded approximately $ 12.8 million of goodwill . we amortize our intangible assets over useful lives of between 3 and 14 years . we have recorded amortization in the amount of approximately $ 1.0 million during the year ended december 31 , 2017. on march 7 , 2016 , we acquired dolphin films from dolphin entertainment , llc , an entity wholly owned by our president , chairman and chief executive officer , mr. william o'dowd , iv . dolphin films is a content producer of family feature films . in 2016 , we released our feature film , max steel , which was produced by dolphin films . all financial information has been retrospectively adjusted at the historical values of dolphin films , as the merger was between entities under common control . our acquisition strategy is based on identifying and acquiring companies that complement our existing content production and entertainment publicity services businesses . we believe that complementary businesses , such as data analytics and digital marketing , can create synergistic opportunities and bolster profits and cash flow . we have identified potential acquisition targets and are in various stages of discussion and diligence with such targets . we intend to complete at least one acquisition during 2018 , although there is no assurance that we will be successful in doing so . we are planning to fund such acquisition through loans or additional sales of our common stock , securities convertible into our common stock , debt securities or a combination of such financing alternatives ; however , there can be no assurance that we will be successful in raising any necessary capital . story_separator_special_tag we expect to experience further growth through the hiring of additional individuals or teams . ยท entertainment and targeted marketing ย we earn fees from providing marketing direction , public relations counsel and media strategy for productions ( including theatrical films , dvd and vod releases , television programs , and online series ) as well as content producers ranging from individual filmmakers and creative artists to production companies , film financiers , dvd distributors , and other entities . our capabilities include worldwide studio releases , independent films , television programming and web productions . in addition , we provide entertainment marketing services in connection with film festivals , awards campaigns , event publicity and red carpet management . as part of our services we offer marketing and publicity services that are tailored to reach diverse audiences . our clients for this type of service may include major studios and independent producers for whom we create strategic multicultural marketing campaigns and provide strategic guidance aimed at reaching diverse audiences . 25 we expect that increased movie marketing budgets at several large key clients will drive growth of revenue and profit in 42west 's entertainment and targeted marketing division over the next several years . we experienced revenue growth in this division of approximately 7 % for the year ended december 31 , 2017 , as compared to the prior year . ยท strategic communications โ we earn fees through our strategic communications team by advising high-profile individuals and companies faced with sensitive situations or looking to raise , reposition , or rehabilitate their public profiles . we also help studios and filmmakers deal with controversial movies . we believe that growth in 42west 's strategic communications division will be driven by increasing demand for these services by traditional and non-traditional media clients who are expanding their activities in the content production , branding , and consumer products sectors . we expect that this growth trend will continue for the next three to five years . during the year ended december 31 , 2017 , we experienced an 11 % growth in revenues as compared to the same period in the prior year . we believe that such growth trend could result in the strategic communications division significantly increasing its percentage of the overall revenue mix of 42west , which has typically had higher profit margins than the other 42west divisions . production and distribution dolphin digital studios for the year ended december 31 , 2016 , we derived revenues from dolphin digital studios through the release of our web series , south beachยfever . for the year ended december 31 , 2017 , we released jack of all tastes , a digital project that showcased favorite restaurants of nfl players , but we did not derive any revenues from this initial release . we determined that the carrying value of the capitalized production costs related to jack of all tastes was below the fair value and recorded an impairment of $ 0.3 million during the year ended december 31 , 2017. we are currently sourcing distribution platforms in which to release completed projects and those for which we have the rights , and which we intend to produce . we earn production and online distribution revenues through the following : ยท producer ' s fees โ we earn fees for producing each web series , as included in the production budget for each project . we either recognize producer ' s fees on a percentage of completion or a completed contract basis depending on the terms of the producer agreements , which we negotiate on a project by project basis . ยท initial distribution/advertising revenue โ we earn revenues from the distribution of online content on advertiser supported video-on-demand , or avod , platforms . distribution agreements contain revenue sharing provisions which permit the producer to retain a percentage of all domestic and international advertising revenue generated from the online distribution of a particular web series . typically , these rates range from 30 % to 45 % of such revenue . we have previously distributed our productions on various online platforms including yahoo ! , facebook , hulu and aol . no revenues from this source were derived during the years ended december 31 , 2017 and 2016 . ยท secondary distribution revenue โ once our contractual obligation with the initial online distribution platform expires , we have the ability to derive revenues from distributions of the web series in ancillary markets such as dvd , television and subscription video-on-demand , or svod . we did not derive any revenue from this source for the years ended december 31 , 2017 and 2016. we intend to source potential secondary distribution partners for our web series , south beachยfever that was released in 2015 , once our agreement with the initial distributor expires . dolphin films for the years ended december 31 , 2017 and 2016 , we derived revenues from dolphin films primarily through the domestic and international distribution of our motion picture , max steel . the production of the motion picture , max steel , was completed during 2015 and released in the united states on october 14 , 2016. the motion picture did not perform as well as expected domestically , but we secured approximately $ 8.2 million in international distribution agreements prior to its release . as part of our domestic distribution arrangement , we still have the ability to derive revenues from the ancillary markets described below , although the amount of revenue derived from such channels is typically commensurate with the performance of the film in the domestic box office . we determined that the carrying value of the capitalized production costs related to max steel was below the fair value and recorded an impairment of $ 2 million during the year ended december 31 , 2016 .
| results of operations year ended december 31 , 2017 as compared to year ended december 31 , 2016 revenues for the years ended december 31 , 2017 and 2016 , our revenues were as follows : replace_table_token_5_th we derived increased revenues from entertainment publicity for the year ended december 31 , 2017 , as compared to the prior year , due to the acquisition of 42west on march 30 , 2017 , as previously discussed . revenues from production and distribution decreased by $ 3.4 million for the year ended december 31 , 2017 as compared to the prior year primarily due to the release of max steel during the year ended december 31 , 2016. as a result , during the year ended december 31 , 2016 , we recognized the revenues from the theatrical release and from certain international licensing arrangements with international distributors that had accepted delivery of the film . during the year ended december 31 , 2017 , we continued to record revenues , to a lesser extent , from international licensing arrangements and from home entertainment and pay tv in the domestic market . revenues from the sale of memberships to online kids clubs was insignificant during the year ended december 31 , 2016 , and as discussed above , we decided to discontinue the online kids clubs during the year ended december 31 , 2017. expenses for the years ended december 31 , 2017 and 2016 , our operating expenses were as follows : replace_table_token_6_th our operating expenses for the year ended december 31 , 2017 , other than distribution and marketing , include expenses related to entertainment publicity , as the 42west acquisition occurred on march 30 , 2017. direct costs decreased by approximately $ 6.0 million for the year ended december 31 , 2017 as compared to the prior year , primarily due to decreases in ( i ) amortization of capitalized production costs and ( ii ) impairment of capitalized production costs .
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forward-looking statements include statements about the company 's expectations , beliefs , intentions , plans , objectives , goals , strategies , future events , performance and underlying assumptions and other statements that are not historical facts . forward-looking statements can be identified by their use of forward-looking words , such as โ may , โ โ will , โ โ anticipate , โ โ expect , โ โ believe , โ โ intend , โ โ plan , โ โ should , โ โ seek โ or comparable terms , or the negative use of those words , but the absence of these words does not necessarily mean that a statement is not forward-looking . the forward-looking statements are based on the company 's beliefs , assumptions and expectations of its future performance , taking into account all information currently available to the company . forward-looking statements are not predictions of future events . these beliefs , assumptions and expectations can change as a result of many possible events or factors , not all of which are known to the company . some of these factors are described below and under the headings โ business โ , โ risk factors โ and โ management 's discussion and analysis of financial condition and results of operations โ . these and other risks , uncertainties and factors could cause the company 's actual results to differ materially from those included in any forward-looking statements the company makes . any forward-looking statement speaks only as of the date on which it is made . new risks and uncertainties arise over time , and it is not possible for the company to predict those events or how they may affect the company . except as required by law , the company is not obligated to , and does not intend to , update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . important factors that could cause actual results to differ materially from the company 's expectations include , among others : โ the ability of the company 's tenants to make payments under their respective leases ; โ the company 's reliance on certain major tenants ; โ the company 's ability to re-lease properties that are currently vacant or that become vacant ; โ the company 's ability to obtain suitable tenants for its properties ; โ changes in real estate market conditions , economic conditions in the industrial sector and the market in which the company 's properties are located and general economic conditions ; โ the inherent risks associated with owning real estate , including local real estate market conditions , governing laws and regulations and illiquidity of real estate investments ; โ the company 's ability to acquire , finance and sell properties on attractive terms ; โ the company 's ability to repay debt financing obligations ; โ the company 's ability to refinance amounts outstanding under its mortgages and credit facilities at maturity on terms favorable to us , or at all ; โ the loss of any member of the company 's management team ; โ the company 's ability to comply with debt covenants ; โ the company 's ability to integrate acquired properties and operations into existing operations ; โ continued availability of proceeds from issuances of the company 's debt or equity securities ; โ the availability of other debt and equity financing alternatives ; โ market conditions affecting the company 's investment in marketable securities of other reit 's ; 32 โ changes in interest rates under the company 's current credit facility and under any additional variable rate debt arrangements that the company may enter into in the future ; โ the company 's ability to successfully implement the company 's selective acquisition strategy ; โ the company 's ability to maintain internal controls and procedures to ensure all transactions are accounted for properly , all relevant disclosures and filings are timely made in accordance with all rules and regulations , and any potential fraud or embezzlement is thwarted or detected ; โ changes in federal or state tax rules or regulations that could have adverse tax consequences ; โ declines in the market prices of the company 's investment securities ; and โ the company 's ability to qualify as a reit for federal income tax purposes . you should not place undue reliance on these forward-looking statements , as events described or implied in such statements may not occur . the company undertakes no obligation to update or revise any forward-looking statements as a result of new information , future events or otherwise . the following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein . overview monmouth real estate investment corporation , founded in 1968 , is one of the oldest public equity reits in the u.s. the company is a self-administered and self-managed reit that seeks to invest in well-located , modern , single tenant , industrial buildings , leased primarily to investment-grade tenants or their subsidiaries on long-term net leases . at september 30 , 2017 , the company held investments in 108 properties totaling approximately 18,790,000 square feet . total real estate investments were $ 1,439,121,006 at september 30 , 2017. these properties are located in 30 states : alabama , arizona , colorado , connecticut , florida , georgia , illinois , indiana , iowa , kansas , kentucky , louisiana , maryland , michigan , minnesota , mississippi , missouri , nebraska , new jersey , new york , north carolina , ohio , oklahoma , pennsylvania , south carolina , tennessee , texas , virginia , washington and wisconsin . all of these properties are wholly-owned , with the exception of an industrial property in new jersey , in which the company owns a 51 % controlling equity interest , and a shopping center in new jersey , in which the company owns a 67 % controlling equity interest . story_separator_special_tag the building is 100 % net-leased to fdx for 15 years through august 2032. the purchase price was $ 21,872,170. the company obtained a 15 year fully-amortizing mortgage loan of $ 14,200,000 at a fixed interest rate of 4.23 % . annual rental revenue over the remaining term of the lease averages approximately $ 1,312,000. the industrial properties purchased , leased and expanded during fiscal 2018 to date increased our current total leasable square feet to approximately 18,912,000 and increased our occupancy rate to 99.5 % . in addition to the property purchased subsequent to the fiscal yearend , as described above , the company has entered into agreements to purchase three new build-to-suit , industrial buildings that are currently being developed in florida , georgia and oklahoma , consisting of approximately 1,531,000 square feet , with net-leased terms of 10 years each . the purchase price for these properties is approximately $ 117,437,000. approximately 1,132,000 square feet , or 74 % , is leased to an investment grade tenant or its subsidiary . subject to satisfactory due diligence and other customary closing conditions and requirements , we anticipate closing these transactions during fiscal 2018. in connection with the three properties , the company has entered into commitments to obtain three mortgages totaling $ 72,400,000 at fixed rates ranging from 3.53 % to 4.25 % , with a weighted average interest rate of 3.75 % and with a weighted average maturity of 13.2 years . the company may make additional acquisitions in fiscal 2018 and fiscal 2019 , and the funds for these acquisitions may come from funds generated from operations , mortgages , draws on our unsecured line of credit facility , cash on hand , sale of marketable securities , other bank borrowings , proceeds from the drip , proceeds from the preferred stock atm program , and proceeds from private placements and public offerings of additional common or preferred stock or other securities . to the extent that funds or appropriate properties are not available , fewer acquisitions will be made . during the fiscal years ended september 30 , 2017 , 2016 and 2015 , the company completed a total of nine property expansions , consisting of six building expansions and three parking lot expansions . two of the parking lot expansions included the purchase of additional land . the six building expansions resulted in approximately 461,000 additional square feet . total costs for all nine property expansions were approximately $ 33,092,000 and resulted in total increased annual rent of approximately $ 3,226,000. eight completed expansions resulted in new ten year lease extensions for the expanded properties and one completed expansion resulted in a new twelve year lease extension . the weighted average lease extension for these nine property expansions is 10.6 years . 35 revenues also include dividend and interest income and gain on sale of securities transactions , net . the company holds a portfolio of marketable securities of other reits with a fair value of $ 123,764,770 as of september 30 , 2017 , representing 7.7 % of the company 's undepreciated assets ( which is the company 's total assets excluding accumulated depreciation ) . the company generally limits its marketable securities investments to no more than approximately 10 % of its undepreciated assets . the company invests in reit securities and , from time to time , may use margin debt when an adequate yield spread can be obtained . as of september 30 , 2017 and 2016 , there was $ 10,091,417 and $ -0- outstanding on the margin loan , respectively . the reit securities portfolio provides the company with additional diversification , liquidity , and income , and serves as a proxy for real estate when more favorable risk adjusted returns are not available . as of september 30 , 2017 , the company 's portfolio consisted primarily of 90 % reit common stocks and 10 % reit preferred stocks , all of which are listed on a national securities exchange . the company 's weighted-average yield on the securities portfolio for fiscal 2017 was approximately 7.7 % . dividend and interest income for fiscal 2017 was $ 6,930,564 compared to $ 5,616,392 for fiscal 2016. during fiscal 2017 , the company realized $ 2,311,714 in gains on sale of securities transactions . the company has unrealized gains of $ 6,570,565 in its reit securities portfolio as of september 30 , 2017. the dividends received from our securities investments continue to meet our expectations . the company intends to hold these securities for investment on a long-term basis . the company had $ 10,226,046 in cash and cash equivalents and $ 123,764,770 in reit securities as of september 30 , 2017. the company believes that funds generated from operations , mortgages , draws on our unsecured line of credit facility , cash on hand , sale of marketable securities , other bank borrowings , proceeds from the drip , proceeds from the preferred stock atm program , and proceeds from private placements and public offerings of additional common or preferred stock or other securities , will provide sufficient funds to adequately meet its obligations over the next several years . the company has a drip , in which participants can purchase stock from the company at a price of approximately 95 % of market value . amounts received in connection with the drip ( including dividend reinvestments of $ 10,125,894 , $ 8,369,146 and $ 8,489,169 for fiscal years ended 2017 , 2016 and 2015 , respectively ) were $ 91,931,831 , $ 72,175,797 and $ 48,404,556 for fiscal years ended 2017 , 2016 and 2015 , respectively .
| results of operations occupancy and rent per occupied square foot the company 's weighted-average lease expiration was 7.9 and 7.4 years as of september 30 , 2017 and 2016 , respectively , and its average annualized rent per occupied square foot as of september 30 , 2017 and 2016 was $ 5.93 and $ 5.72 , respectively . at september 30 , 2017 and 2016 , the company 's occupancy was 99.3 % and 99.6 % , respectively . all improved properties were 100 % occupied at september 30 , 2017 except for one property consisting of a 36,270 square foot building located in urbandale ( des moines ) , ia and one property consisting of an 87,500 square foot building located in ft. myers , fl . subsequent to fiscal yearend , on november 1 , 2017 , the company leased its previously vacant 36,270 square foot facility located in urbandale ( des moines ) , ia for 10.2 years which increased our current occupancy rate to 99.5 % . in addition , the company is under contract to sell its only currently vacant building located in ft. myers , fl , for $ 6,400,000 , which is approximately $ 2,400,000 above the company 's u.s. gaap net book carrying value . fiscal 2017 renewals in fiscal 2017 , approximately 10 % of our gross leasable area , representing 13 leases totaling 1,539,526 square feet , was set to expire . the company has renewed 12 of these 13 leases that were set to expire in fiscal 2017. one of the 12 leases ( which is with fedex ground package system , inc. for a property located in ft. myers , fl ) , renewed for only eight months because the tenant moved its operations from our 87,500 square foot facility to our newly constructed facility , which is also located in ft. myers , fl .
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during fiscal 2014 , revenue decreased 10 percent to $ 91.1 billion largely due to the previously disclosed expiration of our pharmaceutical distribution contract with walgreen co. ( `` walgreens '' ) on august 31 , 2013. gross margin increased 5 percent to $ 5.2 billion reflecting the positive impact of acquisitions and strong performance from generic programs , offset in part by the impact of the walgreens contract expiration . operating earnings increased to $ 1.9 billion and earnings from continuing operations increased to $ 1.2 billion due primarily to an $ 829 million ( $ 799 million , net of tax ) non-cash goodwill impairment charge related to our nuclear pharmacy services division in fiscal 2013 . our cash and equivalents balance was $ 2.9 billion at june 30 , 2014 compared to $ 1.9 billion at june 30 , 2013 . the increase in cash and equivalents during fiscal 2014 was driven by net cash provided by operating activities of $ 2.5 billion , which includes the decrease in our net working capital associated with the walgreens contract expiration . net cash provided by operating activities was deployed for share repurchases ( $ 673 million ) , acquisitions ( $ 519 million ) and dividends ( $ 415 million ) . we plan to continue to execute a balanced deployment of available capital to position ourselves for sustainable competitive advantage and to enhance shareholder value . walgreens contract the walgreens contract expiration unfavorably impacted period-over-period comparisons of revenue and operating earnings for fiscal 2014 , but favorably affected net cash provided by operating activities due to a significant reduction in net working capital . because revenue from walgreens was $ 3.3 billion during the first quarter of fiscal 2014 , we expect the contract expiration to have an adverse impact on our period-over-period comparisons of revenue and operating earnings during the first quarter of fiscal 2015. joint venture with cvs caremark in july 2014 , we established red oak sourcing , llc ( โ red oak sourcing โ ) , a u.s.-based generic pharmaceutical sourcing entity with cvs caremark corporation ( โ cvs โ ) with an initial term of 10 years . both companies have contributed sourcing and supply chain expertise to the 50/50 joint venture and have committed to source generic pharmaceuticals through arrangements negotiated by it . red oak sourcing will negotiate generic pharmaceutical supply contracts on behalf of both companies , but will not own products or hold inventory on behalf of either company . we are required to pay 39 quarterly payments of $ 25.6 million to cvs commencing in october 2014 and , only if certain milestones are achieved , to pay additional predetermined amounts to cvs beginning in fiscal 2016. the fixed payments of $ 25.6 million will be expensed evenly commencing with the ramp-up of the venture , which we expect to begin by the end of the first quarter of fiscal 2015. no physical assets were contributed by either company to red oak sourcing , and minimal funding has been provided to capitalize the entity . acquisitions we have completed several acquisitions since july 1 , 2011 , the largest of which were assuramed , inc. ( `` assuramed '' ) in fiscal 2013 and access closure , inc. ( `` accessclosure '' ) in fiscal 2014 . on may 9 , 2014 , we completed the acquisition of accessclosure for $ 320 million in an all-cash transaction . we funded the acquisition with cash on hand . the acquisition of accessclosure , a manufacturer and distributor of extravascular closure devices , expands the medical segment 's portfolio of self-manufactured products . on march 18 , 2013 , we completed the acquisition of assuramed for $ 2.07 billion , net of cash acquired , in an all-cash transaction . we funded the acquisition through the issuance of $ 1.3 billion in fixed rate notes and cash on hand . the acquisition of assuramed , a provider of medical supplies to homecare providers and patients in the home , expands medical segment 's ability to serve this patient base . the assuramed division is now known as our cardinal health at home division ( `` home division '' ) . this acquisition increased revenue and operating earnings during fiscal 2014 . the increase in amortization and other acquisition-related costs during fiscal 2014 was primarily due to intangible assets from this acquisition . we expect the amortization of acquisition-related intangible assets to continue to be a significant expense in future periods . see note 2 of the `` notes to consolidated financial statements '' for additional information on these acquisitions . 14 cardinal health , inc. and subsidiaries financial review ( continued ) goodwill as part of our annual goodwill impairment test during fiscal 2013 , we concluded that the entire goodwill amount of our nuclear pharmacy services division was impaired , resulting in a non-cash impairment charge of $ 829 million ( $ 799 million , net of tax ) . this impairment charge did not impact our liquidity , cash flows from operations , or compliance with debt covenants . see note 5 of the โ notes to consolidated financial statements โ for additional information . restructuring on january 30 , 2013 , we announced a restructuring plan within our medical segment . under this restructuring plan , among other things , we have reorganized our medical segment , moved production of procedure kits from our facility in waukegan , illinois to other facilities , and consolidated office space in waukegan , illinois . in addition , we are selling property in waukegan , illinois , and we are exiting our gamma sterilization business in el paso , texas . we currently estimate the total costs associated with this restructuring plan to be approximately $ 74 million on a pre-tax basis , of which $ 18 million and $ 51 million was recognized in fiscal 2014 and fiscal 2013 , respectively . story_separator_special_tag ongoing audits during fiscal 2014 , the u.s. internal revenue service ( `` irs '' ) closed audits of fiscal years 2003 through 2005. the irs is currently conducting audits of fiscal years 2006 through 2010. liquidity and capital resources we currently believe that , based upon available capital resources ( cash on hand and access to committed credit facilities ) and projected operating cash flow , we have adequate capital resources to fund working capital needs ; currently anticipated capital expenditures , business growth and expansion ; contractual obligations ; tax payments ; and current and projected debt service requirements , dividends and share repurchases . if we decide to engage in one or more additional 17 cardinal health , inc. and subsidiaries financial review ( continued ) acquisitions , depending on the size and timing of such transactions , we may need to access capital in addition to cash on hand and our existing committed credit facilities . cash and equivalents our cash and equivalents balance was $ 2.9 billion at june 30 , 2014 , compared to $ 1.9 billion at june 30 , 2013 . at june 30 , 2014 , our cash and equivalents were held in cash depository accounts with major banks or invested in high quality , short-term liquid investments . the increase in cash and equivalents during fiscal 2014 was driven by net cash provided by operating activities of $ 2.5 billion , which was deployed for share repurchases ( $ 673 million ) , acquisitions ( $ 519 million ) and dividends ( $ 415 million ) . as anticipated , net cash provided by operating activities benefited from a net working capital decrease in excess of $ 500 million as a result of the walgreens contract expiration . during fiscal 2013 , we deployed $ 2.2 billion of cash on acquisitions , $ 450 million on share repurchases and $ 353 million on dividends . during fiscal 2013 , we received net proceeds from long-term obligations of $ 981 million . during fiscal 2012 , we deployed $ 450 million of cash on share repurchases , $ 300 million on dividends , $ 260 million on capital expenditures and $ 174 million on acquisitions . during fiscal 2012 , we received net proceeds from long-term obligations of $ 290 million . our working capital can vary significantly depending on factors such as customer payments of accounts receivable , the timing of inventory purchases and payments to vendors in the regular course of business . the decrease in net working capital at june 30 , 2014 compared to june 30 , 2013 is primarily a result of the walgreens contract expiration . the cash and equivalents balance at june 30 , 2014 included $ 420 million of cash held by subsidiaries outside of the united states . although the vast majority of this cash is available for repatriation , permanently bringing the money into the united states could trigger u.s. federal , state and local income tax obligations . as a u.s. parent company , we may temporarily access cash held by our foreign subsidiaries without becoming subject to u.s. federal income tax through intercompany loans . credit facilities and commercial paper on october 15 , 2013 , we reduced our committed receivables sales facility program through cardinal health funding , llc ( `` chf '' ) from $ 950 million to $ 700 million in light of the walgreens contract expiration . in addition to our committed receivables sales facility program , our sources of liquidity include a $ 1.5 billion revolving credit facility and a commercial paper program of up to $ 1.5 billion , backed by the revolving credit facility . we had no outstanding balance under the revolving credit facility at june 30 , 2014 and 2013 , except for standby letters of credit of zero and $ 43 million at june 30 , 2014 and 2013 , respectively . we had no outstanding borrowings from the commercial paper program at june 30 , 2014 and 2013 . we had no outstanding balance under the committed receivables sales facility program at june 30 , 2014 and 2013 , except for standby letters of credit of $ 41 million and zero at june 30 , 2014 and 2013 , respectively . our revolving credit facility and committed receivables sales facility program require us to maintain a consolidated interest coverage ratio , as of any fiscal quarter end , of at least 4-to-1 and a consolidated leverage ratio of no more than 3.25-to-1 . as of june 30 , 2014 , we were in compliance with these financial covenants . available-for-sale securities during fiscal 2014 , we purchased $ 100 million of marketable securities , which are classified as available-for-sale . long-term obligations and other short-term borrowings at june 30 , 2014 , we had total long-term obligations and other short-term borrowings of $ 4.0 billion compared to $ 3.9 billion at june 30 , 2013 . capital expenditures capital expenditures during fiscal 2014 , 2013 and 2012 were $ 249 million , $ 195 million and $ 260 million , respectively . we expect capital expenditures in fiscal 2015 to be between $ 335 million to $ 365 million primarily for growth projects in our core businesses as well as information technology projects . dividends during fiscal 2014 , we paid quarterly dividends totaling $ 1.21 per share , an increase of 18 percent from fiscal 2013 .
