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the fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets , while derivative instruments with a negative fair value are story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report . this discussion and analysis includes certain forward-looking statements that involve risks , uncertainties and assumptions . you should review the โ risk factors โ section 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 such forward-looking statements . see โ cautionary note regarding forward-looking statements โ at the beginning of this report . overview we offer a wide range of commercial , small business , consumer and municipal banking products and services . we conduct our consumer and small business deposit operations primarily through online channels on a nationwide basis and have no traditional branch offices . our residential mortgage products are offered nationwide primarily through an online direct-to-consumer platform and are supplemented with central indiana-based mortgage and construction lending . our consumer lending products are primarily originated on a nationwide basis over the internet as well as through relationships with dealerships and financing partners . our commercial banking products and services are delivered through a relationship banking model and include commercial real estate ( โ cre โ ) banking , commercial and industrial ( โ c & i โ ) banking , public finance , healthcare finance , small business lending and commercial deposits and treasury management . through our cre team , we offer single tenant lease financing on a nationwide basis in addition to traditional investor cre and construction loans primarily within central indiana and adjacent markets . to meet the needs of commercial borrowers and depositors located primarily in central indiana , phoenix , arizona and adjacent markets , our c & i banking team provides credit solutions such as lines of credit , term loans , owner-occupied cre loans and corporate credit cards . our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis . our healthcare finance team was established in conjunction with our strategic partnership with lendeavor , inc. , a san francisco-based technology-enabled lender to healthcare practices , and provides lending for healthcare practice finance or acquisition , acquisition or refinancing owner-occupied cre and equipment purchases . this portfolio segment is generally concentrated in the western and southwestern regions of the united states with plans to continue expanding nationwide . our commercial deposits and treasury management team works with the other commercial teams to provide deposit products and treasury management services to our commercial and municipal lending customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships . in 2018 , we identified small business as an area for potential growth in loans , revenue and deposits . we believe that we can differentiate ourselves from larger financial institutions through providing a full suite of services to emerging small businesses and entrepreneurs . we have begun adding experienced personnel to build out our capabilities in small business lending and u.s. government guaranteed lending programs , including loans originated under the small business administration ( โ sba โ ) guidelines . to accelerate our efforts in this area , on november 1 , 2019 , we acquired a loan portfolio , a servicing portfolio and a team of experienced small business lending servicing professionals from first colorado national bank . as of december 31 , 2019 , the principal balance of loans acquired was approximately $ 32.9 million and was comprised primarily of sba 7 ( a ) loans while the principal balance of the servicing portfolio acquired was approximately $ 104.0 million and consisted of guaranteed sba 7 ( a ) loans sold in the secondary market . we expect to continue adding personnel to build out a nationwide small business platform . story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > twelve months ended december 31 , 2018 vs. december 31 , 2017 due to changes in ( amounts in thousands ) volume rate net volume rate net interest income loans , including loans held-for-sale $ 21,689 $ 1,457 $ 23,146 $ 29,126 $ ( 509 ) $ 28,617 securities โ taxable 2,047 1,130 3,177 ( 212 ) 806 594 securities โ non-taxable 103 ( 318 ) ( 215 ) ( 49 ) 73 24 other earning assets 5,922 ( 83 ) 5,839 789 746 1,535 total 29,761 2,186 31,947 29,654 1,116 30,770 interest expense interest-bearing deposits 14,172 12,657 26,829 9,117 9,392 18,509 other borrowed funds 2,417 2,001 4,418 1,855 2,121 3,976 total 16,589 14,658 31,247 10,972 11,513 22,485 increase ( decrease ) in net interest income $ 13,172 $ ( 12,472 ) $ 700 $ 18,682 $ ( 10,397 ) $ 8,285 2019 v. 2018 net interest income for the twelve months ended december 31 , 2019 was $ 63.0 million , an increase of $ 0.7 million , or 1.1 % , compared to $ 62.3 million for the twelve months ended december 31 , 2018 . the increase in net interest income was the result of a $ 31.9 million , or 27.7 % , increase in total interest income to $ 147.4 million for the twelve months ended december 31 , 2019 compared to $ 115.5 million for the twelve months ended december 31 , 2018 . the increase in total interest income was partially offset by a $ 31.2 million , or 58.7 % , increase in total interest expense to $ 84.4 million for the twelve months ended december 31 , 2019 compared to $ 53.2 million for the twelve months ended december 31 , 2018 . story_separator_special_tag interest expense related to other borrowed funds also contributed to the increase in total interest expense , due to a $ 91.9 million , or 24.4 % , increase in the average balance of other borrowed funds for the twelve months ended december 31 , 2018 compared to the twelve months ended december 31 , 2017 , partially offset by an increase of 50 bps in the cost of other borrowed funds . net interest margin was 2.09 % for the twelve months ended december 31 , 2018 compared to 2.39 % for the twelve months ended december 31 , 2017 . the decrease in net interest margin was primarily due to a 47 bp increase in the cost of interest-bearing liabilities , partially offset by a 12 bp increase in the yield on total interest-earning assets . the increase in the cost of total interest-bearing liabilities was due primarily to an increase in average certificates of deposits , money market balances and an increase in the related costs of those deposits . the increase in the cost of these deposits was due primarily to the rise of short-term interest rates throughout 2018. the increase in the yield on interest-earning assets was due primarily to increases in the yields earned on securities and other earning assets , partially offset by a decrease in the yield earned on loans . the decrease in the yield earned on loans was due primarily to continued strong growth in the public finance portfolio which typically has lower tax-exempt interest rates , partially offset by higher yields in other commercial loan categories and residential mortgage loans resulting from higher market interest rates . noninterest income the following table presents noninterest income for the five most recent years . replace_table_token_5_th 30 2019 v. 2018 during the twelve months ended december 31 , 2019 , noninterest income totaled $ 16.8 million , representing an increase of $ 8.0 million , or 91.7 % , compared to $ 8.8 million for the twelve months ended december 31 , 2018 . the increase in noninterest income was driven primarily by an increase of $ 5.8 million , or 101.8 % , in revenue from mortgage banking activities , as well as a $ 1.6 million increase in gain on sale of loans , a $ 1.0 million increase in other noninterest income and a $ 0.2 million increase in loan servicing revenue , partially offset by a $ 0.5 million loss on sale of securities . the increase in mortgage banking revenue was due mainly to an increase in refinancing activity , as mortgage interest rates declined significantly during the year . the increase in gain on sale of loans was due to a higher volume of sales of single tenant lease financing loans and public finance loans , as well as our first sales of sba 7 ( a ) guaranteed loans . the increase in other noninterest income was mainly the result of the $ 0.5 million gain on the sale of the company 's visa class b shares and $ 0.4 million of income associated with the company 's temporary ownership of the land described in note 5 - premises and equipment . the $ 0.5 million loss on sale of securities during the twelve months ended december 31 , 2019 resulted from the company selling lower-yielding agency mortgage-backed and u.s. government agency securities with a book value of $ 30.6 million . the company did not sell any securities during the twelve months ended december 31 , 2018. the company also began earning loan servicing revenue from the acquired small business lending portfolio , recognizing $ 0.2 million in the fourth quarter 2019 . 2018 v. 2017 during the twelve months ended december 31 , 2018 , noninterest income totaled $ 8.8 million , representing a decrease of $ 1.8 million , or 16.9 % , compared to $ 10.5 million for the twelve months ended december 31 , 2017 . the decrease in noninterest income was primarily driven by a decrease of $ 2.1 million , or 27.0 % , in mortgage banking activities , partially offset by gains on sale of loans and other noninterest income . the decrease in revenue from mortgage banking activities was due primarily to decreases in mortgage held-for-sale origination and sales volumes , due to a decline in mortgage refinance activity , and a decrease in gain on sale margins . noninterest expense the following table presents noninterest expense for the five most recent years . replace_table_token_6_th 2019 v. 2018 noninterest expense for the twelve months ended december 31 , 2019 was $ 46.6 million , compared to $ 43.2 million for the twelve months ended december 31 , 2018 . the increase of $ 3.5 million , or 8.0 % , compared to the twelve months ended december 31 , 2018 was due primarily to a $ 3.8 million increase in salaries and employee benefits , a $ 1.1 million increase in premises and equipment expenses , a $ 0.8 million increase in other expenses and a $ 0.6 million increase in consulting and professional services , partially offset by decreases of $ 2.4 million in write-down of other real estate owned ( `` oreo '' ) and $ 0.7 million in marketing , advertising and promotion expense . the increase in salaries and employee benefits was primarily the result of an increase in incentive compensation associated with increased mortgage production and personnel growth . recent hires in the company 's commercial lending verticals and support areas were generally in higher skilled positions , which contributed to the increase in salaries and benefits expense . additionally , we had an increase in personnel due to our expansion in the small business lending area . the increase in premises and equipment was due primarily to higher software expenses . the increase in other expense was due primarily to higher oreo operating expense . the increase in consulting and professional services was due primarily to higher recruiting fees and third party loan review fees .
| results of operations refer to item 6 of this report for a summary of the company 's financial performance for the five most recent years . during the twelve months ended december 31 , 2019 , net income was $ 25.2 million , or $ 2.51 per diluted share , compared to net income of $ 21.9 million , or $ 2.30 per diluted share , for the twelve months ended december 31 , 2018 and net income of $ 15.2 million , or $ 2.13 per diluted share , for the twelve months ended december 31 , 2017 . the $ 3.3 million increase in net income for the twelve months ended december 31 , 2019 compared to the twelve months ended december 31 , 2018 was due primarily to an $ 8.0 million increase in noninterest income , a $ 0.7 million increase in net interest income and a $ 0.1 million decrease in income tax expense , but was partially offset by a $ 3.5 million increase in noninterest expense and a $ 2.1 million increase in provision for loan losses . 26 the increase in net income of $ 6.7 million for the twelve months ended december 31 , 2018 compared to the twelve months ended december 31 , 2017 was due primarily to an $ 8.3 million increase in net interest income , a $ 5.7 million decrease in income tax expense and a $ 1.0 million decrease in provision for loan losses , but was partially offset by a $ 6.5 million increase in noninterest expense and a $ 1.8 million decrease in noninterest income . during the twelve months ended december 31 , 2019 , return on average assets was 0.65 % , compared to 0.72 % for the twelve months ended december 31 , 2018 and 0.66 % for the twelve months ended december 31 , 2017 .
| 5,500 |
forward-looking statements fncb may from time to time make written or oral โ forward-looking statements , โ including statements contained in our filings with the securities and exchange commission ( โ sec โ ) , in reports to shareholders , and in our other communications , which are made in good faith by us pursuant to the โ safe harbor โ provisions of the private securities litigation reform act of 1995. these forward-looking statements include statements with respect to fncb 's beliefs , plans , objectives , goals , expectations , anticipations , estimates and intentions , that are subject to significant risks and uncertainties , and are subject to change based on various factors ( some of which are beyond our control ) . the words โ may , โ โ could , โ โ should , โ โ would , โ โ believe , โ โ anticipate , โ โ estimate , โ โ expect , โ โ intend , โ โ plan โ and similar expressions are intended to identify forward-looking statements . the following factors , among others , could cause fncb 's financial performance to differ materially from the plans , objectives , expectations , estimates and intentions expressed in such forward-looking statements : the strength of the united states economy in general and the strength of the local economies in our markets ; the effects of , and changes in trade , monetary , corporate tax and fiscal policies and laws , including interest rate policies of the board of governors of the federal reserve system ; inflation , interest rate , market and monetary fluctuations ; the timely development of and acceptance of new products and services ; the ability of fncb to compete with other institutions for business ; the composition and concentrations of fncb 's lending risk and the adequacy of our reserves to manage those risks ; the valuation of fncb 's investment securities ; the ability of fncb to pay dividends or repurchase common shares ; the ability of fncb to retain key personnel ; the impact of any pending or threatened litigation against fncb ; the marketability of shares of fncb and fluctuations in the value of fncb 's share price ; the effectiveness of fncb 's system of internal controls ; the ability of fncb to attract additional capital investment ; the impact of changes in financial services ' laws and regulations ( including laws concerning capital adequacy , taxes , banking , securities and insurance ) ; the impact of technological changes and security risks upon our information technology systems ; changes in consumer spending and saving habits ; the nature , extent , and timing of governmental actions and reforms , and the success of fncb at managing the risks involved in the foregoing and other risks and uncertainties , including those detailed in fncb 's filings with the sec . fncb cautions that the foregoing list of important factors is not all inclusive . readers are also cautioned not to place undue reliance on any forward-looking statements , which reflect management 's analysis only as of the date of this report , even if subsequently made available by fncb on its website or otherwise . fncb does not undertake to update any forward-looking statement , whether written or oral , that may be made from time to time by or on behalf of fncb to reflect events or circumstances occurring after the date of this report . critical accounting policies in preparing the consolidated financial statements , management has made estimates , judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of condition and results of operations for the periods indicated . actual results could differ significantly from those estimates . fncb 's accounting policies are fundamental to understanding management 's discussion and analysis of its financial condition and results of operations . management has identified the policies on the determination of the allowance for loan and lease losses ( โ alll โ ) , securities ' valuation and impairment evaluation , and the valuation of other real estate owned ( โ oreo โ ) and income taxes to be critical , as management is required to make subjective and or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available . the judgments used by management in applying the critical accounting policies discussed below may be affected by changes and or deterioration in the economic environment , which may impact future financial results . specifically , subsequent evaluations of the loan portfolio , in light of the factors then prevailing , may result in significant changes in the alll in future periods , and the inability to collect on outstanding loans could result in increased loan losses . in addition , the valuation of certain securities in fncb 's investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces resulting in significantly depressed market prices thus leading to impairment losses . 23 allowance for loan and lease losses management evaluates the credit quality of fncb 's loan portfolio on an ongoing basis , and performs a formal review of the adequacy of the alll on a quarterly basis . the alll is established through a provision for loan losses charged to earnings and is maintained at a level management considers adequate to absorb estimated probable losses inherent in the loan portfolio as of the evaluation date . loans , or portions of loans , determined by management to be uncollectible are charged off against the alll , while recoveries of amounts previously charged off are credited to the alll . story_separator_special_tag fair value is determined through external appraisals , current letters of intent , broker price opinions or executed agreements of sale , unless management determines that conditions exist that warrant an adjustment to the value . costs relating to the development and improvement of the oreo properties may be capitalized ; holding period costs and any subsequent changes to the valuation allowance are charged to expense as incurred . income taxes the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . judgment is required in assessing the future tax consequences of events that have been recognized in fncb 's consolidated financial statements or tax returns . fluctuations in the actual outcome of these future tax consequences could impact our consolidated financial condition or results of operations . fncb records an income tax provision or benefit based on the amount of tax , including alternative minimum tax , currently payable or receivable and the change in deferred tax assets and liabilities . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes . management conducts quarterly assessments of all available positive and negative evidence to determine the amount of deferred tax assets that will more likely than not be realized . fncb establishes a valuation allowance for deferred tax assets and records a charge to income if management determines , based on available evidence at the time the determination is made , that it is more likely than not that some portion or all of the deferred tax assets will not be realized . in evaluating the need for a valuation allowance , management considers past operating results , estimates of future taxable income based on approved business plans , future capital requirements and ongoing tax planning strategies . this evaluation process involves significant management judgment about assumptions that are subject to change from period to period depending on the related circumstances . the recognition of deferred tax assets requires management to make significant assumptions and judgments about future earnings , the periods in which items will impact taxable income , future corporate tax rates , and the application of inherently complex tax laws . the use of different estimates can result in changes in the amounts of deferred tax items recognized , which may result in equity and earnings volatility because such changes are reported in current period earnings . on december 31 , 2010 , management established a valuation allowance equal to 100 percent of fncb 's net deferred tax asset , excluding deferred tax assets and liabilities related to unrealized holding gains and losses on available-for-sale securities , and maintained such an allowance through december 31 , 2014. as part of its evaluation conducted as of december 31 , 2015 , management reviewed all the positive and negative evidence available at that time and concluded that significant positive evidence outweighed any negative evidence and the valuation allowance previously established for fncb 's deferred tax assets should be reversed , except for the amount established for charitable contribution carryovers . management 's subsequent evaluation as of december 31 , 2016 concluded that the previously established valuation allowance for charitable contributions should be reversed , and as such , fncb did not have any valuation allowances for deferred tax assets as of december 31 , 2016. fncb uses the current statutory tax rate of 34.0 % to value its deferred tax assets and liabilities . the trump administration and the u.s. congress are in the process of evaluating possible tax changes which may include a reduction in the u.s. corporate income tax rates . if corporate tax rates were reduced , management expects fncb would be required to record an initial charge against earnings to lower the carrying amount of its net deferred tax asset , and then , going forward , would record lower tax provisions on an ongoing basis . there is no specific proposal currently pending . management can not assess the effect a change in the corporate tax rate would have on fncb 's operating results or financial position at the present time . in connection with determining the income tax provision or benefit , management considers maintaining liabilities for uncertain tax positions and tax strategies that it believes contain an element of uncertainty . periodically , management evaluates each of fncb 's tax positions and strategies to determine whether a liability for uncertain tax benefits is required . as of december 31 , 2016 and 2015 , management determined that fncb did not have any uncertain tax positions or tax strategies and that no liability was required to be recorded . see note 2 , โ summary of significant accounting policies โ and note 10 , โ income taxes โ of the notes to consolidated financial statements included in item 8 , โ financial statements and supplementary data โ to this annual report on form 10-k for additional information about the accounting for income taxes . 25 new authoritative accounting guidance and accounting guidance to be adopted in future periods for information regarding new authoritative accounting guidance adopted by fncb during the year ended december 31 , 2016 and accounting guidance that fncb will adopt in future periods , see note 2 , โ summary of significant accounting policies โ of the notes to consolidated financial statements included in item 8 , โ financial statements and supplementary data โ to this annual report on form 10-k. executive overview the following overview should be read in conjunction with this md & a in its entirety .
| results of operations fncb reported earnings in 2016 of $ 6.3 million , or $ 0.38 per diluted common share , a decrease of $ 29.5 million , or 82.4 % , compared to $ 35.8 million , or $ 2.17 per diluted common share , in 2015. the decrease in net income was largely attributable to the reversal of the deferred tax asset ( โ dta โ ) valuation allowance of $ 30.0 million in 2015 , resulting in an income tax benefit of $ 27.8 million for the year ended december 31 , 2015. the decrease in 2016 net income compared to 2015 attributable to the reversal was offset in part by strong improvement in net interest income and continued reductions in non-interest expense levels . net interest income improved $ 3.1 million , or 11.5 % , to $ 30.5 million in 2016 from $ 27.4 million in 2015. the improvement resulted primarily from solid growth in interest earning assets , higher yields on taxable loans and investments and reduced borrowing costs . non-interest expense decreased $ 0.9 million , or 3.2 % , to $ 27.6 million in 2016 from $ 28.5 million in 2015. fncb experienced significant reductions in occupancy expense , regulatory assessments and insurance costs . in addition , fncb recorded $ 0.8 million in non-recurring expense related to a legal settlement in 2015. partially offsetting these cost reductions were increases in salaries and employee benefit costs and bank shares tax .
| 5,501 |
the transaction price is allocated to each performance obligation on a relative stand-alone selling price basis , for which the company recognizes revenue as or when the performance obligations under the contract are satisfied . in validating its estimated stand-alone selling price , the company evaluates whether changes in the key assumptions used to determine its estimated stand-alone selling price will have a significant effect on the allocation of arrangement consideration between performance obligations . amounts received prior to revenue recognition are recorded as deferred revenue . amounts expected to be recognized as revenue within the 12 months following the balance sheet story_separator_special_tag our management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this annual report on form 10-k , which have been prepared by us in accordance with accounting principles generally accepted in the united states ( u.s. gaap ) and with regulation s-x promulgated under the securities exchange act of 1934 , as amended . this discussion and analysis should be read in conjunction with these consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many important factors , including those factors set forth in part i , item 1a . โ risk factors โ of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview story_separator_special_tag details of the program and overall strategy . zeno is currently in the phase 1/2 enrgy trial to assess the safety and anti-tumor activity of zeno monotherapy in nrg1+ cancers . we believe that zeno continues to demonstrate encouraging single agent activity in nrg1+ cancers and has been observed to be well tolerated , consistent with previously reported safety data in the overall patient population treated with zeno monotherapy . in august 2020 , zeno was granted orphan drug designation by the u.s. fda for pancreatic cancer and in january 2021 , fast track designation for the treatment of patients with metastatic solid tumors harboring nrg1 gene fusions that have progressed on standard-of-care therapy . mcla-158 ( lgr5 x egfr biclonics ยฎ ) : solid tumors phase 1 trial continues : dose expansion in patients with gastro-esophageal and head-and-neck cancers we are developing mcla-158 for the potential treatment of solid tumors . our phase 1 clinical trial of mcla-158 is ongoing in the dose expansion phase . on january 15 , 2021 , we presented in a poster session interim clinical data from the phase 1 dose escalation study of mcla-158 at the american society of clinical oncology 2021 gastrointestinal cancers symposium . as of a data cut-off of september 2020 , mcla-158 was administered to 33 patients over 11 dose levels ( 5-1500 mg , flat dose ) , a heavily pretreated population having received a median of four lines of prior therapy . as of the cut-off date , mcla-158 was observed to be well tolerated , and no dose limiting toxicities occurred . the recommended phase 2 dose was established at 1500 mg administered intravenously once every two weeks . enrollment of patients with gastro-esophageal and head-and-neck cancers continues at this dose in the expansion phase of the open-label , multicenter trial , and preliminary evidence of antitumor activity has been observed . mcla-145 ( cd137 x pd-l1 biclonics ยฎ ) : solid tumors phase 1 trial advancing with clinical update planned for 2h 2021 mcla-145 is currently being evaluated in a phase 1 open-label , multicenter dose escalation study , including a safety dose expansion phase , in patients with solid tumors . mcla-145 is the first drug candidate co-developed under our global collaboration and license agreement with incyte corporation ( incyte ) , which permits the development and commercialization of up to 11 bispecific and monospecific antibodies from our biclonicsยฎ platform . merus retains full rights to develop and commercialize mcla-145 , if approved , in the united states , and incyte is responsible for its development and commercialization outside the united states . we plan to present a clinical update at a major medical conference in the second half of 2021. mcla-129 ( egfr x c-met biclonics ยฎ ) : solid tumors first patient planned to be dosed in 2021 we plan to evaluate mcla-129 in a phase 1 open-label , multicenter dose escalation study , including a safety dose expansion phase , for the treatment of various solid tumors , with a plan to dose a first patient in the united states in 2021. mcla-129 is subject to collaboration and license agreement , which permits betta pharmaceuticals co. ltd. ( betta ) to exclusively develop mcla-129 in china , while merus retains full ex-china rights . 82 in january 2021 , betta announced that the chinese national medical products administration had accepted its investigational new drug application of mcla-129 injection . impact of covid-19 pandemic the current covid -19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees , communities , clinical trial sites and business operations , as well as the u.s. and dutch economies and international financial markets . while we are currently continuing our ongoing clinical trials , the covid-19 pandemic and related precautions have directly or indirectly impacted enrollment , new , planned clinical trial site openings , patient visits , and on-site monitoring of our clinical trials and source verification of clinical data required for presentation of clinical data for zenocutuzumab , mcla-158 and mcla-145 , our conclusion of the mcla-117 trial , and anticipated commencement of the clinical trial for mcla-129 . story_separator_special_tag operating expenses the following is a comparison of operating expenses for the years ended december 31 , 2020 and 2019 : replace_table_token_2_th research and development expense research and development costs consist principally of the costs associated with our research and development activities , conducting pre-clinical studies and clinical trials , and activities related to our regulatory filings . our research and development expenses consist of : salaries for research and development staff and related expenses , including share-based compensation expenses ; expenses incurred under agreements with contract research organizations ( cros ) contract manufacturing organizations , and consultants that conduct and support clinical trials and pre-clinical studies ; costs to develop product candidates , including raw materials and supplies , product testing , and facility related expenses ; and amortization and depreciation of tangible and intangible fixed assets used to develop our product candidates . note that we do not allocate employee-related costs , depreciation , rental and other indirect costs to specific research and development programs because these costs are deployed across multiple programs under research and development and , as such , are separately classified as unallocated research and development expenses . research and development expense for the year ended december 31 , 2020 increased $ 14.4 million as compared to the year ended december 31 , 2019 , primarily as a result of an increase in manufacturing related costs , and higher pre-clinical research and development-related costs related to our programs , particularly increases in costs for zenocutuzumab , and a $ 2.0 million milestone earned by betta incurred in the fourth quarter , offset by decreases in costs for mcla-145 . research and development activities are central to our business model . we expect research and development costs to increase significantly for the foreseeable future as our development programs progress , as we continue to support the clinical trials of our antibody candidates as treatments for various cancers and as we move these candidates into additional clinical trials . there are 84 numerous factors associated with the successful commercialization of any of our antibody candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control may impact our clinical development programs and plans . general and administrative expense general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , intellectual property , business development and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses , travel expenses and professional fees for auditing , tax and legal services , including intellectual property and general legal services . general and administrative expense for the year ended december 31 , 2020 increased $ 1.7 million as compared to the year ended december 31 , 2019 , primarily as a result increases in stock-based compensation , insurance , facilities , intellectual property related costs and other items , partially offset by a decrease in consulting and personnel costs . we expect general and administrative expenses to increase as we grow as a company , driven by the need to support a growing workforce , engaging in financing transactions , establishing and maintaining our intellectual property rights , fulfilling our compliance requirements as a public company and related legal costs . other income , net the following is a comparison of other income , net , for the years ended december 31 , 2020 and 2019 : replace_table_token_3_th other income , net consists of interest earned on our cash and cash equivalents held on account , accretion of investment earnings and net foreign exchange gains or losses on our foreign denominated cash , cash equivalents and marketable securities . income tax expense the following is a comparison of income tax expense for the years ended december 31 , 2020 and 2019 : replace_table_token_4_th we are subject to income taxes in the netherlands and the u.s. our current and deferred tax provision represents taxable income attributed to our u.s. operations as a consequence of allocating income to that jurisdiction . no current or deferred provision for income taxes has been made for income taxes in the netherlands due to losses for tax purposes . further , given a history of losses in the netherlands , no deferred tax assets in excess of deferred tax liabilities are recognized as it is not more likely than not that they will be recovered . net loss net loss for the year ended december 31 , 2020 was $ 85.5 million , compared to $ 55.2 million for the year ended december 31 , 2019. the increase in net loss was primarily due to the decrease in collaboration revenue and increases in research and development and general and administrative expenses discussed above . 85 liquidity and capital resources cash requirements we require external sources of financing to fund our operations . since inception through december 31 , 2020 , we have raised an aggregate of $ 566.9 million , of which $ 125.4 million was non-equity funding through our collaboration agreements , $ 330.8 million was from the sale of common shares and $ 110.7 million was from private funding sources prior to our initial public offering . as of december 31 , 2020 , we had $ 207.8 million in cash , cash equivalents and marketable securities that are available to fund our current and future operations . in addition to our existing cash , cash equivalents and marketable securities , we may receive research and development co-funding and are eligible to earn a significant amount of milestone payments under our collaboration agreements . our ability to earn these payments and the timing of earning these payments is dependent upon the outcome of our research and development activities and is uncertain at this time .
| general we are a clinical-stage oncology company developing innovative antibody therapeutics . our pipeline of full-length human multispecific antibody candidates are generated from our proprietary technology platforms , which are able to generate a diverse array of antibody binding domains , or fabs , against virtually any target . each antibody binding domain consists of a target-specific heavy chain paired with a common light chain . multiple binding domains can be combined to produce novel bispecific and trispecific antibodies that bind to a wide range of targets and display novel and innovative biology . these platforms , referred to as biclonics ยฎ and triclonics tm , allow us to generate large numbers of diverse panels of bispecific and trispecific antibodies , respectively , which can then be functionally screened in large-scale cell-based assays to identify those unique molecules that possess novel biology , which we believe are best suited for a given therapeutic application . further , by binding to multiple targets , biclonics ยฎ and triclonics tm may be designed to provide a variety of mechanisms of action , including simultaneously blocking receptors that drive tumor cell growth and survival and mobilizing the patient 's immune response by engaging t cells , and or activating various killer cells to eradicate tumors . our technology platforms employ an assortment of patented technologies and techniques to generate human antibodies . we utilize our patented memo ยฎ mouse to produce a host of antibodies with diverse heavy chains and a common light chain that are capable of binding to virtually any antigen target . we use our patented heavy chain and ch3 domain dimerization technology to generate substantially pure bispecific and trispecific antibodies . we also employ our patented spleen to screen ยฎ technology to efficiently screen panels of diverse heavy chains , designed to allow us to rapidly identify biclonics ยฎ and triclonics tm therapeutic candidates with differentiated modes of action for pre-clinical and clinical testing .
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you should read the following discussion together with the sections entitled โ risk factors , โ โ business โ and the audited consolidated financial statements , including the related notes , appearing elsewhere in this annual report on form 10-k. all references to years , unless otherwise noted , refer to our fiscal years , which end on december 31. as used in this annual report on form 10-k , unless the context suggests otherwise , โ we , โ โ us , โ โ our , โ โ the company โ or โ osmotica โ refer to osmotica pharmaceuticals plc . this discussion and analysis is based upon the historical financial statements of osmotica pharmaceuticals plc included in this annual report on form 10-k. prior to the reorganization ( as defined in the accompanying notes to consolidated financial statements ) , osmotica pharmaceuticals plc was a subsidiary of osmotica holdings s.c.sp . and had no material assets and conducted no operations other than activities incidental to its formation , the reorganization and its initial public offering . we are a fully integrated biopharmaceutical company focused on the development and commercialization of specialty products that target markets with underserved patient populations . in 2019 , we generated total revenues across our existing portfolio of promoted specialty neurology and women 's health products , as well as our non-promoted products , which are primarily complex formulations of generic drugs . in 2017 , we received regulatory approval from the fda , for m-72 ( methylphenidate hydrochloride extended-release tablets , 72 mg ) for the treatment of attention deficit hyperactivity disorder , or adhd , in patients aged 13 to 65 , and , in 2018 , we received regulatory approval from the fda for osmolex er ( amantadine extended-release tablets ) for the treatment of parkinson 's disease and drug-induced extrapyramidal reactions , which are involuntary muscle movements caused by certain medications , in adults . we launched m-72 in the second quarter of 2018 and completed the launch of osmolex er in january 2019. in addition , we have a late-stage development pipeline highlighted by two nda product candidates , both of which have completed phase iii clinical trials : rvl-1201 ( oxymetazoline hydrochloride ophthalmic solution , 0.1 % ) designed for the treatment of acquired blepharoptosis , or droopy eyelid , and arbaclofen extended-release tablets designed for the alleviation of signs and symptoms of spasticity resulting from multiple sclerosis . in november 2019 , an nda for rvl-1201 was accepted for filing by the fda with a goal date for fda decision on the application of july 16 , 2020. our core competencies span drug development , manufacturing and commercialization . our team of sales representatives support the ongoing commercialization of our existing promoted product portfolio as well as the launch of new products . as of december 31 , 2019 , we actively promoted six products : osmolex er , m-72 , lorzone ( chlorzoxazone scored tablets ) and conzip ( tramadol hydrochloride extended-release capsules ) in specialty neurology and ob complete , our family of prescription prenatal dietary supplements , and divigel ( estradiol gel , 0.1 % ) in women 's health . as of december 31 , 2019 , we sold a portfolio consisting of approximately 30 non-promoted products . the cash flow from these non-promoted products has contributed to our investments in research and development and business development activities . some of our existing products benefit from several potential barriers to entry , including intellectual property protection , formulation and manufacturing complexities , and u.s. drug enforcement administration , or dea , regulation and quotas for api . our non-promoted products compete in generic markets where barriers to entry are lower than markets in which certain of our promoted products compete . generic products generally contribute most significantly to revenues and gross margins at the time of launch or in periods where no or a limited number of competing products have been approved and launched . in the united states , the consolidation of buyers in recent years has increased competitive pressures on the industry as a whole . as such , the timing of new product launches can have a significant impact on a company 's financial results . the entrance into the market of additional competition can have a negative impact on the pricing and volume of the affected products which are outside the company 's control . in particular , both methylphenidate er tablets and venlafaxine er tablets , or vert , have experienced , and are expected to continue to experience , significant pricing erosion due to additional competition from other generic pharmaceutical companies . this generic pricing erosion has resulted in lower net product sales , 87 revenue and profitability from methylphenidate er tablets and vert in 2019 , and this erosion is expected to continue in subsequent years . additionally , an ab-rated generic of lorzone was approved on november 27 , 2019 , which may result in pricing and market share declines . we are focused on continuing the transition of our business to a specialty pharmaceutical company that develops and commercializes proprietary products . the company 's research and development pipeline highlighted by rvl-1201 and arbaclofen extended release tablets , is the primary driver of this strategy . in 2017 , we acquired the worldwide rights to rvl-1201 and have completed two phase iii clinical trials of rvl-1201 in the united states for the treatment of acquired blepharoptosis . financial operations overview segment information we currently operate in one business segment focused on the development and commercialization of pharmaceutical products that target markets with underserved patient populations . we are not organized by market and are managed and operated as one business . we also do not operate any separate lines of business or separate business entities with respect to our products . a single management team reports to our chief operating decision maker who comprehensively manages our entire business . story_separator_special_tag during 2018 we recognized impairments of finite-lived developed technology assets of $ 10.3 million consisting of the write down to fair value of nifedipine and khedezla of $ 6.2 million and $ 4.1 million , respectively . nifedipine was impaired due to a greater competitive environment which reduced the anticipated royalty revenue from our license partner , and in late 2018 , we made the decision to discontinue commercialization of khedezla and recognized an impairment charge of $ 4.1 million . in december 2018 , we made the decision to cease development of generic product a , an indefinite-lived in-process r & d asset which resulted in an impairment charge of $ 7.6 million . in december 2018 , circumstances and events related to pricing on certain of our generic assets , together with our decision to discontinue development and commercialization of khedezla and generic product a , made it more likely than not that goodwill had become impaired . as a result , we performed an assessment of goodwill as of december 31 , 2018. based on the results of this assessment , we recognized an impairment charge of $ 86.3 million for the year ended december 31 , 2018. the following table details the impairment charges for such periods ( in thousands ) : year ended december 31 , 2019 impairment asset/asset group charge reason for impairment product rights osmolex er $ 17,730 lower than expected volume methylphenidate er 128,113 lower revenue due to generic competition . corvite 190 discontinued formulation 146,033 developed technology venlafaxine er 72,995 revenue underperforming expectations due to new generic market entrants . distribution rights venlafaxine 64,719 revenue underperforming expectations due to new generic market entrants . total impairment charges for year ended december 31 , 2019 $ 283,747 92 replace_table_token_6_th ( 1 ) assets were fully impaired as of december 31 , 2018. impairment of fixed assets fixed asset impairments for the years ended december 31 , 2019 and 2018 were each $ 0.1 million due to the abandonment of information technology and warehouse assets in 2019 and the abandonment of assets at a warehouse we ceased leasing , the termination of a capital project that had not reached completion , and the fair market value for equipment being lower than its carrying value in 2018. interest expense and amortization of debt discount interest expense and amortization of debt discount decreased by $ 2.9 million in the year ended december 31 , 2019 to $ 17.9 million as compared to $ 20.8 million in the year ended december 31 , 2018. the decrease in borrowing costs reflects lower levels of indebtedness following the prepayment of debt in the fourth quarter of 2018 , and lower interest rates . other nonโoperating ( income ) expenses , net other non-operating ( income ) expense was $ ( 0.9 ) million and $ ( 0.7 ) million for the years ended december 31 , 2019 and 2018 , respectively . income tax benefit year ended december 31 , 2019 2018 ( dollars in thousands ) income tax benefit $ 27,121 $ 8,983 effective tax rate 9.1 % 7.6 % income tax benefit increased by $ 18.1 million in the year ended december 31 , 2019 to $ 27.1 million as compared to $ 9.0 million in the year ended december 31 , 2018 . 93 liquidity and capital resources our principal sources of liquidity are cash generated from operations and amounts available to be drawn under our revolving credit facility , or revolver . our primary uses of cash are to fund operating expenses , product development costs , capital expenditures , debt service payments , as well as strategic business and product acquisitions . as of december 31 , 2019 , we had cash and cash equivalents of $ 95.9 million and borrowing availability under the revolver of $ 50.0 million . in january 2020 completed a follow-on equity offering generating $ 31.8 million of net proceeds , after giving effect to underwriting discounts and commissions and offering expenses . we also had $ 271.4 million aggregate principal amount borrowed under our term loans . during the year ended december 31 , 2019 we generated $ 33.6 million of cash from operations , and during the year ended december 31 , 2018 , we generated cash flows from operations of $ 37.6 million . we expect to generate positive cash flow from operations in the future through sales of our existing products , launches of products currently in our development pipeline and sales derived from in-licenses or acquisitions of other products ; however , we expect our levels of cash flow generated to be lower or negative in the near term due to price erosion on methylphenidate er and vert and new product launch expenses . as of december 31 , 2019 , the interest rate was 5.79 % and 6.29 % for our term a loan and term b loan , respectively . as of december 31 , 2018 , the interest rate was 6.09 % and 6.59 % for our term a loan and term b loan , respectively . at december 31 , 2019 , there were no outstanding borrowings or outstanding letters of credit under the revolver . availability under the revolver as of december 31 , 2019 was $ 50.0 million . on january 13 , 2020 we completed a follow-on equity offering and allotted 6,900,000 ordinary share at a public offering price of $ 5.00 per share . the number of shares issued in this offering reflected the exercise in full of the underwriters ' option to purchase 900,000 ordinary shares . the aggregate net proceeds from the follow-on offering were approximately $ 31.8 million after deducting underwriting discounts and commissions and offering expenses . proceeds from the offering were used for working capital and general corporate purposes . on october 22 , 2018 , we completed our ipo , in which we issued and allotted 7,647,500 ordinary shares at a public offering price of $ 7.00 per share .
| results of operations comparison of years ended december 31 , 2019 and 2018 financial operations overview the following table presents revenues and expenses for the years ended december 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_2_th 89 revenue the following table presents total revenues for the years ended december 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_3_th total revenues decreased by $ 23.7 million to $ 240.0 million for the year ended december 31 , 2019 , as compared to $ 263.7 million for the year ended december 31 , 2018 primarily due to a decrease in net product sales . net product sales . net product sales decreased by $ 25.9 million to $ 235.5 million for the year ended december 31 , 2019 , as compared to $ 261.4 million for the year ended december 31 , 2018. net product sales of methylphenidate er ( including m-72 , which was launched in the second quarter of 2018 ) decreased 43 % due to additional competitors entering the market , resulting in significantly lower net selling prices , partially offset by lower than estimated product returns . product sales from vert increased by 14 % for the year ended december 31 , 2019. during 2019 a competing dosage strength was launched which negatively affected sales volumes , however volume decreases were more than offset by lower than estimated product returns and government rebates resulting in higher realized net selling prices in the period . additionally , during the third and fourth quarter of 2019 , two additional generic forms of vert from competitors were approved but not launched . we expect that the additional competition for both methylphenidate er and vert from these competitors , as well as additional generic product approvals and launches in the future , if any , will continue to negatively affect our sales of these products in 2020 and future years .
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further , the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon , among other things , the existing regulatory environment , industry conditions , market conditions and prices , and our assumptions as of such date . we may change our intentions , at any time and without notice , based upon any changes in such factors , in our assumptions or otherwise . unless the context indicates otherwise , as used in the following discussion , โ company โ , โ we , โ โ us , โ and โ our , โ refer to ( i ) china green agriculture , inc. ( โ green nevada โ ) , a corporation incorporated in the state of nevada ; ( ii ) green agriculture holding corporation ( โ green new jersey โ ) , a wholly-owned subsidiary of green nevada incorporated in the state of new jersey ; ( iii ) shaanxi techteam jinong humic acid product co. , ltd. ( โ jinong โ ) , a wholly-owned subsidiary of green new jersey organized under the laws of the prc ; ( iv ) xi'an hu county yuxing agriculture technology development co. , ltd. ( โ yuxing โ ) , a variable interest entity ( โ vie โ ) controlled by jinong in the prc ; ( v ) beijing gufeng chemical products co. , ltd. ( โ gufeng โ ) , a wholly-owned subsidiary of jinong in the prc , and ( vi ) beijing tianjuyuan fertilizer co. , ltd. ( โ tianjuyuan โ ) , a wholly-owned subsidiary of gufeng in the prc . unless the context otherwise requires , all references to ( i ) โ prc โ and โ china โ are to the people 's republic of china ; ( ii ) โ u.s . dollar , โ โ $ โ and โ us $ โ are to united states dollars ; and ( iii ) โ rmb โ , โ yuan โ and renminbi are to the currency of the prc or china . overview we are engaged in research , development , production and sale of various types of fertilizers and agricultural products in the prc through our wholly-owned chinese subsidiaries , jinong and gufeng ( including gufeng 's subsidiary tianjuyuan ) , and our vie , yuxing . our primary business is fertilizer products , specifically humic-acid based compound fertilizer produced by jinong and compound fertilizer , blended fertilizer , organic compound fertilizer , slow-release fertilizer , highly-concentrated water-soluble fertilizer and mixed organic-inorganic compound fertilizer produced by gufeng . in addition , through yuxing , we develop and produce various agricultural products , such as top-grade fruits , vegetables , flowers and colored seedlings . for financial reporting purposes , our operations are organized into three business segments : fertilizer products ( jinong ) , fertilizer products ( gufeng ) and agricultural products production ( yuxing ) . the fertilizer business conducted by jinong and gufeng generated approximately 98.4 % ,98.4 % and 98.4 % of our total revenues for the years ended june 30 , 2015 , 2014 and 2013 , respectively . yuxing serves as a research and development base for our fertilizer products . previously , jintai had served in that capacity as well . however , as reported in our previous annual and quarterly reports , as a result of environmental degradation that harmed jintai 's flora , we started to relocate jintai 's facilities to yuxing . as a result , jintai has not been in operation since the ongoing relocation commenced in march 1 , 2012 and for the year ended june 30 , 2015 , the relocation and dissolution process were completed . 43 fertilizer products as of june 30 , 2015 , we had developed and produced a total of 459 different fertilizer products in use , of which 127 were developed and produced by jinong and 332 by gufeng . below is a table that shows the metric tons of fertilizer sold by jinong and gufeng and the revenue per ton for the periods indicated : replace_table_token_12_th replace_table_token_13_th for the year ended june 30 , 2015 , we sold approximately 361,779 metric tons of fertilizer products , as compared to 316,450 metric tons for the year ended june 30 , 2014. for the year ended june 30 , 2015 , jinong sold approximately 74,351 metric tons of fertilizer products , as compared to 60,629 metric tons for the year ended june 30 , 2014. this increase was mainly attributable to the greater sales of humic acid fertilizer products during this period as a result of the increased number of our distributors and our marketing efforts . for the year ended june 30 , 2015 , gufeng sold approximately 287,428 metric tons of fertilizer products , as compared to 255,821 metric tons for the year ended june 30 , 2014. the increase was mainly due to the large amount sales to china national agricultural means of production group corporation ( `` sino-agri group '' ) during the last year compared with the same period last year . our sales of fertilizer products to five provinces accounted for approximately 53.1 % of our fertilizer revenue for year ended june 30 , 2015. specifically , the provinces and their respective percentage contributed to our fertilizer revenues were : beijing ( 26.2 % ) , shaanxi ( 10.7 % ) , hebei ( 5.8 % ) , guangdong ( 5.6 % ) and heilongjiang ( 4.9 % ) . as of june 30 , 2015 , we had a total of 1,292 distributors covering 27 provinces , four autonomous regions and three central government-controlled municipalities in china . jinong had 1,010 distributors in china . jinong 's sales are not dependent on any single distributor or any group of distributors . jinong 's top five distributors accounted for 1.5 % of its fertilizer revenues for the year ended june 30 , 2015. gufeng had 282 distributors , including some large state-owned enterprises . story_separator_special_tag cooperation with 900lh.com the company 's affiliate , 900lh.com food co. , ltd. ( `` 900lh.com '' , previously announced as xi'an gem grain co. , ltd ) has entered into an agreement to jointly build an โ agricultural comprehensive development base project โ ( the โ project โ ) with the shiquan county government in china on january 16 , 2015. the total investment on the project is expected to be three billion rmb ( about 480 million usd ) . 900lh.com is a subsidiary of xi'an techteam investment holding ( group ) co. , ltd , ( `` techteam investment '' ) . techteam investment is a holding company owned and controlled by mr. tao li , chairman and ceo of the company . 900lh.com focuses on the production and sales of high-end organic agricultural products . it has contracted with more than 200 planting and breeding bases globally and prefers to utilize and promote the company 's fertilizers . the scope of the project includes the development of panlong valley farm of 900lh.com , where the company showcases its products . panlong valley is located at shiquan county , shaanxi province , 150 miles southwest of xi'an . during the first phase of the foregoing project , 900lh.com will focus on building an ecological farm base . the base will include leisure farming , sightseeing , and sales of agriculture products . the total investment of the first phase would be one billion rmb ( 160 million usd approximately ) including the cost of relocating local residents . in the second phase , the ecological farm will develop into a modern agriculture farm . the modern farm 's operation will include but not limit to , planting , breeding , agricultural products processing , and tourism . the investment of the second phase would be two billion rmb ( 320 million usd approximately ) . the company and 900lh.com have entered into an agreement that the company 's fertilizers will be exclusively supplied to all plants and agricultural products in the project and 900lh.com will promote the company 's fertilizers to all its affiliated farms . in the project , 900lh.com , the company , and the government in shaanxi province will collaborate closely . a new business model the company has made progress on its proprietary online sales platform of agriculture basic materials . distributors of the company will be able to set up stores on the platform to sell the company 's products and other types of products such as pesticides and seeds they distribute for various manufacturers . the company will compensate the distributors for their online sales performance of the company 's products accordingly . the platform began operating in march 2015 . 46 story_separator_special_tag or 1.2 % of gufeng 's net sales for the year ended june 30 , 2014. the selling expenses of jinong for the year ended june 30 , 2015 were $ 7,812,595 or 5.9 % of jinong 's net sales , as compared to selling expenses of $ 7,457,186 , or 6.3 % of jinong 's net sales for the year ended june 30 , 2014. the increase in jinong 's selling expenses was due to jinong 's expanded marketing efforts and the increase in shipping costs which was caused by the increased sales . selling expenses โ amortization of deferred assets our selling expenses - amortization of our deferred assets were $ 41,902,052 , or 15.8 % , of net sales for the year ended june 30 , 2015 , as compared to $ 27,390,957 or 11.7 % of net sales for the year ended june 30 , 2014 , an increase of $ 14,511,095 , or 53.0 % . this increase was due to the increased amortization of the deferred tax assets for the year ended june 30 , 2015 related to our business strategy implemented since december 2013 that assists distributors in certain marketing efforts and develops standard stores to expand our competitive advantages and market shares . general and administrative expenses general and administrative expenses consisted primarily of related salaries , rental expenses , business development , depreciation and travel expenses incurred by our general and administrative departments and legal and professional expenses including expenses incurred and accrued for certain litigations . general and administrative expenses were $ 11,330,440 , or 4.3 % of net sales for the year ended june 30 , 2015 , as compared to $ 14,515,884 , or 6.2 % , of net sales for the year ended june 30 , 2014 , a decrease of $ 3,185,444 , or 21.9 % . the decrease in general and administrative expenses was mainly due to the related expense in the stock compensation awarded to the employees which amounted to $ 5,186,870 for the year ended june 30 , 2015 as compared to $ 8,119,724 for the year ended june 30 , 2014. total other expenses total other expenses consisted of income from subsidies received from the prc government , interest income , interest expenses and bank charges . total other expense for the year ended june 30 , 2015 was $ 1,350,983 , as compared to $ 1,742,019 for the year ended june 30 , 2014 , a decrease in expense of $ 391,036 , or 22.4 % . the decrease in total other expense partly resulted from an increase in interest income by $ 162,201 or 115.6 % , to $ 302,511 during the year ended june 30 , 2015 as compared to $ 140,310 during the year ended june 30 , 2014 , due to the increased deposit in the banks as a result of our increased net income . there is also a $ 59,176 other income during the year ended june 30 , 2015 , as compared to a loss of $ 501,500 during the year ended june 30 , 2014 , the difference was mainly due to the decrease in non operating expense from $ 362,866 during the year ended june 30 , 2014 to $ 8,767 , as a result of our cost-control process .
| results of operations year ended june 30 , 2015 compared to the year ended june 30 , 2014. for the years ended june 30 replace_table_token_14_th net sales total net sales for the year ended june 30 , 2015 were $ 263,354,288 , an increase of $ 29,952,200 or 12.8 % , from $ 233,402,088 for the year ended june 30 , 2014. this increase was due to an increase in gufeng 's and jinong 's net sales . for the year ended june 30 , 2015 , jinong 's net sales increased $ 12,649,135 , or 10.7 % , to $ 130,355,168 from $ 117,706,033 for the year ended june 30 , 2014. this increase was mainly attributable to the greater sales of humic acid fertilizer products including our liquid and powder fertilizers during this period as a result of our aggressive marketing strategy and the increased number of our distributors . 47 for the year ended june 30 , 2015 , gufeng 's net sales were $ 128,675,606 , an increase of $ 16,664,373 , or 14.9 % from $ 112,011,233 for the year ended june 30 , 2014. the increase was mainly attributable to gufeng 's expanding of its marketing promotion strategy , especially the large amount sale to sino-agri group during the last fiscal year . for the year ended june 30 , 2015 , yuxing 's net sales were $ 4,323,514 , an increase of $ 638,692 or 17.3 % , from $ 3,684,822 for the year ended june 30 , 2014. the increase was mainly attributable to the increase in market demand and the higher prices on yuxing 's top grade flowers during the last fiscal year . cost of goods sold total cost of goods sold for the year ended june 30 , 2015 was $ 159,398,386 , an increase of $ 17,195,071 , or 12.1 % , from $ 142,203,315 for the year ended june 30 , 2014. this increase was mainly due to the 13.7 % increase in net sales .
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and part i , item 1a , ยrisk factors.ย overview we believe intrexon is a leader in the field of synthetic biology , an emerging and rapidly evolving discipline that applies engineering principles to biological systems . using our suite of proprietary and complementary technologies , we design , build and regulate gene programs , which are dna sequences that consist of key genetic components . a single gene program or a complex , multi-genic program are fabricated and stored within a dna vector . vectors are segments of dna used as a vehicle to transmit genetic information . dna vectors can , in turn , be introduced into cells in order to generate a simple or complex cellular system , which are the basic and complex cellular activities that take place within a cell and the interaction of those systems in the greater cellular environment . it is these genetically modified cell systems that can be used to produce proteins , produce small molecules , or serve as cell-based products , which enable the development of new and improved products and manufacturing processes across a variety of end markets , including healthcare , food , energy and environmental sciences . intrexon 's synthetic biology capabilities include the ability to precisely control the amount , location and modification of biological molecules to control the function and output of living cells and optimize for desired results at an industrial scale . we have devised our business model to bring many different commercial products to market through the formation of exclusive channel collaborations , or eccs , with collaborators that have expertise within specific industry segments . in our eccs , we provide expertise in the engineering , creation and modification of gene programs and cellular systems , and our collaborators are responsible for providing market and product development expertise , as well as regulatory , sales and marketing capabilities . generally , our collaborators compensate us through payment of technology access fees , royalties , milestones and reimbursement of certain costs . this business model allows us to leverage our capabilities and capital across a broader landscape of product opportunities and end markets than we would be capable of addressing on our own . 52 in certain strategic circumstances , we may enter into a joint venture with an ecc collaborator . in that event , we will enter into an ecc with a joint venture entity and may contribute access to our technology , cash or both into the joint venture which we will jointly control with our ecc collaborator . pursuant to a joint venture agreement , we may be required to contribute additional capital to the joint venture , and we may be able to receive a higher financial return than we would normally receive from an ecc to the extent that we and our ecc collaborator are successful in developing one or more products . we recently executed the first three such joint venture agreements : s & i ophthalmic , llc , or s & i ophthalmic , which is a joint venture with a subsidiary of sun pharmaceutical industries ltd. , or sun pharmaceutical subsidiary , an international specialty pharmaceutical company focused on chronic diseases , ovaxon , llc , or ovaxon , which is a joint venture with ovascience , inc. , or ovascience , a life sciences company focused on the discovery , development and commercialization of new treatments for infertility and intrexon energy partners , llc , or intrexon energy partners , a joint venture with a select group of external investors , to optimize and scale-up our gas-to-liquid bioconversion platform for the production of fuels and lubricants . alternatively , where a collaborator wishes to work with us to develop an early-stage program , we may execute a research collaboration pursuant to which we receive reimbursement for our development costs but the exclusive license rights , and related access fee , are deferred until completion of an initial research program . in 2011 , we entered into our first collaboration and have added new collaborations since then , either by entering into new agreements or expanding or adding fields to existing eccs . to date , we have entered into 23 such agreements and expansions with 19 different counterparties , of which 21 remain active . we have 20 active eccs , including three expansions , and one research collaboration that we anticipate could , if successful , become an ecc . under the eccs , we are developing products in the fields of healthcare and food . in healthcare , our eccs include programs in oncology , anti-infectives , antibiotics and tissue repair . in food , we are working to increase the productivity and nutritional value of salmon and other fish . we are also working to establish eccs in the areas of energy and environmental sciences . please see item 1 , ยbusiness , ย for a detailed description of our material eccs . effective july 26 , 2013 , the company 's board of directors and shareholders approved a reverse stock split of 1-for-1.75 of the company 's shares of common stock . shareholders entitled to fractional shares as a result of the reverse stock split will receive a cash payment in lieu of receiving fractional shares . our historical share and per share information have been retroactively adjusted to give effect to this reverse stock split . shares of common stock underlying outstanding stock options and warrants were proportionately reduced and the respective exercise prices were proportionately increased in accordance with the terms of the agreements governing such securities . shares of common stock reserved for issuance upon the conversion of all of our series preferred stock were proportionately reduced and the conversion prices were proportionately increased . story_separator_special_tag in light of our limited operating history and experience in consummating new eccs , there can be no assurance as to the timing , magnitude and predictability of revenues to which we might be entitled . in certain strategic circumstances , we may enter into a joint venture with an ecc collaborator whereby we will enter into an ecc with a joint venture entity and both parties may contribute access to their technology , cash or both into the joint venture and jointly control the joint venture . pursuant to a joint venture agreement , we may be required to contribute additional capital to the joint venture , and we may be able to receive a higher financial return than we would normally receive from an ecc to the extent that we and our ecc collaborator are successful in developing one or more products . 54 research and development expenses we recognize research and development expenses as they are incurred . our research and development expenses consist primarily of : salaries and related overhead expenses , including stock-based compensation expense , for personnel in research and development functions ; fees paid to consultants and contract research organizations who perform research on our behalf and under our direction ; costs related to laboratory supplies used in our research and development efforts ; depreciation of leasehold improvements , laboratory equipment and computers ; amortization of patents and related technologies acquired in mergers and acquisitions ; rent and utility costs for our research and development facilities ; and costs related to stock options granted to personnel in research and development functions . we have no individually significant research and development projects and our research and development expenses primarily relate to either the costs incurred to expand or otherwise improve our multiple platform technologies or the costs incurred to develop a specific application of our technologies in support of current or prospective collaborators . research and development expenses typically do not include significant development , including pre-clinical or clinical development , activities since they are the responsibility of our collaborators . research and development expenses incurred for programs we support pursuant to an ecc agreement are reimbursed by the collaborator at cost and all other research and development programs may be terminated or otherwise deferred at our discretion . the amount of our research and development expenses may be impacted by , among other things , the number of eccs and the number and size of programs we may support on behalf of an ecc . the table below summarizes our research and development expenses incurred to expand or otherwise improve our multiple platform technologies or the costs incurred to develop a specific application of our technologies in support of current or prospective collaborators for the years ended december 31 , 2013 , 2012 , and 2011. other research and development expenses for these periods include indirect salaries and overhead expenses that are not allocated to either expanding or improving our multiple platform technologies or specific applications of our technologies in support of current or prospective collaborators . replace_table_token_5_th we expect that our research and development expenses will increase as we continue to enter into eccs and operate as a public company . we believe these increases will likely include increased costs related to the hiring of additional personnel in research and development functions , increased costs paid to consultants and contract research organizations and increased costs related to laboratory supplies . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation expense , for employees in executive , operational , finance , information technology and legal functions . other significant general and administrative expenses include rent and utilities , insurance , legal services and expenses associated with obtaining and maintaining our intellectual property . 55 we expect that our general and administrative expenses will increase as we operate as a public company . we believe that these increases will likely include increased costs for director and officer liability insurance , costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants . we also expect to incur increased costs to comply with corporate governance , internal controls and similar requirements applicable to public companies . other income ( expense ) , net we hold equity securities received and or purchased from certain collaborators . other than investments accounted for using the equity method discussed below , we elected the fair value option to account for our equity securities held in these collaborators . these equity securities are recorded at fair value at each reporting date . unrealized appreciation ( depreciation ) resulting from fair value adjustments are reported as other income ( expense ) in the consolidated statement of operations . as such , we bear the risk that fluctuations in the securities ' share prices may significantly impact our results of operations . interest income consists of interest earned on our cash and cash equivalents and short-term and long-term investments . interest expense pertains to equipment currently under four capitalized leases and long term debt held by aquabounty . on march 15 , 2013 , we recorded a gain on our previously held equity investment in aquabounty ; such gain represented the adjustment to fair value of the pro rata share of our original investment . equity in net income ( loss ) of affiliate equity in net loss of affiliates is our pro-rata share of our equity method investments ' operating results , adjusted for accretion of basis difference . through march 15 , 2013 , we accounted for our investment in aquabounty using the equity method of accounting since we had the ability to exercise significant influence , but not control , over the operating activities of aquabounty . on march 15 , 2013 , we acquired additional ownership interests in aquabounty which resulted in us gaining control over aquabounty , thereby requiring consolidation effective on that date .
| results of operations comparison of the year ended december 31 , 2013 and the year ended december 31 , 2012 the following table summarizes our results of operations for the years ended december 31 , 2013 and 2012 , together with the changes in those items in dollars and as a percentage : replace_table_token_6_th revenues total revenues were $ 23.8 million for the year ended december 31 , 2013 compared to $ 13.8 million for the year ended december 31 , 2012 , an increase of $ 10.0 million , or 72.5 percent . the following table shows the collaboration revenue recognized for upfront and milestone payments received from our collaborators and reimbursements received for research and development services provided to our collaborators for the years ended december 31 , 2013 and 2012 , together with the changes in those items : replace_table_token_7_th 57 the $ 9.8 million increase in collaboration revenue resulted primarily from the following items : collaboration revenue recognized for upfront and milestone payments received from ziopharm oncology , inc. , or ziopharm , decreased primarily due to the recognition of deferred revenue related to the achievement of a collaboration milestone of $ 18.3 million in october 2012. reimbursements from research and development services provided to ziopharm increased $ 1.5 million in 2013 compared to 2012 as a result of new programs initiated throughout the second half of 2012 and the first half of 2013 ; collaboration revenue for upfront payments received from synthetic biologics , inc. , or synthetic biologics , increased due to the immediate recognition of previously deferred revenue arising from our first synthetic biologics ecc . in april 2013 , we and synthetic biologics agreed to terminate this ecc and as a result , we recognized the balance of deferred revenue of $ 1.5 million associated with the original upfront consideration received by us .
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2017-09 , compensation-stock compensation ( topic 718 ) : scope of modification accounting ( asu 2017-09 ) , which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification . under the new guidance , modification accounting is required only if the fair value , the vesting conditions , or the classification of the award changes as a result of the change in terms or conditions . the amendments in this asu also clarify that story_separator_special_tag overview the following discussion should be read in conjunction with our consolidated financial statements and notes to those statements and other financial information appearing elsewhere in this annual report on form 10-k. the following discussion contains forward looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated in the forward looking statements as a result of a number of factors , including the risks discussed in item 1a โ risk factors โ , and elsewhere in this annual report on form 10-k. management 's discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition under the percentage-of-completion method , bad debts , inventories , warranty reserves , investment valuations , valuation of stock compensation awards , recoverability of deferred tax assets , liabilities for uncertain tax positions and contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about carrying values of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions . we believe the following critical accounting policies are most affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition we recognize revenue if four basic criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred and services rendered ; ( 3 ) the price to the buyer is fixed or determinable ; and ( 4 ) collectability is reasonably assured . we do not recognize revenue for products prior to customer acceptance unless we believe the product meets all customer specifications and has a history of consistently achieving customer acceptance of the product . provisions for product returns and allowances are recorded in the same period as the related revenues . we analyze historical returns , current economic trends and changes in customer demand and acceptance of product when evaluating the adequacy of sales returns and other allowances . certain product sales are made to distributors under agreements allowing for a limited right of return on unsold products . sales to distributors are primarily made for sales to the distributors ' customers and not for stocking of inventory . we delay revenue recognition for our estimate of distributor claims of right of return on unsold products based upon our historical experience with our products and specific analysis of amounts subject to return based upon discussions with our distributors or their customers . we recognize revenues from long-term research and development government contracts on the percentage-of-completion method of accounting as work is performed , based upon the ratio of costs or hours already incurred to the estimated total cost of completion or hours of work to be performed . revenue recognized at any point in time is limited to the amount funded by the u.s. government or contracting entity . we recognize revenue for product development and research contracts that have established prices for distinct phases when delivery and acceptance of the deliverable for each phase has occurred . in some instances , we are contracted to create a deliverable which is anticipated to go into full production . in those cases , we discontinue the percentage-of-completion method after formal qualification of the deliverable has been completed and revenue is then recognized based on the criteria established for sale of products . in certain instances , qualification may be achieved and delivery of production units may commence however our customer may have either identified new issues to be resolved or wish to incorporate a newer display technology . in these circumstances new units delivered will continue to be accounted for under the criteria established for sale of products . under certain of our research and development contracts , we recognize revenue using a milestone methodology . this revenue is recognized when we achieve specified milestones based on our past performance . we classify amounts earned on contracts in progress that are in excess of amounts billed as unbilled receivables and we classify amounts received in excess of amounts earned as billings in excess of revenues earned . we invoice based on dates specified in the related agreement or in periodic installments based upon our invoicing cycle . we recognize the entire amount of an estimated ultimate loss in our financial statements at the time the loss on a contract becomes known . accounting for design , development and production contracts requires judgment relative to assessing risks , estimating contract revenues and costs , and making assumptions for schedule and technical issues . due to the size and nature of the work required to be performed on many of our contracts , the estimation of total revenue and cost at completion is complicated and 26 subject to many variables . contract costs include material , labor and subcontracting costs , as well as an allocation of indirect costs . story_separator_special_tag we are required to recognize the effect of the tax law changes in the period of enactment , such as determining the transition tax , re-measuring our u.s. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities . in december 2017 , the sec staff issued staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( `` sab 118 '' ) , which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date . since the tax act was passed late in the fourth quarter of 2017 , and ongoing guidance and accounting interpretation is expected over the next 12 months , we consider the accounting of the transition tax , deferred tax re-measurements , and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions . we expect to complete our analysis within the measurement period in accordance with sab 118. please see the notes to these consolidated financial statements for additional information . goodwill and other indefinite-lived assets we account for goodwill in accordance with asc topic 350. under asc topic 350 , goodwill is considered to have an indefinite life , and is carried at cost . acquired trade names are assessed as indefinite lived assets if there is no foreseeable limits on the periods of time over which they are expected to contribute cash flows . goodwill and indefinite-lived assets are not amortized , but are subject to an annual impairment test , as well as between annual tests when events or circumstances indicate that the carrying value may not be recoverable . we perform our annual impairment testing at the end of each fiscal year . our annual goodwill impairment test is performed at the reporting unit level . we have determined our reporting units based on the guidance within asc subtopic 350-20. as of december 30 , 2017 and december 31 , 2016 , our reporting units are the same as our operating segments . indicators of impairment include , but are not limited to , the loss of significant business or other significant adverse changes in industry or market conditions . the company reviews the carrying amounts of goodwill and other indefinite-lived assets annually , or when indications of impairment exist , to determine if such assets may be impaired by performing a quantitative assessment . we estimate the fair value of our reporting units using a discounted cash flow model based on our most recent long-range plan in place at the time of our impairment testing , and compare the estimated fair value of each reporting unit to its net book value , including goodwill . significant changes in these forecasts or the discount rate selected could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period . story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-align : left ; text-indent:32px ; font-size:10pt ; '' > international sales represented 41 % and 59 % of product revenues for 2017 and 2016 , respectively . our international sales are primarily denominated in u.s. currency . consequently , a strengthening of the u.s. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors ' products that are denominated in local currencies , leading to a reduction in sales or profitability in those foreign markets . in addition , our korean subsidiary , kowon , holds u.s. dollars . as a result , our financial position and results of operations are subject to exchange rate fluctuation in transactional and functional currency . we have not taken any protective measures against exchange rate fluctuations , such as purchasing hedging instruments with respect to such fluctuations , because of the historically stable exchange rate between the japanese yen , great britain pound , korean won and the u.s. dollar . foreign currency translation impact on our results , if material , is described in further detail under `` item 7a . quantitative and qualitative disclosures about market risk '' section below . 29 fiscal year 2016 compared to fiscal year 2015 sales of our products for military applications decreased in 2016 because of a decrease in demand from the u.s. government , primarily for our products used in thermal weapon sights ( `` tws '' ) program . the increase in sales of our product for industrial applications in 2016 as compared to 2015 is the result of an increase in sales of our products to manufacturers of 3d metrology equipment . we offer microdisplays , optical lenses , application specific integrated circuits ( asics ) , backlights , and whisper audio chips for use in consumer , enterprise and public safety products and systems which are targeted at amongst other areas augmented and virtual reality markets . we refer to the sale of microdisplays , optical lenses , application specific integrated circuits ( asics ) , backlights , and whisper audio chips as our component sales . we also offer headworn , voice and gesture controlled , hands-free headset system designs that include our components and software for consumer and enterprise applications . the software technology includes but is not limited to voice and gesture control , noise cancellation , and operating systems . we refer to our components and system designs as kopin wearable technologies . our strategy is to sell the components individually or license the headset system designs and sell the various components included in the reference design as part of a supply agreement . some of the technologies included in our concept systems are components and software which we license from other companies .
| results of operations we are a leading developer , manufacturer and seller of miniature displays , optical lenses , asics ( our โ components โ ) for sale as individual components or in headsets we design and sell or license . our component products are used in highly demanding high-resolution portable military , enterprise and consumer electronic applications , training and simulation equipment and 3d metrology equipment . our products enable our customers to develop and market an improved generation of products for these target applications . we have two principal sources of revenues : product revenues and research and development revenues . research and development revenues consist primarily of development contracts with agencies or prime contractors of the u.s. government and commercial enterprises . research and development revenues as a percentage of total revenue were as follows : replace_table_token_5_th we manufacture transmissive micro-displays and reflective micro-displays . our commercial and military transmissive display production is being performed entirely in our westborough , massachusetts facility . fdd , our wholly-owned subsidiary , manufactures our reflective micro-displays in its facility located in scotland and it is a reportable segment . in 2017 , we introduced organic light emitting diode ( โ oled โ ) displays which are designed by us and manufactured by third parties for us . we are in qualification for the u.s. military 's family of weapon sights ( `` fws '' ) program . the fws program has several sub-programs and we are currently proposing to be a supplier for the fws-i and fws-c programs . as part of the qualification process we are receiving low volume orders for the fws-i program . the fws and avionic programs are expected to increase production for the next several years . there are other firms offering products which compete against us in the military programs 28 and all of the programs we supply product to are subject to the u.s. government military budget and procurement process .
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accruals for estimated expected future pricing actions are recognized at the time of sale based on analyses of historical pricing actions by customer and by product , inventories owned by and located at customers , current customer demand , current operating conditions , and other relevant customer and product information 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 could differ materially from those anticipated in these statements as a result of certain factors , including those set forth above in item 1a , risk factors , and below in item 7a , quantitative and qualitative disclosures about market risk . please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under item 8 of this annual report on form 10-k. overview of our company logitech is a world leader in designing , manufacturing and marketing products that help connect people to digital and cloud experiences . more than 35 years ago , logitech created products to improve experiences around the personal computer ( pc ) platform , and today it is a multi-brand , multi-category company designing products that enable better experiences consuming , sharing and creating digital content such as computing , gaming , video and music , whether it is on a computer , mobile device or in the cloud . logitech 's brands include logitech , logitech g , astro gaming , streamlabs , ultimate ears , jaybird , and blue microphones . our company 's website is www.logitech.com . our products participate in five large market opportunities : creativity & productivity , gaming , video collaboration , music and smart home . we sell our products to a broad network of domestic and international customers , including direct sales to retailers and e-tailers , and indirect sales through distributors . our worldwide channel network includes consumer electronics distributors , retailers , mass merchandisers , specialty stores , computer and telecommunications stores , value-added resellers and online merchants . from time to time , we may seek to partner with or acquire when appropriate companies that have products , personnel , and technologies that complement our strategic direction . we continually review our product offerings and our strategic direction in light of our profitability targets , competitive conditions , changing consumer trends and the evolving nature of the interface between the consumer and the digital world . on october 31 , 2019 , the company acquired all equity interests in general workings , inc. ( streamlabs ) for a total consideration of $ 105.7 million , which included a working capital adjustment , plus additional contingent consideration of $ 29.0 million payable in stock only upon the achievement of certain net revenues for the period beginning on january 1 , 2020 and ending on june 30 , 2020 ( the streamlabs acquisition ) . streamlabs is a leading provider of software and tools for professional streamers . the streamlabs acquisition is complementary to the company 's gaming portfolio . on august 21 , 2018 , we acquired all equity interests in blue microphones holding corporation ( blue microphones ) for a total consideration of $ 134.8 million in cash , which included a working capital adjustment and repayment of debt on behalf of blue microphones ( the blue microphones acquisition ) . blue microphones is a leading audio manufacturer that designs and produces microphones , headphones , recording tools , and accessories for audio professionals , musicians and consumers . the blue microphones acquisition supplements our product portfolio . impacts of covid-19 to our business in march 2020 , the world health organization declared the outbreak of a novel coronavirus ( `` covid-19 '' ) as a pandemic , which continues to spread throughout the world . the spread of covid-19 has caused public health officials to recommend precautions to mitigate the spread of the virus and , in certain markets in which we operate , government authorities have issued orders that require the closure of non-essential businesses and people to be quarantined or to shelter-at-home . the covid-19 pandemic has significantly curtailed global economic activity , caused significant volatility and disruption in global financial and commercial markets , and is likely to lead to recessionary conditions for an indeterminate amount of time . we are conducting our business with substantial modifications , such as employee work locations and virtualization among other changes . we are continuing to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state or local authorities in the countries in which we operate , or that we determine are in the best interest of our employees , customers , partners , suppliers or shareholders . it is not clear what the potential effects of covid-19 or any such modifications or alterations may have on our business , results of operations , financial operations , financial condition and stock price . logitech international s.a. | fiscal 2020 form 10-k | 42 during february 2020 , following the initial outbreak of covid-19 in china , we experienced disruptions to our manufacturing , supply chain and logistics services , resulting in temporary inventory declines and an increase in logistics costs . we expect the increased logistics costs and adverse effects on our gross margins from covid-19 to continue at least during the first half of fiscal year 2021. however , due to the ongoing shelter-at-home requirements or recommendations in many countries , there was high demand and consumption of our products . it is difficult to predict the progression , the duration and all of the effects of covid-19 , when business closure and shelter at home guidelines may be eased or lifted , and how consumer demand , inventory and logistical effects and costs may evolve over time , or the impact on our future sales and results of operations . story_separator_special_tag we are continuing our efforts to create and sell innovative products to accommodate the increasing demand from medium and large-sized meeting rooms to small-sized rooms such as huddle rooms . we will continue to invest in select business-specific products ( both hardware and software ) , targeted product marketing and sales channel development . music : the mobile speaker market has remained weak , although the consumption of music continues to grow . the integration of personal voice assistants has become increasingly competitive in the speaker categories , but the market for third-party , voice-enabled speakers has not yet gained traction . moreover , the market for mobile speakers appears to be maturing , which led to a decline in ultimate ears sales in the past two years . in fiscal year 2020 , the wireless headphone industry continued to flourish with strong revenue growth . the largest growth was in true wireless headphones where the market tripled year-over-year while traditional wireless headphones have declined significantly . continued growth in the wireless headphone market is expected for the next several years as consumers increasingly adopt wireless headphones over wired headphones . with blue microphones , we strengthened our portfolio in adjacent categories , such as the microphones market . smart home : our remote business declined substantially in fiscal year 2020 , offset by growth in our circle 2 family of security cameras . in general , the space is under pressure as the way people consume content is changing . we will continue to explore other innovative experiences for the smart home category . business seasonality , product introductions and business acquisitions we have historically experienced higher sales in our third fiscal quarter ending december 31 , compared to other fiscal quarters in our fiscal year , primarily due to the increased consumer demand for our products during the year-end holiday buying season and year-end spending by enterprises . additionally , new product introductions and business acquisitions can significantly impact sales , product costs and operating expenses . product introductions can also impact our sales to distribution channels as these channels are filled with new product inventory following a product introduction , and often channel inventory of an earlier model product declines as the next related major product launch approaches . sales can also be affected when consumers and distributors anticipate a product introduction or changes in business circumstances . however , neither historical seasonal patterns nor historical patterns of product introductions should be considered reliable indicators of our future pattern of product introductions , future sales or financial performance . furthermore , cash flow is correspondingly lower as we typically build inventories in advance for the third quarter and we pay an annual dividend following our annual general meeting , which is typically in september . swiss federal tax reform as we described above , the canton of vaud in switzerland enacted traf on march 10 , 2020 which took effect as of january 1 , 2020. our cash tax payments have increased in switzerland beginning in fiscal year 2020 as a result of our transition out of our longstanding tax ruling from the canton of vaud . critical accounting estimates the preparation of financial statements and related disclosures in conformity with u.s. gaap requires us to make judgments , estimates , and assumptions that affect reported amounts of assets , liabilities , sales and expenses , and the disclosure of contingent assets and liabilities . logitech international s.a. | fiscal 2020 form 10-k | 44 we consider an accounting estimate critical if it : ( i ) requires management to make judgments and estimates about matters that are inherently uncertain ; and ( ii ) is important to an understanding of our financial condition and operating results . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances . although these estimates are based on management 's best knowledge of current events and actions that may impact us in the future , actual results could differ from those estimates . management has discussed the development , selection and disclosure of these critical accounting estimates with the audit committee of the board of directors . we believe the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations and reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements . accruals for customer programs and product returns we record accruals for cooperative marketing , customer incentive , pricing programs ( customer programs ) and product returns . the estimated cost of these programs is usually recorded as a reduction of revenue . significant management judgments and estimates must be used to determine the cost of these programs in any accounting period . certain customer programs require management to estimate the percentage of those programs that will not be claimed or will not be earned by customers based on historical experience and on the specific terms and conditions of particular programs . the percentage of these customer programs that will not be claimed or earned is commonly referred to as `` breakage '' . if we receive a separately identifiable benefit from a customer and can reasonably estimate the fair value of that benefit , the cost of the customer programs is recognized in operating expenses . cooperative marketing arrangements . we enter into customer marketing programs with many of our customers , and with certain indirect partners , allowing customers to receive a credit equal to a set percentage of their purchases of our products , or a fixed dollar credit for various marketing programs . the objective of these arrangements is to encourage advertising and promotional events by our customers to increase sales of our products . customer incentive programs . customer incentive programs include performance-based incentives and consumer rebates . we offer performance-based incentives to our customers and indirect partners based on pre-determined performance criteria .
| results of operations net sales during fiscal year 2020 , sales increased 7 % in comparison to fiscal year 2019 . if currency exchange rates had been constant in 2020 and 2019 , our constant currency sales growth rate would have been 9 % . we grew across most of our product categories , with double-digit growth in our video collaboration product category and strong growth in keyboards & combos , pc webcams , and gaming . sales declined for mobile speakers and smart home product categories . during fiscal year 2019 , sales increased 9 % in comparison to fiscal year 2018. if currency exchange rates had been constant in 2019 and 2018 , our constant currency sales growth rate would have been 10 % . we grew across most of our product categories , with double digits growth in our gaming , video collaboration and tablet & other accessories product categories and strong growth in keyboards and combos . sales declined for mobile speakers and smart home product categories . blue microphones contributed approximately 2 percentage points to the net sales growth . the adoption of topic 606 increased our sales for fiscal year 2019 by $ 3.7 million . sales denominated in other currencies although our financial results are reported in u.s. dollars , a portion of our sales was generated in currencies other than the u.s. dollar , such as the euro , chinese yuan , japanese yen , canadian dollar , taiwan dollar , british pound and australian dollar . for each of the fiscal years 2020 , 2019 and 2018 , 50 % of our sales were denominated in currencies other than the u.s. dollar .
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under asc topic 820 , the fair value measurement assumes that the sale occurs in the principal market for the security , or in the absence of a principal market , in the most advantageous market for the security . under asc topic 820 , if no market for the security exists or if the company does not have access to the principal market , the security should be valued based on the sale occurring in a hypothetical market . under asc topic 820 , there are three levels of valuation inputs , story_separator_special_tag the information in this section contains forward-looking statements that involve risks and uncertainties . please see โ risk factors โ and โ forward-looking statements โ for a discussion of the uncertainties , risks and assumptions associated with these statements . you should read the following discussion in conjunction with the combined financial statements and related notes and other financial information appearing elsewhere in this annual report . the following discussion is designed to provide a better understanding of our financial statements , including a brief discussion of our business , key factors that impacted our performance and a summary of our operating results . the following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in item 8 of this annual report on form 10-k. historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods . the asset sale and externalization transactions on april 3 , 2018 , we entered into an asset purchase agreement , or the asset purchase agreement , with bsp asset acquisition i , llc , or the asset buyer ( an affiliate of benefit street partners l.l.c. , or bsp ) , pursuant to which we agreed to sell our december 31 , 2017 investment portfolio to the asset buyer for gross proceeds of $ 981.2 million in cash , subject to certain adjustments to take into account portfolio activity and other matters occurring since december 31 , 2017 , such transaction referred to herein as the asset sale transaction . also on april 3 , 2018 , we entered into a stock purchase and transaction agreement , or the externalization agreement , with barings llc , or barings , through which barings agreed to become the investment adviser to the company in exchange for ( 1 ) a payment by barings of $ 85.0 million , or approximately $ 1.78 per share , directly to our stockholders , ( 2 ) an investment by barings of $ 100.0 million in newly issued shares of our common stock at net asset value and ( 3 ) a commitment from barings to purchase up to $ 50.0 million of shares of our common stock in the open market at prices up to and including our then-current net asset value per share for a two-year period , after which barings agreed to use any remaining funds from the $ 50.0 million to purchase additional newly issued shares of our common stock at the greater of our then-current net asset value per share and market price ( collectively , the externalization transaction ) . the asset sale transaction and the externalization transaction are collectively referred to as the transactions . the transactions were approved by our stockholders at our july 24 , 2018 special meeting of stockholders ( the 2018 special meeting ) . the asset sale transaction closed on july 31 , 2018. the gross cash proceeds received from the asset buyer and certain affiliates of the asset buyer in connection with the asset sale transaction were approximately $ 793.3 million , after adjustments to take into account portfolio activity and other matters occurring since december 31 , 2017 , as described in greater detail in the asset purchase agreement . adjustments to the purchase price included , among other things , approximately $ 208.8 million of principal payments and prepayments , sales proceeds and distributions related to the investment portfolio that were received and retained by us between december 31 , 2017 and the closing of the asset sale transaction , offset by approximately $ 29.5 million of loans and equity investments originated by us between december 31 , 2017 and the closing of the asset sale transaction . in connection with the closing of the asset sale transaction , we caused notices to be issued to the holders of our december 2022 notes and march 2022 notes ( each as defined in our consolidated financial statements for the fiscal year ended december 31 , 2018 and notes thereto ) regarding the redemption of all $ 80.5 million in aggregate principal amount of the december 2022 notes and all $ 86.3 million in aggregate principal amount of the march 2022 notes , in each case , on august 30 , 2018. the december 2022 notes and the march 2022 notes were redeemed at 100 % of their principal amount ( $ 25.00 per note ) , plus the accrued and unpaid interest thereon from june 15 , 2018 to , but excluding , august 30 , 2018. in furtherance of the redemption , on july 31 , 2018 , we irrevocably deposited with the bank of new york mellon trust company , n.a. , as trustee under the indenture and supplements thereto relating to the december 2022 notes and the march 2022 notes , funds in trust for the purposes of redeeming all of the issued and outstanding december 2022 notes and march 2022 notes and paying all sums due and payable under the indenture and supplements thereto . as a result , our obligations under the indenture and supplements thereto relating to the december 2022 notes and the march 2022 notes were satisfied and discharged as of july 31 , 67 2018 , except with respect to those obligations that the indenture expressly provides shall survive the satisfaction and discharge of the indenture . story_separator_special_tag under the terms of the advisory agreement , the fees paid to barings for managing our affairs will be determined based upon an objective and fixed formula , as compared with the subjective and variable nature of the costs associated with employing management and employees in an internally-managed bdc structure , which include bonuses that can not be directly tied to company performance because of restrictions on incentive compensation under the 1940 act . prior to the transactions , our business was to provide capital to lower middle-market companies located primarily in the united states . we focused on investments in companies with a history of generating revenues and positive cash flows , an established market position and a proven management team with a strong operating discipline . our target portfolio company had annual revenues between $ 20.0 million and $ 300.0 million and annual earnings before interest , taxes , depreciation and amortization , as adjusted , or adjusted ebitda , between $ 5.0 million and $ 75.0 million . we invested primarily in senior and subordinated debt securities of privately held companies , generally secured by security interests in portfolio company assets . in addition , we generally invested in one or more equity instruments of the borrower , such as direct preferred or common equity interests . our investments generally ranged from $ 5.0 million to $ 50.0 million per portfolio company . beginning august 2 , 2018 , barings shifted our investment focus to invest in syndicated senior secured loans , bonds and other fixed income securities . over time , barings expects to transition our portfolio to senior secured private debt investments in performing , well-established middle-market businesses that operate across a wide range of industries . barings ' existing sec exemptive relief under sections 17 ( d ) and 57 ( i ) of the 1940 act and rule 17d-1 thereunder , granted on october 19 , 2017 , or the exemptive relief , permits us and barings ' affiliated private funds and sec-registered funds to co-invest in barings-originated loans , which allows barings to implement its senior secured private debt investment strategy for us on an accelerated timeline . barings employs fundamental credit analysis , and targets investments in businesses with relatively low levels of cyclicality and operating risk . the holding size of each position will generally be dependent upon a number of factors including total facility size , pricing and structure , and the number of other lenders in the facility . barings has experienced managing levered vehicles , both public and private , and will seek to enhance our returns through the use of leverage with a prudent approach that prioritizes capital preservation . barings believes this strategy and approach offers attractive risk/return with lower volatility given the potential for fewer defaults and greater resilience through market cycles . we generate revenues in the form of interest income , primarily from our investments in debt securities , loan origination and other fees and dividend income . fees generated in connection with our debt investments are recognized over the life of the loan using the effective interest method or , in some cases , recognized as earned . our syndicated senior secured loans generally bear interest between libor plus 300 basis points and libor plus 400 points . as we transition to senior secured private debt investments , such investments will generally have terms of between five and seven years . our senior secured private debt investments generally will bear interest between libor plus 450 basis points and libor plus 650 basis points per annum . from time to time , certain of our investments may have a form of interest , referred to as payment-in-kind , or pik , interest , which is not paid currently but is instead accrued and added to the loan balance and paid at the end of the term . as of december 31 , 2018 , the weighted average yield on our syndicated senior secured loan portfolio and our middle-market private debt portfolio was approximately 5.8 % and 7.6 % , respectively . as of december 31 , 2018 , the 69 weighted average yield on these two portfolios on a combined basis was approximately 6.2 % . the weighted-average yield on all of our outstanding investments ( including equity and equity-linked investments and short-term investments ) was approximately 6.0 % as of december 31 , 2018 . as of december 31 , 2017 , the weighted average yield on our outstanding debt investments other than non-accrual debt investments was approximately 11.0 % . the weighted average yield on all of our outstanding investments ( including equity and equity-linked investments but excluding non-accrual debt investments ) was approximately 9.6 % as of december 31 , 2017 . the weighted average yield on all of our outstanding investments ( including equity and equity-linked investments and non-accrual debt investments ) was approximately 8.5 % as of december 31 , 2017 . the weighted average yields across our investment portfolio depend on the relative seniority of our investments within the capital structures of our portfolio companies and on our security interests in portfolio company assets . historically , prior to the transactions , from the time of our initial public offering , or ipo , in 2007 , we primarily focused on investments in subordinated debt securities , which generally produce higher yields than more senior securities due to the risks inherent in investing in less senior positions . beginning in 2016 , we began to shift our focus toward larger and less cyclical portfolio companies and began steering our portfolio composition with a focus on a balance between senior and subordinated securities . subsequent to the transactions , barings shifted our investment focus to invest in syndicated senior secured loans , bonds and other fixed income securities . over time , barings expects to transition our portfolio to senior secured private debt investments in performing , well-established middle-market businesses that operate across a wide range of industries .
| results of operations comparison of years ended december 31 , 2018 , 2017 and 2016 operating results for the years ended december 31 , 2018 , 2017 and 2016 were as follows : replace_table_token_11_th net increases or decreases in net assets resulting from operations vary substantially from period to period due to various factors . the net decrease in net assets resulting from operations for the year ended december 31 , 2018 was primarily due to the net realized loss related to the asset sale transaction and certain one-time compensation expenses and direct costs related to the transactions . see further discussion regarding the transactions above in `` the asset sale and externalization transactions '' section . as a result , yearly comparisons of net increases or decreases in net assets resulting from operations may not be meaningful . 72 investment income replace_table_token_12_th the decrease in interest income ( including pik interest income ) for the year ended december 31 , 2018 , was primarily attributable to the asset sale transaction and the shift in the composition of our investment portfolio . subsequent to the externalization transaction , our investment portfolio has been primarily comprised of syndicated senior secured loans and senior secured private debt investments which are lower yielding debt investments as compared to our investment portfolio as of december 31 , 2017 . the weighted average yield on our debt investments was 6.2 % ( exclusive of short-term investments ) as of december 31 , 2018 as compared to 11.0 % ( exclusive of non-accrual investments ) as of december 31 , 2017 . in addition , total investment income for the year ended december 31 , 2018 was negatively impacted by a $ 3.9 million decrease in non-recurring fee income and an $ 1.8 million decrease in non-recurring dividend income .