| results of operations revenue replace_table_token_6_th fiscal 2014 compared to fiscal 2013 pharmaceutical segment revenue for fiscal 2014 compared to fiscal 2013 was negatively impacted by the walgreens contract expiration ( $ 16.9 billion ) and by the expiration of our pharmaceutical distribution contract with express scripts , inc. ( `` express scripts '' ) on september 30 , 2012 ( $ 2.0 billion ) . this decrease was partially offset by sales growth from existing pharmaceutical distribution customers ( $ 7.1 billion ) . medical segment revenue for fiscal 2014 compared to fiscal 2013 reflects the benefit of acquisitions ( $ 816 million ) . fiscal 2013 compared to fiscal 2012 pharmaceutical segment revenue for fiscal 2013 compared to fiscal 2012 was negatively impacted by the expiration of our pharmaceutical distribution contract with express scripts ( approximately $ 6.7 billion ) . revenue from existing pharmaceutical distribution customers decreased by approximately $ 3.6 billion , primarily as a result of brand-to-generic pharmaceutical conversions . the decrease was partially offset by increased pharmaceutical distribution revenue from new customers ( approximately $ 3.8 billion ) and revenue growth within our specialty solutions division ( $ 961 million ) . medical segment revenue for fiscal 2013 compared to fiscal 2012 reflects the benefit of acquisitions ( $ 459 million ) . cost of products sold as a result of the same factors affecting the change in revenue , cost of products sold decreased $ 10.2 billion ( 11 percent ) and $ 6.8 billion ( 7 percent ) during fiscal 2014 and fiscal 2013 , respectively . see the gross margin discussion below for additional drivers impacting cost of products sold . gross margin replace_table_token_7_th fiscal 2014 compared to fiscal 2013 gross margin increased during fiscal 2014 compared to fiscal 2013 ( $ 240 million ) , reflecting the positive impact of acquisitions ( $ 221 million ) .
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when substantially all of the fair value of gross assets acquired or disposed of is concentrated in a single asset ( or group of similar assets ) , the asset ( s ) would not represent a business in the context of topic 805. asu 2017-01 should story_separator_special_tag the following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations , certain changes in our financial position , liquidity , capital structure and business developments for the periods covered by the consolidated financial statements included in this form 10-k. this discussion should be read in conjunction with , and is qualified by reference to , the other related information including , but not limited to , the audited consolidated financial statements ( including the notes thereto ) , the description of our business , all as set forth in this form 10-k , as well as the risk factors discussed above in item 1a . as previously noted , the discussion set forth below , as well as other portions of this form 10-k , contain statements concerning potential future events . readers can identify these forward-looking statements by their use of such verbs as โ expects , โ โ anticipates , โ โ believes โ or similar verbs or conjugations of such verbs . if any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise , our actual results could materially differ from those anticipated by such forward-looking statements . the differences could be caused by a number of factors or combination of factors including , but not limited to , those discussed above in item 1a . readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement . we do not undertake to update any forward-looking statements in this form 10-k. garmin 's fiscal year is a 52-53 week period ending on the last saturday of the calendar year . fiscal year 2016 contains 53 weeks compared to 52 weeks for 2015 and 2014. unless otherwise stated , all years and dates refer to the company 's fiscal year and fiscal periods . unless the context otherwise requires , references in this document to `` we , '' `` us , '' `` our '' and similar terms refer to garmin ltd. and its subsidiaries . unless otherwise indicated , dollar amounts set forth in the tables are in thousands , except per share data . overview we are a leading worldwide provider of navigation , communications and information devices , most of which are enabled by global positioning system , or gps , technology . we operate in five business segments , which serve the marine , outdoor , fitness , auto , and aviation markets . our segments offer products through our network of subsidiary distributors and independent dealers and distributors . however , the nature of products and types of customers for the five segments can vary significantly . as such , the segments are managed separately . since our first products were delivered in 1991 , we have generated positive income from operations each year and have funded our growth from these profits . critical accounting policies and estimates general garmin 's discussion and analysis of its financial condition and results of operations are based upon garmin 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the presentation of these financial statements requires garmin to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , garmin evaluates its estimates , including those related to customer sales programs and incentives , product returns , bad debts , inventories , investments , intangible assets , income taxes , warranty obligations , and contingencies and litigation . garmin bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 42 for information on each of the following critical accounting policies and or estimates , refer to the discussion in the notes to the consolidated financial statements as indicated in the table below : revenue recognition note 2 - summary of significant accounting policies trade accounts receivable note 2 - summary of significant accounting policies loan receivable note 2 - summary of significant accounting policies warranties note 2 - summary of significant accounting policies inventory note 2 - summary of significant accounting policies long-lived assets ( including goodwill ) note 2 - summary of significant accounting policies investments note 2 - summary of significant accounting policies & note 3 - marketable securities income taxes note 2 - summary of significant accounting policies & note 6 - income taxes stock based compensation note 2 - summary of significant accounting policies & note 9 - stock compensation plans accounting terms and characteristics net sales our net sales are primarily generated through sales to our retail partners , dealer and distributor network and to original equipment manufacturers . refer to the revenue recognition discussion in note 2 to the consolidated financial statements . our sales are largely of a consumer nature , and there is a relatively short cycle between order and shipment . therefore , we believe that backlog levels are not necessarily indicative of our future sales results , and backlog information is not material to the understanding of our business . we typically ship most orders within 72 hours of receipt . net sales are subject to seasonal fluctuation . story_separator_special_tag 49 comparison of 52-weeks ended december 26 , 2015 and december 27 , 2014 in 2016 the company moved action camera related revenue and expenses from the outdoor segment to the auto segment , allowing for alignment and synergies with other camera-based efforts occurring within the auto segment . the overall impact of the move was immaterial . however , action camera related operating results for the 52-weeks ended december 26 , 2015 and december 27 , 2014 have been recast to conform to the current year presentation . net sales replace_table_token_20_th net sales decreased 2 % in 2015 when compared to fiscal year 2014. all segments , excluding aviation , were impacted by revenues denominated in currencies that weakened against the u.s. dollar during the period . in total , it is estimated that the strong u.s. dollar reduced revenues by approximately $ 189 million , which represents 6 % of revenue . auto revenue remains the largest portion of our revenue mix at 38 % in the fiscal year 2015 compared to 44 % in the fiscal year 2014. total unit sales increased 7 % to 16.2 million units in 2015 from 15.1 million units in 2014. the increase in unit sales volume was attributable to fitness and marine volumes partially offset by declines in each of the other segments . auto segment revenue decreased 16 % from fiscal year 2014 , as both the contribution of amortization of previously deferred revenue declined when compared to 2014 and volumes declined . fitness revenues increased 16 % on the strength of our wearables portfolio . aviation revenues increased 3 % from fiscal year 2014 as market share gains were partially offset by industry weakness . outdoor revenues remained relatively flat to fiscal year 2014 , as geographic exposure to weak currencies and maturing product categories were largely offset by the strength of outdoor wearables . revenues in our marine segment increased 15 % as the release of new marine products drove strong revenue growth . cost of goods sold replace_table_token_21_th cost of goods sold increased 1 % in absolute dollars for fiscal year 2015 when compared to fiscal year 2014. cost of goods as a percentage of revenue increased in part due to a stronger u.s. dollar that created downward pressure on revenue in all segments excluding aviation as discussed above . in the auto segment , the cost of goods decline was largely consistent with the segment revenue decline . in the fitness and outdoor segments , the cost of goods increase outpaced revenue growth due to product mix and competitive pricing dynamics . the cost of goods decrease as a percentage of revenue in marine is due to increased sales of higher margin products . aviation cost of goods was lower due to product mix . 50 gross profit replace_table_token_22_th gross profit dollars in fiscal year 2015 decreased 4 % while gross profit margin decreased 130 basis points compared to fiscal year 2014 with all segments declining , excluding marine and aviation . segment specific gross margin drivers are discussed above . advertising expenses replace_table_token_23_th advertising expense increased 14 % in absolute dollars while increasing 80 basis points as a percent of revenues . the increase in absolute dollars occurred in fitness and marine to support new product introductions with increased media spend , point of sale presence at key retailers and cooperative advertising . this was partially offset by decreased spending in auto due to reduced cooperative advertising associated with lower volumes and in outdoor due to fewer new product categories . selling , general and administrative expenses replace_table_token_24_th selling , general and administrative expense increased 6 % in absolute dollars and 100 basis points as a percent of revenues compared to fiscal year 2014. the absolute dollar increase is primarily related to litigation related costs , information technology costs and product support . variances by segment are primarily due to the allocation of certain selling , general and administrative expenses based on percentage of total revenues . marine expense growth exceeded other segments due to specific litigation matters . 51 research and development expense replace_table_token_25_th research and development expense increased 8 % due to ongoing development activities for new products and additional engineering personnel throughout fiscal year 2015. in absolute dollars , research and development costs increased $ 31.9 million when compared with fiscal year 2014 and increased 140 basis points as a percent of revenue . our research and development spending is focused on product development , improving existing software capabilities , and exploring new categories . management believes that one of the key strategic initiatives for future growth and success of garmin is continuous innovation , development , and introduction of new products . operating income replace_table_token_26_th as a result of the above , operating income decreased 20 % in absolute dollars and 460 basis points as a percent of revenue when compared to the fiscal year 2014. declining gross margin percentages and increases in all operating expenses as a percentage of revenue , as discussed above , contributed to the decline . other income ( expense ) replace_table_token_27_th 52 the average return on cash and investments during the fiscal years of 2015 and 2014 were 1.2 % and 1.3 % , respectively . the decrease in interest income is attributable to decreasing cash and investment balances and a slight decrease in the interest rates . foreign currency gains and losses for the company are primarily tied to movements by the taiwan dollar , the euro , and the british pound sterling in relation to the u.s. dollar . the taiwan dollar is the functional currency of garmin corporation . the u.s. dollar remains the functional currency of garmin ( europe ) ltd. the euro is the functional currency of most european subsidiaries . as these entities have grown , currency fluctuations can generate material gains and losses .
| results of operations the following table sets forth our results of operations as a percentage of net sales during the periods shown ( the table may not foot due to rounding ) : 44 replace_table_token_8_th in 2016 the company moved action camera related revenue and expenses from the outdoor segment to the auto segment , allowing for alignment and synergies with other camera-based efforts occurring within the auto segment . the overall impact of the move was immaterial . however , action camera related operating results for the 52-weeks ended december 26 , 2015 and december 27 , 2014 have been recast to conform to the current year presentation . the following table sets forth our results of operations through operating income for each of our five segments during the period shown . for each line item in the table , the total of the segments ' amounts equals the amount in the consolidated statements of income data included in item 6. replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th 45 comparison of 53-weeks ended december 31 , 2016 and 52-weeks ended december 26 , 2015 net sales replace_table_token_12_th net sales increased 7 % in 2016 when compared to the year-ago period . all segments had an increase in revenue except for auto . auto revenue remains the largest portion of our revenue mix at 29 % in the 53-weeks ended 2016 compared to 38 % in the 52-weeks ended 2015. total unit sales increased 4 % to 16.8 million units in 2016 from 16.2 million units in 2015. auto segment revenue decreased 17 % from the year-ago period , primarily due to the ongoing pnd market contraction . outdoor , fitness , marine , and aviation revenues increased 33 % , 24 % , 16 % , and 10 % , respectively , when compared to the year-ago period , primarily due to increases in sales volumes . growth in outdoor was driven by wearables and the newly acquired delorme product lines .
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68 | goodwill is not amortized and is not deductible for story_separator_special_tag introduction our management 's discussion and analysis of financial condition and results of operations ( md & a ) is provided to assist readers in understanding our performance , as reflected in the results of our operations , our financial condition and our cash flows . this md & a should be read in conjunction with our combined financial statements and notes to combined financial statements included in item 8. financial statements and supplementary data . the discussion in this md & a contains a description of our historical performance for periods in which we operated as a business unit of pfizer , as well as forward-looking statements that involve substantial risks and uncertainties . our future results could differ materially from historical performance and from those anticipated in the forward-looking statements as a result of various factors such as those discussed in item 1a . risk factors , and in the forward-looking statements and factors that may affect future results and comparability of historical results and our relationship with pfizer sections of this md & a . this md & a is organized as follows : section description page overview of our business a general description of our business and the industry in which we operate . for more information regarding our business and the animal health industry , see item 1. business . 34 our performance information regarding our 2012 and 2011 financial performance . 35 our operating environment information regarding the animal health industry and factors that affect our company . 35 our growth strategies an explanation of our growth strategies . 37 components of revenues and costs and expenses an explanation of the components of our combined statements of income . 37 comparability of historical results and our relationship with pfizer information about the limitations of the predictive value of the combined financial statements . 38 significant accounting policies and application of critical accounting estimates accounting policies and estimates that we consider important to understanding our combined financial statements . 39 analysis of the combined consists of the following for all periods presented : statements of income revenues : an analysis of our revenues in total , by operating segment and by species . 41 costs and expenses : a discussion about the drivers of our costs and expenses . 44 provision for taxes on income : a discussion of items impacting our effective tax rates . 47 adjusted net income a discussion of adjusted net income , an alternative view of performance used by management . adjusted net income is a non-gaap financial measure . 47 analysis of the combined statements of comprehensive income/ ( loss ) an analysis of the components of comprehensive income for all periods presented . 50 analysis of the combined balance sheets a discussion of changes in certain balance sheet accounts for all balance sheets presented . 50 analysis of the combined statements of cash flows an analysis of the drivers of our operating , investing and financing cash flows for all periods presented . 50 analysis of financial condition , liquidity and capital resources an analysis of our ability to meet our short-term and long-term financing needs . 51 new accounting standards accounting standards that we have recently adopted . 53 forward-looking statements and factors that may affect future results a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements presented in this md & a and elsewhere in this 2012 annual report . 53 overview of our business we are a global leader in the discovery , development , manufacture and commercialization of animal health medicines and vaccines , with a focus on both livestock and companion animals . for more than 60 years , as a business unit of pfizer , we have been committed to enhancing the health of animals and bringing solutions to our customers who raise and care for them . the animal health medicines and vaccines industry is characterized by meaningful differences in customer needs across different regions . as a result of these differences , among other things , we manage our operations through four geographic operating segments . within each of these operating segments , we offer a diversified product portfolio for both livestock and companion animal customers in order to capitalize on local and regional trends and customer needs . our four operating segments are the united states ( u.s. ) , europe/africa/middle east ( euafme ) , canada/latin america ( clar ) and asia/pacific ( apac ) . see notes to combined financial statementsโ note 17. segment , geographic and other revenue information . on february 6 , 2013 , an initial public offering ( ipo ) of our class a common stock was completed , which represented approximately 19.8 % of our total outstanding shares . currently , pfizer owns 100 % of our outstanding class b common stock and no shares of our class a common 34 | stock , giving pfizer 80.2 % of the economic interest and the combined voting power in shares of our outstanding common stock other than with respect to the election of directors and 97.6 % of the combined voting power of our outstanding common stock with respect to the election of directors . on february 1 , 2013 , our class a common stock began trading on the new york stock exchange under the symbol โ zts. โ prior to and in connection with the ipo , we completed a $ 3.65 billion senior notes offering and pfizer transferred to us substantially all of the assets and liabilities of their animal health business . we refer to the transactions to separate our business from pfizer as described here and elsewhere in the 2012 annual report , as the separation . for additional information , see notes to combined financial statementsโ note 19. subsequent events . story_separator_special_tag growth in both the livestock and companion animal sectors is driven by overall economic development and related growth , particularly in many emerging markets . certain of our customers and suppliers have been affected directly by the economic downturn , which could decrease the demand for our products or hinder our ability to collect amounts due from customers . however , the cost of medicines and vaccines to our livestock producer customers is small relative to other production costs , including feed , and the use of these products improves livestock producers ' economic outcomes . as a result , demand for our products has typically been more stable than demand for other production inputs . similarly , industry sources report that pet owners indicate a preference for reducing spending on other aspects of their lifestyle , including entertainment , clothing and household goods , before reducing spending on pet care . competition the animal health industry is competitive . although our business is the largest by revenues in the animal health medicines and vaccines industry , we face competition in the regions and sectors in which we compete . principal methods of competition vary depending on the particular region , species , product category or individual product . some of these methods include new product development , quality , price , service and promotion to veterinary professionals , pet owners and livestock producers . our competitors include the animal health businesses of large pharmaceutical companies and specialty animal health businesses . in addition to competition from established market participants , there could be new entrants to the animal health medicines and vaccines industry in the future . in certain markets , we also compete with companies that produce generic products , but the level of competition from generic products varies from market to market . for example , the level of generic competition is higher in europe and certain emerging markets than in the u.s. however , there is no large , well-capitalized company focused on generic animal health products that exists as a global competitor in the industry . weather conditions and the availability of natural resources the animal health industry and demand for many of our animal health products in a particular region are affected by weather conditions , as usage of our products follows varying weather patterns and weather-related pressures from pests , such as ticks . as a result , we may experience regional and seasonal fluctuations in our results of operations . in addition , livestock producers depend on the availability of natural resources , including large supplies of fresh water . their animals ' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods , droughts or other weather conditions . in the event of adverse weather conditions or a shortage of fresh water , livestock producers may purchase less of our products . for example , the drought currently impacting the u.s. is considered the worst in many years , impacting both the supply of corn and the availability of grazing pasture . the decrease in harvested corn has resulted in higher corn prices , which has impacted the profitability of livestock producers of cattle , pork and poultry . higher corn prices may contribute to reductions in herd or flock size that may result in reduced spending on animal health products . reduced availability of grazing pasture may also force cattle producers to cull their herds . fewer heads of cattle would result in reduced demand for our products . a prolonged drought could have a material adverse effect on our operating results and financial condition . our current expectations are that the drought may affect our performance in 2013. factors influencing the magnitude and timing of any effects of a drought on our performance include , but may not be limited to , weather patterns and herd management decisions taken by livestock producers disease outbreaks sales of our livestock products could be adversely affected by the outbreak of disease carried by animals . outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products , either due to heightened export restrictions or import prohibitions , which may reduce demand for our products . also , the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere . alternatively , sales of products that treat specific disease outbreaks may increase . for example , in 2012 , we successfully launched a vaccine for horses against the deadly hendra virus in australia . foreign exchange rates significant portions of our revenues and costs are exposed to changes in foreign exchange rates . our products are sold in more than 120 countries and , as a result , our revenues are influenced by changes in foreign exchange rates . in 2012 , approximately 54 % of our revenues were 36 | denominated in foreign currencies . as a business unit of pfizer and under pfizer 's global cash management system , we sought to manage our foreign exchange risk in part through operating means , including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities . going forward , we will evaluate if a similar approach to managing foreign exchange risk is appropriate for our company . as we operate in multiple foreign currencies , including the euro , the brazilian real , the australian dollar and other currencies , changes in those currencies relative to the u.s. dollar will impact our revenues and expenses , and consequently , net income . exchange rate fluctuations may also have an impact beyond our reported financials and directly impact operations . these fluctuations may affect the ability to buy and sell our goods and services between markets impacted by significant exchange rate variances .
| resulted from growth in livestock products and approximately $ 23 million resulted from growth in companion animal products . livestock product revenues were favorably impacted by the launch of an improved formulation of a swine vaccine that prevents porcine circovirus type 2 , particularly in south east asia , as well as growth in china , australia and japan . increased sales force presence in china drove growth in premium priced swine products . australia experienced growth in the dairy cattle segment due to higher sales of intramammary products . revenues in japan were also driven by broad growth in the poultry portfolio . companion animal product revenues benefited from promotional campaigns in japan and the resulting increased adoption of our products into veterinarian treatment protocols . australia benefited from growth in parasiticides as a result of focused sales force efforts that drove demand for these products . china experienced growth in canine vaccines due to expansion of the sales organization . additionally , segment revenues were unfavorably impacted by foreign exchange , which decreased revenues by approximately $ 8 million or 1 % . 2011 vs. 2010 u.s. operating segment u.s. segment revenues increased by $ 275 million , or 20 % , in 2011 compared to 2010. base revenue growth was $ 89 million , or 7 % , of which approximately $ 65 million resulted from growth in livestock products and approximately $ 24 million resulted from growth in companion animal products . 43 | livestock product revenue growth was in large part due to increased demand for anti-infectives in cattle and swine as a result of new promotional campaigns focused on superior efficacy supported by economic outcomes studies , as well as general growth in the cattle market . cattle vaccine growth was driven by fda approvals for new treatment indications . additionally , the re-launch of inovocox , a poultry vaccine , contributed to growth .
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loan origination fees , as well as premium and discount , points and incremental direct origination costs , are initially recorded as an adjustment of the cost basis of the loan and are deferred until the loan is sold . for loans that we elected to measure at fair value on a recurring basis , we report changes in fair value in gain on loans held for sale , net in the consolidated statements of operations in the period in which the changes occur . these loans are expected to be sold into the secondary market to the gses or into ginnie mae guaranteed securitizations . f-11 for all other loans held for sale which we report at the lower of cost or fair value , we account for the excess of cost over fair value as a valuation allowance and include changes in the valuation allowance in other , net , story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations , as well as other portions of this form 10-k , may contain certain statements that constitute forward-looking statements within the meaning of the federal securities laws . you can identify forward-looking statements by terminology such as โ may , โ โ will , โ โ should , โ โ could โ , โ intend , โ โ consider , โ โ expect , โ โ plan , โ โ anticipate , โ โ believe , โ โ estimate , โ โ predict โ or โ continue โ or the negative of such terms or other comparable terminology . such statements are not guarantees of future performance and involve a number of assumptions , risks and uncertainties that could cause actual results to differ materially from expected results . you should not place any undue reliance on any forward-looking statement and should consider all uncertainties and risks discussed in this report , including those under โ forward-looking statements โ and item 1a , risk factors above , as well as those provided in any subsequent sec filings . overview ocwen financial corporation is a financial services holding company which , through its subsidiaries , is one of the largest mortgage companies in the united states . we are the fourth largest mortgage servicer in the united states and are a leader in the servicing industry in helping keep borrowers in their homes through foreclosure prevention . ocwen has completed more than 450,000 loan modifications since january 2008 and is an industry leader in completing sustainable loan modifications as evidenced by the number of completed modifications that remain less than 90 days delinquent . through our homeward and 31 liberty lending operations , we purchased or originated 32,311 and 7,443 forward and reverse mortgage loans with a upb of $ 6.7 billion and $ 965.2 million , respectively , during 2013. market outlook as discussed in item 1. business , we expect servicing assets and platforms to continue to come to market as banks sell or subservice non-core servicing assets . in addition , banks have legacy mortgage loan portfolios that they may look to sell or subservice . small specialty servicers may also view a sale and exit as their highest return alternative , especially given the increasingly high fixed costs associated with complying with state and federal servicing rules and regulations . we believe servicing and subservicing opportunities with an aggregate upb in the range of $ 1.0 trillion could come to market in the next 3 years . we would generally expect lower prepayment rates due to lower refinancing activity in a rising rate environment , primarily in our performing agency servicing portfolio . our non-agency portfolio has not historically experienced significant voluntary prepayments . as such , higher interest rates are expected to positively impact our servicing portfolio . combined with an improving economy and housing market , which should reduce delinquencies , we anticipate a favorable environment for our servicing portfolio . while overall mortgage market forecasts are projecting a decline in new forward mortgage loan originations in 2014 from 2013 ( such as the 28 % predicted in the fannie mae december 2013 housing/economic forecast ) , we believe we can mitigate some of the decline with a modest increase in our share of the market through more efficient integration with our servicing portfolio and continuing investment in our lending channels . the cfpb estimates the total potential size of the reverse mortgage market at $ 1.9 trillion , of which only 3 % has been tapped . we believe that liberty 's strong retail and wholesale operations , combined with low costs and an effective marketing presence , will continue to maintain a strong market share . nevertheless , we expect slow growth in 2014 in reverse mortgage volume . as a result of the current regulatory environment , we have faced and expect to continue to face increased regulatory and public scrutiny as well as stricter and more comprehensive regulation of our business . we continue to work diligently to assess and understand the implications of the regulatory environment in which we operate and the regulatory changes that we are facing . we devote substantial resources to regulatory compliance , while , at the same time , striving to meet the needs and expectations of our customers and investors . story_separator_special_tag style= '' width:36px ; '' > ( 1 ) match funded advances include advances sold to spes formed for the sole purpose of financing advances on loans that we service for others . we either account for these sales as secured financing transactions or we consolidate the spe because ocwen is the primary beneficiary of the spe . the corresponding liability is classified as match funded liabilities on our consolidated balance sheets . ( 2 ) consists of rights to msrs for non-agency msrs , including all such msrs acquired in the homeward and rescap acquisitions . because we retained legal title to the msrs , the sales of the rights to msrs have been accounted for as financings . story_separator_special_tag offsetting these gains in 2013 are $ 17.0 million of losses that we recognized when we repaid the balance outstanding on an earlier sstl with the proceeds from a new sstl that we entered into on february 14 , 2013. see of note 15 โ borrowings of the consolidated financial statements for additional information on the msr financing liabilities and the sstl facilities . our effective tax rate for 2013 is lower than the u.s. federal corporate income tax rate of 35 % primarily because of lower tax rates on our operations in the usvi . as part of an initiative to streamline management of our global servicing assets and operations and cost-effectively expand our u.s.-based origination and servicing activities , ocwen formed oms in 2012 under the laws of the usvi where oms has its principal place of business . oms is located in a federally recognized economic development zone and , effective october 1 , 2012 , became eligible for certain benefits which have a favorable impact on our effective tax rate . our actual effective tax rate in the future will vary depending on the mix of u.s. and foreign assets and operations . although income before income taxes for 2013 increased by $ 77.7 million as compared to 2012 , income tax expense declined by $ 35.5 million as our estimated effective tax rate for 2013 declined to 12.3 % as compared to 29.7 % for 2012 . 2012 versus 2011. servicing and subservicing fee revenues for 2012 were higher than 2011 primarily as a result of 46 % growth in the average upb of the residential servicing portfolio that included $ 34.2 billion of servicing and subservicing added during the second quarter of 2012 , principally as a result of acquisitions , including the saxon msr transaction and the effect of the litton portfolio for a full year in 2012 as compared to four months in 2011. an increase in the mix of servicing versus subservicing and a 9 % increase in completed modifications also contributed to the increase in revenues . the homeward acquisition closed on december 27 , 2012 , and therefore did not have a significant impact on revenues . operating expenses for 2012 increased principally because of the effects of growth in the servicing portfolio which resulted in a substantial increase in staffing and higher amortization of msrs . newly acquired servicing portfolios typically have higher delinquencies upon boarding which raises costs relative to increases in upb . this disproportionate increase in 35 costs results because we incur our highest expenses up-front as we invest in loss mitigation resources and incur transaction-related costs . however , the effects of the increase in staffing on compensation and benefits were offset in part by the 2011 nonrecurring expenses associated with the operations of litton immediately after the acquisition . technology and occupancy costs increased as well , as we added facilities and infrastructure to support the growth . operating expenses for 2012 also include a charge of $ 4.8 million to establish a liability for the remaining lease payments on the former litton facility that we vacated . we also incurred a fee of $ 3.7 million in 2012 as a result of canceling a planned $ 200.0 million upsize of the sstl facility . other expense , net increased by $ 90.4 million primarily due to an increase in interest expense . higher interest on borrowings related to acquisitions that closed during 2012 were partially offset by a decline in interest expense on borrowings transferred to , or repaid with proceeds from , hlss transactions . although income before income taxes for 2012 increased by 109 % as compared to 2011 , income tax expense increased by only 71 % as a result of a decline in our effective tax rate to 29.7 % in 2012 from 36.3 % in 2011. our effective tax rate for 2012 is lower than the u.s. federal corporate income tax rate of 35 % primarily because of lower tax rates on our operations in the usvi effective october 1 , 2012 . 36 financial condition summary during 2013 , our balance sheet was significantly impacted by completed acquisitions and transfers of financial assets that are recorded as secured financings , including the hlss transactions and reverse mortgage securitizations completed by liberty . the following table summarizes our consolidated balance sheet at the dates indicated . replace_table_token_12_th loans held for investment - reverse mortgages , at fair value includes reverse mortgage loan securitizations guaranteed by ginnie mae that we accounted for as secured financings . the corresponding financing is recorded in financing liabilities . we elected to report both the loans held for investment and the corresponding financing liability at fair value . advances and match funded advances increased primarily due to acquired advances of $ 4.3 billion exceeding sales of advances to hlss of $ 3.8 billion . msrs increased as a result of acquisitions completed during 2013 of $ 1.5 billion and new capitalization generated from our lending platform , offset in part by amortization . the increase in goodwill is the result of goodwill recorded as part of the rescap acquisition offset by reductions due to the sale of the homeward and rescap diversified businesses to altisource in march and april of 2013 , respectively . 37 reductions in match funded liabilities are the result of the sale of advances to hlss and the collection of advances offset in part by new facilities that we entered into to finance our more recently closed acquisitions . financing liabilities increased as a result of the sales of rights to msrs to hlss and liberty reverse mortgage securitizations accounted for as secured financings . other secured borrowings increased primarily as a result of borrowings under the sstl in connection with the rescap acquisition . other liabilities increased primarily as a result of liabilities that we assumed in connection with acquisitions , including indemnification obligations , and reserves in connection with legal and regulatory matters .
| operations summary our consolidated operating results for the past three years have been significantly impacted by portfolio and platform acquisitions . the operating results of the acquired businesses are included in our operating results since their respective acquisition dates . we added 2.5 million forward mortgage loans with a upb of $ 376.1 billion onto our servicing platforms ( boarded ) during the year ended december 31 , 2013. the most significant of these are as follows ( in millions ) : replace_table_token_9_th ( 1 ) acquired rescap servicing platform , related assets and assumed liabilities and added approximately 2,450 u.s. based employees . ( 2 ) purchase price includes $ 389.9 million of msrs and $ 1.7 billion of servicing advances , net of assumed liabilities of $ 74.6 million consisting primarily of accruals for compensatory fees for foreclosures that may ultimately exceed investor timelines . we recognized goodwill of $ 207.8 million in connection with the acquisition . ( 3 ) consists of $ 55.6 billion conventional and government insured , $ 55.6 billion non-agency , $ 44.9 billion master servicing and $ 27.0 billion subservicing . subsequent to the rescap acquisition , we acquired $ 246.4 million upb of newly originated government insured msrs from rescap at contractually agreed multiples of the applicable servicing fee , which approximated market value . ( 4 ) we acquired the msrs related to $ 87.5 billion in upb from ally bank in the ally msr transaction and terminated the subservicing contract with respect to the acquired msrs . 32 ( 5 ) purchase price includes $ 683.8 million of msrs and $ 73.6 million of servicing advances and other receivables , net of the estimated fair value of the assumed origination representation and warranty obligations of $ 136.7 million in connection with the majority of the acquired msrs . ( 6 ) consists of conventional msrs .
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in march 2017 , the fasb issued asu 2017-07 , compensation โ story_separator_special_tag the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with โ item 6. selected financial data โ and our audited consolidated financial statements and related notes thereto included elsewhere in this form 10-k. this discussion contains forward-looking statements and involves numerous risks and uncertainties . our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors , including those set forth under the โ special note regarding forward-looking statements , โ โ item 1a . risk factors โ and elsewhere in this form 10-k. executive overview our company we are a leading global provider of mission-critical flow control and compression equipment and associated aftermarket parts , consumables and services , which we sell across multiple attractive end-markets within the industrial , energy and medical industries . we manufacture one of the broadest and most complete ranges of compressor , pump , vacuum and blower products in our markets , which , combined with our global geographic footprint and application expertise , allows us to provide differentiated product and service offerings to our customers . our products are sold under a collection of premier , market-leading brands , including gardner denver , compair , nash , emco wheaton , robuschi , elmo rietschle and thomas , which we believe are globally recognized in their respective end-markets and known for product quality , reliability , efficiency and superior customer service . these attributes , along with over 155 years of engineering heritage , generate strong brand loyalty for our products and foster long-standing customer relationships , which we believe have resulted in leading market positions within each of our operating segments . we have sales in more than 175 countries and our diverse customer base utilizes our products across a wide array of end-markets that have favorable near- and long-term growth prospects , including industrial manufacturing , energy ( with particular exposure to the north american upstream land-based market ) , transportation , medical and laboratory sciences , food and beverage packaging and chemical processing . our products and services are critical to the processes and systems in which they are utilized , which are often complex and function in harsh conditions where the cost of failure or downtime is high . however , our products and services typically represent only a small portion of the costs of the overall systems or functions that they support . as a result , our customers place a high value on our application expertise , product reliability and the responsiveness of our service . to support our customers and market presence , we maintain significant global scale with 38 key manufacturing facilities , more than 30 complementary service and repair centers across six continents and approximately 6,400 employees worldwide as of december 31 , 2017. the process-critical nature of our product applications , coupled with the standard wear and tear replacement cycles associated with the usage of our products , generates opportunities to support customers with our broad portfolio of aftermarket parts , consumables and services . customers place a high value on minimizing any time their operations are offline . as a result , the availability of replacement parts , consumables and our repair and support services are key components of our value proposition . our large installed base of products provides a recurring revenue stream through our aftermarket parts , consumables and services offerings . as a result , our aftermarket revenue is significant , representing 41 % of total company revenue and approximately 45 % of our combined industrials and energy segments ' revenue in 2017. our segments we report our results of operations through three reportable segments : industrials , energy and medical . industrials we design , manufacture , market and service a broad range of air compression , vacuum and blower products , including associated aftermarket parts , consumables and services , across a wide array of technologies and applications for use in diverse end-markets . compressors are used to increase the pressure of air or gas , vacuum products are used to remove air or gas in order to reduce the pressure below atmospheric levels and blower products are used to produce a high volume of air or gas at low pressure . almost every manufacturing and industrial facility , and many service and process industry applications , use air compression , vacuum and blower products in a variety of process-critical applications , such as the operation of power industrial air tools , vacuum packaging of food products and aeration of waste water , among others . we offer one of the broadest portfolios of compression , vacuum and blower technology in our markets , which we believe , alongside our geographic footprint , allows us to provide differentiated service to our customers globally and maintain leading positions in many of our end-markets . we sell our industrials products through an integrated network of direct sales representatives and independent distributors , which is strategically tailored to meet the dynamics of each target geography or end-market . in 2017 , the industrials segment generated segment revenue of $ 1,130.7 million and segment adjusted ebitda of $ 242.7 million , reflecting a segment adjusted ebitda margin of 21.5 % . 28 energy we design , manufacture , market and service a diverse range of positive displacement pumps , liquid ring vacuum pumps , compressors and integrated systems , engineered fluid loading and transfer equipment and associated aftermarket parts , consumables and services . the highly engineered products offered by our energy segment serve customers across upstream , downstream and midstream energy markets , as well as petrochemical processing , transportation and general industrial sectors . our positive displacement pumps are fit-for-purpose to meet the demands and challenges of modern unconventional drilling and hydraulic fracturing activity , particularly in the major basins in the north american land market . story_separator_special_tag expenses cost of sales cost of sales includes the costs we incur , including purchased materials , labor and overhead related to manufactured products and aftermarket parts sold during a period . depreciation related to manufacturing equipment and facilities is included in cost of sales . purchased materials represent the majority of costs of sales , with steel , aluminum , copper and partially finished castings representing our most significant materials inputs . we have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations . cost of sales for services includes the direct costs we incur , including direct labor , parts and other overhead costs including depreciation of equipment and facilities , to deliver repair , maintenance and other field services to our customers . selling and administrative expenses selling and administrative expenses consist of ( i ) salaries and other employee-related expenses for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers ; ( ii ) facility operating expenses for selling and administrative activities , including office rent , maintenance , depreciation and insurance ; ( iii ) marketing and direct costs of selling products and services to customers including internal and external sales commissions ; ( iv ) research and development expenditures ; ( v ) professional and consultant fees ; ( vi ) sponsor fees and expenses ; ( vii ) expenses related to our public stock offerings and to establish public company reporting compliance ; and ( viii ) other miscellaneous expenses . certain corporate expenses , including those related to our shared service centers in the united states and europe , that directly benefit our businesses are allocated to our business segments . certain corporate administrative expenses , including corporate executive compensation , treasury , certain information technology , internal audit and tax compliance , are not allocated to the business segments . amortization of intangible assets amortization of intangible assets includes the periodic amortization of intangible assets recognized when an affiliate of our sponsor acquired us on july 30 , 2013 and intangible assets recognized in connection with businesses we acquired since july 30 , 2013 , including customer relationships and trademarks . impairment of goodwill and other intangible assets impairment of goodwill and other intangible assets includes non-cash charges we recognized for the impairment of goodwill and other intangible assets . 30 other operating expense , net other operating expense , net includes foreign currency gains and losses , restructuring charges , certain litigation and contract settlement losses , environmental remediation , stock-based compensation expense and other miscellaneous operating expenses . benefit or provision for income taxes the benefit or provision for income taxes includes u.s. federal , state and local income taxes and all non-u.s. income taxes . we are subject to income tax in approximately 33 jurisdictions outside of the united states . because we conduct operations on a global basis , our effective tax rate depends , and will continue to depend , on the geographic distribution of our pre-tax earnings among several different taxing jurisdictions . our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions , the availability of tax credits and non-deductible items . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the โ tax act โ ) . the tax act makes broad and complex changes to the u.s. tax code that affected 2017 , including , but not limited to , ( 1 ) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years , ( 2 ) bonus depreciation that will allow for full expensing of qualified property , and ( 3 ) a change in us deferred tax assets and liabilities relating to the us tax rate reduction from 35 % to 21 % . items affecting our reported results general economic conditions and capital spending in the industries we serve our financial results closely follow changes in the industries and end-markets we serve . demand for most of our products depends on the level of new capital investment and planned and unplanned maintenance expenditures by our customers . the level of capital expenditures depends , in turn , on the general economic conditions as well as access to capital at reasonable cost . in particular , demand for our industrials products generally correlates with the rate of total industrial capacity utilization and the rate of change of industrial production . capacity utilization rates above 80 % have historically indicated a strong demand environment for industrial equipment . in our energy segment , demand for our products that serve upstream energy end-markets are influenced heavily by energy prices and the expectation as to future trends in those prices . energy prices have historically been cyclical in nature and are affected by a wide range of factors . as energy prices start improving from low levels observed in the first half of 2016 , we have observed increases in drilled but uncompleted wells , global land rig count , wells and footage drilled as well as drilling and completion capital expenditures to positively impact our results of operations . in the midstream and downstream portions of our energy segment , overall economic growth and industrial production , as well as secular trends , impact demand for our products . in our medical segment we expect demand for our products to be driven by favorable trends , including the growth in healthcare spend and expansion of healthcare systems due to an aging population requiring medical care and increased investment in health solutions and safety infrastructures in emerging economies .
| industrials segment result s replace_table_token_7_th 2017 vs. 2016 segment revenues for 2017 were $ 1,130.7 million , an increase of $ 48.3 million , or 4.5 % , compared to $ 1,082.4 million in 2016. the increase in segment revenues was due to higher volume including acquisitions and net of divestitures ( 1.9 % or $ 20.4 million , including $ 18.9 million from upstream energy exposed markets ) , higher pricing ( 1.5 % or $ 16.1 million ) and the favorable impact of foreign currencies ( 1.1 % or $ 11.8 million ) . the percentage of segment revenues derived from aftermarket parts and service was 34.0 % in 2017 compared to 34.7 % in 2016. segment adjusted ebitda in 2017 was $ 242.7 million , an increase of $ 25.1 million , or 11.5 % , from $ 217.6 million in 2016. segment margin increased 140 bps to 21.5 % from 20.1 % in 2016. the increase in segment adjusted ebitda was due primarily to improved pricing ( $ 16.1 million ) , higher volume including acquisitions and net of divestitures ( $ 6.0 million , including $ 13.0 million from upstream energy exposed markets ) , the favorable impact of foreign currencies ( $ 2.8 million ) , and lower selling and administrative expenses ( $ 0.7 million ) , partially offset by higher material and other manufacturing costs ( $ 0.5 million ) . 2016 vs. 2015 segment revenues for 2016 were $ 1,082.4 million , a decrease of $ 67.3 million , or 5.9 % , compared to $ 1,149.7 million in 2015. the decrease in segment revenues was due to the unfavorable impact of foreign currencies ( 1.9 % or $ 21.7 million ) , lower volume ( 4.6 % or $ 53.3 million , including $ 21.9 million from upstream energy exposed markets ) and revenues from business divestitures in 2016 ( 1.0 % or $ 11.4 million ) , partially offset by improved pricing ( 1.7 % or $ 19.1 million ) .