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we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under โ part iโitem 1aโrisk factors โ and under โ forwardโlooking statements and market data โ in this annual report . overview we are a commercial-stage biotechnology company focused on developing and commercializing innovative molecularly-targeted and immuno-oncology drugs for the treatment of cancer . our internally-developed lead drug candidates are currently in late-stage clinical trials . these candidates are ( 1 ) zanubrutinib ( bgb-3111 ) , a potentially best-in-class investigational small molecule inhibitor of bruton 's tyrosine kinase , or btk , ( 2 ) tislelizumab ( bgb-a317 ) , an investigational humanized monoclonal antibody against the immune checkpoint receptor programmed cell death protein 1 ( pd-1 ) , and ( 3 ) pamiparib ( bgb-290 ) , an investigational small molecule inhibitor of the poly adp-ribose polymearase 1 ( parp1 ) and parp2 enzymes . all three of these drug candidates are currently in phase 2 or 3 pivotal trials globally and or in china , and we filed for regulatory approvals in china in 2018 for zanubrutinib in relapsed/refractory ( r/r ) mantle cell lymphoma ( mcl ) and in r/r chronic lymphocytic leukemia or r/r small lymphocytic lymphoma ( cll/sll ) ; and for tislelizumab in r/r classical hodgkin 's lymphoma ( chl ) . we also have additional drug candidates in earlier stage clinical development . we started as a research and development company in beijing in 2010 , focusing on developing best-in-class oncology drugs . over the last nine years , we have developed into a fully-integrated global biotechnology company with operations in china , the united states , europe and australia , including a more than 800-person global clinical development team running 50 ongoing or planned clinical trials as of january 24 , 2019. we also have a growing commercial team that is selling our existing in-licensed drugs in china and preparing for launches of our internally-developed drug candidates in china and the united states , as well as internal manufacturing capabilities in china that are operational or under construction for the clinical and commercial supply of our small molecule and biologic drug candidates . recent developments on january 14 , 2019 , we announced that the u.s. food and drug administration ( fda ) granted breakthrough therapy designation for our investigational bruton 's tyrosine kinase ( btk ) inhibitor , zanubrutinib , for the treatment of adult patients with mantle cell lymphoma ( mcl ) who have received at least one prior therapy . on december 17 , 2018 , we announced the initiation of two global phase 3 clinical trials of our investigational anti-pd-1 antibody , tislelizumab . these trials are evaluating tislelizumab combined with chemotherapy as potential first-line treatments in patients with locally advanced unresectable or metastatic gastric or gastroesophageal junction adenocarcinoma , and in patients with unresectable , locally advanced recurrent or metastatic esophageal squamous cell carcinoma ( escc ) . on november 27 , 2018 , we entered into a license and collaboration agreement with zymeworks , inc. ( nyse/tsx : zyme ) in which we acquired exclusive development and commercial rights to zymeworks ' bispecific candidates , zw25 and zw49 , in asia ( excluding japan ) , australia and new zealand . we also acquired licenses for zymeworks ' azymetric tm and efect tm platforms to develop and commercialize up to three bispecific antibody therapeutics globally directed to beigene 's targets . zymeworks received upfront payments totaling $ 60.0 million and is eligible to receive development and commercial milestone payments plus potential royalties on product sales . on november 13 , 2018 , we announced the center for drug evaluation of china 's national medical product administration ( nmpa , formerly known as cfda ) granted priority review status to the new drug applications for zanubrutinib in patients with r/r mcl and for tislelizumab in patients with r/r chl . 94 components of operating results revenue to date , our revenue has consisted of product sales revenue since september 2017 and upfront license fees and reimbursed research and development expenses from our strategic collaboration with celgene for tislelizumab entered in 2017 and upfront license fees and milestone payments from our collaboration agreements with merck kgaa , darmstadt germany for pamiparib and lifirafenib entered in 2013. we do not expect to generate significant revenue from internally-developed drug candidates unless and until we successfully complete development and obtain regulatory approval for one or more of our drug candidates , which is subject to significant uncertainty . revenues from product sales are recognized when there is a transfer of control from the company to the distributor . the company determines transfer of control based on when the product is delivered , and title passes to the distributor . revenues from product sales are recognized net of variable consideration resulting from rebate accruals and sales returns allowances . provisions for estimated reductions to revenue are provided for in the same period the related sales are recorded and are based on the sales terms , historical experience and trend analysis . we expect revenue from product sales to increase in 2019 as we expand our efforts to promote and obtain reimbursement for abraxane ยฎ and revlimid ยฎ and launch vidaza ยฎ in china . we also record revenue from our collaboration and license agreements with celgene and merck kgaa , darmstadt germany . under each agreement , we have received upfront payments related to the license fee which was recognized upon the delivery of the license right . additionally , the reimbursement of remaining undelivered research and development services under the celgene arrangement is recognized over the performance period of the collaboration arrangement . in the case of the celgene arrangement , we will also receive research and development reimbursement revenue for the basket study trials that celgene opts into . we consider milestone payments variable consideration and include them in the transaction price when a significant reversal of revenue recognized is not expected to occur . story_separator_special_tag these cost increases will likely be due to increased promotional costs , increased headcount , increased share-based compensation expenses , expanded infrastructure and increased costs for insurance . we also anticipate increased legal , compliance , accounting , insurance and investor and public relations expenses associated with being a public company with our ads and ordinary shares listed for trading on the nasdaq global select market and hong kong stock exchange , respectively . interest income ( expense ) , net interest income interest income consists primarily of interest generated from our cash and shortโterm investments in money market funds , time deposits , u.s. treasury securities and u.s. agency securities . interest expense interest expense consists primarily of interest on our longโterm bank loan and shareholder loan . other income ( expense ) , net other income consists primarily of government grants and subsidies received that involve no conditions or continuing performance obligations by us . other expense consists primarily of loss from property and equipment disposals and donations made to sponsor certain events . other income ( expense ) also consists of unrealized gains and losses related to changes in foreign currency exchange rates and realized gains and losses on the sale of investments . 97 story_separator_special_tag infrastructure for human resources , financial systems and compliance management , and $ 43.3 million increase of selling , facility , travel expenses , rental fees and other administrative expenses , primarily attributable to the global expansion of our business , including the post-combination operating costs of our commercial operations in china . interest income ( expense ) , net interest income ( net ) increased to $ 13.9 million for the year ended december 31 , 2018 , from net interest expense of $ 4.1 million for the year ended december 31 , 2017 . the increase in interest income was primarily attributable to interest income on our larger cash and short-term investment balances . other income , net other income , net decreased by $ 9.5 million to $ 2.0 million for the year ended december 31 , 2018 , from $ 11.5 million for the year ended december 31 , 2017 . the decrease was mainly attributable to the decrease in government grants and subsidies received and recognized in 2018 and unrealized losses related to changes in foreign currency exchange rates . income tax benefit ( expense ) income tax benefit was $ 15.8 million for the year ended december 31 , 2018 compared with $ 2.2 million of income tax expense for the year ended december 31 , 2017. in the year ended december 31 , 2018 , the income tax benefit was mainly attributable to research and development tax credits and stock compensation tax deductions of our u.s. operating subsidiary , partially offset by income tax expense from our commercial operations in china . 100 comparison of the years ended december 31 , 2017 and 2016 the following table summarizes the results of our operations for the years ended december 31 , 2017 and 2016 : replace_table_token_9_th revenue total revenue increased by $ 237.3 million to $ 238.4 million for the year ended december 31 , 2017 , from $ 1.1 million for the year ended december 31 , 2016. the following table summarizes our components of revenue for the year ended december 31 , 2017 and 2016 , respectively : replace_table_token_10_th net product revenue was $ 24.4 million for the year ended december 31 , 2017 , which related to sales of abraxaneยฎ and revlimidยฎ in china . we began recognizing product revenue with sales to our distributors in china , beginning in september 2017 following the closing of our strategic collaboration with celgene . vidaza ยฎ was not launched in china until early 2018. we had no product revenue for the year ended december 31 , 2016. collaboration revenue was $ 214.0 million for the year ended december 31 , 2017 , of which $ 213.0 million was due to revenue recognition related to the celgene collaboration , including recognition of the upfront consideration allocated to the license fees and recognition of deferred revenue for allocated to the undelivered research and development services . collaboration revenue was $ 1.1 million for the year ended december 31 , 2016 , which was due to research and development revenue recognition related to collaboration agreement with merck kgaa , darmstadt germany . 101 research and development expense research and development expense increased by $ 171.0 million , or 174.4 % , to $ 269.0 million for the year ended december 31 , 2017 , from $ 98.0 million for the year ended december 31 , 2016. the following table summarizes external clinical , external preclinical and internal research and development expense for the year ended december 31 , 2017 and 2016 : replace_table_token_11_th the increase in external research and development expense was primarily attributable to the advancement of our clinical and preclinical drug candidates , and included the following : increases of approximately $ 40.1 million , $ 27.1 million and $ 12.9 million , respectively , for zanubrutinib , tislelizumab and pamiparib , partially offset by a decrease of approximately $ 3.0 million for lifirafenib . the expense increases were primarily due to the expansion of clinical trials for these candidates , including the initiation or continuation of pivotal trials ; and approximately $ 3.2 million increase in external spending for our preclinical-stage programs , primarily related to costs associated with advancing our preclinical candidates toward clinical trials .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_6_th revenue total revenue decreased by $ 40.2 million to $ 198.2 million for the year ended december 31 , 2018 , from $ 238.4 million for the year ended december 31 , 2017 . the following table summarizes our components of revenue for the year ended december 31 , 2018 and 2017 , respectively : replace_table_token_7_th net product revenue was $ 130.9 million for the year ended december 31 , 2018 , which related to sales of abraxane ยฎ , revlimid ยฎ and vidaza ยฎ in china . we began recognizing product revenue with sales to our distributors in china , beginning in september 2017 following the closing of our strategic collaboration with celgene . vidaza ยฎ was launched in china in february 2018. we had $ 24.4 million product revenue for the year ended december 31 , 2017. collaboration revenue totaled $ 67.3 million for the year ended december 31 , 2018 , and was comprised of $ 56.8 million for the reimbursement of research and development costs for the clinical trials that celgene has opted into , $ 9.1 million related to the recognition of deferred revenue for upfront fees allocated to undelivered research and development services to celgene 98 and $ 1.5 million research and development services for achieving a milestone under the collaboration agreement with merck kgaa , darmstadt germany . collaboration revenue was $ 214.0 million for the year ended december 31 , 2017 , of which $ 213.0 million was due to revenue recognized from the celgene collaboration , including recognition of the upfront consideration allocated to the license fees and recognition of deferred revenue allocated to the undelivered research and development services .
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the company also participates in joint ventures in taiwan and hong kong , and maintains offices in singapore , china , india , mexico , south korea and countries in the middle east . the company employs approximately 15,400 individuals worldwide . the company made the following management changes in 2014 as part of its succession planning program . in february 2014 , the company promoted mr. gerben w. bakker to group vice president , power systems . mr. william t. tolley , the previous group vice president , power systems , has been named to the newly created position of senior vice president , growth and innovation . on may 6 , 2014 , the board of directors appointed mr. david g. nord to the position of chairman of the board , in addition to his role as president and chief executive officer . mr. nord succeeded mr. timothy h. powers , the former chairman of the board , who retired from the board in may 2014. on june 30 , 2014 , mr. gary n. amato was appointed to the position of executive vice president , hubbell electrical segment . in this role , he acquired oversight of the hubbell hubbell incorporated - form 10-k 15 back to contents lighting business , in addition to his leadership role over the electrical systems businesses . mr. amato assumed responsibility for the lighting business following the announcement of the retirement of mr. scott h. muse . the company 's reporting segments consist of the electrical segment and the power segment . results for 2014 , 2013 and 2012 by segment are included under โ segment results โ within this management 's discussion and analysis . the company is focused on growing profits and delivering attractive returns to our shareholders by executing a business plan focused on the following key initiatives : revenue growth , price realization , productivity improvements and capital deployment . as part of our revenue growth initiative , we remain focused on expanding market share through new product introductions and more effective utilization of sales and marketing efforts across the organization . in addition , we continue to assess opportunities to expand sales through acquisitions of businesses that fill product line gaps or allow for expansion into new markets . price realization and productivity improvements are key areas of focus for our company . productivity programs impact virtually all functional areas within the company by rationalizing our manufacturing footprint and activities through restructuring actions , reducing or eliminating waste and improving processes . we continue to expand our efforts surrounding global product and component sourcing and supplier cost reduction programs . value engineering efforts , product transfers and the use of lean process improvement techniques are expected to continue to increase manufacturing efficiency . in addition , we continue to build upon the benefits of our enterprise resource planning system across all functions and have also implemented a sustainability program across the organization . material costs are approximately two-thirds of our cost of goods sold therefore volatility in this area can significantly impact profitability . our goal is to have pricing and productivity programs that offset material and other inflationary cost increases as well as pay for investments in key growth areas . outlook for 2015 , we expect our overall net sales to increase by five to seven percent compared to 2014 , with acquisitions contributing between five and six percent . our outlook for net sales growth from acquisitions in 2015 includes the acquisitions we completed in january 2015 , which are expected to add approximately $ 100 million to annual net sales . third party forecasts for our end markets point to improving organic demand in each of our businesses , with the exception of significantly weaker energy related markets . we expect our end markets could grow approximately one to two percent in 2015 led by high single digit growth in the residential market . the non-residential market is expected to grow in the mid-single digit range , industrial market growth is expected to be in the low to mid-single digit range , while transmission and distribution products in the utility market are anticipated to grow by one to two percent . we anticipate our net sales could benefit from growth in these end markets , but could also be dampened by a fifteen to twenty percent decline in the net sales of our harsh and hazardous products in 2015 , which reflects an expectation of continued weakness in energy related markets . we plan to continue to work on productivity initiatives and to make other strategic investments aimed at improving our cost structure and operating efficiency , including improved sourcing , product redesign and lean projects focused on both factory and back office efficiencies . in 2015 we plan to continue and expand on restructuring activities that were initiated in 2014. in 2015 we expect our earnings per diluted share will include approximately $ 0.25 cents of restructuring and related costs and anticipate those activities and investments will generate savings in 2016 in excess of those costs . we also anticipate continued cost increases from certain materials , healthcare and other inflationary costs , including higher pension costs . from a profitability standpoint , we expect organic sales growth and acquisitions will contribute to earnings per share growth in 2015 ; however that growth will be partially offset by weak end markets for our harsh and hazardous products relating to the recent decline in oil prices . additionally , we expect that foreign exchange will also be a headwind in 2015. we expect that our full year diluted earnings per share in 2015 will be in the range of $ 5.35 to $ 5.55 , including approximately $ 0.25 of restructuring and related costs . story_separator_special_tag price realization was positive but not significant and was offset by the impact of negative foreign currency translation . within the segment , electrical systems products net sales increased five percent in 2014 compared to 2013 due to acquisitions and higher organic volume . price realization was positive but not significant and was offset by the impact of negative foreign currency translation . higher organic net sales of electrical systems products was driven by strength in our wiring , connectors and grounding products that support the non-residential and residential construction markets , partially offset by weak demand for our high voltage test equipment and harsh and hazardous products that support the extractive industries . net sales of lighting products increased eight percent in 2014 compared to 2013 due to acquisitions and strong organic volume in the non-residential market , which continued to benefit from increased relight and retrofit renovation project demand , and growth in the residential market . operating income in 2014 was $ 337.9 million , a one percent decrease compared to 2013 , while operating margin declined by 100 basis points to 14.1 % . the decline in operating margin reflects cost inflation in excess of productivity , including approximately 20 basis points from restructuring actions initiated in the fourth quarter of 2014 , and unfavorable business and product mix , partially offset by higher organic volume and price realization . operating margin for the year ended 2014 also includes higher warranty and related costs which were incurred in the third quarter of 2014 , and contributed approximately 15 basis points to the decline . the decrease in operating income can be attributed to these factors and also includes the contribution of acquisitions , which were 10 basis points dilutive to operating margin . power segment replace_table_token_6_th net sales in the power segment increased four percent in 2014 compared to 2013 due to acquisitions and organic volume . acquisitions contributed four percentage points to net sales and organic volume contributed two percentage points . higher organic volume was driven by modest growth in distribution and transmission spending . price realization was negative and foreign currency translation was unfavorable , each by one percentage point . operating income increased eight percent to $ 179.5 million and operating margin increased by 60 basis points to 18.7 % in 2014 compared to 2013 . the increase in operating margin reflects productivity in excess of cost inflation and lower facility closure costs in 2014 , partially offset by higher material costs and negative price realization . the increase in operating income can be attributed to these factors and also includes the contribution of acquisitions , which were 20 basis points dilutive to operating margin . 2013 compared to 2012 net sales net sales for the year ended 2013 were $ 3.2 billion , an increase of five percent over the year ended 2012. acquisitions added three percentage points to net sales in 2013 compared to 2012 while volume increased net sales by two percentage points . price realization was offset by unfavorable foreign currency translation , each less than one percentage point . cost of goods sold as a percentage of net sales , cost of goods sold decreased to 66.4 % for 2013 compared to 66.8 % in 2012. the decrease was primarily due to productivity in excess of other cost increases , favorable price realization and slightly lower material costs . lower material costs for commodities such as copper , steel and aluminum more than offset higher costs for resins , chemicals , purchased finished goods and value added components . hubbell incorporated - form 10-k 18 back to contents gross profit the gross profit margin for 2013 expanded to 33.6 % compared to 33.2 % in 2012. the increase was primarily due to productivity in excess of other cost increases , favorable price realization and slightly lower material costs . lower material costs for commodities such as copper , steel and aluminum more than offset higher costs for resins , chemicals , purchased finished goods and value added components , as described above . selling & administrative expenses ( โ s & a โ ) s & a expense increased four percent compared to 2012 primarily due to the impact of the businesses acquired . higher costs for wages , benefits , legal and advertising were almost entirely offset by lower pension costs and other spending reductions . as a percentage of net sales , s & a expenses remained constant at 17.7 % in 2013 compared to 2012. operating income operating income increased eight percent to $ 507.6 million primarily due to higher net sales and gross profit partially offset by higher selling and administrative costs , as described above . operating margin of 15.9 % in 2013 increased 40 basis points compared to 15.5 % in 2012 as a result of productivity , lower material costs and price realization , partially offset by other inflationary increases . total other expense in 2013 , total other expense was $ 33.8 million compared to $ 30.0 million in 2012. the $ 3.8 million increase was primarily due to higher net foreign currency transaction losses in 2013 compared to 2012. income taxes the effective tax rate in 2013 was 30.4 % compared to 31.6 % in 2012. the lower tax rate for 2013 was due primarily to both the current year and retroactive application of certain tax provisions , including the research and development tax credit that were part of the american taxpayer relief act of 2012 , which became law during the first quarter of 2013. additional information related to the company 's effective tax rate is included in note 12 โ income taxes in the notes to consolidated financial statements .
| segment results electrical segment replace_table_token_7_th net sales in the electrical segment increased seven percent in 2013 compared with 2012 due to acquisitions and higher organic volume . acquisitions and organic volume added four and three percentage points , respectively , to net sales . in addition , price realization was offset by the negative impacts of foreign currency translation , each less than one percentage point . within the segment , electrical systems products net sales increased seven percent in 2013 compared to 2012 due to acquisitions and slightly higher organic demand . favorable price realization was offset by unfavorable foreign currency translation . higher net sales of electrical systems products included growth in high voltage projects and improvements in the construction sector . the extractive industries sector was essentially flat while industrial demand was lower . net sales of lighting products increased eight percent in 2013 compared to 2012 due to strong organic volume growth in the non-residential market , which continued to benefit from increased relight and retrofit renovation project demand , strong growth in the residential market and the impact of the norlux acquisition . operating income in 2013 increased twelve percent to $ 341.1 million compared to 2012 while operating margin expanded by 70 basis points to 15.1 % . operating income increased primarily due to acquisitions , higher volume and favorable price realization partially offset by unfavorable product mix driven by lower industrial demand . in addition , productivity exceeded all other cost increases . operating margin improved primarily due to productivity in excess of cost increases , lower material costs and favorable price realization . power segment replace_table_token_8_th net sales in the power segment declined one percent in 2013 compared to 2012. the decrease was due to lower organic volume and the unfavorable impact of foreign currency translation largely offset by the impact of an acquisition .
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to designate a derivative for hedge accounting at inception and throughout the hedge period , the company formally documents the nature and relationships story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations section should be read in conjunction with โ financial statements and supplementary data โ included in part ii , item 8 of this 2018 annual report , โ selected financial data โ included in part ii , item 6 of this 2018 annual report , and our audited consolidated financial statements and notes thereto included elsewhere in this 2018 annual report . the following โ overview of our business โ and `` recent developments '' sections below is a brief presentation of our business and certain significant items addressed in this section or elsewhere in this 2018 annual report . you should read this section and the relevant portions of this 2018 annual report for a complete discussion of the events and items summarized below . overview of our business element solutions inc , incorporated in delaware in january 2014 , is a leading global specialty chemicals company whose operating businesses formulate a broad range of solutions that enhance the performance of products people use every day . developed in multi-step technological processes , our businesses ' innovative solutions enable customers ' manufacturing processes in several key industries , including electronic circuitry , communications infrastructure , automotive systems , industrial surface finishing , consumer packaging and offshore energy . substantially all of our businesses ' products are consumed by our customers as part of their production process , providing us with reliable and recurring revenue streams as the products are replenished in order to continue production . those customers use our innovations as competitive advantages , relying on us to help them navigate through fast-paced , high-growth markets . our product development and product extensions are expected to continue to drive sales growth in both new and existing markets , while expanding margins , by continuing to offer high customer value propositions . we believe the majority of our businesses hold strong positions in the high-growth markets they serve . our strategy is based on a balance of operational excellence and prudent capital allocation . to that end , our teams focus on commercial execution through strong sales , marketing , product development and supply chain efficiency ; while our senior leadership balances holding business teams responsible for operational execution with prioritizing and executing on capital allocation opportunities . in the future , we may pursue targeted and opportunistic acquisitions in our existing and adjacent end-markets that strengthen our current businesses , expand and diversify our product offering , and enhance our growth and strategic position . we generate revenue through the formulation and sale of our businesses ' dynamic chemistry solutions and by providing highly technical service to our customers and oems through our extensive global network of specially-trained scientists and engineers . while our dynamic chemistries typically represent only a small portion of our customers ' costs , they are integral to our customers ' manufacturing processes and overall product performance . we leverage these close relationships with our customers and oems to execute our growth strategy and identify opportunities for new products . these new products are developed and created by drawing upon our intellectual property portfolio and technical expertise . we believe that our customers place significant value on the consistency and quality represented by our brands , which we capitalize on through significant market share , customer loyalty and supply chain access . lastly , operational risks and switching costs make it difficult for our customers to change suppliers which allows us to retain customers and maintain our market positions . in the fourth quarter , we completed certain changes to our organizational structure that resulted in a change to our reportable business segments . the previously reported agricultural solutions segment has met the requirements to be classified as discontinued operations and the previously reported performance solutions segment was separated into two segments : electronics and industrial & specialty , which are each described below : electronics โ the electronics segment researches , formulates and delivers specialty chemicals and materials for all types of electronics hardware , from complex printed circuit board designs to new interconnection materials . in mobile communications , computers , automobiles and aerospace equipment , its products are an integral part of the electronics manufacturing process and the functionality of their goods . the segment 's `` wet chemistries '' for metallization , surface treatments and solderable finishes form physical circuitry pathways and its `` assembly materials , '' such as solders , pastes , fluxes and adhesives , join those pathways together . the segment provides specialty chemical solutions through the following businesses : assembly solutions , circuitry solutions and semiconductor solutions . industrial & specialty โ the industrial & specialty segment provides customers with industrial solutions , which include chemical systems that protect and decorate metal and plastic surfaces ; graphics solutions , which include consumable chemicals that enable printing image transfer on flexible packaging materials ; and energy solutions , which include dynamic chemistries used in water-based hydraulic control fluids for offshore deep-water drilling . its fully consumable products are used in the aerospace , automotive , construction , consumer electronics , consumer packaged goods and oil and gas production end markets . 31 our operating segments include significant foreign operations . there are certain risks associated with our foreign operations . see part i , item 1a . risk factorsโ `` our substantial international operations subject us to risks not faced by domestic competitors . '' and `` unfavorable currency exchange rate fluctuations could adversely affect our results of operations . '' recent developments closing of the arysta sale on july 20 , 2018 , we agreed to sell 100 % of the issued and outstanding shares of common stock of arysta and its subsidiaries to upl pursuant to the terms and conditions of the arysta sale agreement . story_separator_special_tag we consider the accounting estimates discussed below to be critical to the understanding of our financial statements and involve difficult , subjective , or complex judgments that could potentially affect reported results . see note 2 , summary of significant accounting policies , to the consolidated financial statements included in this 2018 annual report for a detailed discussion of the application of these and other accounting policies . revenue recognition we recognize revenue either upon shipment or delivery of product depending on when it is reasonably assured that both title and the risks and rewards of ownership have been passed on to the customer , and our performance obligations have been fulfilled and collectability is probable . estimates for sales rebates , incentives and discounts , as well as sales returns and allowances , are accounted for as reductions of revenue when the earnings process is complete . sales rebates , incentives and discounts are typically earned by customers based on annual sales volume targets . we record an estimate for these accruals based on contract terms and its historical experience with similar programs . an estimate for future expected sales returns is recorded based on historical experience with product returns ; however , changes to these estimates may be required if the historical data used in the calculation differs from actual experience . differences between estimated expense and actual costs are typically immaterial and are recognized in earnings in the period such differences are determined . variable consideration for volume discounts , rebates and returns are recorded as contract liabilities and settled with the customer in accordance with the terms of the applicable contract , typically when program requirements are achieved by the customer . most performance obligations relate to contracts with a duration of less than one year , in which we have the right to invoice the customer at the time the performance obligation is satisfied for the amount of revenue recognized at that time . accordingly , we have elected the practical expedient available under asc topic 606 , revenue from contracts with customers , not to disclose remaining performance obligations under our contracts . we have also elected the practical expedient to expense incremental costs for obtaining contracts with terms of less than one year . 33 receivables and allowance for doubtful accounts we determine our allowance for doubtful accounts using a combination of factors to reduce our trade receivable balances to their estimated net realizable amount . we maintain and adjust our allowance for doubtful accounts based on a variety of factors , including the length of time receivables are past due from the contractual terms of the receivables , macroeconomic trends and conditions , significant one-time events such bankruptcy filings or deterioration in the customer 's operating results or financial position , historical experience and the financial condition of our customers . we perform ongoing credit evaluations of the financial condition of our third-party distributors and other customers and , in certain circumstances , require collateral such as letters of credit and bank guarantees . credit risk with respect to accounts receivable is generally diversified due to the large number of entities comprising our customer base and the dispersion of our customers across many different geographical regions . at december 31 , 2018 and 2017 , we believe there were no significant concentrations of credit risk that could materially impact our results of operations or financial position . inventories inventories are stated at the lower of cost or net realizable value with cost being determined by the first-in/first-out and average costs methods . we regularly review inventories for obsolescence and excess quantities and calculate reserves based on historical write-offs , customer demand , product evolution , usage rates and quantities of stock on hand . additional obsolescence reserves may be required if actual sales are less favorable than those projected . business combinations purchase price allocations of acquisitions to tangible and intangible assets acquired , liabilities assumed and non-controlling interests in the acquiree are based on estimated fair value at the acquisition date . the excess of the acquisition price over those estimated fair values is recorded as goodwill . changes to the acquisition date provisional fair values prior to the end of the measurement period are recorded as adjustments to the associated goodwill . acquisition-related expenses and restructuring costs , if any , are expensed as incurred . goodwill goodwill is tested for impairment at the reporting unit level annually in the fourth quarter , or when events or changes in circumstances indicate that goodwill might be impaired . our reporting units are determined based upon our organizational structure in place at the date of the goodwill impairment test . the fair value of each reporting unit is determined based equally on market multiples and the present value of discounted future cash flows . the discounted cash flows are prepared based upon cash flows at the reporting unit level and involve significant judgments related to future growth rates and discount rates , among other considerations , from the vantage point of a market participant . the primary components of and assumptions used in the assessment consist of the following : valuation techniques - we use a discounted cash flow analysis , which requires assumptions about short and long-term net cash flows , growth rates and discount rates . additionally , we consider guideline company and guideline transaction information , where available , to aid in the valuation of the reporting units . growth assumptions - multi-year financial forecasts of revenue and the resulting cash flows for periods of five to seven years , including an estimated terminal growth rate at the end of the forecasted period , are developed for each reporting unit by considering several key business drivers such as new business initiatives , client service and retention standards , market share changes , historical performance and industry and economic trends , among other considerations .
| results of operations replace_table_token_4_th ( nm ) calculation not meaningful . year ended december 31 , 2018 compared to the year ended december 31 , 2017 net sales net sales for 2018 increased by 4 % on a reported basis and 3 % on both a constant currency and organic basis . we generated organic net sales growth in both of our segments , with electronics providing strong gains from its assembly and semiconductor business , and our industrial & specialty segment providing organic net sales growth from all of its businesses . the following table reconciles gaap net sales growth to constant currency and organic net sales growth for 2018 : replace_table_token_5_th note : totals may not sum due to rounding . 38 electronics ' and consolidated results were positively impacted by $ 5.7 million of acquisitions and negatively impacted by $ 3.4 million of pass-through metals pricing . electronics ' net sales for 2018 increased by 3 % on a reported basis and 2 % on both a constant currency and organic basis . our assembly solutions business , which serves the broader electronics market , contributed approximately 1 % to the segment 's organic net sales growth driven by higher sales across most product lines , particularly in solder paste and bar products in asia and the americas . semiconductor solutions also contributed approximately 1 % of growth , as advanced packaging and advanced assembly products benefited from the continuing expansion of automotive electronic content and focus on electronic vehicles . our circuitry solutions business saw modest sales pressure in the second half of the year , as demand for high-end mobile phones was lower than anticipated , primarily in asia . industrial & specialty 's net sales for 2018 increased by 6 % on a reported basis and 5 % on both a constant currency and organic basis .
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the actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited to , those presented under โ risk factors โ in item 1a and elsewhere in this annual report on form 10-k. we are an innovator in the field of metrology and inspection systems for semiconductor manufacturing and other industries . our systems are designed to precisely monitor film thickness and critical dimensions that are necessary to control the manufacturing process and to identify defects that can affect production yields and performance . principal factors that impact our revenue growth include capital expenditures by manufacturers of semiconductors to increase capacity and to enable their development of new technologies , and our ability to take market share . the increasing complexity of the manufacturing processes for semiconductors is an important factor in the demand for our innovative metrology systems , as are the adoption of optical critical dimension ( โ ocd โ ) metrology across fabrication processes , adoption of immersion lithography and double patterning , adoption of new types of thin film materials , the adoption of advanced packaging strategies and wafer backside inspection and the need for improved process control to drive process efficiencies . our strategy is to continue to innovate organically as well as to evaluate strategic acquisitions in order to address business challenges and opportunities . our revenues are primarily derived from product sales but are also derived from customer service and system upgrades for the installed base of our products . in 2011 , we derived 84.7 % of our total net revenues from product sales and 15.3 % of our total net revenues from services . important themes and significant trends the semiconductor equipment industry is characterized by cyclical growth . changing trends in the semiconductor industry continue to drive the need for metrology as a major component of manufacturing systems . these trends include : proliferation of optical critical dimension metrology across fabrication processes . our customers use photolithographic processes to create patterns on wafers . critical dimensions must be carefully controlled during this process . in advanced node device definition , additional monitoring of thickness and profile dimensions on these patterned structures at cmp , etch , and thin film processing is driving broader ocd adoption . our proprietary ocd systems can provide the critical process control of these circuit dimensions that is necessary for successful manufacturing of these state of the art devices . nanometrics ocd technology is broadly adopted across nand , dram , hdd , and logic semiconductor manufacturing processes . adoption of advanced packaging processes : our customers use photolithographic , etching , metallization and wafer thinning to enable next generation advanced packaging solutions for semiconductor devices . the new packaging leads to increased functionality in smaller , less expensive form factors . advanced packages can be broken down into high density flip chip or bump packages that increase pin density allowing for more complex i/o on advanced cpu parts . or , similar or different devices can be stacked at the wafer level using a through silicon via process . the tsv process enables high density small form factor parts , being primarily driven by mobile consumer products ( i.e . cellular 25 telephones with integrated cmos camera sensors ) . increasingly advanced packaging technologies are being adopted by our end customers . adoption of new types of thin film materials . the need for ever increasing device circuit speed coupled with lower power consumption has pushed semiconductor device manufacturers to begin the replacement of the traditional aluminum etch back interconnect flows as well as conventional gate dielectric materials , all which drive a broader adoption of thin film and ocd metrology systems . to achieve greater semiconductor device speed , manufacturers have adopted copper in logic/idm and it is now proliferating in next generation dram and flash nodes . additionally , to achieve improved transistor performance in logic devices and higher cell densities in memory devices , new materials including high dielectric constant ( or high-k ) gate materials are increasingly being substituted for traditional silicon-oxide gate dielectric materials . high-k materials are comprised of complex thin films including layers of hafnium oxide and a bi-layer of thin film metals . our advanced metrology and inspection solutions are required for control of process steps , which are critical to enable the device performance improvements that these new materials allow . development of 3d transistor architectures . our end customers continue to improve device density and performance by scaling front end of line transistor architectures . many of these designs have buried features and high aspect ratio stacked features that enable improved performance and density . the advanced designs require additional process control to manage the complex shapes and materials properties , driving additional applications for both ocd and our unifire systems . need for improved process control to drive process efficiencies . competitive forces influencing semiconductor device manufacturers , such as price-cutting and shorter product life cycles , place pressure on manufacturers to rapidly achieve production efficiency . device manufacturers are using our integrated and automated systems throughout the fabrication to ensure that manufacturing processes scale rapidly , are accurate and can be repeated on a consistent basis . reduced number of customers . our market is characterized by an ongoing oligopolistic trend which drives customer concentration . the largest customer accounted for 17.6 % of our total revenue in the fiscal year 2001 , and the largest customer accounted for 30.0 % and 23.0 % of our total revenue in the fiscal year 2011 and 2010 , respectively . critical accounting policies the preparation of our financial statements conforms to accounting principles generally accepted in the united states of america , which requires management to make estimates and judgments in applying our accounting policies that have an important impact on our reported amounts of assets , liabilities , revenue , expenses and related disclosures at the date of our financial statements . story_separator_special_tag we have established vsoe for some of our products and services when a substantial majority of selling prices falls within a narrow range when sold separately . for deliverables with no established vsoe , we use best estimated selling price to determine standalone selling price for such deliverable . we do not use tpe to determine standalone selling price since this information is not widely available in the market as our products contain a significant element of proprietary technology and the solutions offered differ substantially from our competitors . we have established a process for developing estimated selling prices , which incorporates historical selling prices , the effect of market conditions , gross margin objectives , pricing practices , as well as entity-specific factors . we monitor and evaluate estimated selling price on a regular basis to ensure that changes in circumstances are accounted for in a timely manner . the adoption of the new accounting standards did not have a significant impact on our consolidated financial statements . when certain elements in multiple-element arrangements are not delivered or accepted at the end of a reporting period , the relative selling prices of undelivered elements are deferred until these elements are delivered and or accepted . if deliverables can not be accounted for as separate units of accounting , the entire arrangement is accounted for as a single unit of accounting and revenue is deferred until all elements are delivered and all revenue recognition requirements are met . allowance for doubtful accounts โ we maintain allowances for estimated losses resulting from the inability of our customers to make their required payments . credit limits are established through a process of reviewing the financial history and stability of our customers . where appropriate and available , we obtain credit rating reports and financial statements of customers when determining or modifying their credit limits . we regularly evaluate the collectability of our trade receivable balances based on a combination of factors such as the length of time the receivables are past due , customary payment practices in the respective geographies and our historical collection experience with customers . we believe that our allowance for doubtful accounts adequately reflects our risk associated with our receivables . if however , the financial conditions of customers were to deteriorate , resulting in their inability to make payments , we would assess the necessity of recording additional allowances . this would result in additional general and administrative expenses being recorded for the period in which such determination was made . inventories โ inventories are stated at the lower of cost or market . we are exposed to a number of economic and industry-specific factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated 27 usage , or saleable only for amounts that are less than their carrying amounts . these factors include , but are not limited to , technological changes in our market , our ability to meet changing customer requirements , competitive pressures in products and prices , and the availability of key components from our suppliers . we have established inventory reserves when conditions exist that suggest that our inventory may be in excess of anticipated demand or is obsolete based upon our assumptions about future demand for our products and market conditions . once a reserve has been established , it is maintained until the part to which it relates is sold or is otherwise disposed of . therefore , reserved inventory sale has higher gross profit margin . we regularly evaluate our ability to realize the value of our inventory based on a combination of factors including the following : historical usage rates , forecasted sales of usage , product end-of-life dates , estimated current and future market values and new product introductions . inventory includes evaluation tools placed at customer sites . for demonstration inventory , we also consider the age of the inventory and potential cost to refurbish the inventory prior to sale . demonstration inventory is amortized over its useful life and the amortization expense is included in total depreciation and amortization on our cash flow statement . when recorded , our reserves are intended to reduce the carrying value of our inventory to its net realizable value . if actual demand for our products deteriorates , or market conditions are less favorable than those that we project , additional reserves may be required . product warranties โ we sell the majority of our products with a standard twelve ( 12 ) -month repair or replacement warranty from the date of acceptance or shipment date . we provide an accrual for estimated future warranty costs based upon the historical relationship of warranty costs to the cost of products sold . the estimated future warranty obligations related to product sales are reported in the period in which the related revenue is recognized . the estimated future warranty obligations are affected by the warranty periods , sales volumes , product failure rates , material usage and labor and replacement costs incurred in correcting a product failure . if actual product failure rates , material usage , labor or replacement costs differ from our estimates , revisions to the estimated warranty obligations would be required . for new product introductions where limited or no historical information exists , we may use warranty information from other previous product introductions to guide us in estimating our warranty accrual . the warranty accrual represents the best estimate of the amount necessary to settle future and existing claims on products sold as of the balance sheet date . we periodically assess the adequacy of our recorded warranty reserve and adjust the amounts in accordance with changes in these factors . business combinations - we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date .
| results of operations the following table presents our consolidated statements of operations data as a percentage of total net revenues for fiscal years ended december 31 , 2011 , january 1 , 2011 and january 2 , 2010 . 29 replace_table_token_8_th fiscal years 2011 , 2010 and 2009 ( ended december 31 , 2011 , january 1 , 2011 and january 2 , 2010 , respectively ) total net revenues . our net revenues were comprised of the following product lines ( in thousands , except percent ) : replace_table_token_9_th 30 replace_table_token_10_th in 2011 , revenue from products increased by $ 40.2 million from 2010 , principally due to increased demand from our customers associated with the expansion of their semiconductor fabrication plants , particularly in the first half of 2011. approximately $ 28.3 million of the increase was attributable to sales of our automated systems ( primarily for atlas ยฎ ) . integrated systems accounted for approximately $ 8.0 million of the increase ( principally 9010 series and impulse ยฎ ) and materials characterization increased by $ 3.9 million . product revenue in the fourth quarter of 2011 decreased by $ 13.0 million compared to the third quarter of 2011 due to a general pause in spending by some of our largest customers . we do not expect this trend to continue into the first quarter of 2012. service revenue increased by $ 1.8 million in 2011 principally due to increased demand for services provided under customer contracts . in 2010 the revenue from products increased by $ 105.4 million over the previous year , most of it attributable to increased capital spending by our customers . about $ 74.4 million of this increase was attributable to automated systems ( atlas ยฎ , nanogen ยฎ , mosaic tm , and lynx tm ) , materials characterization tools accounted for $ 16.3 million of this increase and $ 14.7 million represented increased sales of integrated systems .
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overview we own , operate and invest in a diversified group of infrastructure businesses that provide basic services , such as chilled water for building cooling and gas utility services to businesses and individuals primarily in the u.s. the businesses we own and operate are energy-related businesses consisting of : a 50 % interest in imtt , the gas company and our controlling interest in district energy ; and an aviation-related business , 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 . in analyzing the financial condition and results of operations of our businesses , we focus primarily on cash generation generally , 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 product/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 . we currently expect capacity utilization to grow marginally in 2012 and average storage rates to increase , though at a lower percentage than in 2011 , subject to the drivers of storage demand remaining intact . in 2012 , we will also be focused on resolving our pending dispute with the co-owner of imtt and on receiving distributions in accordance with the shareholders ' agreement between the owners of the business . 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 , and with managing the capital structure of the business to maintain access to a portion of the cash flow being generated . we currently expect general aviation activity to increase in 2012 and along with that the gross profit generated by our fbos , subject to there being continued economic recovery , particularly in the united states . we intend to manage the expenses of the business in a manner generally consistent with keeping leverage levels at or below agreed upon levels and in doing so making distributions of 50 % of the free cash flow of the business to our holding company . at the gas company , our focus is on the number of customers served , and in the case of the non-utility portion of the business , the margins achieved on sales of gas products as well . we periodically pursue rate cases that allow for adjustment of the rates in the utility portion of the business . we presently do not intend to pursue any significant rate case in 2012. in the coming year our efforts will be aimed at increasing the percentage of the addressable market receiving gas products from the gas company . subject to the debt markets remaining favorable , we will seek to refinance the debt facilities of the business on economically sensible terms consistent with the amount and tenor of that debt . we currently expect that the distribution of cash generated by the gas company will be used to support our current level of dividends to shareholders . at district energy , we focus on attracting and maintaining relationships with building owners and managers such that they choose to or continue to use the cooling services of the business . in 2012 , we will seek to contract with a provider of electricity for the 2013 year on terms that are at least as favorable as those currently in effect . we currently anticipate that the cash generated by district energy , up to the point at which it is used to reduce debt principal , will be used to support our current level of dividends to shareholders . 47 dividends since january 1 , 2011 , mic has made or declared the following dividends : replace_table_token_12_th the precise timing and amount of any future dividend will be based on the continued stable performance of the company 's businesses and the economic conditions prevailing at the time of any authorization . in determining the amount of the dividend , we had expected to include certain funds from the cash flow of imtt . distribution of funds to us from imtt is governed by the shareholders ' agreement between us and the co-investor that owns the remaining 50 % stake . the co-investor has refused to vote in favor of distributing certain of these funds , and we believe that such a refusal violates the shareholders ' agreement . this matter is the subject of arbitration proceedings described under ยarbitration proceeding between mic and co-investor in imtt ย below . contingent upon the favorable outcome related to the imtt arbitration , and the compliance therewith , and the continued stable performance of our businesses , and subject to prevailing economic conditions , our board of directors expect to increase our dividend to approximately $ 0.375 per share per quarter . tax treatment of dividends dividends paid in 2011 will be characterized as a dividend for tax purposes , which shareholders should include in their taxable income . we anticipate that the dividend for u.s. federal income tax purposes will be eligible for treatment as qualified dividend income , subject to the shareholder having met the holding period requirements as defined by the internal revenue code . holders of mic llc interests are encouraged to seek their own tax advice with regards to their investment in mic . story_separator_special_tag mic inc. revolving credit facility until march 31 , 2010 , the company had a revolving credit facility provided by various financial institutions , including entities within the macquarie group . the facility was repaid in full in december 2009 and no amounts were outstanding under the revolving credit facility as of december 31 , 2009 or at the facility 's maturity on march 31 , 2010. this facility was not renewed or replaced and we have no other holding company debt . 49 income taxes we file a consolidated federal income tax return that includes the taxable income of the gas company and atlantic aviation . imtt and district energy file separate federal income tax returns . to the extent we receive distributions from imtt and district energy , such distributions may be characterized as non-taxable returns of capital and reduce our tax basis in these companies , or as a taxable dividend . we include in our taxable income the portion of any distributions from imtt and district energy characterized as a dividend . those dividends are eligible for the 80 % dividends received deduction . we also receive and include in taxable income interest income on intercompany debt from district energy . as a result of having federal net operating loss , or nol , carryforwards , we do not expect to have a consolidated regular federal income tax liability or make regular federal tax payments at least through the 2013 tax year . however , we expect to pay an alternative minimum tax of less than $ 250,000 for 2011. the cash state and local taxes paid by our individual businesses are discussed in the sections entitled ยincome taxesย for each of these businesses . the individual businesses included in our consolidated federal income tax return pay federal income taxes to mic in an amount approximately equivalent to the federal income taxes each would have paid on a standalone basis if they were not part of the mic consolidated federal income tax return . tax relief , unemployment insurance reauthorization and job creation act of 2010 in december 2010 , the tax relief , unemployment insurance reauthorization and job creation act of 2010 ( the ยactย ) was signed . the act provides for 100 % tax depreciation for certain fixed assets placed in service after september 8 , 2010 and before january 1 , 2012 , and 50 % tax depreciation for certain fixed assets placed in service during 2012 for federal income tax purposes . generally , states do not allow this tax depreciation deduction in determining state taxable income . importantly , illinois and louisiana , two states in which we have significant operations , do permit the use of federal tax depreciation deductions in calculating state taxable income . the company took and will take into consideration the benefits of these accelerated depreciation provisions of the act when evaluating capital expenditure plans for 2011 and 2012. president obama 's proposed budget for 2012 includes an extension of the 100 % tax depreciation for certain fixed assets . there is some congressional support for this proposal , although there can be no certainty that any extension will be approved . such approval , if made , may result in our accelerating a portion of our business ' maintenance capital expenditures into 2012 in order to capture the associated tax benefit . taxpayer accountability and budget stabilization act in january 2011 , illinois enacted the taxpayer accountability and budget stabilization act . the legislation increases the corporate income tax rate to 7.0 % from 4.8 % for taxable years beginning on or after january 1 , 2011 and prior to january 1 , 2015 ; to 5.25 % for taxable years beginning on or after january 1 , 2015 and prior to january 1 , 2025 ; and returns the rate to 4.8 % for taxable years beginning on or after january 1 , 2025. the legislation also suspends the use of state nol carryforwards until 2012 , and limits the annual utilization in 2012 through 2014 to $ 100,000 per year . for purposes of determining the taxable years to which a net loss may be carriedforward , no taxable year for which a deduction is disallowed under this provision will be counted . as discussed below in district energy 's results of operations , the income tax expense for the year ended december 31 , 2011 reflects a change in the deferred tax liability of this business consistent with the change in illinois law . discontinued operations ย pcaa bankruptcy on june 2 , 2010 , we concluded the sale in bankruptcy of an airport parking business ( ยparking company of america airportsย or ยpcaaย ) , resulting in a pre-tax gain of $ 130.3 million , of which $ 76.5 million related to the forgiveness of debt and the elimination of $ 201.0 million of current debt from liabilities from our consolidated balance sheet . the results of operations from this business and the gain from the bankruptcy sale are separately reported as discontinued operations in the company 's consolidated financial statements . this business is no longer a reportable segment . as a part of the bankruptcy sale process , substantially all of the cash proceeds were used to pay the creditors of this business and were not paid to us . see note 4 , ยdiscontinued operationsย , in our consolidated financial statements in ยfinancial statements and supplementary dataย in part ii , item 8 , of this form 10-k for financial information and further discussions . 50 operating segments and businesses energy-related businesses imtt imtt provides bulk liquid storage and handling services in north america through ten terminals located on the east , west and gulf coasts , the great lakes region of the united states and two partially owned terminals in quebec and newfoundland , canada . imtt 's largest terminals are located in new york harbor and the lower mississippi river near new orleans .
| key factors affecting operating results strong performance from our energy-related businesses reflecting : an increase in average storage rates at imtt ; and an increase in contribution margin at the gas company ; partially offset by reduced spill response activity in 2011 compared with 2010 at imtt . improved contribution from atlantic aviation reflecting : increased volume of general aviation fuel sold ; and lower interest expense . 54 results of operations : consolidated ย ( continued ) our consolidated results of operations are as follows : replace_table_token_13_th nm ย not meaningful ( 1 ) interest expense includes non-cash gains on derivative instruments of $ 18.2 million for the year ended december 31 , 2011. for the years ended december 31 , 2010 and 2009 , interest expense includes non-cash losses on derivative instruments of $ 23.4 million and $ 4.3 million , respectively . gross profit consolidated gross profit increased from 2010 to 2011 reflecting improved results for fuel gross profit at atlantic aviation and the gas company generally , offset by decreases at district energy and in non-fuel gross profit at atlantic aviation . consolidated gross profit increased from 2009 to 2010 reflecting improved results at our energy-related businesses and in fuel-related services at atlantic aviation , offset by a decrease in non-fuel gross profit from atlantic aviation . 55 results of operations : consolidated ย ( continued ) selling , general and administrative expenses selling , general and administrative expenses increased from 2010 to 2011 at corporate , primarily due to the arbitration proceedings between mic and its imtt co-investor , offset by decreases at the gas company and atlantic aviation . selling , general and administrative expenses decreased from 2009 to 2010 at all of our consolidated businesses , particularly at atlantic aviation . fees to manager base management fees to our manager increased in line with our increased market capitalization .
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the readers of this document are cautioned that any forward-looking statements are not guarantees of future performance and involve risks , uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements , including , but not limited to , a failure to consummate the transaction or the sky acquisition in a timely matter or at all . more information regarding these risks , uncertainties and other factors is set forth under the heading โ risk factors โ in item 1a of this annual report on form 10-k ( the โ annual report โ ) . twenty-first century fox , inc. does not ordinarily make projections of its future operating results and undertakes no obligation ( and expressly disclaims any obligation ) to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . readers should carefully review this document and the other documents filed by twenty-first century fox , inc. with the securities and exchange commission ( the โ sec โ ) . this section should be read together with the audited consolidated financial statements of twenty-first century fox , inc. and related notes set forth elsewhere in this annual report . introduction management 's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of twenty-first century fox , inc. and its subsidiaries ' ( together , โ twenty-first century fox โ or the โ company โ ) financial condition , changes in financial condition and results of operations . this discussion is organized as follows : overview of the company 's business - this section provides a general description of the company 's businesses , as well as developments that occurred either during the fiscal year ended june 30 , ( โ fiscal โ ) 2018 or early fiscal 2019 that the company believes are important in understanding its results of operations and financial condition or to disclose known trends . results of operations - this section provides an analysis of the company 's results of operations for fiscal 2018 , 2017 and 2016. this analysis is presented on both a consolidated and a segment basis . in addition , a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed . liquidity and capital resources - this section provides an analysis of the company 's cash flows for fiscal 2018 , 2017 and 2016 , as well as a discussion of the company 's outstanding debt and commitments , both firm and contingent , that existed as of june 30 , 2018. included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to fund the company 's future commitments and obligations , as well as a discussion of other financing arrangements . critical accounting policies - this section discusses accounting policies considered important to the company 's financial condition and results of operations , and which require significant judgment and estimates on the part of management in application . in addition , note 2 to the accompanying consolidated financial statements of twenty-first century fox summarizes the company 's significant accounting policies , including the critical accounting policy discussion found in this section . 44 overview of the company 's business the company is a diversified global media and entertainment company , which manages and reports its businesses in the following four segments : cable network programming , which principally consists of the production and licensing of programming distributed primarily through cable television systems , direct broadcast satellite operators , telecommunication companies and online video distributors , ( collectively , โ multi-channel video programming distributors โ ) ( โ mvpds โ ) in the united states ( โ u.s. โ ) and internationally . television , which principally consists of the broadcasting of network programming in the u.s. and the operation of 28 full power broadcast television stations , including 11 duopolies , in the u.s. ( of these stations , 17 are affiliated with fox broadcasting company ( โ fox โ ) , nine are affiliated with master distribution service , inc. ( โ mynetworktv โ ) , one is affiliated with both the cw television network and mynetworktv and one is an independent station ) . filmed entertainment , which principally consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide , and the production and licensing of television programming worldwide . other , corporate and eliminations , which principally consists of corporate overhead costs and intercompany eliminations . cable network programming and television the company 's cable networks , which target various demographics , derive a majority of their revenues from monthly affiliate fees received from mvpds based on the number of their subscribers . affiliate fee revenues are net of the amortization of cable distribution investments ( capitalized fees paid to u.s. mvpds to typically facilitate the carriage of a domestic cable network ) . the company defers the cable distribution investments and amortizes the amounts on a straight-line basis over the contract period . in the u.s. , cable television systems and direct broadcast satellite operators are currently the predominant means of distribution of the company 's program services . internationally , distribution technology varies region by region . the television operations derive revenues primarily from the sale of advertising and affiliate fee revenue . adverse changes in general market conditions for advertising may affect revenues . u.s. law governing retransmission consent revenue , recognized as affiliate fees , provides a mechanism for the television stations owned by the company to seek and obtain payment from mvpds who carry the company 's broadcast signals . retransmission consent revenue consists of per subscriber-based compensatory fees paid to the company by mvpds that distribute the signals of the company 's owned and operated television stations . story_separator_special_tag in july 2018 , the company announced an increased offer price for the sky acquisition ( the โ increased offer โ ) . on august 7 , 2018 , the company posted an offer document to sky shareholders in connection with the increased offer and announced that it intends to implement the sky acquisition by way of a takeover offer within the meaning of part 28 of the companies act 2006 ( the โ uk companies act โ ) rather than by means of a scheme of arrangement in accordance with part 26 of the uk companies act , which had been the proposed structure of the sky acquisition prior to that date . the company has noted that the deadline for publication of any revised offer document in respect of its increased offer is september 22 , 2018. see note 3 โ acquisitions , disposals and other transactions to the accompanying consolidated financial statements of twenty-first century fox for further details . 47 results of operations results of operationsโfiscal 2018 versus fiscal 2017 the following table sets forth the company 's operating results for fiscal 2018 , as compared to fiscal 2017 : replace_table_token_5_th * * not meaningful overview โ the company 's revenues increased 7 % for fiscal 2018 , as compared to fiscal 2017 , primarily due to higher affiliate fee and content revenues partially offset by lower advertising revenue . the increase in affiliate fee revenue was primarily attributable to contractual rate increases at the cable network programming and television segments . the increase in content revenue was primarily due to higher subscription video-on-demand ( โ svod โ ) revenue from the licensing of television productions , higher worldwide theatrical revenue and the sublicensing of big ten programming rights to third party networks . the decrease in advertising revenue was primarily due to the comparative effect of the broadcast of the national football league ( โ nfl โ ) super bowl li in february 2017 and lower u.s. political advertising revenue due to the impact of the 2016 presidential election last year partially offset by the broadcasts of the indian premier league ( โ ipl โ ) and the fรฉdรฉration internationale de football association ( โ fifa โ ) world cup . these revenue increases include a benefit of approximately $ 135 million due to the strengthening of local currencies against the u.s. dollar for fiscal 2018 , as compared to fiscal 2017. operating expenses increased 9 % for fiscal 2018 , as compared to fiscal 2017 , primarily due to higher sports and entertainment programming rights amortization at the cable network programming segment and higher production amortization and participation costs from television and motion picture productions at the filmed entertainment segment . 48 selling , general and administrative expenses increased 11 % for fiscal 2018 , as compared to fiscal 2017 , primarily due to higher compensation expenses , including approximately $ 65 million of additional compensation expense related to the transaction ( see note 3 โ acquisitions , disposals and other transactions to the accompanying consolidated financial statements of twenty-first century fox under the heading โ disney transaction/distribution of new fox โ ) , and higher legal fees . impairment and restructuring charges โ see note 5 โ restructuring programs and note 6 โ inventories , net to the accompanying consolidated financial statements of twenty-first century fox . equity losses of affiliates โ equity losses of affiliates increased $ 97 million for fiscal 2018 , as compared to fiscal 2017 , primarily due to higher losses at hulu , llc ( โ hulu โ ) resulting from higher programming costs partially offset by higher subscription and advertising revenues . partially offsetting the increased hulu equity losses were higher earnings at sky , principally as a result of increased revenues partially offset by higher programming and operating costs , and improved results at endemol shine group , primarily due to the absence of a goodwill impairment recorded in fiscal 2017. replace_table_token_6_th * * not meaningful interest expense , net โ interest expense increased $ 29 million for fiscal 2018 , as compared to fiscal 2017 , primarily due to the bridge credit agreement and the bridge commitment letter related to the sky acquisition and the transaction , respectively ( as described in note 3 โ acquisitions , disposals and other transactions to the accompanying consolidated financial statements of twenty-first century fox under the headings โ sky acquisition โ and โ disney transaction/distribution of new fox โ ) . other , net โ see note 22 โ additional financial information to the accompanying consolidated financial statements of twenty-first century fox under the heading โ other , net โ . income tax benefit ( expense ) โ the company 's effective tax rate of ( 8 ) % for fiscal 2018 was lower than the statutory rate of 28 % primarily due to a provisional $ 1.5 billion tax benefit which reflects the effects of the legislation in the u.s. passed in december 2017 commonly referred to as the tax cuts and jobs act ( the โ tax act โ ) ( see note 2 โ summary of significant accounting policies to the accompanying consolidated financial statements of twenty-first century fox under the heading โ u.s . tax reform โ ) . the company 's tax provision and related effective tax rate of 30 % for fiscal 2017 was lower than the statutory rate of 35 % primarily due to a 3 % benefit from domestic production activities and a 2 % benefit from the company 's foreign operations . net income โ net income increased for fiscal 2018 , as compared to fiscal 2017 , primarily due to the income tax benefit as a result of the tax act .
| under review standard & poor 's ( a ) bbb+ watch developing ( a ) moody 's and standard & poor 's changed the outlook of the company 's public debt from stable to under review and from watch negative to watch developing , respectively , in december 2017 , following the company 's announcement of the transaction ( see note 3 โ acquisitions , disposals 62 and other transactions to the accompanying consolidated financial statements of twenty-first century fox under the heading โ disney transaction/distribution of new fox โ ) . revolving credit agreement 21st century fox america , inc. ( โ 21cfa โ ) , a wholly-owned subsidiary of the company , is party to a credit agreement providing a $ 1.4 billion unsecured revolving credit facility with a sub-limit of $ 250 million ( or its equivalent in euros ) available for the issuance of letters of credit and a maturity date of may 2020 ( see note 11 โ borrowings to the accompanying consolidated financial statements of twenty-first century fox under the heading โ revolving credit agreement โ ) . bridge credit agreement to provide financing in connection with the sky acquisition , the company and 21cfa entered into a bridge credit agreement , which was subsequently amended ( see note 3 โ acquisitions , disposals and other transactions to the accompanying consolidated financial statements of twenty-first century fox under the heading โ sky acquisition โ ) . commitments and contingent guarantees the company has commitments under certain firm contractual arrangements ( โ firm commitments โ ) to make future payments . these firm commitments secure the future rights to various assets and services to be used in the normal course of operations . the following table summarizes the company 's material firm commitments as of june 30 , 2018 : replace_table_token_20_th the firm commitments above do not include obligations and commitments related to the transactions described in note 3 โ acquisitions , disposals and other transactions to the accompanying consolidated financial statements of twenty-first century fox .
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our products and solutions are used globally by banks , intermediaries , merchants , and billers , such as third-party electronic payment processors , payment associations , switch interchanges and a wide range of transaction-generating endpoints , including atms , merchant pos terminals , bank branches , mobile phones , tablets , corporations , and internet commerce sites . accordingly , our business and operating results are influenced by trends such as information technology spending levels , the growth rate of digital payments , mandated regulatory changes , and changes in the number and type of customers in the financial services industry , as well as economic growth and purchasing habits . our products are marketed under the aci worldwide brand . we derive a majority of our revenues from domestic operations and believe we have large opportunities for growth in international markets , as well as continued expansion domestically in the united states . refining our global infrastructure is a 29 critical component of driving our growth . we also continue to maintain centers of expertise in timisoara , romania and pune and bangalore in india , as well as key operational centers such as in cape town , south africa and in multiple locations in the united states . key trends that currently impact our strategies and operations include : increasing digital payment transaction volumes . the adoption of digital payments continues to accelerate , propelled by the digitization of cash , financial inclusion efforts of countries throughout the world , the internet of things , rapid growth of ecommerce and the adoption of real-time payments . covid-19 has further accelerated this growth as more people , governments , and businesses have embraced digital paymentsโa change likely to continue once the pandemic is over . we leverage the growth in transaction volumes through the licensing of new systems to customers whose older systems can not handle increased volume , through the sale of capacity upgrades to existing customers , and through the scalability of our platform-based solutions . adoption of real-time payments . expectations from both consumers and businesses are continuing to drive the payments world to more real-time delivery . this is bolstered by the new data-rich iso 20022 messaging format , which promises to deliver greater value to banks and their customers . we are seeing global players with existing schemes working to expand capacity in anticipation of volume growth ( further driven by covid-19 ) and new payment types . mature markets , including india , the united kingdom , australia , malaysia , singapore , thailand , and the nordics ( p27 ) , continue to accelerate innovation , especially in terms of overlay services and cross-border connectivity . the united states is driving real-time payments adoption through zelle , tch real-time payments , and the planned fednow service , while brazil 's pix was recently launched in november . aci 's broad software portfolio , experience , and strategic partnerships with mastercard , microsoft , and mindgate solutions continue to position us as the leaders in real-time payments , helping to drive seamless connectivity , increased security , and end-to-end modernization for organizations throughout the world . adoption of cloud technology . to leverage lower-cost computing technologies , increase time to market , accelerate innovation , and ensure scalability and resiliency , banks , intermediaries , merchants , and billers are seeking to transition their systems to make use of cloud technology . our investments and partnerships , as demonstrated by our product enablement and initial optimization onto microsoft azure , enable us to leverage the hybrid cloud technology benefits of automation and rapid deployment and delivery , while preserving the aci fundamentals of resiliency and scalability , to deliver cloud capabilities now and in the future . market sizing data from ovum ( now omdia ) indicates that spend on saas and paas payment systems is growing faster than spend on installed applications . digital payments fraud and compliance . the rise in digital payment transaction volumes and payment types has subsequently led to an increase in online fraud in many guises and across all channels . driven in part by covid-19 , we have seen an increase in phishing and friendly fraud , as well as remote banking fraud and authorized push payment scams . real-time payments bring a new level of urgency , as money can not easily be retrieved once it has been sent . banks , intermediaries , merchants , and billers must find faster , smarter , more accurate and increasingly automated ways to secure customers and meet regulatory pressures . we continue to see opportunity to offer our fraud detection solutions with advanced machine learning capabilities to help customers manage the growing levels of digital payments fraud and compliance activity . omni-commerce . shoppers are increasingly browsing , buying , and returning items across channels , including in-store , online , and mobile . covid-19 has accelerated this trend , leading to an increase in contactless payments , click and collect , and curbside collection . merchants from all industries , including grocers , fuel and convenience stores , are being tasked with delivering seamless experiences that include pay-in-aisle , kiosks , mobile app payments , qr code payments , ecommerce , traditional and mobile pos , buy online pickup in-store ( bopis ) and buy online return in-store ( boris ) . we believe there is significant opportunity to provide merchants with the tools to deliver a seamless , secure , personalized experience that creates loyalty and satisfaction , and drives conversion rates while protecting consumer data and preventing fraud . request for payment ( rfp ) . markets across the world are introducing an innovative payments service called request for payment ( rfp ) . this technology is known by different names in different markets : collect payments in india , request 2 pay in europe , request to pay ( rtp ) in the united kingdom , or request for payment ( rfp ) in the united states . story_separator_special_tag we believe this measure provides useful information to investors and others in understanding and evaluating our financial performance . replace_table_token_3_th replace_table_token_4_th estimates of future financial results require substantial judgment and are based on several assumptions , as described above . these assumptions may turn out to be inaccurate or wrong for reasons outside of management 's control . for example , our customers may attempt to renegotiate or terminate their contracts for many reasons , including mergers , changes in their financial condition , or general changes in economic conditions ( e.g . economic declines resulting from covid-19 ) in the customer 's industry or geographic location . we may also experience delays in the development or delivery of products or services specified in customer contracts , which may cause the actual renewal rates and amounts to differ from historical experiences . changes in foreign currency exchange rates may also impact the amount of revenue recognized in future periods . accordingly , there can be no assurance that amounts included in backlog estimates will generate the specified revenues or that the actual revenues will be generated within the corresponding 60-month period . additionally , because certain components of committed backlog and all of renewal backlog estimates are operating metrics , the estimates are not required to be subject to the same level of internal review or controls as contracted but not recognized committed backlog . 32 results of operations the following tables present the consolidated statements of operations , as well as the percentage relationship to total revenues of items included in our consolidated statements of operations ( in thousands ) : year ended december 31 , 2020 , compared to year ended december 31 , 2019 replace_table_token_5_th revenues total revenue for the year ended december 31 , 2020 , increased $ 36.0 million , or 3 % , as compared to the same period in 2019. speedpay contributed an incremental $ 123.3 million in total revenue during the year ended december 31 , 2020 , as compared to the same period in 2019. the impact of certain foreign currencies weakening against the u.s. dollar resulted in a $ 2.1 million decrease in total revenue during the year ended december 31 , 2020 , as compared to the same period in 2019. adjusted for the impact of incremental speedpay revenue and foreign currency , total revenue for the year ended december 31 , 2020 , decreased $ 85.2 million , or 7 % , as compared to the same period in 2019 . 33 software as a service ( โ saas โ ) and platform as a service ( โ paas โ ) revenue the company 's saas arrangements allow customers to use certain software solutions ( without taking possession of the software ) in a single-tenant cloud environment on a subscription basis . the company 's paas arrangements allow customers to use certain software solutions ( without taking possession of the software ) in a multi-tenant cloud environment on a subscription or consumption basis . included in saas and paas revenue are fees paid by our customers for use of our biller solutions . biller-related fees may be paid by our clients or directly by their customers and may be a percentage of the underlying transaction amount , a fixed fee per executed transaction or a monthly fee for each customer enrolled . saas and paas costs include payment card interchange fees , the amounts payable to banks and payment card processing fees , which are included in cost of revenue in the accompanying consolidated statements of operations . all revenue from saas and paas arrangements that does not qualify for treatment as a distinct performance obligation , which includes set-up fees , implementation or customization services , and product support services , are included in saas and paas revenue . saas and paas revenue increased $ 91.5 million , or 14 % , during the year ended december 31 , 2020 , as compared to the same period in 2019. speedpay contributed an incremental $ 123.3 million in saas and paas revenue during the year ended december 31 , 2020 , as compared to the same period in 2019. the impact of certain foreign currencies strengthening against the u.s. dollar resulted in a $ 0.6 million increase in saas and paas revenue during the year ended december 31 , 2020 , as compared to the same period in 2019. adjusted for the impact of the incremental revenue from speedpay and foreign currency , saas and paas revenue for the year ended december 31 , 2020 , decreased $ 32.4 million , or 5 % , as compared to the same period in 2019. the decrease was primarily due to declines in transaction volumes within our biller customer base as a result of the economic impact of covid-19 . license revenue customers purchase the right to license aci software under multi-year , time-based software license arrangements that vary in length but are generally five years . under these arrangements the software is installed at the customer 's location ( i.e . on-premise ) . within these agreements are specified capacity limits typically based on customer transaction volume . aci employs measurement tools that monitor the number of transactions processed by customers and if contractually specified limits are exceeded , additional fees are charged for the overage . capacity overages may occur at varying times throughout the term of the agreement depending on the product , the size of the customer , and the significance of customer transaction volume growth . depending on specific circumstances , multiple overages or no overages may occur during the term of the agreement . included in license revenue are license and capacity fees that are payable at the inception of the agreement or annually ( initial license fees ) . license revenue also includes license and capacity fees payable quarterly or monthly due to negotiated customer payment terms ( monthly license fees ) .
| prior year results for discussion of 2019 compared to 2018 , see liquidity and capital resources in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2019. debt on april 5 , 2019 , we entered into the second amended and restated credit agreement ( the `` credit agreement '' ) to amend and restate our existing agreement , dated february 24 , 2017. the credit agreement consists of ( a ) a five-year $ 500.0 million senior secured revolving credit facility ( the โ revolving credit facility โ ) , ( b ) a five-year $ 279.0 million senior secured term loan facility ( the โ initial term loan โ ) and ( c ) a five-year $ 500.0 million senior secured term loan facility ( the `` delayed draw term loan '' , together with the initial term loan , the `` term loans '' , and together with the initial term loan and the revolving credit facility , the โ credit facility โ ) . on august 12 , 2020 , we entered a standby letter of credit agreement ( the โ letter of credit โ ) , under the terms of the credit agreement , for $ 1.5 million . the letter of credit expires on july 31 , 2021 , with automatic renewal for twelve month periods thereafter . the letter of credit reduces the maximum available borrowings under our revolving credit facility to $ 498.5 million . upon expiration of the letter of credit , maximum borrowings will return to $ 500.0 million . 40 as of december 31 , 2020 , we had $ 55.0 million and $ 717.1 million outstanding under our revolving credit facility and term loans , respectively , with up to $ 443.5 million of unused borrowings under the revolving credit facility , as amended , and up to $ 1.5 million of unused borrowings under the letter of credit agreement .
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company 's actual results may not be indicative of future performance . this discussion and analysis contains forward-looking statements and involves numerous risk and uncertainties , including , but not limited to , those discussed in โ cautionary note regarding forward-looking statements โ and โ risk factors โ included in part i , item 1a , or in other parts of this annual report on form 10-k. actual results may differ materially from those contained in any forward-looking statements . 39 management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) contains certain financial measures , in particular ebitda and adjusted ebitda , which are not presented in accordance with gaap . these non-gaap financial measures are being presented because management believes that they provide readers with additional insight into the company 's operational performance relative to earlier period and relative to its competitors . ebitda and adjusted ebitda are key measures used by the company to evaluate its performance . the company does not intend for these non-gaap financial measures to be a substitute for any gaap financial information . readers of this md & a should use these non-gaap financial measures only in conjunction with the comparable gaap financial measures . reconciliations of ebitda and adjusted ebitda to net income , the most comparable gaap measure , are provided in this md & a . on november 23 , 2015 , the company ( formerly known as global defense and national security systems , inc. ) and stg group holdings , inc. ( โ stg group holdings โ ) completed a transaction in which the company acquired 100 percent of the capital stock of stg group holdings , inc. from its then owners ( the โ business combination โ ) . in connection with the closing of the business combination , the company changed its name to stg group , inc. , and commenced trading of its common stock under the symbol โ stgg โ on the otc pink current information tier of the over-the-counter market . the company 's common stock now trades over the counter on the otcqb . this transaction is further described in note 2 to the company 's consolidated financial statements included herein . fiscal year the company 's fiscal year ends on december 31. throughout the year , the company reports its results using a fiscal calendar whereby each three month calendar end represents the end of a quarter . as a result , the number of work days may fluctuate between the various quarterly periods . we have combined our contract revenue and adjusted ebitda in the period november 24 , 2015 to december 31 , 2015 with stg group 's contract revenue and adjusted ebitda in the period january 1 , 2015 through november 23 , 2015. net sales and adjusted ebitda were not affected by acquisition accounting . refer to note 2 to the consolidated financial statements for additional information on acquisition accounting for the business combination . overview the company provides specialist cyber , software and intelligence solutions to u.s. government organizations with a national security mandate . our solutions are integral to national security-related programs run by more than 50 u.s. government agencies , including the department of defense , the intelligence community , the department of homeland security , the department of state and other government departments with national security responsibilities . our programs are predominantly funded from base budgets and are essential to the effective day-to-day operations of our customers . our operational strength and track record has been established in securing highly sensitive , mission-critical national security networks , solving complex technology problems in mission-critical contexts and providing decision makers with actionable intelligence from multiple data sources . the company specializes in three core areas of capability : cyber security and secure information systems โ securing highly sensitive , mission-critical national security networks software development , systems and services โ solving complex problems in mission-critical contexts intelligence and analytics โ gathering and analyzing data from multiple sources to provide high quality , actionable intelligence across multiple contexts 40 key events business combination . on november 23 , 2015 , the company and stg group holdings completed the business combination in which the company acquired 100 % of the capital stock of stg group holdings from its then-current owners . in connection with the closing of the business combination , the company changed its name to stg group , inc. , and commenced trading of its common stock on the otc pink current information tier of the over-the-counter market . the company 's common stock now trades over the counter on the otcqb . this transaction is further described in note 2 to the company 's consolidated financial statements included herein . the company 's 2015 results for the period january 1 , 2015 through november 23 , 2015 and the period november 24 , 2015 through december 31 , 2015 , were impacted by approximately $ 1 million and $ 2 million in transaction expenses directly related to the business combination . the company also incurred $ 1.0 million and $ 0.8 million in increased amortization and interest expense , respectively , during the period november 24 , 2015 to december 31 , 2015 resulting from the identification of intangibles at fair value in acquisition accounting for the business combination and the term note issued to finance the combination . see notes 2 and 7 to the company 's consolidated financial statements included herein for further discussion of the business combination . key financial definitions contract revenue . contract revenue reflect the company 's sales of its services , software or material purchases . several factors affect revenue in any period , including the contractual funding and timing of acquisitions and the purchasing habits of its customers . cost of revenue . cost of revenue includes all direct costs of providing services and products to the government . such costs include direct labor , subcontract labor , software , hardware , materials , and travel . story_separator_special_tag operating income ( loss ) operating income was $ 3.7 million for the year ended december 31 , 2015 compared to ( $ 0.4 ) million in the year ended december 31 , 2014. the decrease in indirect and selling expenses was partially offset by a decrease in revenue and gross profit in the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the impairment loss of goodwill and other intangible assets decreased the operating income in the predecessor 's third quarter by $ 3.0 million . other income ( expense ) other ( expense ) income was ( $ 0.1 ) million for the period november 24 , 2015 to december 31 , 2015 and $ .03 for the period january 1 , 2015 to november 23 , 2015 , and was $ 0.3 million for the year ended december 31 , 2014. other income ( expense ) is primarily generated by market performance of the investments of the assets held in trust securing the company 's deferred compensation plan . interest expense interest expense was $ 0.9 million for the period november 24 , 2015 to december 31 , 2015 and was $ 0.1 million for the period january 1 , 2015 to november 23 , 2015. interest expense was $ 0.1 million in 2014. interest expense for the period november 24 , 2015 to december 31 , 2015 reflects the company 's new level of debt following the consummation of the business combination . see โ secured credit facilities โ in the liquidity and capital resources section of this md & a for further discussion . ( loss ) income before income taxes ( loss ) income before income taxes was $ ( 1.8 ) million for the period november 24 , 2015 to december 31 , 2015 and $ 4.5 million for the period january 1 , 2015 to november 23 , 2015 , compared to a loss of ( $ 0.2 ) million in 2014. the decrease in income before income taxes is primarily due to transaction-related expenses as well as increases in selling and administrative expenses from being a public company as a result of the transaction . the loss in 2014 was primarily due to impairment related charges around the company 's goodwill and intangible asset balances from previous acquisitions . tax provision ( benefit ) the tax provision ( benefit ) was ( $ 1.6 ) million for the period november 24 , 2015 to december 31 , 2015 and $ 0.6 million for the period january 1 , 2015 to november 23 , 2015. the post-acquisition deferred tax benefit was primarily due to the future benefit related to the capitalization and amortization ( for tax purposes ) of start-up costs . the predecessor company was an s corporation for federal and most state related tax filings and as a result the tax liabilities flowed directly to its stockholders . due to a change from a cash basis to accrual basis in the s corporation period the predecessor company incurred higher state taxes in jurisdictions that tax s corporations . as a result , pre and post-acquisition income tax related expenses will not be comparable . stg group , excluding operations in the netherlands and qatar conducted through stg netherlands , b.v. ( โ stg netherlands โ ) and stg doha , llc ( โ stg doha โ ) , respectively , elected previous to the business combination to be treated as an s corporation under subchapter s of the internal revenue code , which provides that , in lieu of corporate income taxes , the stockholders separately accounted for their pro-rata share of stg group 's items of income , deductions , losses and credits . stg netherlands and stg doha are in jurisdictions that do not recognize s corporations . deferred income taxes are accounted for under the asset and liability method . deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences . temporary differences are the differences between the reported amounts of assets and liabilities and their income tax bases . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more-likely-than-not that some portion or all of the deferred tax assets may not be realized . deferred tax assets and liabilities are adjusted for effects of changes in tax laws and rates on the date of enactment . 46 in connection with the business combination , stg group ( predecessor ) converted from a subchapter s-corporation to a c-corporation . prior to this , for the period from january 1 , 2015 through november 23 , 2015 and the years ended december 31 , 2014 and 2013 , stg group , generally did not incur corporate level income taxes , exclusive of certain state level jurisdictions . in lieu of corporate income taxes , the predecessor 's stockholders separately accounted for their pro-rata share of stg group 's income , deductions , losses and credits . therefore , the company recognized corporate level deferred tax assets and liabilities for solely the successor period . in addition , the company released a valuation allowance against its deferred tax assets in the amount of $ 1.05 million following the business combination due to an assessment that it was more likely than not that these deferred tax assets would be realized . the consolidated entity was able to recognize a deferred tax asset of $ 1.7 million due to the tax amortization treatment of the start-up costs and the payout of the deferred compensation balances on january 25 , 2016. further , upon change to a c-corporation , our taxable income generated from our operational activities is subject to an effective tax rate in excess of 35 % for both federal and state taxes .
| consolidated results of operations replace_table_token_4_th 42 november 24 , 2015 through december 31 , 2015 ( successor ) , january 1 , 2015 through november 23 , 2015 ( predecessor ) , and the year ended december 31 , 2014. for the discussion below , the successor and predecessor periods have been combined to discuss results for the year ended december 31 , 2015 as a whole . contract revenue contract revenues was $ 193.6 million for the combined year ended december 31 , 2015 , a decrease of $ 16.1 million , or 7.6 % compared to $ 209.7 million for the year ended december 31 , 2014. the decrease in revenue is primarily due to three contracts , a drug enforcement administration ( dea ) contract which ended in june 2015 , an army contract which ended in august 2015 , and an intelligence community contract which was completed and ended in september 2015. the table below summarizes our revenue by customer for the year ended december 31 , 2015 ( combined successor and predecessor periods ) and 2014. replace_table_token_5_th 43 the department of defense continues to be our largest customer with 43.3 % of total revenue generated from this customer in the year ended december 31 , 2015 compared to 41.5 % of total revenue in the year ended december 31 , 2014. revenue by customer remained relatively consistent in the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , except for the loss of the drug enforcement administration contract , the army contract , and the loss of an intelligence community contract .
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under gaap , financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern , 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 consolidated financial data โ and with the audited consolidated financial statements and the related notes included in โ item 8 - financial statements and supplementary data . the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements . these forward-looking statements are subject to risks and uncertainties , including , but not limited to , the risks and uncertainties described in โ item 1a - risk factors. โ our actual results may differ materially from those contained in or implied by any forward-looking statements . we operate on a 52 or 53 week fiscal year ending on the last saturday of each calendar year . our fiscal quarters are comprised of 13 weeks , with the exception of the fourth quarter of a 53 week year , which contains 14 weeks . fiscal years 2015 and 2014 each contain 52 weeks . overview wingstop is a high-growth franchisor and operator of restaurants that offer cooked-to-order , hand-sauced and tossed chicken wings . we believe we pioneered the concept of wings as a โ center-of-the-plate โ item for all of our meal occasions . while other concepts include wings as add-on menu items or focus on wings in a bar or sports-centric setting , we are singularly focused on wings , fries and sides , which generate approximately 90 % of our sales . we offer 11 bold , distinctive and craveable flavors on our bone-in and boneless chicken wings paired with hand-cut , seasoned fries and sides made fresh daily . our menu is highly-customizable for different dining occasions , and we believe it delivers a compelling value proposition for groups , families , and individuals . we have broad and growing consumer appeal anchored by a sought after core demographic of 18-34 year old millennials , which we believe is a loyal consumer group that dines at fast casual restaurants more frequently . founded in 1994 in garland , texas , we have sold approximately 4 billion wings since our inception . today , wingstop is the largest fast casual chicken wings-focused restaurant chain in the world and has demonstrated strong , consistent growth . as of december 26 , 2015 , we had a total 845 restaurants across 39 states and seven countries in our system . our restaurant base is 98 % franchised , with 826 franchised locations ( including 59 international locations ) and 19 company-owned restaurants . we plan to grow our business by opening new franchised restaurants and increasing our same store sales , while leveraging our franchise model to create shareholder value . domestic restaurant count has increased 61.1 % since the end of 2011 , with the pace of restaurant openings increasing each year . we expect to continue to increase the pace of openings and believe our domestic unit potential is approximately 2,500 units . domestic same store sales have increased for 12 consecutive years beginning in 2004 , which includes 4-year cumulative domestic same stores sales growth of 44.1 % since 2011 . we anticipate further increases in domestic same store sales through improvements in brand awareness , flavor innovation , increases in online ordering and improved advertising media efficiency . we believe our asset-light , highly-franchised business model generates strong operating margins and requires low capital expenditures , creating shareholder value through strong and consistent free cash flow and capital-efficient growth . highlights for fiscal year 2015 : on june 17 , 2015 , we completed our initial public offering of 6,670,000 shares of our common stock at a public offering price of $ 19.00 per share . in the offering , we sold 2,150,000 shares and certain selling shareholders sold 4,520,000 shares . we received $ 35.0 million in net proceeds , net of underwriting discounts and commissions , which we used to repay an aggregate amount of $ 31.4 million of outstanding indebtedness under our senior secured credit facility and to pay an aggregate amount of $ 3.3 million in connection with the termination of our management agreement with roark capital management . we did not receive any of the proceeds from the sale of shares by the selling stockholders . fiscal year 2015 financial performance includes : system-wide restaurant count increased 18.7 % to 845 worldwide locations , driven by 133 net unit openings 44 domestic same store sales increased 7.9 % over the prior year company-owned restaurant same store sales increased 9.4 % over the prior year system-wide sales increased 21.0 % to $ 821 million total revenue increased 15.6 % over the prior year to $ 78.0 million net income increased 12.5 % over the prior year to $ 10.1 million total adjusted ebitda increased 18.5 % over the prior year to $ 28.9 million key performance indicators key measures that we use in evaluating our restaurants and assessing our business include the following : number of restaurants . management reviews the number of new restaurants , the number of closed restaurants , and the number of acquisitions and divestitures of restaurants to assess net new restaurant growth , system-wide sales , royalty and franchise fee revenue and company-owned restaurant sales . replace_table_token_10_th * restaurants sold by us to a franchisee . see footnote 3 in the financial statements . system-wide sales . system-wide sales represents net sales for all of our company-owned and franchised restaurants . this measure allows management to better assess changes in our royalty revenue , our overall store performance , the health of our brand and the strength of our market position relative to competitors . our system-wide sales growth is driven by new restaurant openings as well as increases in same store sales . story_separator_special_tag significant factors impacting historical financial results refranchised restaurants . in february 2014 , we sold five restaurants to an existing franchisee , which had a carrying value of $ 1.0 million , comprised of $ 610,000 in net assets and $ 442,000 in allocated goodwill , for proceeds of $ 1.1 million , resulting in a gain on disposal of approximately $ 100,000 . results of operations the following table presents the consolidated statement of operations for the past three fiscal years expressed as a percentage of revenue . replace_table_token_12_th ( * ) as a percentage of company-owned restaurant sales . exclusive of depreciation and amortization , shown separately . the percentages reflected have been subject to rounding adjustments . accordingly , figures expressed as percentages when aggregated may not be the arithmetic aggregation of the percentages that precede them . 47 year ended december 26 , 2015 compared to year ended december 27 , 2014 the following table sets forth information comparing the components of net income in fiscal year 2015 and fiscal year 2014 ( in thousands ) : replace_table_token_13_th ( 1 ) exclusive of depreciation and amortization , shown separately . total revenue . total revenue was $ 78.0 million in fiscal year 2015 , an increase of $ 10.5 million , or 15.6 % , compared to $ 67.4 million in the prior fiscal year . royalty revenue and franchise fees . royalty revenue and franchise fees were $ 46.7 million in fiscal year 2015 , an increase of $ 8.7 million , or 22.8 % , compared to $ 38.0 million in the prior fiscal year . royalty revenue increased by $ 7.2 million primarily due to an increase in the number of franchised stores from 693 in fiscal year 2014 to 826 in fiscal year 2015 and domestic same store sales growth of 7.9 % . franchise fees increased by $ 1.3 million driven by 142 franchise restaurant openings in 2015 compared to 102 restaurant openings in 2014 . company-owned restaurant sales . company-owned restaurant sales were $ 31.3 million in fiscal year 2015 , an increase of $ 1.9 million , or 6.3 % , compared to $ 29.4 million in the prior fiscal year . the increase is the result of company-owned domestic same store sales growth of 9.4 % , which was partially offset by the refranchising of five company-owned restaurants during the first quarter of 2014. cost of sales . cost of sales was $ 22.2 million in fiscal year 2015 , an increase of $ 1.7 million , or 8.5 % , compared to $ 20.5 million in the prior fiscal year . cost of sales as a percentage of company-owned restaurant sales was 71.0 % in fiscal year 2015 compared to 69.6 % in the prior fiscal year . 48 the table below presents the major components of cost of sales ( in thousands ) : replace_table_token_14_th food , beverage and packaging costs as a percentage of company-owned restaurant sales were 36.8 % in fiscal year 2015 compared to 35.1 % in the prior fiscal year . the increase is primarily due to a 17.1 % increase in commodities rates for bone-in chicken wings compared to the prior fiscal year , which was partially offset by menu pricing and favorable pricing for other commodities . labor costs as a percentage of company-owned restaurant sales were 20.8 % in fiscal year 2015 compared to 22.6 % in the prior fiscal year . the improvement is primarily due to the leveraging of fixed costs due to the company-owned domestic same store sales increase of 9.4 % and the refranchising of five restaurants with lower auvs than the remaining company-owned restaurants . other restaurant operating expenses as a percentage of company-owned restaurant sales were 15.8 % in fiscal year 2015 compared to 15.9 % in the prior fiscal year . the improvement is primarily due to the leveraging of fixed costs due to the company-owned domestic same store sales increase of 9.4 % and the refranchising of five restaurants with lower auvs than the remaining company-owned restaurants , which was partially offset by operating costs associated with our new pos system . vendor rebates decreased $ 0.4 million primarily due to a one-time reimbursement received during 2014 related to transition costs from the company 's change to a new distributor that offset expenses incurred due to the transition . selling , general and administrative . sg & a expense was $ 33.4 million in fiscal year 2015 , an increase of $ 7.3 million , or 28.2 % , compared to $ 26.0 million in the prior fiscal year . the increase in sg & a compared to the prior year is primarily due to a one-time fee paid of $ 3.3 million in consideration for the termination of our management agreement with roark capital management as well as headcount additions and consulting/professional fees . depreciation and amortization . depreciation and amortization was $ 2.7 million in fiscal year 2015 , a decrease of $ 0.2 million , or 7.6 % , compared to $ 2.9 million in the prior fiscal year . the refranchising of five restaurants caused a reduction to depreciation , which was slightly offset by an increase in depreciation due to capital expenditures . interest expense , net . interest expense was $ 3.5 million in fiscal year 2015 , a decrease of $ 0.2 million , or 5.6 % , from $ 3.7 million in the prior fiscal year . the decrease was attributable to a decrease in the applicable interest rate associated with the credit facility as a result of our improved leverage ratio . other ( income ) expense , net . other ( income ) expense , net was $ 0.4 million in fiscal year 2015 , an increase of $ 0.3 million , from $ 0.1 million in the prior fiscal year .
| segment results . the following table sets forth our revenue and operating profit for each of our segments for the period presented ( in thousands ) : replace_table_token_15_th franchise segment . franchise segment revenue was $ 46.7 million in fiscal year 2015 , an increase of $ 8.7 million , or 22.8 % , from $ 38.0 million in the prior fiscal year . the increase was due to 142 franchise restaurant openings and domestic same store sales growth of 7.9 % . franchise segment profit was $ 19.7 million in fiscal year 2015 , an increase of $ 4.5 million , or 29.5 % , from $ 15.2 million in the prior fiscal year due to the growth in revenue offset by increases in sg & a . company segment . company-owned restaurant sales were $ 31.3 million in fiscal year 2015 , an increase of $ 1.9 million , or 6.3 % , compared to $ 29.4 million in the prior fiscal year . the increase is the result of company-owned domestic same store sales growth of 9.4 % , which was partially offset by the refranchising of five corporate restaurants during the first quarter of 2014. company segment profit was $ 5.7 million in fiscal year 2015 , an increase of $ 0.3 million , or 4.9 % , compared to $ 5.5 million in the prior fiscal year . the increase was primarily due to the leveraging of fixed costs due to the company-owned comparable same store sales increase of 9.4 % , offset by a 17.1 % increase in commodities rates for bone-in chicken wings . 50 year ended december 27 , 2014 compared to year ended december 28 , 2013 the following table sets forth information comparing the components of net income in fiscal year 2014 and fiscal year 2013 ( in thousands ) . replace_table_token_16_th ( 1 ) exclusive of depreciation and amortization , shown separately .