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42 employment agreements bing yang employment agreement on march 28 , 2016 , we entered into an employment agreement with mr. yang effective as of april 26 , 2016. mr. yang 's employment agreement has an initial term of two years , with automatic one-year extensions thereafter unless written notice of nonrenewal is given by either party not less than 90 days prior to the end of the then current term . mr. yang will be paid an initial base salary of $ 180,000 per year , which will be subject to annual review by story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report . in addition to historical information , the following discussion contains certain forward-looking information . see โ special note regarding forward looking statements โ above for certain information concerning those forward-looking statements . overview wecast network is a premium content vod service provider with primary operations in the people 's republic of china . wecast network , inc. was incorporated in the state of nevada on october 19 , 2004. wecast network is leveraging and optimizing its current operations as a premium content video on demand service provider in china to evolve into a global , b2b2c , mobile-driven , consumer management platform for both enterprises and consumers . by aiming to establish the world 's premier multimedia , social networking and e-commerce-enabled network with the largest global effective connected user base , wecast network , through this expanded , cloud-based , ecosystem of connected screens combined with strong partnerships with leading global providers , will be capable of delivering a vast array of wecast networkโbranded products and services to enterprise customers and end-use consumers - anytime and anywhere , across multiple platforms and devices . wecast network , through its subsidiaries and variable interest entities , provide integrated value-added service solutions business for the delivery of vod and paid video programming to digital cable providers , internet protocol television ( โ iptv โ ) providers , over-the-top ( โ ott โ ) streaming providers , mobile manufacturers and operators , as well as direct customers . by leveraging and optimizing its existing operations , we have positioned ourselves to evolve into a mobile driven , โ new media โ platform for both enterprises and consumers . wecast network launched its vod service through acquisition of yod hong kong , formerly sinotop group limited , in july 30 , 2010 through its subsidiary china cb cayman . through a series of contractual arrangements , yod wfoe , the subsidiary of yod hong kong , controls sinotop beijing , a corporation established in the prc . sinotop beijing is the 80 % owner of zhong hai media , through which we provide : 1 ) integrated value-added business-to-business ( โ b2b โ ) service solutions for the delivery of vod and enhanced premium content for digital cable ; 2 ) integrated value-added business-to-business-to-customer ( โ b2b2c โ ) service solutions for the delivery of vod and enhanced premium content for iptv and ott providers and ; 3 ) a direct to user , or b2c , mobile video service app . as a result of the contractual arrangements with sinotop beijing , we have the right to control management decisions and direct the economic activities that most significantly impact sinotop beijing and zhong hai media , and accordingly , under generally accepted accounting principles in the united states ( โ u.s . gaap โ ) , we consolidate these operating entities in our consolidated financial statements . on october 8 , 2016 , the company signed an agreement with zhejiang yanhua ( โ yanhua agreement โ ) , where zhejiang yanhua ( โ yanhua โ ) will act as the exclusive distribution operator ( within the territory of the people ' republic of china ) of wecast network 's licensed library of major studio films . according to the yanhua agreement , the existing legacy hollywood studio paid contents as well as other ip contents specified in the agreement , along with the corresponding authorized rights letter that wecast network is entitled to , will be turned over to yanhua as a whole package , which was agreed to be priced at rmb 13,000,000. in addition to the above-mentioned minimal guarantee fee of rmb 13,000,000 specified , there is a provision in the yanhua agreement which states that once the revenue recognized from the existing contents transferred from wecast network to yanhua reaches the amount of rmb 13,000,000 , the revenue above rmb 13,000,000 will be shared with wecast network from the date when this revenue threshold is reached based on certain revenue-sharing mechanism stipulated in the yanhua agreement . wecast network is a next generation global brand licensing , ip sales and video commerce company driven by ai and big data . with a firm focus on 4 strategy pillars which include : brand , content , commerce and licensing , the company is leveraging and optimizing its legacy operations as a premium content video on demand service provider in china to evolve into a global , vertical , ubiquitous and transactional b2b2c , mobile-driven , consumer and supply chain management platform . by aiming to establish the world 's premier multimedia , social networking and smart e-commerce-enabled network with the largest global effective connected user base , wecast network , through this expanded , cloud-based , ecosystem of connected screens combined with strong partnerships with leading global providers , will be capable of delivering a vast array of wecast network-branded products and services to enterprise customers and end-use consumers - anytime and anywhere , across multiple platforms and devices . our unconsolidated equity investments investments in shandong media , hua cheng and wecast internet where the company can exercise significant influence , but not control , is classified as a long-term equity investments and accounted for using the equity method . story_separator_special_tag the company recognized the fair value of the common stock to sss of approximately $ 13,700,000 , based on the market price of the company 's common stock , as earn-out share award expense . loss from operations our loss from operations increased $ 19,416,000 to $ 27,827,000 for the year ended december 31 , 2016 , from $ 8,411,000 during 2015.this was mostly due to the earn-out share award expenses mentioned above . interest expense , net our interest expense increased $ 134,000 to $ 254,000 for the year ended december 31 , 2016 , from $ 120,000 during 2015. the interest expense increase during 2016 was primarily comprised of 1 ) approximately $ 123,000 in interest expense recorded and related to the amortization of debt issuance costs related to the $ 17.7 million convertible note to sss , and 2 ) approximately $ 24,000 in interest expenses accrued for the convertible note issued to sss before its conversion on june 27 , 2016 . 30 change in fair value of warrant liabilities certain of our warrants are recognized as derivative liabilities and re-measured at the end of every reporting period and upon settlement , with the change in value reported in the statement of operations . we reported gain of $ 324,000 and gain of $ 190,000 for the years ended december 31 , 2016 and 2015 , respectively . the changes are primarily due to fluctuation in our closing stock price . equity in loss of equity method investees our equity in loss of equity method investees decreased $ 124,000 to $ 32,000 for the year ended december 31 , 2016 , from $ 156,000 during 2015. this was primarily due to shandong media which recognized a $ 124,000 loss on investment in 2015 and recognized nil loss on investment in 2016 as the investment was fully impaired as of december 31 , 2015. net loss attributable to non-controlling interest hua cheng has a 20 % non-controlling interest in zhong hai media and as such we allocate 20 % of the operating loss of zhong hai media to hua cheng . during the year ended december 31 , 2016 , $ 1,602,000 of our operating loss from zhong hai video was allocated to hua cheng . for the year ended december 31 , 2015 , operating loss attributable to non-controlling interest was $ 1,055,000 , of which $ 440,000 was allocated to hua cheng . dividends on preferred stock for the year ended december 31 , 2015 , in connection with the issuance of series e preferred stock , we recorded dividends of approximately $ 16,402,000 , which was primarily comprised of the recognition of a deemed dividend for a beneficial conversion feature discount of $ 16,571,000. for the year ended december 31 , 2016 , we did not record dividends on preferred stock . liquidity and capital resources as of december 31 , 2016 , we had cash of approximately $ 2,539,000. approximately $ 310,000 was held in our hong kong and us entities and $ 2,229,000 was held in our china entities . the company has no plans to repatriate these funds . as discussed in note 3 to the consolidated financial statements included in this report , the company has incurred significant continuing losses in 2016 and 2015 , and total accumulated deficits was $ 112,294,000 and $ 86,458,000 as of december 31 , 2016 and 2015 , respectively . as of december 31 , 2016 , the company had net current liabilities ( current assets less current liabilities ) of $ 4,084,000. we must continue to rely on proceeds from debt and equity issuances to fund ongoing operating expenses to date , which could raise substantial doubt about the company 's ability to continue as a going concern . management 's plans regarding these matters are also described in note 3 to the consolidated financial statements in this report . the consolidated financial statements included in this report have been prepared assuming that the company will continue as a going concern and , accordingly , do not include any adjustments that may result from the outcome of this uncertainty . on march 28 , 2016 , we completed a common stock financing with sss for $ 10.0 million under an agreement entered into in december 2015. on july 19 , 2016 , we completed a stock financing with ssw for $ 4.0 million . on august 12 , 2016 , we completed another common stock financing with harvest alternative investment opportunities spc ( โ harvest โ ) for $ 4.0 million . on november 11 , 2016 , the company entered into a spa with wecast media group limited ( formerly known as sun seven stars hong kong cultural development limited ) ( โ wmg โ ) , an affiliate of sss . pursuant to the terms of the spa , the company has agreed to sell and issue 1,136,365 shares of the company 's common stock , for $ 1.76 per share , or a total purchase price of $ 2.0 million to wmg . the following table provides a summary of our net cash flows from operating , investing , and financing activities . replace_table_token_4_th 31 operating activities cash used in operating activities increased for the year ended december 31 , 2016 compared to 2015 , primarily due to an increase in net loss and a decrease in collection from customers , which was partially offset by a decrease in payments , made for license content fees , accrued expenses and other liabilities during 2016. financing activities net cash provided by financing activities for year ended december 31 , 2016 was from 1 ) proceeds of $ 10.0 million received from the sales of 4,545,455 shares of the company 's common stock , issuance of a two-year warrant to acquire an additional 1,818,182 shares of the company 's common stock at an exercise price of $ 2.75 per share to sss ; 2 ) proceeds of $ 4.0 million received from the sales of 2,272,727 shares of the company 's common stock to ssw ;
| consolidated results of operations comparison of years ended december 31 , 2016 and 2015 replace_table_token_3_th 29 revenues revenue for the year ended december 31 , 2016 was $ 4,544,000 , as compared to $ 4,606,000 for the same period in 2015 , a decrease of approximately $ 62,000 , or 1 % . in october , the company signed an agreement to form a five years partnership with zhejiang yanhua culture media co. , ltd. , or yanhua , where yanhua will act as the exclusive distribution operator ( within the territory of prc ) of the company 's licensed library of major studio films . pursuant to the yanhua agreement , the existing legacy hollywood studio paid content as well as other ip content specified in the agreement , along with the corresponding authorized rights letter that the company is entitled to , will be transferred over to yanhua , which was agreed to be priced at rmb 13,000,000 ( approximately $ 1,926,954 ) . according to the agreement , at the end of 2016 , as a whole package , the payment is agreed to be paid in two installments : the first half of rmb 6,500,000 was received on december 30 , 2016. the remaining rmb 6,500,000 was due to be received if the license content fees due to studios for the existing legacy hollywood paid contents was settled by march 30 , 2017. as the company did not expect and did not make the payment to the studios by march 30 , 2017 , we deemed this portion of the fee to be not fixed or determinable and therefore , this portion of the revenue did not meet the revenue recognition criteria to be recognized as of december 31 , 2016. pursuant to the yanhua agreement , $ 107,517 of the first installment of rmb 6,500,000 was recognized as revenue in 2016 based on the relative fair value of licensed content delivered to yanhua by december 31 , 2016.
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in determining the company 's provision for income taxes , the company uses judgment , reflecting its estimates and assumptions , in applying the more likely than not threshold . in january 2018 , the financial accounting standards board ( โ fasb โ ) issued guidance on the accounting for tax on the global intangible low-taxed income provisions of the recently enacted tax law . these provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations . the guidance indicates that the company is allowed to make an accounting policy choice of either : ( 1 ) treating taxes due on future inclusions in taxable income as a f-14 table of contents current-period expense when incurred or ( 2 ) factoring such amounts into the company 's measurement of its deferred taxes . the company has elected to account for story_separator_special_tag ( unless otherwise noted , all amounts are in millions , except share and per share amounts ) references herein to โ wyndham hotels , โ the โ company , โ โ we , โ โ our โ and โ us โ refer to both ( i ) wyndham hotels & resorts , inc. and its consolidated subsidiaries for time periods following the consummation of the spin-off and ( ii ) the wyndham hotels & resorts businesses for time periods prior to the consummation of our spin-off from wyndham worldwide . unless the context otherwise suggests , references herein to โ wyndham worldwide , โ โ wyndham destinations โ and โ former parent โ refer to wyndham worldwide corporation and its consolidated subsidiaries . business and overview wyndham hotels & resorts is a leading global hotel franchisor , licensing its renowned hotel brands to hotel owners in nearly 95 countries around the world . wyndham hotels operates in the following segments : hotel franchising โ licenses our lodging brands and provides related services to third-party hotel owners and others . hotel management โ provides hotel management services for full-service and limited-service hotels as well as two hotels that are owned by us . the consolidated and combined financial statements presented herein have been prepared on a stand-alone basis and prior to may 31 , 2018 are derived from the consolidated financial statements and accounting records of wyndham worldwide . the consolidated and combined financial statements include wyndham hotels ' assets , liabilities , revenues , expenses and cash flows and all entities in which wyndham hotels has a controlling financial interest . 28 story_separator_special_tag style= '' margin-bottom:3pt ; margin-top:3pt ; padding-left:54pt ; text-indent : -18pt '' > guided owners through the coronavirus aid , relief , and economic security ( โ cares โ ) act and its evolving guidance and urged the government to expand and clarify these loan programs , for which the majority of our owners qualify ; 29 revised cleaning protocols and secured critical cleaning and disinfection supplies pursuant to new u.s. centers for disease control and prevention ( โ cdc '' ) guidelines through our procurement network at reduced costs for our franchisees as well as funding and deferring repayment of these costs to help our franchisees conserve cash during this pandemic ; and continued marketing and sales efforts during the higher demand summer travel season to drive bookings for our hotel owners . for our guests whose travel plans have changed , we have modified cancellation policies , paused wyndham rewards point expirations until june 30 , 2021 and are maintaining loyalty member level status through the end of 2021. over 99 % of our domestic and approximately 97 % of our global portfolio remain open today . nearly 90 % of our domestic hotels are located along highways and in suburban and small metro areas . our portfolio generates approximately 70 % of bookings from leisure customers and 30 % from business travel . our business customers are substantially comprised of truckers , contractors , construction workers , healthcare workers , emergency crews and others who must travel for work and do not have the ability to conduct their work remotely . these travelers are looking for well-known and high quality brands they can depend on for quality and enhanced safety measures . less than 5 % of our bookings come from corporate business travel or group business . as a result of the strength of leisure demand , these traveling everyday workers and our continued investment in sales and marketing efforts , our economy and midscale brands have outperformed the industry 's higher-end chain scales throughout the pandemic . while we believe our hotels will be able to quickly recover once the pandemic abates , the ultimate timing of any recovery remains uncertain . in the meantime , our results of operations may continue to be negatively impacted and certain intangible assets , such as our trademarks , and our franchised and managed goodwill may be exposed to additional impairments . for further discussion on the effect of covid-19 on our financial condition and liquidity , see the section below financial condition , liquidity and capital resources . operating statistics - 2020 vs. 2019 the table below presents our operating statistics for the years ended december 31 , 2020 and 2019 . โ rooms โ represent the number of hotel rooms at the end of the period which are either under franchise and or management agreements , or are company-owned , and properties under affiliation agreements for which we receive a fee for reservation and or other services provided . โ revpar โ represents revenue per available room and is calculated by multiplying average occupancy rate by average daily rate . these operating statistics are drivers of our revenues and therefore provide an enhanced understanding of our business . refer to the section below for a discussion as to how these operating statistics affected our business for the periods presented . replace_table_token_6_th ( a ) excluding currency effects , international revpar decreased 51 % and global revpar decreased 40 % . story_separator_special_tag net revenues during 2020 decreased $ 331 million , or 43 % , compared to the prior year , primarily driven by : $ 273 million of lower cost-reimbursement revenues as discussed above , which have no impact on adjusted ebitda ; $ 61 million of lower management and other fees due to a ( i ) $ 52 million reduction in owned hotel revenues and ( ii ) $ 29 million of lower management fees resulting from a decline in revpar primarily due to lower travel demand from covid-19 , partially offset by the absence of a $ 20 million fee credit for past services with a customer in 2019 ; partially offset by $ 6 million of higher termination fees related to corepoint lodging asset sales . adjusted ebitda during 2020 decreased $ 53 million , or 80 % , compared to the prior year , primarily driven by the revenue decreases discussed above , excluding the absence of a $ 20 million fee credit for past services with a customer in 2019 which had no impact on adjusted ebitda , partially offset by $ 28 million in lower operating expenses primarily due to cost containment efforts in response to covid-19 . corporate and other corporate and other revenues decreased $ 6 million during 2020 compared to 2019 , due to the completion of transition services previously in place following our separation from wyndham worldwide . adjusted ebitda during 2020 increased $ 6 million compared to the prior year , primarily due to $ 10 million in lower operating and general and administrative costs primarily due to cost containment efforts in response to covid-19 , partially offset by the $ 6 million decrease in net revenues discussed above . 33 operating statistics - 2019 vs. 2018 the table below presents our operating statistics for the years ended december 31 , 2019 and 2018 . โ rooms โ represent the number of hotel rooms at the end of the period which are either under franchise and or management agreements , or are company-owned , and properties under affiliation agreements for which we receive a fee for reservation and or other services provided . โ revpar โ represents revenue per available room and is calculated by multiplying average occupancy rate by average daily rate . these operating statistics are drivers of our revenues and therefore provide an enhanced understanding of our business . refer to the section below for a discussion as to how these operating statistics affected our business for the periods presented . replace_table_token_12_th ( a ) includes the impact of acquisition and disposition from their respective dates forward . ( b ) excluding currency effects , international revpar increased 1 % and global revpar increased 2 % . year ended december 31 , 2019 vs. year ended december 31 , 2018 replace_table_token_13_th during 2019 , net revenues increased 10 % compared with the prior-year , which included $ 267 million of incremental revenues from la quinta ( acquired in may 2018 ) of which $ 152 million reflected cost-reimbursement revenues . excluding the incremental impact from the la quinta acquisition and a $ 5 million unfavorable impact from currency translation , net revenues decreased 4 % primarily reflecting : lower cost-reimbursement revenues due to a change in our responsibility from being the principal for certain property-related activities to being an agent , and therefore , these costs are no longer reflected in our consolidated and combined statements of income ( loss ) and property terminations ; and a $ 20 million fee credit for past services with a customer , which is reflected as a reduction to hotel-management revenues . such decreases were partially offset by higher license and other fees , an increase in marketing , reservation and loyalty fees and an increase in owned-hotel revenues . during 2019 , total expenses increased 10 % , which included an estimated $ 204 million of incremental expenses associated with the la quinta acquisition and a $ 45 million non-cash impairment charge and $ 42 million of contract termination costs , both associated with the termination of unprofitable hotel-management guarantee arrangements . the increases were partially offset by $ 55 million of lower separation-related costs year-over-year . 34 excluding cost-reimbursement revenues and the incremental impact from the la quinta acquisition , during 2019 : marketing , reservation and loyalty expenses increased to 39.6 % of revenues from 37.9 % during 2018 , primarily due to higher marketing spend to support our โ by wyndham โ campaign and the relaunch of the wyndham rewards program with la quinta integrated , as well as a change in classification of certain costs from operating expenses , partially offset by higher net revenues ; operating expenses decreased to 12.3 % of revenues from 14.3 % during 2018 , primarily due to a change in classification of certain costs to our marketing , reservation and loyalty funds ; and general and administrative expenses were 9.2 % of revenues during 2019 and 2018. during 2019 , net interest expense increased $ 40 million primarily due to the borrowings made by us in the second quarter of 2018 to fund the la quinta acquisition . our effective tax rates were 24.2 % and 27.4 % for 2019 and 2018 , respectively . the decrease was primarily due to one-time state tax benefits resulting from a settlement with state taxing authorities and from a change in our state income tax filing position due to our spin-off from wyndham worldwide . this was partially offset by higher foreign taxes on the company 's international operations in 2019 and the absence of a net tax benefit in 2019 from the impact of u.s. tax reform .
| results of operations discussed below are our key operating statistics , combined results of operations and the results of operations for each of our reportable segments . the reportable segments presented below represent our operating segments for which discrete financial information is available and used on a regular basis by our chief operating decision maker to assess performance and to allocate resources . in identifying our reportable segments , we also consider the nature of services provided by our operating segments . management evaluates the operating results of each of our reportable segments based upon net revenues and adjusted ebitda . adjusted ebitda is defined as net income ( loss ) excluding net interest expense , depreciation and amortization , impairment charges , restructuring and related charges , contract termination costs , transaction-related items ( acquisition- , disposition- or separation-related ) , foreign currency impacts of highly inflationary countries , stock-based compensation expense and income taxes . we believe that adjusted ebitda is a useful measure of performance for our segments and , when considered with u.s. generally accepted accounting principles ( โ gaap โ ) measures , gives a more complete understanding of our operating performance . we use this measure internally to assess operating performance , both absolutely and in comparison to other companies , and to make day to day operating decisions , including in the evaluation of selected compensation decisions . adjusted ebitda is not a recognized term under u.s. gaap and should not be considered as an alternative to net income ( loss ) or other measures of financial performance or liquidity derived in accordance with u.s. gaap . our presentation of adjusted ebitda may not be comparable to similarly-titled measures used by other companies . we generate royalties and franchise fees , management fees and other revenues from hotel franchising and hotel management activities , as well as fees from licensing our โ wyndham โ trademark , certain other trademarks and intellectual property .
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this method results in rental income in the early years of a lease being higher than actual cash received , creating a straight-line rent receivable asset which is included in the โ other assets , net โ line item in our consolidated balance sheets . we review our unbilled straight-line rent receivable balance to determine the future collectability of revenue that will not be billed to or collected from tenants due to early lease terminations , lease modifications , bankruptcies and other factors . our evaluation is based on our assessment of tenant credit risk changes indicating that expected future straight-line rent may not be realized . depending on circumstances , we may provide a reserve against the previously recognized straight-line rent receivable asset for a portion , up to its full value , that we estimate may not be received . the balance of straight-line rent receivable at december 31 , 2020 and 2019 , net of allowances of $ 4.1 million and $ 1.8 million , respectively , was $ 17.6 million and $ 19.6 million , respectively . to the extent any of the tenants under these leases become unable to pay its contractual cash rents , we may be required to write down the straight-line rent receivable from that tenant , which would reduce our operating income . the increase in the straight-line rent receivable allowance during the current year is primarily attributable to increased uncertainty regarding the collectibility of certain tenant receivables due to the economic impact of the covid-19 pandemic . real estate real estate assets that we own directly are stated at cost less accumulated depreciation . depreciation is computed using the straight-line method . the estimated useful lives story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements , the notes thereto , and the comparative summary of selected financial data included in this report . overview rpt realty owns and operates a national portfolio of open-air shopping destinations principally located in top u.s. markets . the company 's shopping centers offer diverse , locally-curated consumer experiences that reflect the lifestyles of their surrounding communities and meet the modern expectations of the company 's retail partners . as of december 31 , 2020 , our property portfolio consisted of 49 shopping centers ( including five shopping centers owned through r2g ) representing 11.9 million square feet of gla . as of december 31 , 2020 , the company 's pro-rata share of the aggregate portfolio was 92.8 % leased . our goal is to be a dominant shopping center owner , with a focus on the following : own and manage high quality open-air shopping centers predominantly concentrated in the top u.s. metropolitan statistical areas ( โ msa โ ) ; curate our real estate to maximize its value while being aligned with the future of the shopping center industry by leveraging technology , optimizing distribution points for brick-and-mortar and e-commerce purchases , engaging in best-in-class sustainability programs and developing a personalized appeal to attract and engage the next generation of shoppers ; increase the value of our properties and create long-term value and growth for our shareholders ; cultivate value creation redevelopment and expansion pipeline ; maximize balance sheet liquidity and flexibility ; maximize revenue by leasing to a strong and diverse tenant mix at increased rent , when possible ; and attract , retain and promote motivated high performing employees . key methods to achieve our strategy : deliver above average relative shareholder return and generate outsized consistent and sustainable same property net operating income ( โ same property noi โ ) and operating funds from operations ( โ operating ffo โ ) per share growth ; evaluate select redevelopment projects with significant pre-leasing for which we expect to achieve attractive returns on investment ; sell assets that no longer meet our long-term strategy and redeploy the proceeds to lease , redevelop and acquire assets in our core and target markets ; achieve lower leverage while maintaining low variable interest rate risk ; maintain strong tenant and retailer relationships to minimize tenant turnover to attract diverse tenancy ; and retain access to diverse sources of capital , maintain liquidity through borrowing capacity under our unsecured line of credit and minimize the amount of debt maturities in a single year . the following highlights the company 's significant transactions , events and results that occurred during the year ended december 31 , 2020 , which reflect the impact of our business as a result of the covid-19 pandemic : story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > the following summarizes certain line items from our audited statements of operations which we believe are important in understanding our operations and or those items that have significantly changed during the year ended december 31 , 2020 as compared to 2019 : replace_table_token_10_th 36 total revenue in 2020 decreased $ 42.4 million , or ( 18.1 ) % , from 2019. the decrease is primarily due to the following : $ 22.1 million decrease related to five properties that were contributed to r2g during the fourth quarter of 2019 ; and $ 16.7 million decrease due to increased rental income not probable of collection as well as related straight-line rent reserves and rent abatement in the current period , primarily due to the covid-19 pandemic ; and $ 3.3 million decrease from acceleration of below market leases in the prior period attributable to tenants who vacated prior to the original estimated lease end dates ; and $ 1.2 million decrease in recovery income at existing properties as compared to the prior period ; partially offset by $ 1.1 million increase related to the net impact of two properties sold during the first quarter of 2019 and one property acquired during the fourth quarter of 2019 ; and $ 1.2 million increase related to management and leasing fees collected due to r2g . story_separator_special_tag real estate tax expense in 2019 decreased by $ 6.3 million , or ( 15.0 ) % from 2018 , primarily due to properties sold during 2019 and 2018. recoverable operating expense in 2019 decreased by $ 0.9 million , or ( 3.5 ) % from 2018 , primarily due to properties sold during 2019 and 2018 , partially offset by higher common area maintenance expenses at existing properties . 38 non-recoverable operating expense in 2019 decreased by $ 3.0 million , or 41.3 % from 2018 , primarily due to higher internal leasing costs as a result of the adoption of asc 842 which eliminated the capitalization of these costs in the current year as well as higher legal fees associated with a tenant dispute , partially offset by properties sold during 2019 and 2018. depreciation and amortization expense in 2019 decreased by $ 8.7 million , or ( 9.9 ) % , from 2018. the decrease is primarily a result of properties sold during 2019 and 2018. during 2018 we recorded acquisition costs of $ 0.2 million related to legal and professional fees associated with a potential shopping center acquisition that was not ultimately pursued during the year . general and administrative expense in 2019 decreased $ 3.7 million , or ( 11.9 ) % , from 2018. the net decrease is primarily a result of lower severance and management reorganization expense , which includes severance costs associated with former executives as well as sign-on bonuses and recruiting fees attributable to the new executive team , partially offset by an increase in bonus expense and higher share-based compensation expense . during 2018 we recorded an impairment provision totaling $ 13.7 million , of which $ 13.5 million was on shopping centers classified as income producing and $ 0.2 million on land available for development . the adjustments related to shopping centers were triggered by changes in associated market prices and expected hold period assumptions , as well as a purchase price reduction at one property . the provision related to land held for development was triggered by changes in the expected use of the land and higher costs . refer to note 1 of the notes to the consolidated financial statements included in this report for further information related to impairment provisions . we did not record any impairments in 2019. during 2019 the company wrote off real estate assets that were damaged by a hail storm at one property , which resulted in a charge of $ 2.3 million , net of $ 3.5 million of insurance proceeds received as of december 31 , 2019. the damage incurred will be fully covered by insurance . gain on sale of real estate was $ 81.9 million in 2019. in the comparable period in 2018 we had a gain of $ 4.0 million . the increase is primarily a result of the five properties contributed to r2g during the fourth quarter of 2019. earnings from unconsolidated joint ventures in 2019 remained flat from 2018. interest expense in 2019 decreased by $ 3.4 million , or ( 7.8 ) % , from 2018. the decrease is primarily a result of a 9.2 % decrease in our average outstanding debt , partially offset by lower capitalized interest . the decline in our average outstanding debt is the result of using proceeds from asset sales in the fourth quarter of 2018 and first quarter of 2019 to pay down our revolving credit line and redeem our junior subordinated notes . other gain on unconsolidated joint ventures in 2019 decreased by $ 5.0 million primarily due to the sale of the martin square property by our joint venture , ramco/lion venture lp , in the prior period . the gain represents the difference between our share of the distributed proceeds and the carrying value of our equity investment in such joint venture . 39 liquidity and capital resources our primary uses of capital include principal and interest payments on our outstanding indebtedness , ongoing capital expenditures such as leasing capital expenditures and building improvements , shareholder distributions , operating expenses of our business , debt maturities , acquisitions and discretionary capital expenditures such as targeted remerchandising , expansions , redevelopment and development . we generally strive to cover our principal and interest payments , operating expenses , shareholder distributions , and ongoing capital expenditures from cash flow from operations , although from time to time we have borrowed or sold assets to finance a portion of those uses . we believe the combination of cash flow from operations , cash balances , favorable relationships with our lenders , issuance of debt , property dispositions and issuance of equity securities will provide adequate capital resources to fund all of our expected uses over at least the next 12 months . although we believe that the combination of factors discussed above will provide sufficient liquidity , no such assurance can be given . as discussed herein , the covid-19 pandemic has adversely impacted states and cities where the company 's tenants operate their businesses and where the company 's properties are located and has had an adverse impact on our short-term cash flow due to a significant number of tenants not paying rent for the second , third and fourth quarters of 2020. covid-19 could continue to have a material adverse effect on our financial condition , results of operations and cash flows as the reduced economic activity severely impacts certain of our tenants ' businesses , financial condition and liquidity and may cause certain tenants to be unable to meet their obligations to us in full , timely or at all . continued nonpayment of rent or closures by our tenants of their stores could reduce our cash flows , which would adversely impact our liquidity and the achievement of our financial forecast . we believe our current capital structure provides us with the financial flexibility to fund our current capital needs .
| financial results : net ( loss ) income available to common shareholders was $ ( 16.9 ) million , or $ ( 0.21 ) per diluted share , for the year ended december 31 , 2020 , as compared to $ 84.8 million , or $ 1.04 per diluted share , for the same period in 2019. ffo was $ 66.5 million , or $ 0.81 per diluted share , for the year ended december 31 , 2020 , as compared to $ 88.0 million , or $ 1.00 per diluted share , for the same period in 2019. operating ffo was $ 64.2 million , or $ 0.78 per diluted share , for the year ended december 31 , 2020 , as compared to $ 90.9 million , or $ 1.04 per diluted share , for the same period in 2019 . 34 same property net operating income decreased ( 7.5 ) % for the year ended december 31 , 2020 , as compared to the same period in 2019. executed 149 new leases and renewals , totaling approximately 1.1 million square feet in the aggregate portfolio . as of december 31 , 2020 , the company 's aggregate portfolio leased rate was 92.8 % , as compared to 94.7 % at december 31 , 2019. acquisition activity ( see note 4 of the notes to consolidated financial statements in this report ) : we had no acquisitions during the year ended december 31 , 2020. disposition activity ( see note 4 and note 5 of the notes to consolidated financial statements in this report ) : disposed of two land parcels for aggregate gross proceeds of $ 1.4 million . these transactions resulted in an aggregate gain on sale of real estate of $ 0.3 million and an aggregate impairment provision of $ 0.6 million .
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therefore , the company revised its estimate to reflect that the substantive performance obligations under the agreement were expected to be completed by june 30 , 2012. the substantive performance obligations under the agreement were completed by june 30 , 2012. under the terms of the sanofi agreement , the company receives specified research and development funding for services performed in connection with kb001-a research and development efforts . reimbursements received by story_separator_special_tag you should read the following discussion and analysis together with our financial statements and the notes to those statements included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . we use words such as `` may , '' `` will , '' `` expect , '' `` anticipate , '' `` estimate , '' `` intend , '' `` plan , '' `` predict , '' `` potential , '' `` believe , '' `` should '' and similar expressions to identify forward-looking statements , including statements related to the scope , progress , expansion , and costs of developing and commercializing our product candidates , our anticipated financial results and condition , our expected future contract revenue from sanofi and our anticipated expenses related to development activities , our clinical trials and the development and potential commercialization of our product candidates . these statements appearing throughout this annual report on form 10-k are statements regarding our intent , belief , or current expectations , primarily regarding our operations . you should not place undue reliance on these forward-looking statements , which apply only as of the date of this annual report on form 10-k. as a result of many factors , such as those set forth under `` risk factors '' and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . except as required by law , we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise after the date of this annual report on form 10-k. overview we are a biopharmaceutical company focused on monoclonal antibody therapeutics for diseases that are a significant burden to society and patients and their families . we have a portfolio of patient-targeted , first-in-class antibodies using our humaneeredยฎ antibody technology to treat serious medical conditions with a primary clinical focus on respiratory diseases and cancer . our principal pharmaceutical product candidates that we have advanced to the clinical development stage are : kb001-a , a humaneeredยฎ , pegylated , anti-pcrv modified antibody fragment ( fab ' ) antibody that is being developed for the prevention and treatment of pseudomonas aeruginosa ( pa ) infections in mechanically ventilated patients and cystic fibrosis ( cf ) patients with chronic pa lung infections ; kb004 , a humaneeredยฎ anti-epha3 monoclonal antibody that has the potential to offer a novel approach to treating both hematologic malignancies and solid tumors ; and kb003 , a humaneeredยฎ anti-granulocyte macrophage colony-stimulating factor ( anti-gm-csf ) monoclonal antibody that was being developed for the treatment of severe asthma inadequately controlled by corticosteroids . we have discontinued the development of this antibody in severe asthma . in january 2010 , we entered into an agreement with sanofi pursuant to which we granted sanofi an exclusive worldwide license to develop , manufacture , and commercialize antibodies directed against the pcrv protein of pa ( including kb001-a ) for all indications , and sanofi is solely responsible for research , development , manufacturing , and commercialization . as part of this agreement , we retained the right to develop and promote kb001-a for pa in cf or bronchiectasis patients . sanofi is focusing its clinical development on prevention of pa vap . pursuant to the agreement , we received an initial upfront payment of $ 35 million and an additional $ 5 million payment in august 2011 that were recognized as revenue through june 30 , 2012. we have the potential to receive additional contingent payments aggregating up to $ 250 million upon achievement by sanofi of certain clinical , regulatory and commercial events , together with tiered royalties based upon global net sales of licensed products . however , there can be no assurances that sanofi will continue to further develop kb001-a or achieve the events that will trigger the contingent payments . as a result , we may not recognize any additional revenue from this arrangement . we are conducting a phase 2 clinical trial in cf patients with chronic 65 pa infections . as part of sanofi 's clinical development plan for pa ventilator associated pneumonia ( vap ) , sanofi is conducting a phase 1 clinical safety study in healthy volunteers to evaluate higher doses than those that we previously tested . we understand that , if deemed successful , the phase 1 study will be followed , after completion of manufacturing process development and scale-up , by a phase 2b intravenous study to begin mid-year 2015 to determine the safety and efficacy of kb001-a in preventing pa vap . based on the results of this clinical trial , sanofi plans to conduct a subsequent phase 3 study . we also understand that the phase 2b and phase 3 trials are being designed as pivotal studies and are intended to serve as a basis for registration of kb001-a for the prevention of pa vap . as part of our agreement with sanofi , we have retained responsibility for developing and promoting the product for the diagnosis , treatment , and or prevention of pa in patients with cf or bronchiectasis . subject to the terms of the agreement , sanofi has an option to assume primary responsibility for developing and promoting kb001-a for pa infection in cf or bronchiectasis patients upon the completion of our phase 2 clinical trial . story_separator_special_tag we have elected to avail ourselves of this exemption from new or revised accounting standards and , therefore , we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements included elsewhere in this annual report on form 10-k , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . accrued 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 . this process involves reviewing contracts and purchase orders , reviewing the terms of our license agreements , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated 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 67 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 accruing these costs , we estimate the time period over which services will be performed for which we have not been invoiced 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 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 . stock-based compensation our stock-based compensation expense for stock options is estimated at the grant date based on the award 's fair value as calculated by the black-scholes option pricing model and is recognized as expense over the requisite service period . the black-scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term . the expected volatility is based on the historical stock volatilities of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have a sufficient trading history to use the volatility of our own common stock . to estimate the expected term , we have opted to use the simplified method which is the use of the midpoint of the vesting term and the contractual term . if any of the assumptions used in the black-scholes option pricing model changes significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we estimate the forfeiture rate based on historical experience and our expectations regarding future pre-vesting termination behavior of employees . to the extent our actual forfeiture rate is different from our estimate , stock-based compensation expense is adjusted accordingly . prior to our ipo , our board of directors , with the assistance of management and independent consultants , performed fair value analyses to determine the valuation of our common stock . for grants made on dates for which there was no contemporaneous valuation to utilize in setting the exercise price of our common stock , and given the absence of an active market for our common stock prior to our ipo in january 2013 , our board of directors determined the fair value of our common stock on the date of grant based on several factors , including : important developments in our operations , most significantly related to the clinical development of our lead drug candidates , kb001-a , kb003 , and kb004 ; equity market conditions affecting comparable public companies ; the likelihood of achieving a liquidity event for the shares of common stock , such as an initial public offering or an acquisition of us , given prevailing market conditions ; and that the grants involved illiquid securities in a private company . revenue recognition our contract revenue is generated primarily through research and development collaboration agreements , which may include nonrefundable , non-creditable upfront fees , funding for research and development efforts , and milestone or other contingent payments for achievements with regards to our licensed products . we have not materially modified any previous material collaboration agreements or 68 entered into any new agreements in 2013 or 2012 , nor have we received any milestone payments in 2013 or 2012. therefore , all collaboration agreements have been accounted for in accordance with the accounting guidance applicable to such arrangements prior to our adoption of accounting standards update ( asu ) 2009-13 , multiple-deliverable revenue arrangements , and asu 2010-17 , revenue recognitionยmilestone method .
| results of operations general we have not generated net income from operations , except for the year ended december 31 , 2007 during which we recognized a one-time license payment from novartis . at december 31 , 2013 , we had an accumulated deficit of $ 140.2 million primarily as a result of research and development and general and administrative expenses . while we may in the future generate revenue from a variety of sources , including license fees , milestone payments , and research and development payments in connection with strategic partnerships , our product candidates are at an 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 significant revenue or profits . contract revenue our recent revenue is comprised primarily of collaboration agreement-related revenue . collaboration agreement-related revenue includes license fees , payments for research and development services , and milestone and other contingent payments . research and development expenses conducting research and development is central to our business model . we expense both internal and external research and development costs as incurred . we currently track external research and development costs incurred by project for each of our clinical programs ( kb001-a , kb003 , and 69 kb004 ) . we have not tracked our external costs by project since inception . we began tracking our external costs by project beginning january 1 , 2008 , and we have continued to refine our systems and our methodology in tracking external research and development costs .
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compensation expense story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with โ item 6. selected financial data โ and our consolidated financial statements and the accompanying notes included item 8 of this annual report on form 10-k. this discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate . certain risks , uncertainties and other factors , including those set forth in โ item 1a . risk factors โ and elsewhere in this annual report on form 10-k , may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis . we assume no obligation to update any of these forward-looking statements . overview we are a bank holding company headquartered in dallas , texas . through our wholly owned subsidiary , veritex community bank , a texas state chartered bank , we provide relationship-driven commercial banking products and services tailored to meet the needs of small to medium-sized businesses and professionals . beginning at our inception in 2010 , we initially targeted customers and focused our acquisitions primarily in the dallas metropolitan area , which we consider to be dallas and the adjacent communities in north dallas.our current primary market now includes the broader dallas-fort worth metroplex and the houston metropolitan area . as we continue to grow , we may expand to other metropolitan markets in texas . our business is conducted through one reportable segment , community banking , where we generate the majority of our revenues from interest income on loans and securities , customer service and loan fees and gains on sale of small business administration ( โ sba โ ) guaranteed loans and mortgage loans . we incur interest expense on deposits and other borrowed funds and noninterest expense , such as salaries and employee benefits and occupancy expenses . we analyze our ability to maximize income generated from interest-earning assets and expense of our liabilities through our net interest margin . net interest margin is a ratio calculated as net interest income divided by average interest-earning assets . net interest income is the difference between interest income on interest-earning assets , such as loans and securities , and interest expense on interest-bearing liabilities , such as deposits and borrowings , which are used to fund those assets . changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as the volume and types of interest-earning assets , interest-bearing and noninterest-bearing liabilities and stockholders ' equity , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in texas and specifically in the dallas-fort worth metroplex and houston metropolitan area , as well as developments affecting the real estate , technology , financial services , insurance , transportation , manufacturing and energy sectors within our target market and throughout the state of texas . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 5.17 % during the year ended december 31 , 2018 from 4.39 % for the year ended december 31 , 2017 . the average interest paid on interest-bearing liabilities increase d to 1.51 % during the year ended december 31 , 2018 from 0.91 % for the year ended december 31 , 2017 . the following table presents , for the periods indicated , an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities , the average amounts outstanding and the interest earned or paid on such amounts . the table also sets forth the average rate earned on interest-earning assets , the average rate paid on interest-bearing liabilities , and the net interest margin on average total interest-earning assets for the same periods . interest earned on loans that are classified as non-accrual is not recognized in income ; however , the balances are reflected in average outstanding balances for the period . for the year ended december 31 , 2018 , interest income not recognized on non-accrual loans , excluding purchased credit impaired ( โ pci โ ) loans , was $ 724 thousand . for the year ended december 31 , 2017 , interest income not recognized on non-accrual loans was minimal . any non-accrual loans have been included in the table as loans carrying a zero yield . 41 replace_table_token_3_th ( 1 ) includes average outstanding balances of loans held for sale of $ 1,198 and $ 2,493 for the twelve months ended december 31 , 2018 and 2017 , respectively . ( 2 ) includes average outstanding balances of branch assets and liabilities held for sale in total loans , noninterest-bearing assets , interest-bearing deposits , noninterest-bearing deposits and other liabilities for the year ended december 31 , 2017 . 42 the following table presents the changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates . for purposes of this table , changes attributable to both rate and volume that can not be segregated have been allocated to rate . replace_table_token_4_th provision for loan losses our provision for loan losses is a charge to income in order to bring our allowance for loan losses to a level deemed appropriate by management . story_separator_special_tag occupancy and equipment expense includes lease expense , building depreciation and related facilities costs as well as furniture , fixture and equipment depreciation , small equipment purchases and maintenance expense . our expense associated with occupancy and equipment was $ 10.7 million for the year ended december 31 , 2018 , compared to $ 5.6 million for the same period in 2017 . the increase of $ 5.1 million , or 90.1 % , was primarily due to the $ 1.5 million consent fee paid in connection with the execution of an assignment agreement in the first quarter of 2018 to assign one of our branch leases that we ceased using during 2017. the increase was also related to higher depreciation expense and property taxes of $ 907 thousand and $ 837 thousand , respectively , recognized due to the purchase of our corporate headquarters in december 2017. we also recognized increased rent expense of $ 534 thousand and increased depreciation on equipment of $ 476 thousand as a result of an increase in leased branches and owned equipment from the acquisitions of sovereign and liberty . 45 professional and regulatory fees . this category includes legal , investment bank , director , stock transfer agent fees and other public company services , information technology support , audit services and regulatory assessment expense . professional and regulatory fees were $ 6.1 million for the year ended december 31 , 2018 , an increase of $ 3.1 million , or 75.1 % , compared to the same period in 2017 . this increase was primarily the result of increased information technology professional support services and loan-related legal fees . amortization of intangibles . amortization of intangibles was $ 3.5 million for the year ended december 31 , 2018 , an increase of $ 2.5 million or 259.6 % , compared to $ 964 thousand for the same period in 2017 . this increase was due to a $ 1.5 million increase in amortization expense of the lease commission intangibles related to the purchase of our corporate headquarters building in december of 2017 as the company recognized a full year of amortization expense . it was also related to increased amortization expense of core deposit intangible ( โ cdi โ ) as the company recognized a full year of amortization expense on core deposits acquired in the acquisitions of sovereign and liberty in 2017. merger and acquisition expense . merger and acquisition expense includes legal , professional , audit , regulatory and other expenses incurred in connections with a merger or acquisition . merger and acquisition expense was $ 5.2 million for the year ended december 31 , 2018 , an increase of $ 2.5 million , or 94.0 % , compared to the same period in 2017 . this increase was primarily the result of increased legal and professional fees related to our acquisition of green which closed on january 1 , 2019. the company incurred $ 2.3 million in professional services fees , $ 1.6 million in legal expenses , $ 468 thousand in data processing expenses , $ 398 thousand in severance costs and $ 383 thousand in it support related to mergers and acquisitions during the year ended december 31 , 2018. other . this category includes operating and administrative expenses including loan operations and collections , supplies and printing , online and card interchange expense , atm/debit card processing , postage and delivery , bank-owned life insurance ( โ boli โ ) mortality expense , insurance and security expenses . other noninterest expense increased $ 1.1 million , or 24.9 % , to $ 5.4 million for the year ended december 31 , 2018 , compared to $ 4.3 million for the same period in 2017 primarily related to higher insurance expense of $ 408 thousand , security expense of $ 291 thousand , atm and interchange expenses of $ 225 thousand , and supplies and printing expense of $ 219 , each resulting from our continued organic growth and growth through acquisitions . income tax expense . the amount of income tax expense is a function of our pre-tax income , tax-exempt income and other nondeductible expenses . deferred tax assets and liabilities reflect current statutory income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income taxes . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of december 31 , 2018 , the company did not believe a valuation allowance was necessary . for the year ended december 31 , 2018 , income tax expense totaled $ 10.9 million , a decrease of $ 2.1 million , or 16.4 % , compared to $ 13.0 million for the same period in 2017 . our effective tax rate decreased from 46.2 % for the year ended december 31 , 2017 to 21.7 % for the year ended december 31 , 2018 , primarily due to the enactment of the tax cuts and jobs act ( the โ tax act โ ) on december 22 , 2017 which lowered our federal statutory income tax rate to 21 % , effective on january 1 , 2018 , and resulted in significant modifications to existing tax law . the higher effective tax rate for the year ended december 31 , 2017 reflects an income tax charge of $ 3.1 million related to the re-measurement of our deferred tax assets and deferred tax liabilities at the new effective tax rate resulting from the enactment of the tax act .
| 2018 highlights green bancorp , inc. on july 23 , 2018 , the company entered into a definitive agreement with green , the parent holding company for green bank , in an all-stock merger valued at approximately $ 1 billion . the agreement provided for the merger of green and green bank with and into veritex and veritex community bank , respectively . at the effective time of the merger , each share of green common stock was converted into the right to receive 0.79 shares of veritex common stock , with cash paid in lieu of fractional shares of veritex common stock . the acquisition closed on january 1 , 2019 . 40 anticipated trends this discussion of trends expected to impact our business in 2019 is based on information presently available and reflects certain assumptions , including assuming a continuation of the current economic and low rate environment . differences in actual economic conditions compared with our assumptions could have a material impact on our results . see โ special cautionary notice regarding forward-looking statements โ and part i , item 1a , โ risk factors โ of this annual report on form 10-k for additional factors that could cause results to differ materially from those contemplated by the following forward-looking statements . we anticipate the following trends or events related to our business in fiscal year 2019 : successful completion of our recent acquisition of green and expected meaningful costs savings and consolidation of our back office functions continued emphasis on credit quality and relationship banking . continued leverage of our strong capital through accretive organic growth and merger and acquisition opportunities . net charge-offs to remain low , with continued solid performance of the overall loan portfolio .