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overview we are a financial holding company headquartered in dallas , texas and registered under the bhc act . through our two wholly owned bank subsidiaries , triumph savings bank and triumph community bank , we offer traditional banking services as well as commercial finance product lines focused on businesses that require specialized financial solutions . our banking operations include a full suite of lending and deposit products and services focused on our local market areas . these activities generate a stable source of core deposits and a diverse asset base to support our overall operations . our commercial finance product lines include factoring , asset-based lending , equipment lending and healthcare lending products offered on a nationwide basis . these product offerings supplement the asset generation capacity in our community banking markets and enhance the overall yield of our loan portfolio , enabling us to earn attractive risk-adjusted net interest margins . in addition , through our triumph capital advisors subsidiary , we provide investment management services currently focused on the origination and management of collateralized loan obligations . we believe our integrated business model distinguishes us from other banks and non-bank financial services companies in the markets in which we operate . as of december 31 , 2014 , we had consolidated total assets of $ 1.448 billion , gross loans held for investment of $ 1.006 billion , total deposits of $ 1.165 billion and total stockholders ' equity of $ 238 million . most of our products and services share basic processes and have similar economic characteristics . however , our factoring subsidiary operates in a highly specialized niche and earns substantially higher yields on its factored accounts receivable portfolio than our other lending products . this business also has a legacy and structure as a standalone company . as a result , we have determined our reportable segments are banking , factoring and corporate . for the year ended december 31 , 2014 , our banking segment generated 69 % of our total revenue ( comprised of interest and noninterest income , excluding the gain on branch sale ) , our factoring segment generated 29 % of our total revenue , and our corporate segment generated 2 % of our total revenue . 2014 highlights we recorded net income of $ 19.8 million for our fiscal year ended december 31 , 2014. in addition to a pre-tax gain of $ 12.6 million associated with the sale of one of our branches as discussed below , our results for 2014 reflect the continued execution of our strategy to grow and expand both our community banking operations as well as our commercial finance product lines . notably , our results for 2014 reflect the first full year of consolidated operations for our triumph community bank subsidiary , which significantly expanded our asset base and added a full retail branch network and related infrastructure to the company . we also continued to grow our 43 commercial finance product lines , both organically and through acquisition . our asset management operation began to generate revenue during 2014 and is set to generate a return on our investment in this line of business . finally , in november of 2014 , we consummated the initial public offering of our common stock , providing us with the capital necessary to streamline our balance sheet through debt reduction and the redemption of noncontrolling interests and to continue to seek out growth opportunities . community banking during 2014 we began to fully realize the impact of triumph community bank , which we acquired in october 2013. among other areas , the impact was evidenced in the reduction of our average total costs of deposits ( both interest and non-interest bearing ) from 0.84 % for the year ended december 31 , 2013 to 0.46 % for the year ended december 31 , 2014. we also acquired a significant loan portfolio and lending operations as part of the acquisition , which is focused on serving triumph community bank 's local market areas . these loans helped diversify our total loan portfolio , but also reduced our overall yield on interest earning assets to 7.24 % for 2014 compared to 8.57 % for 2013 , as these loans generally have lower rates than the commercial finance products that represented a larger percentage of our overall portfolio prior to the acquisition . over the course of the year , loan volumes in our community banking markets remained flat , as we continued to experience significant pricing pressure for such loans , which has impacted our ability to grow loan volumes in these markets at what we consider to be appropriate risk adjusted returns . in addition , our community banking loan portfolio was reduced by the loans sold as part of the pewaukee , wisconsin branch sale discussed below . these community banking portfolio trends , coupled with the growth in our commercial finance product lines detailed below , saw our commercial finance product lines increase ( and the loans originated as part of our community banking operations decrease ) as a percentage of our total loan portfolio from 22 % at december 31 , 2013 to 37 % at december 31 , 2014. in july 2014 we consummated the sale of triumph community bank 's branch in pewaukee , wisconsin . this transaction allowed us to focus on operations in our core community banking markets in iowa and illinois , as the branch sold represented triumph community bank 's sole branch in wisconsin . we sold approximately $ 78.1 million of loans in the divestiture . we also recorded a pre-tax gain of $ 12.6 million in connection with the transaction . the triumph community bank acquisition had a significant impact on our non-interest expense over the course of 2014 as compared to 2013 , as we fully internalized the costs of operating its retail branch network and other operations over the full course of the year . story_separator_special_tag asset management during 2014 , our triumph capital advisors subsidiary closed two collateralized loan obligation offerings for which it will act as manager , the first in may 2014 at a total offering size of $ 400 million , and the second in august 2014 at a total offering size of $ 416 million . triumph capital advisors commenced earning management fees on each these clo offerings at issuance , with total asset management fees accruing during 2014 of approximately $ 1.0 million . assuming market conditions remain the same , we anticipate tca continuing to consummate two to three clo offerings per year , generating a recurring stream of non-interest income to the company . on march 3 , 2015 , triumph capital advisors acquired the management contracts for two additional clos as part of its acquisition of all the equity of doral money , inc. see โ -- recent developments โ below . initial public offering in november 2014 , we consummated an initial public offering of our common stock , issuing 6,700,000 shares of our common stock at a price of $ 12.00 per share , plus an additional 1,005,000 shares , also at $ 12.00 per share , in connection with the underwriters ' exercise 45 of their overallotment option for the offering . the offering resulted in total gross proceeds of $ 92.5 million and total net proceeds , after underwriting discounts and offering expenses , of $ 83.8 million . we used the offering proceeds to redeem all of our outstanding senior secured indebtedness , which had an outstanding principal amount of $ 11.3 million , and all of the fixed rate cumulative perpetual preferred stock , series t-1 and series t-2 ( the โ tarp preferred stock โ ) , issued by our wholly owned subsidiary , national bancshares , inc. , for a total redemption price of $ 26.2 million . following these actions , which helped to streamline our balance sheet and increase our total common equity tier 1 capital , we have approximately $ 46.1 million of remaining proceeds , which we intend to use for general corporate purposes and to execute on our growth strategy , including targeted acquisitions . we incurred significant additional costs both in connection with the execution of our initial public offering and to add the infrastructure necessary to operate as a public company . certain of these items , including the $ 0.4 million incurred in connection with the accelerated vesting of our pre-existing restricted stock plan prior to the ipo , $ 2.1 million in expense associated with new incentive grants under our 2014 omnibus incentive plan following the ipo to our officers and employees in connection with their service prior to and in connection with the ipo ( one-third of which immediately vested upon grant in 2014 ) , and $ 0.7 million in consulting expenses incurred as part of the company 's initial public offering process , represent costs and items that were unique to the company 's ipo process . the company has incurred , and anticipates that will continue to incur , additional on-going expense associated with the requirements of operating as a public company . impact of triumph community bank acquisition the comparability of our consolidated results of operations and our consolidated financial condition presented herein is significantly affected by the triumph community bank acquisition in october 2013. our consolidated results of operations for the year ended december 31 , 2014 include the operations of triumph community bank for the entire year . however , our consolidated results of operations for the year ended december 31 , 2013 exclude the operations of triumph community bank prior to the acquisition date . in addition , certain of our credit metrics and trends have been , and continue to be , affected by the impact of purchase accounting associated with the triumph community bank acquisition . under accounting standards for business combinations , we recorded the loans we acquired at fair value without carryover of the seller 's alll on the date of acquisition . we provide an alll on these purchased loans based on credit deterioration subsequent to the acquisition date . consequently , the size of our alll following the acquisition and related metrics , such as our alll as a percentage of loans , are not comparable to pre-acquisition periods and are smaller than similar metrics for other financial institutions with loan portfolios of similar size not impacted by purchase accounting . in addition , our net interest margin is impacted by the effect of purchase accounting , as the discounted value of the loan portfolio acquired in the triumph community bank acquisition has positively impacted , and will continue to impact , the overall effective yield over the life of these loans . recent developments on march 3 , 2015 , triumph capital advisors acquired all of the equity of doral money , inc. ( โ doral money โ ) , a subsidiary of doral bank , in connection with the fdic 's auction process for doral bank . as a result of this transaction , triumph capital advisors also acquired the management contracts of two active clos consisting of approximately $ 703 million in assets under management . in addition to the clo management contracts being acquired , the primary assets of doral money consist of loans with a face value of approximately $ 37 million , which were acquired as part of the transaction , and certain securities of the clos , which were divested to a third party immediately following the closing as part of an agreement entered into by triumph capital advisors in connection with the transaction . after giving effect to the divestment of the clo securities , triumph capital advisors paid net consideration at closing of approximately $ 33 million in connection with the acquisition .
| operating segment results our reportable segments are factoring , banking and corporate which have been determined based upon their business processes and economic characteristics . this determination also gave consideration to the structure and management of various product lines . the factoring segment includes the operations of triumph business capital with revenue derived from factoring services . the banking segment includes the operations of triumph savings bank and triumph community bank . our banking segment derives its revenue principally from investments in interest-earning assets as well as noninterest income typical for the banking industry . the banking segment also includes certain factored receivables which are purchased by triumph savings bank under its triumph commercial finance brand as opposed to those originated by triumph business capital . corporate includes holding company financing and investment activities , management and administrative expenses to support the overall operations of the company , and the asset management operations of triumph capital advisors . reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions . furthermore , changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data . transactions between segments consist primarily of borrowed funds . intersegment interest expense is allocated to the factoring segment based on the company 's prime rate . the provision for loan loss is allocated based on the segment 's alll determination which considers the effects of charge-offs . noninterest income and expense directly attributable to a segment are assigned to it . taxes are paid on a consolidated basis and are not allocated for segment purposes . as discussed above , certain factored receivables not originated through triumph business capital are included in the banking segment .
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our business operates in four segments , namely mobile , iot and big data products , storage and computing , saas revenues , and professional services . our premier product secures , digitizes and optimizes the interior of any premises with indoor positioning and data analytics that provide rich positional information , similar to a global positioning system , and browser-like intelligence for the indoors . other products and services that we provide include enterprise computing and storage , virtualization , business continuity , data migration , custom application development , networking and information technology , and business consulting services . our storage and computing segment revenues are typically driven by purchase orders that are received on a monthly basis . approximately 36 % of the revenues from these storage and computing purchase orders are recurring contracts that range from one to five years for warranty and maintenance support . for these contracts the customer is invoiced one time and pays inpixon upfront for the full term of the warranty and maintenance contract . revenue from these contracts is determinable ratably over the contract period with the unearned revenue recorded as deferred revenue and amortized over the contract period . we have a 30-year history and a high repeat customer rate of approximately 55 % annually . our revenues are diversified over hundreds of customers and typically no one customer exceeds 15 % of revenues however from time to time a large order from a customer could put it temporarily above 15 % . we have one customer that represented approximately 28 % of our revenues for the year ending december 31 , 2016 but we do not anticipate that this customer will continue to maintain that percentage as our revenues expand across other customers in 2017 especially into the federal government vertical with the integrio acquisition . management believes this diversification provides stability to our revenue streams . 41 our software-as-a-service ( saas ) contracts are typically performed for periods of one or more years and we have a high customer retention rate . inpixon 's saas products include : etearsheets , invoicing , crm , and other products and services to approximately 792 newspapers in the cloud . cloud or saas based analytics is a growing market that inpixon intends to pursue beyond the media vertical that we are in today . our mobile , iot and big data sales are expected to grow significantly in 2017 ; however , sales cycles proved to be longer than we expected in 2016. the long sales cycles result from customer related issues such as budget and procurement processes but also because of the early stages of indoor-locationing technology and the learning curve required for customers to implement such solutions . this is improving with the increased presence and awareness of beacon and wi-fi locationing technologies in the market . our professional services group provides consulting services ranging from enterprise architecture design to custom application development to data modeling . we offer a full scope of information technology development and implementation services with expertise in a broad range of it practices including project design and management , systems integration , outsourcing , independent validation and verification , cyber security and more . inpixon has many key vendor , technology , wholesale distribution and strategic partner relationships . these relationships are critical for us to deliver solutions to our customers . we have a variety of vendors and also products that we provide to our customers , and most of these products are purchased through the distribution partners . we also have joint venture partnerships and teaming agreements with various technology and service providers for this segment as well as our other business segments . these relationships range from joint-selling activities to product integration efforts . in addition our business is required to meet certain regulatory requirements . the federal government agencies who are our customers in particular have a range of regulatory requirements including itar certifications , dcaa compliancy in our government contracts and other technical or security clearance requirements as may be required from time to time . we experienced a net loss of $ 27.5 million for the year ended december 31 , 2016. we can not assure that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . in order to continue our operations , we have supplemented the revenues we earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines . furthermore , except as discussed in this report , we have no committed source of financing and we can not assure that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to scale back our business operations by reducing expenditures for employees , consultants , business development and marketing efforts , selling assets or one or more segments of our business , or otherwise severely curtailing our operations . recent events september 2015 public offering on september 25 , 2015 , the company entered into an underwriting agreement ( the โ underwriting agreement โ ) with b. riley & co. , llc , as representative of the several underwriters named therein ( the โ underwriters โ ) , relating to the issuance and sale of 350,000 shares of the company 's common stock , par value $ 0.001 per share . the price to the public in this offering was $ 15.00 per share . under the terms of the underwriting agreement , the company also granted the underwriters an option , exercisable for 30 days from the closing date , to purchase up to an additional 52,500 shares at the public offering price . the offering was made pursuant to the company 's registration statement on form s-3 filed with the securities and exchange commission and declared effective may 28 , 2015 and a related prospectus supplement filed with the securities and exchange commission . story_separator_special_tag the lender will also receive ( a ) an annual line fee equal to $ 100,000 ; ( b ) an unused line fee equal to 0.5 % of the daily average unused portion of the maximum amount of availability ( as defined in the loan agreement ) , calculated on an annualized basis , due and payable monthly ; ( c ) a loan administration and monitoring fee equal to 0.5 % of the daily average used portion of availability calculated on a monthly basis , due and payable monthly ; and ( d ) certain other audit and wire fees . upon closing , the loan agreement provided the borrower with a revolving line of credit , the proceeds of which were used to repay in full the existing indebtedness owed to western alliance bank , as successor in interest to bridge bank , n.a . ; pay certain expenses related to obtaining the revolving line of credit and for general working capital purposes . 43 gemcap loan agreement and loan schedule amendment 1 on december 9 , 2016 , the borrower entered into amendment number 1 to the loan agreement and to the loan agreement schedule ( the โ amendment โ ) , to amend the loan agreement with the lender , including : โ amending the definition of โ borrowing base โ in the loan agreement , under which borrower base will be calculated at any time as the sum of ( i ) at any time as the product obtained by multiplying the outstanding amount of all eligible accounts ( not including and specifically excluding eligible unbilled accounts ) , net of all taxes , discounts , allowances and credits given or claimed , by up to eighty-five percent ( 85 % ) , and ( ii ) ( a ) for the period from december 9 , 2016 through and including january 9 , 2017 , the product obtained by multiplying the amount of only eligible unbilled accounts net of all taxes , discounts , allowances and credits given or claimed , by up to eighty- five percent ( 85 % ) , ( b ) for the period from january 10 , 2017 through and including february 8 , 2017 , the product obtained by multiplying the amount of only eligible unbilled accounts net of all taxes , discounts , allowances and credits given or claimed , by up to seventy percent ( 70 % ) , ( c ) for the period from february 9 , 2017 through and including march 9 , 2017 , the product obtained by multiplying the amount of only eligible unbilled accounts net of all taxes , discounts , allowances and credits given or claimed , by up to fifty percent ( 50 % ) , and ( d ) from and after march 10 , 2017 , the product obtained by multiplying the amount of only eligible unbilled accounts net of all taxes , discounts , allowances and credits given or claimed , by zero percent ( 0 % ) , it being the understanding of borrower , that on and after march 10 , 2017 , lender shall not make advances against eligible unbilled accounts ; provided , that , at all times , the aggregate amount of eligible unbilled accounts shall not exceed twenty percent ( 20 % ) of the aggregate amount of eligible accounts . โ adding the definition of โ eligible unbilled accounts โ to the loan agreement , which means accounts ( i ) for which goods are to be provided to an account debtor or work or services are to be performed for an account debtor and the borrower has not invoiced the account debtor within thirty ( 30 ) days after such accounts are first included on the borrowing certificate , and ( ii ) which otherwise satisfy ( 1 ) , ( 3 ) , ( 5 ) through and including ( 12 ) and ( 14 ) through and including ( 22 ) of the definition of eligible accounts as provided in the loan agreement . โ amending the deadline for borrower to deliver monthly financial statements ( as defined in the loan schedule ) to lender from not later than twenty ( 20 ) days after the end of each calendar month to not later than thirty ( 30 ) days after the end of each calendar month . โ adding โ inventory schedules โ to the definition of โ other weekly reports โ under the loan schedule . in connection with the amendment , the lender agreed to ( i ) waive any default of the borrower under the loan agreement and the loan schedule arising from the borrower 's failure to deposit collections of accounts ( as defined in the loan agreement ) received by the borrower in the account designated by the lender for the period from november 21 , 2016 through and including december 6 , 2016 and ( ii ) provide the borrower with additional availability for unbilled accounts in accordance with the amendment . in consideration of the lender 's consent to waive the default and the accommodation to provide additional availability , the borrower agreed to pay all of the lender 's fees and costs , including the lender 's attorneys ' fees and costs , in respect of the transactions regarding the amendment and an accommodation fee of $ 50,000 . 44 december 2016 registered direct offering on december 12 , 2016 , the company entered into a securities purchase agreement with certain investors ( the โ investors โ ) for the sale by the company of 333,333 shares ( the โ common shares โ ) of the company 's common stock at a purchase price of $ 6.00 per share . concurrently with the sale of the common shares , pursuant to the purchase agreement the company also sold warrants to purchase up to 250,000 shares of common stock ( the โ warrants โ ) . the aggregate gross proceeds for the sale of the common shares and warrants was approximately $ 2.0 million .
| results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 the following table sets forth selected consolidated financial data as a percentage of our revenue and the percentage of period-over-period change : replace_table_token_2_th revenues revenues for the year ended december 31 , 2016 were $ 53.2 million compared to $ 67.0 million for the comparable period in the prior year . the decrease of $ 13.8 million , or approximately 20.6 % , is primarily associated with a decline in revenues earned by the storage and computing segment . revenue earned by mobile , iot & big data products and services for the year ended december 31 , 2016 was $ 1.6 million compared to $ 1.7 million for the prior year period . revenue earned by storage and computing products and services was $ 36.1 million for the year ended december 31 , 2016 as compared to $ 50.0 million for the prior year period . saas revenue was $ 3.3 million during the year ended december 31 , 2016 as compared to $ 3.7 million during the prior year period . professional services revenue was $ 12.2 million during the year ended december 31 , 2016 and $ 11.6 million during the prior year period . revenues declined during the year ended december 31 , 2016 because of the challenges the value-added reseller ( var ) industry is facing with customers moving to cloud services ; refreshing technology less frequently as products improve and more saas based solutions in the market place . these industry wide factors impacted our storage & computing and professional services segment significantly in 2016. we have taken steps to address this decline by diversifying our customer base to now include federal government customers with the integrio acquisition . federal government customers are not making these changes as quickly and the expanded customer base will allow us to grow these segments .
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since we control the general partner interest in enlk , our consolidated results of operations are derived from the results of operations of enlk and also include our deferred taxes , interest of non-controlling partners in enlk 's net income , interest income ( expense ) , and general and administrative expenses not reflected in enlk 's results of operations . accordingly , the discussion of our financial position and results of operations in this โ management 's discussion and analysis of financial condition and results of operations โ primarily reflects the operating activities and results of operations of enlk . enlc 's assets consist of equity interests in enlk . enlk primarily focuses on providing midstream energy services , including : gathering , compressing , treating , processing , transporting , storing , and selling natural gas ; fractionating , transporting , storing , and selling ngls ; and gathering , transporting , stabilizing , storing , trans-loading , and selling crude oil and condensate , in addition to brine disposal services . our midstream energy asset network includes approximately 11,000 miles of pipelines , 20 natural gas processing plants with approximately 4.9 bcf/d of processing capacity , seven fractionators with approximately 280,000 bbls/d of fractionation capacity , barge and rail terminals , product storage facilities , purchasing and marketing capabilities , brine disposal wells , a crude oil trucking fleet , and equity investments in certain joint ventures . we manage and report our activities primarily according to the nature of activity and geography . we have five reportable segments as of december 31 , 2018 : texas segment . the texas segment includes our natural gas gathering , processing , and transmission operations in north texas and the permian basin ; oklahoma segment . the oklahoma segment includes our natural gas gathering , processing , and transmission activities in the cana-woodford , arkoma-woodford , northern oklahoma woodford , stack , and cnow shale areas ; louisiana segment . the louisiana segment includes our natural gas pipelines , natural gas processing plants , storage facilities , fractionation facilities , and ngl assets located in louisiana ; crude and condensate segment . the crude and condensate segment includes orv , our crude oil operations in the permian basin and central oklahoma , and our crude oil activities associated with vex ; and corporate segment . the corporate segment includes our unconsolidated affiliate investments in the cedar cove jv in oklahoma , our ownership interest in gcf in south texas , and our general corporate property , goodwill , and expenses . 64 we manage our operations by focusing on gross operating margin because our business is generally to gather , process , transport , or market natural gas , ngls , crude oil , and condensate using our assets for a fee . we earn our fees through various fee-based contractual arrangements , which include stated fee-only contract arrangements or arrangements with fee-based components where we purchase and resell commodities in connection with providing the related service and earn a net margin as our fee . we earn our net margin under our purchase and resell contract arrangements primarily as a result of stated service-related fees that are deducted from the price of the commodity purchase . while our transactions vary in form , the essential element of most of our transactions is the use of our assets to transport a product or provide a processed product to an end-user or marketer at the tailgate of the plant , pipeline , or barge , truck , or rail terminal . we define gross operating margin as operating revenue minus cost of sales . gross operating margin is a non-gaap financial measure and is explained in greater detail under โ non-gaap financial measures โ below . approximately 88 % of our gross operating margin was derived from fee-based contractual arrangements with minimal direct commodity price exposure for the year ended december 31 , 2018 . we reflect revenue as โ product sales โ and โ midstream services โ on the consolidated statements of operations . devon is one of our primary customers . for the year ended december 31 , 2018 , approximately 36.4 % of our gross operating margin was attributable to commercial contracts with devon . for additional information about our significant customers , refer to โ item 1. businessโcredit risks. โ we generate revenues from eight primary sources : gathering and transporting natural gas , ngls , and crude oil on the pipeline systems we own ; processing natural gas at our processing plants ; fractionating and marketing recovered ngls ; providing compression services ; providing crude oil and condensate transportation and terminal services ; providing condensate stabilization services ; providing brine disposal services ; and providing natural gas , crude oil , and ngl storage . our gross operating margins are determined primarily by the volumes of : natural gas gathered , transported , purchased , and sold through our pipeline systems ; natural gas processed at our processing facilities ; ngls handled at our fractionation facilities or transported through our pipeline systems ; crude oil and condensate handled at our crude terminals ; crude oil and condensate gathered , transported , purchased , and sold ; condensate stabilized ; brine disposed ; and natural gas , crude oil , and ngls stored . we gather , transport , or store gas owned by others under fee-only contract arrangements based either on the volume of gas gathered , transported , or stored or , for firm transportation arrangements , a stated monthly fee for a specified monthly quantity with an additional fee based on actual volumes . we also buy natural gas from producers or shippers at a market index less a fee-based deduction subtracted from the purchase price of the natural gas . we then gather or transport the natural gas and sell the natural gas at a market index , thereby earning a margin through the fee-based deduction . story_separator_special_tag see โ item 8. financial statements and supplementary dataโ note 1โorganization and summary of significant agreements โ for more information regarding the gip transaction . organic growth cajun-sibon pipeline . in 2018 , we commenced an expansion of our cajun-sibon ngl pipeline capacity , which connects the mont belvieu ngl hub to our fractionation facilities in louisiana . this is the third phase of our cajun-sibon system referred to as cajun sibon iii , which will increase throughput capacity from 130,000 bbls/d to 185,000 bbls/d . we expect cajun-sibon iii to be operational during the second quarter of 2019 . 66 avenger crude oil gathering system . during 2018 , we constructed a new crude oil gathering system in the northern delaware basin called avenger . avenger is supported by a long-term contract with devon on dedicated acreage in their todd and potato basin development areas in eddy and lea counties in new mexico . we commenced initial operations on avenger during the third quarter of 2018 and expect to begin full-service operations during the third quarter of 2019. central oklahoma plants . in december 2017 , we commenced construction on our thunderbird plant to expand our central oklahoma processing capacity by an additional 200 mmcf/d gas processing plant . we expect to begin operations on the thunderbird plant during the second quarter of 2019. central oklahoma crude oil gathering systems . in late march 2018 , we completed construction of the first phase of black coyote . black coyote expands our operations in the core of the stack play in central oklahoma and was built primarily to service acreage dedicated from devon , which is the anchor customer on the system . in addition , we further expanded our crude oil gathering operations in the stack through the construction of redbud , which is supported by a contract with marathon oil company . we commenced initial operations on redbud during the third quarter of 2018. lobo natural gas gathering and processing facilities . during the second quarter of 2018 , we completed construction of an expansion to our lobo ii cryogenic gas processing plant , which brought total operational processing capacity at our lobo facilities to 175 mmcf/d . we further expanded our natural gas processing capacity at our lobo facilities through the construction of the lobo iii cryogenic gas processing plant , which was completed during the fourth quarter of 2018. lobo iii provides an additional 100 mmcf/d of operational capacity . an additional 100 mmcf/d of operational capacity will be completed during the first quarter of 2019. debt issuances and redemption term loan . on december 11 , 2018 , enlk entered into a three-year $ 850.0 million unsecured term loan . upon closing of the merger , enlc assumed enlk 's obligations under the term loan , and enlk guaranteed enlc 's obligation thereunder . see โ item 8. financial statements and supplementary dataโ note 6โlong-term debt โ for more information regarding this transaction . consolidated credit facility . on december 11 , 2018 , enlc entered into the consolidated credit facility , which was available upon the closing of the merger . upon closing of the merger , enlk became a guarantor of the consolidated credit facility . see โ item 8. financial statements and supplementary dataโ note 6โlong-term debt โ for more information regarding this transaction . redemption of senior unsecured notes due 2022. on june 1 , 2017 , enlk redeemed $ 162.5 million in aggregate principal amount of its 7.125 % senior unsecured notes ( the โ 2022 notes โ ) at 103.6 % of the principal amount , plus accrued unpaid interest , for aggregate cash consideration of $ 174.1 million , which resulted in a gain on extinguishment of debt of $ 9.0 million for the year ended december 31 , 2017. issuance of 2047 notes . on may 11 , 2017 , enlk issued $ 500.0 million in aggregate principal amount of its 5.450 % senior unsecured notes due june 1 , 2047 ( the โ 2047 notes โ ) at a price to the public of 99.981 % of their face value . interest payments on the 2047 notes are payable on june 1 and december 1 of each year . net proceeds of approximately $ 495.2 million were used to repay outstanding borrowings under the enlk credit facility and for general partnership purposes . issuance of 2026 notes . on july 14 , 2016 , enlk issued $ 500.0 million in aggregate principal amount of its 4.850 % senior notes due 2026 ( the โ 2026 notes โ ) at a price to the public of 99.859 % of their face value . the 2026 notes mature on july 15 , 2026. interest payments on the 2026 notes are payable on january 15 and july 15 of each year . net proceeds of approximately $ 495.7 million were used to repay outstanding borrowings under the enlk credit facility and for general partnership purposes . all of our outstanding senior notes were unaffected by the merger . equity issuances issuance of enlk common units . for the year ended december 31 , 2018 , enlk sold an aggregate of 2.6 million enlk common units under the 2017 eda , generating proceeds of $ 46.1 million ( net of $ 0.5 million of commissions paid to the sales agents ) . enlk used the net proceeds for general partnership purposes . in connection with the announcement of the merger , 67 enlk suspended solicitation and offers under the 2017 eda . following the consummation of the merger , the 2017 eda was terminated . issuance of series c preferred units . in september 2017 , enlk issued 400,000 series c preferred units representing enlk limited partner interests at a price to the public of $ 1,000 per unit . enlk used the net proceeds of $ 394.0 million for capital expenditures , general partnership purposes , and to repay borrowings under the enlk credit facility .
| results of operations the table below sets forth certain financial and operating data for the periods indicated . we manage our operations by focusing on gross operating margin , which we define as revenue less cost of sales as reflected in the table below ( in millions , except volumes ) : replace_table_token_12_th 74 year ended december 31 , 2018 compared to year ended december 31 , 2017 gross operating margin . gross operating margin was $ 1,691.0 million for the year ended december 31 , 2018 compared to $ 1,378.1 million for the year ended december 31 , 2017 , an increase of $ 312.9 million , or 22.7 % , due to the following : texas segment . gross operating margin in the texas segment increased $ 47.1 million , which was primarily due to a $ 42.7 million increase from our permian basin processing assets as a result of higher volumes due to continued development by our customers . in addition , there was a $ 4.4 million increase in gross operating margin from our north texas processing , gathering , and transmission assets due to volume increases associated with new development in the barnett shale . for the year ended december 31 , 2018 , the shortfall revenue from devon-related mvcs was $ 84.3 million compared to $ 59.2 million for the year ended december 31 , 2017. louisiana segment . gross operating margin in the louisiana segment increased $ 29.0 million , which was primarily due to an increase in our ngl transmission and fractionation gross operating margin due to additional ngl volumes received from our oklahoma and permian basin assets and fees earned from the start-up of our ascension jv assets in april 2017. oklahoma segment .
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cautionary note regarding forward-looking statements this annual report on form 10-k and certain information incorporated herein by reference contain forward-looking statements within the โ safe harbor โ provisions of the private securities litigation reform act of 1995. all statements included or incorporated by reference in this annual report , other than statements that are purely historical , are forward-looking statements . words such as โ anticipate , โ โ expect , โ โ intend , โ โ plan , โ โ believe , โ โ seek , โ โ estimate , โ โ will , โ โ should , โ โ would , โ โ could , โ โ may โ and similar expressions also identify forward-looking statements . the forward-looking statements include , without limitation , statements regarding our future operations , financial condition and prospects , operating results , revenues and earnings liquidity , our estimated income tax rate , unrecognized tax positions , amortization expenses , impact of recent accounting pronouncements , our cost management program , our acquisition strategy and our growth plans , expectations regarding our recent acquisitions , and the reasonableness of the carrying value related to specific financial assets and liabilities . our expectations , beliefs , objectives , intentions and strategies regarding future results are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from results contemplated by our forward-looking statements . we urge you to carefully consider risks and uncertainties and review the additional disclosures we make concerning risks and uncertainties that may materially affect the outcome of our forward-looking statements and our future business and operating results , including those made in item 1a , โ risk factors โ in this annual report on form 10-k , as such risk factors may be amended , supplemented or superseded from time to time by other reports we file with the sec . we assume no obligation to update any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by applicable law . you are cautioned not to place undue reliance on forward -looking statements , which speak only as of the date of the filing of this annual report on form 10-k. overview we are an arrhythmia management company focused on improving the way cardiac arrhythmias are diagnosed and treated . despite several decades of effort by the incumbents in this field , the clinical and economic challenges associated with arrhythmia treatment continue to be a huge burden for patients , providers and payors . we are committed to advancing the field of electrophysiology with a unique array of products and technologies which will enable more physicians to treat more patients more effectively and efficiently . through internal product development , acquisitions and global partnerships , we have established a global sales presence delivering a broad portfolio of highly differentiated electrophysiology products . our goal is to provide our customers with a complete solution for catheter-based treatment of cardiac arrhythmias in the geographic markets that we serve . our product portfolio includes novel access catheters , diagnostic and mapping catheters , ablation catheters , mapping and imaging consoles and accessories , as well as supporting algorithms and software programs . our foundational and most highly differentiated product is our acqmap imaging and mapping system . our paradigm-shifting acqmap system offers a novel approach to mapping the drivers and maintainers of arrhythmias with unmatched speed and precision . with the ability to rapidly and accurately identify ablation targets and to confirm both ablation success and procedural completion , we believe our acqmap system addresses the primary unmet need in electrophysiology procedures today . we were incorporated in the state of delaware on march 25 , 2011 and are headquartered in carlsbad , california . early versions of our acqmap system and certain related accessory products have been used in the united states since may 2018 and western europe since july 2016 in a limited , pilot launch capacity , where our focus was on optimizing workflow and validating our value proposition . we fully commenced the launch of our commercial-grade console and software products in the first quarter of 2020. critical to our launch were a series of recent strategic transactions and regulatory approvals , including : fda 510 ( k ) clearance and ce mark of our second-generation acqmap console and supermap software suite ; the addition of an integrated family of transseptal crossing and steerable introducer systems to our product portfolio through our acquisition of rhythm xience , inc. , or rhythm xience ; and the acquisition of our acqblate force sensing product line from biotronik . since our full launch , we have continued to enhance our product portfolio and global presence by entering into bi-lateral distribution agreements with biotronik in may 2020 , which added a full suite of diagnostic and ablation catheters to our product portfolio and significantly expanded our international distribution and market development capabilities . 77 we market our electrophysiology products worldwide to hospitals and electrophysiologists that treat patients with arrhythmias . we have strategically developed a direct selling presence in the united states and select markets in western europe where cardiac ablation is a standard of care and third-party reimbursement is well-established . in these markets , we install our acqmap console and workstation with customer accounts and then sell our disposable products to those accounts for use with our system . in other international markets , we leverage our partnership with biotronik to install our acqmap console and workstation with customer accounts and then to sell our disposable products to those accounts . once an acqmap console and workstation is established in a customer account , our revenue from that account becomes predominantly recurring in nature and derived from the sale of our portfolio of disposable products used with our system . our currently marketed disposable products include access sheaths , transseptal crossing tools , diagnostic and mapping catheters , ablation catheters and accessories . story_separator_special_tag our ability to increase our installed base will depend on our ability to gain broader acceptance of our acqmap system by continuing to make physicians and other hospital staff aware of the benefits of the acqmap system , thereby generating increased demand for system installations and the frequency of use of our disposable products . although we are attempting to increase our installed base through our established relationships and focused sales efforts , we can not provide assurance that our efforts will be successful . 79 commercial organization size and effectiveness . as of december 31 , 2020 , our commercial organization consisted of 78 individuals with substantial applicable medical device , sales and clinical experience , including sales managers , sales representatives and mappers . we intend to continue to make significant investments in our commercial organization by increasing the number of our sales representatives , sales managers and mappers , as well as by expanding our global marketing and training programs , to help facilitate further adoption of our products among existing and new customer accounts . the rate at which we grow our commercial organization and the speed at which newly hired personnel become effective can impact our revenue growth or our costs incurred in anticipation of such growth . strategic partnerships and acquisitions . we have in the past , and may in the future , enter into strategic partnerships and acquire complementary businesses , products or technologies . for example , we have entered into strategic partnerships with innovative health and stereotaxis and , most recently , we entered into our global alliance for electrophysiology with biotronik in may 2020. in addition , we added an integrated family of transseptal crossing and steerable introducer systems to our product portfolio through our acquisition of rhythm xience in june 2019 and acquired our acqblate force sensing ablation system from biotronik in july 2019. our strategic partnerships and acquisitions have helped us establish a global sales presence delivering a broad portfolio of highly differentiated electrophysiology products . our ability to grow our revenue will depend substantially on our ability to leverage our strategic partnerships and acquisitions to achieve distribution at a global scale , broaden our product portfolio and enable and accelerate global connectivity . continued investment in innovation . our business strategy relies significantly on innovation to develop and introduce new products and to differentiate our products from our competitors . in 2020 , research and development continued to provide both new products as well as generational improvements to the current product lines through the release of five major versions of software , six disposables products including our first therapy device , and a significant improvement to our mapping system hardware . additionally , research efforts evolved into development projects for advanced therapies , improved navigational accuracy , and enhanced mapping capabilities . we expect our research and development expenditures to increase as we make additional investments to support our growth strategies . we plan to increase our research and development expenditures with internal initiatives , as well as potentially licensing or acquiring technology from third parties . we also expect expenditures associated with our manufacturing organization to grow over time as production volume increases and we bring new products to market . our internal and external investments will be focused on initiatives that we believe will offer the greatest opportunity for growth and profitability . with a significant investment in research and development , a strong focus on innovation and a well-managed innovation process , we believe we can continue to innovate and grow . introducing additional , innovative products is also expected to help support our existing installed base and help drive demand for additional installations of our system . if , however , our future innovations are not successful in meeting customers ' needs or prove to be too costly relative to their perceived benefit , we may not be successful . moreover , as cost of products sold , operating expenses and capital expenditures fluctuate over time , we may experience short-term , negative impacts to our results of operations and cash flows , but we are undertaking such investments in the belief that they will contribute to long-term growth . product and geographic mix ; timing . our financial results , including our gross margins , may fluctuate from period to period due to a variety of factors , including : average selling prices ; production volumes ; the cost of direct materials ; the timing of customer orders or medical procedures and the timing and number of system installations ; the number of available selling days in a particular period , which can be impacted by a number of factors such as holidays or days of severe inclement weather in a particular geography ; the mix of products sold and the geographic mix of where products are sold ; the level of reimbursement available for our products ; discounting practices ; manufacturing costs ; product yields ; headcount ; and cost-reduction strategies . for example , gross margins on the sale of our products by our direct selling organization in the united states and western europe are higher than gross margins on the sale of our products by biotronik in other parts of the world . moreover , gross margins on the sale of our proprietary products are generally higher than gross margins on the sale of products we source through our strategic partnerships with third parties . future selling prices and gross margins for our products may fluctuate due to a variety of other factors , including the introduction by others of competing products or the attempted integration by third parties of capabilities similar to ours into their existing products . we aim to mitigate downward pressure on our selling prices by increasing the value proposition offered by our products through innovation . while we have not yet experienced significant seasonality in our results , it is not uncommon in our industry to experience seasonally weaker revenue during the summer months and end-of-year holiday season .
| components of results of operations revenue our revenue consists of : ( i ) revenue from the sale of our disposable products ; ( ii ) systems and ; ( iii ) service/other revenue . in the united states and select markets in western europe where we have developed a direct selling presence , we install our acqmap console and workstation with our customer accounts and then generate revenue from the sale of our disposable products to these accounts for use with our system . in other international markets , we leverage our partnership with biotronik to install our acqmap console and workstation with customer accounts and then generate revenue from biotronik 's sale of our disposable products to these accounts for use with our system . our currently marketed disposable products include access sheaths , transseptal crossing tools , diagnostic and mapping catheters , ablation catheters and accessories . for the years ended december 31 , 2020 and 2019 , approximately 43 % and 74 % , respectively , of our sales were denominated in currencies other than u.s. dollars , primarily in euros and the british pound sterling . our revenue is subject to fluctuation based on the foreign currency in which our products are sold . costs and operating expenses cost of products sold cost of products sold consist primarily of raw materials , direct labor , manufacturing overhead associated with the production and sale of our disposable products and , to a more limited extent , production and depreciation of our acqmap console and workstation that we install with our customer accounts . we depreciate equipment over a three-year period . cost of products sold also includes expenditures for warranty , field service , freight , royalties and inventory reserve provisions . we expect cost of products sold to increase in absolute dollars in future periods as our revenue increases .
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to test the ibnr liability for medical claims payable , we performed audit procedures with the assistance of our actuarial specialists that included , among others , testing the underlying data through agreement to original source documentation ; comparing management 's methods and assumptions used in their analysis with historical experience , consistency with generally accepted actuarial methodologies used within the industry , and observable healthcare trend levels within the markets the company operates ; and , comparing management 's reserve to a range developed by our actuarial specialists based on assumptions developed by the specialists . we also assessed the historical accuracy of management 's estimates by comparing to actual claims paid . โ we have served as the company 's auditor since 2002 . โ โ ernst & young llp โ โ โ baltimore , maryland โ โ february 26 , 2021 โ โ โ โ โ story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the company 's selected financial data and the company 's financial statements and the accompanying notes included herein . the following discussion may contain โ forward-looking statements โ within the meaning of the securities act and the exchange act . when used in this form 10-k , the words โ estimate , โ โ anticipate , โ โ expect , โ โ believe , โ โ should โ and similar expressions are intended to be forward-looking statements . although the company believes that its plans , intentions and expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such plans , intentions or expectations will be achieved . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . important factors currently known to management that could cause actual results to differ materially from those in forward-looking 33 statements are set forth under the heading โ risk factors โ in item 1a and elsewhere in this form 10-k. capitalized or defined terms included in this item 7 have the meanings set forth in item 1 of this form 10-k. business overview the company is engaged in the healthcare management business , and is focused on meeting needs in areas of healthcare that are fast growing , highly complex and high cost , with an emphasis on special population management . the company provides services to health plans and other mcos , employers , labor unions , various military and governmental agencies , tpas , consultants and brokers . the company 's business is divided into three segments , based on the services it provides and or the customers that it serves . see item 1โ โ business โ for more information on the company 's business segments . results of operations the following table summarizes , for the periods indicated , continuing operating results ( in thousands ) : replace_table_token_2_th ( 1 ) includes stock compensation expense of $ 28,936 , $ 24,673 and $ 25,172 for the years ended december 31 , 2018 , 2019 and 2020 , respectively . ( 2 ) includes changes in fair value of contingent consideration of $ 1,108 for the year ended december 31 , 2018 . 2020 compared to 2019 net revenue , cost of care , cost of goods sold , and direct service costs and other operating expenses net revenue , cost of care , cost of goods sold , and direct service costs and other operating expense variances are addressed within the segment results that follow . depreciation and amortization depreciation and amortization expense decreased by 10.9 percent or $ 12.0 million from 2019 to 2020 , primarily due to asset maturities and office impairments , partially offset by normal asset additions in the current year . interest expense interest expense decreased by $ 5.0 million from 2019 to 2020 primarily due to lower interest rates and lower debt balances . โ 34 interest and other income interest and other income decreased by $ 2.8 million from 2019 to 2020 primarily due to a reduction in rates . special charges special charges increased by $ 34.1 million from 2019 to 2020 due to recognition of the special charges in the current year , see note 10โ โ special charges โ for further discussion . income taxes the company 's effective income tax rate from continuing operations was 42.1 percent in 2019 and 110.0 percent in 2020. these rates differ from the applicable federal statutory income tax rate for each year primarily due to state income taxes , permanent differences between book and tax income , changes to the valuation allowances , and an adjustment for the recognition of a $ 38.9 million nonrecurring tax benefit in the current year for tax basis in excess of net book value for certain assets included in the mcc sale . the company also accrues interest and penalties related to uncertain tax positions in its provision for income taxes . the significant effective income tax rate for 2020 is primarily due to the adjustment for the nonrecurring tax benefit related to the mcc sale realized in the current year , relative to the pre-tax loss for the period . the statutes of limitations regarding the assessment of federal and most state and local income taxes for 2016 expired during 2020. as a result , $ 1.8 million of tax contingency reserves recorded as of december 31 , 2019 were reversed in 2020 , of which $ 1.4 million was reflected as a reduction to income tax expense from continuing operations and $ 0.4 million as a decrease to deferred tax assets . additionally , $ 0.1 million of accrued interest was reversed in 2020 and reflected as a reduction to income tax expense from continuing operations due to the closing of statutes of limitations on tax assessments . story_separator_special_tag pbm and dispensing revenue pbm and dispensing revenue related to pharmacy management increased by 4.9 percent or $ 110.6 million from 39 2019 to 2020. this increase is primarily due to new contracts implemented after ( or during 2019 ) of $ 75.2 million and increased membership and utilization of $ 46.1 million . these increases were partially offset by other unfavorable variances of $ 10.7 million . cost of goods sold cost of goods sold increased by 5.9 percent or $ 123.2 million from 2019 to 2020. this increase is primarily due to an increase in new contracts implemented after ( or during ) 2019 of $ 74.3 million , membership and utilization of $ 42.9 million , and other unfavorable variances of $ 6.0 million . as a percentage of the portion of net revenue that relates to pbm , cost of goods sold increased from 92.8 percent in 2019 to 93.7 percent in 2020 , mainly due to higher utilization and business mix . direct service costs direct service costs increased by 11.7 percent or $ 37.8 million from 2019 to 2020. the increase is primarily due to start-up costs associated with new contract implementation costs and discretionary benefits . direct service costs increased as a percentage of revenue from 12.9 percent in 2019 to 13.7 percent in 2020 due to higher contract implementation costs and discretionary benefits . 2019 compared to 2018 managed care and other revenue managed care and other revenue related to pharmacy management increased by 10.4 percent or $ 25.0 million from 2018 to 2019. this increase is primarily due to increased formulary management revenue of $ 13.7 million mainly due to utilization , higher revenue in government pharmacy of $ 5.6 million mainly due to increased membership , increased medical pharmacy revenue of $ 4.7 million mainly due to favorable settlements , and other net favorable variances of $ 1.0 million . pbm and dispensing revenue pbm and dispensing revenue related to pharmacy management decreased by 14.8 percent or $ 388.6 million from 2018 to 2019. this decrease is primarily due to terminated contracts of $ 325.8 million and decreased membership and utilization of $ 154.6 million , mainly due to a reduction in the part d footprint . these decreases were partially offset by new contracts implemented after ( or during 2018 ) of $ 83.8 million , customer guarantee penalties in 2018 of $ 3.3 million and other favorable variances of $ 4.7 million . cost of goods sold cost of goods sold decreased by 15.9 percent or $ 391.7 million from 2018 to 2019. this decrease is primarily due to terminated contracts of $ 320.8 million , decreased membership and utilization of $ 139.9 million and other favorable variances of $ 10.7 million . these decreases were partially offset by new contracts implemented after ( or during ) 2018 of $ 79.7 million . as a percentage of the portion of net revenue that relates to pbm , cost of goods sold decreased from 94.0 percent in 2018 to 92.8 percent in 2019 , mainly due to business mix . direct service costs direct service costs increased by 8.2 percent or $ 24.4 million from 2018 to 2019. the increase is primarily due to an increase in discretionary benefits , an increase in stock compensation expense and new business growth . direct service costs increased as a percentage of revenue from 10.4 percent in 2018 to 12.9 percent in 2019 due to higher discretionary benefits . โ 40 corporate segment โ the corporate segment of the company is comprised primarily of amounts not allocated to the healthcare and pharmacy management segments that are largely associated with costs related to being a publicly traded company . โ the following table summarizes , for the periods indicated , operating results for the corporate segment ( in thousands ) : replace_table_token_5_th โ 2020 compared to 2019 net expenses related to corporate , which includes eliminations , increased 11.3 percent or $ 7.8 million , primarily due to higher discretionary benefits in 2020. as a percentage of revenue , corporate and elimination increased from 1.5 percent in 2019 and 1.7 percent in 2020 , mainly due to higher discretionary benefits . 2019 compared to 2018 net expenses related to corporate , which includes eliminations , increased 13.4 percent or $ 8.1 million , primarily due to higher discretionary benefits in 2019. as a percentage of revenue , corporate and elimination increased from 1.2 percent in 2018 to 1.5 percent in 2019 , mainly due to decreased revenue and higher discretionary benefits . inter segment revenues and expenses โ healthcare subcontracts with pharmacy management to provide pharmacy benefits management services for certain of healthcare 's customers . in addition , pharmacy management provides pharmacy benefits management for the company 's employees covered under its medical plan . as such , revenue , cost of goods sold and direct service costs and other related to these arrangements are eliminated within the corporate segment . โ non-gaap measures the company reports its financial results in accordance with gaap , however the company 's management also assesses business performance and makes business decisions regarding the company 's operations using certain non-gaap measures . in addition to segment profit , as defined above , the company also uses adjusted net income from continuing operations ( โ adjusted net income from continuing operations โ ) and adjusted net income from continuing operations per common share on a diluted basis ( โ adjusted eps โ ) . adjusted net income from continuing operations and adjusted eps reflect certain adjustments made for acquisitions completed after january 1 , 2013 to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers , changes in the fair value of contingent consideration , amortization of identified acquisition intangibles , as well as impairment of identified acquisition intangibles , special charges and any impact related to the sale of mcc .
| segment results the company manages and measures operational performance through three segments : healthcare , pharmacy management and corporate . the company evaluates performance of its segments based on segment profit . management uses segment profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources , risk assessment and employee compensation , among other matters . stock compensation expense and changes in fair value of contingent consideration recorded in relation to acquisitions are included in direct service costs and other operating expenses ; however , these amounts are excluded from the computation of segment profit . healthcare โ the healthcare segment includes the company 's : ( i ) management of behavioral healthcare services and eap services and ( ii ) management of other specialty areas including diagnostic imaging and musculoskeletal management . the healthcare segment provides management services to health plans , accountable care organizations , employers , state medicaid agencies , the united states military and various federal government agencies for whom magellan provides carve-out management services for behavioral health , employee assistance plans , and other areas of specialty healthcare including diagnostic imaging , musculoskeletal management , cardiac , and physical medicine . โ 36 the following table summarizes , for the periods indicated , operating results for the healthcare segment ( in thousands ) : replace_table_token_3_th ( 1 ) may include some duplicate count of membership for customers that contract with magellan for both behavioral and other specialty management services .
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the decrease in net income was also due to the 2012 one-time benefit from the reversal of 2011 deferred wram revenues of $ 12.9 million and associated costs of $ 10.5 million that we recognized in 2012 , a $ 0.6 million decrease in the unrealized pre-tax gain on our benefit plan insurance investments in 2013 , and higher net interest expenses mostly due to a reduction in capital project spending in 2013. the one-time tax benefit was $ 4.9 million in 2013 for state enterprise zone credits and state repairs deductions , and was $ 6.2 million in 2012 for state repairs deductions . the 2013 cost increases were partially offset by cost reductions to other operations , maintenance expenses , and income taxes . in 2012 and 2011 , net income was $ 48.8 million and $ 37.7 million , respectively . diluted earnings per share increased $ 0.27 to $ 1.17 or 30 % from 2011 to 2012. the $ 11.1 million increase in net income was primarily attributable to a one-time income tax benefit of $ 6.2 million related to 2011 and prior years for state income tax repairs and maintenance deductions that we recognized in 2012 , an unrealized pre-tax gain of $ 2.5 million on our benefit plan insurance investments , a one-time benefit of 2011 deferred wram operating revenues of $ 12.9 million and associated costs of $ 10.5 million that we recognized in 2012 , a decrease in the current year income tax provision due to the repairs and maintenance deductions , and lower financing costs for short-term borrowings , which was partially offset by a $ 3.9 million reduction to operating revenues due to the cost of capital adjustment mechanism and cost increases for employee wages and benefits , water production costs , and depreciation on plant placed into service during 2011. we plan to continue to seek rate relief to recover our operating cost increases and receive reasonable returns on invested capital . we expect to fund our long-term capital needs through a combination of debt , common stock offerings , and cash flow from operations . critical accounting policies and estimates we maintain our accounting records in accordance with accounting principles generally accepted in the united states of america and as directed by the commissions to which our operations are subject . the process of preparing financial statements requires the use of estimates on the part of management . the estimates used by management are based on historic experience and an understanding of current facts and circumstances . a summary of our significant accounting policies is listed in note 2 of the notes to consolidated financial statements . the following sections describe those policies where the level of subjectivity , judgment , and variability of estimates could have a material impact on the financial condition , operating performance , and cash flows of the business . revenue recognition revenue generally includes monthly cycle customer billings for regulated water and wastewater services at rates authorized by regulatory commissions ( plus an estimate for water used between the customer 's last meter reading and the end of the accounting period ) and billings to certain non-regulated customers at rates authorized by contract with government agencies . the company 's regulated water and waste water revenue requirements are authorized by the commissions in the states in which we operate . the revenue requirements are intended to provide the company a reasonable opportunity to recover its cost of service and earn a return on investments . 41 for metered customers , cal water recognizes revenue from rates which are designed and authorized by the cpuc . under the water revenue adjustment mechanism ( wram ) , cal water records the adopted level of volumetric revenues , which would include recovery of cost of service and a return on investments as established by the cpuc for metered accounts ( adopted volumetric revenues ) . in addition to volumetric-based revenues , the revenue requirements approved by the cpuc include service charges , flat rate charges , and other items not subject to the wram . the adopted volumetric revenue considers the seasonality of consumption of water based upon historical averages . the variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to a regulatory asset or liability balancing account ( tracked individually for each cal water district ) subject to certain criteria under the accounting for regulated operations being met . the variance amount may be positive or negative and represents amounts that will be billed or refunded to customers in the future . cost-recovery rates are designed to permit full recovery of certain costs allowed to be recovered by the commissions . cost-recovery rates such as the modified cost balancing account ( mcba ) provides for recovery of adopted expense levels for purchased water , purchased power and pump taxes , as established by the cpuc . in addition , cost-recovery rates include recovery of cost related to water conservation programs and certain other operation expenses adopted by the cpuc . variances ( which include the effects of changes in both rate and volume for the mcba ) between adopted and actual costs are recorded as a component of revenue , as the amount of such variances will be recovered from or refunded to our customers at a later date . cost-recovery expenses are generally recognized when the expenses are incurred with no markup for return or profit . the balances in the wram and mcba assets and liabilities accounts will fluctuate on a monthly basis depending upon the variance between adopted and actual results . the recovery or refund of the wram is netted against the mcba over- or under-recovery for the corresponding district and the deferred net balances are interest bearing at the current 90 day commercial paper rate . at the end of the calendar year , cal water files with the cpuc to refund or collect the balance in the accounts . story_separator_special_tag the company 's analysis of state of california ez credits as of december 31 , 2013 resulted in the recognition of a $ 0.6 million liability for unrecognized tax benefits . on september 19 , 2013 , the u. s. department of the treasury and internal revenue service ( irs ) issued the final and re-proposed tangible property regulations for repairs and maintenance deductions with an effective date of january 1 , 2014. these tax regulations allowed the company to deduct a significant amount of linear asset costs previously capitalized for book and tax purposes . the company intends to reevaluate its unit of property for linear assets on its 2013 tax return . the company 's federal fourth quarter of 2013 qualified repairs and maintenance deductions was $ 25.0 million for 2012 and prior years and created a deferred income tax liability of $ 8.8 million as of december 31 , 2013. the company 's state fourth quarter of 2013 qualified repairs and maintenance deductions was $ 41.0 million for 2012 and prior years and was recorded as a $ 2.4 million reduction to state income tax expense . the total federal nol was $ 14.8 million and state nol was $ 42.0 million as of december 31 , 2013 mostly due to repairs and maintenance deductions . the nol carry-forward amounts are more likely than not to be recovered and therefore require no valuation allowance . the nol carry-forward does not begin to expire until 2033. during 2012 , the company filed an application for a change in tax accounting method with the irs to implement the repairs and maintenance deduction . the company 's federal linear assets qualified repairs and maintenance deduction was $ 86.7 million for 2011 and prior years and created a deferred income tax liability $ 30.4 million as of december 31 , 2012. the company 's state linear assets qualified repairs and maintenance deduction was $ 122.2 million for 2011 and prior years and was recorded as a $ 7.0 million reduction to state income tax expense . the company planned to carry-back the nol as of december 31 , 2012 and recorded a $ 0.8 million federal income tax expense . this adjustment was reversed in 2013 when the federal nol was carried-forward to reduce 2013 income tax payments . the american taxpayer relief act of 2012 provided the company with additional 50 % first-year bonus depreciation for assets placed in service from december 31 , 2012 to december 31 , 2013. the tax relief , unemployment insurance reauthorization and job creation act of 2010 provided the company with additional federal income tax deductions for assets placed in service after september 8 , 2010 and before december 31 , 2012. the federal income tax deduction was estimated at $ 2.1 million in 2013 , was $ 5.1 million in 2012 and was $ 12.6 million in 2011. the 2013 estimate will be finalized when we file the 2013 tax returns in the third quarter of 2014. on october 24 , 2013 , the irs completed its audit of the company 's 2010 and 2011 federal income tax returns with no audit adjustment . in december 2012 , the california franchise tax board completed an audit of the company 's 2008 and 2009 state income tax returns with no audit adjustment . the state of hawaii department of taxation is presently auditing the company 's 2011 and 2012 hawaii state income tax returns . the state of california board of equalization franchise is presently auditing the company 's 2010 , 2011 , and 2012 sales and use tax filings . it is uncertain when the state audits will be completed . the company believes that the final resolution of the state audits will not have a material impact on its financial condition or results of operations . pension benefits we incur costs associated with our pension and postretirement health care benefits plans . to measure the expense of these benefits , our management must estimate compensation increases , mortality rates , 44 future health cost increases and discount rates used to value related liabilities and to determine appropriate funding . different estimates used by our management could result in significant variances in the cost recognized for pension benefit plans . the estimates used are based on historical experience , current facts , future expectations , and recommendations from independent advisors and actuaries . we use an investment advisor to provide advice in managing the plan 's investments . beginning with the 2009 california grc decision effective january 1 , 2011 , we anticipate any increases in funding for the pension benefits plans will be recovered in future rate filings , thereby mitigating the financial impact . we believe it is probable that future costs will be recovered in future rates and therefore have recorded a regulatory asset in accordance with generally accepted accounting principles . workers ' compensation and other claims we are self-insured for a portion of workers ' compensation and other claims . excess amounts are covered by insurance policies . for workers ' compensation , we work with an independent actuary firm to estimate the discounted liability associated with claims submitted and claims not yet submitted based on historical data . these estimates could vary significantly from actual claims paid , which could impact earnings and cash flows . for other claims , management estimates the cost incurred but not yet paid using historical information . actual costs could vary from these estimates . management believes actual costs incurred would be allowed in future rates , mitigating the financial impact . story_separator_special_tag million . for 2012 , the $ 18.7 million increase in purchased water is due to wholesaler water rate increases between 3 % and 12 % and a 6 % increase in purchased quantities . on an overall blended basis , wholesale water rates increased 7 % on a cost-per-million-gallon basis in 2012. purchased water expense for 2012 was partially offset by lease water rights credits of $ 0.9 million .
| results of operations earnings in 2013 and 2012 , net income was $ 47.3 million and $ 48.8 million , respectively . diluted earnings per share decreased $ 0.15 to $ 1.02 or 13 % from 2012 to 2013. the weighted average number of common shares outstanding used in the diluted earnings per share calculation increased to 46,417,000 shares in 2013 compared to 41,892,000 shares in 2012 mostly due to the sale of 5,750,000 shares of common stock on march 26 , 2013. the $ 1.5 million decrease in net income was primarily attributable to the cost increases for employee wages and benefits , water production costs , depreciation on plant placed into service during 2012 , and property taxes . the decrease in net income was also due to the 2012 one-time benefit from the reversal of 2011 deferred wram revenues of $ 12.9 million and associated costs of $ 10.5 million that we recognized in 2012 , a $ 0.6 million decrease in the unrealized pre-tax gain on our benefit plan insurance investments in 2013 , and higher net interest expenses mostly due to a reduction in capital project spending in 2013. the one-time tax benefit was $ 4.9 million in 2013 for state enterprise zone credits and repairs deductions , and was $ 6.2 million in 2012 for state repairs deductions . the 2013 cost increases were partially offset by cost reductions to other operations , maintenance expenses , and income taxes . in 2012 and 2011 , net income was $ 48.8 million and $ 37.7 million , respectively .
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the vesting commencement date was march 31 , 2013 and the option vests as follows : ( i ) 5,625 shares vested on the vesting commencement date and ( ii ) an additional 5,625 shares vest each fiscal quarter end following the vesting commencement date , subject to continued service with parametric . ( 3 ) this time-based option was granted under the 2012 plan on december 29 , 2011 , with a per share exercise price equal to the fair market value of one of our shares of common stock on the date of grant . the vesting commencement date was december 31 , 2011 and the option vests as follows : ( i ) 1,250 shares vested on the vesting commencement date and ( ii ) an additional 1,250 shares vest each fiscal quarter end following the vesting commencement date , subject to continued service with parametric . ( 4 ) this time-based option was granted under the 2012 plan on december 29 , 2011 , with a per share exercise price equal to the fair market value of one of our shares of common stock on the date of grant . on april 3 , 2012 the vesting for this option was modified from 10 % of the total shares subject to the option at grant and the balance over two years ( each calendar quarter ) to a new vesting schedule of 10 % at grant ( 41,000 shares vested ) , 154,000 shares vested on april 3 , 2012 , 20,000 shares to vest upon achievement of performance targets established by the board of directors ( which targets were achieved and vested in august 2012 ) and the remaining 195,000 shares vesting quarterly over eight calendar quarters commencing march 31 , 2012 , subject to continued service with parametric . mr. potashner exercised 25,000 of these options in february 2013 . ( 5 ) this performance-based option was granted under the 2012 plan on april 3 , 2012 with a per share exercise price equal to the fair market value of our shares of common stock on the date of grant . t he vesting commencement date was at grant and this option vests anytime during the option term as follows : 60,000 shares based upon a quarterly revenue goal ; 55,000 shares upon achievement of a quarterly profit ; 60,000 shares upon achieving licensing performance targets ; or otherwise vesting as approved by the board of directors . the option also vests on a change of control . ( 6 ) this time-based option was granted under the 2012 plan on february 21 , 2013 , with a per share exercise price equal to the fair market value of one of our shares of common stock on the date of grant . the vesting commencement date was march 31 , 2013 and the option vests as follows : ( i ) 4,375 shares vested on the vesting commencement date and ( ii ) an additional 4,375 shares vest each fiscal quarter end following the vesting commencement date , subject to continued service with parametric . on august 2 , 2013 parametric made a modification to accelerate the vesting of these options in full upon a change of control followed by such executive 's departure from the company under certain circumstances thereafter ( โ double trigger โ vesting ) . ( 7 ) this option was granted under the 2010 plan on october 8 , 2010 , with a per share exercise price equal to 110 % of the fair market value of one of our shares of common stock on the date of grant . the vesting was quarterly with the commencement date of december 31 , 2010 and story_separator_special_tag you should read the following discussion in conjunction with the financial statements and other financial information included elsewhere in this annual report on form 10-k. the following discussion may contain forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include , but are not limited to , those discussed below and elsewhere in this annual report on form 10-k , particularly in โ risk factors โ . overview we are a technology company with a substantial body of intellectual property focused on delivering novel audio solutions . our hss technology pioneered the practical application of parametric acoustic technology for generating sound along a directional ultrasonic column . after our september 2010 spin-off from lrad corporation , we completed development of a new product line ( hss-3000 ) and in july 2011 commenced sales of our hss-3000 audio systems . the hss-3000 product line delivers directed audio solutions to customers primarily for commercial use including digital signage , kiosk and related applications that benefit from focused sound targeted to specific locations . our principal markets are north america , europe and asia . we are targeting our technology for new uses in consumer markets including computers , video gaming , televisions and home audio along with other commercial markets including casino gaming and cinema . we are also researching and developing health applications for persons with hearing loss . 36 we are seeking to expand into new markets through both product sales and licensing . our licensing strategy is to identify large or high-growth markets , develop needed technology solutions and features , and work with established industry participants and oems to make products incorporating our technologies widely available to consumers . to date , we have not received any revenue from licensing activities . story_separator_special_tag we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements : revenue recognition and product costs product sales to customers , including resellers , are recognized in the periods that products are shipped to customers ( fob shipping point ) or received by customers ( fob destination ) , when the fee is fixed or determinable , when collection of resulting receivables is probable and there are no remaining obligations on our part . our customers do not have the right to return product unless the product is found to be defective . product costs include direct manufacturing costs and allocated overhead that require estimates to allocate various costs to product results . our strategy is to derive licensing revenues primarily from royalties paid by licensees of our intellectual property rights , including patents , trademarks , and know-how . revenues generated from license agreements are recognized in the period earned , provided that amounts are fixed or determinable and collectability is reasonably assured . deferred revenue is reported for amounts that are expected to be recognized as revenue including upfront license fees , but for which not all revenue recognition criteria have been met . warranty liabilities we establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized . this reserve requires us to make estimates regarding the amount and costs of warranty repairs we expect to make over a period of time . factors affecting warranty reserve levels include the number of units sold , anticipated cost of warranty repairs , and anticipated rates of warranty claims . if actual results differ significantly from our estimates , cost of sales and our results of operations could be materially impacted . 38 impairments our inventory is comprised of raw materials , assemblies and finished products . we must periodically make judgments and estimates regarding the future utility and carrying value of our inventory . the carrying value of our inventory is periodically reviewed and impairments , if any , are recognized when the expected future benefit from our inventory is less than its carrying value . intangible assets consist of purchased technology , patents , pending patents and trademarks that are amortized over their estimated useful lives . we make judgments and estimates regarding the future utility and carrying value of intangible assets , and such assets are periodically reviewed and impairments , if any , are recognized when the expected future benefit to be derived from an individual intangible asset is less than its carrying value . share-based compensation we account for share-based compensation in accordance with the provisions of accounting standards codification ( โ asc โ ) 718 , โ compensationโstock compensation โ ( โ asc 718 โ ) and asc 505-50 , equity-based payments to non-employees ( โ asc 505-50 โ ) requiring the measurement and recognition of compensation expense for all share-based payment awards based on estimated grant or measurement date fair values . asc 718 asc 505-50 require the use of subjective assumptions , including expected stock price volatility , forfeitures and the estimated term of each award . if actual results differ significantly from our estimates , stock-based compensation expense and our results of operations could be materially impacted . acquired intangible assets we account for acquired intangible technology in accordance with asc 350-30-30 , intangible โ goodwill and other - general intangibles other than goodwill - initial measurement , and asc 805-50-30 , business combinations โ related issues โ initial measurement , which requires that intangible assets acquired through a transaction that is not a business combination be measured based on the cash consideration paid plus either the fair value of the non-cash consideration given or the fair value of the assets acquired , whichever is more clearly evident . deferred tax assets we have provided a full valuation reserve related to our deferred tax assets . in the future , if sufficient evidence of our ability to generate sufficient future taxable income in certain tax jurisdictions becomes apparent , we may be required to reduce our valuation allowances , resulting in income tax benefits in our statement of operations . we evaluate quarterly the realizability of the deferred tax assets and assess the need for a valuation allowance . utilizing the net operating loss carry forwards in future years could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership or control . segment and related information we operate as a single reportable segment on an enterprise-wide basis . we generate revenue by selling our technology-based products and expect future licensing revenues from such technology . story_separator_special_tag and leased employee costs of $ 160,000 , $ 104,000 of technical and testing costs associated with our hhi subsidiary , $ 241,000 of patent costs and patent , technology and fixed asset amortization and depreciation costs , $ 201,000 of prototype and related testing and development costs and $ 100,000 of occupancy costs . we added research and development personnel during the year ended september 30 , 2013 and personnel and consulting costs increased $ 413,000 compared to the prior year . we incurred $ 104,000 for hhi costs related to health product and fda development activities with no comparable costs in the prior year . patent costs and patent , technology and fixed asset amortization and depreciation costs increased by $ 45,000 compared to the prior year as a result of purchased technology amortization and increased patent filings and related research . occupancy costs increased $ 28,000 due to expanded space and additional personnel .
| results of operations comparison of results of operations for the years ended september 30 , 2013 and 2012 revenues revenues of $ 545,905 for the year ended september 30 , 2013 represent a 146 % increase over the prior year and consisted of sales to commercial customers . sales during 2013 varied quarter to quarter as we focused on larger multi-outlet customers conducting pilot sales and limited rollouts to outlets . revenues from two customers accounted for 43 % and 24 % of total revenues . 39 we invested significant sales and marketing resources to build a pipeline of directed audio opportunities , develop new customers and expand our distribution . we are pursuing new customers and channel distribution for our hss-3000 product line , focusing on larger volume applications for the digital signage , kiosk and related applications . we are also pursuing business development activities related to other commercial and consumer applications of our technology . while we expect sales growth in 2014 , sales from quarter to quarter may still vary and may be impacted by our reliance on a limited number of customers . we are unable to predict the level of future product sales or the timing of future licensing revenues , if any . in june 2012 , we formed a wholly-owned subsidiary , psc licensing corp. to engage in technology licensing activities . in july 2012 , we signed our first technology licensing agreement that provided for an initial prototype development term and a possible manufacturing term . coincident with the merger agreement , we terminated the license in august 2013 , prior to any manufacturing term . we did not earn or report any revenues from the license .
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in june 2012 , the company was named , along with other parties , as a defendant in a putative class action lawsuit being brought , as amended , on behalf of the genaera liquidating trust ( `` trust `` ) . we purchased biotechnology assets from the trust in 2009. on august 12 , 2013 , the court dismissed each of the plaintiff 's claims against the company . an appeal of the dismissal is pending ; however management believes that there is a remote possibility the litigation will have a material adverse impact on the company 's financial condition . note 10 โ subsequent events on october 2 , 2013 , the company issued a total of 100,000 warrants , 75,000 to a consultant for services rendered to the company , and 25,000 to a related party for use of the company 's office space and office expenses . the warrants vested immediately , have an exercise price of $ 7.96 per common share and a term of 3 years . on october 2 , 2013 , the company agreed to settle $ 50,000 of its outstanding legal bills through issuance of 6,282 common shares . 35 ohr pharmaceutical , inc. ( a development stage company ) notes to the financial statements september 30 , 2013 on october 31 , 2013 , the company received a notice of exercise for 55,556 series a warrants with an exercise price of $ 3.60 . accordingly , the company issued 55,556 common shares for proceeds of $ 200,001 . on november 13 , 2013 , two holders of its series b preferred converted 500,000 preferred shares into 166,667 common shares . as of the date of this filing , there are no series b preferred shares outstanding , 36 part iii item 9 changes in and disagreements with accountants on accounting and financial disclosure on october story_separator_special_tag safe harbor statement certain statements contained in this report , including , without limitation , statements containing the words โ believes , โ โ anticipates , โ โ expects , โ โ intends , โ and words of similar import , constitute โ forward-looking statements โ as defined in the private securities litigation reform act of 1995 or by the securities and exchange commission in its rules , regulations and releases , regarding the company 's financial and business prospects . these forward-looking statements are qualified in their entirety by these cautionary statements , which are being made pursuant to the provisions of such act and with the intention of obtaining the benefits of the โ safe harbor โ provisions of such act . the company cautions investors that any forward-looking statements it makes are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements . we assume no obligation to update any forward-looking statements contained in this report , whether as a result of new information , future events or otherwise . any investment in our common stock involves a high degree of risk . for a general discussion of some of these risks in greater detail , see our โ risk factors โ on page 6 of this annual report . 16 on june 3 , 2013 , the company effected a 3:1 reverse stock split on its shares of common stock . unless otherwise noted , impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented . certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split . general the company is a biotechnology company focused on the development of the company 's previously acquired compounds . with the addition of our executive management team in april 2010 , we have shifted our strategy to focus on the clinical development of our two later stage lead products , squalamine eye drops for the treatment of wet-amd and other neovascular ophthalmic disorders , and ohr/avr 118 for the treatment of cancer cachexia . we acquired ohr/avr118 in a secured party sale and squalamine from the genaera liquidating trust as part of the company 's strategy to acquire undervalued biotechnology companies and assets . we seek to advance our two lead products through later stage clinical trials as well as developing some of our earlier stage products and indications are that we are moving forward with minimal capital outlay . we have also started a new initiative to seek and implement strategic alternatives with respect to our products , including licenses , business collaborations and other business combinations or transactions with other pharmaceutical and biotechnology companies . from time to time , we may engage in discussions with third parties regarding the licensure , sale or acquisition of our products and technologies or a merger or sale of the company ; however we currently do not have any such transaction in place and there is no assurance that the company will complete such a transaction . the company has limited core operating expenses as we have only two full-time employees . the company will continue to incur ongoing operating losses , which are expected to increase substantially as it funds development and clinical testing of its pharmaceutical compounds . in addition , losses will be incurred in paying ongoing reporting expenses , including legal and accounting expenses , as necessary to maintain the company as a public entity . no projected date for potential revenues can be made , and the company is undercapitalized at present to completely develop , test and market any pharmaceutical product . until the company is able to generate significant revenue from its principal operations , it will remain classified as a development stage company . the company can give no assurance that it story_separator_special_tag in june 2012 , the company was named , along with other parties , as a defendant in a putative class action lawsuit being brought , as amended , on behalf of the genaera liquidating trust ( `` trust `` ) . we purchased biotechnology assets from the trust in 2009. on august 12 , 2013 , the court dismissed each of the plaintiff 's claims against the company . an appeal of the dismissal is pending ; however management believes that there is a remote possibility the litigation will have a material adverse impact on the company 's financial condition . note 10 โ subsequent events on october 2 , 2013 , the company issued a total of 100,000 warrants , 75,000 to a consultant for services rendered to the company , and 25,000 to a related party for use of the company 's office space and office expenses . the warrants vested immediately , have an exercise price of $ 7.96 per common share and a term of 3 years . on october 2 , 2013 , the company agreed to settle $ 50,000 of its outstanding legal bills through issuance of 6,282 common shares . 35 ohr pharmaceutical , inc. ( a development stage company ) notes to the financial statements september 30 , 2013 on october 31 , 2013 , the company received a notice of exercise for 55,556 series a warrants with an exercise price of $ 3.60 . accordingly , the company issued 55,556 common shares for proceeds of $ 200,001 . on november 13 , 2013 , two holders of its series b preferred converted 500,000 preferred shares into 166,667 common shares . as of the date of this filing , there are no series b preferred shares outstanding , 36 part iii item 9 changes in and disagreements with accountants on accounting and financial disclosure on october story_separator_special_tag safe harbor statement certain statements contained in this report , including , without limitation , statements containing the words โ believes , โ โ anticipates , โ โ expects , โ โ intends , โ and words of similar import , constitute โ forward-looking statements โ as defined in the private securities litigation reform act of 1995 or by the securities and exchange commission in its rules , regulations and releases , regarding the company 's financial and business prospects . these forward-looking statements are qualified in their entirety by these cautionary statements , which are being made pursuant to the provisions of such act and with the intention of obtaining the benefits of the โ safe harbor โ provisions of such act . the company cautions investors that any forward-looking statements it makes are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements . we assume no obligation to update any forward-looking statements contained in this report , whether as a result of new information , future events or otherwise . any investment in our common stock involves a high degree of risk . for a general discussion of some of these risks in greater detail , see our โ risk factors โ on page 6 of this annual report . 16 on june 3 , 2013 , the company effected a 3:1 reverse stock split on its shares of common stock . unless otherwise noted , impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented . certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split . general the company is a biotechnology company focused on the development of the company 's previously acquired compounds . with the addition of our executive management team in april 2010 , we have shifted our strategy to focus on the clinical development of our two later stage lead products , squalamine eye drops for the treatment of wet-amd and other neovascular ophthalmic disorders , and ohr/avr 118 for the treatment of cancer cachexia . we acquired ohr/avr118 in a secured party sale and squalamine from the genaera liquidating trust as part of the company 's strategy to acquire undervalued biotechnology companies and assets . we seek to advance our two lead products through later stage clinical trials as well as developing some of our earlier stage products and indications are that we are moving forward with minimal capital outlay . we have also started a new initiative to seek and implement strategic alternatives with respect to our products , including licenses , business collaborations and other business combinations or transactions with other pharmaceutical and biotechnology companies . from time to time , we may engage in discussions with third parties regarding the licensure , sale or acquisition of our products and technologies or a merger or sale of the company ; however we currently do not have any such transaction in place and there is no assurance that the company will complete such a transaction . the company has limited core operating expenses as we have only two full-time employees . the company will continue to incur ongoing operating losses , which are expected to increase substantially as it funds development and clinical testing of its pharmaceutical compounds . in addition , losses will be incurred in paying ongoing reporting expenses , including legal and accounting expenses , as necessary to maintain the company as a public entity . no projected date for potential revenues can be made , and the company is undercapitalized at present to completely develop , test and market any pharmaceutical product . until the company is able to generate significant revenue from its principal operations , it will remain classified as a development stage company . the company can give no assurance that it
| results of operations for the fiscal year ended september 30 , 2013 , the company had zero revenues and operating expenses of approximately $ 4,620,916. the loss from operations was comprised of $ 2,610,120 in research and development costs , $ 608,408 in professional fees , $ 1,089,847 in salaries and wages , and $ 312,541 in general and administrative expenses . during the same period , the company recorded interest expense of $ 4,689 , a loss on derivative liabilities of $ 1,117,642 , and other income items totaling $ 90,759. the net loss from continuing operations for the year ended september 30 , 2013 was $ 5,652,488. for the fiscal year ended september 30 , 2012 , the company had zero revenues and operating expenses of approximately $ 3,286,408. the loss from operations was comprised of $ 1,625,695 in research and development costs , $ 875,868 in professional fees , $ 649,293 in salaries and wages , and $ 135,552 in general and administrative expenses . during the same period , the company recorded interest expense of $ 1,817 , a gain on the settlement of debt of $ 21,005 , a gain on derivative liabilities of $ 1,812,224 , and other income items totaling $ 112. the net loss from continuing operations for the year ended september 30 , 2012 was $ 1,454,884 . 17 as noted above , the company had no revenues for fiscal year 2013 , and does not anticipate that it will have revenues in fiscal year 2014. the operating expenses of the company increased from fiscal year 2012 to 2013 by approximately $ 1,334,508. the company had increases in nearly all expense categories as ongoing development costs and testing efforts for its pharmaceutical products continue . the company anticipates it will have higher expenditures in fiscal year 2014 , including clinical development costs , again with no offsetting revenues .
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the aggregate cost of operating the company 's fleet depends primarily on the size and asset mix of the fleet . the company 's direct operating costs and expenses , other than leased-in equipment expense , are grouped into the following categories : personnel ( primarily wages , benefits , payroll taxes , savings plans and travel for marine personnel ) ; repairs and maintenance ( primarily routine repairs and maintenance and main engine overhauls that are performed in accordance with planned maintenance programs ) ; drydocking ( primarily the cost of regulatory drydockings performed in accordance with applicable regulations ) ; insurance and loss reserves ( primarily the cost of hull and machinery and protection and indemnity insurance premiums and loss deductibles ) ; fuel , lubes and supplies ; and other ( communication costs , expenses incurred in mobilizing vessels between geographic regions , third-party ship management fees , freight expenses , customs and importation duties and other ) . the company expenses drydocking , engine overhaul and vessel mobilization costs as incurred . if a disproportionate number of drydockings , overhauls or mobilizations are undertaken in a particular fiscal year or quarter , operating expenses may vary significantly when compared with the prior year or prior quarter . direct vessel profit . direct vessel profit ( defined as operating revenues less operating expenses excluding leased-in equipment , โ dvp โ ) is the company 's measure of segment profitability when applied to reportable segments and a non-gaap measure when applied to individual vessels , fleet categories or the combined fleet . dvp is a critical financial measure used by the company to analyze and compare the operating performance of its individual vessels , fleet categories , regions and combined fleet , without regard to financing decisions ( depreciation for owned vessels vs. leased-in expense for leased-in vessels ) . dvp is also useful when comparing the company 's fleet 's performance against those of its competitors who may have differing fleet financing structures . dvp has some limitations in that it does not take into account all expenses related to the operation of the fleet and , more significantly , the company . leased-in equipment . in addition to the company 's owned fleet , it operates leased-in vessels from lessors under bareboat charter arrangements that currently expire in 2021. certain of these vessels were previously owned and subject of sale and leaseback transactions with their lessors . 43 impairments . as a result of the difficult conditions experienced in the offshore oil and natural gas markets beginning in the second half of 2014 and the corresponding reductions in utilization and rates per day worked of its fleet , the company identified indicators of impairment and has over the past few years recognized impairment charges primarily associated with its ahts fleet , its liftboat fleet , certain specialty vessels and vessels removed from service . when reviewing its fleet for impairment , the company groups vessels with similar operating and marketing characteristics , including cold-stacked vessels expected to return to active service , into vessel classes . all other vessels , including vessels retired and removed from service , are evaluated for impairment on a vessel by vessel basis . during 2020 , the company recorded impairment charges of $ 13.5 million associated with its liftboat fleet ( five owned and two leased-in vessels ) , and one specialty vessel and recognized net losses of $ 5.3 million as a result of asset disposals ( $ 4.8 million loss due to the disposal of one vessel under construction , and $ 0.5 million loss due to the redelivery of one leased-in ahts vessel and one leased-in liftboat ) . during 2019 , the company recorded impairment charges of $ 12.0 million primarily associated with its ahts fleet ( four owned and one leased-in vessel ) , four fsvs and one leased-in specialty vessel . during 2018 , the company recorded impairment charges of $ 14.6 million primarily associated with its ahts fleet ( four owned and three leased-in vessels ) and one specialty vessel . estimated fair values for the company 's owned vessels were established by independent appraisers and other market data such as recent sales of similar vessels . for information regarding the company 's vessel fair value measurement determinations , see โ note 11. fair value measurements โ in the audited consolidated financial statements included elsewhere in this annual report on form 10-k. if market conditions continue to decline from the presently depressed utilization and rates per day worked experienced over the last three years , fair values based on future appraisals could decline significantly . the company 's other vessel classes and other individual vessels in active service and cold-stacked status , for which no impairment was deemed necessary , have generally experienced a less severe decline in utilization and rates per day worked based on specific market factors . the market factors include vessels with more general utility to a broader range of customers ( e.g. , fsvs ) , vessels required for customers to meet regulatory mandates and operating under multiple year contracts or vessels that service customers outside of the offshore oil and natural gas market ( e.g. , ctvs ) . for vessel classes and individual vessels with indicators of impairment , but which were not impaired as of december 31 , 2020 , the company has estimated that their future undiscounted cash flows exceed their current carrying values by more than 40 % . story_separator_special_tag the company 's estimates of future undiscounted cash flows are highly subjective as utilization and rates per day worked are uncertain , including the timing of an estimated market recovery in the offshore oil and natural gas markets and the timing and cost of reactivating cold-stacked vessels . if market conditions decline further , or remain stagnant at current levels , changes in the company 's expectations on future cash flows may result in recognizing additional impairment charges related to its long-lived assets in future periods . 44 consolidated resul ts of operations for the years ended december 31 , the company 's consolidated results of operations were as follows ( in thousands , except statistics ) : replace_table_token_4_th 45 the following tables summarize the operating results and property and equipment for the company 's reportable segments for the periods indicated ( in thousands , except statistics ) : replace_table_token_5_th ( 1 ) total assets excludes $ 105.6 million of corporate assets , and $ 50.2 million of assets held for sale . 46 replace_table_token_6_th ( 1 ) total assets excludes $ 145.5 million of corporate assets , and $ 45.7 million of assets held-for-sale . 47 replace_table_token_7_th ( 1 ) total assets excludes $ 153.1 million of corporate assets , and $ 88.2 million of assets held-for-sale . 48 the following tables summarize the world-wide operating results and property and equipment for each of the company 's vessel classes for the periods indicated ( in thousands , except statistics ) : replace_table_token_8_th ( 1 ) direct vessel profit by vessel class is a non-gaap financial measure . see โ -certain components of revenues and expenses - direct vessel profit โ for a discussion of the usefulness of this measure . it should be noted that dvp by vessel class has material limitations as an analytical tool in that it does not reflect all of the costs associated with the operation of the company 's fleet , and it should not be considered in isolation or used as a substitute for the company 's results as reported under gaap . a reconciliation of dvp by vessel class to operating loss , its most comparable gaap measure , is included in the table above . 49 replace_table_token_9_th ( 1 ) direct vessel profit by vessel class is a non-gaap financial measure . see โ -certain components of revenues and expenses - direct vessel profit โ for a discussion of the usefulness of this measure . it should be noted that dvp by vessel class has material limitations as an analytical tool in that it does not reflect all of the costs associated with the operation of the company 's fleet , and it should not be considered in isolation or used as a substitute for the company 's results as reported under gaap . a reconciliation of dvp by vessel class to operating loss , its most comparable gaap measure , is included in the table above . 50 replace_table_token_10_th ( 1 ) direct vessel profit by vessel class is a non-gaap financial measure . see `` -certain components of revenues and expenses - direct vessel profit '' for a discussion of the usefulness of this measure . it should be noted that dvp by vessel class has material limitations as an analytical tool in that it does not reflect all of the costs associated with the operation of the company 's fleet , and it should not be considered in isolation or used as a substitute for the company 's results as reported under gaap . a reconciliation of dvp by vessel class to operating loss , its most comparable gaap measure , is included in the table above . 51 operating income ( loss ) united states , primarily gulf of mexico . for the years ended december 31 , the company 's direct vessel profit ( loss ) in the u.s. as follows ( in thousands , except statistics ) : replace_table_token_11_th 2020 compared with 2019 operating revenues . time charter and bareboat charter revenues were $ 27.7 million lower in 2020 compared with 2019. on an overall basis , charter revenues were $ 21.5 million lower due to lower utilization of the core fleet and $ 6.2 million lower due to net fleet dispositions . other marine services were $ 1.4 million lower primarily due to lower liftboat catering revenues . as of december 31 , 2020 , the company had 15 of 20 owned and leased-in vessels cold-stacked in this region ( two ahts , four fsvs , and nine liftboats ) compared with 14 of 25 vessels as of december 31 , 2019. direct operating expenses . direct operating expenses were $ 19.2 million lower in 2020 compared with 2019. direct operating expenses were $ 15.4 million lower for the core fleet , primarily due to reduced personnel , repair and drydocking cost , and $ 3.8 million lower due to net fleet dispositions . 52 2019 compared with 2018 operating revenues . time charter revenues were $ 0.2 million higher in 2019 compared with 2018. on an overall basis , time charter revenues were $ 2.7 million higher due to net fleet additions and $ 0.5 million higher due to improved utilization and an increase in average dayrates . time charter revenues were $ 3.0 million lower due to the repositioning of vessels between geographic regions . other marine services were $ 9.4 million lower primarily due to the recognition in 2018 of revenue previously deferred due to collection concerns following the receipt of cash and due to the commencement of a bareboat contract in 2019. as of december 31 , 2019 , the company had 14 of 25 owned and leased-in vessels cold-stacked in this region ( two ahts vessels , three fsvs , eight liftboats and one specialty vessel ) compared with 18 of 30 vessels as of december 31 , 2018. as of december 31 , 2018 , the company had
| general the company 's ongoing liquidity requirements arise primarily from working capital needs , capital commitments and its obligations to service outstanding debt and comply with covenants under its debt facilities . the company may use its liquidity to fund capital expenditures , make acquisitions or to make other investments . sources of liquidity are cash balances , marketable securities , construction reserve funds and cash flows from operations . from time to time , the company may secure additional liquidity through asset sales or the issuance of debt , shares of common stock or common stock of its subsidiaries , preferred stock or a combination thereof . as of december 31 , 2020 , the company 's unfunded capital commitments from continuing operations were $ 11.7 million for one psv and miscellaneous vessel equipment . of the unfunded capital commitments , $ 10.7 million is payable during 2021 and $ 1.0 million is payable during 2022. as of december 31 , 2020 , the company had indefinitely deferred an additional $ 9.6 million of orders with respect to one fsv that the company had previously reported unfunded capital commitments . as of december 31 , 2020 , the company had outstanding debt of $ 472.9 million , net of debt discount and issue costs . the company 's contractual long-term debt maturities as of december 31 , 2020 are as follows ( in thousands ) : actual 2021 $ 32,377 60 replace_table_token_18_th as of december 31 , 2020 , the company held balances of cash , cash equivalents , restricted cash and construction reserve funds totaling $ 36.0 million , of which $ 4.2 million was construction reserve funds held as cash . in january 2021 , the company received cash proceeds of $ 42.6 million for the sale of windcat workboats .