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we provide products and services to a number of global markets , including the commercial aerospace , defense , power generation , and industrial markets . our overall strategy is to be a balanced and diversified company , less vulnerable to cycles or downturns in any one market , and to establish strong positions in profitable niche markets . approximately 37 % of our 2017 revenues are expected to be generated from defense-related markets . as discussed in note 2 to the corporation 's consolidated financial statements , we have completed our 2014 divestiture activities . the results of operations of the divested businesses are reported as discontinued operations within our consolidated statements of earnings . our management 's discussion and analysis of financial condition and results of operations begins with an overview of our company , followed by economic and industry-wide factors impacting our company and the markets we serve , a discussion of the overall results of continuing operations , and finally a more detailed discussion of those results within each of our reportable operating segments . impacts of inflation , pricing , and volume we have not historically been and do not expect to be significantly impacted by inflation . increases in payroll costs and any increases in raw material costs that we have encountered are generally able to be offset through lean manufacturing activities . we have consistently made annual investments in capital that deliver efficiencies and cost savings . the benefits of these efforts generally offset the margin impact of competitive pricing conditions in all of the markets we serve . analytical definitions throughout management 's discussion and analysis of financial condition and results of operations , the terms โ incremental โ and โ organic โ are used to explain changes from period to period . the term โ incremental โ is used to highlight the impact acquisitions had on the current year results for which there was no comparable prior-year period . therefore , the results of 21 operations for acquisitions are incremental for the first twelve months from the date of acquisition . the remaining businesses are referred to as the โ organic โ . the definition of โ organic โ excludes the effect of foreign currency translation . market analysis and economic factors economic factors impacting our markets curtiss-wright corporation is a diversified multinational manufacturing and service company that designs , manufactures , and overhauls precision components and provides highly engineered products and services to the aerospace , defense , power generation , and general industrial markets . many of curtiss-wright 's industrial businesses are driven in large part by global economic growth . u.s. and world economies continue to recover from the 2008-2009 financial crisis and global recession , with most measures of economic growth only recently reaching the comparable levels achieved in 2008. the u.s. economy , as measured by real gross domestic product ( gdp ) , has slowly improved since 2009 , aided by decreased levels of unemployment , improvements in the housing market and a low interest rate environment . in 2016 , u.s. gdp showed modest growth of 1.6 % , according to the most recent estimate , despite a slight acceleration in the second half of the year , while u.s. gdp grew 2.6 % in 2015 and 2.4 % in 2014. the u.s. federal reserve 's decision to increase interest rates in late 2015 and again in 2016 was aimed at keeping ahead of inflationary pressures , marking the end to the near-zero borrowing costs that had prevailed since the global financial crisis . looking ahead to 2017 , economists have mixed views on the broader u.s. economy , with current estimates for u.s. real gdp growth indicating a rate of growth of approximately 2 % , despite the new administration 's goal to raise the pace of expansion to 4 % per year through increased fiscal stimulus . meanwhile , the global environment contains pockets of economic instability , particularly in china , which continues to be faced with lower relative levels of economic activity , while uncertainty surrounds the u.k. following its june 2016 vote in favor of leaving the european union . furthermore , world economies continue to experience volatility due to the slower than expected rebound in economic activity , a worsening of geopolitical tensions , the continued low oil price environment and excess crude oil supply , declining commodity prices , and the potential for further increases in u.s. interest rates . as a result , overall , 2017 gdp growth in world economies is expected to grow by approximately 3.4 % , up from 3.1 % in 2016 , according to the international monetary fund . this growth is expected to be aided by slight improvements in u.s and european economies as well as an improved outlook for emerging market and developing economies . looking ahead to the next few years , we remain cautiously optimistic that our economically-sensitive commercial and industrial markets will improve when we return to normalized global conditions . defense curtiss-wright has a well-diversified portfolio of products and services that supply all branches of the u.s. military , with content on many high performance programs and platforms , as well as a growing international defense business . a significant portion of our defense business operations is attributed to the united states market , and characterized by long-term programs and contracts driven primarily by the department of defense ( dod ) budgets and funding levels . the u.s. defense budget serves as a leading indicator of our growth in the defense market . over the past decade , we experienced a period of significant growth in defense spending and related supplemental budgets , followed by across-the-board sequester cuts ( โ sequestration โ ) mandated by the 2011 budget control act . story_separator_special_tag as of december 31 , 2016 , 87 reactors have received plant life extensions beyond 40 years ( though four are expected to close ) , applications from 8 additional reactors have been submitted and are pending approval , and letters of intent to apply have been submitted from 4 more reactors with expected application submittal dates from 2016 through 2021. the nrc is now preparing to consider extending operating licenses beyond 60 out to 80 years . 23 the industry 's most significant challenge is electricity market competitiveness primarily driven by sustained low natural gas prices . as a result , the industry 's goal is to rethink operating practices , improve efficiency and reduce costs to help keep nuclear power competitive in a changing electricity market . additionally , u.s. reactor operators have also been faced with security and fukushima regulatory requirements that have diverted their capital expenditure budgets significantly during the past few years . while these factors have led to deferred plant maintenance and fewer planned outages for the past few years , we expect increased opportunities worldwide for our vast portfolio of advanced nuclear technologies , likely rebounding in early 2018. longer term , there are several factors that are expected to drive global commercial nuclear power demand . the energy information administration ( eia ) forecasts that worldwide total energy consumption is expected to increase at an average annual rate of 1.4 % through 2040. continued growth in global demand for electricity , especially in developing countries with limited supply such as china and india , will require increased capacity . in addition , the continued supply constraints and environmental concerns attributed to the current dependence on fossil fuels have led to a greater appreciation of the value of nuclear technology as the most efficient and environmentally friendly source of energy available today . as a result , we expect growth opportunities in this market both domestically and internationally , although the timing of orders remains uncertain . curtiss-wright also plays an important role in the new build market as a key supplier of rcps for the westinghouse ap1000 reactor design . domestically , 4 new build reactors are under construction utilizing the ap1000 design , for which we are the sole supplier of reactor coolant pumps , and also expect to supply a variety of ancillary plant products and services . applications for an additional 6 new domestic reactors at 3 future power plants have been submitted to the nrc , with the ap1000 design having been selected for 4 of the potential new reactors , although the timing of orders remains uncertain . on a global basis , nuclear plant construction is active . currently , there are approximately 60 new reactors under construction across 13 countries , with approximately 165 planned and 345 proposed over the next several decades . in particular , china intends to expand its nuclear power capabilities significantly through the construction of new nuclear power plants , including two ap1000 plants currently under construction that are expected to be the first generation iii design in operation , with several more new build plants on the horizon . curtiss-wright continues to expect to play a role in china 's growing nuclear power program and in the fourth quarter of 2015 was awarded a $ 468 million contract for sixteen rcps and the sale of certain non-recurring rights ( china direct order ) . as a result , we are positioned for strong expected new order activity for our vast array of nuclear technologies due to ongoing maintenance and upgrade requirements on operating nuclear plants , a renewed interest in products to aid safety and extend the reliability of existing reactors , and the continued emphasis on global nuclear power construction . general industrial revenue derived from our widely diversified offering to the general industrial market consists of industrial sensors and control systems , critical-function valves and valve systems , as well as surface treatment services . we supply our products and services to oems and aftermarket industrial customers , including the transportation , commercial trucking , off-road equipment , agriculture , construction , automotive , chemical , and oil and gas industries . our performance in these markets is typically sensitive to the performance of the u.s. and global economies , with changes in global gdp rates and industrial production driving our sales , particularly for our surface treatment services . one of the key drivers within our general industrial market is our sensors and controls systems products , most notably for electronic throttle controls , shift controls , joysticks , power management systems , traction control systems , serving on-and-off highway , medical mobility and specialty vehicles markets . increased industry demand for electronic control systems and sensors has been driven by the need for improved operational efficiency , safety , repeatability , reduced emissions , enhanced functionality , and greater fuel efficiencies to customers worldwide . key to our future growth is expanding the human-machine interface technology portfolio and providing a complete system solution to our customers . existing and emerging trends in commercial vehicle safety , emissions control , and improved driver efficiency are propelling commercial vehicle oems toward higher performance subsystems . these trends are accelerating the evolution from discrete human machine interface components towards a more integrated vehicle interface architecture . meanwhile , our surface treatment services , including shot and laser peening , engineered coatings , and analytical testing services , which are used to increase the safety , reliability and longevity of components , are primarily driven by demand from general industrial customers . looking ahead , based on expectations for steadily improving global economic conditions , these businesses are likely to experience continued modest growth based on higher sales volumes and new international emissions regulations affecting several industries in which we participate . we also service the oil and gas , chemical , and petrochemical industries through numerous industrial valve products , where nearly all of our valve sales are to the downstream markets .
| results by business segment commercial/industrial sales in the commercial/industrial segment are primarily generated from the general industrial and commercial aerospace markets and , to a lesser extent , the defense and power generation markets . the following tables summarize sales , operating income and margin , and new orders within the commercial/industrial segment . replace_table_token_10_th components of sales and operating income growth ( decrease ) : 27 replace_table_token_11_th year ended december 31 , 2016 compared to year ended december 31 , 2015 sales decreased $ 66 million , or 6 % , to $ 1,119 million , from the comparable prior year period . in the general industrial market , we experienced lower sales of severe-service valves to oil and gas markets of $ 47 million and a reduction in sales for our industrial vehicle , medical mobility , and industrial automation products , of $ 7 million , $ 8 million , and $ 6 million , respectively . within the commercial aerospace market , higher sales of actuation and sensors and control products of $ 19 million , primarily to boeing , were partially offset by lower sales of surface technology services of $ 15 million . operating income decreased $ 15 million , or 9 % , to $ 157 million , and operating margin decreased 50 basis points to 14.0 % . the decrease s in operating income and operating margin were primarily driven by lower sales volumes of our severe-service industrial valves and surface treatment services . these decreases were partially offset by the benefit of our margin improvement and cost containment initiatives as well as favorable foreign currency translation of approximately $ 4 million . new orders increased $ 35 million to $ 1,174 million from the prior year period , primarily due to growth in our naval valves of $ 39 million and sensors and control products of $ 32 million , partially offset by lower demand for our industrial vehicle products of $ 23 million .
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significant components of our deferred tax assets are as follows : replace_table_token_22_th deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . we have evaluated the available evidence supporting the realization of our gross deferred tax assets , including the amount and timing of future taxable income , and have determined it is more likely than not that the assets will be fully realized and no valuation allowance is necessary as of june 30 , 2014. as of june 30 , 2014 , we have federal and state net operating loss carryforwards of approximately $ 5.2 million and $ 3.2 million , which expire through 2034. the utilization of net operating loss carryforwards may be subject to limitations under provision of the internal revenue code section 382 and similar state provisions . f- 14 we adopted the provision of asc 740 related to accounting for uncertain tax positions effective july 1 , 2007 , which prescribes a recognition threshold and measurement process for recording in the financial statements , uncertain tax positions taken or expected to be taken in a tax return . under this provision , the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority . tax benefits of an uncertain tax position will not be recognized if it has less than a 50 % likelihood of being sustained based on technical merits . a reconciliation of the beginning and ending balance of unrecognized tax benefits , which are included in accrued liabilities on the balance sheet , is as follows : replace_table_token_23_th we do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months . asc 740 requires us to accrue interest and penalties where there is an underpayment of taxes based on our best estimate of the amount ultimately to be paid . our policy is to recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense . we have not recorded any interest or penalties as the liability associated with the unrecognized tax benefits is immaterial . we are subject to taxation in the u.s. , various state and foreign jurisdictions . we believe we are no longer subject to u.s. examination for years before 2010 by the federal taxing authority , and years before 2009 by state taxing authorities . the internal revenue service and franchise tax board have completed their examination of our 2007 and 2008 taxable years with a favorable final resolution of the company 's claim for research and development tax credits . as of june 30 , 2014 , the r & d tax credits that we have claimed are received in full . in addition , the franchise tax board is currently examining our taxable years from 2008 to 2011 for the company 's claimed tax refunds in regards to the california apportionment of our income . although the final resolution is uncertain , we do not believe that this examination will have any material adverse effect on our consolidated financial position . note 8 - earnings per share we report earnings per share in accordance with asc 260 , โ earnings per share . โ basic earnings ( loss ) per share are computed using the weighted average number of shares outstanding during the period . diluted earnings per share represent story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report . this report contains certain forward-looking statements relating to future events or our future financial performance . these statements are subject to risks and uncertainties which could cause actual results to differ materially from those discussed in this report . you are cautioned not to place undue reliance on this information which speaks only as of the date of this report . we are not obligated to publicly update this information , whether as a result of new information , future events or otherwise , except to the extent we are required to do so in connection with our obligation to file reports with the sec . for a discussion of the important risks to our business and future operating performance , see the discussion under the caption โ item 1a . risk factors โ and under the caption โ factors that may influence future results of operations โ below . in light of these risks , uncertainties and assumptions , the forward-looking events discussed in this report might not occur . business overview we are engaged in the design , manufacture and sale of broadband high speed wireless data communication products such as third generation ( โ 3g โ ) and fourth generation ( โ 4g โ ) wireless modules and modems . we focus primarily on wireless broadband modems , which provide a flexible way for consumers to connect to wireless broadband networks from laptop or desktop computers . our broadband wireless data communication products are positioned at the convergence of wireless communications , mobile computing and the internet , each of which we believe represents a growing market . we market and sell our products through two channels : directly to wireless operators , and indirectly through strategic partners and distributors . story_separator_special_tag recently issued accounting pronouncements in june 2011 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) 2011-05 , presentation of comprehensive income , eliminates the option of presenting the components of other comprehensive income ( oci ) as part of the statement of changes in stockholders ' equity . the asu instead permits an entity to present the total of comprehensive income , the components of net income , and the components of oci either in a single continuous statement of comprehensive income or in two separate but consecutive statements . with either format , the entity is required to present each component of net income along with total net income , each component of oci along with the total for oci , and a total amount for comprehensive income . also , the asu requires entities to present , for either format , reclassification adjustments for items that are reclassified from oci to net income in the statement ( s ) where the components of net income and the components of oci are presented . this asu is to be applied retrospectively . for public entities , the asu is effective for interim and annual periods beginning after december 15 , 2011. we have adopted this guidance and note that it does not have any material impact on our consolidated financial statements . 12 in september 2011 , the fasb issued asu 2011-08 , testing goodwill for impairment , which permits entities to determine first whether it is necessary to apply the traditional two-step goodwill impairment test , based on qualitative factors . an entity also has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the first step of the two-step goodwill impairment test ; an entity may resume performing the qualitative assessment in any subsequent period . also under the amendments , an entity is no longer permitted to carry forward its detailed calculation of a reporting unit 's fair value from a prior year . the asu also includes examples of events and circumstances for an entity to consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , which supersede the previous examples of events and circumstances that an entity should consider when testing goodwill for impairment between annual tests . an entity having a reporting unit with a zero or negative carrying amount will also consider the revised list of factors in determining whether to perform the second step of the impairment test . the asu is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011. we have adopted this guidance and note that it does not have any material impact on our consolidated financial statements . in may 2014 , the fasb issued accounting standards update no . 2014-09 ( asu 2014-09 ) , revenue from contracts with customers . asu 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current u.s. gaap and replace it with a principle based approach for determining revenue recognition . asu 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract . the asu also will require additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . asu 2014-09 is effective for reporting periods beginning after december 15 , 2016 , and early adoption is not permitted . entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption . management is currently assessing the impact the adoption of asu 2014-09 and has not determined the effect of the standard on our ongoing financial reporting . story_separator_special_tag payable of $ 5,861,873. investing activities - net cash used in investing activities for the years ended june 30 , 2014 and 2013 was $ 357,477 and $ 1,460,492 , respectively . the $ 357,477 in net cash used in investing activities for the year ended june 30 , 2014 was primarily due to the payments for capitalized development costs and purchases of property and equipment of $ 310,615 and $ 127,894 , respectively . we capitalize product development costs because such products are expected to be sold in future periods and provide economic benefit to the company . the $ 1,460,492 in net cash used in investing activities for the year ended june 30 , 2013 was primarily due to the purchases of intangible assets and property and equipment of $ 689,676 and $ 431,452 , respectively , as well as payments for capitalized product development of $ 252,279. financing activities โ net cash provided by financing activities for the year ended june 30 , 2014 was $ 96,074 , and net cash used in financing activities for the year ended june 30 , 2013 was $ 2,383,914. the $ 96,074 in net cash provided by financing activities for the year ended june 30 , 2014 was primarily due to the issuance of stock related to stock options exercised . 14 the $ 2,383,914 in net cash used in financing activities for the year ended june 30 , 2013 was primarily due to the repurchase of our common stock from the sherman group in the amount of $ 2,406,414. under the terms of the stock repurchase agreement , we agreed to repurchase 1,538,602 shares of our common stock from the members of the sherman group for a purchase price of $ 2,831,028 , or $ 1.84 per share , representing a premium of $ 440,000 from the market
| results of operations the following table sets forth , for the years ended june 30 , 2014 and 2013 , our statements of operations including data expressed as a percentage of sales : replace_table_token_3_th year ended june 30 , 2014 compared to year ended june 30 , 2013 net sales - net sales decreased by $ 1,797,357 , or 5.5 % , to $ 30,952,897 for the year ended june 30 , 2014 from $ 32,750,254 for the corresponding period of 2013. for the year ended june 30 , 2014 , net sales by geographic regions , consisting of south america and the caribbean , the united states , emea ( europe , the middle east and africa ) and asia were $ 2,109,320 ( 6.8 % of net sales ) , $ 18,036,635 ( 58.3 % of net sales ) , $ 3,789,414 ( 12.2 % of net sales ) and $ 7,017,528 ( 22.7 % of net sales ) , respectively . net sales in the south american and caribbean regions increased by $ 460,868 , or 27.9 % , to $ 2,109,320 for the year ended june 30 , 2014 , from $ 1,648,452 for the corresponding period of 2013. the increase was primarily due to the general nature of sales in these regions , which often fluctuate significantly from period to period due to timing of orders placed by a relatively small number of customers .