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terms of the applicable note indenture . for example , while the senior credit facility agreement would allow us to repay our outstanding notes via a direct exchange of the notes for either permitted refinancing indebtedness or for shares of our common stock , we do not , under the terms of the agreements governing our outstanding notes , have the right to refinance the notes via any type of direct exchange . the senior credit facility agreement also contains other restrictions on our operations that are customary for similar facilities , including limitations on : ( i ) incurring additional liens ; ( ii ) sale and leaseback transactions ( except for the permitted transactions as described in the senior story_separator_special_tag as you read the following review of our financial condition and results of operations , you should also read our consolidated financial statements and related notes in item 8. executive summary we are one of the world 's leading manufacturers of clean air and ride performance products and systems for light vehicle , commercial truck and off-highway applications . we serve both original equipment ( oe ) vehicle designers and manufacturers and the repair and replacement markets , or aftermarket , globally through leading brands , including monroe ยฎ , rancho ยฎ , clevite ยฎ elastomers , marzocchi ยฎ , axios , kinetic and fric-rot ride performance products and walker ยฎ , xnox ยฎ , fonos , dynomax ยฎ and thrush clean air products . we serve more than 70 different original equipment manufacturers and commercial truck and off-highway engine manufacturers , and our products are included on nine of the top 10 car models produced for sale in europe and eight of the top 10 light truck models produced for sale in north america for 2014. our aftermarket customers are comprised of full-line and specialty warehouse distributors , retailers , jobbers , installer chains and car dealers . as of december 31 , 2014 , we operated 90 manufacturing facilities worldwide and employed approximately 29,000 people to service our customers ' demands . factors that continue to be critical to our success include winning new business awards , managing our overall global manufacturing footprint to ensure proper placement and workforce levels in line with business needs , maintaining competitive wages and benefits , maximizing efficiencies in manufacturing processes and reducing overall costs . in addition , our ability to adapt to key industry trends , such as a shift in consumer preferences to other vehicles in response to higher fuel costs and other economic and social factors , increasing technologically sophisticated content , changing aftermarket distribution channels , increasing environmental standards and extended product life of automotive parts , also play a critical role in our success . other factors that are critical to our success include adjusting to economic challenges such as increases in the cost of raw materials and our ability to successfully reduce the impact of any such cost increases through material substitutions , cost reduction initiatives and other methods . for 2014 , light vehicle production continued to improve from recent years in some of the geographic regions in which we operate . light vehicle production was up five percent in north america , three percent in europe and eight percent in china . 41 south america light vehicle production was down 16 percent , india was down two percent and australia was down 17 percent from 2013 levels . in connection with the organizational changes announced on february 14 , 2013 that aligned our businesses along product lines , effective with 2013 , our three prior geographic reportable segments have each been split into two product segments . beginning with 2013 , we are managed and organized along our two major product lines ( clean air and ride performance ) and three geographic areas ( north america ; europe , south america and india ; and asia pacific ) , resulting in six operating segments ( north america clean air , north america ride performance , europe , south america and india clean air , europe , south america and india ride performance , asia pacific clean air and asia pacific ride performance ) . within each geographical area , each operating segment manufactures and distributes either clean air or ride performance products primarily for the original equipment and aftermarket industries . each of the six operating segments constitutes a reportable segment . costs related to other business activities , primarily corporate headquarter functions , are disclosed separately from the six operating segments as `` other . '' prior period segment information has been revised to reflect our new reporting segments . total revenue for 2014 was $ 8,420 million , a six percent increase from $ 7,964 million in 2013. excluding the impact of currency and substrate sales , revenue was up $ 483 million from $ 6,129 million to $ 6,612 million , driven primarily by stronger oe light vehicle volumes in north america , europe and china , higher oe commercial truck , off-highway and other revenue in europe , china and japan clean air and north america ride performance and increased aftermarket sales in north america and south america . cost of sales : cost of sales for 2014 was $ 7,025 million , or 83.4 percent of sales , compared to $ 6,734 million , or 84.6 percent of sales in 2013. the following table lists the primary drivers behind the change in cost of sales ( $ millions ) . replace_table_token_13_th the increase in cost of sales was due primarily to the year-over-year increase in volumes and higher other costs , mainly manufacturing , partially offset by lower restructuring costs , lower net material costs and the impact of currency exchange rates . story_separator_special_tag for the clean air division , ebit included restructuring and related expenses of $ 17 million in 2014 and $ 11 million in 2013. ebit for the clean air division included a charge of $ 4 million related to the bankruptcy of an aftermarket customer in europe in 2014. currency had a $ 2 million unfavorable impact on ebit of the clean air division for 2014 when compared to last year . ebit for the ride performance division was $ 219 million in 2014 compared to $ 139 million in 2013. ebit for north america increased $ 19 million in 2014 to $ 143 million from $ 124 million in 2013. the benefits of increased light vehicle and commercial truck volumes and positive aftermarket product mix were partially offset by higher restructuring and related expenses and unfavorable currency . europe , south america and india 's ebit was $ 40 million in 2014 , compared to a loss of $ 7 million a year ago . the increase was driven by lower year-over-year restructuring and related expenses , increased light vehicle and commercial truck volumes in europe , higher aftermarket revenues in south america and india and year-over-year savings from prior restructuring activities , partially offset by lower light vehicle sales in south america and negative currency . ebit from asia pacific increased $ 14 million in 2014 to $ 36 million from 2013. ebit benefited from higher light vehicle production volumes in china , savings from prior restructuring activities in australia and positive currency , partially offset by lower volumes in australia . for the ride performance division , ebit included restructuring and related expenses of $ 28 million in 2014 and $ 65 million in 2013. ebit for the ride performance division included a charge of $ 1 million related to postretirement medical true-up in 2014. currency had an $ 8 million unfavorable impact on ebit of the ride performance 48 division for 2014 when compared to last year . ebit for the ride performance division also included a $ 7 million expense to adjust workers ' compensation reserves in 2014. currency had a $ 10 million unfavorable impact on overall company ebit in 2014 as compared to the prior year . ebit for years 2013 and 2012 replace_table_token_24_th the ebit results shown in the preceding table include the following items , certain of which are discussed below under โ restructuring and other charges , โ which have an effect on the comparability of ebit results between periods : replace_table_token_25_th ( 1 ) benefit from property recoveries related to transactions originated by the pullman company before being acquired by tenneco in 1996 . ( 2 ) non-cash asset impairment charge related to certain assets of our european ride performance business . 49 ebit for the clean air division was $ 370 million in 2013 compared to $ 327 million in 2012. ebit for north america increased $ 27 million to $ 229 million in 2013 versus 2012. the benefits to ebit from higher volumes , the ramp-up on new platforms and operational cost improvements were partially offset by higher engineering investments for customer programs and negative currency . europe , south america and india 's ebit increased $ 3 million in 2013 to $ 57 million from $ 54 million in 2012. the increase was driven by higher oe revenues partially offset by higher restructuring and related expenses and negative currency . ebit for asia pacific increased $ 13 million to $ 84 million in 2013 from $ 71 million in 2012. the benefits to ebit from launches of new platforms and higher production volumes , operational cost management and positive currency were partially offset by increased restructuring and related expenses . for the clean air division , ebit included restructuring and related expenses of $ 11 million in 2013 and $ 7 million in 2012. currency had no impact on ebit of the clean air division for 2013 when compared to 2012. ebit for the ride performance division was $ 139 million in 2013 compared to $ 168 million in 2012. ebit for north america increased $ 2 million in 2013 to $ 124 million from $ 122 million in 2012. the increase was driven by higher oe light vehicle volumes and the ramp-up on new oe platforms , which was partially offset by lower oe commercial truck and off-highway revenues and aftermarket sales , negative currency and costs related to the resolution of an issue related to struts supplied to one particular oe platform . we also recorded a benefit of $ 5 million in 2012 from property recoveries related to transactions originated by the pullman company before being acquired by tenneco in 1996. europe , south america and india 's ebit was a loss of $ 7 million in 2013 , compared to $ 41 million earnings in 2012. the decrease was driven by higher restructuring and related expenses , lower oe light vehicle volumes and negative currency , which was partially offset by new oe platform launches and higher aftermarket volumes . ebit from asia pacific increased $ 17 million in 2013 to $ 22 million from 2012. ebit benefited from higher light vehicle production volumes and operational cost improvements , offset partially by higher restructuring and related expenses . for the ride performance division , ebit included restructuring and related expenses of $ 65 million in 2013 and $ 6 million in 2012. we also recorded an asset impairment charge of $ 7 million in 2012 related to certain assets of our european ride performance business . currency had a $ 14 million unfavorable impact on ebit of the ride performance division for 2013 when compared to 2012. currency had a $ 14 million unfavorable impact on overall company ebit in 2013 as compared to 2012. ebit as a percentage of revenue for years 2014 , 2013 and 2012 replace_table_token_26_th in the clean air division , ebit as a percentage of revenues in 2014 was even compared to last year .
| results from operations net sales and operating revenues for years 2014 and 2013 the tables below reflect our revenues for 2014 and 2013. we show the component of our oe revenue represented by substrate sales . while we generally have primary design , engineering and manufacturing responsibility for oe emission control 42 systems , we do not manufacture substrates . substrates are porous ceramic filters coated with a catalyst - typically , precious metals such as platinum , palladium and rhodium . these are supplied to us by tier 2 suppliers generally as directed by our oe customers . we generally earn a small margin on these components of the system . as the need for more sophisticated emission control solutions increases to meet more stringent environmental regulations , and as we capture more diesel aftertreatment business , these substrate components have been increasing as a percentage of our revenue . while these substrates dilute our gross margin percentage , they are a necessary component of an emission control system . our value-add content in an emission control system includes designing the system to meet environmental regulations through integration of the substrates into the system , maximizing use of thermal energy to heat up the catalyst quickly , efficiently managing airflow to reduce back pressure as the exhaust stream moves past the catalyst , managing the expansion and contraction of the emission control system components due to temperature extremes experienced by an emission control system , using advanced acoustic engineering tools to design the desired exhaust sound , minimizing the opportunity for the fragile components of the substrate to be damaged when we integrate it into the emission control system and reducing unwanted noise , vibration and harshness transmitted through the emission control system .
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we provide hardware , software and services that support the transport , switching , aggregation , service delivery and management of video , data and voice traffic on communications networks . our solutions are used by communications service providers , cable and multiservice operators , web-scale providers , submarine network operators , governments , enterprises , research and education institutions and other emerging network operators . our solutions include our portfolio of networking platforms , including our converged packet optical and packet networking products , that can be applied from the network core to end user access points , and that allow network operators to scale capacity , increase transmission speeds , allocate traffic and adapt dynamically to changing end-user service demands . we offer platform software that provides management and domain control of our hardware solutions and automates network lifecycle operations , including provisioning equipment and services . through our blue planetยฎ automation software , we enable network providers to use network data , analytics and policy-based assurance to achieve closed loop automation across multi-vendor and multi-domain network environments , streamlining key business and network processes . to complement our hardware and software products , we offer a broad range of services that help our customers build , operate and improve their networks and associated operational environments . we refer to our complete portfolio vision as the adaptive network . the adaptive network emphasizes a programmable network infrastructure , software control and automation capabilities , and network analytics and intelligence . by transforming network infrastructures into a dynamic , programmable environment driven by automation and analytics , network operators can realize greater business agility , dynamically adapt to changing end user service demands and rapidly introduce new revenue-generating services . they can also gain valuable real-time network insights , allowing them to optimize network operation and maximize the return on their network infrastructure investment . market opportunity the markets in which we sell our communications networking solutions have seen significant changes in recent years , including rapid growth in bandwidth demand and network traffic , the proliferation of cloud-based services and new approaches , or โ consumption models , โ for designing and procuring networking solutions . emerging services and applications , including 5g mobile communications , fiber deep and the internet of things , are further impacting or expected to impact wireline network infrastructures , particularly at the edge of networks , where increased computing power and automation are required to provide the quality of experience demanded by end users . the business models of many network operators are under pressure to constrain their capital expenditure budgets , as they can not grow their network spending at the rate of bandwidth growth . to address these growing service demands and better manage network cost , many network operators are looking to adopt next-generation infrastructures that are more programmable and better capable of leveraging data for network insight , analytics and automation . other network operators are pursuing a diverse range of consumption models in their design and procurement of network infrastructure solutions . our adaptive network vision and our business strategy to capitalize on these changing market dynamics include the initiatives set forth in the โ strategy โ section of the description of our business in item 1 of part 1 of this annual report . revenue and earnings growth during fiscal 2019 , our revenue and earnings growth accelerated , as we benefited meaningfully from strong network operator demand for capacity , favorable industry and competitive dynamics , and the continued execution of our strategy . our strategy has focused on innovation leadership , the diversification of our business and customer base , and leveraging our global scale to capture additional market share . from fiscal 2018 to fiscal 2019 , our revenue grew from $ 3.09 billion to $ 3.57 billion , or approximately 15.4 % , and our income from operations grew from $ 229.9 million to $ 346.8 million , or approximately 50.8 % . our results can fluctuate and , given the degree of outstanding performance of our business during fiscal 2019 , we do not expect that these revenue and profit growth rates will be sustained in future periods . 41 business diversification we continue to diversify our business across geographies , customer segments and product solutions and applications . in fiscal 2019 and for the last several years , our diversification and global scale have been key contributors to our strong revenue growth despite any challenges in a particular geography , segment or account that may have served as a meaningful revenue contributor in an earlier period . during fiscal 2019 , we grew revenue in our north america , emea and cala geographic regions , and across three of our four operating segments . during fiscal 2019 , we also grew revenue with our largest service provider customers , particularly in north america , after recent years of declining revenues . during fiscal 2019 we also benefited meaningfully from our strong market position with leading web-scale providers for data center interconnection applications . sales to web-scale provider customers , representing approximately 22 % of total revenue and growing over 40 % year-over-year , were an important contributor to our annual revenue growth , with certain of these customers among our largest customers by revenue for fiscal 2019. certain of such customers have announced an intention to reduce capital spending in future periods , and we expect our revenue from web-scale customers to moderate from the level achieved in fiscal 2019. our revenue gains from these areas offset a meaningful revenue reduction from our apac region during fiscal 2019. after recent years of strong growth driven by aggressive network build outs by service providers in india , capital spending in this region decreased year-over-year . we believe our business and financial performance in recent years highlights the benefits of our diverse global business and our ability to target high growth segments within our markets . story_separator_special_tag for example , the web-scale provider noted above contributed greater than 10 % of our revenue for the first time in fiscal 2019. while drivers of bandwidth growth and network evolution remain strong , many of our network operator customers are under pressure to constrain their capital expenditure budgets and their businesses can not grow their network spending at the rate of bandwidth growth . as a result , as we innovate and introduce new and more robust solutions that increase capacity or features , there is a market expectation of solutions that are more cost-effective from a price for performance perspective than existing or competing solutions . the combination of this regular technology-driven price compression , price competition in our markets and ongoing customer efforts to manage network costs can impact our growth rates and requires that we increase our volume of product shipments to maintain and grow revenue . cost of goods sold and gross profit product cost of goods sold consists primarily of amounts paid to third-party contract manufacturers , component costs , employee-related costs and overhead , shipping and logistics costs associated with manufacturing-related operations , warranty and other contractual obligations , royalties , license fees , amortization of intangible assets , cost of excess and obsolete inventory and , when applicable , estimated losses on committed customer contracts . services cost of goods sold consists primarily of direct and third-party costs associated with our provision of services including installation , deployment , maintenance support , consulting and training activities , and , when applicable , estimated losses on committed customer contracts . the majority of these costs relate to personnel , including employee and third-party contractor-related costs . our gross profit as a percentage of revenue , or โ gross margin , โ can fluctuate due to a number of factors , particularly when viewed on a quarterly basis . our gross margin can fluctuate and be adversely impacted depending on our revenue concentration within a particular segment , product line , geography , or customer , including our success in selling software in a particular period . our gross margin remains highly dependent on our continued ability to drive product cost reductions relative to the price erosion that we regularly encounter in our markets . moreover , we are often required to compete with aggressive pricing and commercial terms , and , to secure business with new and existing customers , we may agree to pricing or other unfavorable commercial terms that adversely affect our gross margin . success in taking share and winning new business can result in additional pressure on gross margin from these pricing dynamics and the early stages of these network deployments . early stages of new network builds also often include an increased concentration of lower margin โ common โ equipment , photonics sales and installation services , with the intent to improve margin as we sell channel cards and maintenance services to 45 customers adding capacity or services to their networks . gross margin can be impacted by technology-based price compression and the introduction or substitution of new platforms with improved price for performance as compared to existing solutions that carry higher margins . gross margin can also be impacted by changes in expense for excess and obsolete inventory and warranty obligations . service gross margin can be affected by the mix of customers and services , particularly the mix between deployment and maintenance services , geographic mix and the timing and extent of any investments in internal resources to support this business . the tables below ( in thousands , except percentage data ) set forth the changes in revenue , cost of goods sold and gross profit for the periods indicated : replace_table_token_4_th _ * denotes % of total revenue * * denotes % change from 2018 to 2019 replace_table_token_5_th _ * denotes % of product revenue * * denotes % change from 2018 to 2019 replace_table_token_6_th _ * denotes % of service revenue * * denotes % change from 2018 to 2019 gross profit as a percentage of revenue reflects improved product gross profit as described below . in recent periods , we have encountered fluctuations or reductions in our gross margin as a result of our strategy to leverage our technology leadership and to capture aggressively additional market share and displace competitors , with the intent to improve margin in the long term as we sell channel cards , maintenance services , and other higher margin products to customers adding capacity or services to their networks . during fiscal 2019 , our gross margin benefited from the success of this ongoing strategy and the resulting favorable mix of customers , network deployments and capacity additions during the period . continued implementation of this strategy may require that we agree to aggressive pricing , commercial concessions and other unfavorable terms , or result in an unfavorable mix of revenues from early stage deployments during a particular period , which can adversely impact gross margin . 46 gross profit on products as a percentage of product revenue increased , primarily due to product cost reductions , a favorable mix of customers , network deployments and capacity additions , partially offset by market-based price compression we encountered during the period . gross profit on services as a percentage of services revenue decreased , primarily as a result of lower margins on our blue planet automation software services , due to increased costs associated with additional resources to support our corporate strategy to grow our software automation business , and the impact of early stages of international network deployments . operating expense operating expense increased in fiscal 2019 from the level reported for fiscal 2018 primarily due to increased research and development initiatives and increased selling and marketing resources . operating expense consists of the component elements described below . research and development expense primarily consists of salaries and related employee expense ( including share-based compensation expense ) , prototype costs relating to design , development , product testing , depreciation expense , and third-party consulting costs .
| consolidated results of operations a discussion regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 is presented below . a discussion regarding our financial condition and results of operations for fiscal 2018 compared to fiscal 2017 can be found under item 7 of part ii of our annual report on form 10-k for the fiscal year ended october 31 , 2018 , filed with the sec on december 21 , 2018 ( our โ 2018 annual report โ ) , which is available free of charge on the sec 's website at www.sec.gov and our investor relations website at investor.ciena.com . operating segments during fiscal 2019 , we separated our previous software and software-related services segment into two stand-alone operating segments : ( i ) blue planet automation software and services ; and ( ii ) platform software and services . we separated this operating segment in alignment with and recognition of our corporate strategy to further promote customer adoption of our 42 blue planet automation software and services , and corresponding changes by management to our evaluation of resource allocation for and measurement of performance of this business . accordingly , as of the end of fiscal 2019 , for reporting purposes , our results of operations are presented based on the following operating segments : ( i ) networking platforms ; ( ii ) platform software and services ; ( iii ) blue planet automation software and services ; and ( iv ) global services . because we previously disclosed our blue planet automation software and services and platform software and services as distinct product lines in our presentation of segment revenue for our previous software and software-related services segment , our presentation of segment revenues has not significantly changed as a result of this separation . see note 23 to our consolidated financial statements included in item 8 of part ii of this report .
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investing activities in 2014 used cash of $ 38.5 million , primarily related to capital expenditures of $ 34.6 million and intangible asset purchases of $ 4.8 million , primarily related to our erp project . in 2016 , capital expenditures , which used cash of $ 42.5 million , were primarily related to a railcar acceptance system for logs and a lime kiln retrofit at our rosenthal mill , a wastewater reduction project consisting of an evaporation plant upgrade and a project to reduce chloride levels in the process water at our stendal mill and new wood harvesting equipment , a logistics and reload center and other maintenance projects at our celgar mill . in 2015 , capital expenditures , which used cash of $ 46.5 million , were primarily related to wastewater reduction projects at our german mills designed to reduce wastewater fees that would otherwise be payable and the completion of an automated chip storage project at the rosenthal mill . in 2014 , capital expenditures , which used cash of $ 34.6 million , were primarily related to a new chip screening project and a logistics and reload center at our celgar mill and the automated chip storage project and a new tall oil plant at our rosenthal mill . 66 cash flows from financing activities . cash from financing activities includes : issuance and payments of debt ; borrowings and payments under revolving lines of credit ; proceeds from issuances of stock ; and payment of cash dividends and repurchases of stock . in 2016 , financing activities used cash of $ 62.4 million , primarily due to our quarterly dividend payments which used cash of $ 29.7 million , the repurchase and cancellation of $ 23.0 million of our 2019 senior notes , which used cash of $ 23.1 million , and scheduled payments in respect of the stendal interest rate swap contract , which used cash of $ 10.9 million . in 2015 , financing activities used cash of $ 56.7 million , primarily due to repayments of our revolving credit facilities , which used cash of $ 23.1 million , the redemption of the payment-in-kind note issued in respect of the purchase of the minority interest in our stendal mill in 2014 , which used cash of $ 10.8 million , scheduled payments in respect of the stendal interest rate swap contract , which used cash of approximately $ 13.5 million , and our quarterly dividend payment , which used cash of $ 7.4 million . in 2014 , financing activities used cash of $ 175.8 million , primarily due to the repurchase of $ 334.4 million of our senior notes due 2017 and the payout and discharge of the stendal mill 's then credit facility , which used cash of approximately $ 891.0 million , and the payment of $ 20.2 million in associated costs , partially offset by the issuance of shares of our common stock , which provided cash of approximately $ 53.9 million , the issuance of our 2019 and 2022 senior notes , which provided cash of $ 650.0 million and borrowings on our revolving credit facilities , which provided cash of $ 26.3 million . in 2014 , we received $ 6.7 million in government grants . balance sheet data the following table is a summary of selected financial information for the dates indicated : replace_table_token_21_th at the end of 2016 , as a result of the strengthening of the dollar versus the euro , we recorded a non-cash reduction in the carrying value of our net assets , consisting primarily of our fixed assets , denominated in euros . this non-cash reduction of approximately $ 14.4 million does not affect our net income , operating ebitda or cash flows but is reflected in our other comprehensive income ( loss ) and as a reduction to our total equity . 67 sources and uses of funds our principal sources of funds are cash flows from operations and cash and cash equivalents on hand . our principal uses of funds consist of operating expenditures , capital expenditures and interest payments on our currently outstanding 2019 and 2022 senior notes . the following table sets out our total capital expenditures and interest expense for the periods indicated : replace_table_token_22_th ( 1 ) amounts differ from interest expense which includes non-cash items . see supplemental disclosure of cash flow information from our consolidated financial statements included in this annual report . ( 2 ) interest on our 2019 senior notes and our 2022 senior notes is paid semi-annually in june and december of each year . in january 2017 , we announced the redemption of our 2019 senior notes , effective march 1 , 2017. see ยbusiness ย description of certain indebtednessย for further information . as at december 31 , 2016 , our cash and cash equivalents were $ 136.6 million , compared to cash and cash equivalents of $ 99.6 million at the end of 2015. as at the end of 2016 , we also had cash of $ 4.3 million held by stendal used to secure the stendal interest rate swap contract . as at december 31 , 2016 , we had approximately $ 132.7 million available under our revolving credit facilities . as at december 31 , 2016 , we had no material commitments to acquire assets or operating businesses . in 2017 , excluding amounts being financed through government grants , we currently expect capital expenditures to be approximately $ 48.0 million . we currently consider the majority of undistributed earnings of our foreign subsidiaries to be indefinitely reinvested and accordingly no u.s. income tax has been provided on such earnings . however , if we were required to repatriate funds to the united states , we believe that we currently could repatriate the majority thereof without incurring any material amount of taxes as a result of our shareholder advances and tax loss carryforwards story_separator_special_tag investing activities in 2014 used cash of $ 38.5 million , primarily related to capital expenditures of $ 34.6 million and intangible asset purchases of $ 4.8 million , primarily related to our erp project . in 2016 , capital expenditures , which used cash of $ 42.5 million , were primarily related to a railcar acceptance system for logs and a lime kiln retrofit at our rosenthal mill , a wastewater reduction project consisting of an evaporation plant upgrade and a project to reduce chloride levels in the process water at our stendal mill and new wood harvesting equipment , a logistics and reload center and other maintenance projects at our celgar mill . in 2015 , capital expenditures , which used cash of $ 46.5 million , were primarily related to wastewater reduction projects at our german mills designed to reduce wastewater fees that would otherwise be payable and the completion of an automated chip storage project at the rosenthal mill . in 2014 , capital expenditures , which used cash of $ 34.6 million , were primarily related to a new chip screening project and a logistics and reload center at our celgar mill and the automated chip storage project and a new tall oil plant at our rosenthal mill . 66 cash flows from financing activities . cash from financing activities includes : issuance and payments of debt ; borrowings and payments under revolving lines of credit ; proceeds from issuances of stock ; and payment of cash dividends and repurchases of stock . in 2016 , financing activities used cash of $ 62.4 million , primarily due to our quarterly dividend payments which used cash of $ 29.7 million , the repurchase and cancellation of $ 23.0 million of our 2019 senior notes , which used cash of $ 23.1 million , and scheduled payments in respect of the stendal interest rate swap contract , which used cash of $ 10.9 million . in 2015 , financing activities used cash of $ 56.7 million , primarily due to repayments of our revolving credit facilities , which used cash of $ 23.1 million , the redemption of the payment-in-kind note issued in respect of the purchase of the minority interest in our stendal mill in 2014 , which used cash of $ 10.8 million , scheduled payments in respect of the stendal interest rate swap contract , which used cash of approximately $ 13.5 million , and our quarterly dividend payment , which used cash of $ 7.4 million . in 2014 , financing activities used cash of $ 175.8 million , primarily due to the repurchase of $ 334.4 million of our senior notes due 2017 and the payout and discharge of the stendal mill 's then credit facility , which used cash of approximately $ 891.0 million , and the payment of $ 20.2 million in associated costs , partially offset by the issuance of shares of our common stock , which provided cash of approximately $ 53.9 million , the issuance of our 2019 and 2022 senior notes , which provided cash of $ 650.0 million and borrowings on our revolving credit facilities , which provided cash of $ 26.3 million . in 2014 , we received $ 6.7 million in government grants . balance sheet data the following table is a summary of selected financial information for the dates indicated : replace_table_token_21_th at the end of 2016 , as a result of the strengthening of the dollar versus the euro , we recorded a non-cash reduction in the carrying value of our net assets , consisting primarily of our fixed assets , denominated in euros . this non-cash reduction of approximately $ 14.4 million does not affect our net income , operating ebitda or cash flows but is reflected in our other comprehensive income ( loss ) and as a reduction to our total equity . 67 sources and uses of funds our principal sources of funds are cash flows from operations and cash and cash equivalents on hand . our principal uses of funds consist of operating expenditures , capital expenditures and interest payments on our currently outstanding 2019 and 2022 senior notes . the following table sets out our total capital expenditures and interest expense for the periods indicated : replace_table_token_22_th ( 1 ) amounts differ from interest expense which includes non-cash items . see supplemental disclosure of cash flow information from our consolidated financial statements included in this annual report . ( 2 ) interest on our 2019 senior notes and our 2022 senior notes is paid semi-annually in june and december of each year . in january 2017 , we announced the redemption of our 2019 senior notes , effective march 1 , 2017. see ยbusiness ย description of certain indebtednessย for further information . as at december 31 , 2016 , our cash and cash equivalents were $ 136.6 million , compared to cash and cash equivalents of $ 99.6 million at the end of 2015. as at the end of 2016 , we also had cash of $ 4.3 million held by stendal used to secure the stendal interest rate swap contract . as at december 31 , 2016 , we had approximately $ 132.7 million available under our revolving credit facilities . as at december 31 , 2016 , we had no material commitments to acquire assets or operating businesses . in 2017 , excluding amounts being financed through government grants , we currently expect capital expenditures to be approximately $ 48.0 million . we currently consider the majority of undistributed earnings of our foreign subsidiaries to be indefinitely reinvested and accordingly no u.s. income tax has been provided on such earnings . however , if we were required to repatriate funds to the united states , we believe that we currently could repatriate the majority thereof without incurring any material amount of taxes as a result of our shareholder advances and tax loss carryforwards
| selected 2016 highlights in 2016 : we achieved strong operating performance and generated $ 185.7 million in operating ebitda * and $ 34.9 million in net income ; we continued to strengthen our balance sheet and increased our cash position to $ 136.6 million from $ 99.6 million and our working capital to $ 308.7 million from $ 284.4 million , respectively , from the start of the year ; overall , per unit fiber costs decreased by approximately 8 % at our mills compared to 2015 , primarily as a result of a balanced wood market and strong sawmilling activity in both germany and the celgar mill 's fiber basket combined with steady progress on several cost reduction initiatives ; our board authorized a quarterly cash dividend of $ 0.115 per share and we returned approximately $ 29.7 million to our shareholders over the course of the year ; and we continued to reduce indebtedness and future debt service costs through the repurchase and cancellation of $ 23 million of our 7.0 % senior notes due 2019 and , in january 2017 , we announced the redemption of our remaining 7.0 % senior notes with the proceeds of an issuance of $ 225 million 6.5 % senior notes due 2024 and cash on hand . * see page 60 of this annual report on form 10-k for a reconciliation of net income to operating ebitda . 59 current market environment demand from china and europe was generally stable in 2016 and supply was generally balanced . however , the strength of the dollar contributed to downward pressure on pulp prices during the year .
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the fair value of the swap agreements , including accrued interest , was an asset of $ 550,000 and a liability of $ 15.3 million at december 31 , 2015 , and a liability of $ 13.3 million at december 31 , 2014. the company 's agreements with its interest rate swap counterparties contain provisions pursuant to which the company could be declared in default of its derivative obligations if the company defaults on any of its indebtedness , including story_separator_special_tag the following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the financial statements and notes thereto included elsewhere in this report . disclosure regarding forward-looking statements when used in this discussion and elsewhere in this document , the words ยintends , ย ยbelieves , ย ยexpects , ย ยanticipates , ย and similar expressions are intended to identify ยforward-looking statementsย within the meaning of that term in section 27a of the securities act of 1933 and in section 21e of the securities exchange act of 1934. such forward-looking statements involve known and unknown risks , uncertainties and other factors , which may cause our actual results , performance or achievements to be materially different from those expressed or implied by such forward-looking statements . such factors include , but are not limited to , the effect of competition from new self-storage facilities , which would cause rents and occupancy rates to decline ; the company 's ability to evaluate , finance and integrate acquired businesses into the company 's existing business and operations ; the company 's ability to effectively compete in the industry in which it does business ; the company 's existing indebtedness may mature in an unfavorable credit environment , preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms ; interest rates may fluctuate , impacting costs associated with the company 's outstanding floating rate debt ; the company 's ability to comply with debt covenants ; any future ratings on the company 's debt instruments ; the regional concentration of the company 's business may subject it to economic downturns in the states of florida and texas ; the company 's reliance on its call center ; the company 's cash flow may be insufficient to meet required payments of operating expenses , principal , interest and dividends ; and tax law changes that may change the taxability of future income . business and overview we believe we are the fifth largest operator of self-storage properties in the united states based on square feet owned and managed . all of our stores are operated under the user-friendly name ยuncle bob 's self storageย ยฎ . operating strategy our operating strategy is designed to generate growth and enhance value by : a. increasing operating performance and cash flow through aggressive management of our stores : we seek to differentiate our self-storage facilities from our competition through innovative marketing and value-added product offerings including : our customer care center , established in 2000 , answers sales inquires and makes reservations for all of our properties on a centralized basis . further , our call center and customer contact software was developed in-house and is 100 % supported by our in-house experts ; the uncle bob 's truck move-in program , under which , at present , 362 of our stores offer a free uncle bob 's truck to assist our customers moving into their spaces , and also serve as a moving billboard further supporting our branding efforts ; our dehumidification system , known as dri-guard , which provides our customers with a better environment to store their goods and improves yields on our properties ; strategic and efficient web and mobile marketing that places uncle bob 's in front of customers in search engines at the right time for conversion ; regional marketing which creates effective brand awareness in the cities where we do business . 24 our customized computer applications link each of our primary sales channels ( customer care center , web , and store ) allowing for real time access to space type and inventory , pricing , promotions , and other pertinent store information . this also provides us with raw data on historical and current pricing , move-in and move-out activity , specials and occupancies , etc . this data is then used within the advanced pricing analytics programs employed by our revenue management team . all of our store employees receive a high level of training . new store associates are assigned a certified training manager as a mentor during their initial training period . in addition , all employees have access to our online training and development portal for initial training as well as continuing education . finally , we have a company intranet that acts as a communications portal for company policy and procedures , online ordering , incentive rankings , etc . b. acquiring additional stores : our objective is to acquire new stores in markets in which we currently operate . this is a proven strategy we have employed over the years as it facilitates our branding efforts , grows market share , and allows us to achieve improved economies of scale through shared advertising , payroll , and other services . we also look to enter new markets that are in the top 50 msa by acquiring established multi-property portfolios . with this strategy we are then able to seek out additional acquisition or third party management opportunities to continue to grow market share , branding and enhance economies of scale . c. expanding our management business : we see our management business as a source of future acquisitions . we hold a minority interest in two joint ventures which hold a total of 69 properties that we manage . in addition , we manage 21 self-storage facilities for which we have no ownership . we may enter into additional management agreements and develop additional joint ventures in the future . story_separator_special_tag if the sum of the undiscounted cash flow is less than the carrying amount , an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value of the asset group . if cash flow projections are inaccurate and in the future it is determined that storage facility carrying values are not recoverable , impairment charges may be required at that time and could materially affect our operating results and financial position . estimates of undiscounted cash flows could change based upon changes in market conditions , expected occupancy rates , etc . no assets had been determined to be impaired under this policy in 2015 . 26 estimated useful lives of long-lived assets : we believe that the estimated lives used for our depreciable , long-lived assets is a critical accounting policy . we periodically evaluate the estimated useful lives of our long-lived assets to determine if any changes are warranted based upon various factors , including changes in the planned usage of the assets , customer demand , etc . changes in estimated useful lives of these assets could have a material adverse impact on our financial condition or results of operations . we have not made significant changes to the estimated useful lives of our long-lived assets in the past and we do not have any current expectation of making significant changes in 2016. consolidation and investment in joint ventures : we consolidate all wholly owned subsidiaries . partially owned subsidiaries and joint ventures are consolidated when we control the entity or have the power to direct the activities most significant to the economic performance of the entity . investments in joint ventures that we do not control but over which we have significant influence are reported using the equity method . under the equity method , our investment in joint ventures are stated at cost and adjusted for our share of net earnings or losses and reduced by distributions . equity in earnings of real estate ventures is generally recognized based on our ownership interest in the earnings of each of the unconsolidated real estate ventures . revenue and expense recognition : rental income is recognized when earned pursuant to month-to-month leases for storage space . promotional discounts are recognized as a reduction to rental income over the promotional period , which is generally during the first month of occupancy . rental income received prior to the start of the rental period is included in deferred revenue . qualification as a reit : we operate , and intend to continue to operate , as a reit under the code , but no assurance can be given that we will at all times so qualify . to the extent that we continue to qualify as a reit , we will not be taxed , with certain limited exceptions , on the taxable income that is distributed to our shareholders . if we fail to qualify as a reit , any requirement to pay federal income taxes could have a material adverse impact on our financial condition and results of operations . recent accounting pronouncements see note 2 to the financial statements . year ended december 31 , 2015 compared to year ended december 31 , 2014 we recorded rental revenues of $ 338.4 million for the year ended december 31 , 2015 , an increase of $ 36.4 million or 12.0 % when compared to 2014 rental revenues of $ 302.0 million . of the increase in rental revenue , $ 16.9 million resulted from a 5.9 % increase in rental revenues at the 399 core properties considered in same store sales ( those properties included in the consolidated results of operations since january 1 , 2014 , excluding the properties we sold in 2015 and 2014 ) . the increase in same store rental revenues was a result of a 110 basis point increase in average occupancy and a 4.3 % increase in rental income per square foot . the remaining increase in rental revenue of $ 19.5 million resulted from the revenues from the acquisition of 56 properties completed since january 1 , 2014 ( excluding the four properties purchased in 2015 that had been leased since november 2013 and are included in the same store pool ) , slightly offset with the revenue decrease as a result of three self storage properties sold in 2015. other operating income , which includes merchandise sales , insurance administrative fees , truck rentals , management fees and acquisition fees , increased by $ 4.1 million for the year ended december 31 , 2015 compared to 2014 primarily as a result of increased administrative fees earned on customer insurance and an increase in management fees . 27 property operations and maintenance expenses increased $ 6.6 million or 8.7 % in 2015 compared to 2014. the 399 core properties considered in the same store pool experienced a $ 1.3 million or 1.9 % increase in operating expenses as a result of increases in payroll and maintenance costs . the same store pool benefited from reduced utilities , insurance and yellow page advertising expense . in addition to the same store operating expense increase , operating expenses increased $ 5.3 million from the acquisition of 56 properties completed since january 1 , 2014 ( excluding the four properties purchased in 2015 that had been leased since november 2013 and are included in the same store pool ) . real estate tax expense increased $ 4.5 million as a result of a 5.2 % increase in property taxes on the 399 same store pool and the inclusion of taxes on the properties acquired or leased in 2015 and 2014. our 2015 same store results consist of only those properties that were included in our consolidated results since january 1 , 2014 , excluding the properties we sold in 2015 and 2014. the following table sets forth operating data for our 399 same store properties . these results provide information relating to property operating changes without the effects of acquisition .
| same store summary replace_table_token_9_th net operating income increased $ 29.5 million or 13.5 % as a result of a 7.9 % increase in our same store net operating income and the acquisitions completed since january 1 , 2014. net operating income or ยnoiย is a non-gaap ( generally accepted accounting principles ) financial measure that we define as total continuing revenues less continuing property operating expenses . noi also can be calculated by adding back to net income : interest expense , impairment and casualty losses , operating lease expense , depreciation and amortization expense , acquisition related costs , general and administrative expense , and deducting from net income : income from discontinued operations , interest income , gain on sale of real estate , and equity in income of joint ventures . we believe that noi is a meaningful measure of operating performance because we utilize noi in making decisions with respect to capital allocations , in determining current property values , and in comparing period-to-period and market-to-market property operating results . noi should be considered in addition to , but not as a substitute for , other measures of financial performance reported in accordance with gaap , such as total revenues , operating income and net income . there are material limitations to using a measure such as noi , including the difficulty associated with comparing results among more than one company and the inability to analyze certain significant items , including depreciation and interest expense , that directly affect our net income . we compensate for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income . 28 reclassification internet advertising expense , which had been included in the general and administrative expense line in prior year financial statements , has been reclassified to property operations and maintenance expense to conform with the current year presentation .
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factors that may cause our actual results to differ materially from those in the forward-looking statements include those factors described in โ item 1a . risk factors โ beginning on page 22 of this annual report on form 10-k. you should carefully review all of these factors , as well as the comprehensive discussion of forward-looking statements on page 1 of this annual report on form 10-k. 55 business overview we are a clinical-stage specialty pharmaceutical company focused on developing and commercializing products for treating diseases and disorders of the eye . we accomplish this by leveraging our two proprietary platform technologies , crosslinked thiolated carboxymethyl hyaluronic acid ( โ cmha-s โ ) and iontophoresis drug delivery system . our cmha-s platform is based on a modified form of the natural polymer hyaluronic acid ( โ ha โ ) , which is a gel that possesses unique physical and chemical properties such as hydrating and promoting wound healing when applied to the ocular surface . we believe that the ability of cmha-s to adhere longer to the ocular surface , while hydrating and promoting wound healing , makes it well-suited for treating various ocular surface injuries from dry eye to corneal wounds . hyaluronic acid is a naturally occurring polymer that is important in many physiological processes , including wound healing , tissue homeostasis , and joint lubrication . to create this hydrogel , the ha is modified to create cmha that is then crosslinked together through the thiol groups to cmha-s. crosslinking slows degradation of the ha backbone and provides a matrix for incorporating therapeutic agents . variations in the number of thiols per molecule , the molecular weight of the polymer , the concentration of the polymer , the type of crosslinking , and incorporation of active ingredients , provides a highly versatile platform that can be tailored to a specific application and formulated as eye drops , gels , or films . our first cmha-s-based product candidate , eyegate obg , is a topically applied 0.75 % cmha-s eye drop formulation that has completed three in-man clinical trials . we announced positive topline data from the initial trial and follow-on trial evaluating the ability of eyegate obg to manage ocular surface re-epithelialization following photorefractive keratectomy ( โ prk โ ) surgery . we also announced positive topline data from our first clinical trial focused on treating patients with punctate epitheliopathies ( โ pe โ ) . the eyegate obg eye drop creates a thin , durable and protective coating to the damaged surface of the eye , serving to facilitate and manage corneal re-epithelization . the eyegate obg is intended for the protection of the ocular surface and the management of corneal epithelial wounds , defects , and epitheliopathies . preclinical studies suggest that the specific cmha-s chemical modification comprising the eyegate obg creates a favorable set of attributes , including prolonged retention time on the ocular surface , and a smooth continuous clear barrier without blur that can minimize mechanical lid friction , reduce repeat injury , and mechanically protect the ocular surface , allowing for the management of corneal re-epithelization . the gel is presently available commercially as a veterinary device indicated for use in the management of superficial corneal ulcers . manufactured by sentrx animal care and sold in the u.s. by bayer animal health as remendยฎ corneal repair , the product has been used successfully for more than five years in dogs , cats and horses , without adverse effects . the composition of the veterinary product is identical to that of the eyegate obg . we have obtained a license from biotime , inc. for the exclusive worldwide right to commercialize cmha-s for ophthalmic treatments in humans . we paid biotime $ 50,000 and are required to pay an annual fee of $ 30,000 and royalties to biotime based on revenue relating to any product incorporating the cmha-s technology . our license agreement expires when patent protection for the cmha-s technology lapses , which is expected to occur in the u.s. in 2028. we do not have the rights to the cmha-s platform for animal health or veterinary medicine . eyegate obg is being developed pursuant to a de novo 510 ( k ) regulatory pathway for devices submitted for marketing clearance to the u.s. food and drug administration ( โ fda โ ) . we plan to develop eyegate obg for two indications , management of corneal re-epithelization post prk surgery and for evaluating the potential to help clinicians better manage patients with pe due to pathologies such as dry eye . we believe that eyegate obg is the first and only eye drop being developed in the u.s. to target the management of corneal re-epithelization . in addition , we have been developing egp-437 , which incorporates a reformulated topically active corticosteroid , dexamethasone phosphate , that is delivered into the ocular tissues through our proprietary innovative drug delivery system , the eyegateยฎ ii delivery system . egp-437 is being developed under the 505 ( b ) ( 2 ) new drug application ( โ nda โ ) regulatory pathway for drugs submitted for approval to the u.s. food and drug administration , or fda , which enables an applicant to rely , in part , on the fda 's findings of safety and efficacy for an existing product , or published literature , in support of its nda . we have been developing egp-437 for the treatment of various inflammatory conditions of the eye , including the treatment of ocular inflammation and pain in post-surgical cataract patients and anterior uveitis , a debilitating form of intraocular inflammation of the anterior portion of the uvea , such as the iris and or ciliary body . story_separator_special_tag substantially all of our research and development expenses to date have been incurred in connection with our eyegate obg and egp-437 combination product . we expect our research and development expenses to increase for the near future as we advance eyegate obg and any other product candidate through clinical development , including the conduct of our planned clinical trials . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we are unable to estimate with any certainty the costs we will incur in the continued development of our eyegate obg and any other product candidate that we may develop . clinical development timelines , the probability of success and development costs can differ materially from expectations . we may never succeed in achieving marketing approval for our product candidate . the costs of clinical trials may vary significantly over the life of a project owing to , but not limited to , the following : ยท per patient trial costs ; ยท the number of sites included in the trials ; ยท the countries in which the trials are conducted ; ยท the length of time required to enroll eligible patients ; ยท the number of patients that participate in the trials ; ยท the number of doses that patients receive ; ยท the cost of comparative agents used in trials ; ยท the drop-out or discontinuation rates of patients ; ยท potential additional safety monitoring or other studies requested by regulatory agencies ; ยท the duration of patient follow-up ; and ยท the efficacy and safety profile of the product candidate . we do not expect our product candidates to be commercially available , if at all , for the next several years . 58 general and administrative expenses general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation . our general and administrative expenses consisted primarily of payroll expenses for our full-time employees . other general and administrative expenses include professional fees for auditing , tax , patent costs and legal services . we expect that general and administrative expenses will remain consistent for the near future until commercialization of our cmha-s based products , which could lead to an increase in these expenses . total other income ( expense ) total other income ( expense ) consists primarily of interest income we earn on interest-bearing accounts , and interest expense incurred on our outstanding financing arrangements . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the expenses during the reporting periods . we evaluate these estimates and judgments on an ongoing basis . 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 materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our financial statements appearing elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations . accrued research and development expenses as part of the process of preparing financial statements , we are required to estimate and accrue research and development expenses . this process involves the following : ยท 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 ; ยท estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and ยท periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . examples of estimated research and development expenses that we accrue include : ยท fees paid to contract research organizations and investigative sites in connection with clinical studies ; ยท fees paid to contract manufacturing organizations in connection with non-clinical development , preclinical research , and the production of clinical study materials ; and 59 ยท professional service fees for consulting and related services . we base our expense accruals related to non-clinical development , preclinical studies , and clinical trials on our estimates of the services received and efforts expended pursuant to contracts with organizations/consultants that conduct and manage clinical studies on our behalf . the financial terms of these agreements vary from contract to contract and may result in uneven payment flows . payments under some of these contracts may depend on many factors , such as the successful enrollment of patients , site initiation and the completion of clinical study milestones . our service providers invoice us as milestones are achieved and monthly in arrears for services performed . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . to date , we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period .
| results of operations comparison of years ended december 31 , 2018 and 2017 the following table summarizes the results of our operations for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th collaboration revenue . collaboration revenue was $ 1.653 million for the year ended december 31 , 2018 , compared to $ 0.408 million for the year ended december 31 , 2017. the revenue generated in 2018 related to the bhc milestone payments earned , while the revenue generated in 2017 related to the u.s. government grants . the revenue recognized for the year ended december 31 , 2018 includes revenue recognized under the new standard for revenue recognition , while the revenue recognized for the year ended december 31 , 2017 includes revenue recognized under the prior standard for revenue recognition . as a result of adopting the new standard , $ 1.653 million of additional revenue was recognized during the year ended december 31 , 2018. research and development expenses . research and development expenses were $ 8.056 million for the year ended december 31 , 2018 compared to $ 10.330 million for the year ended december 31 , 2017. the decrease of $ 2.275 million was primarily due decreases in clinical activity for egp-437 trials for the treatments of post cataract surgery inflammation and pain , as well as anterior uveitis ; chemistry manufacturing and controls ( โ cmc โ ) work related to eyegate obg ; and commercial generator and research related activity . these decreases were partially offset by increases in cmc work related to egp-437 and obg clinical trials for the indications of prk surgery and pe . general and administrative expenses .
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54 appliance recycling centers of america , inc. notes to consolidated financial statements ( in thousands except per share amounts ) the provision for ( benefit of ) income taxes for fiscal years 2014 and 2013 consisted of the following : replace_table_token_30_th a reconciliation of our provision for ( benefit of ) income taxes with the federal statutory tax 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 8. financial statements and supplementary data. โ certain information contained in the discussion and analysis set forth below and elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risk and uncertainties . in evaluating such statements , you should specifically consider the various factors identified in this annual report that could cause results to differ materially from those expressed in such forward-looking statements , including matters set forth in โ item 1a . risk factors. โ overview we operate two reportable segments : recycling and retail . our recycling segment includes all income generated from collecting , recycling and installing appliances for utilities and other customers and includes a significant portion of our byproduct revenue , which is primarily generated through the recycling of appliances . our recycling segment also includes all income generated from our agreement with general electric ( โ ge โ ) acting through its ge appliances business component . ge sells its recyclable appliances in certain regions of the united states to us and we collect , process and recycle the appliances . these appliances include units manufactured by ge as well as by other manufacturers . the agreement requires that we will only recycle , and will not sell for re-use or resale , the recyclable appliances purchased from ge . we have established regional processing centers ( โ rpcs โ ) in philadelphia and louisville to support our agreement with ge . the rpc in philadelphia is operated by arca advanced processing , llc ( โ aap โ ) through a joint venture agreement between arca and 4301 operations , llc ( โ 4301 โ ) . our retail segment is comprised of income generated from the sale of appliances through appliancesmart ยฎ stores and includes a small portion of our byproduct revenues from collected appliances . our business components are uniquely positioned in the industry to work together to provide a full array of appliance-related services . appliancesmart operates eighteen company-owned stores , sells new appliances directly to consumers and provides affordable energy star ยฎ options for energy efficiency appliance replacement programs . our twelve rpcs process appliances at end of life to remove environmentally damaging substances and produce byproducts for sale in north america . aap employs advanced technology to refine traditional appliance recycling techniques to achieve optimal revenue-generating and environmental benefits . we are also the exclusive north american distributor for untha recycling technology ( โ urt โ ) , one of the world 's leading manufacturers of technologically advanced refrigerator recycling systems and recycling facilities for electrical household appliances and electronic scrap . we believe the concept of the ge contract and aap model are the future of appliance recycling and hope to open similar but smaller centers throughout the united states . we can not predict when these centers may open or if the appropriate volumes can be obtained to support the concept at future locations . revenues and earnings in our recycling segment are impacted by seasonal variances , with the second and third quarters generally having higher levels of revenues and earnings . this seasonality is due primarily to our utility customers supporting more marketing and advertising during the spring and summer months . our customers tend to promote the recycling programs more aggressively during the warmer months because they believe more people want to clean up their garages and basements during that time of the year . however , the addition of the ge agreement and some customers shifting to marketing their appliance recycling programs year-round has helped to mitigate seasonality . our recycling segment typically operates three types of programs : 1. fees charged for collecting and recycling appliances for utilities and other sponsors of energy efficiency programs . 2. fees charged for recycling and replacing old appliances with new energy star ยฎ appliances for energy efficiency programs sponsored by utilities . 3. income generated through the processing of recyclable appliances purchased at our rpcs by selling the raw material separated during the recycling process . over the last twelve months , recycling-only programs continue to report declining revenues and volumes , while we have experienced growing revenues and volumes from our appliance replacement programs . we believe factors impacting this shift 23 include a declining number of utility program-eligible refrigerators manufactured before 1993 energy standards took effect and a greater emphasis by utilities on promoting the sale of energy star ยฎ appliances . our retail segment is similar to many other retailers in that it is seasonal in nature . historically , the fourth quarter is our weakest quarter in terms of both revenues and earnings . we believe this is primarily because the fourth quarter includes several holidays during which consumers tend to focus less on purchasing major household appliances . we derive revenues from the sale of carbon offsets created by the destruction of ozone-depleting cfcs captured at our arca and aap regional processing centers . we expect to create carbon offsets and derive revenues in the future through california 's market , but can not predict the amount or frequency of carbon offset sales . carbon offset sales are dependent on market conditions , including demand and acceptable market prices . we monitor specific economic factors such as retail trends , consumer confidence , manufacturing by the major appliance companies , sales of existing homes and mortgage interest rates as key indicators of industry demand , particularly in our retail segment . story_separator_special_tag due to uncertainties related to estimating the merits of the case under a tax appeal , possible recovery from customers through their funding sources and the impact of pending legislation to exempt energy efficient appliances provided to low-income households from sales and use tax , we are unable to anticipate or estimate any amounts that may be recoverable or that could reduce the amount of liability the company may be assessed related to this sales tax matter . any reduction or increase to the estimated amount of the boe 's tax assessment will be reflected in income or expense in future periods when realized . story_separator_special_tag requirements with any of these manufacturers . we believe purchases from these manufacturers will provide an adequate supply of high-quality appliances for our retail stores ; however , there is a risk that one or more of these sources could be curtailed or lost . recycling revenues . our recycling revenues of $ 45.9 million for 2014 increased $ 4.9 million , or 12.0 % , from $ 41.0 million in 2013 . recycling revenues are comprised of two components : ( 1 ) appliance recycling revenues generated by collecting and recycling appliances for utilities and other sponsors of energy efficiency programs and ( 2 ) appliance replacement revenues generated by recycling and replacing old appliances with new energy efficient models for programs sponsored by utility companies . appliance recycling revenues decreased 3.7 % to $ 11.8 million in 2014 compared with $ 12.2 million in 2013 , due primarily to lower volumes and price compression within certain contracts . appliance replacement revenues increased 18.7 % to $ 34.1 million in 2014 compared with $ 28.8 million in 2013 , due primarily to higher volumes and the mix of appliance replacements . future appliance recycling and appliance replacement revenues are uncertain and may fluctuate significantly from period to period . we aggressively pursue new appliance recycling and replacement contracts along with renewing our current contracts throughout north america but can not predict if we will be successful in signing new contracts or renewing existing contracts . byproduct revenues . our byproduct revenues of $ 18.0 million for 2014 decreased $ 0.3 million or 1.8 % from $ 18.3 million in 2013 . the decrease in byproduct revenues was primarily the result of the following factors : revenues related to carbon offset sales increased $ 0.3 million to $ 1.0 million in 2014 compared with 2013. byproduct revenues include all revenues generated by aap . aap revenues , excluding $ 0.3 million in carbon offset sales mentioned above , decreased $ 0.6 million in 2014 , to $ 10.8 million , compared with 2013. the decrease was due primarily to declines in average steel and non-ferrous metal scrap prices per gross ton . we can not predict byproduct material prices and results can vary significantly from period to period . at the present time we expect to generate similar carbon offset revenues in 2015 to that generated in 2014 , but can not predict the amount or timing of carbon offset sales . carbon offset sales are dependent on market conditions , including demand and acceptable market prices . we have experienced declines in average steel and non-ferrous scrap prices in early 2015 and expect that in the near term there will be continued downward pressure on our byproduct revenues until such point in time that the average selling prices for such commodities recover to levels that we have experienced in recent years . total gross profit . our gross profit of $ 32.8 million in 2014 increased $ 0.1 million , or 0.4 % , compared with $ 32.7 million in 2013 . gross profit as a percentage of total revenues decreased to 25.0 % in 2014 compared with 25.6 % in 2013 . 27 our gross profit for future periods can be affected favorably or unfavorably by numerous factors , including : 1. the mix of retail products we sell . 2. the prices at which we purchase product from the major appliance manufacturers who supply product to us . 3. the prices at which we can purchase recyclable appliances for processing at our rpcs . 4. the volume of appliances we receive through our recycling and replacement contracts . 5. the volume and price of byproduct materials . 6. the volume and price of carbon offset sales created by the destruction of ozone-depleting refrigerants . retail segment gross profit . gross profit in our retail segment decreased to $ 17.9 million in 2014 compared with $ 18.6 million in 2013 . gross profit as a percentage of related revenues decreased to 26.3 % in 2014 compared with 26.7 % in 2013. the year-over-year decrease in retail gross profit was primarily the result of the absence of a $ 0.5 million reversing a noncash inventory valuation charge in 2014 , that improved margins in 2013. recycling segment gross profit . gross profit in our recycling segment increased to $ 14.9 million in 2014 compared with $ 14.1 million in 2013 . gross profit as a percentage of related revenues was 23.7 % in 2014 compared with 24.2 % in 2013. the increase in gross profit was driven primarily by the following factors : increase in appliance replacement volumes , which partially offset a decline in appliance recycling volumes and price compression ; the net impact was a gross profit increase of $ 0.8 million . increase in carbon offset revenues of $ 0.3 million . decrease in aap gross profit of $ 0.3 million due primarily to higher costs for freight , lower scrap prices for steel and non-ferrous metals offset by lower acquisition costs of recyclable appliances . selling , general and administrative expenses . our selling , general and administrative ( โ sg & a โ ) expenses of $ 30.3 million for 2014 increased $ 1.0 million or 3.3 % compared with $ 29.3 million in 2013 .
| results of operations the following table sets forth our consolidated financial data as a percentage of total revenues for fiscal years 2014 and 2013 : replace_table_token_2_th 25 the following table sets forth the key results of operations by segment for fiscal years 2014 and 2013 ( dollars in millions ) : replace_table_token_3_th our total revenues of $ 130.9 million for 2014 increased $ 3.0 million , or 2 % , from $ 127.9 million in 2013 . the change in revenues was attributed primarily to the following factors : retail segment same-store sales declined by $ 1.2 million compared with the prior year . sales were higher in fiscal 2014 as there were 53 weeks as compared with 52 weeks in fiscal 2013 with the extra week around the year end holiday season , which are traditionally slower weeks . the impact of closing one store that operated during 2013 but not 2014 was $ 0.5 million . we closed one store during the second quarter of 2013. recycling segment appliance replacement program revenues increased by $ 5.3 million compared with the prior year . recycling-only program revenues declined $ 0.4 million compared with the prior year . carbon offset revenues increased $ 0.4 million in 2014. aap revenues , excluding carbon offsets decreased by $ 0.6 million compared with the prior year . recycling segment revenues accounted for 48 % of total revenues in 2014 compared with 46 % in 2013 . recycling segment revenues and retail segment revenues each include a portion of byproduct revenues . in both 2014 and 2013 , the recycling segment accounted for approximately 94 % of byproduct revenues . the increase in replacement program revenues impacted the overall mix of revenues between the recycling and retail segments in 2014 compared with 2013. future revenues and related earnings from appliance replacement programs are uncertain and may fluctuate significantly from year to year .
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the resulting carrying value of the story_separator_special_tag overview our objective is to provide water services in areas where the supply of potable water is scarce and where the use of reverse osmosis technology to produce potable water is economically feasible . we intend to increase revenues by developing new business opportunities both within our current service areas and in new markets . we expect to maintain operating efficiencies by continuing to properly execute our water production , energy recovery , equipment maintenance and water loss mitigation programs . 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 ( * ) in millions of gallons per day . 32 cayman islands we have been operating our business on grand cayman island 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 seven reverse osmosis seawater conversion plants which provide water to approximately 5,300 retail residential and commercial customers within a government licensed area and bulk water sales to the water authority-cayman ( โ wac โ ) . our pipeline system in the cayman islands covers the seven mile beach and west bay areas of grand cayman and consists of approximately 77 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 expires june 30 , 2014. 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 ย 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 2013 , we supplied approximately 4.6 billion gallons ( 2012 : 4.6 billion gallons ) of water to the wsc from these plants . the windsor water supply agreement expired in july 2013 , however we continue to supply water from this plant 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 due to financial difficulties experienced by the wsc . cw-bahamas was due approximately $ 13.9 million from the wsc as of december 31 , 2013. representatives of the bahamas government have informed us that the delay in paying our accounts receivables is due to operating issues within the wsc , that the delay does not reflect any type of dispute with us with respect to the amounts owed , and that the amounts will ultimately be paid in full . 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 , 2013. 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 550,000 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 expansion or other 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 in future periods to reduce the carrying value of our investment in oc-bvi to its then current fair value . these impairment losses will , in the aggregate , equal the underlying $ 2.8 million in goodwill reflected in the carrying value of our investment in oc-bvi and could have a material adverse effect on our earnings and consolidated statement of operations . 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 each of the years in the three-year period ended december 31 , 2013 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 , the mergers and acquisitions method and , on an exception basis and where necessary and appropriate , the net asset value method . 34 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 each of the years in the three-year period ended december 31 , 2013 through reference to the quoted market prices for our company and guideline companies and the market multiples implied by guideline merger and acquisition transactions . for the year ended december 31 , 2012 we also relied upon net asset values to estimate the fair value of our services unit . 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 . we changed the relative weightings for 2013 from those used for 2012 to increase the weightings applied to those methods that resulted in more conservative estimates of fair value . the respective weightings we applied to each method for the years ended december 31 , 2013 and 2012 are as follows : replace_table_token_6_th the fair values we estimated for our retail , bulk and services units exceeded their carrying amounts for the year ended december 31 , 2011. the fair values we estimated for our retail and bulk units exceeded their carrying amounts by 39 % and 6 % , respectively , for the year ended december 31 , 2012. the fair value we estimated for our services unit for the year ended december 31 , 2012 was 10 % less than its carrying amount .
| quarterly results of operations the following table presents unaudited quarterly results of operations for the eight quarters ended december 31 , 2013. we believe that all adjustments , consisting only of normal recurring adjustments , necessary to present fairly such quarterly information have been included in the amounts reported below . replace_table_token_7_th replace_table_token_8_th 35 results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and accompanying notes included under part ii , item 8. financial statements and supplementary data , of this annual report . year ended december 31 , 2013 compared to year ended december 31 , 2012 consolidated results net income attributable to consolidated water co. ltd. common stockholders for 2013 was $ 8,594,519 ( $ 0.58 per share on a fully-diluted basis ) , as compared to $ 9,315,514 ( $ 0.64 per share on a fully-diluted basis ) for 2012. total revenues for 2013 declined to $ 63,822,131 from $ 65,450,702 in 2012 due to decreases in revenues for our retail and bulk segments . gross profit for 2013 was $ 23,505,879 or 37 % of total revenues , as compared to $ 21,992,442 or 34 % of total revenues , for 2012. gross profit for the bulk segment improved in 2013 from 2012 while gross profit for the retail and services segments declined in 2013 from 2012. for further discussion of revenues and gross profit for 2013 , see the โ results by segment โ analysis that follows . general and administrative ( โ g & a โ ) expenses on a consolidated basis were $ 15,844,303 and $ 14,542,817 for 2013 and 2012 , respectively .
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please see the section entitled โ forward-looking statements and introduction โ in this form 10-k. story_separator_special_tag text-align : justify ; text-indent : 0.5in '' > as part of our strategy to vertically integrate our operations , on december 2 , 2016 we acquired 100 % of the stock of esw . since 2004 , we have a strategic commercial relationship with esw , a florida-based company partially owned by christian t. daes and josรฉ m. daes , who are also our executive officers and directors , up onto recent acquisition . esw acts as one of es 's importers and distributors in the u.s. and is a member of the american architectural manufacturers association , a technical information center for the architecture industry with highest standards . esw sends project specifications and orders from its clients to es , and in turn , receives pricing quotes from es which are conveyed to the client . on march 1 , 2017 , the company entered into and consummated a purchase agreement with giovanni monti , the owner of 100 % of the outstanding shares of gm & p . gm & p is a consulting and glazing contracting company located in miami , florida with over 15 years of experience in the design and installation of various building enclosure systems such as curtain window walls and a long-standing commercial relationship with the company , working alongside it in different projects within the u.s , by providing engineering and installation services to those projects . liquidity as of december 31 , 2017 and 2016 , the company had cash and cash equivalent of approximately $ 40.9 million and $ 26.9 respectively . on january 23 , 2017 , the company successfully issued a u.s. dollar denominated , $ 210 million offering of 5-year senior unsecured notes at a coupon rate of 8.2 % in the international debt capital markets under rule 144a of the securities act to qualified institutional investors . the company used approximately $ 179 million of the proceeds to repay the then outstanding indebtedness and as a result has achieved a lower cost of debt and strengthen its capital structure given the non-amortizing structure of the new bond . the company 's consolidated balance sheet as of december 31 , 2016 reflects the effect of this refinance of the company 's current portion of long term debt and other current borrowings into long term debt based on the company 's intent as of that date . during the years ended december 31 , 2017 and 2016 , $ 14.2 million and $ 3.1 million were provided by and used in operating activities , respectively . a discussion of our cash flow from operations is included below in the sub-section headed โ cash flow from operations , investing and financing activities โ under the results of operation section of this management discussion and analysis . as of december 31 , 2017 the company has significant availability under a number of bank facilities . capital resources we transform glass and aluminum into high specification architectural glass and custom made aluminum profiles which require significant investments in state of the art technology . during the years ended december 31 , 2017 , 2016 and 2015 , we made investments primarily in building and construction , and machinery and equipment in the amount of $ 8.8 million , $ 42.5 million and $ 80.2 million , respectively . 36 in august 2014 , we entered into a contract to purchase equipment from magnetron sputter vacuum deposition to produce soft coated low emissivity glass as part of our improvements plan that entered production in the last quarter of 2015. the investment for this project was approximately $ 45 million for the equipment and facilities , and was financed primarily with a credit facility with an export credit guarantee by the german federal government . we expect that current installed capacity will be enough to service our backlog and expected sales through the year 2018. capital expenditures in the near future are expected to be limited to maintaining installed capacity . results of operations ( amounts in thousands ) replace_table_token_4_th revenue comparison of years ended december 31 , 2017 and december 31 , 2016 our operating revenue increased from $ 305.0 million in 2016 to $ 314.5 million in 2017 , or 3 % . the increase was mostly driven by the gm & p acquisition and successfully executing our strategy to continue increasing our participation in the u.s. market . sales in the u.s. market increased $ 48.5 million , or 26 % . the company 's sales in the north american market continue to be key for the company , mainly the south florida region but continuously increasing and diversifying into other regions . our increase in sales in overall terms and into the u.s market were mainly derived from the recent acquisition of gm & p which contributed its results from the march 1 , 2017 date of acquisition . the acquisition of gm & p is in line with our strategy to strengthen our presence in u.s markets . sales in the colombian market decreased $ 35.2 million , or 36 % , partly due to overall market conditions and to the postponements of construction as the country underwent a structural tax reform which was preceded by a high inflation and high interest rate period . it is expected that this pent-up activity will result in an upward shift of activity during 2018. sales to panama decreased $ 5.2 million or 55 % in the year ended december 31 , 2017 compared to the year ended december 31 , 2016. comparison of years ended december 31 , 2016 and december 31 , 2015 our operating revenue increased from $ 242.2 million in 2015 to $ 305.0 million in 2016 , or 26 % . the increase was mostly driven by a successful executing of our strategy to continue increasing our participation in the u.s. market as well as by construction growth in the other markets in which we participate . story_separator_special_tag 38 change in fair value of warrant liability we had a non-cash , non-operating gain of $ 0.8 related to the change in fair value of warrant liability during the year before its expiration on december 20 , 2016. the company had a loss of $ 24.9 million in the year ended december 31 , 2015 from the change in fair value of the warrant liability . the change in fair value of the warrants is associated to external market factors such as the market price of our shares and the volatility index of comparable companies . there are no income tax effects of this warrant liability due to our company being registered in the cayman islands . change in fair value of earnout share liability we had a non-cash , non-operating gain of $ 4.7 million related to the change in fair value of the earnout liability during the year before the extinguishment of the liability on december 20 , 2016. through november 30 , 2016 , the company had achieved an ebitda substantially higher than the required ebitda to release the shares . as a result , the company instructed the escrow agent to release the remaining 1,500,000 ordinary shares of the company held in escrow to energy holding corp. , the former stockholder of tecnoglass , in accordance with the terms of the escrow agreement governing the ebitda shares . the release of the shares under the escrow agreement prior to december 31 , 2016 resulted in the reclassification of the earnout share liability to equity , once adjusted to fair value at the date of the release . in conjunction with the release of the shares , the escrow agreement has been terminated . the company had a loss of $ 10.9 million in the year ended december 31 , 2015 from the change in fair value of earnout share liability . the fair value of the earnout shares changes in response to market factors such as the market price of our shares and the volatility index of comparable companies and the company 's forecasted ebitda . there are no income tax effects of this earnout liability due to our company being registered in the cayman islands . interest expense interest expense increased to $ 19.9 million in 2017 , compared with $ 16.8 million in 2016 as a result of debt increase to finance 2016 capital expenditures and one month of double interest expense between the issuance of the bond discussed below and repayment of previous debt ( as the company sought favorable fx rates to repay its local currency debt ) . between the years ended december 31 , 2015 and 2016 , interest expense increased by $ 7.5 million , or approximately 81 % , from $ 9.3 million to $ 16.8 million as our debt increased from $ 139.1 million as of december 31 , 2015 to $ 199.6 million in december 31 , 2016 mainly as a result of our growth capital expenditure initiatives geared toward increasing our installed capacity . the growth in debt was accompanied by incremental revenues and operating income to support the added leverage . non-operating income and foreign currency transaction gains and losses non-operating income decreased $ 1.0 million from $ 4.2 million in 2016 to $ 3.2 million in 2017 , compared with a previous year decrease of $ 0.9 million between $ 5.1 million in the year ended december 31 , 2015 to $ 4.2 million in the year ended december 31 , 2016 , primarily as a result of a decrease in interest income and scrap recoveries . during the years ended december 31 , 2017 and 2016 , the company recorded a foreign currency transaction loss of $ 3.0 million and $ 1.4 million , respectively , compared with a gain of $ 10.1 million during the year ended december 31 , 2015 , related to the company 's colombian subsidiaries es and tg which have the colombian peso as functional currency but a substantial portion of their monetary assets and liabilities denominated in us dollars. , foreign currency transaction gains during the year ended december 31 , 2015 were associated with a net us dollar asset position which coupled with a 32 % devaluation of the colombian peso , ended up signifying a higher amount of assets in pesos when translated to the functional currency . the foreign exchange rate has remained somewhat stable since the first quarter of 2016. income tax expense income tax for the year ended december 31 , 2017 was $ 5.8 million , approximately $ 10.2 million lower than 2016 as a result of lower taxable income . in the year ended december 31 , 2017 , also included within income tax expense is a $ 2,824 withholding tax , which under colombian regulation , is assessed when local companies make certain foreign payments , including interests on foreign debt . income tax expense decreased $ 4.6 million in 2016 relative to 2015. this was primarily due to a lower taxable income in the colombian subsidiaries which prior to the esw acquisition , generated all of the company 's pre-tax income . the company 's effective tax rate of 261 % for the year ended december 31 , 2015 differs widely from the statutory rate of 39 % because of the non-taxable non-operating losses due to changes in the fair value of warrant liability and earnout shares . 39 cash flow from operations , investing and financing activities despite lower net income for the year , operating activities generated $ 14.2 million during fiscal 2017 , an increase of $ 17.2 million from a use of $ 3.1 million in 2016. the change is mostly due to trade accounts receivable providing $ 2.4 million in 2017 in contrast to a use of $ 26.0 million in 2016 and $ 29.4 million in 2015 as a result of better collection efforts during 2017 and a more tapered growth during 2017 versus the preceding years .
| overview we manufacture hi-specification architectural glass and windows for the global residential and commercial construction industries . currently we offer design , production , marketing , and installation of architectural systems for buildings of high , medium and low elevation size . products include windows and doors in glass and aluminum , floating faรงades , office partitions and interior divisions , and commercial window showcases . in recent years , we have expanded our us sales outside of the florida market , entering into market-seeking curtain wall technology , entering a niche market access since this product is in high demand and marks a new trend in architecture . this is a very sophisticated product and therefore garners high margins for us . these products involve high performance materials that are produced by alutions and tg with state of the art technology . we sell products in panama primarily to companies participating in large construction projects in the most exclusive areas of the city . for example , the company 's products were supplied in the construction of the tallest building in central and south america , the point , as well as in the construction of the most modern hotels in the region such as megapolis . how we generate revenue the company is a leading manufacturer of hi-spec architectural glass and windows for the western hemisphere residential and commercial construction industries , operating through our direct and indirect subsidiaries . headquartered in barranquilla , colombia , we operate out of a 2.7 million square foot vertically-integrated , state-of-the-art manufacturing complex that provides easy access to the americas , the caribbean , and the pacific . the company ' glass products include tempered glass , laminated glass , thermo-acoustic glass , curved glass , silk-screened glass , and digital print glass as well as mill finished , anodized , painted aluminum profiles and produces rods , tubes , bars and plates . window production lines are defined depending on the different types of windows : normal , impact resistant , hurricane-proof , safety , soundproof and thermal .
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in addition , management may make forward-looking statements orally or in other writings , including , but not limited to , in press releases , quarterly earnings calls , executive presentations , in the annual report to stockholders and in other filings with the securities and exchange commission . readers can usually identify these forward-looking statements by the use of such verbs as โ expects , โ โ anticipates , โ โ believes โ or similar verbs or conjugations of such verbs . these statements involve a number of risks and uncertainties . actual results could materially differ from those anticipated by such forward-looking statements . such differences could be caused by a number of factors or combination of factors including , but not limited to , the factors identified below and those discussed under item 1a of this form 10-k , โ risk factors. โ readers are strongly encouraged to consider these factors and the following factors when evaluating any forward-looking statements concerning the company : the outcome of claims and litigation , including those related to environmental contamination , personal injuries and property damage ; changes in legislation and regulations or revisions of controlling authority ; the adverse impact of any termination or revocation of kcsm 's concession by the mexican government ; natural events such as severe weather , fire , floods , hurricanes , earthquakes or other disruptions to the company 's operating systems , structures and equipment or the ability of customers to produce or deliver their products and the lack of adequate insurance for such catastrophic losses ; united states , mexican and global economic , political and social conditions ; the effects of the north american free trade agreement , or nafta , on the level of trade among the united states , mexico and canada ; the level of trade between the united states and asia or mexico ; the effects of fluctuations in the peso-dollar exchange rate ; the effects of adverse general economic conditions affecting customer demand and the industries and geographic areas that produce and consume the commodities kcs carries ; the dependence on the stability , availability and security of the information technology systems to operate its business ; the effect of demand for kcs 's services exceeding network capacity or traffic congestion on operating efficiencies and service reliability ; uncertainties regarding the litigation kcs faces and any future claims and litigation ; the impact of competition , including competition from other rail carriers , trucking companies and maritime shippers in the united states and mexico ; kcs 's reliance on agreements with other railroads and third parties to successfully implement its business strategy , operations and growth and expansion plans , including the strategy to convert customers from using trucking services to rail transportation services ; compliance with environmental regulations ; disruption in fuel supplies , changes in fuel prices and the company 's ability to recapture its costs of fuel from customers ; material adverse changes in economic and industry conditions , including the availability of short and long-term financing , both within the united states and mexico and globally ; market and regulatory responses to climate change ; 25 changes in labor costs and labor difficulties , including strikes and work stoppages affecting either operations or customers ' abilities to deliver goods for shipment ; kcs 's reliance on certain key suppliers of core rail equipment ; availability of qualified personnel ; acts of terrorism , war or other acts of violence or crime or risk of such activities ; and fluctuations in the market price for the company 's common stock . forward-looking statements reflect the information only as of the date on which they are made . the company does not undertake any obligation to update any forward-looking statements to reflect future events , developments , or other information . if kcs does update one or more forward-looking statements , no inference should be drawn that additional updates will be made regarding that statement or any other forward-looking statements . corporate overview kansas city southern , a delaware corporation , is a transportation holding company that has railroad investments in the u.s. , mexico and panama . in the u.s. , the company serves the central and south central u.s. its international holdings serve northeastern and central mexico and the port cities of lazaro cardenas , tampico and veracruz , and a fifty percent interest in panama canal railway company provides ocean-to-ocean freight and passenger service along the panama canal . kcs 's north american rail holdings and strategic alliances are primary components of a nafta railway system , linking the commercial and industrial centers of the u.s. , canada and mexico . its principal subsidiaries and affiliates include the following : the kansas city southern railway company ( โ kcsr โ ) , a wholly-owned subsidiary ; kansas city southern de mรฉxico , s.a. de c.v. ( โ kcsm โ ) , a wholly-owned subsidiary ; mexrail , inc. ( โ mexrail โ ) , a wholly-owned consolidated subsidiary ; which , in turn , wholly owns the texas mexican railway company ( โ tex-mex โ ) ; kcsm servicios , s.a. de c.v. ( โ kcsm servicios โ ) , a wholly-owned subsidiary ; meridian speedway , llc ( โ msllc โ ) , a seventy percent-owned consolidated affiliate ; panama canal railway company ( โ pcrc โ ) , a fifty percent-owned unconsolidated affiliate , ferrocarril y terminal del valle de mรฉxico , s.a. de c.v. ( โ ftvm โ ) , a twenty-five percent-owned unconsolidated affiliate that provides railroad services as well as ancillary services in the greater mexico city area ; and ptc-220 , llc ( โ ptc-220 โ ) , a fourteen percent-owned unconsolidated affiliate that holds the licenses to large blocks of radio spectrum and other assets for the deployment of positive train control . executive summary 2015 financial overview revenues in 2015 decreased 6 % from 2014 , due to a 4 % decrease in revenue per carload/unit and a 3 % decrease in carload/unit volumes . story_separator_special_tag revenues increased $ 21.2 million for the year ended december 31 , 2015 , compared to 2014 , due to a 5 % increase in carload/unit volumes . petroleum volumes increased as a result of new business and plastics volumes increased due to lower commodity prices . revenue per carload/unit was flat for the year ended december 31 , 2015 , compared to 2014 , as positive pricing impacts were offset by the weakening of the mexican peso against the u.s. dollar and lower fuel surcharge . industrial and consumer products . revenues decreased $ 52.9 million for the year ended december 31 , 2015 , compared to 2014 , due to an 8 % decrease in carload/unit volumes and a 1 % decrease in revenue per carload/unit . metals and scrap volumes decreased due to the decline in new drilling operations in the u.s. and higher imports from foreign sources . revenue per carload/unit decreased due to lower fuel surcharge and the weakening of the mexican peso against the u.s. dollar , partially offset by positive pricing impacts . 29 revenues by commodity group for 2015 agriculture and minerals . revenues decreased $ 17.3 million for the year ended december 31 , 2015 , compared to 2014 , due to a 6 % decrease in revenue per carload/unit , partially offset by a 2 % increase in carload/unit volumes . revenue per carload/unit decreased due to lower fuel surcharge and the weakening of the mexican peso against the u.s. dollar . food products volumes increased as a result of a customer 's temporary plant shutdown during the third quarter of 2014. this increase was partially offset by a decrease in grain volumes due to service-related issues in the second and third quarters of 2015. energy . revenues decreased $ 74.5 million for the year ended december 31 , 2015 , compared to 2014 , due to an 18 % decrease in revenue per carload/unit and a 6 % decrease in carload/unit volumes . revenue per carload/unit decreased due to lower fuel surcharge , a short-term rate concession provided to a customer during the second half of 2015 and shorter average length of haul . volumes decreased as low natural gas prices have reduced the demand for utility coal and the decline in new crude drilling operations in the u.s. has reduced the demand for frac sand . these decreases were partially offset by increased crude oil volumes due to new business . intermodal . revenues decreased $ 14.3 million for the year ended december 31 , 2015 , compared to 2014 , due to a 3 % decrease in carload/unit volumes and a 1 % decrease in revenue per carload/unit . lower volumes due to service-related issues in the second and third quarters of 2015 and the conversion of rail traffic to truck were partially offset by volume growth driven by trans-pacific imports via the port of lazaro cardenas . revenue per carload/unit decreased due to lower fuel surcharge . automotive . revenues decreased $ 19.7 million for the year ended december 31 , 2015 , compared to 2014 , due to an 8 % decrease in revenue per carload/unit . revenue per carload/unit decreased due to the weakening of the mexican peso against the u.s. dollar , partially offset by positive pricing impacts . volumes were flat for the year ended december 31 , 2015 , compared to 2014 , due to service-related issues in the second and third quarters of 2015 . 30 operating expenses operating expenses , as shown below ( in millions ) , decreased $ 153.0 million for the year ended december 31 , 2015 , compared to 2014 , due to the weakening of the mexican peso against the u.s. dollar and lower u.s. fuel prices , partially offset by increased depreciation expense . the weakening of the mexican peso against the u.s. dollar resulted in an expense reduction of approximately $ 77.0 million for expense transactions denominated in mexican pesos . the average exchange rate of mexican pesos per u.s. dollar was ps.15.8 for 2015 compared to ps.13.3 for 2014. lower u.s. fuel prices reduced 2015 expenses by $ 71.5 million . replace_table_token_7_th compensation and benefits . compensation and benefits decreased $ 32.3 million for the year ended december 31 , 2015 , compared to 2014 , due to the weakening of the mexican peso of approximately $ 23.0 million , lower incentive compensation of $ 22.4 million and a reduction in post-employment liabilities due to changes in discount rates . these decreases were partially offset by annual salary rate increases and a 3 % growth in headcount . purchased services . purchased services expense decreased $ 22.2 million for the year ended december 31 , 2015 , compared to 2014 , due to renegotiation of maintenance contracts during 2015 , the weakening of the mexican peso and lower track maintenance and corporate expenses . fuel . fuel expense decreased $ 109.0 million for the year ended december 31 , 2015 , compared to 2014 , due to lower u.s. diesel fuel prices of $ 71.5 million and the weakening of the mexican peso of approximately $ 37.0 million . these decreases were partially offset by approximately $ 12.0 million increase due to mexican diesel prices . the average price per gallon , including the weakening of the mexican peso , was $ 2.32 in 2015 , compared to $ 3.03 in 2014 . in addition , fuel expense decreased due to improved fuel efficiency and lower fuel consumption . equipment costs . equipment costs increased $ 0.2 million for the year ended december 31 , 2015 , compared to 2014 , due to higher car hire expense due to longer cycle times , partially offset by lower lease expense as a result of the purchase of equipment under existing operating leases and replacement equipment as certain operating leases expired . depreciation and amortization .
| summary cash flow data follows ( in millions ) : replace_table_token_11_th during 2015 , cash and cash equivalents decreased $ 211.4 million as a result of the repurchase of common stock of $ 194.2 million and higher dividend payments . during 2014 , cash and cash equivalents decreased $ 81.5 million as a result of the purchase or replacement of certain equipment under existing leases and increased capital expenditures which were funded with borrowings incurred in 2013 and cash flows from operating activities . operating cash flows . net cash provided by operating activities increased $ 3.3 million for 2015 , as compared to 2014 , as a decrease in net income was more than offset by higher non-cash depreciation and amortization expense and unrealized foreign exchange loss on foreign currency contracts . additionally , materials and supplies increased due to timing of construction activities and fuel purchases . net cash provided by operating activities increased $ 107.7 million for 2014 , as compared to 2013 , due to increased net income . investing cash flows . net cash used for investing activities decreased $ 109.9 million for 2015 , as compared to 2014 , due to lower expenditures for the purchase or replacement of equipment under existing operating leases , partially offset by higher capital expenditures and other investing activities . net cash used for investing activities increased $ 149.6 million for 2014 , as compared to 2013 , due higher expenditures for the purchase or replacement of equipment under operating leases and capital expenditures . additional capital expenditure information is included within the capital expenditure section of liquidity and capital resources . financing cash flows . financing cash inflows are generated from the issuance of long-term debt , short-term borrowings and proceeds from the issuance of common stock under employee stock plans .
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10 comparison of year ended november 30 , 2018 to year ended november 30 , 2017 i. overview the corporation has $ 250,227 of revenue during the year ended november 30 , 2018 ( 2017 : $ 292,508 ) 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 , 2018 , the company had accumulated losses of $ 33,252,338 ( november 30 , 2017 - $ 31,098,864 ) . 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 , 2018 , includes cash of $ 1,182,387 , accounts receivable of $ 18,914 , prepaid expenses and other receivables of $ 901,247 , inventory of $ 129,121 , patents for $ 106,334 , deposit for equipment for $ 205,664 and property and equipment for $ 113,418 , net of depreciation . 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 property and equipment for $ 26,951 , net of depreciation . total assets increased from $ 2,192,357 on november 30 , 2017 to $ 2,657,085 on november 30 , 2018 primarily due to the increase in prepaid expenses and other receivables in 2018 arising out of issuance of common shares for advance payment of $ 750,000 in 2018 in relation to marketing services to be provided in 2019. iii . revenues revenue from operations during the year ended november 30 , 2018 was $ 250,227 as compared to $ 292,508 during the year ended november 30 , 2017. 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 , 2018 was $ 2,125,896 , as compared with $ 1,919,789 for the year ended november 30 , 2017. general and administration expense increased by $ 206,107 in the current year , as compared to the prior year . the primary reasons for the change in general and administrative costs is as follows : in october 2018 , the company made a share issuance of 6,666,666 common shares to fintekk ap , llc ( โ fintekk โ ) at a price of $ 0.15 per share . the shares are issued pursuant to a debt settlement agreement , to retire a certain debt owing by the company to fintekk , in connection with a sponsorship agreement ( the โ sponsorship agreement โ ) . the sponsorship agreement details a marketing campaign for the launch of the company 's new byrna tm hd product over the years 2018 and 2019 fiscal years and recognized $ 250,000 as expense for 2018 ( 2017 : $ nil ) . the company expensed stock-based compensation expense ( included in general and administrative expenses ) for issue of options for $ 128,799 during the year ended november 30 , 2018. in 2017 , the company expensed stock-based compensation expense ( included in general and administrative expenses ) for issue of options for $ 214,112. stock based compensation expense does not require the use of cash ( non-cash expenses ) , associated with the issuance of options and modification of warrants . 11 v. quarterly results the net loss and comprehensive loss ( unaudited ) of the company for the quarter ended november 30 , 2018 as well as the seven quarterly periods completed immediately prior thereto are set out below : for the for the for the for the for the for the for the for the three three three three three three three three months months months months months months months months ended ended ended ended ended ended ended ended november august may 31 , february november august may 31 , february 30 , 2018 31 , 2018 2018 28 , 2018 30 , 2017 31 , 2017 2017 28 , 2017 ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) story_separator_special_tag font-size : 10pt '' > 14 derivative liabilities derivative liabilities the carrying value of the embedded derivative liability is reflected on the balance sheet , with changes in the carrying value being recorded as derivative gain ( loss ) on the income statement . the components of the embedded derivative as of november 30 , 2017 are : financings giving rise to derivative financial instruments indexed shares fair value convertible secured debentures december 7 , 2016 8,044,853 $ 539,860 8,044,853 $ 539,860 the components of the embedded derivative as of november 30 , 2018 are : replace_table_token_4_th the following table summarizes the effects on gain ( loss ) associated with changes in the fair values of derivative financial instruments by type of financing for the twelve months ended november 30 , 2018 and 2017 : replace_table_token_5_th vi . story_separator_special_tag commitments a ) consulting agreements : the non-independent directors of the company executed consulting agreements with the company on the following terms : the company executed a consulting agreement effective july 1 , 2018 with a corporation owned by the executive chairman . the contract , unless renewed expires on march 31 , 2019. during the service term , the company will pay $ 3,500 per month and in addition , issue 180,000 common shares of the company on a quarterly basis until the end of the term . each quarterly installment is due the 15 th day of the following month after the quarter . the common shares will be priced at the volume weighted average trading price per common share over the 20-day period proceeding the due date . effective as of october 1 , 2017 , the company entered into an employment agreement ( the โ employment agreement โ ) with paul jensen ( โ jensen โ ) pursuant to which jensen serves as president and coo of the company . by the terms of the employment agreement , jensen will receive an annual salary of $ 200,000 , payable as follows . for the period beginning on october 1 , 2017 and ending on june 30 , 2018 , jensen shall receive quarterly payments of the company 's common stock , to be issued 15 days after the end of each three-month quarter . the shares issued shall be valued based upon the weighted average closing price of the company 's shares for the twenty ( 20 ) trading days prior to the end of the applicable quarter . commencing july 1 , 2018 , the company will pay $ 10,000 per month in cash and the balance in company stock . at such time as the company can pay the entire salary in cash and be cash positive on an operating basis , the entire monthly salary will be paid in cash . on april 13 , 2018 , the company entered into a purchase and sale agreement ( the ยagreementย ) with andrรฉ buys , ( ยbuysย ) a resident of south africa , pursuant to which the company purchased from buys a portfolio of registered patent rights and other intellectual property relating to air and or gas fired long guns or pistols , including pump action launchers and munitions used with such pistols and long guns , including self-stabilizing shaped or ยfinnedย rounds ( the ยportfolioย ) . as consideration for the portfolio , the company ( i ) paid buys $ 100,000 , ( ii ) agreed to pay buys either $ 500,000 in cash or $ 750,000 worth of company stock within two years ( the ยsecond paymentย ) and ( iii ) agreed to pay buys certain royalty payments for sales of products by the company using technology covered by the portfolio . in addition , the company employed buys as the cto and for services issued 1,500,000 options for shares of the company 's common stock to buys with a strike price of $ 0.16 and a trigger price of $ 0.30 , $ 0.50 and $ 1.00 for each batch of 500,000 options , respectively . the company 's stock price must close above the trigger price for 20 days in order for the option to be triggered . the options shall have a seven-year life from grant date and buys must remain employed by the company for three years in order for the options to vest . until the earlier of , the second anniversary or the date the second payment is made , the royalty will be 10 % of the net sales price ( ยnspย ) . the royalty will then be reduced to 4 % till the sixth anniversary , 3 % till the eighth anniversary , and 2 % till the last expiration date of any of the intellectual property in the portfolio . until the royalty exceeds $ 25,000 per year , the company is committed to a minimum payment of $ 25,000 per year effective on the earlier of one year from closing or upon buys relocation to boston . in the event that the company fails to make the second payment , the portfolio would revert to buys , but the company would retain perpetual , irrevocable , exclusive and non-exclusive licenses to use technology with respect to the portfolio and any technology developed within two years of april 13 , 2018. as the substance of the purchase and sale agreement has been determined to be that of an option agreement , the company has not recorded any amount related to the second payment . the company agrees that it will not terminate buys except for cause prior to april 2021. as a result , the minimal commitment relating to the employment contract is $ 320,000 payable over a period of 32 months . effective june 1 , 2018 the company entered into a consulting agreement with ganz pursuant to which ganz serves as president of the company . by the terms of the consulting agreement , ganz will be paid annually $ 200,000 in the company 's common shares for his service , subject to stock exchange approval . the common shares shall be issued quarterly , ending march 31 , 2019. for the company 's 2018 fiscal third and fourth quarter the president shall be paid 500,000 common shares for each quarter . commencing on the company 's first quarter of 2019 , ganz will be issued an ongoing 250,000 common shares every quarter for his services . effective october 29 , 2018 , the company entered into a consulting agreement with a consultant pursuant to which the consultant serves as chief legal officer ( โ clo โ ) of the company .
| revenues 30,112 53,257 138,742 28,116 82,550 70,353 97,172 42,433 net loss ( 1,194,802 ) ( 118,651 ) ( 484,309 ) ( 355,712 ) ( 1,416,994 ) ( 561,701 ) ( 681,588 ) ( 139,968 ) loss per weighted average number of shares outstanding โbasic and fully diluted ( 0.01 ) ( 0.001 ) ( 0.005 ) ( 0.004 ) ( 0.02 ) ( 0.01 ) ( 0.001 ) ( 0.002 ) 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 . 12 secured convertible debentures $ 978,361 ( 2017 : $ 892,176 ) 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 โ indenture โ ) 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 semi-annually . the debentures are secured by all the assets of the company . the principal amount , plus accrued interest , may be converted at the option of the holder at any time during the term to maturity into shares of the company 's common stock at a conversion price of $ 0.24 ( cad $ 0.31 ) per share subject to anti-dilution protection with a minimum conversion price of $ 0.135 and for capital reorganization events . the debentures also embody certain traditional default provisions that are linked to credit or interest risks , such as bankruptcy proceedings , liquidation events and corporate existence .
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in making this determination , the company assesses , among other things , whether the company is the primary obligor or principal taxpayer for the taxes and fees assessed in each jurisdiction where the company does business . in jurisdictions where the company determines that story_separator_special_tag the following discussion and analysis should be read in conjunction with the `` selected financial data '' and the accompanying consolidated financial statements and related notes thereto , included elsewhere in this report . this section and other parts of this report contain forward-looking statements that involve risks and uncertainties . see `` caution regarding forward-looking statements '' at the beginning of this report . forward-looking statements are not guarantees of future performance , and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in the subsection entitled `` risk factors '' above . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview we are a leading national provider of managed network services , specializing in business ethernet , data networking , converged , ip vpn , internet access , voice , including voip , and network security services to enterprise organizations , including public sector entities , and carriers throughout the u.s. , including their global locations . our revenue is derived from business communication services , including data , high-speed internet access , network and voice services . our customers include , among others , enterprise organizations in the distribution , health care , finance , service and manufacturing industries , state , local and federal government entities , system integrators , and communications service providers including ilecs , clecs , wireless communications companies and cable companies . through our subsidiaries , we serve 75 metropolitan markets that are connected by our regional fiber facilities and national ip backbone . as of december 31 , 2011 , our fiber network spanned approximately 27,000 route miles ( including approximately 21,000 metropolitan route miles ) connecting to 15,438 buildings served directly by our local fiber facilities . during the first quarter of 2011 , we completed an initiative to convert our fiber records into a new centralized fiber management system , which resulted in approximately 1,000 fewer route miles than previously reported as of december 31 , 2010. also as of the first quarter of 2011 to better reflect our reach , we modified our on-network ( `` on-net '' ) building count definition to include all locations served directly by our fiber network , including previously excluded locations without electronics and ilec local serving offices ( `` lsos '' ) . inclusion of these locations and lsos resulted in the addition of approximately 1,400 locations to our on-net buildings from those we previously reported as of december 31 , 2010. we added approximately 2,200 new buildings directly connected to our network in the year ended december 31 , 2011 as a result of sales to customers at these locations . we continue to extend our fiber footprint within our existing markets by connecting our network into additional locations and to expand our data , voice , and ip networking capabilities between our markets , supporting secure end-to-end business ethernet and ip vpn connections for customers . our objective is to be the leading national provider of high quality business network solutions leveraging our integrated network , operational capabilities , dedicated people , local presence , personalized customer experience and advanced support systems to meet the complex and evolving needs of our customers and increase stockholder value . the key elements of our business strategy include : leveraging our local fiber assets and national ip backbone and integrating and managing other carriers ' facilities to enable our customers to connect to any of their locations with our network solutions , and using our local presence and local sales , sales engineering , customer support and operational resources , backed by a national organization , to provide personalized service and customized solutions for our customers ; focusing our service offerings to deliver secure end-to-end solutions to our customers with a predictable , quality service experience , emphasizing business ethernet and ip vpn services , internet-based services and converged service offerings and developing our intelligent network and service capabilities , the initial phase of which was introduced in 2011 , to meet the complex and evolving needs of our customers ; delivering a differentiated customer care strategy by engaging all of our employees and continually incorporating customer feedback to provide the best possible customer service ; enhancing our multi-channel sales strategy ; enabling enterprise cloud computing and other developing customer it and business strategies by leveraging our fiber network , data services portfolio , intelligent network capabilities and the numerous third party and customer data centers connected to our network ; employing a disciplined capital allocation strategy to invest for growth in the near and long term to broaden our reach and capabilities and increase operational efficiencies ; and investing in our people to drive the execution of our strategies . 33 our revenue is derived from business communications services , including data and high-speed internet access , voice and network services . although we analyze revenue by customer type , we present our financial results as one segment across the u.s. because our business is centrally managed . our revenue by customer type for each of the past three years is as follows : replace_table_token_9_th revenue trends total revenue our revenue has grown for the past consecutive 29 quarters through december 31 , 2011 including throughout the latest recession . our revenue growth is dependent upon selling services to new and existing customers , retaining revenue from existing customers through retention programs aimed at reducing disconnections , renewing customers ' contracts upon contract expiration and up-selling services to existing customers to mitigate the impact of price reductions associated with contract renewals . story_separator_special_tag customer and service disconnections occur as part of the normal course of business and are primarily associated with price competition from other providers , customers moving facilities to other locations and customer cost cutting , business contractions , financial difficulties and consolidation , among other reasons . beginning in late 2007 and continuing through 2009 , disconnections increased , we believe due to the economic downturn , resulting in average monthly revenue churn of 1.2 % and 1.3 % in the years ended december 31 , 2008 and 2009 , respectively . revenue churn improved in the year ended december 31 , 2010 to pre-recession levels of 1.0 % of monthly revenue and further improved to 0.9 % for the year ended december 31 , 2011. we believe that the improvement in revenue churn is a result of improved economic conditions as well as our service portfolio , measures we put in place to increase revenue retention and our customer experience initiatives . as a component of revenue churn , revenue lost from customers fully disconnecting services was 0.2 % for the years ended december 31 , 2011 and 2010 and 0.3 % for the years ended december 31 , 2009 and 2008. we can not predict the total impact on revenue from future customer disconnections or the timing of such disconnections or whether these favorable churn trends will continue . customer churn , defined as the average monthly customer turnover for the period compared to the average monthly customer count for the period , was 1.0 % , 1.1 % , 1.3 % and 1.4 % for the years ended december 31 , 2011 , 2010 , 2009 and 2008 , respectively . the majority of this churn came from our smaller customers , which we expect will continue . pricing we experience significant price competition across our service categories that impacts our revenue . this competition is particularly intense for traditional inter-city point-to-point services , carrier pop to pop and pop to customer premise legacy dedicated services , data center to data center dedicated services , internet access , voice service and integrated service bundles . we also believe that technology advancements over the years in the telecommunications industry have resulted in lower unit costs for some electronics and equipment that drives customer demand for higher bandwidth at the same or lower prices . in our industry , service agreements typically range from two to five years , with fixed pricing for the contract term . when contracts are renewed with no changes to the services , pricing may be reduced to current market levels as a renewal incentive . in addition , during the terms of agreements , customers often purchase additional services or increase or decrease the capacity of existing services , subject to applicable early termination charges , depending on their business needs . during periods of economic downturn , our customers ' needs may contract , resulting in fewer service additions . 35 expenses and modified ebitda trends pricing of special access services we provide special access services to customers over our own fiber facilities in competition with ilecs , and we also purchase special access and other services from ilecs to extend the reach of our network . the ilecs have argued before the fcc that the high capacity telecommunications services that they sell , including special access services we buy from them , should no longer be subject to regulations governing price and quality of service . we have advocated that the fcc should modify its special access pricing flexibility rules to return these services to price-cap regulation to protect against unreasonable price increases . the fcc is reviewing its regulation of special access pricing in a pending proceeding commenced in 2005 that has not yet resulted in proposed rules . we can not predict when the fcc will act on interstate special access pricing regulation or the impact of any such action . if the special access services we buy from the ilecs were to be further deregulated , ilecs would have a greater ability to increase the price and reduce the service quality of special access services they sell to us . as the prices we must pay for special access services increase , our margins are pressured . in addition , the fcc has granted petitions for forbearance from regulation of certain special access services , including ethernet services offered by the ilecs as special access with the result that prices we would pay for the ethernet and oc-n high capacity data services of the petitioning carriers are no longer price regulated and could increase . we continue to pursue and implement commercial arrangements with the ilecs and cable companies for these services on acceptable terms and conditions . although we have a two year wholesale service agreement through may 31 , 2012 with a large ilec for tariffed special access and other services for end-user access that was intended to stabilize the prices we pay for these services , beginning in mid-2010 , increases in its tariff pricing resulted in higher costs for some special access services subject to the agreement . in addition , another of our significant ilec suppliers of special access service has increased its prices for special access services that we use to reach certain customer locations in its service area . bad debt expense trends due to the quality of our customer base , successful collection efforts , internal controls , bad debt recoveries , and our revenue recognition policies , including recognition of contract termination charges upon cash receipt , our bad debt expense remained at less than 1 % of our total revenue for the year ended december 31 , 2011 , comparable to the year ended december 31 , 2010. we can not assure that we will be able to maintain bad debt expense at this low level . growth initiatives and modified ebitda trends we have undertaken a number of initiatives to increase revenue growth , margins and cash flow that require both capital and operating investments .
| results of operations the following table sets forth certain data from our consolidated financial statements presented in thousands of dollars and expressed as a percentage of total revenue . this table should be read together with our audited consolidated financial statements , including the notes thereto , appearing elsewhere in this report : replace_table_token_10_th 41 _ ( 1 ) we classify certain taxes and fees billed to customers and remitted to government authorities on a gross versus net basis in revenue and expense . the total amounts classified as revenue , primarily included in voice services , associated with such taxes and fees were approximately $ 63.5 million , $ 51.3 million and $ 40.0 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . this has no impact on modified ebitda or net income ( loss ) but is dilutive to modified ebitda margin . ( 2 ) includes the following non-cash stock-based employee compensation expense : replace_table_token_11_th ( 3 ) see note 4 and 5 in โ item 6. selected financial data โ for a definition of โ modified ebitda โ and for reconciliations of modified ebitda to net income ( loss ) , the most comparable gaap measure for operating performance , and modified ebitda , as a measure of liquidity , to net cash provided by operating activities . ( 4 ) modified ebitda margin represents modified ebitda as a percentage of revenue . year ended december 31 , 2011 compared to year ended december 31 , 2010 revenue . total revenue increased $ 93.7 million , or 7 % , to $ 1.37 billion for the year ended december 31 , 2011 from $ 1.27 billion for the year ended december 31 , 2010. the primary driver of this growth in revenue was increased data and internet services revenue from installed services to enterprise customers .
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the policies require our audit committee to be informed of each service and the policies do not include any delegation of our audit committee 's responsibilities to management . our audit committee may delegate pre-approval authority to one or more of its members . the member to whom such authority is delegated will report any pre-approval decisions to our audit committee at its next scheduled meeting . during the year ended december 31 , 2015 our audit committee approved all of the fees paid to mnp . our audit committee has determined that the rendering of all non-audit services by mnp is compatible with maintaining mnp 's independence . during the year ended december 31 , 2015 , none of the total hours expended on our financial audit by mnp were provided by persons other than mnp 's full-time permanent employees . item 15. exhibits , financial statement schedules . number description 3.1 articles of incorporation of the registrant . ( 1 ) 3.2 bylaws of the registrant . ( 1 ) 21.1 subsidiaries . ( 2 ) 23.1 consent of independent accountants . 31.1 certification of principal executive officer pursuant to ยง302 of the sarbanes-oxley act of 2002 . 31.2 certification of principal financial officer pursuant to ยง302 of the sarbanes-oxley act of 2002 . 32.1 certification of principal executive and financial officer pursuant to 18 u.s.c . ยง1350 and ยง906 of the sarbanes-oxley act of 2002 . ( 1 ) previously filed as an exhibit to our registration statement on form 10-sb filed with the commission on february 22 , 2000 , and incorporated herein by reference . ( 2 ) previously filed as an exhibit to our registration statement on form sb-2 filed with the commission on january 22 , 2003 , and incorporated herein by reference . 25 signatures in accordance with the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . march 30 , 2016 flexible solutions international , inc. by : daniel b. o'brien name : daniel b. o'brien title : president and chief executive officer in accordance with the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated : signature title date daniel b. o'brien daniel b. o'brien president , principal executive officer , principal financial and accounting officer and a director march 30 , 2016 john h. bientjes john h. bientjes director march 30 , 2016 dale friend dale friend director march 30 , 2016 robert t. helina robert t. helina director march 30 , 2016 thomas fyles thomas fyles director march 30 , 2016 26 story_separator_special_tag story_separator_special_tag style= '' text-align : right '' valign= '' bottom '' width= '' 9 % '' > ( 79,158 ) in 2007 , we began construction of a plant in taber , ab , canada . the plant came on line during 2012 and we began depreciating the plant and related equipment effective january 2012 . 14 in february 2014 we suspended production of aspartic acid at our taber plant . the suspension was due to the fact that since construction of the plant began in 2008 , economic conditions in alberta and worldwide have changed significantly . in particular , plant operating costs have risen and the price of aspartic acid derived from oil is less than forecast . although we continue to believe in the technical and economic viability of using sugar to produce aspartic acid , we are unable to fund the equipment and personnel increases needed to reach break-even levels on our own . as a result , a partner is required to build on the technical successes achieved to date , complete development , and reach profitable production levels . the suspension of the operations at the taber plant has saved us approximately $ 800,000 per year in plant operating costs and general and administrative expenses . we have sufficient cash resources to meets our future commitments and cash flow requirements for the coming year . as of december 31 , 2015 our working capital was $ 6,411,236 and we have no substantial commitments that require significant outlays of cash over the coming fiscal year . we are committed to minimum rental payments for property and premises aggregating approximately $ 342,053 over the term of two leases , the last expiring on december 31 , 2020. commitments in the next five year are as follows : replace_table_token_4_th other than as disclosed above , we do not anticipate any material capital requirements for the twelve months ending december 31 , 2016. other than as disclosed in item 7 of this report , we do not know of any trends , demands , commitments , events or uncertainties that will result in , or that are reasonable likely to result in , our liquidity increasing or decreasing in any material way . other than as disclosed in item 7 of this report , we do not know of any significant changes in our expected sources and uses of cash . we do not have any commitments or arrangements from any person to provide us with any equity capital . see note 2 to the financial statements included as part of this report for a description of our significant accounting policies . critical accounting policies and estimates allowances for product returns . we grant certain of our customers the right to return product which they are unable to sell . upon sale , we evaluate the need to record a provision for product returns based on our historical experience , economic trends and changes in customer demand . 15 allowances for doubtful accounts receivable . we evaluate our accounts receivable to determine if they will ultimately be collected . this evaluation includes significant judgments and estimates , including story_separator_special_tag the policies require our audit committee to be informed of each service and the policies do not include any delegation of our audit committee 's responsibilities to management . our audit committee may delegate pre-approval authority to one or more of its members . the member to whom such authority is delegated will report any pre-approval decisions to our audit committee at its next scheduled meeting . during the year ended december 31 , 2015 our audit committee approved all of the fees paid to mnp . our audit committee has determined that the rendering of all non-audit services by mnp is compatible with maintaining mnp 's independence . during the year ended december 31 , 2015 , none of the total hours expended on our financial audit by mnp were provided by persons other than mnp 's full-time permanent employees . item 15. exhibits , financial statement schedules . number description 3.1 articles of incorporation of the registrant . ( 1 ) 3.2 bylaws of the registrant . ( 1 ) 21.1 subsidiaries . ( 2 ) 23.1 consent of independent accountants . 31.1 certification of principal executive officer pursuant to ยง302 of the sarbanes-oxley act of 2002 . 31.2 certification of principal financial officer pursuant to ยง302 of the sarbanes-oxley act of 2002 . 32.1 certification of principal executive and financial officer pursuant to 18 u.s.c . ยง1350 and ยง906 of the sarbanes-oxley act of 2002 . ( 1 ) previously filed as an exhibit to our registration statement on form 10-sb filed with the commission on february 22 , 2000 , and incorporated herein by reference . ( 2 ) previously filed as an exhibit to our registration statement on form sb-2 filed with the commission on january 22 , 2003 , and incorporated herein by reference . 25 signatures in accordance with the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . march 30 , 2016 flexible solutions international , inc. by : daniel b. o'brien name : daniel b. o'brien title : president and chief executive officer in accordance with the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated : signature title date daniel b. o'brien daniel b. o'brien president , principal executive officer , principal financial and accounting officer and a director march 30 , 2016 john h. bientjes john h. bientjes director march 30 , 2016 dale friend dale friend director march 30 , 2016 robert t. helina robert t. helina director march 30 , 2016 thomas fyles thomas fyles director march 30 , 2016 26 story_separator_special_tag story_separator_special_tag style= '' text-align : right '' valign= '' bottom '' width= '' 9 % '' > ( 79,158 ) in 2007 , we began construction of a plant in taber , ab , canada . the plant came on line during 2012 and we began depreciating the plant and related equipment effective january 2012 . 14 in february 2014 we suspended production of aspartic acid at our taber plant . the suspension was due to the fact that since construction of the plant began in 2008 , economic conditions in alberta and worldwide have changed significantly . in particular , plant operating costs have risen and the price of aspartic acid derived from oil is less than forecast . although we continue to believe in the technical and economic viability of using sugar to produce aspartic acid , we are unable to fund the equipment and personnel increases needed to reach break-even levels on our own . as a result , a partner is required to build on the technical successes achieved to date , complete development , and reach profitable production levels . the suspension of the operations at the taber plant has saved us approximately $ 800,000 per year in plant operating costs and general and administrative expenses . we have sufficient cash resources to meets our future commitments and cash flow requirements for the coming year . as of december 31 , 2015 our working capital was $ 6,411,236 and we have no substantial commitments that require significant outlays of cash over the coming fiscal year . we are committed to minimum rental payments for property and premises aggregating approximately $ 342,053 over the term of two leases , the last expiring on december 31 , 2020. commitments in the next five year are as follows : replace_table_token_4_th other than as disclosed above , we do not anticipate any material capital requirements for the twelve months ending december 31 , 2016. other than as disclosed in item 7 of this report , we do not know of any trends , demands , commitments , events or uncertainties that will result in , or that are reasonable likely to result in , our liquidity increasing or decreasing in any material way . other than as disclosed in item 7 of this report , we do not know of any significant changes in our expected sources and uses of cash . we do not have any commitments or arrangements from any person to provide us with any equity capital . see note 2 to the financial statements included as part of this report for a description of our significant accounting policies . critical accounting policies and estimates allowances for product returns . we grant certain of our customers the right to return product which they are unable to sell . upon sale , we evaluate the need to record a provision for product returns based on our historical experience , economic trends and changes in customer demand . 15 allowances for doubtful accounts receivable . we evaluate our accounts receivable to determine if they will ultimately be collected . this evaluation includes significant judgments and estimates , including
| results of operations we have two product lines . the first is a chemical ( โ ewcp โ ) used in swimming pools and spas . the product forms a thin , transparent layer on the water 's surface . the transparent layer slows the evaporation of water , allowing the water to retain a higher temperature for a longer period of time thereby reducing the energy required to maintain the desired temperature of the water . a modified version of ewcp can also be used in reservoirs , potable water storage tanks , livestock watering pods , canals , and irrigation ditches for the purpose of reducing evaporation . the second product , biodegradable polymers ( โ tpas โ ) , is used by the petroleum , chemical , utility and mining industries to prevent corrosion and scaling in water piping . tpas can also be used to increase biodegradability in detergents and in the agriculture industry to increase crop yields by enhancing fertilizer uptake . material changes in line items in our statement of operations for the year ended december 31 , 2015 as compared to the same period last year , are discussed below : item increase ( i ) or decrease ( d ) reason sales ewcp products d flood waters in texas reduced need for watersavr . bpca products i increased uptake from new and existing customers and new agriculture products . gross profit , as a % of sales i lower oil prices reduced aspartic acid costs . wages , administrative salaries and benefits d reduced since the taber plant is not in operation . office and miscellaneous d reduced since the taber plant is not in operation .
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we currently operate 408 stores in 36 states , including 341 directly-owned stores and 67 stores owned by an optometrist 's professional entity ( an ยod pcย ) , which we manage under long-term management agreements . our consolidated financial information includes the results of our 341 directly-owned stores , as well as the results of 54 of the 67 stores operated by an od pc . the remaining 13 stores operated by an od pc are not consolidated and we recognize as management fee revenue only the cash flows we earn pursuant to the terms of management agreements for those 13 od pc-operated stores . our net revenues are comprised of optical sales , net of discounts and promotions , from our 395 consolidated stores as well as management fees from the 13 stores owned by od pcs that are not consolidated in our results . optical sales include sales of frames , lenses ( including lens treatments ) , contact lenses and eyeglass warranties at all of our 395 consolidated stores , as well as the professional fees of the optometrists at 207 of the stores . these 207 stores include 109 stores where the optometrist is our employee or an independent contractor , the 54 stores operated by an od pc that are consolidated in our results and the 44 stores with independent optometrists for whom we provide management services . the management fees from the 13 unconsolidated od pc-operated stores are based on the performance of the stores . our operating costs and expenses are comprised of costs of goods sold and selling , general and administrative expenses . cost of goods sold primarily includes the cost of eyeglass frames , opthamalic lenses , contact lenses , lab manufacturing costs and buying , warehousing , distribution , shipping and delivery costs and doctor payroll . selling , general and administrative expenses primarily include retail payroll , occupancy , overhead , advertising and depreciation . occupancy , overhead and depreciation are less variable relative to sales levels than other components of selling , general and administrative expenses . in this management 's discussion and analysis we use the terms ยgross profit , ย ยgross margin , ย ยcomparable store sales , ย ยcomparable transaction volumeย and ยaverage ticket priceย to compare our period-over-period performance . gross profit is defined as optical sales less cost of goods sold in a period . gross margin is defined as gross profit as a percentage of optical sales in a period . comparable store sales is calculated by comparing net revenues for a period to net revenues of the equivalent prior period for all stores open at least twelve months during such prior period . comparable transaction volume is based on the number of comparable store sales in a period . average ticket price is calculated by dividing net revenues by transaction volume in a period . we believe that the key driver of our performance is our ability to grow revenue without increasing costs at the same rate by ( i ) increasing comparable transaction volume by offering value and convenience , ( ii ) actively managing our store base in targeted markets and ( iii ) pursuing fee-for-service funded managed vision care relationships . our performance is also affected by general economic conditions and consumer confidence . we primarily grow optical sales by offering value and convenience to our customers . since fiscal 2001 , we have focused on our value strategy , which includes a promotion of two complete pairs 38 of single vision eyewear for $ 99. we believe our value strategy results in increased comparable transaction volume and also believe it encourages customers to purchase higher margin lenses , lens treatments and accessories , which increases average ticket price . we also grow optical sales and leverage costs through selective store base expansion by opening new stores in targeted markets . until a new store matures , its operating costs as a percentage of optical sales are generally higher than that of an established store . accordingly , the expenses related to opening new stores adversely affect our results in that period . over the longer term , opening a new store in an existing market allows us to leverage existing advertising , field management and overhead to mitigate margin pressure . when entering a new market , we seek to achieve sufficient market penetration to generate brand awareness and economies of scale in advertising , field management and overhead . consistent with our strategic objectives , management believes the opportunity exists to open approximately 25 new stores in both 2008 and 2009 in existing and new markets . we also manage costs by closing stores that do not meet our performance expectations . store openings and store closures affect period over period comparisons . we have made a strategic decision to pursue fee-for-service funded managed vision care plans . fee-for-service funded managed vision care plans consist of insurance relationships where we receive set fees for services provided to participants of a plan as opposed to capitated funded managed vision care plans where we receive a set fee per plan participant to provide any and all services requested by participants of such plan . under a fee-for-service funded managed vision care plan , we benefit from participants ' utilization of the plan , whereas under a capitated funded managed vision care plan we bear risk related to the level at which participants utilize such plan . substantially all of our current funded managed vision care plans are fee-for-service funded managed vision care plans . our managed vision care plans also include discount managed vision care plans where participants receive a set discount on eye care products . we believe that participation in managed vision care plans will continue to benefit us and other large optical retail chains with strong local market shares , broad geographic coverage and sophisticated management information and billing systems . story_separator_special_tag the borrowings of the new credit facility together with the 43 net proceeds from the offering of the initial notes and the equity investment of moulin and golden gate were used to pay a cash portion of the purchase price of the ggc moulin acquisition , to repay debt outstanding under the old credit facility , to retire our 9 1 / 8 % senior subordinated notes due 2008 and our floating interest rate subordinated term securities due 2008 , pay the related tender premium and accrued interest and to pay the related transaction fees and expenses . thereafter , the new credit facility is available to finance working capital requirements and general corporate purposes . on december 21 , 2006 , we obtained an amendment and consent to our new credit facility . the amendment primarily reduce the interest rate on the credit agreement as well as changes several covenants . a prepayment of $ 25 million in principal was made in conjunction with the lenders ' approval and a prepayment of $ 9.0 million in principal was made in conjunction with the filing of the 2006 10-k in march , 2007 , as required under the amendment . additional voluntary prepayments of $ 20.0 million were made throughout fiscal 2007. amortization payments . prior to the maturity date , funds borrowed under the revolver may be borrowed , repaid and re-borrowed , without premium or penalty . the term loan facility quarterly amortization began in the third quarter of fiscal 2005 and continues through the date of maturity in fiscal 2012 according to the following schedule : replace_table_token_9_th interest . each borrowing under the new credit facility bears interest at a floating rate , which can either be , at our option , a base rate or a eurodollar rate , in each case plus an applicable margin . the base rate is defined as the higher of ( i ) the jpmorgan chase bank prime rate or ( ii ) the federal funds effective rate , plus one half percent ( 0.5 % ) per annum . the eurodollar rate is defined as the rate for eurodollar deposits for a period of one , two , three , six , nine or twelve months ( as selected by us ) . the applicable margins , as amended in the december 2006 amendment , are : new facility base rate margin eurodollar margin term loan facility 1.50 % 2.50 % revolver 1.75 % 2.75 % in addition to paying interest on outstanding principal under the new credit facility , we are required to pay a commitment fee to the lenders under the revolver in respect of the unutilized commitments thereunder at a rate equal to 0.50 % . we will also pay customary letter of credit fees . 44 security and guarantees . the new credit facility is secured by a valid first-priority perfected lien or pledge on ( i ) 100 % of the capital stock of each of our present and future direct and indirect domestic subsidiaries , ( ii ) 65 % of the capital stock of each of our future first-tier foreign subsidiaries , ( iii ) 100 % of our capital stock and ( iv ) substantially all our present and future property and assets and those of each guarantor , subject to certain exceptions . our obligations under the new credit facility are guaranteed by each of our existing and future direct and indirect domestic subsidiaries and ecca holdings . covenants . the new credit facility documentation contains customary affirmative and negative covenants and financial covenants . during the term of the new credit facility , the negative covenants restrict our ability to do certain things , including but not limited to : incur additional indebtedness , including guarantees ; create , incur , assume or permit to exist liens on property and assets ; make loans and investments and enter into any moulin or golden gate acquisitions and joint ventures ; engage in sales , transfers and other dispositions of our property or assets ; prepay , redeem or repurchase our debt ( including the notes ) , or amend or modify the terms of certain material debt ( including the notes ) or certain other agreements ; declare or pay dividends to , make distributions to , or make redemptions and repurchases from , equity holders ; and agree to restrictions on the ability of our subsidiaries to pay dividends and make distributions . the following financial covenants are included : maximum consolidated leverage ratio ; maximum capital expenditures ; and minimum rent-adjusted interest coverage ratio . as of december 29 , 2007 , we were in compliance with all of our financial covenants . mandatory prepayment . our mandatory prepayment for fiscal 2006 was waived by the december 2006 amendment which required a $ 25 million prepayment at the time of the amendment , as well as a $ 9.0 million prepayment in march 2007. beginning with fiscal 2007 , we are required to make a mandatory annual prepayment of the term loan facility in an amount based on our leverage ratio of excess cash flows as defined in the new credit facility , which percentage we expect to be reduced upon our achieving certain consolidated leverage ratios . due to our voluntary prepayments during fiscal 2007 , no excess cash flow prepayment will be necessary . in addition , we are required to make a mandatory prepayment of the term loan facility with : 100 % of the net cash proceeds of any property or asset sale or casualty , subject to certain exceptions and reinvestment rights ; 100 % of the net cash proceeds of certain debt issuances , subject to certain exceptions ; and 50 % of the net cash proceeds from the issuance of additional equity interests , subject to certain exceptions .
| results of operations the following table sets forth the percentage relationship to net revenues of certain income statement data . in order to provide the most beneficial performance comparison , the period january 2 , 2005 to march 1 , 2005 of the thlee predecessor and the period march 2 , 2005 to december 31 , 2005 of the ggc moulin predecessor have been combined to represent a total fiscal year . in addition , the period january 1 , 2006 to august 1 , 2006 of the ggc moulin predecessor and the period august 2 , 2006 to december 30 , 2006 of the company have been combined to represent a total fiscal year . the year-to-year comparisons of financial results are not necessarily indicative of future results . we believe this presentation provides the most meaningful information about our results of operations . this approach is not consistent with gaap , may yield results that are not strictly comparable on a period-to-period basis , and may not reflect the actual results we would have achieved . replace_table_token_7_th ( a ) percentages based on optical sales only the following is a discussion of certain factors affecting our results of operations and our liquidity and capital resources . this discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this filing . fiscal 2007 compared to fiscal 2006. net revenues . net revenues increased to $ 477.8 million in fiscal 2007 from $ 437.7 million in fiscal 2006. the increase was largely the result of a comparable store sales increase of 5.7 % compared to fiscal 2006. we opened twenty-five stores and closed one store in fiscal 2007. net revenues attributable to the new stores opened in fiscal 2007 were $ 10.4 million . the increase in net revenues attributable to the effect of stores opened in fiscal 2006 being open all of fiscal 2007 was $ 7.7 million .
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333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.7 sponsor warrant purchase agreement ( incorporated by reference to exhibit 10.7 to the company 's registration statement on amendment no.1 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.8 indemnity agreement ( incorporated by reference to exhibit 10.9 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.9 securities escrow agreement among the company , american stock transfer & trust company and the initial shareholders ( incorporated by reference to exhibit 10.9 to the company 's registration statement on amendment no.5 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on may 25 , 2011 ) 14 code of ethics ( incorporated by reference to exhibit 14.1 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 31.1 certification of the chief executive officer required by rule 13a-14 ( a ) or rule 15d-14 ( a ) 31.2 certification of the chief financial officer required by rule 13a-14 ( a ) or rule 15d-14 ( a ) 32.1 certification of the chief executive officer and chief financial officer required by rule 13a-14 ( b ) or rule 15d-14 ( b ) and 18 u.s.c.1350 23 signature pursuant to the requirements of the securities and exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized . dated : february 5 , 2013 china growth equity investment ltd. by : jin shi jin shi chief executive officer and director power of attorney the undersigned directors and officers of china growth equity investment ltd. hereby constitute and appoint xuesong song and jin shi , with the power to act without the other and with full power of substitution and resubstitution , our true and lawful attorney-in-fact and agent with full power to execute in our name and behalf in the capacities indicated below any and all amendments to this report and to file the same , with all exhibits and other documents relating thereto and hereby ratify and confirm all that such attorney-in-fact , or such attorney-in-fact 's substitute , may lawfully do or cause to be done by virtue hereof . pursuant to the requirements of the securities and exchange act of 1934 , this registration statement has been signed by the following persons in the capacities and on the dates indicated . pursuant to the requirements of the securities and exchange act of 1934 , this report has been signed below by the following persons in the capacities and on the dates indicated below . xuesong song chairman of the board and chief financial officer february 5 , 2013 xuesong song jin shi chief executive officer and director february 5 , 2013 jin shi xuechu he vice chairman of the board february 5 , 2013 xuechu he dongying sun director february 5 , 2013 dongying sun michael w. zhang director february 5 , 2013 michael w. zhang teng zhou director february 5 , 2013 teng zhou 24 item 8. financial statements and supplementary data index to financial statements page financial statements f-1 report of independent registered public accounting firm f-2 balance story_separator_special_tag references to the โ company , โ โ us โ or โ we โ refer to china growth equity investment ltd. the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . general we are a newly organized blank check company formed on january 18 , 2010 for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we are not limited to a particular industry or minimum transaction value for purposes of consummating a business combination . in addition , we will not effect a business combination with another blank check company or a similar company with nominal operations . story_separator_special_tag consideration at the effective time of the merger , each ordinary share and each class a preferred share of cdgc issued and outstanding immediately prior to the effective time of the merger will be redeemed and cancelled and converted into the right to receive 0.82947 of one of our ordinary shares . no fractional shares will be issued in the merger ; instead , we will issue one of our ordinary shares to the holder of any cdgc shares that would otherwise be entitled to receive a fraction of an ordinary share . at the effective time of the share purchase , all of the issued and outstanding shares of merchant supreme ( which will control pingtan fishing ) will be purchased by us for an aggregate of 25,000,000 of our ordinary shares . post-closing directors and officers we have agreed to take such actions as may be necessary to cause each of the following persons to be appointed to our board of directors as of the effective time of the business combination , to serve until the next annual election of directors : xinrong zhuo ( chairman of the board ) , bin lin , lin bao , yeliang zhou , zengbiao zhu , xuesong song and jin shi . in addition , we have agreed to take such actions as may be necessary to cause each of the following persons to be elected as our officers effective immediately after the closing under the merger agreement : xinrong zhuo , chief executive officer ; bin lin senior vice president ; and alfred ho , chief financial officer story_separator_special_tag 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.7 sponsor warrant purchase agreement ( incorporated by reference to exhibit 10.7 to the company 's registration statement on amendment no.1 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.8 indemnity agreement ( incorporated by reference to exhibit 10.9 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.9 securities escrow agreement among the company , american stock transfer & trust company and the initial shareholders ( incorporated by reference to exhibit 10.9 to the company 's registration statement on amendment no.5 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on may 25 , 2011 ) 14 code of ethics ( incorporated by reference to exhibit 14.1 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 31.1 certification of the chief executive officer required by rule 13a-14 ( a ) or rule 15d-14 ( a ) 31.2 certification of the chief financial officer required by rule 13a-14 ( a ) or rule 15d-14 ( a ) 32.1 certification of the chief executive officer and chief financial officer required by rule 13a-14 ( b ) or rule 15d-14 ( b ) and 18 u.s.c.1350 23 signature pursuant to the requirements of the securities and exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized . dated : february 5 , 2013 china growth equity investment ltd. by : jin shi jin shi chief executive officer and director power of attorney the undersigned directors and officers of china growth equity investment ltd. hereby constitute and appoint xuesong song and jin shi , with the power to act without the other and with full power of substitution and resubstitution , our true and lawful attorney-in-fact and agent with full power to execute in our name and behalf in the capacities indicated below any and all amendments to this report and to file the same , with all exhibits and other documents relating thereto and hereby ratify and confirm all that such attorney-in-fact , or such attorney-in-fact 's substitute , may lawfully do or cause to be done by virtue hereof . pursuant to the requirements of the securities and exchange act of 1934 , this registration statement has been signed by the following persons in the capacities and on the dates indicated . pursuant to the requirements of the securities and exchange act of 1934 , this report has been signed below by the following persons in the capacities and on the dates indicated below . xuesong song chairman of the board and chief financial officer february 5 , 2013 xuesong song jin shi chief executive officer and director february 5 , 2013 jin shi xuechu he vice chairman of the board february 5 , 2013 xuechu he dongying sun director february 5 , 2013 dongying sun michael w. zhang director february 5 , 2013 michael w. zhang teng zhou director february 5 , 2013 teng zhou 24 item 8. financial statements and supplementary data index to financial statements page financial statements f-1 report of independent registered public accounting firm f-2 balance story_separator_special_tag references to the โ company , โ โ us โ or โ we โ refer to china growth equity investment ltd. the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . general we are a newly organized blank check company formed on january 18 , 2010 for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we are not limited to a particular industry or minimum transaction value for purposes of consummating a business combination . in addition , we will not effect a business combination with another blank check company or a similar company with nominal operations . story_separator_special_tag consideration at the effective time of the merger , each ordinary share and each class a preferred share of cdgc issued and outstanding immediately prior to the effective time of the merger will be redeemed and cancelled and converted into the right to receive 0.82947 of one of our ordinary shares . no fractional shares will be issued in the merger ; instead , we will issue one of our ordinary shares to the holder of any cdgc shares that would otherwise be entitled to receive a fraction of an ordinary share . at the effective time of the share purchase , all of the issued and outstanding shares of merchant supreme ( which will control pingtan fishing ) will be purchased by us for an aggregate of 25,000,000 of our ordinary shares . post-closing directors and officers we have agreed to take such actions as may be necessary to cause each of the following persons to be appointed to our board of directors as of the effective time of the business combination , to serve until the next annual election of directors : xinrong zhuo ( chairman of the board ) , bin lin , lin bao , yeliang zhou , zengbiao zhu , xuesong song and jin shi . in addition , we have agreed to take such actions as may be necessary to cause each of the following persons to be elected as our officers effective immediately after the closing under the merger agreement : xinrong zhuo , chief executive officer ; bin lin senior vice president ; and alfred ho , chief financial officer
| results of operations through december 31 , 2012 , our efforts have been limited to organizational activities , activities relating to our initial public offering , activities relating to identifying and evaluating prospective acquisition candidates and activities relating to general corporate matters . we have not generated any revenues , other than interest income earned on the proceeds held in the trust account and non-cash gains related to the change in fair value of the warrant liability of $ 2,280,224 , $ 179,333 and $ 2,459,557 for the years ended december 31 , 2012 and 2011 and the period from january 18 , 2010 ( inception ) through december 31 , 2012 , respectively . as of december 31 , 2012 , $ 50,271,988 was held in the trust account ( including $ 2,250,000 of deferred underwriting discounts and commissions and $ 2,975,000 from the sale of the insider warrants ) and we had cash outside of trust of $ 1,387 , $ 60,000 in prepaid expenses and $ 335,788 in accrued expenses . through december 31 , 2012 , the company had not withdrawn any funds from interest earned on the trust account proceeds . other than the deferred underwriting discounts and commissions , no amounts are payable to the underwriters of our initial public offering in the event of a business combination . for the period from january 18 , 2010 ( inception ) through december 31 , 2012 , we had net income of $ 1,079,260. we have agreed to pay chum capital group , an entity owned and controlled by the company 's chairman and chief financial officer , a total of $ 10,000 per month for office space , administrative services and secretarial support . for the period from january 18 , 2010 ( inception ) to december 31 , 2012 the company has incurred $ 190,000 for these costs .
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in october 2017 , we augmented our licensing business and started to manufacture and ship sensor modules that incorporate our technology . we sell these embedded sensors to oems , odm 's and tier 1 suppliers for use in their products . as of december 31 , 2018 , we had entered into forty-one technology license agreements with global oems and tier 1 suppliers . this compares with forty-one technology license agreements as of december 31 , 2017. during the year ended december 31 , 2018 , we had seventeen customers using our touch technology in products that were being shipped to their customers . the majority of our license fees earned in 2018 and 2017 were from customer shipments of printers . as of december 31 , 2018 , our license customers in the automotive and printer markets have not released all the products that are currently in development and that are planned to go into production and market release over the next 12 to 24 months . we now offer our technology to our current and new customers under either a license agreement or a supply agreement , where we sell them a manufactured embedded sensor module that has been customized for use in their products . as of december 31 , 2018 , we entered into six supply agreements to purchase our embedded sensor modules with global oems , odms and tier 1 suppliers . in addition to direct shipments to our customers , we distribute our embedded sensor modules through digikey . as of december 31 , 2018 , digikey sold and shipped 474 sensor module development kits . we anticipate our revenue will be generated by a combination of royalties from our existing and new license customers plus sales of our sensor modules . we intend to continue expanding our sensor module product offerings in 2019 , including new sensors for delivery to the automotive and other key markets in 2019. we expect that over time the sales of sensors components may constitute the majority of our revenue . in the fourth quarter of 2016 , we started selling airbar , a neonode branded consumer product incorporating one of our sensor modules , through distributors and directly to consumers . we have no current plans to develop new neonode branded products for the consumer markets . 17 critical accounting policies and estimates the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( โ u.s . gaap โ ) and include the accounts of neonode inc. and its wholly owned subsidiaries , as well as pronode technologies ab ( sweden ) , a 51 % majority owned subsidiary of neonode technologies ab . the non-controlling interests are reported below net loss including non-controlling interests under the heading โ net loss attributable to non-controlling interests โ in the consolidated statements of operations , below comprehensive loss under the heading โ comprehensive income loss attributable to non-controlling interests โ in the consolidated statements of comprehensive loss and shown as a separate component of stockholders ' equity in the consolidated balance sheets . see โ non-controlling interests โ for further discussion . all inter-company accounts and transactions have been eliminated in consolidation . the consolidated balance sheets at december 31 , 2018 and 2017 and the consolidated statements of operations , comprehensive loss and cash flows for the years ending 2018 and 2017 include our accounts and those of our wholly owned subsidiaries as well as pronode technologies ab ( sweden ) . the accounting policies affecting our financial condition and results of operations are more fully described in note 2 to our consolidated financial statements . certain of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates , which inherently contain some degree of uncertainty . management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . the historical experience and assumptions form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenue and expenses that may not be readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following are critical accounting policies and related judgments and estimates used in the preparation of our consolidated financial statements . estimates the preparation of consolidated financial statements in conformity with u.s. gaap requires making estimates and assumptions that affect , at the date of the consolidated financial statements , the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses . actual results could differ from these estimates . significant estimates include , but are not limited to : for revenue recognition , determining the nature and timing of satisfaction of performance obligations , and determining the standalone selling price of performance obligations , variable consideration , and other obligations such as product returns and refunds , and product warranties ; provisions for uncollectible receivables ; net realizable value of inventory ; recoverability of capitalized project costs and long-lived assets ; the valuation allowance related to our deferred tax assets ; and the fair value of options issued for stock-based compensation . revenue recognition we recognize revenue when control of products is transferred to our customers , and when services are completed and accepted by our customers ; the amount of revenue we recognize reflects the consideration we expect to receive for those products or services . our contracts with customers may include combinations of products and services , for example , a contract that includes products and related engineering services . we structure our contracts such that distinct performance obligations , such as product sales or license fees , and related engineering services , are clearly defined in each contract . story_separator_special_tag the reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was insignificant as of december 31 , 2018 and 2017. if the actual future returns were to deviate from the historical data on which the reserve had been established , our revenue could be adversely affected . accounts receivable and allowance for doubtful accounts our accounts receivable is stated at net realizable value . our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments . 20 inventory inventory is stated at the lower of cost or net realizable value , using the first-in , first-out method ( โ fifo โ ) valuation method . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period . during the fourth quarter of 2017 , after a comprehensive evaluation of our airbar business we recorded a $ 1.1 million write-down , included in our cost of goods sold , to reduce our airbar specific component and finished goods inventory to estimated net realizable value and to revalue the purchase price from the initial order of one component by $ 0.12 each . the component was originally valued at an average price basis but due to slow selling inventory , we revalued at a higher specific price . the total price adjustment related to this component included in cost of sales was approximately $ 0.1 million . in addition , we recorded a $ 0.1 million write-down related to this component repricing which is included in our research and development expense . we also recorded a $ 0.5 million write-off related to production development units , included in inventory , which is included in our research and development expense . as of december 31 , 2018 , the company 's inventory consists primarily of components that will be used in the manufacturing of our sensor modules . we segregate inventory for reporting purposes by raw materials , work-in-process , and finished goods . investment in joint venture we invested $ 3,000 , a 50 % interest in neoeye ab . we account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence , but not control , over the investee . significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20 % and 50 % , although other factors , such as representation on the investee 's board of directors , are considered in determining whether the equity method of accounting is appropriate . under the equity method of accounting , the investment , originally recorded at cost , is adjusted to recognize our share of net earnings or losses of the investee and will be recognized in the consolidated statements of operations and will also be adjusted by contributions to and distributions from neoeye . we are not required to guarantee any obligations of the jv . there have been no operations of neoeye through december 31 , 2018. we review our investment in neoeye to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable . the primary factors we consider in our determination are the financial condition , operating performance and near-term prospects of neoeye . if a decline in value is deemed to be other than temporary , we would recognize an impairment loss . projects in process projects in process consist of costs incurred toward the completion of various projects for certain customers . these costs are primarily comprised of direct engineering labor costs and project-specific equipment costs . these costs are capitalized on our balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy . costs capitalized in projects in process were $ 0 and $ 1,000 as of december 31 , 2018 and 2017 , respectively . 21 property and equipment property and equipment are stated at cost , net of accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows : estimated useful lives computer equipment 3 years furniture and fixtures 5 years equipment 7 years equipment purchased under a capital lease is depreciated over the term of the lease , if that lease term is shorter than the estimated useful life . upon retirement or sale of property and equipment , cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the consolidated statement of operations . maintenance and repairs are charged to expense as incurred . long-lived assets we assess any impairment by estimating the future cash flows from the associated asset in accordance with relevant accounting guidance . if the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated , we may incur charges for impairment of these assets . as of december 31 , 2018 , we believe there was no impairment of our long-lived assets . there can be no assurance , however , that market conditions will not change or sufficient demand for our products and services will continue , which could result in impairment of long-lived assets in the future . research and development research and development ( โ r & d โ ) costs are expensed as incurred . r & d costs consist mainly of personnel related costs in addition to some external consultancy costs such as testing , certifying and measurements .
| results of operations we develop user interface and optical interactive touch and gesture solutions . since 2010 , under our licensing agreements , oems and tier 1 suppliers have sold approximately 67 million devices that use our technology . in december 2017 , we augmented our licensing business and started to manufacture and sell sensor modules that incorporate our technology . a summary of our financial results for the years ended december 31 , is as follows ( in thousands , except percentages ) : replace_table_token_8_th 26 revenues all of our sales for the years ended december 31 , 2018 and 2017 were to customers located in the united states , europe and asia . the following table presents revenues by market and nre for the years ended december 31 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_9_th replace_table_token_10_th we have historically licensed our technology to oems , odm 's and tier 1 suppliers who embed it in their products based upon our custom designs and we charge these customers a non-recurring fee to offset our engineering costs . we sell a neonode branded consumer product , airbar and in october 2017 we added sales of embedded sensor modules to our business model . our new sensor modules provide a hardware- based technology solution , which allows our customers a way to use our zforce air technology while forgoing the complex design and manufacturing phase associated with our licensing model . we now earn revenue from a combination of licensing plus selling our embedded sensor modules and airbar . during 2018 and 2017 we focused our efforts on maintaining our current licensing customers and finalizing their designs for new products expected to be released over the coming 18 months and we made investments finalizing the design of selected embedded sensor modules and setting-up our manufacturing facility in sweden .
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white mountains reported adjusted comprehensive income of $ 340 million in 2013 compared to adjusted comprehensive income of $ 245 million in 2012. good investment results driven by the effects of a rising stock market and white mountains ' high-quality , short-duration fixed income portfolio , which performed well as interest rates rose in 2013 , as well as solid underwriting performance at both onebeacon and sirius group , contributed to growth in adjusted book value per share for 2013. onebeacon 's book value per share increased 17.3 % during 2013 , including dividends , compared to a decrease of 0.8 % during 2012 , including dividends . onebeacon 's gaap combined ratio was 92 % for 2013 compared to 98 % for 2012. the combined ratio for 2013 reflects lower catastrophe losses , which were negligible in 2013 while contributing 5 points to onebeacon 's combined ratio in 2012 , and a lower expense ratio . sirius group 's gaap combined ratio was 82 % for 2013 compared to 90 % for 2012. the improvement in the combined ratio for 2013 was driven by lower catastrophe losses and higher favorable loss reserve development . sirius group 's combined ratio includes 10 points of catastrophe losses in 2013 compared to 13 points in 2012 and includes 6 points of favorable loss reserve development in 2013 compared to 4 points in 2012. white mountains ' total net written premiums decreased 7 % to $ 1,979 million in 2013 , primarily related to onebeacon 's exit from the collector car and boat and energy businesses and lower premiums in the accident and health and trade credit lines at sirius group , partially offset by growth in all of onebeacon 's ongoing specialty lines and an increase in property lines at sirius group . onebeacon 's net written premiums decreased 8 % to $ 1,089 million in 2013. excluding the $ 206 million of net premiums written in 2012 from the exited businesses , white mountains ' net written premiums decreased 3 % and onebeacon 's net written premiums increased 12 % in 2013. sirius group 's net written premiums decreased 8 % to $ 877 million in 2013. white mountains ' gaap total return on invested assets was 4.1 % in 2013 , compared to 4.9 % in 2012. currency translation did not meaningfully impact investment returns in 2013 , while 2012 included 0.5 % of foreign currency gains . white mountains ' fixed income portfolio was up 0.4 % in u.s. dollars ( 0.5 % in local currencies ) in 2013 , outperforming the longer duration barclay 's intermediate aggregate bond index of ( 1.0 ) % as interest rates rose during 2013. white mountains ' fixed income portfolio returned 4.4 % in u.s. dollars ( 3.8 % in local currencies ) in 2012 , compared to the barclays u.s. intermediate aggregate return of 3.6 % . white mountains ' value-oriented equity portfolio returned 18.9 % in 2013 , which includes the effect of a 23.2 % return on its common stock portfolio , compared to the s & p 500 index return of 32.4 % . white mountains ' equity portfolio underperformed the s & p 500 index due to an overweight position in gold mining , an underweight position in the consumer discretionary and industrial sectors and the impact of convertible fixed maturity positions ( as opposed to common equity securities ) , which tend to lag the index in strong up markets . 46 overviewโyear ended december 31 , 2012 versus year ended december 31 , 2011 white mountains ended 2012 with an adjusted book value per share of $ 588 , an increase of 8.6 % during the year , including dividends , compared to an increase of 23.3 % during 2011 , including dividends . white mountains reported adjusted comprehensive income of $ 245 million in 2012 compared to adjusted comprehensive income of $ 745 million in 2011 , which included an after-tax gain of $ 678 million from the esurance sale . onebeacon 's book value per share decreased 0.8 % during 2012 , including dividends , compared to an increase of 3 % during 2011 , including dividends . onebeacon 's 2012 results included $ 101 million of after-tax gaap losses related to the sale of the runoff business , which resulted in a decrease of $ 12 to white mountains ' adjusted book value per share ( net of non-controlling interest ) . onebeacon 's gaap combined ratio was 98 % for 2012 compared to 92 % for 2011. the increase was primarily driven by higher catastrophe losses , mainly from hurricane sandy , lower favorable loss reserve development and higher expenses . sirius group 's gaap combined ratio was 90 % for 2012 compared to 100 % for 2011. sirius group 's combined ratio for 2012 included 13 points of catastrophe losses , 11 points of which were from hurricane sandy , compared to 24 points of catastrophe losses for 2011. additionally , sirius group 's combined ratio for 2012 included 3 points of losses from its agricultural line of business , primarily as a result of the drought in the midwestern united states . total net written premiums increased 8 % to $ 2,127 million in 2012 , due to higher net written premiums at both onebeacon and sirius group . onebeacon 's net written premiums increased 11 % to $ 1,179 million in 2012 , primarily due to new business and improved retention in several lines , particularly within the accident , government risk , energy and technology businesses . sirius group 's net written premiums increased 3 % to $ 948 million in 2012 , primarily due to increases in the accident and health and property lines of business , partially offset by a decrease in the trade credit line of business . story_separator_special_tag excluding the impact of these changes , white mountains effective tax rate for 2012 was 23 % , which was lower than the u.s. statutory rate of 35 % due primarily to income generated in jurisdictions other than the united states . white mountains reported an income tax benefit of $ 110 million in 2011 on pre-tax income of $ 98 million , due primarily to a $ 130 million tax benefit from the release of a valuation allowance against certain deferred tax assets as a result of the reorganization of sirius group . in connection with the reorganization , which included sirius group 's acquisition of a luxembourg holding company from onebeacon in january 2012 , internal debt was contributed to holding companies that had large deferred tax assets offset by full valuation allowances . because the reorganization created a future stream of income for these holding companies , white mountains was required to reduce the valuation allowances by $ 130 million in the fourth quarter of 2011. white mountains also recorded a reclassification of $ 3 million of equity from white mountains ' common shareholders ' equity to non-controlling interest , which represents onebeacon 's minority shareholders ' portion of the excess of the purchase price over the net assets of the luxembourg holding company . excluding the valuation allowance reduction , white mountains effective tax rate for 2011 was 20 % , which was lower than the u.s. statutory rate of 35 % due primarily to income generated in jurisdictions other than the united states . 50 discontinued operations in october 2012 , onebeacon entered into an agreement to sell the runoff business to armour and recorded $ 101 million in after-tax losses related to the runoff transaction in 2012. these losses are composed of a $ 92 million after-tax loss on sale and a $ 9 million after-tax loss related to a reduction in the workers compensation loss reserve discount rate on reserves being transferred as part of the sale . during the fourth quarter of 2013 , onebeacon completed additional analysis of its runoff loss reserves . as a result of its analysis , onebeacon increased its runoff loss reserves by $ 72 million ( $ 47 million after tax ) , which was offset by an equal reduction of the estimated loss on sale , both reported within discontinued operations . the sale of the runoff business is pending the completion of regulatory review and is anticipated to close in mid-2014 ( see runoff transaction on page 53 ) . on october 7 , 2011 , white mountains completed the sale of esurance to allstate for cash equal to $ 700 million plus the tangible book value at closing of the entities being sold and recorded a gain of $ 678 million . in 2011 , onebeacon agreed to sell its autoone business to interboro and recorded a charge of $ 19 million after tax for the estimated loss on the sale . the autoone transaction closed in february 2012. as a result of these transactions , the results of the runoff business , the esurance and autoone businesses and related transaction gains and losses are reported in discontinued operations in white mountains ' gaap financial statements . i. summary of operations by segment white mountains conducts its operations through four segments : ( 1 ) onebeacon , ( 2 ) sirius group , ( 3 ) hg global/bam and ( 4 ) other operations . while investment results are included in these segments , because white mountains manages the majority of its investments through its wholly-owned subsidiary , wm advisors , a discussion of white mountains ' consolidated investment operations is included after the discussion of operations by segment . white mountains ' segment information is presented in note 15 โ โ segment information โ to the consolidated financial statements . onebeacon financial results and gaap combined ratios for onebeacon for the years ended december 31 , 2013 , 2012 and 2011 follow : replace_table_token_23_th 51 the following table presents onebeacon 's book value per share . replace_table_token_24_th onebeacon resultsโyear ended december 31 , 2013 versus year ended december 31 , 2012 onebeacon ended 2013 with a book value per share of $ 11.58 , an increase of 17.3 % during 2013 , including dividends , compared to a decrease of 0.8 % during 2012 , including dividends . investment and underwriting results both contributed to the increase in onebeacon 's book value per share for 2013. onebeacon 's 2013 results also included a $ 23 million pre-tax ( $ 15 million after-tax ) gain from the sale of essentia insurance company ( โ essentia โ ) , a $ 7 million tax benefit related to the release of a valuation allowance at onebeacon related to the restructuring of a surplus note issued to a consolidated insurance reciprocal exchange and a $ 4 million pre-tax ( $ 3 million after-tax ) benefit from the extension of the transition service agreement for services provided by onebeacon on business sold to tower in the personal lines transaction in 2010. onebeacon 's gaap return on investments was 3.8 % for 2013 , compared to a return of 4.4 % for 2012. onebeacon 's gaap combined ratio decreased to 92 % for 2013 from 98 % for 2012 , which reflects both lower loss and expense ratios as compared to 2012. the decrease in the loss ratio was driven by a decrease in catastrophe losses which were negligible in 2013 compared to 5 points of net catastrophe losses ( $ 56 million , including $ 8 million of ceded reinstatement premiums ) for 2012 , due primarily to the impact of hurricane sandy . favorable loss reserve development for 2013 was negligible , compared to 1 point ( $ 7 million ) for 2012. the decrease in the expense ratio for 2013 was primarily from lower insurance acquisition expenses due to changes in business mix driven by the termination of the underwriting arrangement with hagerty insurance agency , partially offset by higher non-claims litigation expenses .
| review of consolidated results a summary of white mountains ' consolidated financial results for the years ended december 31 , 2013 , 2012 and 2011 follows : replace_table_token_22_th ( 1 ) on december 31 , 2011 , tuckerman fund i was dissolved and all of the net assets of the fund , which consisted of the llc units of hamer and bri-mar , two small manufacturing companies , were distributed . as of october 1 , 2012 , hamer and bri-mar are no longer consolidated and are accounted for as investments in unconsolidated affiliates . ( 2 ) adjusted comprehensive income is a non-gaap measure . for a reconciliation to the most comparable gaap measure ( see non-gaap financial measures on page 78 ) . 48 consolidated resultsโyear ended december 31 , 2013 versus year ended december 31 , 2012 white mountains ' total revenues decreased 5 % to $ 2,317 million in 2013 , primarily due to lower earned insurance and reinsurance premiums , net investment income and other revenues , partially offset by higher net realized and unrealized investment gains . earned insurance and reinsurance premiums decreased 4 % to $ 1,987 million in 2013. net investment income was down 28 % to $ 111 million in 2013 , primarily from a lower invested asset base , resulting from $ 749 million of share repurchases since january 2012 , and lower investment yields . white mountains reported net realized and unrealized investment gains of $ 162 million in 2013 , which included $ 1 million of net realized and unrealized foreign currency gains , compared to $ 118 million of gains in 2012 , which included $ 57 million of net realized and unrealized foreign currency losses . most of the net realized and unrealized foreign currency gains ( losses ) on investments are related to gaap foreign currency translation and are offset by amounts recognized in other comprehensive income ( see โ foreign currency translation โ on page 63 ) .
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this update is generally effective for public business entities in fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . the adoption of asu no . 2016-16 is not expected to have a material impact on the company 's consolidated financial statements . 76 first foundation inc. notes to the consolidated financial statements ( continued ) years ended december 31 , 2017 , 2016 , and 2015 note 2 : acquisitions on november 10 , 2017 , the company completed the acquisition of community 1st bancorp and its wholly owned subsidiary , community 1st bank ( collectively โ c1b โ ) , through a merger of c1b with and into the bank , in exchange for 2,955,623 shares of common stock of ffi with a fair value of $ 17.55 story_separator_special_tag financial condition and results of operations the following discussion and analysis is intended to facilitate the understanding and assessment of significant changes and trends in our businesses that accounted for the changes in our results of operations in the year ended december 31 , 2017 , as compared to our results of operation in the year ended december 31 , 2016 ; in our results of operations in the year ended december 31 , 2016 , as compared to our results of operations in the year ended december 31 , 2015 , and our financial condition at december 31 , 2017 as compared to our financial condition at december 31 , 2016. this discussion and analysis is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained elsewhere in this annual report on form 10-k. in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause results to differ materially from management 's expectations . some of the factors that could cause results to differ materially from expectations are discussed in the sections entitled โ risk factors โ and โ forward-looking statements โ contained elsewhere in this annual report on form 10-k. critical accounting policies our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( โ gaap โ ) and accounting practices in the banking industry . certain of those accounting policies are considered critical accounting policies , because they require us to make estimates and assumptions regarding circumstances or trends that could materially affect the value of those assets , such as economic conditions or trends that could impact our ability to fully collect our loans or ultimately realize the carrying value of certain of our other assets . those estimates and assumptions are made based on current information available to us regarding those economic conditions or trends or other circumstances . if changes were to occur in the events , trends or other circumstances on which our estimates or assumptions were based , or other unanticipated events were to occur that might affect our operations , we may be required under gaap to adjust our earlier estimates and to reduce the carrying values of the affected assets on our balance sheet , generally by means of charges against income , which could also affect our results of operations in the fiscal periods when those charges are recognized . utilization and valuation of deferred income tax benefits . we record as a โ deferred tax asset โ on our balance sheet an amount equal to the tax credit and tax loss carryforwards and tax deductions ( collectively โ tax benefits โ ) that we believe will be available to us to offset or reduce income taxes in future periods . under applicable federal and state income tax laws and regulations , tax benefits related to tax loss carryforwards will expire if they can not be used within specified periods of time . accordingly , the ability to fully use our deferred tax asset related to tax loss carryforwards to reduce income taxes in the future depends on the amount of taxable income that we generate during those time periods . at least once each year , or more frequently , if warranted , we make estimates of future taxable income that we believe we are likely to generate during those future periods . if we conclude , on the basis of those estimates and the amount of the tax benefits available to us , that it is more likely , than not , that we will be able to fully utilize those tax benefits prior to their expiration , we recognize the deferred tax asset in full on our balance sheet . on the other hand , if we conclude on the basis of those estimates and the amount of the tax benefits available to us that it has become more likely , than not , that we will be unable to utilize those tax benefits in full prior to their expiration , then , we would establish a valuation allowance to reduce the deferred tax asset on our balance sheet to the amount with respect to which we believe it is still more likely , than not , that we will be able to use to offset or reduce taxes in the future . the establishment of such a valuation allowance , or any increase in an existing valuation allowance , would be effectuated through a charge to the provision for income taxes or a reduction in any income tax credit for the period in which such valuation allowance is established or increased . allowance for loan and lease losses . our alll is established through a provision for loan losses charged to expense and may be reduced by a recapture of previously established loss reserves , which are also reflected in the statement of income . loans are charged against the alll when management believes that collectability of the principal is unlikely . story_separator_special_tag noninterest income : noninterest income for banking includes fees charged to clients for trust services and deposit services , consulting fees , prepayment and late fees charged on loans , gain on sale of loans and reo , gains and losses from capital market activities and insurance commissions . the following table provides a breakdown of noninterest income for banking for the years ended december 31 : replace_table_token_10_th noninterest income in banking increased $ 2.2 million from $ 13.8 million in 2016 to $ 16.0 million in 2017. loan related fees , including loan servicing fees , were $ 1.8 million higher in 2017 as compared to 2016 due to increased balances of loans serviced for others and increased loan activity . in addition , trust fees increased $ 0.6 million due primarily to higher levels of aum in the bank 's trust operations . during 2017 , we realized $ 7.0 million in gains on sales of loans as compared to $ 7.8 million in gains on the sale of multifamily loans and $ 1.0 million in losses from capital market activities during 2016. noninterest income for wealth management includes fees charged to high net-worth clients for managing their assets and for providing financial planning consulting services . the following table provides a breakdown of noninterest income for wealth management for the years ended december 31 : replace_table_token_11_th the $ 2.2 million increase in noninterest income in wealth management in 2017 as compared to 2016 was primarily due to increases in asset management fees of 11 % . the increases in asset management fees were primarily due to an 11 % increase in the aum balances used for computing the asset management fees in 2017 , as compared to aum balances used for computing the asset management fees in 2016 . 40 noninterest expense : the following table provides a breakdown of noninterest expense for banking and wealth management for the years ended december 31 : replace_table_token_12_th noninterest expense in banking increased from $ 58.4 million in 2016 to $ 74.0 million in 2017 due to $ 2.6 million of one-time costs related to the acquisition of c1b , increases in staffing and costs associated with the bank 's expansion , including the acquisition of c1b and the growth of its balances of loans and deposits , which was partially offset by lower legal costs . compensation and benefits for banking increased $ 6.3 million or 19 % , during 2017 as compared to 2016 as the number of fte in banking increased to 310.9 from 260.2 as a result of the increased staffing related to the c1b acquisition , the december 2016 acquisition of two banking offices and additional personnel added to support the growth in loans and deposits . the $ 3.3 million increase in occupancy and depreciation for banking in 2017 as compared to 2016 was due to costs associated with our expansion into additional corporate space , the c1b acquisition , the december 2016 acquisition of two banking offices , the opening of new offices during 2016 and increases in our data processing costs due to increased volumes and the implementation of enhancements . litigation related costs for banking were $ 2.8 million lower in 2017 as compared to 2016 due to the reimbursement in 2017 from our insurance providers of $ 1.8 million of previously incurred legal costs and costs incurred for a trial in 2016. the $ 8.6 million increase in other expenses in banking in 2017 as compared to 2016 was due to $ 2.6 million of one-time costs related to the acquisition of c1b , a $ 5.4 million increase in customer service costs related to the increases in noninterest demand deposits and a $ 0.4 million increase in fdic insurance fees . noninterest expense in wealth management increased $ 1.2 million in 2017 as compared to 2016 , primarily due to increases in compensation and benefits related to a 6 % increase in fte and cost of living increases . years ended december 31 , 2016 and 2015. our net income for 2016 was $ 23.3 million , as compared to $ 13.4 million for 2015. compensation and benefit costs , which represent the largest component of noninterest expense , accounted for 57 % and 76 % , respectively , of the total noninterest expense for banking and wealth management in 2016. the following tables show key operating results for each of our business segments for the years ended december 31 : replace_table_token_13_th general . our net income and income before taxes for 2016 were $ 23.3 million and $ 38.3 million , respectively , as compared to $ 13.4 million and $ 22.8 million , respectively , for 2015. the increase in income before taxes was the result of a $ 15.1 million increase in income before taxes for banking and a $ 0.5 million decrease in corporate expenses . earnings before taxes for wealth management for 2016 were consistent with 2015 as a $ 0.8 million increase in noninterest income was offset by a commensurate 41 increase in noninterest expenses . the increase in income before taxes in banking was due to higher net interest income and higher noninterest income which was partially offset by a higher provision for loan losses and higher noninterest expenses . corporate interest expense decreased by $ 0.7 million due to the payoff of a term note in 2015 , while corporate noninterest expenses increased by $ 0.2 million . the effective tax rate for 2016 was 39.2 % as compared to 41.4 % for 2015 , with the benefit primarily due to the reductions in taxes on income from excess tax benefits resulting from the exercise of stock awards under asu 2016-09. net interest income .
| results of operations years ended december 31 , 2017 and 2016. our net income for 2017 was $ 27.6 million , as compared to $ 23.3 million for 2016. the primary sources of revenue for banking are net interest income , fees from its deposits , trust and insurance services , gains on sales of loans , certain loan fees , and consulting fees . the primary sources of revenue for wealth management are asset management fees assessed on the balance of aum . compensation and benefit costs , which represent the largest component of noninterest expense , accounted for 53 % and 78 % , respectively , of the total noninterest expense for banking and wealth management in 2017 . 37 the following tables show key operating results for each of our business segments for the years ended december 31 : replace_table_token_7_th general . our net income and income before taxes in 2017 were $ 27.6 million and $ 50.6 million , respectively , as compared to $ 23.3 million and $ 38.3 million , respectively , in 2016. the increase in income before taxes was the result of a $ 13.4 million increase in income before taxes for banking and a $ 1.0 million increase in income before taxes for wealth management , which were partially offset by a $ 2.1 million increase in corporate expenses . the increase in banking was due to higher net interest income , a lower provision for loan losses and higher noninterest income which were partially offset by higher noninterest expenses . the increase in wealth management was due to higher noninterest income which was partially offset by higher noninterest expense .
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also , during the year ended december 31 , 2011 , we invested $ 3,144,000 at an average yield of 9.7 % under agreements to expand and renovate 11 properties story_separator_special_tag executive overview business we are a self-administered health care real estate investment trust ( or reit ) that invests primarily in senior housing and long term care properties through mortgage loans , property lease transactions and other investments . we conduct and manage our business as one operating segment , rather than multiple operating segments , for internal reporting and internal decision making purposes . in 2011 , senior housing and long term care properties , which include skilled nursing properties , assisted living properties , independent living properties , and combinations thereof comprised approximately 98 % of our investment portfolio . the following table summarizes our real estate investment portfolio as of december 31 , 2011 ( dollar amounts in thousands ) : replace_table_token_11_th ( 1 ) includes rental income from properties classified as held-for-sale . ( 2 ) includes interest income from mortgage loans . ( 3 ) includes rental income and interest income from mortgage loans . ( 4 ) we have investments in 30 states leased or mortgaged to 41 different operators . ( 5 ) see item 2. properties for discussion of bed/unit count . ( 6 ) other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing , assisted living and or independent living services . ( 7 ) during 2011 , we acquired a vacant parcel of land in texas and entered into a commitment to fund the construction of a skilled nursing property with 120 beds which will replace an existing 90-bed skilled nursing property . as of december 31 , 2011 we had $ 599.9 million in carrying value of net real estate investment , consisting of $ 546.8 million or 91.1 % invested in owned and leased properties and $ 53.1 million or 8.9 % invested in mortgage loans secured by first mortgages . for the year ended december 31 , 2011 , rental income and interest income from mortgage loans excluding discontinued operations represented 91.2 % and 7.5 % , respectively , of total gross revenues . in most instances , our lease structure contains fixed annual rental escalations , which are generally recognized on a straight-line basis over the minimum lease period . certain leases have annual rental escalations that are contingent upon changes in the consumer price index and or changes in the gross operating revenues of the property . this revenue is not recognized until the appropriate contingencies have been resolved . this lease structure initially generates lower revenues and net income but enables us to generate additional growth and minimize non-cash straight-line rent over time . for the years ended december 31 , 2011 , 2010 and 2009 we recorded $ 3.7 million , $ 3.8 million , and $ 4.2 million , 32 respectively , in straight-line rental income . also during 2011 , 2010 and 2009 we recorded $ 46,000 , $ 0.8 million and $ 0.8 million , respectively , of straight-line rent receivable reserve . straight-line rental income for leases in place at december 31 , 2011 are projected to decrease from $ 3.7 million in 2011 to $ 2.4 million in 2012 assuming no new leased investments with fixed annual rental escalations are added to our portfolio . conversely , our cash rental income is projected to increase from $ 74.6 million in 2011 to $ 81.1 million in 2012 assuming no modification or replacement of existing leases and no new leased investments are added to our portfolio . during the year ended december 31 , 2011 , we received $ 74.6 million of cash rental revenue and recorded $ 0.7 million of lease inducement costs . at december 31 , 2011 and 2010 , the straight-line rent receivable balance , net of reserves , for continuing and discontinued operations on the consolidated balance sheet was $ 23.8 million and $ 20.1 million , respectively . our primary objectives are to sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in senior housing and long term care properties managed by experienced operators . to meet these objectives , we attempt to invest in properties that provide opportunity for additional value and current returns to our stockholders and diversify our investment portfolio by geographic location , operator and form of investment . we opportunistically consider investments in health care properties in related businesses where the business model is similar to our existing model and the opportunity provides an attractive expected return . consistent with this strategy , we pursue , from time to time , opportunities for potential acquisitions and investments , with due diligence and negotiations often at different stages of development at any particular time . with respect to skilled nursing properties , we attempt to invest in properties that do not have to rely on a high percentage of private-pay patients . we seek to invest primarily in properties that are located in communities with viable and sustainable economic and demographic trends whether located in primary , secondary or tertiary markets . we prefer to invest in a property that has significant market presence in its community and where state certificate of need and or licensing procedures limit the entry of competing properties . for assisted living and independent living investments we have attempted to diversify our portfolio both geographically and across product levels . thus , we believe that although the majority of our investments are in affordably priced units , our portfolio also includes a significant number of upscale units in appropriate markets with certain operators . substantially all of our revenues and sources of cash flows from operations are derived from operating lease rentals and interest earned on outstanding loans receivable . story_separator_special_tag ( 6 ) we purchased two senior housing properties located in south carolina with 118 skilled nursing beds , 40 assisted living units and 53 independent living units for $ 11,450. the lease has a gaap yield of 10.1 % , contains annual escalations of 2.5 % and has three 5-year renewal options . bank borrowings . during 2011 , we entered into a new $ 210.0 million unsecured credit agreement which provides for the opportunity to increase the credit amount up to a total of $ 250.0 million . the new unsecured credit agreement provides a revolving line of credit with no scheduled maturities other than the maturity date of april 18 , 2015 , and allows us to borrow at the same interest rates applicable to borrowings under our prior agreement , 150 basis points over libor based on current leverage ratios . financial covenants contained in the new unsecured credit agreement , which are measured quarterly , require us to maintain , among other things : ( i ) a ratio of total indebtedness to total asset value not greater than 0.5 to 1.0 ; ( ii ) a ratio of secured debt to total asset value not greater than 0.35 to 1.0 ; ( iii ) a ratio of unsecured debt to the value of the unencumbered asset pool not greater than 0.6 to 1.0 ; and ( iv ) a ratio of ebitda , as calculated in the new unsecured credit agreement , to fixed charges not less than 1.50 to 1.0. senior unsecured notes . during 2011 , we sold $ 50.0 million aggregate principal amount of 4.8 % senior unsecured notes fully amortizing to maturity on july 20 , 2021 to affiliates and managed accounts of prudential investment management , inc. ( individually and collectively `` prudential '' ) . we also entered into an amended and restated note purchase and private shelf agreement with prudential which provides for the possible issuance of up to an additional $ 100.0 million of senior unsecured fixed-rate term notes during a three-year issuance period . common stock . during 2011 , we sold 3,990,000 shares of common stock in an underwritten public offering at a price of $ 27.25 per share , before fees and costs of $ 5.1 million , for net proceeds of $ 103.6 million . the net proceeds were used to redeem all of our 8.0 % series f cumulative preferred stock ( or series f preferred stock ) , as discussed below , and the remaining net proceeds were used to partially repay amounts outstanding under our unsecured credit agreement . preferred stock . we redeemed 3,536,530 shares of our series f preferred stock , representing all of the outstanding shares . the redemption price was $ 25.1333 per share , including accrued and unpaid dividends up to the redemption date . accordingly , we recognized the $ 3.6 million of original issue costs 35 related to the series f preferred stock as a preferred stock redemption charge in the consolidated income statement line item income allocated to preferred stockholders . key performance indicators , trends and uncertainties we utilize several key performance indicators to evaluate the various aspects of our business . these indicators are discussed below and relate to concentration risk and credit strength . management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results in making operating decisions and for budget planning purposes . concentration risk . we evaluate our concentration risk in terms of asset mix , investment mix , operator mix and geographic mix . concentration risk is valuable to understand what portion of our investments could be at risk if certain sectors were to experience downturns . asset mix measures the portion of our investments that are real property or mortgage loans . in order to qualify as an equity reit , at least 75 percent of our total assets must be represented by real estate assets , cash , cash items and government securities . investment mix measures the portion of our investments that relate to our various property types . operator mix measures the portion of our investments that relate to our top three operators . geographic mix measures the portion of our investment that relate to our top five states . the following table reflects our recent historical trends of concentration risk ( gross investment , in thousands ) : replace_table_token_13_th ( 1 ) other senior housing properties consist of independent living properties and properties providing any combination of skilled nursing , assisted living and or independent living services . 36 ( 2 ) during 2011 , we acquired a vacant parcel of land in texas and entered into a commitment to fund the construction of a skilled nursing property with 120 beds which will replace an existing 90-bed skilled nursing property . ( 3 ) preferred care , inc. leases 23 skilled nursing and two other senior housing properties under two master leases and one skilled nursing property under a separate lease agreement . in addition , they operate six skilled nursing properties securing five mortgage loans receivable that we have with unrelated third parties and one mortgage loan receivable we have with preferred care . they also operate one skilled nursing facility under a sub-lease with another lessee we have which is not included in the preferred care operator mix . credit strength . we measure our credit strength both in terms of leverage ratios and coverage ratios . our leverage ratios include debt to book capitalization and debt to market capitalization . the leverage ratios indicate how much of our consolidated balance sheet capitalization is related to long term obligations . our coverage ratios include interest coverage ratio and fixed charge coverage ratio . the coverage ratios indicate our ability to service interest and fixed charges ( interest plus preferred dividends ) . the coverage ratios are based on earnings before interest , taxes , depreciation and amortization .
| operating results year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues for the year ended december 31 , 2011 increased to $ 85.2 million from $ 73.7 million for the same period in 2010 primarily due to increases in rental income partially offset by decreases in interest income from mortgage loans and interest and other income , as discussed below . rental income for the year ended december 31 , 2011 increased $ 13.3 million from the same period in 2010 primarily due to increases resulting from acquisitions in 2011 and 2010. interest income from mortgage loans for the year ended december 31 , 2011 decreased $ 1.1 million from the same period in 2010 primarily due to payoffs , normal amortization of existing mortgage loans and the conversion of a mortgage loan to an owned property . during 2010 , we acquired the school property via deed-in-lieu of foreclosure as a result of the borrower filing for chapter 7 bankruptcy . during 2011 , we leased the school to a non-for-profit corporation that provides therapeutic support and intensive home , school and center-based behavioral therapy for children , youth and families affected by autism spectrum disorders . interest and other income for the year ended december 31 , 2011 decreased $ 0.8 million from the same period in 2010 primarily due to a $ 0.8 million bankruptcy settlement distribution received in 2010 related to a former operator . interest expense for the year ended december 31 , 2011 was $ 3.8 million higher than the same period in 2010 primarily due to an increase in borrowings to fund acquisitions in 2011 and 2010 , and the non-cash interest expense related to earn-out liabilities which represents the accretion of the difference between the current fair value and estimated payment of the contingent earn-out liabilities .
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in january 2018 , the fasb released guidance story_separator_special_tag the following discussion of the company 's financial condition and results of operations should be read together with the consolidated financial statements and notes to those statements included in item 8 of part ii of this annual report on form 10-k. business for a description of the company 's business , segments and product offerings , see item 1 , business . 2019 executive overview net sales decreased by $ 214.6 million , or 12.5 % , in 2019 compared to 2018. the decrease was primarily driven by lower volume across the electronics and automotive segments and $ 25.0 million or 1.5 % of unfavorable changes in foreign exchange rates , partially offset by higher volume in the industrial segment . the company recognized net income of $ 139.1 million , or $ 5.60 per diluted share , in 2019 compared to net income of $ 164.6 million , or $ 6.52 per diluted share in 2018. the decrease in net income reflects lower operating income in the electronics and automotive segments , partially offset by lower non-segment charges compared to prior year primarily due to the ixys acquisition . the company continues to take actions to improve its cost structure and drive the synergies from the integration of ixys . the company expects to realize cost savings from the restructuring activities taken during 2019 including the reorganization of certain 19 manufacturing , selling and administrative functions across all segments and the closure of a european manufacturing facility in the automotive sensors business within the automotive segment . net cash provided by operating activities was $ 245.3 million for the year ended december 28 , 2019 as compared to $ 331.8 million for the year ended december 29 , 2018. the decrease in net cash provided by operating activities was primarily driven by lower earnings and higher working capital levels primarily due to the timing of supplier payments , payroll year-end cut off and higher annual incentive compensation payments in 2019. during the fiscal year 2019 , the company repurchased 579,916 shares of its common stock totaling $ 95.0 million . during the fiscal year 2018 , the company repurchased 391,972 shares of its common stock totaling $ 67.9 million . from september 30 , 2018 until december 28 , 2019 , the company repurchased 971,888 shares of its common stock at an average price of $ 167.65 totaling $ 162.9 million . outlook vision and strategy the company works with its customers to design and develop technologies that help them build safer , more reliable and more efficient products for a safer , greener and increasingly connected world in virtually every market that uses electrical energy ; for example , automotive and commercial vehicles , industrial applications like renewable energy and storage , motor drives and power conversion , data and telecommunications , medical devices , consumer electronics and appliances . built upon that framework , the company 's strategy is centered on growing its circuit protection , power control and sensor platforms . the company 's strategic plan is focused on increasing shareholder value by driving profitable sales growth , earnings per share growth , strong cash flow generation , and deploying capital consistent with its long-term capital allocation priorities . the company pursues the following major strategic initiatives , which are summarized below , along with more specific areas of focus . strategic objective 2020 and future priorities double digit sales growth โ grow through increased product content with existing customers and increased market share โ expand portfolio into new and underpenetrated geographies and end markets โ increase innovation capabilities and investments โ expand presence in products and applications that are converging across business segments โ targeted mergers and acquisitions eps growth โ focus on higher profitability growth opportunities โ improve operating margins through operational excellence โ disciplined approach to balancing costs with long-term strategic investments cash flow and liquidity โ disciplined management of working capital โ deployment of capital consistent with capital allocation priorities โ mergers and acquisitions that align with strategy and financial metrics โ grow dividend in line with earnings โ opportunistic share repurchases the company 's strategy is to generate profitable sales growth . in order to accomplish this , the company is focusing on accelerating organic growth by increasing its content and share gains , enhancing technology efforts to drive innovation , capitalizing on cross segment opportunities , and gaining traction in underpenetrated geographies and markets . the company will continue to make targeted strategic acquisitions that align to its strategy and financial metrics to support new business , products , markets , and technologies while leveraging existing customers and targeting new customers . management believes that profitable growth through a combination of organic growth and strategic acquisitions is critical to the company 's competitiveness , while enhancing value the company delivers to its customers and other stakeholders . in addition , 20 the company continues to implement initiatives across all platforms to enhance productivity while managing its cost structure to align with business conditions , including integration of operations and streamlining administrative and support activities to drive improved operating margins . the company seeks to deploy its capital consistent with capital allocation priorities . priorities for capital deployment , over time , include investments to drive increased organic growth , targeted acquisitions that align to the company 's strategic and financial metrics and returning capital to shareholders through dividends and opportunistic share repurchases . the company uses several key indicators to gauge progress toward achieving these objectives . these indicators include organic sales growth , operating margins , cash flow from operations and capital expenditures . through cycles , the company targets double-digit long-term ( 2017-2021 ) sales growth , split between 5-7 % average annual accelerated organic sales growth and 5-7 % average annual accelerated growth from strategic acquisitions , while targeting operating margins between 17 % and 19 % and double-digit earnings per share growth . story_separator_special_tag if customers achieve their specific quarterly or annual sales targets , they are entitled to rebates . the company estimates the projected amount of rebates that will be achieved by the customer and recognizes this estimated cost as a reduction to revenue as products are sold . allowance for doubtful accounts : the company evaluates the collectability of its trade receivables based on a combination of factors . the company regularly analyzes its significant customer accounts and , when the company becomes aware of a specific customer 's inability to meet its financial obligations , the company records a specific reserve for bad debt to reduce the related receivable to the amount the company reasonably believes is collectible . the company also records allowances for all other customers based on a variety of factors including the length of time the receivables are past due , the financial health of the customer , macroeconomic considerations and past experience . historically , the allowance for doubtful accounts has been adequate to cover bad debts . if circumstances related to specific customers change , the estimates of the recoverability of receivables could be further adjusted . inventory the company performs regular detailed assessments of inventory , which include a review of , among other factors , demand requirements , product life cycle and development plans , component cost trends , product pricing , shelf life , and quality issues . based on the analysis , the company records adjustments to inventory for excess quantities , obsolescence or impairment when appropriate to reflect inventory at net realizable value . historically , inventory reserves have been adequate to reflect inventory at net realizable values . goodwill the company 's methodology for allocating the purchase price of acquisitions is based on established valuation techniques that reflect the consideration of a number of factors , including valuations performed by third-party appraisers when appropriate . goodwill is measured as the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed . based on its current organization structure , the company has seven reporting units for which cash flows are determinable and to which goodwill has been allocated . the company annually tests goodwill for impairment on the first day of its fiscal fourth quarter , or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . the company also performs an interim review for indicators of impairment each quarter to assess whether an interim impairment review is required for any reporting unit . as part of its interim reviews , management analyzes potential changes in the value of individual reporting units based on each reporting unit 's operating results for the period compared to expected results as of the prior year 's annual impairment test . in addition , management considers how other key assumptions , including discount rates and expected long-term growth rates , used in the last annual impairment test , could be impacted by changes in market conditions and economic events . based on the interim assessments , management concluded that no events or changes in circumstances indicated that it was more likely than not that the fair value for any reporting unit had declined below its carrying value . quantitative assessment for impairment for the seven reporting units with goodwill , the company compares the estimated fair value of each reporting unit to its carrying value . if the carrying value of a reporting unit exceeded the estimated fair value , the difference between the estimated fair value and carrying value is recorded as the amount of the goodwill impairment charge . the results of the goodwill impairment test as of september 30 , 2019 indicated that the estimated fair values for each of the seven reporting units exceeded their respective carrying values . accordingly , there were no goodwill impairment charges recorded as part of the company 's 2019 annual goodwill impairment test . as part of its impairment test for these reporting units , the company engaged a third-party appraisal firm to assist in the company 's determination of the estimated fair values . this determination included estimating the fair value of each reporting unit using both 23 the income and market approaches . the income approach requires management to estimate a number of factors for each reporting unit , including projected operating results , economic projections , anticipated future cash flows , discount rates and the allocation of shared or corporate items . the market approach estimates fair values using comparable marketplace fair value data from within a comparable industry grouping . the company weighted both the income and market approach equally to estimate the concluded fair value of each reporting unit . the determination of fair value requires the company to make significant estimates and assumptions , which primarily include , but are not limited to : the selection of appropriate peer group companies ; control premiums appropriate for acquisitions in which the company competes ; the discount rate ; terminal growth rates ; and forecasts of revenue , operating income , depreciation and amortization and capital expenditures . goodwill impairment assumptions although the company believes its estimates of fair value are reasonable , actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates . changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the fair value of the reporting units . future declines in the overall market value of the company 's equity may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value . one measure of the sensitivity of the amount of goodwill impairment charges to key assumptions is the amount by which each reporting unit โ passed โ ( fair value exceeds the carrying value ) the goodwill impairment test .
| cash flow overview operating cash inflows are largely attributable to sales of the company 's products . operating cash outflows are largely attributable to recurring expenditures for raw materials , labor , rent , interest , taxes and other operating activities . the following describes the company 's cash flows for the twelve months ended december 28 , 2019 and december 29 , 2018 : replace_table_token_14_th cash flow from operating activities net cash provided by operating activities was $ 245.3 million for 2019 , compared to $ 331.8 million during 2018 . the decrease in net cash provided by operating activities was primarily driven by lower earnings and higher working capital levels primarily due to the timing of supplier payments , payroll year-end cut off and higher annual incentive compensation payments in 2019. cash flow from investing activities net cash used in investing activities was $ 56.5 million for 2019 , compared to $ 382.3 million during 2018 . net cash used for the acquisition of ixys was $ 306.5 million and $ 9.0 million for the acquisition of the remaining 38 % outstanding common stock of monolith in 2018. capital expenditures were $ 61.9 million , representing a decrease of $ 12.9 million compared to 2018 . the company also received proceeds of $ 6.2 million in 2019 primarily as a result of the sale of a property within the industrial segment . cash flow from financing activities net cash used in financing activities was $ 146.3 million for 2019 compared to net cash provided by financing activities of $ 121.9 million for 2018 . the company repurchased 579,916 shares of its common stock during fiscal 2019 totaling $ 95.0 million , but made payments of $ 99.4 million related to settled share repurchases .