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10. stock-based compensation the snap interactive , inc. amended and restated 2011 long-term incentive plan ( the โ 2011 plan โ ) was terminated as to future awards on may 16 , 2016. a total of 181,604 shares of the company 's common stock may be delivered pursuant to outstanding options awarded under the 2011 plan , however no additional awards may be granted under such plan . the snap interactive , inc. 2016 long-term incentive plan ( the โ 2016 plan โ ) was adopted by the company 's stockholders on may 16 , 2016 and permits the company to award stock options ( both incentive stock options and non-qualified stock options ) , stock appreciation rights , restricted stock , restricted stock units , performance awards , dividend equivalent rights , and other stock-based awards and cash-based incentive awards to its employees ( including an employee who is also a director or officer under certain circumstances ) , non-employee directors and consultants . the maximum number of shares of common stock that may be issued pursuant to awards under the 2016 plan is 428,572 shares , 100 % of which may be issued pursuant to incentive stock options . in addition , the maximum number of shares of common stock that may be issued under the 2016 plan may be increased by an indeterminate number of shares of common stock underlying outstanding awards issued under the 2011 plan that are forfeited , expired , cancelled or settled in cash . as of december 31 , 2016 , there were 37,860 shares available for future issuance under the 2016 plan . f- 16 on october 7 , 2016 , as a result of the merger , each outstanding avm stock option was assumed by snap and converted into a stock option representing the right to purchase shares of snap 's common stock , with the number of shares underlying such stock option and the exercise price thereof being adjusted by the exchange ratio in the merger , with any fractional shares rounded down to the next lowest number of whole shares . the resulting number of options assumed was 252,966 at the time of the merger . stock options the following table summarizes the assumptions used in the black-scholes pricing model to estimate the fair value of the options granted during the years ended : replace_table_token_21_th the expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior to exercise . the expected life of options has been determined using the `` simplified `` method as prescribed by staff accounting bulletin 110 , which uses the midpoint between the vesting date and the end of the contractual term . the volatility of the company 's common stock is calculated using the company 's historical volatilities beginning at the grant date and going back for a period of time equal to the expected life of the award . the company estimates potential forfeitures of stock awards and adjusts recorded stock-based compensation expense accordingly . the company estimates pre-vesting forfeitures primarily based on the company 's historical experience and is adjusted to reflect actual forfeitures as the stock based awards vest . the following tables summarize stock option activity during the year ended december 31 , 2016 : replace_table_token_22_th on december 31 , 2016 , the aggregate intrinsic value of stock options that were outstanding and exercisable was $ 280,170 and $ 148,251 , respectively . on december 31 , 2015 , the aggregate intrinsic value of stock options that were outstanding and exercisable was $ 126,918 . the intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the fair value of such awards as of the period-end date . the aggregate fair value for the options granted during the years ended december 31 , 2016 and 2015 was $ 682,740 story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity , and certain other factors that may affect our future results . the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included in โ item 8. financial statements and supplementary data. โ forward-looking statements in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . see โ forward-looking statements. โ our results and the timing of selected events may differ materially from those anticipated in these forward- looking statements as a result of many factors , including those discussed under โ item 1a . risk factors โ in this annual report on form 10-k. merger on october 7 , 2016 , we completed a merger with a.v.m . software , inc. ( d/b/a paltalk ) ( โ avm โ ) , pursuant to which savm acquisition corporation , our wholly owned subsidiary , merged with and into avm , with avm surviving as a wholly owned subsidiary of the company ( the โ merger โ ) . as a result of the merger , the former shareholders of avm received shares of our common stock and replacement options representing approximately 77.9 % of the outstanding shares of common stock of the post-merger combined company , and the company 's former shareholders retained approximately 22.1 % of the outstanding shares of common stock of the post-merger combined company , in each case including unvested shares of restricted stock in the total number of shares of common stock outstanding . story_separator_special_tag users ; โ continued merger integration efforts , including organizational restructuring , real estate and vendor consolidation , and standardizing our technology platform and reporting systems ; โ began work on a new live video chat consumer application ; and โ formed both an audit and compensation committee consisting of 3 and 2 independent directors , respectively . for the near term , our business objectives include : โ continuing to realize revenue and cost reducing benefits of the merger integration ; โ building awareness and usage of 50more ; โ completing the development and launch of our new live video chat consumer application ; โ exploring merger and acquisition opportunities ; and โ continuing to defend our intellectual property . 25 sources of revenue subscription our video chat platforms generate revenue primarily through subscription fees . our tiers of subscriptions provide users with unlimited video windows and levels of status within the community . multiple subscription tiers are offered in different durations depending on the product from one- , six- , twelve- , and fifteen-month terms , which continue to vary as we continue to test and optimize length and pricing . longer-term plans ( those with durations longer than one month ) are generally available at discounted monthly rates . levels of membership benefits are offered in tiers , with the least membership benefits in the lowest paid tier and the most membership benefits in the highest paid tier . our membership tiers are โ plus , โ โ extreme , โ โ vip โ and โ prime โ for paltalk and โ pro , โ โ extreme โ and โ gold โ for camfrog . we also hold occasional promotions that offer discounted subscriptions and virtual gifts . firstmet generates revenue primarily through subscription fees . multiple subscription tiers are offered in different durations from one- , three- and six-month terms , which continue to vary as we continue to test and optimize length and pricing . longer-term plans ( those with durations longer than one month ) are generally available at discounted monthly rates . pursuant to the terms of service of our dating platforms , subscriptions automatically renew for periods of the same length and at the same price as the original subscription term until terminated by the subscriber . we also hold occasional promotions that offer initial discounted subscriptions that renew at the regular price . the company recognizes revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated . revenues from multi-month subscriptions are recognized on a straight-line basis over the length of the subscription period . the unearned portion of subscription revenue is presented as deferred revenue in the accompanying consolidated balance sheets . advertising we also generate a portion of our revenue on both our video and dating platforms through advertisements . advertising revenue is dependent upon traffic as well as the advertising inventory we place on our products . we recognize advertising revenue as earned on a click-through , impression , registration or subscription basis . when a user clicks an advertisement ( cpc basis ) , views an advertisement impression ( cpm basis ) , registers for an external website via an advertisement by clicking on or through our application ( cpa basis ) , or clicks on an offer to subscribe to premium features on the application , the contract amount is recognized as revenue . virtual gifts/micro-transactions in our video chat platforms we offer virtual gifts to our users . users may purchase credits that can be redeemed for a host of virtual gifts such as a rose , a beer or a car , among other items . these gifts are given among users to enhance communication and are generally redeemed within the month of purchase . virtual gift revenue is recognized at the point of sale and included in subscription revenue . we also offer micro-transactions to our dating users . micro-transactions allow users to increase the visibility of their profile and messages by paying for such services . in addition , micro-transactions include activation fees for new subscriptions . while micro-transactions are not currently a significant driver of revenue , we believe that micro-transactions increase user engagement with our applications and the likelihood that users will become paid subscribers . micro-transaction revenue is recognized at the point of sale and included in subscription revenue . costs and expenses cost of revenue . cost of revenue consists primarily of compensation ( including stock-based compensation ) and other employee-related costs for personnel engaged in data center and customer care functions , credit card processing fees , hosting fees , and data center rent and bandwidth costs . sales and marketing expense . sales and marketing expense consists primarily of advertising expenditures and compensation ( including stock-based compensation ) and other employee-related costs for personnel engaged in sales , and sales support functions . advertising and promotional spend includes online marketing , including fees paid to search engines , and offline marketing , which is primarily partner-related payments to those who direct traffic to our brands . we plan to continue to expand sales and marketing efforts to attract new users , retain existing users and increase sales to both new and existing users . product development expense . product development expense , which relates to the development of technology of our applications , consists primarily of compensation ( including stock-based compensation ) and other employee-related costs that are not capitalized for personnel engaged in the design , testing and enhancement of service offerings as well as amortization of capitalized website development costs . general and administrative .
| results of operations the following table sets forth consolidated statements of operations data for each of the periods indicated as a percentage of total revenues : replace_table_token_4_th 28 year ended december 31 , 2016 compared to year ended december 31 , 2015 total revenues increased to $ 20,988,429 for the year ended december 31 , 2016 from $ 20,122,143 for the year ended december 31 , 2015. the increase is primarily driven by the inclusion of firstmet revenue as a result of the merger , offset by a decline in paltalk subscription revenue and advertising revenue . the following table sets forth our subscription revenue , advertising revenue and total revenues for the year ended december 31 , 2016 and the year ended december 31 , 2015 , the increase/decrease between those periods , the percentage increase/decrease between those periods , and the percentage of total revenue that each represented for those periods : replace_table_token_5_th subscription our subscription revenue for the year ended december 31 , 2016 increased by $ 1,118,740 , or 6.4 % , as compared to the year ended december 31 , 2015. this increase in subscription revenue for the year ended december 31 , 2016 was primarily due to the inclusion of firstmet subscription revenue of approximately $ 2,244,000 following the completion of the merger offset by a decline in paltalk subscription revenue of approximately $ 1,125,000. we believe that the decrease in paltalk subscription revenue was driven , in part , by product outages and inconsistency in service in our primary data center . we made the strategic decision to outsource our data center and physical servers to cloud web hosting services . this move was completed in january 2017 and our service disruptions have decreased as a result . to a smaller degree , we also believe revenue was affected by increased industry competition . as mobile video adoption increases , users have more choices and ways to experience live video chat online .
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see our cautionary language at the beginning of this report under โ special note regarding forward-looking statements โ and for a more complete discussion of the factors that could affect our future results refer to part i . โ item ia . risk factors โ overview loandepot is a customer-centric and technology-enabled residential mortgage platform . we launched our business in 2010 to provide mortgage loan solutions to consumers who were dissatisfied with the services offered by banks and other traditional market participants . since our inception , we have significantly expanded our origination platform both in terms of size and capabilities . our primary sources of revenue are derived from the origination of conventional and government mortgage loans , servicing conventional and government mortgage loans , and providing a growing suite of ancillary services . on february 11 , 2021 we completed the ipo of 3,850,000 shares of class a common stock , $ 0.001 par value per share , at an offering price of $ 14.00 per share , pursuant to a registration statement on form s-1 . we are a publicly traded company whose class a common stock is traded on the new york stock exchange under the ticker symbol โ ldi. โ a summary of our critical accounting policies and estimates is included in critical accounting policies and estimates . key factors influencing our results of operations market and economic environment according to the federal reserve , residential mortgages represent the largest segment of the broader united states consumer finance market . in 2020 , annual one-to-four family residential mortgage origination volume reached $ 3.7 trillion , with an average volume of $ 2.3 trillion over the last five years . according to the mortgage bankers association , there was approximately $ 11.1 trillion of residential mortgage debt outstanding in the united states as of december 31 , 2020 that is forecasted to increase to $ 12.4 trillion by the end of 2022. the consumer lending market and the associated loan origination volumes for mortgage loans are influenced by interest rates and economic conditions . while borrower demand for consumer credit has typically remained strong in most economic environments , general market conditions , including the interest rate environment , unemployment rates , home price appreciation and consumer confidence may affect borrower willingness to seek financing and investor desire and ability to invest in loans . for example , a significant interest rate increase or rise in unemployment could cause potential borrowers to defer seeking financing as they wait for interest rates to stabilize or the general economic environment to improve . additionally , if the economy weakens and actual or expected default rates increase , loan investors may postpone or reduce their investments in loan products . the volume of mortgage loan originations associated with home purchases is generally less affected by interest rate fluctuations and more sensitive to broader economic factors as well as the overall strength of the economy and housing prices . purchase mortgage loan origination volume can be subject to seasonal trends as home sales typically rise during the spring and summer seasons and decline in the fall and winter seasons . this is somewhat offset by purchase loan originations sourced from our joint ventures which experience their highest level of activity during november and december as home builders focus on completing and selling homes prior to year-end . seasonality has less of an impact on mortgage loan refinancing volumes , which are primarily driven by fluctuations in mortgage loan interest rates . 54 impact of the covid-19 pandemic while the financial markets have demonstrated significant volatility due to the economic impacts of covid-19 , interest rates have fallen to historic lows resulting in increased mortgage refinance originations and favorable margins . our efficient and scalable platform has enabled us to respond quickly to the increased market demand . we have highlighted below the key steps we have undertaken since the onset of the pandemic to position our platform for continued success : maintained higher liquidity levels from an increase in cash from retained earnings . increased our total loan funding capacity with our current lending partners . stepped up protocols related to verification of key metrics such as employment and income to ensure the highest quality underwriting standards are maintained . transitioned our workforce to working remotely as of march 19 , 2020. as a servicer , we are required to advance principal and interest to the investor for up to four months on gse backed mortgages and longer on other government agency backed mortgages on behalf of clients who have entered a forbearance plan . as of december 31 , 2020 , approximately 2.4 % , or $ 2.4 billion upb , of our servicing portfolio was in active forbearance . while these advance requirements may be significant at higher levels of forbearance , we believe we are very well-positioned in terms of our liquidity . we will continue evaluating the capital markets as well , which would further supplement our liquidity should the need arise . fluctuations in interest rates our mortgage loan refinancing volumes ( and to a lesser degree , our purchase volumes ) , balance sheet and results of operations are influenced by changes in interest rates and how we effectively manage the related interest rate risk . as interest rates decline , mortgage loan refinance volumes tend to increase , while an increasing interest rate environment may cause a decrease in refinance volumes and purchase volumes . in addition , the majority of our assets are subject to interest rate risk , including lhfs , which consist of mortgage loans held on our consolidated balance sheet for a short period of time after origination until we are able to sell them , irlcs , servicing rights and mandatory trades , forward sales contracts , interest rate swap futures and put options that we enter into to manage interest rate risk created by irlcs and uncommitted lhfs . story_separator_special_tag gain on origination and sale of loans , net was comprised of the following components : replace_table_token_3_th changes in the components of gain on origination and sale of loans , net , during the year ended december 31 , 2020 and 2019 were comprised of the following : $ 3.2 billion in net premiums realized upon the sale of loans to investors for the year ended december 31 , 2020 , as compared to $ 905.3 million for the year ended december 31 , 2019 , representing an increase of $ 2.3 billion or 251.1 % . the increase in net premiums realized upon the sale of loans to investors was a result of increased origination and sale volume as well as improved gain on sale margins . gain on sale margin for 2020 was 4.27 % compared to 2.81 % for 2019 . $ 986.1 million in servicing rights additions from loans sold to investors on a servicing-retained basis for the year ended december 31 , 2020 , as compared to $ 334.2 million for the year ended december 31 , 2019 , representing an increase of $ 651.9 million or 195.1 % , which was driven by an increase in volume of loans sold on a servicing-retained basis to $ 87.2 billion during the year ended december 31 , 2020 , as compared to $ 20.4 billion for the year ended december 31 , 2019 , partially offset by decreases in estimated servicing multiples and servicing fees between periods . the decreases in servicing multiples was attributable to higher estimated prepayment speeds resulting from 61 the decreases in mortgage interest rates between periods . at december 31 , 2020 , the weighted average prepayment speed of our servicing portfolio was 14.0 % compared to 13.3 % as of december 31 , 2019 . $ 518.8 million of net unrealized gains from irlcs for the year ended december 31 , 2020 , as compared to $ 67.7 million for the year ended december 31 , 2019 , representing an increase of $ 451.1 million or 665.9 % . the increase was primarily due to the increase in volume of irlcs of $ 85.7 billion , or 113.9 % to $ 161.0 billion for the year ended december 31 , 2020 as compared to $ 75.3 billion for the year ended december 31 , 2019 ; $ 648.3 million of realized and unrealized losses from hedging instruments for the year ended december 31 , 2020 , as compared to $ 110.7 million for the year ended december 31 , 2019. the increase was primarily due to the overall decline in interest rates during 2020 and the resulting increase in origination volumes and hedging activity during 2020 ; $ 148.5 million of rebates paid to borrowers and lender paid costs , net of discount points collected from borrowers for the origination of loans for the year ended december 31 , 2020 , as compared to $ 75.9 million for the year ended december 31 , 2019 , representing an increase of $ 72.6 million or 95.6 % . the increase is related to the increase in origination volumes between periods ; $ 185.9 million of fair value gains on lhfs for the year ended december 31 , 2020 , as compared to $ 14.0 million for the year ended december 31 , 2019. the increase was primarily attributable to a higher average balance of lhfs during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , coupled with the impact of changes in the mortgage interest rate environment ; and $ 26.0 million of provision for loan loss obligations recorded for loans sold during the year ended december 31 , 2020 , as compared to $ 8.7 million for the year ended december 31 , 2019 , representing an increase of $ 17.3 million or 199.5 % . the provision for loan loss obligations recorded reflects loan sale volumes which increased to $ 97.5 billion during the year ended december 31 , 2020 , as compared to $ 43.5 billion during the year ended december 31 , 2019 ; origination income , net . origination income , net , was $ 258.8 million for the year ended december 31 , 2020 , as compared to $ 149.5 million for the year ended december 31 , 2019 , representing an increase of $ 109.3 million or 73.1 % . the increase in origination income , net , between periods was primarily the result of an increase in loan originations and other loan fees attributable to the growth in loan origination volumes . servicing fee income . servicing fee income was $ 185.9 million for the year ended december 31 , 2020 , as compared to $ 118.4 million for the year ended december 31 , 2019 , representing an increase of $ 67.5 million or 57.0 % . the increase in servicing fee income between periods was the result of an increase of $ 32.0 billion in the average upb of our servicing portfolio due to an increase in servicing-retained loan sales . our average servicing portfolio increased to $ 62.1 billion for the year ended december 31 , 2020 , as compared to $ 30.1 billion for the year ended december 31 , 2019. change in fair value of servicing rights , net .
| results of operations description of components of results of operations our primary sources of revenue include gain on the origination and sale of loans , loan origination income , and servicing fee income . changes in the fair value of our lhfs , servicing rights , and derivatives also impact our revenues . other income reflects the pro rata share of net earnings from our joint ventures and fee income from title , escrow , and settlement services performed by our consolidated subsidiary , ld settlement services , llc . net interest income is interest income earned on our lhfs , net of interest expense on amounts borrowed under warehouse lines to finance such loans until sold . revenues net interest income . net interest income reflects interest earned on lhfs offset by interest expense on amounts borrowed under warehouse lines to finance such loans until sold . for more information regarding our warehouse lines , see โ โliquidity and capital resourcesโwarehouse lines โ below . gain on origination and sale of loans , net . gain on origination and sale of loans , net , includes cash and non-cash elements and is comprised of the following components : premiums on loan sales represent the net premium or discount we receive or pay in excess of the loan principal amount and certain fees charged by investors upon sale of the loans ; servicing right additions represent the fair value of the servicing rights generated by loans we have sold on a servicing retained basis ; unrealized gains or losses on derivative assets and liabilities , interest rate lock commitments ( โ irlcs โ ) represent the change in the fair value of irlcs ; provision for loan loss obligation related to loans sold represents the provision to establish our estimated liability for loan losses that we may experience as a result of a breach of representation or warranty provided to the purchasers or insurers of loans that we have sold ; unrealized gains or losses from hedging
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the company recognizes revenue from the sale of its precision oncology tests for clinical customers , including certain hospitals , cancer centers , other institutions and patients , at the time results of the story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations together with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in part i , item 1a โ risk factors , โ of this annual report on form 10-k. the following generally compares our results of operations for the years ended december 31 , 2019 and 2018. a detailed discussion comparing our results of operations for the years ended december 31 , 2018 and 2017 can be found in part ii , item 7 , โ management 's discussion and analysis of financial condition and results of operations , โ of our annual report on form 10-k for the year ended december 31 , 2018. overview we are a leading precision oncology company focused on helping conquer cancer globally through use of our proprietary blood tests , vast data sets and advanced analytics . we believe that the key to conquering cancer is unprecedented access to its molecular information throughout all stages of the disease , which we intend to enable by a routine blood draw , or liquid biopsy . our guardant health oncology platform is designed to leverage our capabilities in technology , clinical development , regulatory and reimbursement to drive commercial adoption , accelerate drug development , improve patient clinical outcomes and lower healthcare costs . in pursuit of our goal to manage cancer across all stages of the disease , we launched our guardant360 and guardantomni liquid biopsy-based tests for advanced stage cancer . our guardant360 test , launched in 2014 , has been used by more than 7,000 oncologists , over 50 biopharmaceutical companies and all 28 national comprehensive cancer network , or nccn , centers . our guardantomni test , launched in 2017 , has been used by our biopharmaceutical customers as a comprehensive genomic profiling tool to help accelerate clinical development programs in both immuno-oncology and targeted therapy . these tests fuel development of our lunar program , which aims to address the needs of early stage cancer patients with neoadjuvant and adjuvant treatment selection , cancer survivors with surveillance , asymptomatic individuals eligible for cancer screening and individuals at a higher risk for developing cancer with early detection . our lunar-1 assay was launched in 2018 for research use and in late 2019 for investigational use . since our inception , we have devoted substantially all of our resources to research and development activities related to our guardant360 and guardantomni tests and our lunar program , including clinical and regulatory initiatives to obtain approval by the u.s. food and drug administration , or the fda , as well as sales and marketing activities . we have over 50 approved , completed or active clinical outcomes studies , more than 150 peer-reviewed publications and more than 400 scientific abstracts . we are pioneering the clinical comprehensive liquid biopsy market with our guardant360 and guardantomni tests , both of which analyze circulating tumor dna in blood . our guardant360 test is a molecular diagnostic test measuring 74 cancer-related genes and has been used by clinicians to help inform which therapy may be effective for advanced stage cancer patients with solid tumors and by biopharmaceutical companies 83 for a range of applications , including identifying target patient populations to accelerate translational science research , clinical trial enrollment , and drug development , and post-approval commercialization . our guardantomni test has a broader 500-gene panel , including genes associated with homologous recombination repair deficiency and biomarkers for immuno-oncology applications , such as tumor mutational burden and microsatellite instability , and has achieved comparable analytical performance in clinical studies , including for translational science applications in collaboration with several biopharmaceutical companies , including astrazeneca , bristol-myers squibb , merck msd , merck kgaa of darmstadt , germany and pfizer . our guardant360 and guardantomni tests have each been designated by the fda as a breakthrough device for use as a companion diagnostic in connection with certain specified therapeutic products of our biopharmaceutical customers . among other things , designation as a breakthrough device provides for priority review by the fda and more interactive communication with the fda during the development process . our guardant360 and guardantomni tests are both being developed as companion diagnostics under collaborations with biopharmaceutical companies , including astrazeneca and amgen . we perform our guardant360 , guardantomni and other tests in our clinical laboratory located in redwood city , california . our laboratory is certified pursuant to the clinical laboratory improvement amendments of 1988 , or clia , accredited by the college of american pathologists , or cap , permitted by the new york state department of health , or nysdoh , and licensed in california and four other states . the analytical and clinical data that we have generated in our efforts to establish clinical utility , combined with the support we have developed with key opinion leaders , or kols , in the oncology space have led to positive coverage decisions by a number of commercial payers . our guardant360 test is currently covered by cigna , priority health , multiple blue cross blue shield plans as well as the health plans associated with evicore , which have adopted policies that specifically cover guardant360 test for non-small cell lung cancer , or nsclc , which we believe gives us a competitive advantage with these payers . story_separator_special_tag we evaluate both the volume of tests that we perform for patients on behalf of clinicians and the number of tests we perform for biopharmaceutical companies . our performance depends on our ability to retain and broaden adoption with existing customers , as well as attract new customers . we believe that the test volume we receive from clinicians and biopharmaceutical companies are indicators of growth in each of these customer verticals . customer mix for our tests has the potential to significantly affect our results of operations , as the average selling price for biopharmaceutical sample testing is currently higher than our average selling price for clinical tests because we are not a contracted provider for , or our tests are not covered by clinical patients ' insurance for , the majority of the tests that we perform for patients on behalf of clinicians . approximately 38 % of our u.s. clinical tests for the years ended december 31 , 2019 and 2018 were for medicare beneficiaries . prior to the third quarter of 2018 , medicare did not cover our tests and we did not submit claims for reimbursement . in september 2018 , we began to submit claims to medicare for reimbursement for guardant360 clinical tests for nsclc patients covered under moldx who meet certain clinical criteria , and in october 2018 , we began to receive payments from medicare for these clinical tests . in december 2019 , palmetto gba expanded its lcd for our guardant360 test to provide limited medicare coverage for use of guardant360 for qualifying patients diagnosed with solid tumor cancers of non-central nervous system origin . noridian healthcare solutions , or noridian , is the mac responsible for adjudicating claims in california where our laboratory is located . noridian is a participant in moldx and recently issued a draft lcd for the guardant360 test modeled on the expanded palmetto lcd . we may not be able to obtain reimbursement under the expanded noridian lcd until it is finalized and noridian completes certain administrative steps . regulatory approval . our guardant360 test was the first comprehensive liquid biopsy test approved by nysdoh . in addition , we believe our facility was the first comprehensive liquid biopsy laboratory to be clia-certified , cap-accredited and nysdoh-permitted . in the fourth quarter of 2019 , we submitted a premarket approval , or pma , application to seek the fda 's approval of our guardant360 test to be used as a companion diagnostic , initially in connection with one therapeutic product of a biopharmaceutical customer , and to provide tumor mutation profiling for cancer patients with solid tumors . in february 2020 , we submitted an additional module of the pma application for our guardant360 test to the fda . medicare 's national coverage determination for next generation sequencing established in 2018 and subsequently updated in 2020 provides coverage for molecular diagnostic tests such as our guardant360 test , if , among other criteria , such tests are offered within their fda-approved companion diagnostic labeling . we believe that this establishes a competitive advantage for tests receiving fda approval and that fda approval will be increasingly necessary for diagnostic tests to gain adoption , both in the united states and abroad . we believe fda approval , if obtained , will help increase adoption of our tests and 85 facilitate favorable reimbursement decisions by medicare and commercial payers . we also intend to pursue regulatory approvals in specific markets outside of the united states , including in europe , japan and china . any negative regulatory decisions or changes in regulatory requirements affecting our business could adversely impact our operations and financial results . payer coverage and reimbursement . our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payers , including both commercial and government payers . payment from commercial payers can vary depending on whether we have entered into a contract with the payers as a โ participating provider โ or do not have a contract and are considered a โ non-participating provider. โ payers often reimburse non-participating providers , if at all , at a lower amount than participating providers . we have received a substantial portion of our revenue from a limited number of commercial payers , most of which have not contracted with us to be a participating provider . we have received reimbursement for tests of patients with a variety of cancers , though for amounts that on average are significantly lower than for participating providers . we have experienced situations where commercial payers proactively reduced the amounts they were willing to reimburse for our tests , and in other situations , commercial payers have determined that the amounts they previously paid were too high and have sought to recover those perceived excess payments by deducting such amounts from payments otherwise being made . when we contract with a payer to serve as a participating provider , reimbursements by the payer are generally made pursuant to a negotiated fee schedule and are limited to only covered indications or where prior approval has been obtained . becoming a participating provider can result in higher reimbursement amounts for covered uses of our test and , potentially , no reimbursement for non-covered uses identified under the payer 's policies or the contract . as a result , the potential for more favorable reimbursement associated with becoming a participating provider may be offset by a potential loss of reimbursement for non-covered uses of our tests . current procedural terminology , or cpt , coding plays a significant role in how our guardant360 test is reimbursed both from commercial and governmental payers . changes to the codes used to report the guardant360 test to payers may result in significant changes in its reimbursement . if our guardant360 test receives approval from the fda , we may be required to obtain a new code to report the guardant360 test on claims submitted to u.s. payers .