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142 t able of contents unaudited pro forma results of operations ( 1 ) replace_table_token_67_th _ ( 1 ) pro forma adjustments were made for transaction expenses , amortization of intangible assets and the income tax impact related to the bluemountain acquisition as if the companies had been combined as of january 1 , 2018. reinsurance of syncora guarantee inc. 's insured portfolio on june 1 , 2018 , the company closed a reinsurance transaction with syncora guarantee inc. ( sgi ) under which agc assumed , generally on a 100 % quota share basis , substantially all of sgi 's insured portfolio and agm reassumed a book of business previously ceded to sgi by agm ( sgi transaction ) . as of june 1 , 2018 , the net par value of exposures reinsured and commuted totaled approximately $ 12 billion ( including credit derivative net par of approximately $ 1.5 billion ) . the reinsured portfolio consisted predominantly of public finance and infrastructure obligations that met agc 's underwriting criteria and generated $ 330 million of gross written premiums . on june 1 , 2018 , as consideration , sgi paid $ 363 million and assigned to assured guaranty financial guaranty future insurance installment premiums of $ 45 million , and future credit derivative installments of approximately $ 17 million . the assumed portfolio from sgi included below-investment grade ( big ) contracts which had , story_separator_special_tag for a more detailed description of events , trends and uncertainties , as well as the capital , liquidity , credit , operational and market risks and the critical accounting policies and estimates affecting the company , the following discussion and analysis of the company 's financial condition and results of operations should be read in its entirety with the company 's consolidated financial statements and accompanying notes which appear elsewhere in this form 10-k. the following discussion and analysis of the company 's financial condition and results of operations contains forward looking statements that involve risks and uncertainties . see โ forward looking statements โ for more information . the company 's actual results could differ materially from those anticipated in these forward looking statements as a result of various factors , including those discussed below and elsewhere in this form 10-k , particularly under the headings โ risk factors โ and โ forward looking statements. โ discussion related to the results of operations for the company 's comparison of 2019 results to 2018 results have been omitted in this form 10-k. the company 's comparison of 2019 results to 2018 results is included in the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019 , under part ii , item 7 , management 's discussion and analysis of financial condition and results of operations , executive summary and results of operations . overview business beginning in the fourth quarter of 2019 , after the acquisition of bluemountain , the company realigned its reporting structure to be consistent with how management now views the company 's different business lines . management views the company 's businesses in two distinct segments : insurance and asset management . the insurance and asset management businesses are conducted through separate legal entities , which is the basis on which the results of operations are presented and reviewed by the chief operating decision maker ( codm ) to assess performance and allocate resources . the company 's corporate division activities are presented separately . in the insurance segment , the company provides credit protection products to the u.s. and international public finance ( including infrastructure ) and structured finance markets . the company applies its credit underwriting judgment , risk management skills and capital markets experience primarily to offer credit protection products to holders of debt instruments and other monetary obligations that protect them from defaults in scheduled payments . if an obligor defaults on a scheduled payment due on an obligation , including a scheduled debt service payment , the company is required under its unconditional and irrevocable financial guaranty to pay the amount of the shortfall to the holder of the obligation . the company markets its credit protection products directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations . the company guarantees obligations issued principally in the u.s. and the u.k. , and also guarantees obligations issued in other countries and regions , including western europe , canada and australia . the company also provides other forms of insurance that are consistent with its risk profile and benefit from its underwriting experience . premiums are earned over the contractual lives , or in the case of homogeneous pools of insured obligations , the remaining expected lives , of financial guaranty insurance contracts . the establishment of assuredim represents a significant increase in the company 's participation in the asset management industry . in the asset management segment , the company provides investment advisory services , which include the management of clos , opportunity and liquid asset strategy funds , as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down . assuredim has managed structured , public finance and credit investments since to 2003. assuredim provides investment advisory services while leveraging a technology-enabled risk platform , which aims to maximize returns for its clients . the establishment of the asset management segment diversifies the risk profile and revenue opportunities of the company . as of december 31 , 2020 , assuredim had $ 17.3 billion of aum , including $ 1.1 billion that is managed on behalf of the company 's insurance subsidiaries . fees in respect of investment advisory services are the largest component of revenues for the asset management segment . story_separator_special_tag the 10-city composite annualized increase came in at 8.8 % , up from 7.6 % in the previous month . the 20-city composite posted a 9.1 % year-over-year gain , up from 8.0 % in the previous month . home prices in the u.s. impact the performance of the company 's insured rmbs portfolio . improved home prices generally result in fewer losses or more reimbursements with respect to the company 's distressed insured rmbs risks . 72 t able of contents direct and indirect consequences of covid-19 are causing financial distress to many of the obligors and assets underlying obligations guaranteed by the company , has caused the company to increase its loss reserves , and may result in increases in claims and additional increases in loss reserves . the company believes that state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls , as well as obligations supported by revenue streams most impacted by various closures and capacity and travel restrictions or an economic downturn , are most at risk for increased claims . the company 's surveillance department has established supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of covid-19 and governmental and private responses to covid-19 , with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls , as well as obligations supported by revenue streams most impacted by various closures and capacity and travel restrictions and related restrictions or an economic downturn . in addition , the company 's surveillance department has been in contact with certain of its credits that it believes may be more at risk from covid-19 and governmental and private responses to covid-19 . the company 's internal ratings and loss projections for those distressed credits it believes are most likely to be impacted by the covid-19 pandemic , including rmbs , puerto rico and certain other distressed public finance exposures , reflect this augmented surveillance activity . for information about how the covid-19 pandemic has impacted the company 's loss projections , see item 8 , financial statements and supplementary data , note 5 , expected loss to be paid ( recovered ) . through february 25 , 2021 , the company has paid only relatively small first-time insurance claims it believes are due at least in part to credit stress arising specifically from covid-19 . the company currently projects full reimbursement of these claims . the size and depth of the covid-19 pandemic , its course and duration and the direct and indirect consequences of governmental and private responses to it are unknown , so the company can not predict the ultimate size of any increases in claims and loss reserves that eventually may result from the pandemic . the company believes its financial guaranty business model is particularly well-suited to withstand global economic disruptions . if an insured obligor defaults , the company is required to pay only any shortfall in interest and principal on scheduled payment dates ; the company 's policies forbid acceleration of its obligations without its consent . in addition , many of the obligations the company insures benefit from debt service reserve funds or other funding sources from which interest and principal may be paid during limited periods of stress , providing the obligor with an opportunity to recover . while the company believes its guaranty may support the market value of an insured obligation in comparison to a similar uninsured obligation , the company 's ultimate loss on a defaulted insured obligation is not a function of that underlying obligation 's market price . rather , the company 's ultimate loss is the sum of all principal and interest payments it makes under its policy less the sum of all reimbursements , subrogation payments and other recoveries it receives from the obligor or any other sources in connection with the obligation . for contracts accounted for as insurance , its expected losses equal the discounted value of all claim payments it projects making less the discounted value of all recoveries it expects to receive , on a probability-weighted basis . see item 8 , financial statements and supplementary data , note 5 , expected loss to be paid ( recovered ) . the nature of the financial guaranty business model , which requires the company to pay only any shortfall in interest and principal on scheduled payment dates , along with the company 's liquidity practices , reduce the need for the company to sell investment assets in periods of market distress . as of december 31 , 2020 , the company had $ 851 million of short-term investments and $ 162 million of cash . in addition , the company 's investment portfolio generates cash over time through interest and principal receipts . while volatility and dislocation in the municipal finance market in the u.s. resulted in the company issuing a reduced number of new insurance policies in late march and into april 2020 compared to the prior year , the company began writing a higher volume of new insurance business as the year progressed . the present value of new u.s. public finance business production ( pvp ) for 2020 was very strong compared to a year ago . see `` โ results of operations by segment โ insurance segment '' below . the company can not predict what impact the covid-19 pandemic and the governmental and private actions taken in response , and the global consequences of the pandemic and such actions , will have on the market for its insurance products over the medium term .
| financial results replace_table_token_6_th 79 t able of contents replace_table_token_7_th ( 1 ) see โ โ non-gaap financial measures โ for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted in the united states of america ( gaap ) and a reconciliation of the non-gaap financial measure to the most directly comparable gaap measure , if available . see โ โ non-gaap financial measures โ for additional details . ( 2 ) `` adjusted operating income '' is the company 's segment measure . ( 3 ) in the 2019 results in the table above , assuredim results are included only for the period from october 1 , 2019 , the bluemountain acquisition date , through december 31 , 2019. the 2020 results include a full year of assuredim . ( 4 ) the discount rate used for pvp as of december 31 , 2020 is 3 % . the prior periods have been recast to present pvp discounted at 3 % instead of 6 % . ( 5 ) see โ โ overview โ key business strategies - capital management โ above for information on common share repurchases . several primary drivers of volatility in net income or loss are not necessarily indicative of credit impairment or improvement , or ultimate economic gains or losses such as : changes in credit spreads of insured credit derivative obligations , changes in fair value of assets and liabilities of vies and ccs , changes in fair value of credit derivatives related to the company 's own credit spreads , and changes in risk-free rates used to discount expected losses .
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the company has provided telecommunications service from story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the information in our consolidated annual audited financial statements and the notes thereto , each of which are contained in item 8 entitled ยfinancial statements and supplementary data , ย and other financial information incorporated by reference herein . some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties . you should review the ยrisk factorsย section as well as the section below entitled ยยspecial note regarding forward-looking statementsย 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 . unless the context otherwise requires , in this annual report on form 10-k , ยhc2ย means hc2 holdings , inc. and the ยcompany , ย ยweย and ยourย mean hc2 together with its subsidiaries . ยus gaapย means accounting principles accepted in the united states of america . introduction and overview of operations we are a diversified holding company with six reportable operating segments based on management 's organization of the enterpriseยmanufacturing , marine services , utilities , telecommunications , life sciences and other , which includes operations that do not meet the separately reportable segment thresholds . we expect to continue to focus on acquiring and investing in businesses with attractive assets that we consider to be undervalued or fairly valued and growing our acquired businesses . on may 29 , 2014 , we completed the acquisition of 2.5 million shares of common stock of schuff international , inc. ( ยschuffย ) , a steel fabrication and erection company and negotiated an agreement to purchase an additional 198,411 shares , representing an approximately 65 % interest in schuff . schuff repurchased a portion of its outstanding common stock in june 2014 , which had the effect of increasing the company 's ownership interest to 70 % . during the fourth quarter , the final results of a tender offer for all outstanding shares of schuff were announced and various open-market purchases were made , which resulted in the acquisition of 809,043 shares and an increase in our ownership interest to 91 % . we intend to execute a short-form merger , which will increase our ownership of schuff shares to 100 % . schuff and its wholly-owned subsidiaries primarily operate as integrated fabricators and erectors of structural steel and heavy steel plates with headquarters in phoenix , arizona and operations in arizona , florida , georgia , texas , kansas and california . schuff 's construction projects are primarily in the aforementioned states . in addition , schuff has construction projects in select international markets , primarily panama . on august 1 , 2014 , the company paid $ 15.5 million to acquire 15,500 shares of series a convertible preferred stock of american natural gas ( ยangย ) , representing an approximately 51 % interest in ang . ang is a premier distributor of natural gas motor fuel headquartered in the northeast that designs , builds , owns , acquires , operates and maintains compressed natural gas fueling stations for transportation . on september 22 , 2014 , the company completed the acquisition of bridgehouse marine limited , the parent holding company of global marine systems limited ( ยgmslย ) . the purchase price reflects an enterprise value of approximately $ 260 million , including assumed indebtedness , and was funded using the net proceeds from ( i ) the issuance of $ 11 million of series a-1 convertible participating preferred stock of hc2 ( the ยseries a-1 preferred stockย ) and ( ii ) a senior secured credit facility providing for a twelve month term loan of $ 214 million and a delayed draw term loan of $ 36 million ( the ยseptember credit facilityย ) , each of which was also completed on september 22 , 2014. the september credit facility was subsequently repaid using the proceeds from hc2 's issuance of its 11 % notes discussed below underยยliquidity and capital resourcesย . with a portion of the proceeds from the september credit facility , the company paid off its senior secured credit facility entered into on may 29 , 2014 providing for an eighteen month term loan of $ 80 million and its senior 48 unsecured credit facility entered into on september 8 , 2014 consisting of a term loan of $ 17 million . gmsl is a leading provider of engineering and underwater services on submarine cables . in conjunction with the acquisition , approximately 3 % of the company 's interest in gmsl was purchased by a group of individuals , leaving the company 's controlling interest as of december 31 , 2014 at approximately 97 % . we have also historically operated a telecommunications business including a network of direct routes and provided premium voice communication services for national telecom operators , mobile operators , wholesale carriers , prepaid operators , voice over internet protocol ( ยvoipย ) service operators and internet service providers ( ยispsย ) . the company has provided telecommunications services from its north america telecom and international carrier services ( ยicsย ) business units . in the second quarter of 2013 , the company entered into a definitive purchase agreement to sell its north america telecom business and sought shareholder approval of such transaction . on july 31 , 2013 , the company completed the initial closing of the sale of substantially all of its north america telecom business . the sale of primus telecommunications , inc. ( ยptiย ) was also contemplated as part of this transaction , subject to regulatory approval . on july 31 , 2014 , having received the necessary regulatory approvals for the sale of pti , we completed the divestiture of the remainder of our north america telecom business . story_separator_special_tag the exposure of our income from operations to fluctuations in foreign currency exchange rates is reduced in part because a majority of the costs that we incur in connection with our foreign operations are also denominated in local currencies . we are exposed to financial statement gains and losses as a result of translating the operating results and financial position of our international subsidiaries . we translate the local currency statements of operations of our foreign subsidiaries into usd using the average exchange rate during the reporting period . changes in foreign exchange rates affect the reported profits and losses and cash flows of our international subsidiaries and may distort comparisons from year to year . by way of example , when the usd strengthens compared to the gbp , there could be a negative or positive effect on the reported results for our telecommunications and marine services segments , depending upon whether such businesses are operating profitably or at a loss . it takes more profits in gbp to generate the same amount of profits in usd and a greater loss in gbp to generate the same amount of loss in usd . the opposite is also true . for instance , when the usd weakens against the gbp , there is a positive effect on reported profits and a negative effect on reported losses . for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 , the usd was weaker on average as compared to the gbp . for the year ended december 31 , 2013 as compared to the year 50 ended december 31 , 2012 , the usd was stronger on average as compared to the cad and gbp . the following tables demonstrate the impact of currency fluctuations on our net revenue for the years ended december 31 , 2014 , 2013 and 2012 : net revenue by location , including discontinued operationsยin usd ( in thousands ) replace_table_token_8_th net revenue by location , including discontinued operationsยin local currencies ( in thousands ) replace_table_token_9_th ( 1 ) table includes revenues from discontinued operations which are subject to currency risk . critical accounting policies to aid in the understanding of our financial reporting , our most critical accounting policies are described below . these policies have the potential to have a more significant impact on our financial statements , either because of the significance of the financial statement item to which they relate , or because they require judgment and estimation due to the uncertainty involved in measuring , at a specific point in time , events which are continuous in nature . revenue and cost recognition gmsl ยgmsl generates revenue by providing maintenance services for subsea telecommunications cabling . gmsl also generates revenues from the design and installation of subsea cables under contracts . gmsl also provides installation , maintenance and repair of fiber optic communication and power infrastructure to offshore oil and gas platforms and installs inter-array power cables for use in offshore wind farms and in the offshore wind market . over the next decade , energy production from renewables is expected to grow substantially and in particular from the asia pacific region . within the offshore power market , the north sea , as a pioneering region , and east asia ( particularly china ) , gmsl is well positioned to participate in the growth of these two geographical markets with their existing assets best suited for the installation of inter array cables . telecommunication/maintenanceยgmsl provides vessels on standby to repair fiber optic telecommunications cables in defined geographic zones , and its maintenance business is provided through contracts with consortia of up to 60 global telecommunications providers . typically , gmsl enters into five to seven year contracts to provide maintenance to cable systems that are located in specific geographical areas . revenue from these maintenance agreements is recognized on a straight line basis unless the pattern of costs associated with repairs indicates otherwise . 51 telecommunications/installationยgmsl provides installation of cable systems including route planning , mapping , route engineering , cable laying , and trenching and burial . gmsl 's installation business is project-based with fixed price contracts typically lasting one to five months . revenue is recognized as time and costs are incurred . charter hire ย rentals from short term operating leases in respect of vessels are recognized as revenue on a straight line basis over the term of the lease . oil & gas ย gmsl provides installation , maintenance and repair of fiber optic communication and power infrastructure to offshore platforms . its primary activities include providing power from shore , enabling fiber-based communication between platforms and shore-based systems and installing permanent reservoir monitoring systems which allow customers to monitor subsea seismic data . the majority of gmsl 's oil & gas business is contracted on a project-by-project basis with major energy producers or tier i engineering , procurement and construction ( epc ) contractors . revenue is recognized as time and costs are incurred . a loss is recognized immediately if the expected costs during any contract exceed expected revenues . amounts billed in advance of revenue recognition are recorded as deferred revenue . schuff ยschuff performs its services primarily under fixed-price contracts and recognizes revenues and costs from construction projects using the percentage of completion method . under this method , revenue is recognized based upon either the ratio of the costs incurred to date to the total estimated costs to complete the project or the ratio of tons fabricated to date to total estimated tons . revenue recognition begins when work has commenced . costs include all direct material and labor costs related to contract performance , subcontractor costs , indirect labor , and fabrication plant overhead costs , which are charged to contract costs as incurred .
| results of operations results of operations for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 for the year ended december 31 , 2014 , the results of operations include schuff and gmsl from their respective dates of acquisition . the pro forma results of operations for the years ended december 31 , 2014 and 2013 include pro forma financial information for the manufacturing and marine services operating segments . these pro forma results give effect to the acquisitions of schuff and gmsl as if they had occurred on january 1 , 2013 , but do not include any purchase price accounting adjustments ( if applicable ) . the pro forma results of operations are limited to the discussion of net revenue , cost of revenue and selling , general and administrative expenses , as presented below . revenue replace_table_token_11_th pro forma revenue replace_table_token_12_th 56 net revenue : net revenue increased $ 312.5 million , or 135.5 % , to $ 543.2 million for the year ended december 31 , 2014 from $ 230.7 million for the year ended december 31 , 2013. telecommunications : the decrease in telecommunications is primarily due to a significant decline in both domestic and international terminations year over year . manufacturing : on a pro forma basis , manufacturing revenue increased by $ 110.0 million or 26.4 % . the increase in manufacturing is primarily due to the ramp-up of major projects located in the pacific , midwest and gulf coast regions of the united states . the increase in midwest and gulf coast regions was mostly due to increased work in the industrial market , including oil and gas projects . the increase in the pacific region was due to several large commercial projects beginning in 2014. marine services : on a pro forma basis , marine services revenue increased by $ 8.7 million or 5.6 % . the increase is primarily due to the impact of currency fluctuations .
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the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this form 10-k. in addition to historical information , this discussion and analysis here and throughout this form 10-k contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements . 60 vbi vaccines inc. ( โ vbi โ ) is a biopharmaceutical company driven by immunology to deliver powerful prevention and treatment of disease . through its innovative approach to virus-like particles ( โ vlps โ ) , including a proprietary enveloped vlp ( โ evlp โ ) platform technology , vbi develops vaccine candidates that mimic the natural presentation of viruses , designed to elicit the innate power of the human immune system . vbi is committed to targeting and overcoming significant infectious diseases , including hepatitis b ( โ hbv โ ) , coronaviruses , and cytomegalovirus ( โ cmv โ ) , as well as aggressive cancers including glioblastoma ( โ gbm โ ) . vbi is headquartered in cambridge , massachusetts , with research operations in ottawa , canada , and a research and manufacturing site in rehovot , israel . product pipeline โ lead program candidates vbi 's pipeline is comprised of vaccine and immunotherapeutic candidates developed by virus-like particle technologies to target two distinct , but often related , disease areas โ infectious disease and oncology . we prioritize the development of candidates for disease targets that are challenging , underserved , and where the human immune system , when powered and stimulated appropriately , can be a formidable opponent . vlp vaccines are a type of sub-unit vaccine , in which only the portions of viruses critical for eliciting an immune response are presented to the body . because of their structural similarity to viruses presented in nature , including their particulate nature and repetitive structure , vlps can stimulate potent immune responses . vlps can be customized to present any protein antigen , including multiple antibody and t cell targets , making them , we believe , ideal technologies for the development of both prophylactic and therapeutic vaccines . however , only a few antigens self-assemble into vlps , which limit the number of potential targets . notably , the hvb antigens are among those that are able to spontaneously form orderly vlp structures . vbi 's proprietary evlp platform technology expands the list of potentially-viable target indications for vlps by providing a stable core ( gag protein ) and lipid bilayer ( the โ envelope โ ) . it is a flexible platform that enables the synthetic manufacture of an โ enveloped โ vlp , or โ evlp โ , which looks structurally and morphologically similar to the virus , with no infectious material . indication program technology current status prophylactic candidates โ hepatitis b ( โ hbv โ ) 3-antigen vaccine ( israel brand name sci-b-vac ยฎ ) vlp bla and maa accepted ; approved in israel โ cytomegalovirus ( โ cmv โ ) vbi-1501 evlp phase i completed โ pan-coronavirus vbi-2901 evlp pre-clinical โ covid-19 vbi-2902 evlp pre-clinical therapeutic candidates โ hepatitis b ( โ hbv โ ) vbi-2601 vlp ongoing phase ib/iia โ glioblastoma ( โ gbm โ ) + other cmv-associated cancers vbi-1901 evlp ongoing phase i/iia a summary of these programs and recent developments follows . prophylactic pipeline 3-antigen hbv vaccine/candidate a scientifically-differentiated approach to hbv vaccination , our 3-antigen hbv vaccine candidate expresses all three surface antigens of hbv โ pre-s1 , pre-s2 , and s. published data demonstrate pre-s1 antigens induce key neutralizing antibodies that block virus receptor binding , and t cell responses to pre-s1 and pre-s2 antigens can further boost responses to the s antigen . our 3-antigen hbv vaccine is further distinguished from other commercially available hbv vaccines because it is produced in mammalian cells ( chinese hamster ovary โ cho โ cells ) rather than in yeast . our 3-antigen hbv vaccine is approved for use and commercially available in israel , under the brand name sci-b-vac ยฎ , and successfully completed its pivotal phase iii studies in the united states , europe , and canada in january 2020 but is still an investigational candidate in such countries and has not yet been approved for commercialization by the applicable regulatory authorities ( e.g. , fda , ema , mhra , and health canada , each defined below ) . this phase iii program consisted of two phase iii studies โ protect and constant โ designed to assess efficacy and safety of vbi 's 3-antigen hbv vaccine candidate compared with engerix-b ยฎ , a single-antigen hbv vaccine , and lot-to-lot manufacturing consistency of three consecutive lots of vbi 's vaccine candidate . as announced in june 2019 and january 2020 , results from these two studies showed vbi 's 3-antigen vaccine candidate achieved : ( 1 ) non-inferiority of seroprotection rate ( spr ) in all adults age 18 and older ( vbi : 91.4 % vs. engerix-b : 76.5 % ) ; ( 2 ) superiority ( as defined in the clinical protocol ) of spr in adults age 45 and older ( vbi : 89.4 % vs. engerix-b : 73.1 % ) ; ( 3 ) higher spr and titers at all time points across all subgroup populations , including age , diabetic status , and obesity ; ( 4 ) a safety profile consistent with the known safety profile of the vaccine and comparable to that of engerix-b ; and ( 5 ) manufacturing consistency . the completed phase iii studies support the regulatory submissions to the united states food and drug administration ( โ fda โ ) ; the european medicines agency ( โ ema โ ) ; the united kingdom medicines and healthcare products , regulatory agency ( โ mhra โ ) ; and health canada . story_separator_special_tag vbi-2601 ( brii-179 ) is formulated to induce broad immunity against hbv virus , including t-cell immunity which plays an important role in controlling hbv infection . vbi-2601 ( brii-179 ) is in an ongoing phase ib/iia study in patients with chronic hbv infection , which initiated enrollment in november 2019 , and is being conducted by our partner brii biosciences limited ( โ brii bio โ ) pursuant to a collaboration and license agreement ( โ license agreement โ ) announced on december 6 , 2018. the phase ib/iia study is a randomized , controlled study designed to assess the safety , tolerability , antiviral and immunological activity of vbi-2601 ( brii-179 ) . the study is designed as a two-part dose-escalation study assessing different dose levels of vbi-2601 ( brii-179 ) with and without an immunomodulatory adjuvant and enrolled 46 patients . the study is being conducted at multiple study sites in new zealand , australia , thailand , south korea , hong kong sar , and china . on november 18 , 2020 , we announced interim data from the low-dose cohorts , which achieved human proof-of-concept , demonstrating restoration of both antibody and t cell responses in chronically-infected hbv patients . the data showed 1 ) potent re-stimulation of t cell responses to hbv surface antigens in 67 % ( n=6/9 ) and 78 % ( n=7/9 ) of evaluable patients in the low-dose vbi-2601 unadjuvanted and adjuvanted study arms , respectively ; and 2 ) antibody responses against hbv surface antigens in 60 % of evaluable patients ( n=6/10 ) in the unadjuvanted cohort and in 67 % ( n=6/9 ) in the adjuvanted cohort . the low-dose , with and without the adjuvant , was well-tolerated with no safety signals observed . based on the results of this study , brii bio is planning to initiate a phase ii clinical study in q1 2021 to assess the safety and efficacy of the combination of vbi-2601 ( brii-179 ) and brii-835 ( vir-2218 ) , a novel , investigational rna interference therapeutic , in chronically infected hbv patients who are on stable nucleos ( t ) ide therapies . vbi-1901 : cmv-associated cancer vaccine immunotherapeutic candidate our cancer vaccine immunotherapeutic program , vbi-1901 , targets cmv proteins present in tumor cells . cmv is associated with a number of solid tumors including gbm , breast cancer , and pediatric medulloblastoma . in january 2018 , we initiated dosing in a two-part , multi-center , open-label phase i/iia clinical study of vbi-1901 in 38 patients with recurrent gbm . phase i ( part a ) of the study was a dose-escalation phase that defined the safety , tolerability , and optimal dose level of vbi-1901 adjuvanted with granulocyte-macrophage colony-stimulating factor ( gm-csf ) in recurrent gbm patients with any number of prior recurrences . in december 2018 , this phase completed enrollment of 18 patients across three dose cohorts , the highest of which ( 10 ยตg ) was selected as the optimal dose level to test in the phase iia portion ( part b ) of the study . phase iia of the study , which initiated enrollment in july 2019 , is a subsequent extension of the 10ยตg dose level cohort . this phase is a two-arm study that enrolled 20 first-recurrent gbm patients to receive 10ยตg of vbi-1901 in combination with either gm-csf or glaxosmithkline biologicals s.a. ( โ gsk โ ) proprietary adjuvant system , as01 , as immunomodulatory adjuvants . as01 is provided pursuant to a clinical collaboration and support study agreement ( โ collaboration agreement โ ) we entered into with gsk on september 10 , 2019. enrollment of the 10 patients in the vbi-1901 with gm-csf arm was completed in march 2020 and enrollment of the 10 patients in the vbi-1901 with as01 was completed in october 2020. data from the ongoing phase iia portion of the study was announced throughout 2020 , with the latest data presented in november 2020 at the society for neuro-oncology ( sno ) 2020 annual meeting . this data showed two partial responses ( โ prs โ ) and two stable disease ( โ sd โ ) observed in the vbi-1901 plus gm-csf vaccinated group , resulting in a disease control rate of 40 % ( n=4/10 ) . a 56 % disease control rate was achieved in the group vaccinated with vbi-1901 plus as01 , with 5 stable disease observations ( n=5/9 ) . presumed pseudoprogression was observed in both vaccinated groups , defined as immune infiltration into the tumor which appears initially as tumor growth but later subsides resulting in tumor growth stabilization and or shrinkage . in the vbi-1901 plus gm-csf study arm , a normal baseline cd4+/cd8+ t cell ratio was identified as a biomarker associated with tumor response . in the vbi-1901 plus as01 study arm , however , tumor responses were seen regardless of this biomarker , suggesting that as01 may help overcome deficits in immune function . 63 vbi-1901 continues to be safe and well tolerated at all doses tested , with no safety signals observed . based on the data seen to-date , vbi is exploring a randomized , controlled , clinical study with registration potential for the next phase of development , which , subject to approval from regulatory bodies , is expected to begin in 2021. in addition to the lead program candidates described above , we may also seek to in-license clinical-stage vaccines or vaccine-related technologies that we believe complement our product and pipeline portfolio , in addition to technologies that may supplement our therapeutic and preventative vaccination efforts in both immuno-oncology and infectious disease .
| results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 all dollar amounts stated below are in thousands , unless otherwise indicated . replace_table_token_0_th revenues revenue composition replace_table_token_1_th revenue by geographic region replace_table_token_2_th revenue for the year ended december 31 , 2020 was $ 1,061 as compared to $ 2,221 for the year ended december 31 , 2019. the revenue decreased by $ 1,160 or 52 % , as a result of decreased r & d services revenue and a decrease in product revenue . the decrease in r & d services revenue is due to less work required as part of the license agreement with brii bio for the year ending december 31 , 2020 compared to the year ending december 31 , 2019. the decrease in product revenue for the year ending december 31 , 2020 compared to the year ending december 31 , 2019 was due to limited product availability as we prepared for our regulatory submissions for our 3-antigen prophylactic hbv vaccine , which occurred in the fourth quarter of 2020. cost of revenues cost of revenues for the year ended december 31 , 2020 was $ 9,168 as compared to $ 7,904 for the year ended december 31 , 2019. the increase in the cost of revenues of $ 1,264 , or 16 % , is due to the re-commencement of manufacturing in israel , subsequent to the temporary closure of our manufacturing facility in rehovot , which occurred in may 2019 , and increased labor costs ; offset by a reduction in costs of revenues related to the license agreement with brii bio discussed above .
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the fair value of the company 's story_separator_special_tag management 's overview we reported net income attributable to stewart of $ 15.1 million ( $ 0.64 per diluted share ) for the fourth quarter 2017 compared to net income attributable to stewart of $ 16.7 million ( $ 0.71 per diluted share ) for the fourth quarter 2016. pretax income before noncontrolling interests for the fourth quarter 2017 was $ 17.5 million compared to pretax income before noncontrolling interests of $ 23.0 million for the fourth quarter 2016. fourth quarter 2017 results included : $ 2.9 million of third party advisory expenses recorded in other operating expenses in the ancillary services and corporate segment relating to our previously announced review of strategic alternatives , $ 3.5 million of office closure costs , primarily lease termination and litigation expenses recorded in other operating expenses in the title segment , $ 1.7 million of executive severance and retention expenses recorded in employee costs in the title and ancillary services and corporate segments , $ 1.0 million of acquisition integration expenses recorded in other operating expenses in the title segment , and $ 6.6 million of net income tax benefits related to the effects of the recently-enacted tax cuts and jobs act . fourth quarter 2016 results included : $ 5.4 million of net realized losses , primarily realized losses on the sale of assets related to certain ancillary services business lines , and $ 2.4 million of income tax benefits related to previously unrecognized tax credits . during november 2017 , we announced that our board formed a strategic committee to actively assess a full range of strategic alternatives available to stewart . the strategic alternatives review continues and while there is no timeframe for its conclusion , its completion is of the highest priority . given the ongoing review , there can be no assurance that this process will result in any particular outcome . summary results of the title segment are as follows ( $ in millions , except pretax margin ) : replace_table_token_4_th total title segment revenues for the fourth quarter 2017 were slightly higher than the prior year quarter , while pretax income declined $ 11.1 million for the fourth quarter 2017 compared to the fourth quarter 2016. the lower pretax income was primarily due to increased employee costs related to our investment in stabilizing and growing target markets , a lower agency remittance rate and slightly higher title loss expense as a percent of title revenues . also included in the segment 's results for the fourth quarter 2017 , as mentioned above , are approximately $ 3.5 million of office closure costs and $ 1.0 million related to acquisition integration costs . 14 direct revenue information is presented below : replace_table_token_5_th non-commercial domestic revenues include revenues from purchase transactions and centralized title operations ( processing primarily refinancing and default title orders ) , which decreased 7 % and 33 % , respectively , in the fourth quarter 2017 compared to the prior year . total commercial revenues improved 23 % from the prior year quarter , driven by domestic strength across multiple geographies and an increased contribution from our international operations . total international title revenues increased 14 % in the fourth quarter 2017 compared to the prior year quarter driven by higher commercial revenues and stronger foreign exchange rates against the u.s. dollar , partially offset by lower non-commercial transaction volume . gross revenues from independent agency operations in the fourth quarter 2017 increased 1 % compared to the fourth quarter 2016. the independent agency remittance rate decreased to 17.2 % in the fourth quarter 2017 from 18.2 % in the prior year quarter as a result of the geographic mix of our agency business ( decreased revenues in higher-remitting states and increased revenues in lower-remitting states ) ; revenues , net of agency retention , decreased 4 % in the fourth quarter 2017 compared to the prior year quarter . summary results of the ancillary services and corporate segment are as follows ( $ in millions ) : replace_table_token_6_th the decline in fourth quarter 2017 segment revenues compared to the prior year quarter was primarily due to the divestitures from certain ancillary services lines of business at the end of 2016 and lower revenues generated by the valuation services operations in the current year quarter . the segment 's pretax results for the fourth quarter 2017 improved to a $ 9.6 million pretax loss , which included $ 2.9 million of expenses relating to our strategic alternatives review , compared to the prior year quarter 's pretax loss of $ 15.1 million , which included net realized losses of $ 4.9 million primarily related to the sale of certain ancillary services business lines . this improvement was primarily due to the higher reduction in overall segment expenses relative to the decrease in revenues . the segment 's results for the fourth quarter 2017 and 2016 included approximately $ 8.8 million and $ 6.4 million , respectively , of net expenses attributable to parent company and corporate operations . 15 critical accounting estimates actual results can differ from our accounting estimates . while we do not anticipate significant changes in our estimates , there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods . the discussion of critical accounting estimates below should be read in conjunction with the related accounting policies disclosed within note 1 to our audited consolidated financial statements . title loss reserves our most critical accounting estimate is the provision for title loss reserves . provisions for title losses , as a percentage of title operating revenues , were 5.1 % , 4.8 % and 5.6 % for the years ended december 31 , 2017 , 2016 and 2015 , respectively . actual loss payment experience , including the impact of large losses , is the primary reason for increases or decreases in our loss provision . story_separator_special_tag in declining real estate markets , lower transaction volumes result in a lower incoming volume of funds , making it more difficult to cover up the misappropriation with incoming funds . thus , when the defalcation is discovered , it often relates to several transactions . in addition , the overall decline in an independent agency 's revenues , profits and cash flows increases the agency 's incentive to improperly utilize the escrow funds from real estate transactions . for the three years ended december 31 , 2017 , our net title losses due to independent agency defalcations were immaterial . 17 internal controls relating to independent agencies include , but are not limited to , periodic audits , site visits and reconciliations of policy inventories and premiums . the audits and site visits cover examination of the escrow account bank reconciliations and an examination of a sample of closed transactions . in some instances , the scope of our review is limited by attorney agencies that cite client confidentiality . certain states have mandated annual reviews of all agencies by their underwriter . we also determine whether our independent agencies have appropriate internal controls as defined by the american land title association 's best practices and us . however , even with adequate internal controls in place , their effectiveness can be circumvented by collusion or improper override of the controls by management at the independent agencies . to aid in the selection of independent agencies to review , we have developed an agency risk model that aggregates data from different areas to identify possible problems . this is not a guarantee that all independent agencies with deficiencies will be identified . in addition , we are typically not the only underwriter for which an independent agency issues policies , and independent agencies may not always provide complete financial records for our review . due to improved agency internal controls as well as better overall economic conditions , we did not experience any significant agency defalcation losses during the three years ended december 31 , 2017. agency revenues we recognize revenues on title insurance policies written by independent agencies ( agencies ) when the policies are reported to us . in addition , where reasonable estimates can be made , we accrue for revenues on policies issued but not reported until after period end . we believe that reasonable estimates can be made when recent and consistent policy issuance information is available . our estimates are based on historical reporting patterns and other information about our agencies . we also consider current trends in our direct operations and in the title industry . in this accrual , we are not estimating future transactions ; we are estimating revenues on policies that have already been issued by agencies but not yet reported to or received by us . we have consistently followed the same basic method of estimating unreported policy revenues for more than 10 years . our accruals for revenues on unreported policies from agencies were not material to our consolidated assets or stockholders ' equity as of december 31 , 2017 and 2016 . the differences between the amounts our agencies have subsequently reported to us compared to our estimated accruals are substantially offset by any differences arising from prior years ' accruals and have been immaterial relative to consolidated assets and stockholders ' equity during each of the three prior years . we believe our process provides the most reliable estimate of the unreported revenues on policies and appropriately reflects the trends in agency policy activity . goodwill impairment goodwill is not amortized , but is reviewed annually during the third quarter using june 30 balances , or whenever occurrences of events indicate a potential impairment at the reporting unit level . we evaluate goodwill based on four reporting units with goodwill balances - direct operations , agency operations , international operations and ancillary services . we have an option to assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount . in performing the qualitative assessment , we consider factors that include macroeconomic conditions , industry and market considerations , overall actual and expected financial performance , market perspective on the company , as well as other relevant events and circumstances determined by management . we evaluate the weight of each factor to determine whether an impairment more-likely-than-not exists . if we decide not to use a qualitative assessment or if the reporting unit fails the qualitative assessment , we perform the quantitative impairment analysis . 18 the quantitative analysis involves the comparison of the fair value of each reporting unit to its carrying amount . the goodwill impairment is calculated as the excess of the reporting unit 's carrying amount over the estimated fair value and is charged to current operations . while we are responsible for assessing whether an impairment of goodwill exists , we utilize inputs from third-party appraisers in performing the quantitative analysis . we estimate the fair value using a combination of the income approach ( discounted cash flow ( dcf ) technique ) and the market approach ( guideline company and precedent transaction analyses ) . the dcf model utilizes historical and projected operating results and cash flows , initially driven by estimates of changes in future revenue levels , and risk-adjusted discount rates . our projected operating results are primarily driven by anticipated mortgage originations , which we obtain from projections by industry experts , for our title reporting units and expected contractual revenues for our ancillary services reporting unit . fluctuations in revenues , followed by our ability to appropriately adjust our employee count and other operating expenses , or large and unanticipated adjustments to title loss reserves , are the primary reasons for increases or decreases in our projected operating results .
| results of operations a comparison of our consolidated results of operations for 2017 to 2016 and 2016 to 2015 is discussed as follows . factors contributing to fluctuations in our results of operations are presented in the order of their monetary significance , and we have quantified , when necessary , significant changes . results from our ancillary services and corporate segment are included in year-to-year discussions and , when relevant , are discussed separately . our employee costs and certain other operating expenses are sensitive to inflation . title revenues . direct title revenue information is presented below : replace_table_token_9_th revenues from direct title operations in 2017 decreased $ 31.9 million , or 4 % , compared to 2016 primarily as a result of overall declines in refinancing , commercial and purchase orders closed , partially offset by higher international revenues . non-commercial domestic revenues include revenues from purchase transactions and centralized title operations ( processing primarily refinancing and default title orders ) which decreased 7 % and 26 % , respectively , in 2017 compared to the prior year , primarily as a result of reduced purchase and refinancing orders closed . total commercial revenues improved $ 18.3 million , or 9 % , in 2017 compared to 2016 , primarily driven by a higher domestic commercial fee per file and increased input from our international operations . total international revenues improved $ 12.6 million , or 11 % , in 2017 compared to 2016 due to higher commercial revenues and transaction volume growth from our united kingdom and canada operations . revenues from direct title operations in 2016 decreased $ 2.8 million compared to 2015 primarily due to the 5 % decline in closed orders , attributable to commercial and refinancing orders , partially offset by an improvement in international revenues .
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the intent is to simplify the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements . changes in local currencies exclude the effect of currency exchange rate fluctuations . local currency amounts are determined by translating current and previous year consolidated financial information at an index utilizing historical currency exchange rates . we believe local currency information provides a helpful assessment of business performance and a useful measure of results between periods . we do not , nor do we suggest that investors should , consider such non-gaap financial measures in isolation from , or as a substitute for , financial information prepared in accordance with gaap . we present non-gaap financial measures in reporting our financial results to provide investors with an additional analytical tool to evaluate our operating results . we also include in the discussion below disclosures of immaterial qualitative factors that are not quantified . although the impact of such factors is not considered material , we believe these disclosures can be useful in evaluating our operating results . overview we operate a global business with sales that are diversified by geographic region , product range , and customer . we hold leading positions worldwide in many of our markets and attribute this leadership to several factors , including the strength of our brand name and reputation , our comprehensive offering of innovative instruments and solutions , and the breadth and quality of our global sales and service network . net sales in u.s. dollars increased 9 % in 2017 and 5 % in 2016 . excluding the effect of currency exchange rate fluctuations , or in local currencies , net sales increased 8 % in 2017 and increased 7 % in 2016 . net sales growth in local currencies during 2017 reflected broad-based growth across most geographies and product categories as a result of favorable global market conditions and strong execution of our growth initiatives . we expect to continue to benefit from our strong global leadership positions , diversified customer base , robust product offering , investment in emerging markets , significant installed base , and the impact of our global sales and marketing programs . examples of these programs include identifying and investing in growth and market penetration opportunities , more effectively pricing our products and services , increasing our sales force effectiveness through improved guidance , and continuing to optimize our lead generation and lead nurturing processes . while global market conditions are currently favorable , we will face challenging prior period comparisons in 2018 due to strong results in 2017. economic conditions can also change quickly , particularly in emerging markets , and it is uncertain that favorable market conditions will continue . with respect to our end-user markets , we experienced increased results during 2017 versus the prior year in our laboratory-related markets , such as pharmaceutical and biotech customers , as well as the laboratories of chemical companies and food and beverage companies . demand from these markets was generally favorable during 2017 . the local currency increase in net sales of our laboratory-related products during 2017 was driven by strong growth in most product categories . our industrial markets continued to benefit from our customers ' focus on brand protection and food safety within our product inspection end-market . we also experienced improved market conditions in china with core industrial customers catching up on their product replacement cycles . emerging market economies have historically been an important source of growth based upon the expansion of their domestic economies , as well as increased exports as companies have moved production to low-cost countries . our industrial-related products are especially sensitive to changes in economic growth . 31 our food retailing sales declined during 2017 due to reduced investment by retailers for our type of products . traditionally the spending levels in this sector have experienced more volatility than our other customer sectors due to the timing of customer project activity and new regulations . in 2018 , we expect to continue to pursue the overall business growth strategies which we have followed in recent years : gaining market share . our global sales and marketing initiative , โ spinnaker , โ continues to be an important growth strategy . for example , over the past few years , we have added field sales and service resources to pursue under-penetrated market opportunities and will look to continue to make investments to front-end resources in 2018. we also aim to gain market share by implementing sophisticated sales and marketing programs , leveraging our extensive customer databases , and leveraging our product offering to larger customers through key account management . while this initiative is broad-based , efforts to improve these processes include leveraging big data analytics to identify , prioritize , and pursue growth opportunities , the implementation of more effective pricing and value-based selling strategies and processes , improved sales force guidance , training and effectiveness , cross-selling , increased segment marketing , and leads generation and nurturing activities . our comprehensive service offerings , and our initiatives to globalize and harmonize these offerings , help us further penetrate developed markets . we estimate that we have the largest installed base of weighing instruments in the world , and we continue to leverage big data analytics and invest in sales and marketing activities aimed at increasing the proportion of our installed base that is under service contract , or selling new products that replace old products in our installed base . in addition to traditional repair and maintenance , our service offerings continue to expand into value-added services for a range of market needs , including regulatory compliance . expanding emerging markets . emerging markets , comprising asia ( excluding japan ) , eastern europe , latin america , the middle east , and africa , account for approximately 34 % of our total net sales . story_separator_special_tag in local currencies , our net sales by geographic destination increased in 2017 by 8 % in the americas , 5 % in europe , and 11 % in asia/rest of world . the biotix and troemner acquisitions contributed approximately 2 % to net sales in the americas during 2017. in addition , our food retailing sales declined in 2017 due to reduced investment by retailers for our type of products in the americas , which decreased local currency sales in the americas by 3 % . a discussion of sales by operating segment is included below . as described in note 17 to our audited consolidated financial statements , our net sales comprise product sales of precision instruments and related services . service revenues are primarily derived from repair and other services , including regulatory compliance qualification , calibration , certification , preventative maintenance , and spare parts . 33 net sales of products increased 9 % in u.s. dollars and in local currencies during 2017 and increased 5 % in u.s. dollars and 7 % in local currencies in 2016 . the biotix and troemner acquisitions contributed approximately 2 % to our net sales of products during 2017. service revenue ( including spare parts ) increased 7 % in u.s. dollars and in local currencies in 2017 and increased 4 % in u.s. dollars and 6 % in local currencies in 2016 . the troemner acquisition contributed approximately 1 % to our net sales of service during 2017. net sales of our laboratory-related products and services , which represented approximately 50 % of our total net sales in 2017 , increased 11 % in u.s. dollars and 10 % in local currencies during 2017 . the local currency increase in net sales of our laboratory-related products during 2017 includes strong growth in most product categories , particularly analytical instruments . the biotix and troemner acquisitions also contributed approximately 2 % to our net sales growth of laboratory-related products and services . net sales of our industrial-related products and services , which represented approximately 42 % of our total net sales in 2017 , increased 8 % in u.s. dollars and 8 % in local currencies during 2017 . in 2017 , we experienced strong growth in product inspection and core industrial . our core-industrial results include very strong results in china . net sales of our food retailing products and services , which represented approximately 8 % of our total net sales in 2017 , decreased 3 % in u.s. dollars and 4 % in local currencies during 2017 . the decline in net sales of our food retailing products is due to a decrease in the americas driven by reduced investment by these retailers for our type of products . gross profit gross profit as a percentage of net sales was 57.7 % for 2017 , compared to 57.2 % for 2016 and 56.4 % for 2015 . gross profit as a percentage of net sales for products was 60.9 % for 2017 , compared to 60.8 % for 2016 and 60.1 % for 2015 . gross profit as a percentage of net sales for services ( including spare parts ) was 46.1 % for 2017 , compared to 44.6 % for 2016 and 43.6 % for 2015 . the increase in gross profit as a percentage of net sales for 2017 includes favorable price realization , offset in part by unfavorable business mix , changes in foreign currency , and increased material costs . research and development and selling , general , and administrative expenses research and development expenses as a percentage of net sales were 4.7 % for 2017 , 4.8 % for 2016 , and 5.0 % for 2015 . research and development expenses in u.s. dollars increased 8 % in 2017 and 1 % in 2016 , and in local currencies increased 8 % in 2017 and 4 % in 2016 , relating to increased investments in new product development . selling , general , and administrative expenses as a percentage of net sales were 28.9 % for 2017 , compared to 29.2 % for 2016 and 29.3 % for 2015 . selling , general , and administrative expenses increased 8 % in both u.s. dollars and local currencies in 2017 and increased 4 % in u.s. dollars and 6 % in local currencies in 2016 . the increase during 2017 includes higher cash incentive expense , investments in our field sales organization , and increased employee benefit costs . amortization expense amortization expense was $ 42.7 million in 2017 , compared to $ 36.1 million and $ 31.0 million in 2016 and 2015 , respectively . the increase in amortization expense is primarily related to our investments in information technology , including the company 's blue ocean program , as well as the biotix and troemner acquisitions . 34 restructuring charges during the past few years , we initiated various cost reduction measures . for the year ended december 31 , 2017 , we have incurred $ 12.8 million of restructuring expenses which primarily comprise employee-related costs . see note 14 and note 17 to our audited consolidated financial statements for a summary of restructuring activity during 2017 . other charges ( income ) , net other charges ( income ) , net consisted of net income of $ 5.9 million in 2017 , compared to net charges of $ 8.5 million and net income of $ 0.9 million in 2016 and 2015 , respectively . other charges ( income ) , net includes $ 1.7 million and $ 1.1 million of acquisition costs for 2017 and 2016 , respectively . other charges ( income ) , net for 2017 also includes a one-time gain of $ 3.4 million relating to the sale of a facility in switzerland in connection with our initiative to consolidate certain swiss operations into a new facility . other charges in 2016 includes a one-time non-cash pension settlement charge of $ 8.2 million related to a lump sum offering to former employees of our u.s. pension plan .
| effect of currency on results of operations our earnings are affected by changing exchange rates . we are most sensitive to changes in the exchange rates between the swiss franc , euro , and u.s. dollar . we have more swiss franc expenses than we do swiss franc sales because we develop and manufacture products in switzerland that we sell globally and have a number of corporate functions located in switzerland . when the swiss franc strengthens against our other trading currencies , particularly the u.s. dollar and euro , our earnings go down . we also have significantly more sales in the euro than we do expenses . when the euro weakens against the u.s. dollar and swiss franc , our earnings also go down . we estimate a 1 % strengthening of the swiss franc against the euro would reduce our earnings before tax by approximately $ 1.6 million to $ 1.8 million annually . we also conduct business throughout the world , including asia pacific , the united kingdom , eastern europe , latin america , and canada . fluctuations in these currency exchange rates against the u.s. dollar can also affect our operating results . the most significant of these currency exposures is the chinese renminbi . the impact on our earnings before tax of the chinese renminbi weakening 1 % against the u.s. dollar is a reduction of approximately $ 1.0 million to $ 1.2 million annually . in addition to the effects of exchange rate movements on operating profits , our debt levels can fluctuate due to changes in exchange rates , particularly between the u.s. dollar , the swiss franc , and euro . based on our outstanding debt at december 31 , 2017 , we estimate that a 10 % weakening of the u.s. dollar against the currencies in which our debt is denominated would result in an increase of approximately $ 25.9 million in the reported u.s. dollar value of our debt .
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the following discussion contains forward-looking statements made pursuant to the safe harbor provisions of section 27a of the securities act and section 21e of the securities exchange act of 1934 and the private securities litigation reform act of 1995. these statements are based on our beliefs and expectations about future outcomes and are subject to risks and uncertainties that could cause actual results to differ materially from anticipated results . factors that could cause or contribute to such differences include those described under โ part i , item 1a - risk factors โ appearing in this annual report and factors described in other cautionary statements , cautionary language and risk factors set forth in other documents that we file with the securities and exchange commission . we undertake no obligation to publicly update forward-looking statements , whether as a result of new information , future events or otherwise . overview celsion corporation ( โ celsion โ and the โ company โ ) is a fully integrated , clinical stage biotechnology company focused on advancing a portfolio of innovative treatments including dna-based immunotherapies , next generation vaccines and directed chemotherapies through clinical trials and eventual commercialization . the company 's product pipeline includes gen-1 , a dna-based immunotherapy for the localized treatment of ovarian cancer and thermodoxยฎ , a proprietary heat-activated liposomal encapsulation of doxorubicin , currently under investigator-sponsored development for several cancer indications . celsion has two feasibility stage platform technologies for the development of novel nucleic acid-based immunotherapies and next generation vaccines and other anti-cancer dna or rna therapies . both are novel synthetic , non-viral vectors with demonstrated capability in nucleic acid cellular transfection . immuno-oncology program on june 20 , 2014 , the company completed the acquisition of substantially all of the assets of egen , a private company located in huntsville , alabama . pursuant to the asset purchase agreement , clsn laboratories acquired all of egen 's right , title and interest in substantially all of the assets of egen , including cash and cash equivalents , patents , trademarks and other intellectual property rights , clinical data , certain contracts , licenses and permits , equipment , furniture , office equipment , furnishings , supplies and other tangible personal property . a key asset acquired from egen was the theraplas technology platform . the first drug candidate developed from this technology platform is gen-1 . theraplas technology platform theraplas is a technology platform for the delivery of dna and mrna therapeutics via synthetic non-viral carriers and is capable of providing cell transfection for double-stranded dna plasmids and large therapeutic rna segments such as mrna . there are two components of the theraplas system , a plasmid dna or mrna payload encoding a therapeutic protein , and a delivery system . the delivery system is designed to protect the dna/mrna from degradation and promote trafficking into cells and through intracellular compartments . we designed the delivery system of theraplas by chemically modifying the low molecular weight polymer to improve its gene transfer activity without increasing toxicity . we believe that theraplas may be a viable alternative to current approaches to gene delivery due to several distinguishing characteristics , including enhanced molecular versatility that allows for complex modifications to potentially improve activity and safety . the design of the theraplas delivery system is based on molecular functionalization of polyethyleneimine ( pei ) , a cationic delivery polymer with a distinct ability to escape from the endosomes due to heavy protonation . the transfection activity and toxicity of pei is tightly coupled to its molecular weight ; therefore the clinical application of pei is limited . we have used molecular functionalization strategies to improve the activity of low molecular weight peis without augmenting their cytotoxicity . in one instance , chemical conjugation of a low molecular weight branched bpei1800 with cholesterol and polyethylene glycol ( peg ) to form peg-pei-cholesterol ( ppc ) dramatically improved the transfection activity of bpei1800 following in vivo delivery . together , the cholesterol and peg modifications produced approximately 20-fold enhancement in transfection activity . biodistribution studies following intraperitoneal or subcutaneous administration of dna/ppc nanocomplexes showed dna delivery localized primarily at the injection site with only small amount escaping into the systemic circulation . ppc is the delivery component of our lead theraplas product , gen-1 , which is in clinical development for the treatment of ovarian cancer . the ppc manufacturing process has been scaled up from bench scale ( 1-2 g ) to 0.6kg , and several current good manufacturing practice ( โ cgmp โ ) lots have been produced with reproducible quality . 57 we believe that theraplas has emerged as a viable alternative to current approaches due to several distinguishing characteristics such as strong molecular versatility that may allow for complex modifications to potentially improve activity and safety with little difficulty . the biocompatibility of these polymers reduces the risk of adverse immune response , thus allowing for repeated administration . compared to naked dna or cationic lipids , theraplas is generally safer , more efficient , and cost effective . we believe that these advantages place celsion in a strong position to capitalize on this technology platform . ovarian cancer overview ovarian cancer is the most lethal of gynecological malignancies among women with an overall five-year survival rate of 45 % . this poor outcome is due in part to the lack of effective prevention and early detection strategies . there were approximately 22,000 new cases of ovarian cancer in the u.s. in 2014 with an estimated 14,000 deaths . mortality rates for ovarian cancer declined very little in the last forty years due to the unavailability of detection tests and improved treatments . most women with ovarian cancer are not diagnosed until stages iii or iv , when the disease has spread outside the pelvis to the abdomen and areas beyond causing swelling and pain , where the five-year survival rates are 25 - 41 percent and 11 percent , respectively . first-line chemotherapy regimens are typically platinum-based combination therapies . story_separator_special_tag 59 the company also reported positive clinical data from the first fourteen patients who completed treatment in the ovation i study . gen-1 plus standard chemotherapy produced no dose limiting toxicities and positive dose dependent efficacy signals which correlate well with positive surgical outcomes as summarized below : โ of the fourteen patients treated in the entire study , two patients demonstrated a complete response , ten patients demonstrated a partial response and two patients demonstrated stable disease , as measured by recist criteria . this translates to a 100 % disease control rate and an 86 % objective response rate ( โ orr โ ) . of the five patients treated in the highest dose cohort , there was a 100 % orr with one complete response and four partial responses ; โ fourteen patients had successful resections of their tumors , with nine patients ( 64 % ) having a complete tumor resection ( โ r0 โ ) , which indicates a microscopically margin-negative resection in which no gross or microscopic tumor remains in the tumor bed . seven out of eight ( 88 % ) patients in the highest two dose cohorts experienced a r0 surgical resection . all five patients treated at the highest dose cohort experienced a r0 surgical resection ; and โ all patients experienced a clinically significant decrease in their ca-125 protein levels as of their most recent study visit . ca-125 is used to monitor certain cancers during and after treatment . ca-125 is present in greater concentrations in ovarian cancer cells than in other cells . on march 2 , 2019 , the company announced final progression free survival ( โ pfs โ ) results from the ovation i study . median pfs in patients treated per protocol ( n=14 ) was 21 months and was 17.1 months for the intent-to-treat ( โ itt โ ) population ( n=18 ) for all dose cohorts , including three patients who dropped out of the study after 13 days or less , and two patients who did not receive full nac and gen-1 cycles . under the current standard of care , in women with stage iii/iv ovarian cancer undergoing nac , their disease progresses within about 12 months on average . the results from the ovation i study support continued evaluation of gen-1 based on promising tumor response , as reported in the pfs data , and the ability for surgeons to completely remove visible tumor at interval debulking surgery . gen-1 was well tolerated , and no dose-limiting toxicities were detected . intraperitoneal administration of gen-1 was feasible with broad patient acceptance . ovation 2 study . the company held an advisory board meeting on september 27 , 2017 with the clinical investigators and scientific experts including those from roswell park cancer institute , vanderbilt university medical school , and m.d . anderson cancer center to review and finalize clinical , translational research and safety data from the ovation i study in order to determine the next steps forward for our gen-1 immunotherapy program . on november 13 , 2017 , the company filed its phase i/ii clinical trial protocol with the fda for gen-1 for the localized treatment of ovarian cancer . the protocol is designed with a single dose escalation phase to 100 mg/mยฒ to identify a safe and tolerable dose of gen-1 while maximizing an immune response . the phase i portion of the study will be followed by a continuation at the selected dose in approximately 110 patients randomized phase ii study . in the ovation 2 study , patients in the gen-1 treatment arm will receive gen-1 plus chemotherapy pre- and post-interval debulking surgery ( โ ids โ ) . the ovation 2 study will include up to 110 patients with stage iii/iv ovarian cancer , with 12 to 15 patients in the phase i portion and up to 95 patients in phase ii . the study is powered to show a 33 % improvement in the primary endpoint , pfs , when comparing gen-1 with neoadjuvant + adjuvant chemotherapy versus neoadjuvant + adjuvant chemotherapy alone . the pfs primary analysis will be conducted after at least 80 events have been observed or after all patients have been followed for at least 16 months , whichever is later . in march 2020 , the company announced encouraging initial clinical data from the first 15 patients enrolled in the phase i portion of the ovation 2 study for patients newly diagnosed with stage iii and iv ovarian cancer . the ovation 2 study combines gen-1 , the company 's il-12 gene-mediated immunotherapy , with standard-of-care neoadjuvant chemotherapy ( nact ) . following nact , patients undergo interval debulking surgery ( ids ) , followed by three additional cycles of chemotherapy . 60 gen-1 plus standard nact produced positive dose-dependent efficacy results , with no dose-limiting toxicities , which correlates well with successful surgical outcomes as summarized below : โ of the 15 patients treated in the phase i portion of the ovation 2 study , nine patients were treated with gen-1 at a dose of 100 mg/mยฒ plus nact and six patients were treated with nact only . all 15 patients had successful resections of their tumors , with eight out of nine patients ( 88 % ) in the gen-1 treatment arm having an r0 resection , which indicates a microscopically margin-negative complete resection in which no gross or microscopic tumor remains in the tumor bed . only three out of six patients ( 50 % ) in the nact only treatment arm had a r0 resection .
| results of operations comparison of fiscal year ended december 31 , 2020 and fiscal year ended december 31 , 2019. for the year ended december 31 , 2020 , our net loss was $ 21.5 million compared to a net loss of $ 16.9 million for the year ended december 31 , 2019. the company recognized $ 1.85 million and $ 1.82 million in tax benefits from the sale of its new jersey net operating losses under the technology business tax certificate program in each of the fourth quarters of 2020 and 2019 , respectively . with $ 17.2 million in cash and cash equivalents , coupled with approximately $ 43 million of gross proceeds received from the sale of equity in the first quarter of 2021 and up to $ 1.85 million in expected proceeds from the sale of the state of new jersey net operating losses it applied for in 2020 , the company believes it has sufficient capital resources to fund its operations through 2023. technology development and licensing revenue in january 2013 , we entered into a technology development contract with hisun , pursuant to which hisun paid us a non-refundable technology transfer fee of $ 5.0 million to support our development of thermodox ยฎ in the china territory . the $ 5.0 million received as a non-refundable payment from hisun in the first quarter 2013 has been recorded to deferred revenue and will be amortized over the ten-year term of the agreement ; therefore , we recognized revenue of $ 500,000 in each of the years 2020 and 2019 . 74 research and development expenses research and development ( โ r & d โ ) expenses decreased $ 1.8 million from $ 13.1 million in 2019 to $ 11.3 million in 2020. costs associated with the phase iii optima study were $ 2.2 million in 2020 compared to $ 4.1
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executive summary we achieved strong performance in fiscal 2012 , delivering record net income of $ 930.4 million , a 9.6 % increase over the prior year , and sales growth of $ 530.9 million , a 6.6 % increase over the prior year . we completed the year with growth in all areas of our business . we are pleased with the results of our retail business and the increase in our commercial business , where we continue to build our internal sales force and continue to refine our parts assortment . there are various factors occurring within the current economy that affect both our customers and our industry , including the impact of the recession , continued high unemployment , and other challenging economic conditions , which we believe have aided our sales growth during the year . as consumers ' cash flows have decreased due to these factors , we believe consumers have become more likely to keep their current vehicles longer and perform repair and maintenance in order to keep those vehicles well maintained . given the nature of these macroeconomic factors , we can not predict whether or for how long these trends will continue , nor can we predict to what degree these trends will impact us in the future . another macroeconomic factor affecting our customers and our industry is gas prices . we believe gas prices have adversely impacted our customers ' behavior with respect to driving and maintaining their cars . with approximately 11 billion gallons of unleaded gas consumed each month across the u.s. , each $ 1 decrease at the pump contributes approximately $ 11 billion of additional spending capacity to consumers each month . during fiscal 2012 , the average price per gallon of unleaded gasoline in the united states remained at a high level of $ 3.57 per gallon compared to $ 3.33 per gallon during fiscal 2011. we continue to believe gas prices remain at overall high levels , thereby reducing discretionary spending for all consumers , and , in particular , our customers . given the unpredictability of gas prices , we can not predict whether gas prices will increase or decrease , nor can we predict how any future changes in gas prices will impact our sales in future periods . during fiscal 2012 , failure and maintenance related categories represented the largest portion of our sales mix , at approximately 83 % of total sales , with failure related categories continuing to be our strongest performers . while we have not experienced any fundamental shifts in our category sales mix as compared to previous years , we did experience a slight decline in sales of the maintenance category . we believe maintenance related products were negatively impacted by weather . because of the unusually mild winter across parts of the u.s. , we saw less wear on maintenance related products compared to the prior fiscal year . we remain focused on refining and expanding our product assortment to ensure we have the best merchandise at the right price in each of our categories . 19 our primary response to fluctuations in the demand for the products we sell is to adjust our advertising message , store staffing , and product assortment . we continue to believe we are well positioned to help our customers save money and meet their needs in a challenging macroeconomic environment . the two statistics we believe have the closest correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road . miles driven we believe that as the number of miles driven increases , consumers ' vehicles are more likely to need service and maintenance , resulting in an increase in the need for automotive hard parts and maintenance items . prior to the recession , we had seen a close correlation between annual miles driven and our annual net sales ; however , this correlation has not existed in the recent recessionary period . since the beginning of the fiscal year and through june 2012 ( latest publicly available information ) , miles driven remained relatively flat compared to the same period last year . however , during the first two quarters of calendar 2012 , miles driven improved by 1.1 % compared to the prior year period . throughout this fiscal year and contrary to the correlation experienced prior to the recession , sales have grown at a consistent rate , while miles driven have grown at a slower rate than what we have historically experienced . we believe that the impact of changes in other factors , primarily an increase in the average age of vehicles , more than offset the impact of miles driven . over the long-term , we believe that annual miles driven will return to pre-recession low single digit growth rates , and the correlation between annual miles driven and the annual sales growth of our industry should return . seven year old or older vehicles since 2008 , new vehicle sales have been significantly lower than historical levels , which we believe contributed to an increasing number of seven year old or older vehicles on the road . we estimate vehicles are driven an average of approximately 12,500 miles each year . in seven years , the average miles driven equates to approximately 87,500 miles . our experience is that at this point in a vehicle 's life , most vehicles are not covered by warranties and increased maintenance is needed to keep the vehicle operating . according to data provided by the automotive aftermarket industry association , as of december 2011 , the average age of vehicles on the road is 10.8 years as compared to 10.6 years as of december 2010. as the number of seven year old or older vehicles on the road increases , we expect an increase in demand for the products that we sell . story_separator_special_tag depending on the timing and magnitude of our future investments ( either in the form of leased or purchased properties or acquisitions ) , we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures , working capital requirements and stock repurchases . the balance may be funded through new borrowings . we anticipate that we will be able to obtain such financing in view of our credit ratings and favorable experiences in the debt markets in the past . our cash balances are held in various locations around the world . of the $ 103 million and $ 98 million of cash and cash equivalents at august 25 , 2012 , and august 27 , 2011 , respectively , $ 7.8 million and $ 6.7 million , respectively , were held outside of the u.s. and were generally utilized to support liquidity needs in our foreign operations . we intend to continue to permanently reinvest the cash in our foreign operations . for the fiscal year ended august 25 , 2012 , our after-tax return on invested capital ( ยroicย ) was 33.0 % as compared to 31.3 % for the comparable prior year period . roic is calculated as after-tax operating profit ( excluding rent charges ) divided by average invested capital ( which includes a factor to capitalize operating leases ) . roic increased primarily due to increased after-tax operating profit . we use roic to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance . debt facilities in september 2011 , we amended and restated our $ 800 million revolving credit facility , which was scheduled to expire in july 2012. the capacity under the revolving credit facility was increased to $ 1.0 billion . this credit facility is available to primarily support commercial paper borrowings , letters of credit and other short-term , unsecured bank loans . the capacity of the credit facility may be increased to $ 1.250 billion prior to the maturity date at our election and subject to bank credit capacity and approval , may include up to $ 200 million in letters of credit , and may include up to $ 175 million in capital leases each fiscal year . under the revolving credit facility , we may borrow funds consisting of eurodollar loans or base rate loans . interest accrues on eurodollar loans at a defined eurodollar rate , defined as the london interbank offered rate ( ยliborย ) plus the applicable percentage , as defined in the revolving credit facility , depending upon our senior , unsecured , ( non-credit enhanced ) long-term debt rating . interest accrues on base rate loans as defined in the revolving credit facility . we also have the option to borrow funds under the terms of a swingline loan subfacility . the revolving credit facility expires in september 2016. the revolving credit facility agreement requires that our consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.50:1. this ratio is defined as the ratio of ( i ) consolidated earnings before interest , taxes and rents to ( ii ) consolidated interest expense plus consolidated rents . our consolidated interest coverage ratio as of august 25 , 2012 was 4.58:1. as the available balance is reduced by commercial paper borrowings and certain outstanding letters of credit , we had $ 454.9 million of available capacity under our $ 1.0 billion revolving credit facility at august 25 , 2012. in june 2010 , we entered into a letter of credit facility that allows us to request the participating bank issue letters of credit on our behalf up to an aggregate amount of $ 100 million . the letter of credit facility is in addition to the letters of credit that may be issued under the revolving credit facility . as of august 25 , 2012 , we have $ 98.7 million in letters of credit outstanding under the letter of credit facility , which expires in june 2013 . 23 on april 24 , 2012 , we issued $ 500 million in 3.700 % senior notes due april 2022 under our shelf registration statement filed with the securities and exchange commission on april 17 , 2012 ( the ยshelf registrationย ) . the shelf registration allows us to sell an indeterminate amount in debt securities to fund general corporate purposes , including repaying , redeeming or repurchasing outstanding debt and for working capital , capital expenditures , new store openings , stock repurchases and acquisitions . proceeds from the debt issuance on april 24 , 2012 , were used to repay a portion of the commercial paper borrowings and for general corporate purposes . on november 15 , 2010 , we issued $ 500 million in 4.000 % senior notes due 2020 under a shelf registration statement filed with the securities and exchange commission on july 29 , 2008. we used the proceeds from the november 15 , 2010 issuance of debt to repay the principal due relating to the 4.750 % senior notes that matured on november 15 , 2010 , to repay a portion of the commercial paper borrowings and for general corporate purposes . the 5.750 % senior notes issued in july 2009 and the 6.500 % and 7.125 % senior notes issued during august 2008 , ( collectively , the ยnotesย ) , are subject to an interest rate adjustment if the debt ratings assigned to the notes are downgraded . the notes , along with the 3.700 % senior notes issued in april 2012 and the 4.000 % senior notes issued in during november 2010 , also contain a provision that repayment of the notes may be accelerated if we experience a change in control ( as defined in the agreements ) . our borrowings under our other senior notes contain minimal covenants , primarily restrictions on liens .
| results of operations fiscal 2012 compared with fiscal 2011 for the fiscal year ended august 25 , 2012 , we reported net sales of $ 8.604 billion compared with $ 8.073 billion for the year ended august 27 , 2011 , a 6.6 % increase from fiscal 2011. this growth was driven primarily by an increase in domestic same store sales of 3.9 % and sales from new stores of $ 214.2 million . the improvement in domestic same store sales was driven by higher transaction value , partially offset by decreased transaction counts . at august 25 , 2012 , we operated 4,685 domestic stores and 321 stores in mexico , compared with 4,534 domestic stores and 279 stores in mexico at august 27 , 2011. we reported a total auto parts ( domestic and mexico operations ) sales increase of 6.5 % for fiscal 2012. gross profit for fiscal 2012 was $ 4.432 billion , or 51.5 % of net sales , compared with $ 4.119 billion , or 51.0 % of net sales for fiscal 2011. the improvement in gross margin was primarily attributable to higher merchandise margins ( 19 basis points ) and lower shrink expense ( 17 basis points ) . lower acquisition costs drove the higher merchandise margins for the year . operating , selling , general and administrative expenses for fiscal 2012 increased to $ 2.803 billion , or 32.6 % of net sales , from $ 2.625 billion , or 32.5 % of net sales for fiscal 2011. the slight increase in operating expenses , as a percentage of sales , was the result of higher self-insurance costs ( 42 basis points ) ; partially offset by lower incentive compensation ( 30 basis points ) . 20 interest expense , net for fiscal 2012 was $ 175.9 million compared with $ 170.6 million during fiscal 2011. this increase was primarily due to higher average borrowing levels over the comparable prior year period ; partially offset by a decline in borrowing rates .
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the company expects to fund substantially all of the loans that it originates or purchases through deposits , fhlb advances and other borrowings and internally generated funds . deposit flows and cost of funds are influenced by prevailing market rates of interest primarily on competing investments , account maturities and the levels of savings in the company 's market area . the company generates the majority of its revenues from interest income on loans that it originates and purchases , income from investment in securities and service charges on customer accounts . the company 's revenues are partially offset by interest expense paid on deposits and borrowings , the provision for loan losses and noninterest expenses , such as operating expenses . the company 's operating expenses primarily consist of employee compensation and benefit expenses , premises and occupancy expenses , data processing and communication expenses and other general expenses . the company 's results of operations are also affected by prevailing economic conditions , competition , government policies and other actions of regulatory agencies . critical accounting policies and estimates we have established various accounting policies that govern the application of accounting principles generally accepted in the united states of america in the preparation of the company 's financial statements in item 8 hereof . the company 's significant accounting policies are described in the note 1 to the consolidated financial statements . certain accounting policies require management to make estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities ; management considers these to be critical accounting policies . the estimates and assumptions management uses are based on historical experience and other factors , which management believes to be reasonable under the circumstances . actual results could differ significantly from these estimates and assumptions , which could have a material impact on the carrying value of assets and liabilities at consolidated statements of financial condition dates and the company 's results of operations for future reporting periods . 34 index allowance for loan losses we consider the determination of alll to be among our critical accounting policies that require judicious estimates and assumptions in the preparation of the company 's financial statements that is particularly susceptible to significant change . the company maintains an alll at a level deemed appropriate by management to provide for known or inherent risks in the portfolio at the consolidated statements of financial condition date . the company has implemented and adheres to an internal asset review system and loss allowance methodology designed to provide for the detection of problem assets and an adequate allowance to cover loan losses . management 's determination of the adequacy of alll is based on an evaluation of the composition of the portfolio , actual loss experience , industry charge-off experience on income property loans , current economic conditions , and other relevant factors in the area in which the company 's lending and real estate activities are based . these factors may affect the borrowers ' ability to pay and the value of the underlying collateral . the allowance is calculated by applying loss factors to loans held for investment according to loan program type and loan classification . the loss factors are established based primarily upon the bank 's historical loss experience and the industry charge-off experience and are evaluated on a quarterly basis . various regulatory agencies , as an integral part of their examination process , periodically review the company 's alll . such agencies may require the bank to recognize additions to the allowance based on judgments different from those of management . in the opinion of management , and in accordance with the credit loss allowance methodology , the present allowance is considered adequate to absorb estimable and probable credit losses . additions and reductions to the allowance are reflected in current operations . charge-offs to the allowance are made when specific assets are considered uncollectible or are transferred to oreo and the fair value of the property is less than the loan 's recorded investment . recoveries are credited to the allowance . although management uses the best information available to make these estimates , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions that may be beyond the company 's control . for further information on the alll , see notes 1 and 5 to the consolidated financial statements in item 8 hereof . business combinations we account for acquisitions under the acquisition method . all identifiable assets acquired and liabilities assumed are recorded at fair value . any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill . identifiable intangible assets include core deposit intangibles , which have a definite life . core deposit intangibles ( `` cdi '' ) are subsequently amortized over the estimated life up to 10 years and are tested for impairment quarterly . goodwill generated from business combinations is deemed to have an indefinite life and is not subject to amortization and instead is tested for impairment at least annually . as part of the estimation of fair value , we review each loan or loan pool acquired to determine whether there is evidence of deterioration in credit quality since inception and if it is probable that the company will be unable to collect all amounts due under the contractual loan agreements . we consider expected prepayments and estimated cash flows including principal and interest payments at the date of acquisition . if a loan is determined to be a purchased credit impaired ( `` pci '' ) loan , the amount in excess of the estimated future cash flows is not accreted into earnings . the amount in excess of the estimated future cash flows over the book value of the loan is accreted into interest income over the remaining life of the loan ( accretable yield ) . story_separator_special_tag changes in our net interest income are a function of changes in both volumes and rates of interest-earning assets and interest-bearing liabilities . the following table presents the impact the volume and rate changes have had on our net interest income for the years indicated . for each category of interest-earning assets and interest-bearing liabilities , we have provided information on changes to our net interest income with respect to : changes in volume ( changes in volume multiplied by prior rate ) ; changes in interest rates ( changes in interest rates multiplied by prior volume ) ; and the change or the combined impact of volume and rate changes allocated proportionately to changes in volume and changes in interest rates . 40 index replace_table_token_6_th provision for loan losses . for 2015 , we recorded a $ 6.4 million provision for loan losses compared to the $ 4.7 million recorded in 2014 . the $ 1.7 million increase in the provision for loan losses was primarily attributable to the growth in our loan portfolio during the year , and to a lesser extent , the change in our loan composition . net loan charge-offs for 2015 amounted to $ 1.3 million , an increase from $ 684,000 in 2014. for 2014 , we recorded a $ 4.7 million provision for loan losses compared to the $ 1.9 million recorded in 2013 . the $ 2.8 million increase in the provision for loan losses was primarily attributable to the growth in our loan portfolio during the year , and to a lesser extent , the change in our loan composition . net loan charge-offs for 2014 amounted to $ 684,000 , which declined from $ 1.7 million in 2013. noninterest income . for 2015 , non-interest income totaled $ 14.4 million , an increase of $ 1.1 million or 8.0 % from 2014 . the increase was primarily related to an increase of $ 1.7 million on gain on sale of loans from $ 6.3 million in 2014 to $ 8.0 million . during 2015 , we sold $ 79.3 million sba loans at an overall premium of 9 % and $ 69.1 million in commercial real estate and multifamily loans at an overall premium of 1 % , compared to 2014 in which we sold $ 54.1 million in sba loans at a 10 % overall premium and $ 37.5 million in commercial real estate and multifamily loans at an overall premium of 2.5 % . the increase from gain-on-sale of loans was offset by a $ 1.3 million decline in gain on sale of investments , as the bank sold a limited number of securities during 2015. finally , deposit related fees grew by $ 723,000 or 40.0 % in 2015 , as growth in core transaction deposit accounts from both the acquisition of idpk and organic growth contributed to the increase in deposit fees from $ 1.8 million in 2014 to $ 2.5 million in 2015. for 2014 , non-interest income totaled $ 13.4 million , an increase of $ 4.6 million or 51.8 % from 2013 . the increase was primarily related to gain on sale of loans of $ 6.3 million , which grew by $ 3.1 million from 2013 , loan servicing fees increasing by $ 565,000 to $ 1.5 million and other income increasing by $ 990,000 to $ 2.2 million . 41 index replace_table_token_7_th noninterest expense . for 2015 , noninterest expense totaled $ 73.6 million , an increase of $ 18.6 million or 33.8 % from 2014 . the increase in noninterest expense was primarily due to higher compensation and benefits of $ 9.8 million , primarily related to an increase in staff from our acquisition of idkp and internal growth in staff to support our organic growth . in 2015 , the company experienced an increase in merger related expenses of $ 3.3 million , due to both the acquisition of idpk and the pending merger with security . occupancy expense grew by $ 1.6 million in 2015 , mostly due to the acquisition of idkp and the additional branches retained from the merger . marketing expense grew by approximately $ 1.1 million , as the company increased its investment in sponsorships and other marketing areas to support its continued efforts to organically grow its customer base . the remaining expense categories grew by $ 2.8 million or 16.7 % in 2015 , due to both a combination of expense growth related to the acquisition of idkp and increased expenses to support the company 's organic growth in loans and deposits . the most significant increase in expense from these remaining categories is a $ 679,000 increase in deposit related expenses , which include expenses such as lock box services , to support our continued growth in core transaction deposits . for 2014 , noninterest expense totaled $ 55.0 million , up $ 4.2 million or 8.2 % from 2013 . the increase was primarily due to the full year 's impact of expenses added as a result of the acquisitions of sdtb and fab and the acquisition of infinity in the first quarter of 2014 , along with costs associated with organic growth that included the expansion of our lending platform to increase loan production throughout 2013 and 2014. the increase in noninterest expense in 2014 was primarily comprised of higher compensation and benefits costs of $ 5.7 million ; higher other expense of $ 2.2 million , which includes a $ 1.7 million litigation expense ; higher deposit expenses of $ 1.1 million ; higher premises and occupancy expense of $ 811,000 ; and higher professional expense of $ 377,000. partially offsetting these increases was a decrease in non-recurring merger-related expense of $ 5.4 million , lower data processing and communications costs of $ 510,000 , primarily associated with lower negotiated core system provider costs , and lower other real estate owned operations of $ 543,000. our efficiency ratio was 55.89 % for 2015 , compared to 61.33 % for 2014 and 64.69 %
| operating results overview . the comparability of financial information is affected by our acquisitions . on january 26 , 2015 , the company completed an acquisition of independence bank ( โ idpk โ ) and infinity franchise capital , llc ( โ ifc โ ) was acquired on january 30 , 2014. non-gaap measurements the company uses certain nonโ-gaap financial measures to provide meaningful supplemental information regarding the company 's operational performance and to enhance investors ' overall understanding of such financial performance . the non-gaap measures used in this form 10-k include the following : adjusted net income : earnings are adjusted to exclude the tax effected impact of merger and litigation expenses . adjusted net income for return on adjusted tangible common equity : earnings are adjusted to exclude the tax effected impact of core deposit amortization and merger and litigation expenses . tangible common equity : total stockholders ' equity is reduced by the amount of intangible assets . adjusted return on average assets , adjusted return on average tangible equity , tangible common equity amounts and ratios , and tangible book value per share : given that the use of these measures is prevalent among banking regulators , investors and analysts , we disclose them in addition to return on average assets , return on average equity , equity-to-assets ratio , and book value per share , respectively . replace_table_token_3_th 36 index replace_table_token_4_th replace_table_token_5_th for 2015 , including non-recurring merger-related expenses of $ 4.8 million associated with the acquisitions of security and idpk , the company recorded net income of $ 25.5 million , or $ 1.19 per diluted share . for 2014 , including non-recurring merger-related expenses of $ 864,000 associated with the acquisition of idpk and $ 626,000 associated with the acquisition of infinity , and a non-recurring $ 1.7 million litigation expense , the company recorded net income of $ 16.6 million or $ 0.96 per diluted share .
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greif business system and transformation initiative we developed and use the โ greif business system , โ a quantitative , systematic and disciplined process , to improve productivity , increase profitability , reduce costs and drive shareholder value . during the fourth quarter 2014 , we announced a transformation initiative , which was a holistic plan to improve our financial performance and reward our shareholders . at its core , this plan restructured the company by enhancing the greif business system through refocused efforts on operational efficiency , customer service excellence , working capital , and sourcing and supply chain ; reducing complexity ; the consolidation and optimization of our manufacturing network ; the sale of selected non-core assets ; the reduction of selling , general , and administrative ( `` sg & a '' ) costs ; and implementing growth initiatives . as of the fourth quarter of 2017 , we have completed our transformation initiative . we intend to continue to utilize the greif business system to operate with the financial discipline that underlined the transformation initiative and anticipate the full year benefit of the fiscal 2017 initiatives to be realized in fiscal 2018. 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 22 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 2017 , 2016 and 2015 : replace_table_token_5_th the following table sets forth ebitda , reconciled to net income and operating profit , for our consolidated results for 2017 , 2016 and 2015 : replace_table_token_6_th 23 the following table sets forth ebitda for each of our business segments , reconciled to the operating profit ( loss ) for each segment , for 2017 , 2016 and 2015 : replace_table_token_7_th year 2017 compared to year 2016 net sales net sales were $ 3,638.2 million for 2017 compared with $ 3,323.6 million for 2016 . the 9.5 percent increase in net sales was primarily due to strategic pricing decisions and increases in index prices in our rigid industrial packaging & services segment and an increase in volumes in our mills and corrugator facilities in our paper packaging & services segment , partially offset by the impact of our 2016 divestitures in our rigid industrial packaging & services segment . gross profit gross profit was $ 714.7 million for 2017 compared with $ 684.9 million for 2016 . the respective reasons for the improvement or decline in gross profit for each segment are described below in the `` segment review . '' gross profit margin was 19.6 percent for 2017 compared to 20.6 percent for 2016 . selling , general and administrative expenses selling , general and administrative ( `` sg & a '' ) expenses increased 0.9 percent to $ 380.4 million for 2017 from $ 376.8 million for 2016 . this increase was primarily due to increases in incentive compensation due to improved business performance and increases in professional fees partially offset by decreased non-income tax expense and the impact of foreign currency translation of $ 2.9 million . sg & a expenses were 10.5 percent of net sales for 2017 compared with 11.3 percent of net sales for 2016 . 24 restructuring charges restructuring charges were $ 12.7 million for 2017 compared with $ 26.9 million for 2016 . charges for both periods were primarily related to employee separation costs , relocation fees and professional fees incurred for services specifically associated with employee separation and relocation . restructuring activities and associated costs during 2017 are anticipated to deliver annual run-rate savings of approximately $ 9.9 million with payback periods ranging from one to three years among the plans . we anticipate completion of the current restructuring programs by early 2018. refer to note 6 โ restructuring charges , within the notes to consolidated financial statements in item 8 of this form 10-k for additional information . impairment charges goodwill impairment charges were $ 13.0 million for 2017. these charges were related to the impairment of goodwill within the rigid industrial packaging & services segment . there were no goodwill impairment charges for 2016. non-cash asset impairment charges were $ 7.8 million for 2017 compared with $ 51.4 million for 2016 . in 2017 , these charges were primarily related to plant closures and impairments of goodwill allocated to assets held for sale . story_separator_special_tag gross profit margin was 18.8 percent and 21.0 percent for 2017 and 2016 , respectively . this decrease was due to an increase in input costs , primarily old corrugated container costs , during 2017 compared to 2016 . operating profit was $ 83.3 million for 2017 compared with $ 89.1 million for 2016 . the decrease was primarily due to increased pension settlement charges of $ 10.2 million , increased input costs , and increased sg & a expenses , partially offset by selling price and volume increases as described above . ebitda was $ 115.3 million for 2017 compared with $ 120.7 million for 2016 . the decrease in ebitda was primarily due to the same factors impacting net sales and gross profit , as described above . depreciation , depletion and amortization expense was $ 31.9 million and $ 31.6 million for 2017 and 2016 , 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 decreased 0.6 percent to $ 286.4 million for 2017 compared with $ 288.1 million for 2016 . this decrease was primarily due to the impact of non-material divestitures in 2016 of $ 6.5 million and the impact of foreign currency translation of $ 6.5 million , offset by strategic pricing decisions . gross profit was $ 51.1 million for 2017 compared with $ 42.0 million for 2016 . this increase was primarily attributable to reduced labor and fixed production costs and the impact of strategic volume and pricing decisions . gross profit margin increased to 17.8 percent for 2017 from 14.6 percent for 2016 . operating profit was $ 5.7 million for 2017 compared with an operating loss of $ 15.5 million for 2016 . this improvement in operating profit was primarily due to the same factors impacting the segment 's gross profit , as well as a decrease in non-cash asset impairment charges of $ 6.3 million and a decrease in restructuring charges of $ 5.1 million . ebitda was $ 11.1 million for 2017 compared with negative $ 11.3 million for 2016 . this improvement was due to the same factors that impacted the segment 's operating profit , as described above . depreciation , depletion and amortization expense was $ 7.0 million for 2017 compared with $ 7.7 million for 2016 , respectively . land management as of october 31 , 2017 , our land management segment consisted of 245,000 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 27 considerations , including access to lakes or rivers , the condition of the surrounding land , availability of utilities , markets for timber 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 , 2017 , we estimated that there were 20,000 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 were $ 28.2 million and $ 24.2 million for 2017 and 2016 , respectively . the increase in net sales was primarily due to an increase in timber sales . operating profit increased to $ 10.0 million for 2017 from $ 8.1 million for 2016 . this increase was due to the same factor that impacted the segment 's net sales , as described above . ebitda was $ 14.6 million and $ 11.9 million for 2017 and 2016 , respectively . this increase was due to the same factors that impacted the segment 's operating profit . depreciation , depletion and amortization expense was $ 4.6 million for 2017 compared wit h $ 3.8 mi llion for 2016 .
| segment review rigid industrial packaging & services net sales decreased 10.1 percent to $ 2,324.2 million in 2016 from $ 2,586.4 million in 2015. the decrease in net sales was primarily due to the negative impact of foreign currency translation of 7.6 percent , primarily attributable to the remeasurement of our venezuelan operations in august of 2015 , and a net volume decrease , primarily due to the impact of divestitures , partially offset by the impact of increases in prices and product mix due to the impact of strategic value and pricing decisions . gross profit was $ 489.4 million for 2016 compared with $ 463.4 million for 2015. the $ 26.0 million increase in gross profit was primarily due to the positive impact of strategic volume and pricing actions , cost containment efforts , decreases in raw material costs , and a $ 6.0 million net charge in 2015 related to the devaluation of inventory through costs of products sold in the venezuelan operation of $ 9.3 million , net of operational gross margin contribution of the venezuelan operation of $ 3.3 million . gross profit margin increased to 21.1 percent from 17.9 percent in 2015. operating profit was $ 143.9 million for 2016 compared with $ 86.4 million for 2015. the $ 57.5 million increase was primarily attributable to the same factors impacting gross profit , a $ 25.4 million reduction in sg & a expenses and a reduction in restructuring costs of $ 10.6 million , partially offset by an increase of $ 4.6 million in loss on sales of properties , plants and equipment and businesses , net . ebitda was $ 223.8 million for 2016 compared with $ 179.5 million for 2015. the $ 44.3 million increase was due to the same factors that impacted the segment 's operating profit , as described above .
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for public business entities , the amendments in this asu are effective for fiscal years beginning after december 15 , 2020 , story_separator_special_tag overview the following management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) is intended to help the reader understand community trust bancorp , inc. , our operations , and our present business environment . the md & a is provided as a supplement toโand should be read in conjunction withโour consolidated financial statements and the accompanying notes thereto contained in item 8 of this annual report . the md & a includes the following sections : โ our business โ financial goals and performance 32 โ story_separator_special_tag in fdic insurance premiums , a $ 0.3 million decrease in occupancy expense , and a $ 0.2 million decrease in repossession expense . * please refer to the management discussion and analysis in our annual report on form 10-k for the year ended december 31 , 2018 for more detailed income discussion related to the year 2017 . 35 balance sheet review ctbi 's total assets at $ 4.4 billion increased $ 164.4 million , or 3.9 % , from december 31 , 2018. loans outstanding at december 31 , 2019 were $ 3.2 billion , increasing $ 40.0 million , or 1.2 % , year over year . we experienced growth during the year of $ 20.2 million in the commercial loan portfolio , $ 22.4 million in the residential loan portfolio , and $ 3.7 million in the consumer direct loan portfolio , offset partially by a $ 6.3 million decrease in the indirect loan portfolio . ctbi 's investment portfolio increased $ 6.7 million , or 1.1 % , from december 31 , 2018. deposits in other banks increased $ 126.6 million from december 31 , 2018. deposits , including repurchase agreements , at $ 3.6 billion increased $ 93.8 million , or 2.7 % , from december 31 , 2018. shareholders ' equity at december 31 , 2019 was $ 614.9 million , a 9.0 % increase from the $ 564.2 million at december 31 , 2018. ctbi 's annualized dividend yield to shareholders as of december 31 , 2019 was 3.26 % . loans replace_table_token_20_th asset quality ctbi 's total nonperforming loans , not including troubled debt restructurings , were $ 33.6 million , or 1.03 % of total loans , at december 31 , 2019 compared to $ 22.1 million , or 0.69 % of total loans , at december 31 , 2018. accruing loans 90+ days past increased $ 9.4 million from december 31 , 2018. nonaccrual loans increased $ 2.1 million from december 31 , 2018. accruing loans 30-89 days past due at $ 22.9 million was an increase of $ 0.3 million from december 31 , 2018. we are currently working with three of our customers with total loans outstanding of approximately $ 11.2 million as they work their way through financial difficulties . while we do not expect significant losses in these credits , we expect it may take some time before these issues are resolved and as a result our total level of past due loans may remain elevated for several quarters . our loan portfolio management processes focus on the immediate identification , management , and resolution of problem loans to maximize recovery and minimize loss . our loan portfolio risk management processes include weekly delinquent loan review meetings at the market levels and monthly delinquent loan review meetings involving senior corporate management to review all nonaccrual loans and loans 30 days or more past due . any activity regarding a criticized/classified loan ( i.e . problem loan ) must be approved by ctb 's watch list asset committee ( i.e . problem loan committee ) . ctb 's watch list asset committee also meets on a quarterly basis and reviews every criticized/classified loan of $ 100,000 or greater . we also have a loan review department that reviews every market within ctb annually and performs extensive testing of the loan portfolio to assure the accuracy of loan grades and classifications for delinquency , troubled debt restructuring , impaired status , impairment , nonaccrual status , and adequate loan loss reserves . the loan review department has annually reviewed on average 95 % of the outstanding commercial loan portfolio for the past three years . the average annual review percentage of the consumer and residential loan portfolio for the past three years was 85 % based on the loan production during the number of months included in the review scope . the review scope is generally four to six months of production . 36 impaired loans , loans not expected to meet contractual principal and interest payments , at december 31 , 2019 totaled $ 57.8 million compared to $ 46.4 million at december 31 , 2018. included in certain loan categories of impaired loans are troubled debt restructurings that were classified as impaired . at december 31 , 2019 , ctbi had $ 41.4 million in commercial loans secured by real estate , $ 3.0 million in commercial real estate construction loans , $ 11.1 million in commercial other loans , and $ 2.3 million in real estate mortgage loans that were modified in troubled debt restructurings and or impaired . management evaluates all impaired loans for impairment and records a direct charge-off or provides specific reserves when necessary . for further information regarding nonperforming and impaired loans , see note 4 to the consolidated financial statements . ctbi generally does not offer high risk loans such as option arm products , high loan to value ratio mortgages , interest-only loans , loans with initial teaser rates , or loans with negative amortizations , and therefore , ctbi would have no significant exposure to these products . story_separator_special_tag as of december 31 , 2019 , we had approximately $ 264.7 million in cash and cash equivalents and approximately $ 599.8 million in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $ 141.5 million and $ 593.7 million at december 31 , 2018. additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans . in addition to core deposit funding , we also have a variety of other short-term and long-term funding sources available . as of december 31 , 2019 , we had wholesale brokered deposits outstanding of $ 37.1 million with a weighted average maturity of 0.71 years compared to $ 42.3 million with a weighted average maturity of maturity of 1.58 years at december 31 , 2018. we also rely on federal home loan bank advances for both liquidity and management of our asset/liability position . federal home loan bank advances were $ 0.4 million at december 31 , 2019 and december 31 , 2018. as of december 31 , 2019 , we had a $ 391.9 million available borrowing position with the federal home loan bank compared to $ 312.2 million at december 31 , 2018. we generally rely upon net inflows of cash from financing activities , supplemented by net inflows of cash from operating activities , to provide cash for our investing activities . as is typical of many financial institutions , significant financing activities include deposit gathering , use of short-term borrowing facilities such as repurchase agreements and federal funds purchased , use of wholesale brokered deposits , and issuance of long-term debt . at december 31 , 2019 and december 31 , 2018 , we had $ 45 million in lines of credit with various correspondent banks available to meet any future cash needs . our primary investing activities include purchases of securities and loan originations . we do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs . included in our cash and cash equivalents at december 31 , 2019 were deposits with the federal reserve of $ 203.6 million compared to $ 73.5 million at december 31 , 2018. at december 31 , 2018 , cash and cash equivalents included federal funds sold of $ 1.1 million ; however , we had no federal funds sold as of december 31 , 2019. additionally , we project cash flows from our investment portfolio to generate additional liquidity over the next 90 days . the investment portfolio consists of investment grade short-term issues suitable for bank investments . the majority of the investment portfolio is in u.s. government and government sponsored agency issuances . at the end of 2019 , available-for-sale ( โ afs โ ) securities comprised substantially all of the total investment portfolio , and the afs portfolio was approximately 98 % of equity capital . ninety-four percent of the pledge eligible portfolio was pledged . interest rate risk we consider interest rate risk one of our most significant market risks . interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates . consistency of our net interest revenue is largely dependent upon the effective management of interest rate risk . we employ a variety of measurement techniques to identify and manage our interest rate risk including the use of an earnings simulation model to analyze net interest income sensitivity to changing interest rates . the model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities . assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model . these assumptions are inherently uncertain , and as a result , the model can not precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income . actual results will differ from simulated results due to timing , magnitude , and frequency of interest rate changes as well as changes in market conditions and management strategies . ctbi 's asset/liability management committee ( alco ) , which includes executive and senior management representatives and reports to the board of directors , monitors and manages interest rate risk within board-approved policy limits . our current exposure to interest rate risks is determined by measuring the anticipated change in net interest income spread evenly over the twelve-month period . 39 the following table shows our estimated earnings sensitivity profile as of december 31 , 2019 : replace_table_token_24_th the following table shows our estimated earnings sensitivity profile as of december 31 , 2018 : replace_table_token_25_th the simulation model used the yield curve spread evenly over a twelve-month period . the measurement at december 31 , 2019 estimates that our net interest income in an up-rate environment would increase by 11.22 % at a 400 basis point change , 8.61 % increase at a 300 basis point change , 5.78 % increase at a 200 basis point change , and a 2.83 % increase at a 100 basis point change . in a down-rate environment , net interest income would decrease 2.65 % at a 100 basis point change over one year . in order to reduce the exposure to interest rate fluctuations and to manage liquidity , we have developed sale procedures for several types of interest-sensitive assets . primarily all long-term , fixed rate single family residential mortgage loans underwritten according to federal home loan mortgage corporation guidelines are sold for cash upon origination or originated under terms where they could be sold . periodically , additional assets such as commercial loans are also sold . in 2019 and 2018 , $ 94.5 million and $ 56.7 million , respectively , were realized on the sale of fixed rate residential mortgages .
| results of operations and financial condition โ contractual obligations and commitments โ liquidity and market risk โ interest rate risk โ capital resources โ impact of inflation , changing prices , and economic conditions โ stock repurchase program โ critical accounting policies and estimates our business community trust bancorp , inc. ( โ ctbi โ ) is a bank holding company headquartered in pikeville , kentucky . currently , we own one commercial bank , community trust bank , inc. ( โ ctb โ ) and one trust company , community trust and investment company . through our subsidiaries , we have seventy-nine banking locations in eastern , northeastern , central , and south central kentucky , southern west virginia , and northeastern tennessee , four trust offices across kentucky , and one trust office in northeastern tennessee . at december 31 , 2019 , we had total consolidated assets of $ 4.4 billion and total consolidated deposits , including repurchase agreements , of $ 3.6 billion . total shareholders ' equity at december 31 , 2019 was $ 614.9 million . trust assets under management , which are excluded from ctbi 's total consolidated assets , at december 31 , 2019 , were $ 2.2 billion . trust assets under management include ctb 's investment portfolio totaling $ 0.6 billion . through its subsidiaries , ctbi engages in a wide range of commercial and personal banking and trust and wealth management activities , which include accepting time and demand deposits ; making secured and unsecured loans to corporations , individuals and others ; providing cash management services to corporate and individual customers ; issuing letters of credit ; renting safe deposit boxes ; and providing funds transfer services . the lending activities of ctb include making commercial , construction , mortgage , and personal loans . lease-financing , lines of credit , revolving lines of credit , term loans , and other specialized loans , including asset-based financing , are also available .
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in addition , the company paid dow $ 0.6 million on the business combination closing date to import inventory into argentina through september 30 , 2016. the company incurred expenses for such services for the twelve months ended december 31 , story_separator_special_tag as used in this management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) , the terms โ predecessor โ and the โ agrofresh business โ refer to the business conducted by dow through a combination of wholly-owned subsidiaries and operations of dow , including through agrofresh inc. in the united states , prior to the closing of business combination , the term โ successor โ refers to agrofresh solutions , inc. ( which was named boulevard acquisition corp. prior to the closing of the business combination ) , and the terms โ company โ , โ agrofresh โ , โ we โ , โ us โ and โ our โ refer to the combined predecessor and successor companies , unless the context otherwise requires or it is otherwise indicated . the application of acquisition accounting for the business combination significantly affected certain assets , liabilities , and expenses . as a result , financial information for the twelve months ended december 31 , 2016 may not be comparable to the financial information for the seven months ended july 31 , 2015 ( predecessor ) and the five months ended december 31 , 2015 ( successor ) . refer to note 3 to the audited consolidated and combined financial statements contained in this report for additional information regarding the acquisition accounting for the business combination . the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the audited consolidated and combined financial statements and the notes thereto contained elsewhere in this report . this md & a contains the financial measure ebitda , which is not presented in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . this non-gaap financial measure is being presented because management believes that it provides readers with additional insight into the company 's operational performance relative to earlier periods and relative to its competitors . ebitda is a key measure used by the company to evaluate its performance . the company does not intend for this non-gaap financial measure to be a substitute for any gaap financial information . readers of this md & a should use this non-gaap financial measure only in conjunction with the comparable gaap financial measure . a reconciliation of ebitda to the most comparable gaap measure is provided in this md & a . 32 business overview agrofresh is a global industry leader in providing innovative data-driven specialty solutions aimed at enabling growers and packers of fresh produce to preserve and enhance the freshness , quality and value of fresh produce and to maximize the percentage of produce supplied to the market relative to the amount of produce grown . its flagship product is the smartfresh quality system , a freshness protection technology proven to maintain firmness , texture and appearance of fruits during storage and transport . smartfresh is currently commercialized in over 40 countries worldwide . additionally , the company has a number of different solutions and application technologies that have either been launched ( harvista , ripelock , landspring ) or that it intends to launch in the future to seek to extend its footprint to other crops and steps of the global produce supply chain . freshness is the most important driver of consumer satisfaction when it comes to produce , and , at the same time , food waste is a major issue in the industry . about one third of the total food produced worldwide is lost or wasted each year . nearly 45 percent of all fresh fruits and vegetables , 40 percent of apples and 20 percent of bananas , are lost to spoilage . agrofresh plays a key role in the value chain by offering products and services that maintain produce freshness and reduce waste . agrofresh 's current principal product , smartfresh , regulates the post-harvest ripening effects of ethylene , the naturally occurring plant hormone that triggers ripening in certain fruits and vegetables . smartfresh is naturally biodegradable , leaves no detectable residue , and has been approved for use by many domestic and global regulatory organizations . harvista extends the company 's proprietary technology into pre-harvest management of pome fruit such as apples and pears . advanstore tm is an atmospheric monitoring system under development that leverages the company 's extensive understanding of fruit physiology , fruit respiration , current controlled atmosphere technology , and new proprietary diagnostic tools to provide improved and real time guidance to producers and packers of fresh produce regarding storage conditions so corrective measures can be made on a more timely basis . ripelock tm combines the technology behind smartfresh with modified atmosphere packaging designed specifically to preserve quality during transportation and to extend the yellow shelf life of bananas and other potential fruits . landspring tm is an innovative new 1-mcp technology targeted to transplanted vegetable seedlings . it is currently registered for use on tomato and pepper crops in the us . it reduces transplant shock , resulting in less seedling mortality and faster crop establishment , which leads to a healthier crop and improved yields . agrofresh 's business is highly seasonal , driven by the timing of harvests in the northern and southern hemispheres . the first half of the year is when the southern hemisphere harvest occurs and the second half of the year is when the northern hemisphere harvest occurs . since the northern hemisphere harvest of our two core crops of apples and pears is typically larger , a significant portion of our sales and profits are historically generated in the second half of the year . story_separator_special_tag fluctuations in the value of these currencies relative to the u.s. dollar can increase or decrease the company 's overall revenue and profitability as stated in u.s. dollars , which is the company 's reporting currency . in certain instances , if sales in a given geography have been adversely impacted on a long-term basis due to foreign currency depreciation , the company has been able to adjust its pricing so as to mitigate the impact on profitability . domestic and foreign operations 34 the company has both domestic and foreign operations . fluctuations in foreign exchange rates , regional growth-related spending in research and development ( โ r & d โ ) and marketing expenses , and changes in local selling prices , among other factors , may impact the profitability of foreign operations in the future . critical accounting policies and use of estimates our discussion and analysis of results of operations and financial condition are based upon our financial statements . these financial statements have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements . we base our estimates and judgments on historical experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing basis . actual results could differ from our estimates under different assumptions or conditions . our significant accounting policies , which may be affected by our estimates and assumptions , are more fully described in note 2 to the audited consolidated and combined financial statements . an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the financial statements . management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the financial statements . asset impairments factors that could result in future impairment charges , among others , include changes in worldwide economic conditions , changes in technology , changes in competitive conditions and customer preferences , and fluctuations in foreign currency exchange rates . these risk factors are discussed in part i , item 1a , โ risk factors. โ goodwill as discussed in note 2 , โ summary of significant accounting policies , โ in the audited consolidated and combined financial statements , the company tests goodwill and identifiable intangible assets with indefinite lives for impairment at least annually . intangibles are tested for impairment using a quantitative impairment model . we test goodwill for impairment by either performing a qualitative evaluation or a two-step quantitative test . we consider the company to be one reporting unit for purposes of testing goodwill for impairment . for the 2016 impairment test , we utilized the quantitative methods to assess impairment and we concluded that goodwill was fully impaired . the inputs utilized in the analysis are classified as level 3 inputs within the fair value hierarchy as defined in asc 820 , fair value . measurement . the process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions as to our future cash flows , discount rates commensurate with the risks involved in the assets , future economic and market conditions , as well as other key assumptions . we believe that the amounts recorded in the financial statements related to goodwill are based on the best estimates and judgments of the company 's management , although actual outcomes could differ from our estimates . our annual test of goodwill indicated that goodwill was fully impaired as of december 31 , 2016. other intangible assets we conduct our annual indefinite-lived intangible assets impairment assessment as of december 31 of each year unless conditions arise that would require a more frequent evaluation . in assessing the recoverability of indefinite-lived intangible assets , projections regarding estimated discounted future cash flows and other factors are made to determine if impairment has occurred . if we conclude that there has been impairment , we will write down the carrying value of the asset to its fair value . each year , we evaluate those intangible assets with indefinite lives to determine whether events and circumstances continue to support the indefinite useful lives . when testing indefinite-lived intangible assets for impairment , we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not ( more than 50 % ) that the fair value of an indefinite-lived intangible asset is less than its carrying amount . such qualitative factors may include the following : macroeconomic conditions industry and market considerations 35 cost factors overall financial performance ; and other relevant entity-specific events based on the results of our annual impairment review conducted in december 2016 , management recorded an impairment charge of $ 9.5 million on its agrofresh and smartfresh trade names . in determining the fair value of the trade names at december 31 , 2016 , the company applied the relief from royalty methodology , which is based on the assumption that without ownership of the assets , the user of the trade name would have to make a stream of payments to the owner of the trade names in return for the rights to use the trade names . by acquiring the trade name , the user avoids those payments . definite-lived intangible assets , such as technology , customer relationships and software are amortized over their estimated useful lives , generally for periods ranging from 4 to 24 years . the reasonableness of the useful lives of these assets is regularly evaluated . once these assets are fully amortized , they are removed from the balance sheet .
| results of operations the following table summarizes the results of operations for both the successor and predecessor periods : replace_table_token_6_th comparison of results of operations for the twelve months ended december 31 , 2016 , january 1 , 2015 through july 31 , 2015 ( predecessor ) , and august 1 , 2015 through december 31 , 2015 ( successor ) . net sales net sales were $ 159.7 million for the twelve months ended december 31 , 2016 , as compared to net sales of $ 52.7 million for the seven months ended july 31 , 2015 and $ 111.1 million for the five months ended december 31 , 2015 . the overall decrease in net sales in fiscal year 2016 from fiscal year 2015 was primarily related to lower sales of smartfresh , partially offset by increased sales of harvista . net sales in north america decrease d to $ 56.2 million for 2016 , down 4.4 % from $ 58.8 million in 2015 . the decrease in net sales is primarily due to lower sales of smartfresh in north america driven by competitive price pressure , somewhat offset by mid single-digit crop growth compared to 2015 . this decrease was partially offset by a 44 % increase in harvista sales . net sales in emea decrease d by $ 0.2 million to $ 64.7 million in 2016 . excluding currency impact of $ 0.4 million , emea net sales increased by $ 0.2 million , primarily due to increased penetration in apples and pears , partially offset by smaller persimmon and kiwi crops . net sales in latin america decrease d 2.9 % , mainly due to smaller apple crops in brazil and argentina compared to 2015 , offset by increased penetration in chile and mexico , as well as growth in harvista sales in argentina .
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this discussion includes both historical information and forward-looking information based upon current expectations that involve risk , uncertainties and assumptions . our actual results may differ materially from management 's expectations as a result of various factors , including , but not limited to , those discussed in โ risk factors โ and elsewhere in this annual report . impact of covid-19 on our business as of the date of this annual report , community self-isolation practices and shelter-in-place requirements related to covid-19 have negatively impacted our net revenue for the three months ended march 31 , 2020. prolonged community self-isolation practices and shelter-in-place requirements will continue to reduce in-office visits , negatively affecting our net patient service revenue . given the uncertainty around the duration and extent of the covid-19 pandemic , we can not accurately predict at this time the future potential impact on our business , results of operations , financial condition or liquidity . overview our vision is to delight millions of members with better health and better care while reducing the total cost of care . our mission is to transform health care for all through our human-centered , technology-powered model . we are a membership-based primary care platform with seamless digital health and inviting in-office care , convenient to where people work , shop , live and click . we are disrupting health care from within the existing ecosystem by simultaneously addressing the frustrations and unmet needs of key stakeholders , which include consumers , employers , providers , and health networks . as of december 31 , 2019 , we had approximately 422,000 members in nine markets in the united states and greater than 7,000 employer clients . we have developed a modernized healthcare membership model based on direct consumer enrollment as well as employer sponsorship . our annual membership model includes seamless access to 24/7 digital health services paired with inviting in-office care routinely covered under health insurance programs . our technology drives high monthly active usage within our membership , promoting ongoing and longitudinal patient relationships for better health outcomes and high member retention . our technology also helps our service-minded team in building trust and rapport with our members by facilitating proactive digital health outreach as well as responsive on-demand virtual and in-office care . our digital health services and our well-appointed offices that are located in highly convenient locations are all serviced by our own clinical team who are employed in a salaried model , free of misaligned fee-for-service compensation incentives prevalent in health care . additionally , we have developed clinically integrated partnerships with health networks , better coordinating more timely access to specialty care when needed by members , while advancing value-based care for employers through clinical and digital integration . together , these components of our human-centered and technology-powered model allow us to deliver better results for key stakeholders . our focus on simultaneously addressing the unfulfilled needs and frustrations of key stakeholders has allowed us to consistently grow the number of members we serve . we were founded in 2007 in san francisco and have since grown to 422,000 members and 83 medical offices in nine markets across the united states as of december 31 , 2019. from december 31 , 2014 through december 31 , 2019 , we grew our membership by 351 % . during the twelve months ended december 31 , 2019 as compared to the twelve months ended december 31 , 2014 , our net revenue grew 293 % , our digital interactions with our members grew 880 % , and the number of in-office visits by our members grew 185 % . 62 our business model we have developed a modernized healthcare membership model based on direct consumer enrollment as well as employer sponsorship . our annual membership model includes seamless access to 24/7 digital health paired with inviting in-office care routinely covered under health insurance programs . our members join either individually as consumers by paying an annual membership fee or are sponsored by an enterprise client who purchases a subscription for their employees and , increasingly , their dependents . all members have actively registered with us . digital health services are delivered via our mobile app and website , through such modalities as video and voice encounters , chat and messaging , and our in-office care is delivered at any of our 83 medical offices as of december 31 , 2019. we derive net revenue from multiple stakeholders , including consumers , employers , health networks and insurers . we recognize net revenue as ( i ) membership revenue from annual employer and consumer subscription fees , ( ii ) partnership revenue predominantly on a pmpm basis from health networks , fixed payments from enterprise clients for on-site medical services , and capitation payments from ipas and ( iii ) net patient service revenue on a per visit basis from health insurers and patients . we are in-network with most health insurance plans in all of our markets . we generate a portion of our revenue through membership fees charged to either consumer members or enterprise clients . as of december 31 , 2019 , our current annual consumer membership fee for new members was $ 199. our enterprise clients typically pay a discounted fee collected in advance , based on a rate per employee per month . we have entered into clinically integrated care partnerships with health networks , which generate revenue either through fee-for-service reimbursements for member in-office visits under the health network 's contracts or as fixed pmpm payments independent of office visits or services provided . for our health network arrangements that provide for fixed pmpm payments , when our medical offices provide professional clinical services to covered members , we , as administrator , perform billing and collection services on behalf of the health network , and the health network receives the fees for services provided , including those paid by members ' insurance plans . story_separator_special_tag conversely , the second and third quarters of the year have historically been the period of lower office visits , and as a result , lower patient service revenue relative to the other quarters of the year . however , the effects of this seasonality have historically been partially offset by our partnership revenue and membership revenue , which are recognized ratably over the period of each contract and recurring in nature , as well as our period-over-period growth . key metrics and non-gaap financial measures we review a number of operating and financial metrics , including the following key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate our business plan and make strategic decisions . replace_table_token_3_th 64 members a member is a person who has paid for membership themselves or an employee or dependent whose membership has been paid for by an enterprise client and who has registered with us . members help drive membership revenue , partnership revenue and patient service revenue . we believe growth in the number of members is a key indicator of the performance of our business . this depends , in part , on our ability to successfully market our services directly to consumers and to employers that are not yet enterprise clients and our activation rate within existing clients . while growth in the number of members is an important indicator of expected revenue growth , it also informs our management of the areas of our business that will require further investment to support expected future member growth . members ( in thousands ) * * number of members is shown as of the end of each period . care margin we define care margin as loss from operations excluding depreciation and amortization , general and administrative expense and sales and marketing expense . we consider care margin to be an important measure to monitor our performance , specific to the direct costs of delivering care . we believe this margin is useful to measure whether we are controlling our direct expenses included in the provision of care sufficiently and whether we are effectively pricing our services . care margin is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with gaap . care margin is not a financial measure of , nor does it imply , profitability . we have not yet achieved profitability and , even in periods when our net revenue exceeds our cost of care , exclusive of depreciation and amortization , we may not be able to achieve or maintain profitability . the relationship of operating loss to cost of care , exclusive of depreciation and amortization is not necessarily indicative of future performance . other companies that present care margin may calculate it differently and , therefore , similarly titled measures presented by other companies may not be directly comparable to ours . in addition , care margin has limitations as an analytical tool , including that it does not reflect depreciation and amortization or other overhead allocations . 65 the following table provides a reconciliation of loss from operations , the most closely comparable gaap financial measure , to care margin : replace_table_token_4_th adjusted ebitda we define adjusted ebitda as net loss excluding interest income , interest expense , depreciation and amortization , stock-based compensation , change in the fair value of our redeemable convertible preferred stock warrant liability and provision for income taxes . we include adjusted ebitda in this annual report because it is an important measure upon which our management assesses and believes investors should assess our operating performance . we consider adjusted ebitda to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis . adjusted ebitda is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with gaap . our definition of adjusted ebitda may differ from the definition used by other companies and therefore comparability may be limited . in addition , other companies may not publish this or similar metrics . thus , our adjusted ebitda should be considered in addition to , not as a substitute for , or in isolation from , measures prepared in accordance with gaap , such as net loss . in addition , adjusted ebitda has limitations as an analytical tool , including : although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect cash used for capital expenditures for such replacements or for new capital expenditures ; adjusted ebitda does not include the dilution that results from stock-based compensation or any cash outflows included in stock-based compensation , including from our purchases of shares of outstanding common stock ; and adjusted ebitda does not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments . we provide investors and other users of our financial information with a reconciliation of adjusted ebitda to net loss . we encourage investors and others to review our financial information in its entirety , not to rely on any single financial measure and to view adjusted ebitda in conjunction with net loss . 66 the following table provides a reconciliation of net loss , the most closely comparable gaap financial measure , to adjusted ebitda : replace_table_token_5_th components of our results of operations net revenue we generate net revenue through net patient service revenue , partnership revenue , and membership revenue . net patient service revenue . we generate net patient service revenue from providing primary care services to patients in our offices when we bill the member or their insurance plan on a fee-for-service basis as medical services are rendered . while substantially all of our patients are members , we occasionally also provide care to non-members .
| results of operations the following tables set forth our results of operations for the periods presented and as a percentage of our net revenue for those periods . percentages presented in the following tables may not sum due to rounding . 69 comparison of the year ended december 31 , 2019 and 2018 replace_table_token_6_th ( 1 ) includes stock-based compensation , as follows : replace_table_token_7_th net revenue replace_table_token_8_th 70 net revenue increased $ 63.6 million , or 30 % , from $ 212.7 million for the year ended december 31 , 2018 to $ 276.3 million for the year ended december 31 , 2019. this increase was primarily due to a 76,000 increase in members , or 22 % , from 346,000 as of december 31 , 2018 to 422,000 as of december 31 , 2019. our members are the primary driver of our net revenue . net revenue from patient service and partnerships increased $ 54.6 million , or 32 % , from $ 169.5 million for the year ended december 31 , 2018 to $ 224.1 million for the year ended december 31 , 2019. the increase was primarily due to the 22 % increase in members . in addition , net revenue per member increased by 8 % as we entered into new partnership relationships with health networks that resulted in a higher net revenue rate per member than the previous fee-for-service contracts with payers , and an increase in flu vaccines in the fourth quarter . during the year ended december 31 , 2018 , we did not have fixed pmpm contracts with health networks , and partnership revenue only included contracts for on-site medical services and capitation payments .
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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 ยitem 1a . risk factorsย of this annual report on form 10-k. overview chemocentryx is a biopharmaceutical company focused on discovering , developing and commercializing orally-administered therapeutics to treat autoimmune diseases , inflammatory disorders and cancer . our pipeline comprises the following programs : ccr2 program : ccx140 ย targeting the chemokine receptor known as ccr2 , ccx140 has successfully completed and reported positive data from a phase ii clinical trial in patients with diabetic nephropathy , a form of kidney disease . in december 2014 , we announced positive top-line 52-week data from this clinical trial , indicating that the trial met its primary endpoint by demonstrating that treatment with 5mg of ccx140 given orally once daily added to a standard of care treatment resulted in a statistically significant reduction in urinary albumin to creatinine ratio , or uacr . we plan to conduct end-of-phase ii meetings with the u.s food and drug administration , or fda , and european medicines agency , or ema ; ccx872 ย our second generation orally administered inhibitor targeting ccr2 , ccx872 completed phase i clinical development . we initiated a phase ib clinical trial in patients with pancreatic cancer at the end of 2014 and plan to commence dosing in the first half of 2015 ; c5ar program : ccx168 ย targeting the chemoattractant receptor known as c5ar ( which binds the complement fragment c5a ) , ccx168 has successfully completed and reported positive clinical data from the first two steps of a three-step phase ii clinical trial in patients with anti-neutrophil cytoplasmic antibody , or anca , associated vasculitis , or aav . the third step of this trial is ongoing in europe , the clear trial , and a second phase ii clinical trial is ongoing in north america , the classic trial . c5ar is also believed to play a role in other renal disease settings such as immunoglobulin a , or iga , nephropathy , or igan , and atypical hemolytic uremic syndrome , or ahus . we plan to initiate phase iia proof of concept clinical trials in ahus and igan in the first half of 2015 ; ccr9 program : vercirnon ( also known as traficet-en , or ccx282 ) ย targeting the chemokine receptor known as ccr9 , vercirnon is our drug candidate for the treatment of patients with moderate-to-severe crohn 's disease . vercirnon is ready to advance to phase iii clinical development in the context of a partnership , if we are able to identify a development partner ; and ccx507 ย our second generation ccr9 inhibitor for the treatment of inflammatory bowel disease , or ibd , ccx507 has successfully completed phase i clinical development , which demonstrated that ccx507 was safe and well-tolerated , and blocked ccr9 on circulating leukocytes . we also recently presented preclinical data with ccx507 in combination with an anti- a 4 b 7 antibody or anti-tnf showing combined treatment reduced the severity of colitis better than monotherapy with either drug alone . 67 we also have several additional drug candidates in earlier stage programs that we are advancing through preclinical development : earlier stage programs in immuno-oncology and autoimmune diseases : chemokine receptor targets : ccr1 , ccr4 , ccr5 , ccr6 , cxcr2 , cxcr6 , cxcr7 ย we are exploring potential opportunities for some of these programs in immuno-oncology . chemokine and chemoattractant receptors are believed to play a role in establishing a tumor microenvironment that suppresses a cytotoxic immune response . we have discovered small molecule inhibitors targeting these chemokine and chemoattractant receptors , which may be developed in certain oncology indications targeting both solid and liquid tumors . we believe that such immunotherapeutic agents could be administered as stand-alone therapies or result in a synergistic effect when given in combination with traditional chemotherapies or other immunotherapies , such as programmed cell death protein1 , or pd-1/programmed death ligand 1 , or pd-l1 antibodies . all of our drug candidates are wholly owned and are being developed independently by us . our strategy also includes identification of next generation compounds related to our drug candidates , all of which have been internally discovered . since commencing our operations in 1997 , our efforts have focused on research , development and the advancement of our drug candidates into and through clinical trials . as a result , we have incurred significant losses . we have funded our operations primarily through the sale of convertible preferred and common stock , contract revenue under our collaborations , government contracts and grants and borrowings under equipment financing arrangements . in february 2012 , we completed our initial public offering , or ipo , pursuant to which we received net proceeds of $ 45.0 million , after underwriting discounts , commissions and offering expenses . we also received gross proceeds of $ 12.0 million from concurrent private placements of common stock at the ipo price of $ 10.00 per share . in addition , the outstanding principal amount of $ 10.0 million and accrued interest under a convertible note we had issued to bio-techne corporation ( formerly techne corporation ) , or bio-techne , one of our principal stockholders , automatically converted into shares of our common stock in connection with our ipo at a conversion price equal to the ipo price . in april 2013 , we completed a follow-on offering of 5,750,000 shares of our common stock at $ 12.00 per share . we received net proceeds of $ 64.4 million , after deducting underwriting discounts , commissions and offering expenses . as of december 31 , 2014 , we had an accumulated deficit of $ 219.8 million . story_separator_special_tag 69 while our significant accounting policies are described in the notes to our consolidated financial statements appearing at the end of this annual report on form 10-k , we believe that the following critical accounting policies relating to revenue recognition , clinical trial expenses , stock-based compensation and income taxes are most important to understanding and evaluating our reported financial results . revenue recognition we generate revenue principally from collaborative research and development agreements with pharmaceutical companies . we recognize revenue in accordance with the criteria outlined in the securities and exchange commission 's topic 13 and accounting standards codification , or asc , 605-25 and by the financial accounting standards board , or fasb . following these accounting pronouncements , revenue is recognized when the following criteria have been met : persuasive evidence of an arrangement exists ; delivery has occurred and risk of loss has passed ; the seller 's price to the buyer is fixed or determinable ; and collectability is reasonably assured . any amounts received in advance of performance are recorded as deferred revenue until earned . under collaboration agreements , we may receive payments for non-refundable up-front fees , reimbursement for research and development services , milestone payments , license fees and royalties . in assessing the appropriate revenue recognition related to a collaboration agreement , we first determine whether an arrangement includes multiple elements , such as the delivery of intellectual property rights and research and development services . for multiple element arrangements entered into prior to our adoption of accounting standards update , or asu no.2009-13 , revenue recognition ย multiple deliverable revenue arrangements , on january 1 , 2011 , intellectual property rights granted were not considered to be separable from the activity of providing research and development services because the intellectual property right does not have stand-alone value separate from the research and development services provided or evidence of fair value does not exist for the undelivered research and development services . accordingly , we account for our collaboration agreements as a combined unit of accounting . the revenue from up-front payments is recognized on a straight-line basis over the estimated term of the research and development obligations covered under the research and development collaboration agreement . we periodically review the basis for our estimates , and we may change the estimates if circumstances change . these changes can significantly increase or decrease the amount of revenue recognized . as we applied our policy to our collaboration arrangements , we made judgments which affected the pattern of revenue recognition . for instance , in our former arrangement with gsk , we were obligated to provide research and development services . we recognized revenue from up-front payments over the estimated period of our performance of the research and development services , which ended in october 2013 , the completion date of the phase ii clinical trial for the last of the drug candidates to be developed under the gsk alliance . in february 2012 , we shortened the term of our performance obligation and associated period over which the up-front payments were recognized under our arrangement with gsk following the decision by us and gsk not to advance ccx832 or its two designated back-up compounds . this change in estimate was accounted for prospectively and we revised the estimated period of performance prospectively in 2012 to end by october 2013 , which increased the annualized revenue recognition by approximately $ 0.9 million per year . we follow the milestone method of recognizing revenue from milestones and milestone payments are recorded as revenue in full upon achievement of the milestone if there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and the achievement of the milestone is based on our performance . for instance , in our former arrangement with our former collaboration partner , glaxo group limited , or gsk , an affiliate of glaxosmithkline , gsk paid us a non-refundable option exercise fee of $ 25.0 million in november 2011 to obtain exclusive license to ccx354 . as we determined that we would have no further performance obligation related to research and development under this program , we recognized the full $ 25.0 million option exercise fee as revenue in the year ended december 31 , 2011 . 70 clinical trial accruals and related expenses we accrue and expense costs for clinical trial activities performed by third parties , including clinical research organizations , or cros , and clinical investigators , based upon estimates made as of the reporting date of the work completed over the life of the individual study in accordance with agreements established with cros and clinical trial sites . some cros invoice us on a monthly basis , while others invoice upon milestones achieved and the expense is recorded as services are rendered . we determine the estimates of clinical activities incurred at the end of each reporting period through discussion with internal personnel and outside service providers as to the progress or stage of completion of trials or services , as of the end of each reporting period , pursuant to contracts with numerous clinical trial centers and cros and the agreed upon fee to be paid for such services . the significant factors considered in estimating accruals include the number of patients enrolled and the percentage of work completed to date . costs of setting up clinical trial sites for participation in the trials that are paid for in advance are expensed over the estimated set-up period . while the set-up periods vary from one arrangement to another , such set-up periods generally take from two to six months . such set-up activities include clinical site identification , local ethics committee submissions , regulatory submissions , clinical investigator kick-off meetings and pre-study site visits . clinical trial site costs related to patient enrollments are accrued as patients are entered into the trial . to date , we have not experienced significant changes in our estimates of clinical trial accruals after a reporting period .
| results of operations revenues we have not generated any revenue from product sales . for the three years ended december 31 , 2014 , our revenues have been derived from contract revenue , up-front payments and development milestone payments from gsk . total revenues , as compared to the prior years , were as follows ( in thousands ) : replace_table_token_7_th the decrease in total revenues from 2013 to 2014 was due to funding of clinical support in 2013 from our former partner , gsk , for ccx168 , our c5ar inhibitor , for the treatment of aav . our product development and commercialization agreement with gsk ended in november 2013 , and therefore no revenue was recorded in 2014. the increase in total revenues from 2012 to 2013 was primarily due to funding of clinical support from gsk for ccx168 in 2013. research and development expenses research and development expenses represent costs incurred to conduct basic research , the discovery and development of novel small molecule therapeutics , development of our suite of proprietary drug discovery technologies , preclinical studies and clinical trials of our drug candidates . we expense all research and development expenses as they are incurred . these expenses consist primarily of salaries and related benefits , including stock-based compensation , third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities , laboratory consumables , and allocated facility costs .
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the agreement also provides for the continuance of existing standby letters of credit in connection with various surety deposit requirements for workers ' compensation purposes , as to which the amount outstanding totaled approximately $ 19.4 million at december 31 , 2013. f-20 barrett business services , inc. notes to consolidated financial statements ( continued ) 7. revolving credit facility and long-term debt ( continued ) advances under the revolving credit facility bear interest , at the company 's option , at either ( a ) a fixed rate for a term selected by the company from time-to-time or ( b ) a fluctuating rate . in each case , the rate is calculated based on libor plus 1.75 % . the agreement also provides for an unused commitment fee of 0.25 % per annum on the average daily-unused amount of the revolving credit facility . the credit facility is collateralized by the company 's accounts receivable and other rights to receive payment , story_separator_special_tag overview the company is a leading provider of business management solutions for small-and mid-sized companies . the company has developed a management platform that integrates tools from the human resource outsourcing industry and knowledge-based approach from the management consulting industry . this platform , through the effective leveraging of human capital , assists our business owner clients in more effectively running their business . we deliver the managerial resources and guidance of a large company to small and mid-sized businesses . our professional employer service fees are generated from client services agreements with our clients ; we enter into a co-employment arrangement in which we become the administrative employer and the client maintains care , custody and control of their operations . revenues from client services agreements are recognized on a net basis in accordance with current accounting guidance for revenue recognition and principal/agent considerations . consequently , service fee revenues represent the gross margin generated from our professional employer services after deducting the amounts invoiced to co-employed clients for direct payroll expenses such as salaries , wages , health insurance and employee out-of-pocket expenses incurred incidental to employment . these amounts are also excluded from cost of revenues . our fees also include amounts invoiced to our clients for employer payroll-related taxes and workers ' compensation coverage . we generate staffing services revenues primarily from short-term staffing , contract staffing , on-site management and direct placement services . we recognize revenues from our staffing services for all amounts invoiced , including direct payroll , employer payroll-related taxes , workers ' compensation coverage and a service fee ( equivalent to a mark-up percentage ) . through centralized operations at our headquarters in vancouver , washington , we prepare invoices weekly for our staffing services customers and following the end of each payroll processing cycle for clients under a client services agreement . we invoice our customers and clients as each payroll is processed . payment terms for staffing customers are generally 30 days , while co-employed clients ' invoices are generally due on the invoice date . our business is concentrated in california and oregon and we expect to continue to derive a majority of our revenues from these markets in the future . revenues generated in our california and oregon offices accounted for 82 % of our total net revenues in 2013 , 79 % in 2012 and 75 % in 2011. consequently , any weakness in economic conditions or changes in the regulatory environments in these regions could have a material adverse effect on our financial results . our cost of revenues is comprised of direct payroll costs for staffing services , employer payroll-related taxes and employee benefits and workers ' compensation . direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages . payroll taxes and employee benefits consist of the employer 's portion of social security and medicare taxes , federal and state unemployment taxes , and staffing services employee reimbursements for materials , supplies and other expenses , which are - 25 - paid by the customer . workers ' compensation expense consists primarily of the costs associated with our self-insured workers ' compensation program , such as claims reserves , claims administration fees , legal fees , state administrative agency fees and excess insurance costs for catastrophic injuries . we also maintain separate workers ' compensation insurance policies for employees working in states where we are not self-insured . the largest portion of workers ' compensation expense is the cost of workplace injury claims . when an injury occurs and is reported to us , our respective independent tpa or our internal claims management personnel analyze the details of the injury and develop a case reserve , which becomes the estimate of the cost of the claim based on similar injuries and their professional judgment . we then record or accrue an expense and a corresponding liability based upon our estimate of the ultimate claim cost . as cash payments are made by our tpa against specific case reserves , the accrued liability is reduced by the corresponding payment amount . the tpa and our in-house claims administrators also review existing injury claims on an on-going basis and adjust the case reserves as new or additional information for each claim becomes available . our reserve includes a provision for both future anticipated increases in costs ( ยadverse loss developmentย ) of the claims reserves for open claims and for claims incurred but not reported related to prior and current periods ( together ibnr ) . this provision of the reserve is based upon an actuarial estimate provided by our independent actuary . we believe our operational policies and internal claims reporting system help to limit the occurrence of unreported incurred claims . selling , general and administrative expenses represent both branch office and corporate-level operating expenses . branch operating expenses consist primarily of branch office staff payroll and personnel related costs , advertising , rent , office supplies , professional and legal fees and branch incentive compensation . story_separator_special_tag our income taxes are accounted for using an asset and liability approach . this requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable tax rates . the determination of our provision for income taxes requires significant judgment , the use of estimates , and the interpretation and application of complex tax laws . significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions . the impact of uncertain tax positions would be recorded in our financial statements only after determining a more-likely-than-not probability that the uncertain tax positions would withstand challenge , if any , from taxing authorities . at december 31 , 2013 , we had deferred income tax assets of $ 8.9 million . we assess the realization of the deferred income tax assets as significant changes in circumstances may require adjustments during future periods . the amount of the deferred income tax assets actually realized could vary , if there are differences in the timing or amount of future reversals of existing deferred income tax assets or changes in the actual amounts of future taxable income as compared to operating forecasts . if our operating forecast is determined to no longer be reliable due to uncertain market conditions , our long-term forecast may require reassessment . as a result , in the future , a valuation allowance may be required to be established for all or a portion of the deferred income tax assets . such a valuation allowance could have a significant effect on our future results of operations and financial position . recent accounting pronouncements for a discussion of recent accounting pronouncements and their potential effect on the company 's results of operations and financial condition , refer to note 1 in the notes to the consolidated financial statements beginning at page f-8 of this annual report on form 10-k. forward-looking information statements in this item or in items 1 and 1a of this report which are not historical in nature , including discussion of economic conditions in the company 's market areas and effect on revenue levels , the potential for and effect of acquisitions , the effect of changes in the company 's mix of services on gross margin , the adequacy of the company 's workers ' compensation reserves and allowance for doubtful accounts , the effect of the company 's formation and operation of two wholly owned fully licensed insurance subsidiaries and becoming self-insured for certain business risks , the company 's response to changes in california law affecting the company 's ability to be self-insured for workers ' compensation claims in the state , the effectiveness of the company 's management information systems , - 28 - payment of future dividends and the availability of financing and working capital to meet the company 's funding requirements , are forward-looking statements within the meaning of the private securities litigation reform act of 1995. such forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause the actual results , performance or achievements of the company or industry to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . such factors with respect to the company include , the company 's ability to retain current customers , economic trends in the company 's service areas , the potential for material deviations from expected future workers ' compensation claims experience , the effect of changes in the workers ' compensation regulatory environment in one or more of the company 's primary markets , the company 's ability to implement its fronted insurance program while maintaining its competitive position in california , difficulties associated with integrating acquired businesses and clients into the company 's operations , collectibility of accounts receivable , the carrying values of deferred income tax assets and goodwill , which may be affected by the company 's future operating results , and the availability of capital or letters of credit necessary to meet state-mandated surety deposit requirements for maintaining the company 's status as a qualified self-insured employer for workers ' compensation coverage , among others . the company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments . results of operations the following table sets forth the percentages of total revenues represented by selected items in the company 's consolidated statements of operations for the years ended december 31 , 2013 , 2012 and 2011 , included in item 15 of this report . references to the notes to financial statements appearing below are to the notes to the company 's consolidated financial statements included in item 15 of this report . replace_table_token_6_th - 29 - we report peo revenues on a net basis because we are not the primary obligor for the services provided by our co-employed clients to their customers pursuant to our client service agreements . we present for comparison purposes the gross revenues and cost of revenues information for the years ended december 31 , 2013 and 2012 set forth in the table below . although not in accordance with generally accepted accounting principles in the united states ( ยgaapย ) , management believes this information is more informative as to the level of our business activity and more illustrative of how we manage our operations , including the preparation of our internal operating forecasts , because it presents our peo services on a basis comparable to our staffing services . the presentation of revenues on a net basis and the relative contributions of staffing and peo services revenues can create volatility in our gross margin percentage . the general impact of fluctuations in our revenue mix is described below .
| fluctuations in quarterly operating results we have historically experienced significant fluctuations in our quarterly operating results and expect such fluctuations to continue in the future . our operating results may fluctuate due to a number of factors such as a seasonality , wage limits on statutory payroll taxes , claims experience for workers ' compensation , demand for our services and competition and the effect of acquisitions . payroll taxes , as a component of cost of revenues , generally decline throughout a calendar year as the applicable statutory wage bases for federal and state unemployment taxes and social security taxes are exceeded on a per employee basis . our revenue levels may be higher in the third quarter due to the effect of increased business activity of our customers ' businesses in the agriculture , food processing and forest products-related industries . in addition , revenues in the fourth quarter may be affected by many customers ' practice of operating on holiday-shortened schedules . workers ' compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims . in addition , adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the company 's estimated worker 's compensation expense .
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fair value of financial instruments financial instruments include such items as loans , deposits , investment securities , interest rate and foreign exchange contracts and story_separator_special_tag forward-looking statements certain matters contained in this filing are ยforward-looking statementsย within the meaning of the private securities litigation reform act of 1995. our forward-looking statements ( such as those concerning its plans , expectations , estimates , strategies , projections and goals ) involve risks and uncertainties that could cause actual results to differ materially from those discussed in the statements . readers should carefully consider those risks and uncertainties in reading this report . factors that could cause or contribute to such differences include , but are not limited to : ( 1 ) global , national and local economic and market conditions , specifically with respect to changes in the united states economy ; ( 2 ) the level and volatility of interest rates and currency values ; ( 3 ) government fiscal and monetary policies ; ( 4 ) credit risks inherent in the lending process ; ( 5 ) loan and deposit demand in the geographic regions where we conduct business ; ( 6 ) the impact of intense competition in the rapidly evolving banking and financial services business ; ( 7 ) extensive federal and state regulation of our business , including the effect of current and pending legislation and regulations ; ( 8 ) whether expected revenue enhancements and cost savings are realized within expected time frames ; ( 9 ) risk and uncertainties regarding the purchase of ucb , including : a ) the possibility of customer or employee attrition following the ucb transaction ; b ) lower than expected revenues following the transaction ; and c ) problems or delays in bringing together ucb with bancwest/bank of the west ; ( 10 ) matters relating to the integration of our business with that of past and future merger partners , including the impact of combining these businesses on revenues , expenses , deposit attrition , customer retention and financial performance ; ( 11 ) our reliance on third parties to provide certain critical services , including data processing ; ( 12 ) the proposal or adoption of changes in accounting standards by the financial accounting standards board ( ยfasbย ) , the securities and exchange commission ( ยsecย ) or other standard setting bodies ; ( 13 ) technological changes ; ( 14 ) other risks and uncertainties discussed in this document or detailed from time to time in other sec filings that we make ; and ( 15 ) management 's ability to manage risks that result from these and other factors . our forward-looking statements are based on management 's current views about future events . those statements speak only as of the date on which they are made . we do not intend to update forward-looking statements , and , except as required by law , we disclaim any obligation or undertaking to update or revise any such statements to reflect any change in our expectations or any change in events , conditions , circumstances or assumptions on which forward-looking statements are based . see ยglossary of financial termsย on page 70 for definitions of certain terms used in this annual report . gaap , operating and cash earnings we analyze our performance on a net income basis determined in accordance with generally accepted accounting principles ( ยgaapย ) , as well as on an operating basis before merger-related , integration and other nonrecurring costs and or the effects of the amortization of intangible assets . we refer to the results as ยoperatingย and ยcashย earnings , respectively . operating earnings , cash earnings and operating cash earnings ( the combination of the effect of adjustments for both cash and operating results ) , as well as information calculated from them and related discussions , are presented as supplementary information in this analysis . this presentation is intended to enhance the readers ' understanding of , and highlight trends in , our core financial results excluding the effects of discrete business acquisitions and other transactions . we include these additional disclosures because this information is both relevant and useful in understanding the performance of the company as management views it . operating earnings and cash earnings should not be viewed as a substitute for net income , among other gauges of performance , as determined in accordance with gaap . merger-related , integration and other nonrecurring costs , amortization of intangible assets and other items excluded from net income to derive operating and cash earnings may be significant and may not be comparable to those of other companies . basis of presentation the bnp paribas merger was accounted for as a purchase , with bnp paribas ' accounting basis being ยpushed downย to bancwest corporation . although bancwest corporation was the surviving entity in the bnp paribas merger , its ownership changed due to the transaction . prior to the bnp paribas merger , bancwest 16 part ii ( continued ) corporation was 55 % publicly owned and 45 % owned by bnp paribas ( ยpredecessorย basis ) . starting on december 20 , 2001 , bancwest corporation 's financial statements reflected bnp paribas ' ยpushed-down basis.ย see note 2 of the consolidated financial statements for additional information regarding this business combination . it is generally not appropriate to combine pre- and post-ยpush-downย periods ; however , for purposes of comparison only , certain information presented in this section combines bancwest corporation 's results of operations from december 20 , 2001 through december 31 , 2001 with those of the predecessor for the period from january 1 , 2001 through december 19 , 2001. the combined results will generally serve as comparable amounts to the 12-month period ended december 31 , 2000 and will be utilized for purposes of providing discussion and analysis of results of operations . in addition , annual average balances discussed in this section were computed on a similarly combined basis . story_separator_special_tag the increase in average earning assets was partially offset by a two-basis-point ( 1 % equals 100 basis points ) reduction in our net interest margin . the federal reserve board 's federal open market committee has reduced the key federal funds rate 11 times by a total of 425 basis points in 2001. the effect of these decreases has reduced the yield on earning assets , but also the rates paid on sources of funds . 2000 vs. 1999 ( in thousands ) 2000 1999 change net interest income $ 746,934 $ 688,834 8.4 % the increase in our net interest income in 2000 was principally the result of a $ 1.3 billion , or 8.7 % , increase in average earning assets . the increase in our average earning assets was primarily a result of growth in our bank of the west operating segment . this increase was partially offset by a one-basis-point reduction in our net interest margin . the rebound in hawaii has stopped the nearly decade-long economic decline , leading to a double-digit increase in the earnings of our first hawaiian operating segment . noninterest income ( in thousands ) 2001 2000 change noninterest income $ 308,398 $ 216,076 42.7 % key components of noninterest income that increased in 2001 over 2000 include : ( 1 ) a $ 71.8 million increase in the net gain on sale of investment securities , primarily from the $ 59.8 million pre-tax gain on the sale of concord stock and the sale of securities in our available-for-sale investment portfolio ; ( 2 ) higher service charges and fees for deposits and miscellaneous items , due to higher fees and increased volume from our larger customer base and ( 3 ) a $ 4 million gain on the sale of a leveraged lease . these increases were partially offset by a decrease in trust and investment income , primarily due to the decrease in the equity markets in the united states . noninterest expense ( in thousands ) 2001 2000 change noninterest expense $ 595,746 $ 533,961 11.6 % the increase in noninterest expense in 2001 was primarily due to the additional costs related to our larger branch network because of branch acquisitions in nevada , new mexico , guam and saipan . excluding the pre-tax restructuring , integration and other nonrecurring costs of $ 3.9 million in 2001 and $ 1.3 million in 2000 , noninterest expense increased by 10.7 % , due primarily to an increase in salaries and employee benefits and an increase in occupancy expense , primarily due to continued expansion in our bank of the west operating segment . the increase in our intangible amortization expense is due to additional amounts of intangible assets recorded related to our branch acquisitions in nevada , new mexico , guam and saipan . 18 part ii ( continued ) efficiency ratio replace_table_token_6_th * calculated as noninterest expense ( exclusive of nonrecurring costs ) minus the amortization of goodwill and core deposit intangible as a percentage of total operating revenue ( net interest income plus noninterest income , exclusive of nonrecurring items ) . our efficiency ratio improved in 2001 over 2000 principally because of increased revenue from higher net interest income , primarily from more earning assets , and higher noninterest income . in addition , the containment of noninterest expense contributed to the improvement in our efficiency ratio . credit quality the provision for credit losses increased in 2001 over 2000 primarily because of the 9.8 % increase in average total loans and leases outstanding in 2001 over 2000 and additional amounts taken in response to macroeconomic trends . the improvement in the ratio of non-performing assets to total loans and leases , oreo and repossessed personal property in 2001 compared to 2000 was primarily due to the increase in average total loans and leases , as well as the reduction of restructured loans and leases and oreo and repossessed personal property , partially offset by an increase in nonaccrual loans and leases . net charge-offs increased primarily due to increased charge-offs in the commercial , financial and agricultural and consumer loan and lease categories . the overall increase in charge-offs reflect the effects of the slowing national and regional economies . replace_table_token_7_th * principally loans and leases collateralized by real estate . net interest margin 2001 vs. 2000 replace_table_token_8_th the net interest margin decreased by 2 basis points in 2001 from 2000 due primarily to the effects of the decreasing interest rate environment that was experienced for most of 2001. although the decreasing rate environment reduced our yield on earning assets by 66 basis points to 7.66 % in 2001 from 8.32 % in 2000 , it also decreased our rate paid on sources of funds by 64 basis points to 2.93 % in 2001 from 3.57 % in 2000. therefore , our net interest margin decreased by two basis points in 2001. partially offsetting the decrease in the yield on average earning assets , average noninterest-bearing deposits increased by $ 431 million , or 15.8 % , in 2001 compared to 2000 . 2000 vs. 1999 replace_table_token_9_th the net interest margin decreased by one basis point in 2000 from 1999 primarily due to the effects of the increasing interest rate environment that was experienced for most of 2000. although the increasing rate environment raised our yield on earning assets by 48 basis points to 8.32 % in 2000 over 7.84 % in 1999 , it also raised our rate paid on sources of funds by 49 basis points to 3.57 % in 2000 over 3.08 % in 1999. therefore , our net interest margin decreased by one basis point in 2000. partially offsetting the increase on the rate paid on sources of funds , average noninterest-bearing deposits increased in 2000 by $ 262.5 million , or 10.7 % , compared to 1999. average earning assets 2001 vs. 2000 ( in thousands ) 2001 2000 change average earning assets $ 17,273,697 $ 15,752,238 9.7 % the continuing growth of our bank of the west operating segment and our branch acquisitions
| operating segments results as detailed in note 19 to the consolidated financial statements on pages 64 and 65 , our operations are managed principally through our two major bank subsidiaries , bank of the west and first hawaiian . bank of the west operates primarily in california , oregon , washington , idaho , new mexico and nevada . it also conducts business nationally through its consumer finance division and its essex credit corporation subsidiary . first hawaiian 's primary base of operations is in hawaii , guam and saipan . it also has significant operations extending nationally , and to a lesser degree internationally , through its media finance , national corporate lending and leveraged leasing operations . the ยotherย category in the table below consists principally of bancwest corporation ( parent company ) , fhl lease holding company , inc. , bancwest capital i and first hawaiian capital i. the reconciling items are principally consolidating entries to eliminate intercompany balances and transactions . the following table summarizes significant financial information , as of or for years ended december 31 , of our reportable segments : replace_table_token_10_th 20 part ii ( continued ) 2001 vs. 2000 our net interest income for 2001 increased over 2000 , principally due to the growth in loan and lease volume in the western united states and increase in noninterest-bearing deposits . bank of the west 's annual average loans outstanding increased in 2001 by 19.3 % over 2000. first hawaiian 's 0.3 % increase in net interest income between 2001 and 2000 was primarily due to an increase in investment securities and lower cost on deposits , partially offset by a decrease in loans and leases .
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when used in this form 10-k , words such as โ anticipate , โ โ believe , โ โ estimate , โ โ expect , โ โ intend โ and similar expressions , as they relate to us or our management , identify forward-looking statements . such forward-looking statements are based on the beliefs of management , as well as assumptions made by , and information currently available to , our management . actual results could differ materially from those contemplated by the forward-looking statements as a result of a number of factors , including those set forth under the risk factors and business sections in this form 10-k. overview we are a marine enterprises group primarily engaging in ocean fishing through our prc operating subsidiary , fujian provincial pingtan county ocean fishing group co. , ltd. , or pingtan fishing . we harvest a variety of fish species with many of our owned or licensed vessels operating within the indian exclusive economic zone , indo-pacific waters , the arafura sea of indonesia and international waters of atlantic and pacific oceans . we provide high quality seafood to a diverse group of customers including distributors , restaurant owners and exporters in the prc . in june 2013 , we expanded our fleet from 40 to 86 vessels through a purchase of 46 fishing trawlers . we began operating these vessels in the third quarter of 2013 and have been entitled to net profits from their operation . each vessel carries a crew of 10 to 15 persons . these vessels have resulted in additional carrying capacity of approximately 45,000 to 50,000 tons of fish . in september 2013 , we further increased our fleet to 106 vessels with the acquisition of 20 newly-built fishing trawlers . these vessels have a run-in period of 3 - 6 months , during which each is placed into the sea for testing prior to full operation . at full operation , each vessel is capable of harvesting 900 to 1,000 tons of fish . subsequent to our fleet expansions , in september 2013 , the ministry of agriculture of the people 's republic of china ( โ moa โ ) issued a notification that it would suspend accepting shipbuilding applications for tuna harvesting vessels , squid harvesting vessels , pacific saury harvesting vessels , trawlers operating on international waters , seine on international waters , and trawlers operating on the arafura sea , indonesia . we believe the announcement is a positive indicator for long-term stability and balance in china 's fishing industry . on december 4 , 2013 , in connection with the sale of cdgc to hong long , a related party , we acquired 25-year operating license rights in connection with the lease of 20 fishing drifters for the appraised fair market value of approximately $ 216.1 million , whereby we are entitled to 100 % of the operations and net profits ( losses ) from the vessels for the term of the lease . in september 2014 , we further expanded our fleet to 129 vessels with the addition of 3 newly-built light luring seine vessels . at full operation , each vessel is capable of harvesting 2,000 tons of fish . in june 2015 , we purchased 4 longline fishing vessels and 2 squid jigging vessels for the appraised fair market value of approximately $ 56.2 million . these vessels are primarily focused on catching tuna and squid . as of december 31 , 2016 , we own 91 trawlers , 15 drifters , 3 light luring seine vessels , 2 squid jigging vessels and have exclusive operating license rights to 20 drifters , and we also have 4 longline fishing vessels in the final process of paperwork formalities and will be put into operation upon completion . we are the second largest china based fishery company operating its vessels outside of china waters and our fleet has an average remaining useful life of approximately 13.4 years . these vessels are fully licensed to operate in their fishing territories . among the 135 fishing vessels , 13 are operating in indo-pacific waters ; 12 are operating in the bay of bengal in india ; 2 are operating in international waters of southwest atlantic and southeast pacific oceans ; 4 are in the final process of paperwork formalities and will be operating in international waters of pacific ocean upon completion , and the remaining vessels are licensed to operate in the arafura sea in indonesia but temporarily not operating due to the moratorium discussed below . we catch nearly 20 different species of fish including ribbon fish , croaker fish , pomfret , spanish mackerel , conger eel , squid and red snapper . all of our catch is shipped back to china . our fishing vessels transport frozen catch to a cold storage warehouse nearby onshore fishing bases . we then arrange chartered transportation ships to deliver frozen stocks to cold storage warehouses located in one of china 's largest seafood trading centers , mawei seafood market in fujian province . 28 we derive our revenue primarily from the sale of frozen seafood products . we sell our products directly to customers including distributors , restaurant owners and exporters . most of our customers have long-term , cooperative relationships with us . our existing customers also introduce new customers to us from time to time . our operating results are subject to seasonal variations . harvest volume is the highest in the fourth quarter of the year while harvest volumes in the second and third quarters are relatively low due to the spawn season of certain fish species , including ribbon fish , cuttlefish , pomfret , and calamari . based on past experiences , demand for seafood products is the highest from december to january , during chinese new year . we believe that our profitability and growth are dependent on the termination of the indonesian moratorium discussed below and our ability to expand our customer base . story_separator_special_tag the following table sets forth information as to our revenue , cost of revenue , gross loss and gross margin for the years ended december 31 , 2016 and 2015. replace_table_token_10_th gross loss for the year ended december 31 , 2016 was $ 8,788,007 , representing an increase of $ 6,011,570 or 216.5 % as compared to gross loss of $ 2,776,437 for the year ended december 31 , 2015 due to the moratorium described elsewhere in this report . gross margin decreased to ( 42.8 ) % for the year ended december 31 , 2016 from ( 4.6 ) % for the year ended december 31 , 2015. the significant decrease in gross margin for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 was primarily attributable to the reduced scale of operations resulting in lower revenue , which is reflected in the allocation of fixed costs , mainly consisting of depreciation , to cost of revenue ; partially offset by the positive gross margin from our fish resale activities . selling expense our selling expense mainly includes storage fees , insurance , shipping and handling fees , customs service charge , advertising expenses , and fishing vessels ' examination fees . our sales activities are conducted through direct selling by our internal sales staff . because of the strong demand for our products and services , we do not have to aggressively market and distribute our products . as a result , our selling expense has been relatively small as a percentage of our revenue . selling expense totaled $ 1,235,497 for the year ended december 31 , 2016 , as compared to $ 1,858,687 for the year ended december 31 , 2015 , a decrease of $ 623,190 or 33.5 % . selling expense as a percentage of revenue for the year ended december 31 , 2016 increased to 6.0 % from 3.1 % for the year ended december 31 , 2015 , which was mainly attributable to the significant decrease in sales revenue due to the indonesian government 's moratorium described above and a change in insurance cost year over year . selling expense for the years ended december 31 , 2016 and 2015 consisted of the following : replace_table_token_11_th 32 โ for the year ended december 31 , 2016 , insurance expense increased by $ 220,518 , or 58.9 % , as compared to the year ended december 31 , 2015. the increase was primarily attributable to the increase in insured fishing vessels and the increase in unit premium for insured fishing vessels . โ for the year ended december 31 , 2016 , shipping and handling fees decreased by $ 146,417 , or 39.6 % , as compared to the year ended december 31 , 2015. the decrease was mainly attributable to the decrease in our fishing activities . โ for the year ended december 31 , 2016 , storage fees decreased by $ 488,331 , or 73.2 % , as compared to the year ended december 31 , 2015. the decrease was primarily attributable to the decrease in our storage area resulting from decreased inventories . โ for the year ended december 31 , 2016 , customs service charge decreased by $ 21,771 , or 11.9 % , as compared to the year ended december 31 , 2015 , due to the decrease in fishing activities . โ for the year ended december 31 , 2016 , advertising expenses decreased by $ 46,996 , or 52.7 % , as compared to the year ended december 31 , 2015 , mainly due to the decrease in advertising activities . โ other selling expense , which primarily consisted of fishing vessels ' examination fees , for the year ended december 31 , 2016 decreased by $ 140,193 , or 80.5 % , as compared to the year ended december 31 , 2015. the decrease was mainly due to the decrease in examination fees for our fishing vessels resulting from the decrease in examined fishing vessels . general and administrative expense general and administrative expense totaled $ 3,969,465 for the year ended december 31 , 2016 , as compared to $ 2,933,588 for the year ended december 31 , 2015 , an increase of $ 1,035,877 or 35.3 % . general and administrative expense for the years ended december 31 , 2016 and 2015 consisted of the following : replace_table_token_12_th โ professional fees , which primarily consist of legal fees , accounting fees , investor relations services charge , valuation service fees , consulting fees , and other fees associated with being a public company , for the year ended december 31 , 2016 , decreased by $ 287,019 , or 18.4 % , as compared to the year ended december 31 , 2015. the decrease in the year ended december 31 , 2016 was primarily attributable to a decrease in legal fees of approximately $ 156,000 , a decrease in accounting fees of approximately $ 127,000 , and a decrease in valuation fees of approximately $ 100,000 , offset by an increase in investor relations services charge of approximately $ 79,000 , and an increase in consulting service fees of approximately $ 17,000 . 33 โ compensation and related benefits remained roughly consistent for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . โ rent and related administrative service charge remained consistent for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . โ for the year ended december 31 , 2016 , depreciation expense increased by $ 110,930 , or 47.6 % , as compared to the year ended december 31 , 2015. during the year ended december 31 , 2016 , our 13 upgraded and renovated fishing vessels were temporarily idle . we recorded the related depreciation for these 13 fishing vessels as operating expenses rather than as cost of revenue . therefore , the depreciation for operating expenses for year 2016 increased as compared to year 2015 .
| results of operations comparison of results of operations for the year ended december 31 , 2016 and 2015 revenue we recognize revenue from sales of frozen fish and other marine catches when persuasive evidence of an arrangement exists , delivery has occurred , the price to the customer is fixed or determinable , and collection of the resulting receivable is reasonably assured . with respect to the sales to third party customers the majority of whom are sole proprietor regional wholesalers in the prc , we recognize revenue when customers receive purchased goods at our cold storage warehouse , after payment is received or credit sale is approved for recurring customers with excellent payment histories . we do not offer promotional payments , customer coupons , rebates or other cash redemption offers to customers . we do not accept returns from customers . deposits or advance payments from customers prior to delivery of goods are recorded as advances from customers . for the years ended december 31 , 2016 and 2015 , our revenue by species of fish was as follows ( dollars in thousands , except for average price ) : replace_table_token_7_th 30 replace_table_token_8_th for the year ended december 31 , 2016 , we had revenue of $ 20,540,769 , as compared to revenue of $ 60,700,190 for the year ended december 31 , 2015 , a decrease of $ 40,159,421 , or 66.2 % . sales volumes in the year ended december 31 , 2016 decreased 63.8 % to 7,836,723 kg from 21,635,869 kg in the year ended december 31 , 2015. average unit sale price decreased 6.8 % in the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 , which was primarily due to the different sales mix .
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the company 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. overview we are the only global company that offers an interactive โ make your own stuffed animal โ retail entertainment experience under the build-a-bear workshop brand , in which guests participate in the stuffing , fluffing , dressing , accessorizing and naming of their own teddy bears and other stuffed animals . as of february 2 , 2019 , we operated 373 stores globally and had 97 franchised stores operating internationally under the build-a-bear workshop brand . in addition to our stores , we sell products on our company-owned e-commerce sites and franchisee sites and through third parties under wholesale agreements . we operate in three segments that share the same infrastructure , including management , systems , merchandising and marketing , and generate revenues as follows : direct to consumer ( โ dtc โ ) โ corporately-managed retail stores located in the u.s. , canada , puerto rico , the u.k. , ireland , denmark and china and two e-commerce sites ; commercial โ transactions with other businesses , mainly comprised of wholesale product sales and licensing our intellectual property , including entertainment properties , for third-party use ; and international franchising โ royalties as well as product and fixture sales from other international operations under franchise agreements . selected financial data attributable to each segment for fiscal 2018 and 2017 and the five week transition period ending february 3 , 2018 are set forth in note 15 โ segment information to our consolidated financial statements included elsewhere in this annual report on form 10-k. certain amounts in prior fiscal periods have been reclassified to conform to current year presentation with no impact to the consolidated statement of operations ( e.g . store preopening is included within selling , general and administrative and store impairment is disclosed separately from cost of merchandise sold โretail ) . for a discussion of the key trends and uncertainties that have affected our revenues , income and liquidity , see the โ revenues , โ โ costs and expenses โ and โ stores โ subsections of this overview , along with the โ risk factors โ and โ results of operations โ below and in item 1.a . โ risk factors โ above . our consolidated net income ( loss ) was $ ( 17.9 million ) in fiscal 2018 , compared to $ 7.9 million in fiscal 2017. however we use store contribution to measure our store operation . we believe that we have an appealing retail store concept that has broad demographic appeal which , for north american stores open for the entire year , averaged net retail sales per store of $ 0.9 million in both fiscal 2018 and 2017. consolidated store contribution as a percentage of net retail sales was 10 .4 % , and 15.7 % for fiscal years 2018 and 2017 , respectively . consolidated store contribution consists of store location net retail sales less cost of product , marketing and store related expenses . non-store general and administrative expenses are excluded as are our e-commerce sites , locations not open for the full fiscal year and adjustments to deferred revenue related to gift card breakage and our loyalty program . see โ non-gaap financial measures โ for a reconciliation of store contribution to net income . the decrease in consolidated store contribution in fiscal 2018 was primarily due to the revenue impact of declines throughout the year in traditional mall traffic and the economic uncertainty in the u.k. due to brexit . the combined negative effect on store profitability resulted in the deleverage of fixed occupancy costs . in addition , a number of significant factors unique to fiscal 2018 negatively impacted revenues i ncluding the closure of our most productive store in january 2018 , liquidation of toys โ r โ us store inventory across north america in late spring , the unusually low number of family-centric films released in 2018 , that relate directly to our sale of licensed property . revenues also decreased as a result of the adoption of the new revenue recognition standard . further , consumer privacy laws in the u.k. and elsewhere were introduced that limited our ability to communicate with loyalty program members and store shoppers . we expect 2019 to be another transitional year as key aspects of our longer-term strategies continue to be implemented . we are committed to the ongoing plan to address our aged store portfolio by diversifying locations and formats to focus on places where families shop , such as our new pilot program of a half dozen full service stand-alone stores inside select walmart locations , and go for entertainment , including tourist locations . as part of our initiative to diversify retail formats , we continue to opportunistically place a variety of new , lower capital , flexible formats , like concourse shops , in traditional malls or in other high traffic shopping destinations to help navigate the market volatility . in addition , we have significant flexibility in our mall lease portfolio with the negotiation of favorable rent deals and short-term extensions which have resulted in now having over 60 % of our leases coming up for renewal in the next three years . for example , we currently expect to close up to 30 stores over the next two years with about half of those outside of north america as we position our portfolio in line with retail shopping trends . story_separator_special_tag 16 in the ordinary course of business , we anticipate signing additional master franchise agreements in the future and terminating other such agreements . we believe there is a total market potential for approximately 300 international stores outside of the u.s. , canada , the u.k. , ireland and denmark . we source fixtures and other supplies for our franchisees from china which significantly reduced the capital and lowered the expenses required to open franchises . we are leveraging new formats that have been developed for our corporately-managed locations such as concourses and shop-in-shops with our franchisees . we expect to develop market expansion through both new and existing franchisees in 2019 and beyond . story_separator_special_tag income taxes . the provision for income taxes was a benefit of $ 0.6 million in fiscal 2018 compared to income tax expense of $ 5.9 million in fiscal 2017. the 2018 effective rate of 3.1 % differed from the statutory rate of 21 % primarily due to the valuation allowance recorded in certain foreign jurisdictions . the fiscal 2017 effective rate of 42.7 % differed from the statutory rate of 34 % primarily due to the effect of the provisional tax charge of $ 1.4 million for the re-measurement of u.s. net deferred tax assets as a result of the enactment of the tax cuts and jobs act ( the โ act โ ) reducing the u.s. federal statutory rate to 21 % effective january 1 , 2018. the act also included provisions that may partially offset the benefit of such rate reduction , including the repeal of the deduction for domestic production activities and changes to the non-deductibility of certain covered employee compensation . the international provisions of the act , which generally establish a territorial-style system for taxing foreign-source income of domestic multinational corporations , are expected to have a negligible impact on the company . five-week audited transition period ended february 3 , 2018 compared to the four-week unaudited period ended january 28 , 2017 total revenues were $ 30.2 million for the five weeks ended february 3 , 2018 , as compared to $ 24.1 million for the four weeks ended january 28 , 2017. the increase of $ 6.1 million , or 25.3 % , was primarily driven by one extra week of revenue . consolidated gross profit was $ 13.9 million for the five weeks ended february 3 , 2018 , as compared to $ 10.0 million for the four weeks ended january 28 , 2017 , an increase of $ 3.9 million , or 38.4 % . retail gross margin was $ 13.5 million for the five weeks ended february 3 , 2018 compared to $ 9.9 million for the four weeks ended january 28 , 2017 , an increase of $ 3.6 million , or 37.0 % . as a percentage of net retail sales , retail gross margin was 45.7 % for the five weeks ended february 3 , 2018 compared to 41.2 % for the four weeks ended january 28 , 2017. this 450 basis-point gross margin increase was primarily driven by the impact of one extra week of revenue on fixed occupancy costs and a 160 basis-point improvement in merchandise margin . merchandise margin benefited from lower discounts , selective price increases and sourcing efficiencies . for the five weeks ended february 3 , 2018 , the income tax provision was a benefit of $ 0.2 million with an effective rate of 17.8 % , versus the statutory rate of 21 % , compared to an income tax benefit of $ 0.4 million with an effective rate of 35.8 % , versus the statutory rate of 34 % , for the four weeks ended january 28 , 2017. non-gaap financial measures we use the term โ store contribution โ throughout this annual report on form 10-k. store contribution consists of income ( loss ) before income tax expense , interest , general and administrative expense , excluding income from franchise and commercial activities and contribution from our e-commerce sites , locations not open for the full fiscal year and adjustments to deferred revenue related to our loyalty program and gift card breakage . this term , as we define it , may not be comparable to similarly titled measures used by other companies and is not a measure of performance presented in accordance with u.s. generally accepted accounting principles ( โ gaap โ ) . we use store contribution as a measure of our stores ' operating performance . store contribution should not be considered a substitute for net income , net income per store , cash flows provided by operating activities , cash flows provided by operating activities per store , or other income or cash flow data prepared in accordance with u.s. gaap . additionally , store-level performance measures are inherently limited in that they exclude certain expenses that are recurring in nature and are necessary to support the operation and development of our stores . we believe store contribution is useful to investors in evaluating our operating performance because it , along with the number of stores in operation , directly impacts our profitability . 18 the following table sets forth a reconciliation of store contribution to net income ( loss ) for our corporately-managed stores , open throughout the entire period , located in the u.s. , canada and puerto rico ( collectively โ north america โ ) ; stores located in the u.k. , ireland and denmark ( collectively โ europe โ ) ; and , beginning in 2017 , china , for our consolidated store base ( dollars in thousands ) . replace_table_token_5_th ( 1 ) general and administrative expense consists primarily of non-store related expenses such as management compensation , travel , information systems , accounting , purchasing and legal costs . additionally , non-store related depreciation and amortization , store closing and pre-opening expenses are included within general and administrative expense as well as certain intercompany charges in europe .
| results of operations 201 8 overview while we achieved operational milestones on key initiatives of our long-term strategic plan , financial results for fiscal 2018 were disappointing given the prior four consecutive years of profitability . fiscal 2018 financial results were driven primarily by the negative impact from declining mall traffic and the economic uncertainty associated with brexit . in addition , a number of significant factors unique to fiscal 2018 negatively impacted our business including the closure of our most productive store in january 2018 , liquidation of toys โ r โ us store inventory across north america in late spring , and the unusually low number of family-centric films released in 2018 ( which relate directly to our sale of licensed property ) , as well as the revenue decrease from the adoption of the new revenue recognition standard . further , consumer privacy laws in the u.k. and elsewhere were introduced that limited our ability to communicate with loyalty program members and store shoppers . in contrast to the impact from these negative factors , build-a-bear launched a new age-based discount promotion over the summer with an event called โ pay your age. โ the event generated national and international attention and resulted in a mid-year revenue trend reversal and the ongoing promotion provided an opportunity to introduce our loyalty club to our customers for the remainder of fiscal 2018. overall , fiscal 2018 resulted in a net loss , driven primarily by the reduction in revenues , from ongoing and unique challenges , and the associated deleverage of fixed occupancy costs , the higher promotion activity associated with pay your age events and the impact of the adoption of the new revenue recognition standard .