| results of operations the following table sets forth the significant components of our results of operations for the periods presented . replace_table_token_3_th ( 1 ) fiscal year 2018 results do not reflect the impact of the adoption of the new revenue accounting standard in fiscal year 2019 . ( 2 ) amounts include stock-based compensation expense as follows : replace_table_token_4_th ( 3 ) amounts include $ 157,000 of compensation expenses associated with repurchase of common stock for the year ended december 31 , 2018 . 90 comparison of the years ended december 31 , 2019 and 2018 revenue replace_table_token_5_th total revenue was $ 214.4 million for the year ended december 31 , 2019 compared to $ 90.6 million for the year ended december 31 , 2018 , an increase of $ 123.7 million , or 137 % . precision oncology testing revenue increased to $ 180.5 million for the year ended december 31 , 2019 from $ 78.4 million for the year ended december 31 , 2018 , an increase of $ 102.1 million , or 130 % . precision oncology revenue from tests for clinical customers was $ 101.0 million for the year ended december 31 , 2019 , up 131.1 % from $ 43.7 million for the year ended december 31 , 2018. this increase in clinical testing revenue was driven primarily by increases in test volume plus higher average revenue per test . precision oncology revenue for the year ended december 31 , 2019 included $ 6.8 million of payments received during that year from successful appeals of payers ' denials of reimbursement for samples processed in 2018. given the age of the samples associated with these successful appeals , we do not believe this appeals revenue is indicative of results in the ordinary course of our operations .
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derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset , liability , or firm commitment attributable to a particular risk , such as interest rate risk , are considered fair value hedges . derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows , or other types of forecasted transactions , are considered cash flow hedges . derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation . hedge accounting generally provides for the story_separator_special_tag certain statements included or incorporated by reference in this annual report on form 10-k may be deemed โ forward looking statements โ within the meaning of the federal securities laws . in many cases , these forward looking statements may be identified by the use of words such as โ will , โ โ may , โ โ should , โ โ could , โ โ believes , โ โ expects , โ โ anticipates , โ โ estimates , โ โ intends , โ โ projects , โ โ goals , โ โ objectives , โ โ targets , โ โ predicts , โ โ plans , โ โ seeks , โ or similar expressions . any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report . although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions , forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained . our actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties . in addition to the risk factors discussed in part i , item 1a of this report , such known risks and uncertainties include , without limitation : the ability of our tenants to make payments under their respective leases , our reliance on certain major tenants and our ability to re-lease properties that become vacant ; our ability to obtain suitable tenants for our properties ; changes in economic and business conditions , including the financial condition of our tenants and general economic conditions in the energy industry , and in the particular sectors of that industry served by each of our infrastructure assets ; the inherent risks associated with owning real estate , including local real estate market conditions , governing laws and regulations , including potential liabilities relating to environmental matters , and illiquidity of real estate investments ; our ability to sell properties at an attractive price ; our ability to repay debt financing obligations ; our ability to refinance amounts outstanding under our credit facilities at maturity on terms favorable to us ; the loss of any member of our management team ; our ability to comply with certain debt covenants ; our ability to integrate acquired properties and operations into existing operations ; our continued ability to access the debt or equity markets ; the availability of other debt and equity financing alternatives ; market conditions affecting our debt and equity securities ; changes in interest rates under our current credit facility and under any additional variable rate debt arrangements that we may enter into in the future ; our ability to successfully implement our selective acquisition strategy ; our ability to maintain internal controls and processes to ensure all transactions are accounted for properly , all relevant disclosures and filings are timely made in accordance with all rules and regulations , and any potential fraud or embezzlement is thwarted or detected ; changes in federal or state tax rules or regulations that could have adverse tax consequences ; declines in the market value of our investment securities ; and changes in federal income tax regulations ( and applicable interpretations thereof ) , or in the composition or performance of our assets , that could impact our ability to continue to qualify as a real estate investment trust for federal income tax purposes . this list of risks and uncertainties is only a summary and is not intended to be exhaustive . we disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information . business objective our business objective is to provide shareholders with an attractive risk-adjusted return , with an emphasis on distributions and long-term distribution growth of 1-3 percent . we expect our portfolio of midstream and downstream u.s. energy infrastructure real property assets to provide 8-10 percent total return over the long-term . our assets are generally leased to energy companies via long-term triple net participating leases . the lease structure requires that the tenant pay all operating expenses of the business conducted by the tenant , including real estate taxes , insurance , utilities , and expenses of maintaining the asset in good working order . 30 our long-term participating lease structures provide us base rents that are fixed and determinable , with escalators dependent upon increases in the consumer price index . leases may also include features that allow us to participate in the financial performance and or value of the energy infrastructure asset . the assets we own and seek to acquire include pipelines , storage tanks , transmission lines and gathering systems , among others . we intend to acquire assets that will enhance the stability of our dividend through diversification , while offering the potential for long term distribution growth . basis of presentation the consolidated financial statements include corenergy infrastructure trust , inc. , as of december 31 , 2013 , and its direct and indirect wholly-owned subsidiaries . all significant intercompany accounts and transactions have been eliminated in consolidation . story_separator_special_tag distributions received from our investments generally are characterized as ordinary income , capital gains and distributions received from investment securities . the portion characterized as return of capital is paid by our investees from their cash flow from operations . we record investment income , capital gains and distributions received from investment securities based on estimates made at the time such distributions are received . such estimates are based on information available from each company and or other industry sources . these estimates may subsequently be revised based on information received from the portfolio entities after their tax reporting periods are concluded , as the actual character of these distributions is not known until after our fiscal year end . securities transactions and investment income recognition โ securities transactions are accounted for on the date the securities are purchased or sold ( trade date ) . realized gains and losses are reported on an identified cost basis . distributions received from our equity investments generally are comprised of ordinary income , capital gains and distributions received from investment securities from the portfolio company . the company records investment income and return of capital based on estimates made at the time such distributions are received . such estimates are based on information available from each portfolio company and or other industry sources . these estimates may subsequently be revised based on information received cost of sales included in our cost of sales are the amounts paid for natural gas and propane , along with related transportation costs , as well as the cost of material and labor related to the expansion of the natural gas distribution system . federal and state income taxation we made an election to be treated as a reit for tax purposes for 2013 by filing a form 1120-reit on march 17 , 2014. an investment in us will generally not result in unrelated business taxable income , except to the extent the tax-exempt investor leverages its investment . change in fiscal year end on february 5 , 2013 , the board of directors of the company approved a change in the company 's fiscal year end from november 30 to december 31. this change to the calendar year reporting cycle began january 1 , 2013. as a result of the change , the company reported a december 2012 fiscal month transition period , which was reported in the quarterly report on form 10-q for the calendar quarter ended march 31 , 2013 and is included in this annual report on form 10-k for the calendar year ending december 31 , 2013. story_separator_special_tag ended december 31 , 2013 correspond to the pursuit of potential acquisitions . generally , we expect asset acquisition expenses to be repaid over time from income generated by acquisitions . however , any 34 particular quarter may reflect significant expenses arising from third party legal , engineering and consulting fees that are incurred in the early to mid stages of due diligence . the remaining expenses , which include professional and directors ' fees and other expenses , totaled $ 2.44 million for the year ended december 31 , 2013. the increase of $ 979 thousand as compared to the year ended november 30 , 2012 is driven by incremental costs related to the pinedale lgs , additional costs associated with transitioning to a reit , such as legal , financial audit and tax costs , the addition of two board members and other professional fees and services . non-controlling interest attributable to adjusted ebitda items based on prudential 's 18.95 percent ownership interest in pinedale lp , the company is required to make a further adjustment to the adjusted ebitda items presented above to exclude the portion attributable to prudential 's non-controlling interest which totaled $ 3.73 million for the year ended december 31 , 2013. adjusted ebitda attributable to corr stockholders adjusted ebitda attributable to corr stockholders for the year ended december 31 , 2013 was $ 15.8 million as compared to $ 5.6 million and $ 2.5 million for the years ended november 30 , 2012 and 2011 , respectively . as noted above , the increase in adjusted ebitda is primarily related to the acquisition of the pinedale lgs . the subsequent increase in lease revenue accounts for the majority of the fluctuation from the prior year . other income and expense total other income , net , for the year ended december 31 , 2013 decreased $ 22.4 million , as compared to the year ended november 30 , 2012. other income and expense consists of four primary components : return of capital distributions and dividend income ; realized and unrealized gains and losses from securities ; depreciation and amortization ; and interest expense . the two largest contributors to the decrease from prior year are the decrease in realized and unrealized gains and losses on securities and the increase in depreciation expense . as the company has invested in reit assets and exited investments in mlp equities , there has been a decrease in realized and unrealized gains and losses on securities within the period . the increase in depreciation expense is due primarily to the acquisition of the pinedale lgs in december 2012. the following discussion expands on the impact of each of these four components on other income and expense . net distributions and dividend income not recorded as income the following table summarizes the breakout of net distributions and dividends reported as income ( loss ) on the income statement .
| results of operations we have changed the format of the results of operations section to better portray the return generated by the different types of assets included in our portfolio . as leased assets become a more important component of the company 's business , we believe this new format will better portray the operating performance of the company . we believe the lease revenue , security distributions and operating results overview presented below provides investors with information that will assist them in analyzing the operating performance of our leased assets , private equity securities and operating entities . as it pertains to other equity securities , the company does not believe that return of capital distributions and realized/unrealized gains and losses are indicative of the operating performance of these assets . accordingly , we have excluded them from ebitda , resulting in an adjusted ebitda metric . adjusted ebitda is then reconciled to the net income attributable to corr stockholders by accounting for other income , depreciation , amortization , interest expense and income taxes . we believe that net income attributable to corr shareholders is an important operating metric which highlights the performance of our assets for shareholders to use in measuring our results . following is a comparison of lease revenues , security distributions and operating results , expenses , other income and expense , and income ( loss ) before income taxes for the years ended december 31 , 2013 , november 30 , 2012 and november 30 , 2011 : replace_table_token_8_th 33 ( 1 ) for a full reconciliation of affo per share ( basic and diluted ) to income attributable to corr stockholders , see ffo/affo reconciliation table presented herein . ( 2 ) for a full reconciliation of book value per share ( basic and diluted ) to income attributable to corr stockholders , see book value per share table presented herein .
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74 exlservice holdings , inc. notes to consolidated financial statementsย ( continued ) december 31 , 2011 ( in thousands , except share and per share amounts ) fixed assets fixed assets are stated at cost less accumulated depreciation and amortization . equipment held under capital leases is stated at the lower of present value of minimum lease payments at the inception of the leases or its fair value . advances paid towards acquisition of fixed assets and the cost of fixed assets not yet placed in service before the end of the period are classified as construction in progress . fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that story_separator_special_tag you should read the following discussion in connection with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. some of the statements in the following discussion are forward looking statements . see ยยforward looking statements.ย overview we are a leading provider of outsourcing and transformation services and focus on providing our clients with a positive business impact and enhancing their long term financial value . we customize our services to improve the economics of business performance and transform organizations to be leaner and more flexible . our outsourcing services provide front- , middle- and back-office processing services for our primarily u.s.-based and u.k.-based clients . outsourcing services involve the transfer to us of select business operations of a client , such as claims processing , finance and accounting and customer service , after which we administer and manage the operations for our client on an ongoing basis . we also offer a number of transformation services that include decision analytics , finance transformation and operations and process excellence services . these transformation services help our clients improve their operating environments through cost reduction , enhanced efficiency and productivity initiatives , and improve the risk and control environments within our clients ' operations whether or not they are outsourced to us . we serve primarily the needs of global 1000 companies in the insurance and healthcare , utilities , banking and financial services , transportation and logistics and travel sectors . on may 31 , 2011 , we completed the opi acquisition , pursuant to a merger agreement , dated as of april 30 , 2011. the aggregate consideration paid to opi 's former stockholders in the opi acquisition was $ 91.0 million in cash , excluding adjustments based on opi 's working capital , debt and certain expenses incurred by opi in connection with the consummation of the opi acquisition . we acquired opi to strengthen our position as a provider of finance and accounting outsourcing services . at the time of the acquisition , opi had over 3,700 professionals globally and approximately 80 clients . by combining our existing finance and accounting outsourcing and transformation capabilities with opi 's finance and accounting outsourcing capabilities and proprietary technology tools , we intend to provide a comprehensive set of finance and accounting services to our clients . the opi acquisition also furthers a strategic objective of leveraging technology and proprietary intellectual property in our service delivery . on october 1 , 2011 , we acquired trumbull , a market leader in subrogation services for property and casualty insurance companies , from the hartford financial services group , inc. ( hartford ) . with the trumbull acquisition , we have strengthened our leadership position in the insurance industry with a highly skilled and experienced employee base and access to an advanced software platform , and have become a leading provider of complex insurance subrogation outsourcing services . we market our services to our existing and prospective clients through our sales and client management teams , which are aligned by industry verticals and cross-industry domains such as finance and accounting . our sales and client management teams operate from the u.s. and europe and are supported by our business development team , which operates from the u.s. and india . in 2011 , we strengthened our marketing efforts with new leadership , an expanded team and the execution of integrated marketing campaigns . we operate twelve operations centers in india , two operations centers in the u.s. , and one operations center in each of philippines , romania and the czech republic . in addition to these operations centers , we acquired three operations centers in india , two operations centers in bulgaria , one operations center in malaysia and two operations centers in the u.s. as part of the opi acquisition . we also acquired an operations center in the u.s. as part of the trumbull acquisition . in december , 2011 , we completed a significant expansion of our operations center located in noida , india , which is eligible for tax incentives due to its location in a sez . 37 in january 2012 , we added an operations center in manila , philippines . in february 2012 , we inaugurated the exl center for talent in noida , india , our first facility exclusively dedicated to recruitment , capability enhancement and talent development . we are also in the process of expanding several of our other operations centers globally . revenues we generate revenues principally from contracts to provide outsourcing and transformation services . total revenues increased $ 107.8 million ( or 42.6 % ) from $ 252.8 million for the year ended december 31 , 2010 to $ 360.5 million for the year ended december 31 , 2011. revenues from outsourcing services increased from $ 192.1 million for the year ended december 31 , 2010 to $ 294.4 million for the year ended december 31 , 2011. the increase in revenues from outsourcing services of $ 102.3 million was driven primarily by revenues of $ 63.6 million from the opi acquisition and the trumbull acquisition in 2011 and the acquisitions of american express global travel service center ( gtsc ) and professional data management again ( pdma ) in 2010 , revenues from a one-time payment of $ 2.3 million from a client with no story_separator_special_tag we provide services to american express , which represented $ 33.8 million , or 9.4 % of our total revenues for the year ended december 31 , 2011 and $ 29.3 million , or 11.6 % of our total revenues for the year ended december 31 , 2010 , under a separate agreement for each of our outsourcing services and transformation services . the master services agreement for our outsourcing services provides a minimum volume commitment over a period of eight years until february 2018 and renews automatically for successive twelve month periods unless either we or american express provides notice six months prior to the expiration of the initial term . the master services agreement for our outsourcing services can not be terminated by american express without cause . the master agreement for our transformation services may be terminated by american express without cause upon five days prior written notice . we derived revenues from seventeen and twenty-one new clients for our services in the years ended december 31 , 2011 and 2010 , respectively . although we are increasing and diversifying our customer base , we expect in the near future that a significant portion of our revenues will continue to be contributed by a limited number of large clients . revenues also include amounts representing reimbursable expenses that are billed to and reimbursed by our clients and typically include telecommunication and travel-related costs . the amount of reimbursable expenses that we incur , and any resulting revenues , can vary significantly depending on each client 's situation and on the type of services we provide . for the years ended december 31 , 2011 and 2010 , 4.5 % and 4.7 % , respectively , of our total revenues represent reimbursement of such expenses . 39 to the extent our client contracts do not contain provisions to the contrary , we bear the risk of inflation and fluctuations in currency exchange rates with respect to our contracts . we hedge a substantial portion of our indian rupee/u.s . dollar , philippine peso/u.s . dollar and u.k. pound sterling/u.s . dollar foreign currency exposure . we have observed a shift in industry pricing models toward transaction-based pricing and other pricing models . we believe this trend will continue and we have begun to use transaction-based and other pricing models with some of our current clients and are seeking to move certain other clients from a billing rate model to a transaction-based or other pricing model . during the year ended december 31 , 2011 , 30 % of our outsourcing revenues were generated from transaction-based pricing models . such models place the focus on operating efficiency in order to maintain our operating margins . in addition , we have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs . we believe that the trend toward multi-vendor relationships will continue . a multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor , which can result in significantly reduced operating margins from the provision of services to such client for each vendor . to the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors , our operating margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationship with such clients . expenses cost of revenues our cost of revenues primarily consists of : employee costs , which include salary , bonus and other compensation expenses ; recruitment and training costs ; employee insurance ; transport and meals ; rewards and recognition for certain employees ; and non-cash stock compensation expense ; and costs relating to our facilities and communications network , which include telecommunication and it costs ; facilities and customer management support ; operational expenses for our outsourcing centers ; rent expenses ; and travel and other billable costs to our clients . the most significant components of our cost of revenues are employee compensation , recruitment , training , transport , meals , rewards and recognition and employee insurance . salary levels , employee turnover rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues . while salary increases are generally awarded each year effective april 1 , in certain of our group companies , they are effective july 1. accordingly , employee costs are generally lower in the first quarter of each year compared to the rest of the year . we make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements . although we generally have been able to reallocate our employees as client demand has fluctuated , a contract termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned employees , which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount . a significant increase in the turnover rate among our employees , particularly among the highly skilled workforce needed to execute certain services , would increase our recruiting and training costs and decrease our operating efficiency , productivity and profit margins . in addition , cost of revenues also includes a non-cash amortization of stock compensation expense relating to our issuance of equity awards to employees directly involved in providing services to our clients . we expect our cost of revenues to continue to increase as we continue to add professionals in our operating centers globally to service additional business and as wages continue to increase globally . in particular , we expect training costs to continue to increase as we continue to add staff to service new clients and provide existing staff with additional skill sets . there is significant competition for professionals with skills necessary to perform the services we offer to our clients .
| results of operations the following table summarizes our results of operations : replace_table_token_4_th ( 1 ) revenues include reimbursable expenses of $ 16.1 million , $ 11.8 million and $ 9.6 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . revenues also include a one-time fee of $ 2.3 million in 2011 and a contract termination fee of $ 5.1 million in 2009 . ( 2 ) cost of revenues includes $ 1.6 million , $ 1.6 million and $ 1.4 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively , of non-cash stock compensation expense relating to the issuance of equity awards to employees directly involved in providing services to our clients as described in note 14 to our consolidated financial statements . ( 3 ) general and administrative expenses and selling and marketing expenses include $ 7.8 million , $ 6.9 million and $ 5.7 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively , as non-cash amortization of stock compensation expense relating to the issuance of equity awards to our non-operations staff as described in note 14 to our consolidated financial statements . ( 4 ) depreciation and amortization includes $ 4.3 million , $ 2.0 million and $ 0.2 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively , of amortization of intangibles as described in note 5 to our consolidated financial statements . year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues .
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