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forward-looking statements may be identified by words including โ anticipate , โ โ plan , โ โ believe , โ โ intend , โ โ estimate , โ โ expect , โ โ should , โ โ may , โ โ potential โ and similar expressions . these statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , levels of activity , performance or achievements to be materially different from the information expressed or implied by these forward-looking statements . while we believe that we have a reasonable basis for each forward-looking statement contained in this annual report , we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future , about which we can not be certain . we undertake no obligation to publicly update any forward-looking statements , whether as a result of new information , future events or otherwise . you are advised , however , to consult any further disclosures we make on related subjects in our quarterly reports on form 10-q , current reports on form 8-k , and our website . overview we are a clinical-stage biopharmaceutical company applying a precision medicine approach to the development and commercialization of targeted therapies for cardiovascular diseases . precision medicine refers to the tailoring of medical treatment to the individual characteristics of patients , using genomic , non-genomic biomarker and other information that extends beyond routine diagnostic categorization . we believe that when implemented correctly precision medicine can enhance therapeutic response , improve patient outcomes , and reduce healthcare costs . our lead product candidates are rnapc2 ( ab201 ) as a potential treatment for diseases caused by ribonucleic acid , or rna , viruses , initially focusing on covid-19 , the disease syndrome caused by the sars-cov-2 virus , and gencaro ( bucindolol hydrochloride ) 45 for the treatment of atrial fibrillation , or af , in patients with chronic heart failure , or hf . rnapc2 targets covid-19 patients with biomarker evidence of coagulopathy , while gencaro is being developed for patients who have a genotype that identifies a drug target associated with heightened efficacy . rnapc2 ( ab201 ) for treatment of covid-19 recombinant nematode anticoagulant protein c2 , or rnapc2 ( ab201 ) , is a protein therapeutic in clinical development as a potential treatment for patients with covid-19 . based on its unique mechanism of action , development history and the clinical evidence from the sars-cov-2 pandemic , we believe rnapc2 has potential to be a beneficial therapy for patients with this serious viral disease . we initiated a phase 2 clinical trial of rnapc2 as a potential treatment for patients hospitalized with covid-19 in the fourth quarter of 2020 and are currently enrolling patients . certain patients with severe covid-19 disease exhibit thrombotic complications and other inflammatory responses suggesting potential dysregulation of the coagulation and immune systems . rnapc2 is a potent inhibitor of tissue factor , a cellular receptor responsible for initiation of the primary coagulation pathway and appears to be the major activator of the coagulation cascade during viral infection . tissue factor is also implicated in the immune system inflammatory response to viral infections and in the process of viral dissemination during infection . we believe that evidence from the pandemic implicates tissue factor pathways as an important part of the covid-19 disease process , and provides a rationale to test rnapc2 as a potential therapeutic for covidโ19 for its anticoagulant and potential anti-inflammatory properties . rnapc2 was originally developed for potential use as an anticoagulant due to its inhibition of the tf-initiated coagulation process . it was evaluated for the prevention of thrombosis in phase 1 and phase 2 clinical studies involving over 800 subjects and demonstrated both safety and efficacy in these studies . rnapc2 has also been investigated as a potential therapeutic for severe viral infections other than covid-19 . research has shown that viral infections can provoke dysregulated activation of the tf pathway , resulting in abnormal systemic coagulation and related inflammation , leading to potential organ failure and mortality . for this reason , rnapc2 was tested as a therapeutic in non-human primates , or nhps , in studies against lethal doses of the ebola and marburg viruses , where it showed evidence of efficacy in the form of mortality reduction , decreases in inflammatory biomarkers and , evidence of reduced disseminated intravascular coagulation , or dic . dic is a serious condition that causes abnormal blood clotting throughout the body 's blood vessels . sars-cov-2 is a new coronavirus identified in late 2019 that belongs to a family of enveloped rna viruses that include middle east respiratory syndrome ( mers ) and severe acute respiratory syndrome ( sars-cov-1 ) , both of which caused serious human infections of the respiratory system . the disease caused by the sars-cov-2 virus has been designated covid-19 . since this outbreak was first reported in late 2019 , there have been over 119 million confirmed cases of covid-19 and over 2.6 million deaths worldwide attributed to the virus ( as of march 2021 ) . covid-19 is associated with a high incidence of both arterial and venous coagulation-related adverse events in large and small blood vessels . these include , stroke , myocardial infarction , or mi , ( i.e. , heart attack ) and pulmonary emboli ; as well as , blockage of the smaller peripheral blood vessels in the fingers/toes ( covid-digit ) . this syndrome is so frequently observed in covid-19 that it has received the name of covid-19 associated coagulopathy , or cac . the underlying pathology of cac is believed to result from thrombo-inflammatory processes triggered by the viral infection . a commonly used biomarker for assessing the presence of abnormal coagulation is a d-dimer test , which is elevated ( greater than 0.5 ) in nearly 70 % of hospitalized covid-19 patients and is associated with adverse clinical outcomes . story_separator_special_tag we are developing gencaro to treat atrial fibrillation , or af , in patients with chronic heart failure , or hf . af is the most common form of cardiac arrhythmia , a disruption of the heart 's normal rhythm or rate . hf is a chronic condition in which the heart is unable to pump enough blood to meet the body 's needs . af and hf commonly occur together . in hf patients , the development of af leads to worsening symptoms , and increased risk of hospitalization and death . current treatment options for af in hf patients are limited , and can be invasive , costly and dangerous . our development plan for gencaro focuses on the treatment of af in patients with higher ejection fraction hf , those who have an ejection fraction , or ef , of 40 % and higher who also have the genotype we believe is optimal for gencaro efficacy . this population of hf encompasses more than half of all hf patients in the united states and europe . there are currently few approved or effective drug therapies to treat af or hf in this patient population . our development plan for gencaro is based on our recent analysis of the phase 2b clinical trial of gencaro for the prevention of af in hf patients , known as genetic-af . this analysis showed novel results for gencaro in patients in the clinical trial with ef 's of 40 % and higher . we are planning a new design for a phase 3 pivotal clinical trial of gencaro based on this analysis that addresses what we believe are important clinical assessments , including the total amount of time that a patient experiences af , known as af burden , maintenance of normal sinus rhythm , rhythm control interventions such as electrical cardioversion , catheter ablation and use of anti-arrhythmic drugs and drug-related complications such as bradycardia . based on these analyses , we were issued a united states patent in february 2021 for the use of gencaro in this patient population . we believe this patent will substantially extend the patent protection for our planned development of gencaro into 2039. we are seeking similar patent protection in other countries . we currently have an agreement with the fda , known as a special protocol assessment , or spa , for the requirements of a gencaro phase 3 clinical trial that would support approval of gencaro if successful . based on our recent analyses of the genetic-af data , we may alter the design of precision-af to focus on endpoints that are not covered in the spa agreement . 47 we believe that patients with hf and af represent a major unmet medical need , and this need is most pronounced in patients with ef values of 40 % and above . this ef range constitutes more than half of all chronic hf in the united states and europe , as well as in japan and china , and there are currently few approved , effective or guideline - recommended therapies for these patients to treat either their af or hf . af is a very common complication in these patients , with estimates of af incidence ranging from 40 % to 60 % . beta-blockers approved for hf are commonly used off-label to control heart rate in these patients , but they are not considered effective in preventing af and none are approved for patients with ef โฅ 40 % . other anti-arrhythmic drugs approved for the treatment of af have adverse side effects and in hf patients are either contraindicated or have label warnings for use due to an increased risk of mortality . interventional procedures for af , such as catheter ablation and electrical cardioversion , are invasive , expensive , and often temporary ; these interventions also typically requir e the continued use of beta blockers and other anti-arrhythmic drugs post-intervention . we believe that gencaro , if approved , may be a safe and more effective therapy for the treatment of higher ejection fraction hf patients with af . we believe there are several potentially important attributes that would differentiate gencaro from existing therapies , including : more effective rhythm control compared to the current standard of care ; reduction in the need for catheter ablation , electrical cardioversion , or toxic anti-arrhythmic drugs ; maintenance of rhythm control after a successful af catheter ablation ; effective rate control with lower risk of treatment-limiting bradycardia ; reduction in symptoms and improvement in quality of life ; reduced health care burden ; foundational beta-blocker benefits for hf and unique evidence of efficacy in hf patients with af ; one of the only drug therapies approved and shown effective for af in hf patients with ef โฅ 40 % , and the only one in its drug class . we have an international patent portfolio for gencaro in the united states , the eu , and other major markets , as well as new chemical entity status , including a new patent that we believe will give us a strong intellectual property position to at least approximately 2039 in the united states ; we have filed applications similar to this new patent in international territories . we have developed a laboratory platform for the diagnostic test that would be used to prescribe gencaro ; this platform was approved by fda for use in the phase 2b clinical trial . we retain all rights to this test platform ; we expect to use it in future clinical trials , and we believe it could be one of multiple diagnostic platforms used for commercialization . to support the continued development of rnapc2 and gencaro , we will need additional financing to fully fund the planned clinical trials , and our general and administrative costs through the clinical trials ' projected completion and potential commercialization .
| results of operations research and development expenses research and development , or r & d , expense is comprised primarily of personnel costs , clinical development , manufacturing process development , and regulatory activities and costs . our r & d expense continues to be almost entirely generated by our activities relating to the development of gencaro . our research and development expenses were $ 5.0 million for the year ended december 31 , 2020 as compared to $ 1.8 million for 2019. the $ 3.2 million increase in research and development expenses in 2020 as compared to 2019 was primarily related to the initiation of our rnapc2 ( ab201 ) clinical trial in the second half of 2020. clinical expense increased approximately $ 1.7 million for the year ended december 31 , 2020. the increase was related to the initiation of our rnapc2 ( ab201 ) clinical trial in the second half of 2020. manufacturing process development costs increased approximately $ 1.2 million year ended december 31 , 2020 compared to 2019. the increase was a result of production of clinical trial materials used in our rnapc2 ( ab201 ) clinical trial that was initiated in the second half of 2020. r & d personnel costs increased approximately $ 0.2 million for the year ended december 31 , 2020 , as compared to 2019. the remaining increase was primarily a result of higher outside services and consulting costs related to initiation of our rnapc2 ( ab201 ) clinical trial . r & d expense in 2021 is expected to be higher than 2020 , as we continue our rnapc2 ( ab201 ) phase 2b clinical trial . general and administrative expenses general and administrative , or g & a , expenses primarily consist of personnel costs , consulting and professional fees , insurance , facilities and depreciation expenses , and various other administrative costs . g & a expenses were $ 4.8 million for the year ended december 31 , 2020 , compared to $ 4.0
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the electrical and industrial products segment serves the power generation , transmission and distribution markets and the general industrial market . as of february 29 , 2012 , the galvanizing services segment consists of thirty-three hot dip-galvanizing facilities located throughout the south , midwest , east coast and southwest united states , as well as one location in montreal , canada , that provide galvanizing services to the steel fabrication industry . references herein to fiscal years are to the twelve-month periods that end in february of the relevant calendar year . for example , the twelve-month period ended february 29 , 2012 is referred to as ยfiscal 2012ย or ยfiscal year 2012.ย for the fiscal year-ended february 29 , 2012 , we recorded revenues of $ 469.1 million compared to the prior year 's revenues of $ 380.6 million . approximately 40 % of our revenues were generated from the electrical and 16 industrial products segment and approximately 60 % were generated from the galvanizing services segment . net income for fiscal 2012 was $ 40.7 million compared to $ 35.0 million for fiscal 2011. net income as a percentage of sales was 8.7 % for fiscal 2012 as compared to 9.2 % for fiscal 2011. earnings per share increased by 16 % to $ 3.21 per share for fiscal 2012 compared to $ 2.77 per share for fiscal 2011 , on a diluted basis . for fiscal 2012 , our incoming order rate reflected what we believe to be a positive trend in our business cycle , and we are beginning to see modest increases in our inquiry and quotation levels for the electrical and industrial products segment and modest growth in our galvanizing services segment . our book to ship ratio for fiscal 2012 was 106 % which is encouraging considering the weak growth in the economy . for the fourth quarter of fiscal 2012 , the book to ship ratio of 105 % further indicates modest growth considering our fourth quarter is traditionally our weakest quarter for incoming orders . while the opportunities are increasing , pricing remains a challenge due to competitive forces and increased cost of commodities . on february 1 , 2012 , we acquired galvan metal , inc. , a galvanizing facility in montreal , qc canada . we believe that this acquisition will aid us by increasing our international geographic galvanizing footprint . story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px '' > for fiscal 2012 and 2011 , the amounts in other ( income ) expense ( see note 11 to the consolidated financial statements ) were insignificant . provision for income taxes the provision for income taxes reflects an effective tax rate of 36 % for both fiscal 2012 and 2011. as a result of the galvan metal , inc. asset acquisition on february 1 , 2012 , we were able to decrease a valuation allowance for a canadian net operating loss carry forward during the fourth quarter of fiscal 2012. year ended february 28 , 2011 compared with year ended february 28 , 2010 backlog we ended fiscal 2011 with a backlog of $ 108.4 million , a decrease of 1 % as compared to fiscal 2010 ending backlog of $ 109.9 million . all ending backlog for fiscal 2011 relates to our electrical and industrial products segment . our book-to-ship ratio was 1.0 to 1 for fiscal 2011 as compared to .82 to 1 in the prior year . in fiscal 2011 , our back log did stabilize but we did not see the recovery that we had anticipated . incoming orders increased 30 % for fiscal 2011 as compared to the same period last year . the incoming orders reflected a continued slower release despite the year over year increase of orders , due to economic and regulatory uncertainty . the following table reflects bookings and shipments for fiscal 2011 and 2010. backlog table ( in thousands ) replace_table_token_8_th 19 revenues our consolidated revenues for fiscal 2011 increased by $ 23.6 million , or 6.6 % , as compared to fiscal 2010. the following table reflects the breakdown of revenue by segment : replace_table_token_9_th the electrical and industrial products segment produces highly engineered specialty products supplied to the power generation , power transmission , power distribution and general industrial markets and lighting and tubular products to the industrial and petroleum markets . the segment recorded revenues for fiscal 2011 of $ 162.6 million , a decrease of 20 % compared to fiscal 2010 revenues of $ 203.5 million . the lower revenues reflected reduced demand from the petrochemical and electrical transmission and distribution markets as compared to the same period in fiscal 2010. our galvanizing services segment , which consisted of thirty-three hot dip galvanizing facilities as of february 28 , 2011 , generated revenues of $ 218.0 million , a 42 % increase from the prior year 's revenues of $ 153.6 million . volume of steel processed for the fiscal year increased 40 % and selling price increased 2 % for fiscal 2011 as compared to fiscal 2010. as discussed previously , we acquired nga on june 14 , 2010. excluding the acquisition of nga , volumes increased 6 % and selling price increased 3 % . the improved volumes reflected the overall improvement of the industrial sector of the general economy . historically , revenues for this segment have followed closely the condition of the industrial sector of the general economy . segment operating income the following table reflects the breakdown of total operating income by segment : replace_table_token_10_th total segment operating income ( see note 11 to the consolidated financial statements ) decreased $ 1.6 million to $ 84.0 million in fiscal 2011 as compared to $ 85.6 million in fiscal 2010. consolidated operating margins as a percentage of sales decreased to 22 % for fiscal 2011 as compared to 24 % in fiscal 2010. the electrical and industrial products segment generated 32 % of the operating income for fiscal 2011 , while the galvanizing services segment produced the remaining 68 % . story_separator_special_tag as subsequently amended , the credit agreement provides for an $ 80 million unsecured revolving line of credit with one lender , bank of america , maturing on may 25 , 2014. the credit agreement allows for the payment of cash dividends in an aggregate amount of up to $ 15 million annually and the repurchase of up to $ 50 million of azz common stock over the life of the credit agreement . the facility is used to provide for working capital needs , capital improvements , future acquisitions and letter of credit needs . the credit agreement provides for various financial covenants consisting of a ) minimum consolidated net worth ย maintain on a consolidated basis net worth equal to at least the sum of $ 182.3 million , plus 50 % of future net income , b ) maximum leverage ratio ย maintain on a consolidated basis a leverage ratio ( as defined in the credit agreement ) not to exceed 3.25:1.0 , c ) fixed charge coverage ratio ย maintain on a consolidated basis a fixed charge coverage ratio ( as defined in the credit agreement ) of at least 1.75:1.0 and d ) capital expenditures ย not to make capital expenditures ( as defined in the credit agreement ) on a consolidated basis in an amount in excess of $ 30 million . the credit agreement also provides for an applicable margin ranging from 1.00 % to 1.75 % over the eurodollar rate and commitment fees ranging from .20 % to .30 % depending on our leverage ratio . at february 29 , 2012 and february 28 , 2011 , we had no outstanding debt against the revolving credit facility . also , we had letters of credit outstanding in the amount of $ 16.4 million as of february 29 , 2012 , which left approximately $ 63.6 million of additional credit available under the revolving credit facility . on march 31 , 2008 , the company entered into a note purchase agreement ( the ยnote purchase agreementย ) pursuant to which the company issued $ 100 million aggregate principal amount of its 6.24 % unsecured senior notes ( the ย2008 notesย ) due march 31 , 2018 through a private placement ( the ย2008 note offeringย ) . pursuant to the note purchase agreement , the company 's payment obligations with respect to the notes may be accelerated upon any event of default , as defined in the note purchase agreement . the company entered into an additional note purchase agreement on january 21 , 2011 ( the ย2011 agreementย ) , pursuant to which the company issued $ 125 million aggregate principal amount of its 5.42 % unsecured senior notes ( the ย2011 notesย ) , due in january of 2021 , through a private placement ( the ย2011 note offeringย ) . pursuant to the 2011 agreement , the company 's payment obligations with respect to the 2011 notes may be accelerated under certain circumstances . the company anticipates using the proceeds from the 2011 note offering for possible future acquisitions , working capital needs , capital improvements and future cash dividend payments . in connection with the 2008 note offering , the company entered into an amendment to our credit agreement . the amendment contained the consent of bank of america to the 2008 note offering , amended the credit agreement to provide that the 2008 note offering will not constitute a default under the credit agreement and amended the credit agreement to reflect the same financial covenants as the 2008 notes . in connection with the 22 2011 note offering , the company obtained the consent of bank of america to the 2011 note offering and the agreement of bank of america that the 2011 note offering will not constitute a default under the credit agreement . the 2008 notes and the 2011 notes each provide for various financial covenants of a ) minimum consolidated net worth - maintain on a consolidated basis net worth equal to at least the sum of $ 116.9 million plus 50 % of future net income ; b ) maximum ratio of consolidated indebtedness to consolidated ebitda ย maintain a ratio of indebtedness to ebitda ( as defined in note purchase agreement ) not to exceed 3.25:1.00 ; c ) fixed charge coverage ratio ย maintain on a consolidated basis a fixed charge coverage ratio ( as defined in the note purchase agreement ) of at least 2.0:1.0 ; d ) priority indebtedness ย the company will not at any time permit aggregate amount of all priority indebtedness ( as defined in the note purchase agreement ) to exceed 10 % of consolidated net worth ( as defined in the note purchase agreement ) . we were in compliance at february 29 , 2012 with all of our debt covenants . our current ratio ( current assets/current liabilities ) was 3.88 to 1 at the end of fiscal 2012 , as compared to 4.88 to 1 at the end of fiscal 2011. shareholder equity grew 12.3 % during fiscal 2012 to $ 287.6 million . at the end of fiscal 2012 , we had $ 225 million in long-term debt outstanding and our long-term debt as a percentage to shareholders ' equity ratio was .78 to 1. historically , we have not experienced a significant impact on our operations from increases in general inflation other than for specific commodities . we have exposure to commodity price increases in both segments of our business , primarily copper , aluminum and steel in the electrical and industrial products segment , and zinc and natural gas in the galvanizing services segment . we attempt to minimize these increases through escalation clauses in customer contracts for copper , aluminum and steel , when market conditions allow and through protective caps and fixed contract purchases on zinc . in addition to these measures , we attempt to recover other cost increases through improvements to our manufacturing process and through increases in prices where competitively feasible .
| results of operations management believes that analyzing our revenue and operating income by segment is the most meaningful way to analyze our results of operations . segment operating income consists of net sales less cost of sales , identifiable selling , general and administrative expenses , and other ( income ) expense items that are specifically identifiable to a segment . the other ( income ) expense items included in segment operating income are generally insignificant . for a reconciliation of segment operating income to pretax income , see note 11 to the consolidated financial statements . year ended february 29 , 2012 compared with year ended february 28 , 2011 backlog we ended fiscal 2012 with a backlog of $ 138.6 million , an increase of 28 % as compared to fiscal 2011 ending backlog of $ 108.4 million . all ending backlog for fiscal 2012 relates to our electrical and industrial products segment . our book-to-ship ratio was 1.06 to 1 for fiscal 2012 as compared to 1.0 to 1 in the prior year . incoming orders increased 32 % for fiscal 2012 as compared to the same period last year . in fiscal 2012 , our backlog had favorable growth as a result of improved order intake in our served markets , with the power generation market showing the most significant improvement as compared to fiscal 2011. the fourth quarter of fiscal 2012 marked the fifth consecutive quarter with a book to ship ratio in excess of one to one .
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a decline in the market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value . the impairment is charged as an expense to the statement of income and comprehensive income and a new cost basis for the security is established . to determine whether impairment is other-than-temporary , the company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary . evidence considered in this assessment includes the reasons for the impairment , the severity and duration of the impairment , changes in value subsequent to year end , and forecasted performance of the investee . trade receivables trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts . an estimate for doubtful accounts is made when collection of the full amount is no longer probable . bad debts are written off against allowances . inventories inventories consist of raw materials and finished goods are stated at the lower of cost or market value . finished goods costs include : materials , direct labor , inbound shipping costs , and allocated overhead . the company applies the weighted average cost method to its inventory . advances and prepayments to suppliers the company makes advance payment to suppliers and vendors for the procurement of raw materials . upon physical receipt and inspection of the raw materials from suppliers the applicable amount is reclassified from advances and prepayments to suppliers to inventory . plant and equipment plant and equipment are carried at cost less accumulated depreciation . depreciation is provided over their estimated useful lives , using the straight-line method . the company 's typically applies a salvage value of 0 % to 10 % . the estimated useful lives of the plant and equipment are as follows : buildings 20-40 years landscaping , plant and tree 30 years machinery and equipment 1-10 years motor vehicles 10 years office equipment 5 years f-9 american lorain corporation notes to financial statements the cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts , and any gain or loss are included in the company 's results of operations . the costs of maintenance and repairs are recognized to expenses as incurred ; significant renewals and betterments are capitalized . construction in progress and prepayments for equipment construction in progress and prepayments for equipment represent direct and indirect acquisition and construction costs for plants , and costs of acquisition and installation of related equipment . amounts classified as construction in progress and prepayments for equipment are transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed . depreciation is not provided for assets classified in this account . land use rights land use rights are carried at cost and amortized on a straight-line basis over a specified period . amortization is provided using the straight-line method over 40-50 years . goodwill goodwill represents the 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 , and ready-to-eat , or rte , foods ) ; 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 and south korea . we produced 143 products in 2017. we derive most of our revenues from sales in china , south korea and japan . 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 2017 , the cost of our raw materials decreased from $ 143,226,607 to $ 6,848,930 for a decrease of approximately 95.2 % . 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 . 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 2017 and 2016 was approximately $ 1,846 metric ton and $ 1,765 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 . many of our suppliers , including chestnut , vegetable and fruit farmers , and suppliers of packaging materials , require us to pay for their supplies in cash on the same day that such supplies are delivered to us . story_separator_special_tag 27 as of december 31 , 2017 , the particulars of the commonly controlled entities are as follows : replace_table_token_7_th in 2014 , the company invested $ 2,100,000 in athena/minerve group whereby the company controlling shareholder of minerve . minerve conducted operations in manufacturing , packaging and sales activities in france and import and storage operations in portugal . during the years ended december 31 , 2015 , the financial position and results of operations of minerve were accounted for as subsidiaries in the company 's financial statements ; however , during the year ended december 31 , 2016 , minerve became insolvent and compelled into bankruptcy by creditors , and , ultimately liquidation . accordingly , the company lost control of minerve and written of the value of its investment in minerve . all receivables due by minerve to subsidiaries still controlled by the company have been written off . management has eliminated all significant inter-company balances and transactions in preparing the accompanying consolidated financial statements . ownership interests of subsidiaries that the company does not wholly-own are accounted for as non-controlling interests . shandong economic development investment corporation , which is a prc state-owned entity , holds 19.8 % equity interest in shandong lorain . accounting for the impairment of long-lived assets -- the company annually reviews its long-lived assets for impairment or whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable . impairment may be the result of becoming obsolete from a change in the industry , introduction of new technologies , or if the company has inadequate working capital to utilize the long-lived assets to generate the adequate profits . impairment is present if the carrying amount of an asset is less than its expected future undiscounted cash flows . 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 recognized impairment losses on certain long-lived assets during 2017. revenue recognition -- the company recognizes revenue when all the following criteria have been met : it has negotiated the terms of the transaction with the customer which includes setting a fixed sales price , it has transferred of possession of the product to the customer , the customer does not have the right to return the product , the customer is able to further sell or transfer the product onto others for economic benefit without any other obligation to be fulfilled by the company , and the company is reasonably assured that funds have been or will be collected from the customer . the company 's the amount of revenue recognized to the books reflects the value of goods invoiced , net of any value-added tax ( vat ) or excise tax . 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 : 28 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 , 2017 and 2016 , 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 2017 , the fasb issued guidance which simplifies the accounting for goodwill impairment . the updated guidance eliminates step 2 of the impairment test , which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge . instead , entities will record an impairment charge based on the excess of a reporting unit 's carrying amount over its fair value , determined in step 1. the company is currently evaluating the impact on the financial statements of this guidance . in january 2017 , the fasb amended the existing accounting standards for business combinations . the amendments clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions ( or disposals ) of assets or businesses . the company is currently evaluating the impact on the financial statements of this guidance . in november 2016 , the fasb issued guidance , which addresses the presentation of restricted cash in the statement of cash flows . the guidance requires entities to show the changes
| 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_5_th year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue net revenues . net revenues decreased by $ 74.6 million , or approximately 93.6 % , to $ 5.1 million in 2017 from $ 79.7 million in 2016. over the last several years , more competitors entered the convenience food industry that develop more types of products . our current products have not met customers ' demand during this time period due to our failure to invest in research and development . in addition , we have faced significant competition from chinese online ordering platforms since 2015 , which platforms offer convenient and efficient meals directly from restaurants . in addition , dongguan lorain ceased operations in october 2016 due to its high cost of environmental compliance cost , the overlap of products and market with luotian lorain , both of which focus on the southern market of china , and poor performance of sales revenue . during the year ended december 31 , 2015 , the financial position and results of operations of minerve were accounted for as subsidiaries in the company 's financial statements ; however , during the year ended december 31 , 2016 , minerve became insolvent and was compelled by its creditors into bankruptcy , and , ultimately , liquidation . accordingly , the company lost control of minerve and recognized a complete write off its investment in minerve . balances owed by minerve to other subsidiaries of the company have been written off . during 2017 , we do n't have any revenues received from athena due to the non-operation of the company . 24 cost of revenues .
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we have company-operated stores in the united states , canada , the united kingdom , france , ireland , japan , italy , china , hong kong , taiwan , and mexico . we have franchise agreements with unaffiliated franchisees to operate gap , banana republic , and old navy stores throughout asia , europe , latin america , the middle east , and africa . under these agreements , third parties operate , or will operate , stores that sell apparel and related products under our brand names . our products are also available to customers online through company-owned websites and through the use of third parties that provide logistics and fulfillment services . in addition to operating in the specialty , outlet , online , and franchise channels , we also use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers . our omni-channel services , including buy online pick-up in store , order-in-store , find-in-store , and ship-from-store , as well as enhanced mobile experiences , are tailored uniquely across our portfolio of brands . most of the products sold under our brand names are designed by us and manufactured by independent sources . we also sell products that are designed and manufactured by branded third parties , primarily at our intermix brand . we identify our operating segments according to how our business activities are managed and evaluated . as of february 1 , 2020 , our operating segments included old navy global , gap global , banana republic global , athleta , and intermix . we have determined that each of our operating segments share similar economic and other qualitative characteristics , and , therefore , the results of our operating segments are aggregated into one reportable segment . on february 28 , 2019 , the company announced that its board of directors approved a plan to separate the company into two independently publicly-traded companies . on january 16 , 2020 , the company announced it no longer intends to separate as the cost and complexity of splitting into two companies , combined with softer business performance , limited our ability to create appropriate value from separation . the work done to prepare for the separation shone a bright light on potential operational inefficiencies and areas for improvement . as a result , the company intends to operate in a more rigorous and transformational manner that empowers our growth brands , old navy and athleta , and appropriately focuses on the performance of banana republic global and gap global . as part of this transformation , the company announced that sonia syngal , the current president and chief executive officer of old navy global , will become the company 's president and chief executive officer , effective march 23 , 2020. for the fifty-two weeks ended february 1 , 2020 , we incurred separation-related costs of $ 301 million , substantially all of which was recorded in operating expenses on the consolidated statement of income . see below for details regarding the nature of the costs incurred : fiscal year ( in millions ) 2019 information technology-related costs ( 1 ) $ 203 consulting and advisory service fees 77 other expenses 21 total separation-related costs $ 301 ( 1 ) includes approximately $ 61 million related to loss on disposal of property and equipment for capital assets with no alternative future use . 20 in addition , on february 28 , 2019 , the company announced plans to restructure the specialty fleet and revitalize the gap brand , including closing about 230 gap specialty stores during fiscal 2019 and fiscal 2020. the company believes these actions will drive a healthier specialty fleet and will serve as a more appropriate foundation for brand revitalization . during the two-year period , the company estimates pre-tax costs associated with these closure actions to be about $ 250 million to $ 300 million , with the majority expected to be cash expenditures for lease-related costs . the remaining charges are expected to primarily include employee-related costs and the net impact of write-offs related to long-term assets and liabilities . the company estimates an annualized sales loss of approximately $ 625 million as a result of these store closures , with resulting annualized pre-tax savings of about $ 90 million . for the fifty-two weeks ended february 1 , 2020 , we incurred specialty fleet restructuring costs of $ 61 million , which primarily include lease and employee-related costs and were recorded in costs of goods sold and occupancy expenses and operating expenses on the consolidated statement of income . our discussions and negotiations with landlords around store closures continue to be difficult , and our ability to execute on our strategy quickly and decisively is challenging . as a result , we expect that the majority of store closures and expenses related to restructuring will occur in fiscal 2020. we continue to focus on rationalizing stores that do not generate sufficient returns to warrant the investments necessary to provide our customers with a differentiated experience . during the first quarter of fiscal 2019 , we adopted the new lease accounting standard , accounting standards update ( `` asu '' ) no . 2016-02 and related amendments ( collectively `` asc 842 '' ) , using the optional transition method and recorded a decrease to opening retained earnings of $ 86 million , net of tax . the adoption of asc 842 resulted in the recording of operating lease assets and operating lease liabilities of $ 5.7 billion and $ 6.6 billion , respectively , as of february 3 , 2019. the adoption of asc 842 did not have a material impact to our consolidated statement of income or consolidated statement of cash flows . on november 7 , 2019 , art peck stepped down as president and chief executive officer and resigned his position as a director of the company . story_separator_special_tag 24 net sales discussion our net sales for fiscal 2019 decreased $ 197 million , or 1 percent , compared with fiscal 2018 . the decrease was primarily driven by negative gap , inc. comp sales and net store closures at gap global , partially offset by the addition of janie and jack , new store openings at old navy global , and an increase in net sales at athleta in part due to new stores . the translation of net sales in foreign currencies to u.s. dollars had an unfavorable impact of about $ 61 million for fiscal 2019 and is calculated by translating net sales for fiscal 2018 at exchange rates applicable during fiscal 2019. our net sales for fiscal 2018 increased $ 725 million , or 5 percent , compared with fiscal 2017 primarily driven by the impact of significant presentation changes of $ 619 million resulting from the adoption of the new revenue recognition standard , and an increase in net sales for old navy global and athleta ; partially offset by a decrease in net sales for gap global . the translation of net sales in foreign currencies to u.s. dollars had a favorable impact of about $ 17 million for fiscal 2018 and is calculated by translating net sales for fiscal 2017 at exchange rates applicable during fiscal 2018 . cost of goods sold and occupancy expenses replace_table_token_8_th cost of goods sold and occupancy expenses increased 0.7 percentage points as a percentage of net sales in fiscal 2019 compared with fiscal 2018 . cost of goods sold increased 0.6 percentage points as a percentage of net sales in fiscal 2019 compared with fiscal 2018 , primarily driven by higher promotional activity at old navy global . occupancy expenses increased 0.1 percentage points as a percentage of net sales in fiscal 2019 compared with fiscal 2018 , primarily driven by a decrease in net sales without a corresponding decrease in occupancy expenses . cost of goods sold and occupancy expenses increased 0.2 percentage points as a percentage of net sales in fiscal 2018 compared with fiscal 2017 , which includes $ 176 million of presentation changes resulting from the adoption of the new revenue recognition standard . cost of goods sold increased 0.7 percentage points as a percentage of net sales in fiscal 2018 compared with fiscal 2017 , primarily driven by lower product margin at gap global and higher online shipping costs . this was partially offset by a favorable impact from presentation changes resulting from the adoption of the new revenue recognition standard . occupancy expenses decreased 0.5 percentage points as a percentage of net sales in fiscal 2018 compared with fiscal 2017 , primarily driven by presentation changes resulting from the adoption of the new revenue recognition standard . in fiscal 2020 , we do not expect significant year-over-year impacts on gross margins due to fluctuations in foreign currencies . 25 operating expenses and operating margin replace_table_token_9_th operating expenses increased $ 599 million or 4.0 percentage points as a percentage of net sales in fiscal 2019 compared with fiscal 2018 primarily due to the following : an increase due to separation-related costs of $ 300 million , global flagship impairment charges of $ 296 million , operating expenses related to janie and jack , and specialty fleet restructuring costs of $ 39 million , incurred in fiscal 2019 and not present in fiscal 2018 ; an increase in expenses related to information technology ; an increase in bonus expense compared with a lower fiscal 2018 bonus expense ; an increase in advertising expenses due to increased spending at old navy global and athleta ; partially offset by a gain on the sale of a building that occurred during fiscal 2019 of $ 191 million . operating expenses increased $ 373 million or 1.0 percentage points as a percentage of net sales in fiscal 2018 compared with fiscal 2017 primarily due to the following : an increase of $ 443 million related to the presentation changes resulting from the adoption of new revenue recognition standard ; and a gain from insurance proceeds of $ 64 million during fiscal 2017 related to the fire that occurred at the fishkill , new york company-owned distribution center ; partially offset by a decrease in expenses related to payroll and benefits , primarily driven by a decrease in bonus expense . interest expense replace_table_token_10_th interest expense for fiscal 2019 , 2018 and 2017 is primarily comprised of interest on our $ 1.25 billion long-term debt . income taxes replace_table_token_11_th the increase in the effective tax rate for fiscal 2019 compared with fiscal 2018 was primarily due to an adjustment recorded in the current year to increase our fiscal 2017 tax liability for additional guidance issued by the u.s. treasury department regarding the tcja and an adjustment recorded in fiscal 2018 to reduce our fiscal 2017 provisional estimated net charge related to the tcja transition tax . 26 the decrease in the effective tax rate for fiscal 2018 compared with fiscal 2017 was primarily due to the reduction in the u.s. federal statutory tax rate from 35 percent to 21 percent , enacted as part of the tcja , and measurement period adjustments to reduce our fiscal 2017 estimated net charge for the effects of the tcja , offset by increases in unrecognized tax benefits recorded in connection with examinations by taxing authorities . during fiscal 2017 , we calculated and recorded a $ 57 million net charge for our best estimate of the impact of the tcja one-time transition tax on the deemed repatriation of foreign income and the impact of tcja on deferred tax assets and liabilities . during fiscal 2018 , we recorded a $ 33 million measurement period adjustment to reduce our fiscal 2017 provisional estimated net charge related to the transition tax and recorded certain other immaterial measurement period adjustments to reduce our fiscal 2017 provisional estimated impact of the remeasurement of our deferred tax assets and liabilities to reflect the tcja rate reduction .
| results of operations fiscal 2019 and 2018 consisted of 52 weeks versus 53 weeks in fiscal 2017. net sales and operating results , as well as other metrics derived from the consolidated statement of income , include the impact of the additional week ; however , the comparable sales calculation excludes the 53rd week . net sales see note 17 of notes to consolidated financial statements included in item 8 , financial statements and supplementary data , of this form 10-k for net sales by brand and region . 22 comparable sales ( `` comp sales '' ) comp sales include the results of company-operated stores and sales through online channels . the calculation of gap inc. comp sales includes the results of hill city and intermix , but excludes the results of the franchise business and janie and jack . the percentage change in comp sales by global brand and for the gap , inc. , as compared with the preceding year , is as follows : replace_table_token_5_th a store is included in the comp sales calculations when it has been open and operated by the company for at least one year and the selling square footage has not changed by 15 percent or more within the past year . a store is included in the comp sales calculations on the first day it has comparable prior year sales . stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales . a store is considered non-comparable ( โ non-comp โ ) when it has been open and operated by the company for less than one year or has changed its selling square footage by 15 percent or more within the past year .
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we generate interest income from interest , dividends and fees received on interest earning assets , including loans , interest earning deposits in other banks and investment securities we own . we incur interest expense from interest paid on interest bearing liabilities , including interest bearing deposits , borrowings and other forms of indebtedness . net interest income typically is the most significant contributor to our net income . to evaluate net interest income , we measure and monitor : ( i ) yields on our loans , interest earning deposits in other banks and other interest earning assets ; ( ii ) the costs of our deposits and other funding sources ; ( iii ) our net interest spread ; and ( iv ) our net interest margin . net interest spread is the difference between rates earned on interest earning assets and rates paid on interest bearing liabilities . net interest margin is a ratio calculated as net interest income divided by average interest earning assets for the same period . because noninterest bearing sources of funds , such as noninterest bearing deposits and shareholders ' equity , also fund interest earning assets , net interest margin includes the benefit of these noninterest bearing sources . changes in market interest rates and interest we earn on interest earning assets or pay on interest bearing liabilities , as well as the volume and types of our interest earning assets , interest bearing and noninterest bearing liabilities and shareholders ' equity , usually have the largest impact on periodic changes in our net interest spread , net interest margin and net interest income . we measure net interest income before and after our provision for loan losses . provision for loan losses . provision for loan losses is the amount of expense that , based on our management 's judgment , is required to maintain our allowance for loan losses at an adequate level to absorb probable losses inherent in our loan portfolio at the applicable balance sheet date and that , in our management 's judgment , is appropriate under relevant accounting guidance . determination of the allowance for loan losses is complex and involves a high degree of judgment and subjectivity . for a description of the factors considered by our management in determining the allowance for loan losses see โ โfinancial conditionโallowance for loan losses. โ noninterest income . noninterest income consists of , among other things : ( i ) mortgage warehouse fee income ; ( ii ) service fees related to off-balance sheet deposits ; ( iii ) deposit related fees ; ( iv ) gain on sale of securities ( v ) gain on sale of loans ( vi ) other gain and losses ; and ( vii ) other noninterest income . mortgage warehouse fee income are transaction fees collected as the funded loans are sold or settled . service fees related to off-balance sheet deposits are fees earned for off-balance sheet deposit placements facilitated under agreements that allow us to sweep customer funds into deposit accounts at other insured depository institutions . in connection with such sweeps and placements , the bank earns noninterest income based on the difference between the gross interest earned on such deposit placements and the net interest the bank agreed to pay on such swept funds ( if any ) . deposit related fees include cash management fees , such as analyzed checking fees , account maintenance fees , insufficient funds fees , overdraft fees , stop payment fees , foreign exchange fee income , domestic and foreign wire transfer fees , sen related fees and card processing fee income . other gains and losses include gain on sale of branch and extinguishment of debt . in 2019 , the company and the bank completed the sale of the bank 's retail branch located in san marcos , california and business loan portfolio . in 2020 , the company initiated and settled a $ 64.0 million fhlb five-year term advance . due to an increase in fhlb advance rates after settlement , the company repaid the advance and recorded a gain on extinguishment of debt of $ 0.9 million . noninterest expense . noninterest expense includes , among other things : ( i ) salaries and employee benefits ; ( ii ) occupancy and equipment expense ; ( iii ) communications and data processing fees ; ( iv ) professional services fees ; ( v ) federal deposit insurance ; ( vi ) correspondent bank charges ; and ( vii ) other general and administrative expenses . salaries and employee benefits include compensation , stock-based compensation , employee benefits and tax expenses for our personnel . occupancy and equipment expense includes depreciation expense , lease expense on our leased properties and other occupancy-related expenses . equipment expense includes expenses related to our furniture , fixtures , equipment and software . communications expense includes costs for telephone and internet . data processing fees include expenses paid to our 42 table of content s third-party data processing system provider and other data service providers . professional fees include legal , accounting , consulting and other outsourcing arrangements . federal deposit insurance expense relates to fdic assessments based on the level of our deposits . correspondent bank charges include wire transfer fees , transaction fees and service charges related to transactions settled with correspondent relationships . other general and administrative expenses include expenses associated with travel , meals , advertising , promotions , sponsorships , training , supplies , postage , insurance , board of director expenses and other expenses related to being a public company . noninterest expenses generally increase as we grow our business . financial condition the primary factors we use to evaluate and manage our financial condition include asset quality , capital and liquidity . asset quality . story_separator_special_tag the average rate on total interest bearing liabilities decreased to 2.42 % for the year ended december 31 , 2020 compared to 2.47 % for 2019 primarily due to a decline in the fhlb borrowing rate partially offset by the impact of calling the remaining balance of the callable brokered certificates of deposit , which resulted in the recognition of $ 3.4 million of premium amortization in interest expense . for the year ended december 31 , 2020 , the net interest spread was 0.87 % and the net interest margin was 3.00 % compared to 1.49 % and 3.47 % , respectively , for 2019. the decrease in the net interest spread and net interest margin in the year ended december 31 , 2020 was primarily due to the impact of lower federal funds rates and libor on our interest earning assets and premium expense associated with calling our brokered certificates of deposit , partially offset by the combined effects associated with the hedging strategy , which included the impacts of calling and reissuing a portion of the brokered callable certificates of deposit , along with the benefit derived from the interest rate floors . 46 table of content s provision for loan losses the provision for loan losses is a charge to income to bring our allowance for loan losses to a level deemed appropriate by management . for a description of the factors considered by our management in determining the allowance for loan losses see โ โfinancial conditionโallowance for loan losses โ and โ โcritical accounting policiesโallowance for loan losses. โ we recorded a provision for loan losses of $ 0.7 million compared to a reversal of $ 0.4 million for the years ended december 31 , 2020 and 2019 , respectively . the increase in the provision for the year ended december 31 , 2020 was due an increase in the overall loan balance . the net reversal for the year ended december 31 , 2019 was due to improvements in qualitative factors related to the loan portfolio and the continued low charge-off rates . the allowance for loan losses to total gross loans held-for-investment was 0.92 % at december 31 , 2020 compared to 0.93 % at december 31 , 2019. noninterest income the following table presents , for the periods indicated , the major categories of noninterest income : noninterest income replace_table_token_11_th n/mโnot meaningful noninterest income for the year ended december 31 , 2020 was $ 19.2 million , an increase of $ 3.4 million , or 21.7 % , compared to noninterest income of $ 15.8 million for the year ended december 31 , 2019. this increase was primarily due to a $ 6.0 million increase in deposit related fees and a $ 3.0 million increase in gain on sale of securities , offset by a $ 1.6 million decrease in service fees related to off-balance sheet deposits . in addition , noninterest income for the year ended december 31 , 2019 included a pre-tax gain on sale of $ 5.5 million for our san marcos branch and business loan portfolio that was completed in march 2019. the $ 6.0 million increase in deposit related fees was primarily due to increases in cash management , foreign exchange , and sen related fees associated with our digital currency initiative . deposit related fees from digital currency customers for the year ended december 31 , 2020 increased $ 6.2 million , or 126.4 % , to $ 11.1 million compared to $ 4.9 million for the year ended december 31 , 2019. during the year ended december 31 , 2020 , we sold a total of $ 216.4 million of securities and realized a net gain on sale of $ 3.8 million , compared to a total of $ 42.0 million in sales of securities and net gain on sale of $ 0.7 million during the year ended december 31 , 2019. during the year ended december 31 , 2020 , the company initiated and settled a $ 64.0 million fhlb five-year term advance . due to an increase in fhlb advance rates after settlement , the company repaid the advance and recorded a gain of $ 0.9 million . service fees related to off-balance sheet deposits decreased due to lower average balances in off-balance sheet deposit placements as a result of the decline in interest rates . 47 table of content s noninterest expense the following table presents , for the periods indicated , the major categories of noninterest expense : noninterest expense replace_table_token_12_th noninterest expense increased $ 7.1 million , or 13.6 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 primarily due to increases in salaries and employee benefits , occupancy and equipment , other general and administrative , communications and data processing and federal deposit insurance expense . the increase of $ 2.6 million , or 7.7 % , in salaries and employee benefits was due to increased cost per full-time equivalent employee , including a $ 0.6 million increase in employee related stock-based compensation expense . the company 's average full-time equivalent employees remained stable from 208 for the year ended december 31 , 2019 to 210 for 2020. occupancy and equipment increased $ 2.1 million , or 56.4 % , due primarily to a $ 2.3 million impairment charge related to its leased office space and fixed assets no longer in use . communications and data processing increased $ 0.8 million , or 17.3 % , due primarily to continued investment to support our api-enabled sen platform enhancements and the customer-facing foreign currency exchange platform that was launched in the fourth quarter of 2019. the increase of $ 0.8 million , or 182.4 % , in federal deposit insurance payments was due to a rate increase driven by the growth in deposits . other general and administrative expense increased $ 0.8 million , or 21.9 % , due primarily to higher insurance expense .
| results of operations net income the following table sets forth the principal components of net income for the periods indicated . replace_table_token_8_th net income for the year ended december 31 , 2020 was $ 26.0 million , an increase of $ 1.2 million , or 4.8 % , from net income of $ 24.8 million for the year ended december 31 , 2019. the increase was primarily due to an increase of $ 1.4 million , or 2.0 % , in net interest income , an increase of $ 3.4 million , or 21.7 % , in noninterest income and a decrease of $ 4.7 million , or 43 table of content s 47.5 % , in income tax expense , partially offset by a $ 7.1 million or 13.6 % increase in noninterest expense , all as described below . net interest income and net interest margin analysis ( taxable equivalent basis ) we analyze our ability to maximize income generated from interest earning assets and control the interest expenses of our liabilities , measured as net interest income , through our net interest margin and net interest spread . net interest income is the difference between the interest and fees earned on interest earning assets , such as loans , interest earning deposits in other banks and securities , and the interest expense incurred on interest bearing liabilities , such as deposits and borrowings , which are used to fund those assets . changes in market interest rates and the interest rates we earn on interest earning assets or pay on interest bearing liabilities , as well as in the volume and types of interest earning assets , interest bearing and noninterest bearing liabilities and shareholders ' equity , are usually the largest drivers of periodic changes in net interest income , net interest margin and net interest spread .
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in july 2018 , the fasb issued updated guidance which allows an additional transition method to adopt the new leases standard at the adoption date , as compared to the beginning of the earliest period presented , and allows entities to recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption . the company expects to elect to use this transition method at the adoption date of january 1 , 2019 , and , as a result story_separator_special_tag financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations together with the section of this annual report entitled โ selected financial data โ and our consolidated financial statements and related notes included elsewhere in this annual report . overview we are a biopharmaceutical company focused on the identification , acquisition , development , and commercialization of novel products for the treatment of serious rare and ultra-rare genetic diseases . we target diseases for which the unmet medical need is high , the biology for treatment is clear , and for which there are no currently approved therapies . our strategy , which is predicated upon time- and cost-efficient drug development , allows us to pursue multiple programs in parallel with the goal of delivering safe and effective therapies to patients with the utmost urgency . our current approved therapies and clinical-stage pipeline consist of three product categories : biologics , small molecules , and gene therapy product candidates . our biologic products include approved therapies crysvitaยฎ ( burosumab ) and mepsevii ( vestronidase alfa ) : crysvita is an antibody targeting fibroblast growth factor 23 , or fgf23 , developed for the treatment of x-linked hypophosphatemia , or xlh , a rare , hereditary , progressive and lifelong musculoskeletal disorder characterized by renal phosphate wasting caused by excess fgf23 production . crysvita is approved in the united states for the treatment of xlh in adult and pediatric patients one year of age and older . in the european union , or eu , crysvita is conditionally approved for the treatment of xlh with radiographic evidence of bone disease in children one year of age and older and adolescents with growing skeletons . a filing to expand the label to include adults with xlh is also planned in the eu . crysvita is also being developed for the treatment of tumor-induced osteomalacia , or tio . tio results from typically benign tumors that produce excess levels of fgf23 , which can lead to severe hypophosphatemia , osteomalacia , fractures , fatigue , bone and muscle pain , and muscle weakness . we are collaborating with kyowa hakko kirin , or khk , and kyowa kirin international , or kyowa kirin , a wholly owned subsidiary of khk , on the development and commercialization of crysvita globally . mepsevii is an intravenous , or iv , enzyme replacement therapy , developed for the treatment of mucopolysaccharidosis vii , also known as mps vii or sly syndrome , a rare lysosomal storage disease that often leads to multi-organ dysfunction , pervasive skeletal disease , and death . mepsevii is approved in the united states for the treatment of children and adults with mps vii . in the eu , mepsevii is approved under exceptional circumstances for the treatment of non-neurological manifestations of mps vii . in brazil , mepsevii is approved for the treatment of mps vii for patients of all ages . our small molecule pipeline includes ux007 , which is in clinical development for the treatment of long-chain fatty acid oxidation disorders , or lc-faod : ux007 is a synthetic triglyceride with a specifically designed chemical composition being studied for the treatment of lc-faod , which is a set of rare metabolic diseases that prevents the conversion of fat into energy and can cause low blood sugar , muscle rupture , and heart and liver disease . the u.s. food and drug administration , or fda , has accepted our most recent proposal to submit a new drug application , or nda for ux007 for the treatment of lc-faod based on existing phase 2 study data . we intend to submit an nda to the fda for the treatment of lc-faod in mid-2019 and are continuing discussions with eu regulatory authorities . our gene therapy pipeline includes dtx301 and dtx401 in clinical development for the treatment of two diseases : dtx301 is an adeno-associated virus 8 , or aav8 gene therapy product candidate designed for the treatment of patients with ornithine transcarbamylase , or otc , deficiency . otc is part of the urea cycle , an enzymatic pathway in the liver that converts excess nitrogen , in the form of ammonia , to urea for excretion . otc deficiency is the most common urea cycle disorder and leads to increased levels of ammonia . patients with otc deficiency suffer from acute hyperammonemic episodes that can lead to hospitalization , adverse cognitive and neurological effects , and death . we have reported positive data from the first and second dose cohorts of the phase 1/2 study , and are enrolling patients in the third dose cohort , with data expected in mid-2019 . dtx401 is an aav8 gene therapy clinical candidate for the treatment of patients with glycogen storage disease type ia , or gsdia , a disease that arises from a defect in g6pase , an essential enzyme in glycogen and glucose metabolism . gsdia is the most common glycogen storage disease . we have reported positive data from the first dose cohort of the phase 1/2 study , and expect data from the second dose cohort in mid-2019 . 61 financial operations overview we are a biopharmaceutical company with a limited operating history . to date , we have invested substantially all of our efforts and financial resources in identifying , acquiring , and developing our products and product candidates , including conducting clinical studies and providing selling , general and administrative support for these operations . story_separator_special_tag some of the factors considered in the assessment include general macroeconomic conditions , conditions specific to the industry and market , cost factors which could have a significant effect on earnings or cash flows , the overall financial performance of the reporting unit , and whether there have been sustained declines in the company 's share price . additionally , the comp any evaluates the extent to which the fair value exceeded the carrying value of the reporting unit at the last date a valuation was performed . if the company concludes it is more likely than not that the fair value of a reporting unit is less than its carr ying amount , a quantitative fair value test is performed . the company completed its annual impairment tes t in the fourth quarters of 2018 and determined that the carrying value of goodwill was not impaired . t he fair value of the reporting unit , which inclu des goodwill , was significantly in excess of the carrying value of the reporting unit . accrued research and development , and research and development expenses as part of the process of preparing consolidated financial statements , we are required to estimate and accrue expenses , the largest of which is related to accrued research and development expenses . this process involves reviewing contracts and purchase orders , identifying 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 the actual costs . we record accruals for estimated costs of research , preclinical and clinical studies , and manufacturing development . these costs are a significant component of our research and development expenses . a substantial portion of our ongoing research and development activities is conducted by third-party service providers . we accrue the costs incurred under our agreements with these third parties based on actual work completed in accordance with agreements established with these third parties . we determine the actual costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services . we make significant judgments and estimates in determining the accrual balance in each reporting period . as actual costs become known , we adjust our accruals . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period . our accrual is dependent , in part , upon the receipt of timely and accurate reporting from clinical research organizations and other third-party vendors . research and development costs are expensed as incurred and consist of salaries and benefits , stock-based compensation , lab supplies , materials and facility costs , as well as fees paid to other nonemployees and entities that conduct certain research and development activities on our behalf . amounts incurred in connection with collaboration and license agreements are also included in research and development expense . payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received . to date , there have been no material differences from our accrued estimated expenses to the actual clinical trial expenses ; however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities . revenue recognition collaboration and license revenue we have certain license and collaboration agreements that are within the scope of accounting standards codification ( asc ) 808 , collaborative agreements , which provides guidance on the presentation and disclosure of collaborative arrangements . generally , the classification of transactions under collaborative arrangements is determined based on the nature of contractual terms of the arrangement , along with the nature of the operations of the participants . we record our share of collaboration revenue , net of transfer pricing related to net sales in the period in which such sales occur , if we are considered as an agent in the arrangement . we are considered an agent when the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product . funding received related to research and development services and commercialization costs are generally classified as a reduction of research and development expenses and selling , general and administrative expenses , respectively , in the consolidated statement of operations , because the provision of such services for collaborative partners is not considered to be part of our ongoing major or central operations . we also receive royalty revenues under certain of our license or collaboration agreements in exchange for license of intellectual property . if we do not have any future performance obligations for these license or collaboration agreements , royalty revenue is recorded as the underlying sales occur . in order to record collaboration revenue , we utilize certain information from our collaboration partners , including revenue from the sale of the product , associated reserves on revenue , and costs incurred for development and sales activities . for the periods covered in the financial statements presented , there have been no significant or material changes to prior period estimates of revenues and expenses . 63 the terms of our collaboration agreements may contain multiple performance obligations , which may include licenses and research and development activities . we evaluate these agreements under asc 606 , revenue from c ontract s with customers , to determine the distinct performance obligations .
| results of operations comparison of years ended december 31 , 2018 and 2017 revenues ( dollars in thousands ) replace_table_token_4_th we received approval of crysvita in the eu in february 2018 and in the u.s. in april 2018. as a result , for the year ended december 31 , 2018 , we recognized $ 18.2 million in collaboration and license revenue from our collaboration and license agreement with khk , which included $ 2.9 million in royalty revenue from europe and $ 15.3 million in profit sharing revenue from the u.s. we recognized $ 23.5 million in collaboration and license revenue from our research arrangement with bayer for the year ended december 31 , 2018. the increase compared to the same period in 2017 is due to our acquisition of dimension in november 2017 resulting in the assumption of the bayer agreement for a full fiscal year in 2018. the increase in product sales of $ 9.3 million for the year ended december 31 , 2018 is primarily due to the approval of mepsevii in november 2017 and named patient sales of certain products in certain countries . cost of sales ( dollars in thousands ) year ended december 31 , dollar % 2018 2017 change change cost of sales $ 1,146 $ 1 $ 1,145 * we recognized $ 1.1 million in cost of sales related to our approved products for the year ended december 31 , 2018 which includes a reserve of $ 0.4 million for excess inventory for the year ended december 31 , 2018. a nominal amount of cost of sales was recognized for the year ended december 31 , 2017. prior to the approval of our approved products , manufacturing and related costs were expensed ; accordingly , these costs were not capitalized and as a result are not fully reflected in the costs of sales during the current period .
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given their nature , the company 's performance obligations are satisfied at a story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the accompanying notes and other financial information appearing elsewhere in this annual report on form 10-k. discussion and analysis regarding our financial condition and results of operations for 2018 as compared to 2017 is included in item 7 of our annual report on form 10-k for the year-ended december 31 , 2018 , filed with the sec on february 22 , 2019. information in this section is intended to assist the reader in obtaining an understanding of our consolidated financial statements , the changes in certain key items in those financial statements from yearโtoโyear , the primary factors that accounted for those changes , any known trends or uncertainties that we are aware of that may have a material effect on our future performance , as well as how certain accounting principles affect our consolidated financial statements . this discussion and analysis contains forwardโlooking statements that involve risks , uncertainties and assumptions . see โ special note regarding forward-looking statements. โ our actual results could differ materially from those forwardโlooking statements as a result of many factors , including those discussed in โ risk factors โ and elsewhere in this form 10-k. overview we are a leading manufacturer of high quality graphite electrode products essential to the production of electric arc furnace ( `` eaf '' ) steel and other ferrous and nonโferrous metals . we believe that we have the most competitive portfolio of lowโcost graphite electrode manufacturing facilities in the industry , including three of the highest capacity facilities in the world . we are the only large scale graphite electrode producer that is substantially vertically integrated into petroleum needle coke , a key raw material for graphite electrode manufacturing . between 1984 and 2011 , eaf steelmaking was the fastestโgrowing segment of the steel sector , with production increasing at an average rate of 3.5 % per year , based on world steel association ( `` wsa '' ) data . historically , eaf steel production has grown faster than the overall steel market due to the greater resilience , more variable cost structure , lower capital intensity and more environmentally friendly nature of eaf steelmaking . this trend was partially reversed between 2011 and 2015 due to global steel production overcapacity driven largely by chinese blast furnace ( `` bof '' ) steel production . beginning in 2016 , efforts by the chinese government to restructure china 's domestic steel industry have led to limits on bof steel production and lower export levels , and developed economies , which typically have much larger eaf steel industries , have instituted a number of trade policies in support of domestic steel producers . as a result , beginning in 2016 , the eaf steel market rebounded strongly and resumed its longโterm growth trajectory . this revival in eaf steel production resulted in increased demand for our graphite electrodes . in response to this increased demand , we modified our commercial strategy and executed threeโ to fiveโyear takeโorโpay contracts for approximately 60 % to 65 % of our cumulative expected production capacity from 2018 through 2022. in 2018 , we shipped approximately 133,000 mt under these contracts at prices averaging approximately $ 10,100 per mt . in 2019 , we shipped approximately 145,000 mt under these contracts at pricing averaging approximately $ 9,900 per mt . we have contracted to sell approximately 142,000 , 125,000 and 117,000 mt in 2020 , 2021 and 2022 , respectively . approximately 83 % of these volumes are under preโdetermined fixed annual volume contracts , while approximately 17 % of the volumes are under contracts with a specified volume range . the aggregate difference between the midpoints above and the minimum or maximum volumes across our cumulative portfolio of takeโorโpay contracts with specified volume ranges is approximately 5,000 mt per year in 2020 , 2021 and 2022. contracted volumes may vary in timing and total due to the credit risk associated with certain customers facing financial challenges as well as customer demand related to contracted volume ranges . in 2020 , we expect to ship approximately 130,000 mt at prices averaging approximately $ 9,600 per mt . the weighted average contract price for the contracted volumes over the next three years is approximately $ 9,600 per mt , with the weighted average contract prices for contracts with a specified volume range computed using the volume midpoint . global economic conditions and outlook the graphite electrode industry has historically followed the growth of the eaf steel industry and , to a lesser extent , the steel industry as a whole , which has been highly cyclical and affected significantly by general economic conditions . historically , eaf steel production has grown faster than the overall steel market due to the greater resilience , more variable cost structure , lower capital intensity and more environmentally friendly nature of eaf steelmaking . this growth trend has resumed after a decline in eaf steelmaking between 2011 and 2015 , as chinese steel production , which is predominantly bofโbased , grew significantly , taking market share from eaf steel producers . beginning in 2016 , efforts by the chinese government to eliminate excess steelmaking production capacity and improve environmental and health conditions have led to limits on chinese bof steel production , including the closure of over 200 million mt of its steel production capacity , based on data from s & p global platts and the ministry of commerce of the people 's republic of china . in 2017 , chinese steel exports fell by more than 30 % from 2016. chinese steel exports continued to decline an additional 8 % in 2018 according to the 39 national bureau of statistics of china , reflecting the reduction in steel production capacity . story_separator_special_tag selling and administrative expenses selling and administrative expenses include salaries , benefits and other personnel related costs for employees engaged in sales and marketing , customer technical services , engineering , finance , information technology , human resources and executive management . other costs include outside legal and accounting fees , risk management ( insurance ) , global operational excellence , global supply chain , inโhouse legal , shareโbased compensation and certain other administrative and global resources costs . our โ markโtoโmarket adjustment โ refers to our accounting policy regarding pension and other post-employment benefit ( `` opeb '' ) plans , where we immediately recognize the change in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each year . other expense ( income ) other expense ( income ) consists primarily of foreign currency impacts on nonโoperating assets and liabilities and miscellaneous income and expense . related party tax receivable agreement expense related party tax receivable agreement expense represents the company 's expense associated with brookfield 's right , as sole pre-ipo stockholder , to receive future payments from us for 85 % of the amount of cash savings , if any , in u.s. federal income tax and swiss tax that we and our subsidiaries realize as a result of the utilization of certain tax assets attributable to periods prior to our ipo . interest expense interest expense consists primarily of interest expense on our 2018 term loans , 2018 revolving facility and the senior notes , accretion of the fair value adjustment on the senior notes and amortization of debt issuance costs . income ( loss ) from discontinued operations as of june 30 , 2016 , the engineered solutions segment qualified for reporting as discontinued operations , and the disposition of the segment was substantially complete by the end of the third quarter of 2017. all results are reported as gain or loss from discontinued operations , net of tax . effects of changes in currency exchange rates when the currencies of nonโu.s . countries in which we have a manufacturing facility decline ( or increase ) in value relative to the u.s. dollar , this has the effect of reducing ( or increasing ) the u.s. dollar equivalent cost of sales and other expenses with respect to those facilities . in certain countries in which we have manufacturing facilities , and in certain export markets , we sell in currencies other than the u.s. dollar . accordingly , when these currencies increase ( or decline ) in value relative to the u.s. dollar , this has the effect of increasing ( or reducing ) net sales . the result of these effects is to increase ( or decrease ) operating profit and net income . some of the nonโu.s . countries in which we have a manufacturing facility have been subject to significant economic and political changes , which have significantly impacted currency exchange rates . we can not predict changes in currency exchange rates in the future or whether those changes will have net positive or negative impacts on our net sales , cost of sales or net income . the impact of these changes in the average exchange rates of other currencies against the u.s. dollar on our net sales was a decrease of $ 6.9 million for the year ended december 31 , 2019 and an increase of $ 10.5 million and $ 4.5 million for the years ended december 31 , 2018 and 2017 , respectively . the impact of these changes in the average exchange rates of other currencies against the u.s. dollar on our cost of sales was a decrease of $ 9.1 million for the year ended december 31 , 2019 and increases of $ 3.6 million and $ 4.2 million in 2018 and 2017 , respectively . 41 as part of our cash management , we also have intercompany loans between our subsidiaries . these loans are deemed to be temporary and , as a result , remeasurement gains and losses on these loans are recorded as currency gains or losses in other income ( expense ) , net , on the consolidated statements of operations . we have in the past and may in the future use various financial instruments to manage certain exposures to risks caused by currency exchange rate changes , as described under โ quantitative and qualitative disclosures about market risks . '' key metrics used by management to measure performance in addition to measures of financial performance presented in our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) , we use certain other financial measures and operating metrics to analyze the performance of our company . the โ nonโgaap โ financial measures consist of ebitda from continuing operations and adjusted ebitda from continuing operations , which help us evaluate growth trends , establish budgets , assess operational efficiencies and evaluate our overall financial performance . the key operating metrics consist of sales volume , production volume , production capacity and capacity utilization . key financial measures replace_table_token_2_th key operating metrics replace_table_token_3_th ( 1 ) see below for more information and a reconciliation of ebitda and adjusted ebitda to net income ( loss ) , the most directly comparable financial measure calculated and presented in accordance with gaap . ( 2 ) effective the first quarter of 2019 , we have recast the sales volume above to include only graphite electrodes manufactured by graftech . this better reflects management 's assessment of our profitability and excludes resales of low grade graphite electrodes manufactured by third party suppliers . for comparability purposes , the prior period has been recast to conform to this presentation . ( 3 ) production volume reflects graphite electrodes produced during the period . see below for more information on our key operating metrics . ( 4 ) the st. marys , pennsylvania facility was temporarily idled effective the second quarter of 2016 except for the machining of semiโfinished products sourced from other plants .
| results of operations results of operations for 2019 as compared to 2018 the tables presented in our period-over-period comparisons summarize our consolidated statements of operations and illustrate key financial indicators used to assess the consolidated financial results . throughout our management discussion and analysis ( `` md & a '' ) , insignificant changes may be deemed not meaningful and are generally excluded from the discussion . replace_table_token_6_th 45 net sales . net sales decreased by $ 105.1 million , or 6 % , from $ 1.9 billion in 2018 to $ 1.8 billion in 2019 . this decrease was primarily driven by a 3 % decrease in sales volume of graftech manufactured electrodes as well as a decrease in non-graftech manufactured electrodes sales . graphite electrode volumes decreased significantly in the second half of 2019 , as our customers began to de-stock their inventory of our products . graphite electrode inventories remain elevated for many customers , but we are seeing early evidence that de-stocking is running its course . we continue to expect inventory de-stocking through the first half of 2020. we expect inventories to decline and conditions to improve as we move into the second half of 2020. approximately 80 % of our 2019 revenues were derived from customers with long-term agreements . spot market prices for graphite electrodes declined approximately 25 % in 2019. we expect additional decreases in 2020. cost of sales . cost of sales increased by $ 44.7 million , or 6 % , from $ 705.7 million in 2018 to $ 750.4 million in 2019 . this increase was primarily the result of sales of inventory that was manufactured using higher priced third-party needle coke . cost of sales related to third-party needle coke peaked in 2019 and we expect modest declines in 2020. selling and administrative expenses .
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โ other factors that could cause actual results to differ materially are the following : a legislative change in insurance regulations affecting the future collections of finance receivables in the companies discontinued medical segment and adverse arbitration or court decisions on collectibility of purchased receivables , changes in the real estate and financial markets , environmental action by governments affecting development of real estate , and other risk factors described herein and in the company 's reports filed and to be filed from time to time with the commission . the discussion and analysis below is based on the company 's consolidated financial statements and related notes thereto included herein and incorporated herein by reference . overview on november 29 , 2005 , the company ( sometimes hereinafter referred to as โ mfc โ ) completed the acquisition ( the โ closing โ ) of all the issued and outstanding shares of common stock of worldwide excellence , inc. โ wwe โ , a delaware corporation , in accordance with the provisions of a certain acquisition agreement dated as of july 29 , 2005 among wwe and the company ( hereafter to be referred as โ mfc โ prior to the closing and the company as the consolidated entity after the closing ) , and wwe 's stockholders . mfc acquired one hundred ( 100 % ) percent of wwe 's outstanding common stock in exchange for shares of mfc common stock . at the closing , 11,500,000 shares of mfc 's common stock were issued to former stockholders of wwe and their designees and 710,000 shares of the mfc 's common stock were issued to a finder and its designees . on the same day , as a requirement to close the transaction , mfc note holders converted $ 500,000 of debt into 500,000 shares of common stock . in addition , 35,000 shares of mfc common sock were issued for payment of legal fees . the form of the mfc acquisition agreement was filed with the sec as an exhibit to the company 's current report dated august 3 , 2005. as a result of the merger , former wwe stockholders hold a majority of the voting interest in mfc . this transaction was accounted for as a reverse merger , with wwe being the acquirer for accounting purposes . the pre-acquisition financial statements ( december 31 year end ) of the accounting acquirer , wwe , became the historical financial statements of the combined companies and the historical financial statements of mfc for the periods prior to the date of the transaction ( february 28 fiscal year end ) are not presented . this transaction was accounted for as the issuance of common stock by wwe for the net monetary assets of mfc , accompanied by a recapitalization to reflect the legally issued and outstanding shares of the combined companies . pre-acquisition stockholders ' equity of wwe was retroactively restated for the equivalent number of shares of mfc received by wwe stockholders in the acquisition , with differences between the par value of mfc and wwe 's stock recorded as additional paid in capital . simultaneous with the closing on november 29 , 2005 , and continuing through december 30 , 2005 , wwe , pursuant to section 4 ( 2 ) of the securities act of 1933 , as amended ( the โ securities act โ ) , and regulation 506 promulgated under the securities act , had engaged in a private placement offering to โ accredited investors โ of a total subscription of 1,205,000 shares of the company 's 10 % convertible preferred stock ( convertible into 2,410,000 shares of common stock ) for $ 2,410,000 , and warrants to purchase 1,205,000 shares of the company 's common stock ; each warrant entitling the holder to purchase one share of the company 's common stock . the company operates two business segments consisting of the direct response business and the development and rental of real estate in new york and connecticut . the company , through other subsidiaries , is in the process of liquidating the discontinued operations of mfc 's former medical division . the real estate and discontinued operations were acquired from mfc at the closing on november 29 , 2005 and are not included in the historical financial statements prior to that date . 15 components of revenue and gross profit sources of revenue direct response the company 's direct response business is conducted through wwe and its affiliates , the historical business of the company after the closing . wwe is a direct marketing and branding company specializing in health , beauty , fitness and home consumer products . wwe is in the business of building product brands and believes that it has found a successful formula that combines creativity and strategic analysis to optimize sales opportunities and profitability in this marketing space . typically , wwe obtains the exclusive worldwide marketing , distribution and manufacturing license rights to a particular product from its inventor or a business representative and develops the product brand through innovative marketing campaigns utilizing the internet , television , and print media , ultimately leveraging its retail and international distribution channels for sales directly to consumers or for sales to downstream business customers . wwe also earns revenue from shipping and handling fees and by providing customer lists to third parties for a fee . net sales are determined by subtracting an allowance for returns from gross product sales and list sales . wwe seeks to distinguish itself from other direct marketing companies through the development of products that create a long term annuity stream of revenue through what wwe refers to as โ continuity โ programs . through wwe 's continuity programs , customers repurchase a particular product monthly or bi-monthly for up to 30 months or more , thus maximizing the initial media investment to acquire that particular customer . story_separator_special_tag general and administrative expenses direct response the largest component of general and administrative expenses is administrative employment costs and executive salaries that have not been allocated to corporate overhead . other significant general and administrative expenses include liability insurance , legal fees , occupancy , and telecommunications costs . real estate general and administrative expenses primarily consist of real estate taxes , utilities and maintenance attributable to the office building in east granby , connecticut that was acquired in connection with the reverse merger on november 29 , 2005 . 17 corporate expenses corporate expenses consist of the costs of being a public company and the costs attributable to new business development . these costs are primarily attributable to an allocation of employment costs of executive officers and other employees whose services are directly related to the management of the public company and new business development . the company expects that corporate expenses will increase since the status of wwe becoming the primary operating subsidiary of a public company on november 29 , 2005. these costs will include additional senior management personnel , compliance and audit fees , directors ' fees , director and officer liability insurance , and the cost of shareholder communications . bad debts the significant component of bad debt expense is when wwe ships a product with multiple credit payment terms , consisting of future credit card charges . if the future charges are ultimately denied , the company will incur a bed debt expense . components of other items interest expense , net this item is recorded net of insignificant amounts of interest income . direct response interest expense is primarily attributable to bridge loan financing and other debt which was converted to equity in connection with the reverse merger acquisition on november 29 , 2005. the company anticipates that most additional financing needs will be through equity sources , minimizing interest expense . real estate interest expense from real estate consists of debt acquired from mfc 's real estate operations , in connection with the reverse merger acquisition on november 29 , 2005. this debt includes the following : mortgage payable , office building the east granby property is owned subject to a mortgage , with an outstanding principal balance of $ 2,138,000 at december 31 , 2005. the interest rate is 5.53 % through december 31 , 2007. thereafter , the interest rate changes every five years based upon the index plus 275 basis points . the index is the yield for united states government securities five ( 5 ) year treasury constant maturities as described by the federal reserve system in the federal reserve statistical release h-15 ( 519 ) . under the terms of the note , the principal balance of the mortgage will be reduced by approximately $ 183,000 before the interest rate change takes effect on december 31 , 2007. bank loan gateway granby , llc , ( โ granby โ ) which owns the east granby office building has an outstanding bank loan with a balance of $ 170,000 at december 31 , 2005. the interest rate is 7.2 % , and the monthly payment is $ 10,580 per month for principal plus interest , until the loan is fully amortized in may 2007. tenant improvement loan pursuant to the lease with jack henry and associates , inc. ( โ jack henry โ ) , granby is obligated to reimburse jack henry for a construction allowance of $ 100,000 for tenant improvements completed in 2005 , and $ 189,615 for tenant improvements completed in 2006. granby will begin making deferred construction payments in the aggregate of $ 16,090 per month in principal payments for 18 months beginning on may 15 , 2006 along with accrued interest at the rate of 8 % per annum from april 15 , 2006 . 18 corporate series a and b bonds were included in the net assets of mfc acquired in connection with the reverse merger acquisition on november 29 , 2005. in accordance with terms of the acquisition agreement , the series a and b bondholders have the right to convert their bonds into common stock at the rate of $ 1 per share . in february 2006 , $ 100,00 of series b bonds were converted into 100,000 shares of common stock . interest on both of the series a and series b bonds is calculated at a rate of prime plus 3 % but not less than 9 % per annum nor more than 15 % per annum . the rate of interest will be adjusted at the end of each calendar quarter . as of march 31 , 2006 , the prime rate was 7.75 % and the interest rate on these bonds was increased to 10.75 % for the following quarter . minority voting interest in net income of subsidiary the company owns a forty-nine ( 49 % ) percent interest in gateway granby , llc ( โ granby โ ) a limited liability company that owns and operates an office building in east granby , connecticut . simultaneous to the closing on november 29 , 2005 the company has entered into an irrevocable proxy and agreement with certain members of the limited liability company who are stockholders of mfc , which agreement gives the company voting and operational control of the limited liability company so long as the company maintains its ownership interest in the limited liability company . due to such voting control , granby is consolidated with mfc , and the minority voting interests ( 51 % ) are recorded separately . income taxes prior to the reverse merger acquisition on november 29 , 2005 , wwe was incorporated as a pass-through entity and , therefore , did not record income tax expense for federal purposes , and was subject to a reduced california tax rate of 1.5 % as an s-corporation . the state of california charges an $ 800 tax as well as an llc fee that is based on gross receipts .
| results of operations as a result of the reverse merger acquisition on november 29 , 2005 , the pre-acquisition financial statements ( december 31 year end ) of the accounting acquirer , wwe , became the historical financial statements of the combined companies and the historical financial statements of mfc for the periods prior to the date of the acquisition ( february 28 fiscal year end ) are not presented . this transaction was accounted for as the issuance of common stock by wwe for the net monetary assets of mfc , accompanied by a recapitalization to reflect the legally issued and outstanding shares of the combined companies . pre-acquisition stockholders ' equity of wwe was retroactively restated for the equivalent number of shares of mfc received by wwe stockholders in the acquisition , with differences between the par value of mfc and wwe 's stock recorded as additional paid in capital . the following table summarizes the company 's changes in net revenue and gross profit from the company 's direct response business ( in thousands ) for the periods indicated : replace_table_token_3_th revenues and gross profit direct response marketing net sales net sales for the year ended december 31 , 2005 ( โ 2005 โ ) were approximately $ 8.0 million , a decrease of $ 12.5 million , or 61 % , compared to net sales for the year ended december 31 , 2004 ( โ 2004 โ ) of approximately $ 20.5 million . the decrease in net sales was due to declining revenues from older product campaigns that were nearing the end of their life cycles and where funding was not available to launch new products in the pipeline . in addition , wwe did not have the requisite funds to increase internet media spending for its beauty products , where initial losses are in incurred in order to generate future profitable revenue streams thereby allowing wwe to expand its continuity programs .
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during the twelve months ended december 28 , 2013 , the company recorded impairment charges of $ 2.5 million related to the write-off of a cost based investment . summarized financial information for 2013 includes kobrite for the year ended september 30 , 2013 and ask ziggy for the five month period august 1 , 2013 through december 28 , 2013 . as of december 26 , 2015 and december 27 , 2014 , the company no longer has story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and notes to those statements and other financial information appearing elsewhere in this annual report on form 10-k. the following discussion contains forward looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated in the forward looking statements as a result of a number of factors , including the risks discussed in item 1a โ risk factors โ , and elsewhere in this annual report on form 10-k. management 's discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to revenue recognition under the percentage-of-completion method , bad debts , inventories , warranty reserves , investment valuations , valuation of stock compensation awards , recoverability of deferred tax assets , liabilities for uncertain tax positions and contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about carrying values of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions . the prior period amounts have been revised for the impact of discontinued operations due to the sale of our iii-v product line , including our ktc subsidiary . our financial results for prior periods have also been revised , in accordance with u.s. gaap , to reflect certain changes to the business and other matters . we believe the following critical accounting policies are most affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition we recognize revenue if four basic criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred and services rendered ; ( 3 ) the price to the buyer is fixed or determinable ; and ( 4 ) collectability is reasonably assured . we do not recognize revenue for products prior to customer acceptance unless we believe the product meets all customer specifications and has a history of consistently achieving customer acceptance of the product . provisions for product returns and allowances are recorded in the same period as the related revenues . we analyze historical returns , current economic trends and changes in customer demand and acceptance of product when evaluating the adequacy of sales returns and other allowances . certain product sales are made to distributors under agreements allowing for a limited right of return on unsold products . sales to distributors are primarily made for sales to the distributors ' customers and not for stocking of inventory . we delay revenue recognition for our estimate of distributor claims of right of return on unsold products based upon our historical experience with our products and specific analysis of amounts subject to return based upon discussions with our distributors or their customers . we recognize revenues from long-term research and development government contracts on the percentage-of-completion method of accounting as work is performed , based upon the ratio of costs or hours already incurred to the estimated total cost of completion or hours of work to be performed . revenue recognized at any point in time is limited to the amount funded by the u.s. government or contracting entity . we recognize revenue for product development and research contracts that have established prices for distinct phases when delivery and acceptance of the deliverable for each phase has occurred . in some instances , we are contracted to create a deliverable which is anticipated to go into full production . in those cases , we discontinue the percentage-of-completion method after formal qualification of the deliverable has been completed and revenue is then recognized based on the criteria established for sale of products . in certain instances qualification may be achieved and delivery of production units may commence however our customer may have either identified new issues to be resolved or wish to incorporate a newer display technology . in these circumstances new units delivered will continue to be accounted for under the criteria established for sale of products . under certain of our research and development contracts , we recognize revenue using a milestone methodology . this revenue is recognized when we achieve specified milestones based on our past performance . we classify amounts earned on contracts in progress that are in excess of amounts billed as unbilled receivables and we classify amounts received in excess of amounts earned as billings in excess of revenues earned . we invoice based on dates specified in the related agreement or in periodic installments based upon our invoicing cycle . we recognize the entire amount of an estimated ultimate loss in our financial statements at the time the loss on a contract becomes known . accounting for design , development and production contracts requires judgment relative to assessing risks , estimating contract revenues and costs , and making assumptions for schedule and technical issues . due to the size and nature of the work 25 required to be performed on many of our contracts , the estimation of total revenue and cost at completion is complicated and subject to many variables . story_separator_special_tag should the actual results differ from our estimates , we would have to adjust the income tax provision in the period in which the facts that give rise to the revision become known . such adjustment could have a material impact on our results of operations . we have historically established valuation allowances against all of our net deferred tax assets because of our history of generating operating losses and restrictions on the use of certain items . our evaluation of the recoverability of deferred tax assets has also included analysis of the expiration dates of net operating loss carryforwards . in forming our conclusions as to whether the deferred tax assets are more likely than not to be realized we consider the sources of our income and the projected stability of those sources and product life cycles . stock compensation there were no stock options granted in fiscal years 2015 , 2014 or 2013 . the fair value of nonvested restricted common stock awards is generally the market value of the company 's equity shares on the date of grant . the nonvested common stock awards require the employee to fulfill certain obligations , including remaining employed by the company for certain periods of time ( the vesting period ) and in certain cases meeting performance or market criteria . the performance or market criteria may consist of the achievement of the company 's annual incentive plan goals , technology development or the company 's stock attaining a certain price for a period of time . for nonvested restricted common stock awards which solely require the recipient to remain employed with the company , the stock compensation expense is amortized over the anticipated service period . for nonvested restricted common stock awards which require the achievement of performance criteria , the company reviews the probability of achieving the performance goals on a periodic basis . if the company determines that it is probable that the performance criteria will be achieved , the amount of compensation cost derived for the performance goal is amortized over the service period . if the performance criteria are not met , no compensation cost is recognized and any previously recognized compensation cost is reversed . the company recognizes compensation costs on a straight-line basis over the requisite service period for time vested awards . for awards that vest upon our stock price achieving a certain price for a period of time the compensation expense associated with this award is recognized over the derived service period . story_separator_special_tag style= '' page-break-after : always '' / > cost of component revenues . replace_table_token_7_th cost of component revenues , which is comprised of materials , labor and manufacturing overhead related to the production of our products increased as a percentage of revenues in 2015 as compared to 2014 due to a decrease in the sale of our display products for military applications , which have higher margins than our other products . research and development . replace_table_token_8_th research and development ( r & d ) expenses are incurred in support of internal display development programs or programs funded by agencies or prime contractors of the u.s. government and commercial partners . in fiscal year 2016 , our r & d expenditures will be related to our display products , over lay weapon sights and kopin wearable technologies . r & d revenues associated with funded programs are presented separately in revenue in the statement of operations . r & d costs include staffing , purchases of materials and laboratory supplies , circuit design costs , fabrication and packaging of display products , and overhead . funded r & d expense for 2015 decreased as compared to the prior year due to a reduction in programs with customers developing products for wearable applications . the decrease occurred because the customers either discontinued the programs or the products moved into the commercialization phase . selling , general and administrative . selling , general and administrative ( s , g & a ) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses , and administrative and general corporate expenses . replace_table_token_9_th the decrease in s , g & a expenses in 2015 as compared to 2014 is primarily attributable to a decrease in deferred compensation expense , professional fees and intangible amortization partially offset by an increase in patent expense . other income and expense . replace_table_token_10_th other income and expense , net , as shown above , is composed of interest income , foreign currency transactions and remeasurement gains and losses incurred by our korean and united kingdom subsidiaries , gains on sales of investments and the impairment of cost based investments . for 2015 , we recorded $ 0.4 million of foreign currency gains as compared to $ 0.1 million foreign currency gains for 2014 . this was primarily attributable to increased fluctuations in the u.s. dollar and korean won currency exchange rate . in 2015 , we recorded a gain on the sale of investments of $ 9.2 million consisting of gains from the 29 sale of investments in vuzix and recon of $ 3.7 million and $ 5.5 million , respectively . in 2014 , we recorded an impairment of $ 1.3 million related to the write-off of our equity investment in kobrite . equity losses in unconsolidated affiliates . our equity losses in unconsolidated affiliates for 2014 consists of our approximate 12 % share of the losses of kobrite for the first quarter of 2014 , incurred prior to writing our investment down to zero in the second quarter . during the twelve months ended december 27 , 2014 , we funded the operations of one of our investments . the impact of this funding for the twelve month periods ended december 27 , 2014 was approximately $ 0.3 million . tax provision . the benefit for income taxes for the fiscal year ended 2015 of $ 25,000 represents the net of state tax and foreign withholding tax related to closing our korean facilities .
| results of operations on january 16 , 2013 , we completed the sale of our iii-v product line , including all of the outstanding equity interest in ktc wireless , llc ( ktc ) a wholly-owned subsidiary of the company , to iqe kc , llc ( iqe ) and iqe plc ( parent , and collectively with iqe , the buyer ) . the aggregate purchase price was approximately $ 70.2 million , after certain adjustments , including working capital adjustments . the gain on the sale , net of tax , was $ 20.1 million . under the terms of the purchase agreement , $ 55 million was paid to us in january 2013 , $ 0.2 million was paid in april 2013 and the remaining $ 15 million was paid on january 15 , 2016. we are a leading developer , manufacturer and seller of miniature displays , optical lenses , asics ( our โ components โ ) and software for integration into wearable products and for sale as individual components . we use our proprietary semiconductor material technology to design , manufacture and market our component products for use in highly demanding high-resolution portable military , enterprise and consumer electronic applications , training and simulation equipment and 3d metrology equipment . our products enable our customers to develop and market an improved generation of products for these target applications . we have two principal sources of revenues : component revenues and research and development revenues . research and development revenues consist primarily of development contracts with agencies or prime contractors of the u.s. government and commercial enterprises . research and development revenues were $ 3.9 million , or 12.1 % of total 2015 revenues , $ 4.9 million , or 15.3 % of total 2014 revenues and $ 2.3 million , or 10.0 % of total 2013 revenues . we manufacture transmissive microdisplays and reflective microdisplays . our commercial and military transmissive display production is being performed entirely in our westborough , massachusetts facility .
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at december 31 , 2013 and 2012 , our intangible assets and liabilities were as follows : replace_table_token_20_th f-8 hospitality properties trust notes to financial statements ( continued ) december 31 , story_separator_special_tag the following information should be read in conjunction with our consolidated financial statements and accompanying notes included in this annual report on form 10-k. overview ( dollar amounts in thousands ) story_separator_special_tag included in the table on page 85. the decrease in minimum rentsยhotels is a result of the conversion of 53 hotels from leased to managed on january 1 , 2013 ( $ 67,043 ) , partially offset by the effects of our hotel acquisitions since january 1 , 2012 ( $ 9,608 ) and increases in the minimum rents due to us as we funded improvements at certain of our leased hotels since january 1 , 2012 ( $ 1,330 ) . the increase in minimum rentsยtravel centers is primarily a result of increases in the minimum rents due to us from ta for improvements we purchased at certain of our travel centers since january 1 , 2012. rental income for 2013 and 2012 includes a reduction of ( $ 323 ) in 2013 and an increase of $ 149 in 2012 to record rent on a straight line basis . the decrease in percentage rentยhotels is a result of the conversion of 53 hotels from leased to managed on january 1 , 2013. the increase in percentage rentยtravel centers is a result of increased revenues at certain of our travel centers in 2013 versus 2012. ff & e reserve income represents amounts paid by certain of our hotel tenants into restricted accounts owned by us , the purpose of which is to accumulate funds for future capital expenditures . the terms of our hotel leases require these amounts to be calculated as a percentage of total sales at our hotels . the decrease in ff & e reserve income is primarily the result of the conversion of 53 hotels from leased to managed on january 1 , 2013 ( $ 14,001 ) and an amendment to our marriott no . 5 agreement that provided unspent renovations previously advanced by hpt would be used to partially offset 2013 ff & e revenue contributions required under the agreement ( $ 1,339 ) , partially offset by increased levels of sales at certain of our leased hotels ( $ 464 ) . we do not report the amounts , if any , which are escrowed as ff & e reserves for our managed hotels as ff & e reserve income . the increase in hotel operating expenses was primarily caused by the conversion of 53 hotels from leased to managed on january 1 , 2013 ( $ 158,788 ) , increased expenses associated primarily with higher occupancies at certain of our managed hotels ( $ 40,033 ) and the effect of our acquisitions since january 1 , 2012 ( $ 39,561 ) and the reduction in the amount of minimum return shortfalls funded by our managers ( $ 27,076 ) , partially offset by operating expense decreases at certain properties recently rebranded or undergoing renovations during the 2013 period due to lower occupancies ( $ 23,443 ) and the effect of our hotel dispositions since january 1 , 2012 ( $ 13,373 ) . certain of our managed hotel portfolios had net operating results that were , in the aggregate , $ 65,623 and $ 76,978 , less than the minimum returns due to us in 2013 and 2012 , respectively . when the managers of these hotels fund the shortfalls under the terms of our operating agreements or their guarantees , we reflect such fundings ( including security deposit applications ) in our consolidated statements of income and comprehensive income as a reduction of hotel operating expenses . the reductions to operating expenses were $ 19,311 and $ 46,386 in 2013 and 2012 , respectively . we had shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our operating agreements of $ 46,312 and $ 30,592 during 2013 and 2012 , respectively , which represent the unguaranteed portion of our minimum returns from marriott and sonesta . the increase in depreciation and amortizationยhotels is primarily due to the depreciation and amortization of assets acquired with funds from our ff & e reserves or directly funded by us since january 1 , 2012 ( $ 28,211 ) and the effect of our hotel acquisitions since january 1 , 2012 ( $ 10,523 ) , partially offset by certain of our depreciable assets becoming fully depreciated since january 1 , 2012 ( $ 9,712 ) and our dispositions since january 1 , 2012 ( $ 158 ) . the increase in depreciation and amortizationยtravel centers is due to the depreciation and amortization of improvements made to our travel centers since january 1 , 2012 . 65 the increase in general and administrative costs is primarily due to an increase in business management fees ( $ 3,048 ) , an increase in incentive business management fees due to the increase in our cash available for distribution , as determined under our business management agreement with rmr ( $ 2,656 ) , and an increase in stock compensation expense ( $ 512 ) , partially offset by lower professional services expenses ( $ 161 ) . acquisition related costs represent legal and other costs incurred in connection with our hotel acquisition activities . we recorded an aggregate $ 8,008 loss on asset impairment in 2013 in connection with an eminent domain taking of our travel center in roanoke , va by the vdot of $ 5,837 and in connection with our plan to sell one hotel of $ 2,171. see notes 4 , 8 and 12 to our consolidated financial statements in item 15 of this annual report on form 10-k for further information relating to these properties . story_separator_special_tag certain of our managed hotel portfolios had net operating results that were , in the aggregate , $ 76,978 and $ 60,265 less than the minimum returns due to us in 2012 and 2011 , respectively . when the shortfalls are funded by the managers of these hotels under the terms of our operating agreements , we reflect such fundings ( including security deposit applications ) in our consolidated statements of income and comprehensive income as a reduction to hotel operating expenses . the reduction to hotel operating expenses was $ 46,386 and $ 58,772 for 2012 and 2011 , respectively . we had $ 30,592 and $ 1,493 of shortfalls not funded by managers for 2012 and 2011 , respectively , which represent the unguaranteed portion of our minimum returns from marriott and from sonesta . the increase in depreciation and amortizationยhotels is primarily due to the depreciation and amortization of assets acquired with funds from our ff & e reserves or directly funded by us since january 1 , 2011 ( $ 26,665 ) and the effect of our hotel acquisitions since january 1 , 2011 ( $ 11,371 ) , partially offset by certain of our depreciable assets becoming fully depreciated since january 1 , 2011 ( $ 10,183 ) and the effect of our hotel dispositions since january 1 , 2011 ( $ 1,112 ) . the increase in depreciation and amortizationยtravel centers is primarily due to the depreciation and amortization of improvements made to our travel centers since january 1 , 2011. the increase in general and administrative costs is primarily due to increased business management fees ( $ 1,913 ) , franchise taxes ( $ 718 ) , professional services expense ( $ 601 ) and stock compensation expense ( $ 483 ) in 2012 , partially offset by lower incentive management fees ( $ 646 ) versus 2011. acquisition related costs represent legal and other costs incurred in connection with our hotel acquisition activities . 68 we recorded a $ 7,658 loss on asset impairment in 2012 to write off the carrying value of goodwill . we also recorded an $ 889 loss on asset impairment in 2012 in connection with our decision to remove certain hotels from held for sale status . we recorded a $ 16,384 loss on asset impairment in 2011 in connection with our consideration of selling certain hotels . the decrease in operating income is primarily due to the revenue and expense changes discussed above . the increase in interest income is due to higher average cash balances during 2012 compared to 2011. the increase in interest expense is primarily due to higher average borrowings during 2012 compared to 2011 partially offset by lower weighted average interest rates in 2012. we recorded a $ 10,602 gain on sale of real estate in 2012 in connection with the sale of our marriott hotel in st. louis , mo in july 2012 and the sale of our staybridge suites hotels in auburn hills , mi and schaumburg , il in august 2012. the increase in income tax expense is primarily the result of federal income taxes related to our trs and the leasehold interest in the royal sonesta hotel new orleans in new orleans , la , or the new orleans hotel , that we acquired in january 2012 ( $ 1,500 ) , partially offset by higher deferred taxes recognized ( $ 1,111 ) and lower foreign income taxes recognized in 2012 compared to 2011 ( $ 279 ) . equity in earnings of an investee represents our proportionate share of the earnings of aic . we reduced net income available for common shareholders in 2012 by an aggregate of $ 7,984 , which represents the amount by which the liquidation preference for our series b cumulative redeemable preferred shares that were redeemed in february 2012 and for our series c cumulative redeemable preferred shares that were redeemed in september 2012 exceeded our carrying amount for those preferred shares as of the date of redemption . the increase in preferred distributions in 2012 compared to 2011 is the result of our issuance of 11,600,000 of our 7.125 % series d cumulative redeemable preferred shares in january 2012 , partially offset by our redemption of 3,450,000 of our 8.875 % series b cumulative redeemable preferred shares in february 2012 and our redemption of 6,000,000 of our 7.00 % series c cumulative redeemable preferred shares in september 2012. the decreases in net income , net income available for common shareholders and net income available for common shareholders per common share in 2012 compared to 2011 are primarily a result of the changes discussed above . liquidity and capital resources ( dollar amounts in thousands , except per share amounts ) our managers and tenants as of december 31 , 2013 , 289 of our hotels are included in one of seven portfolio agreements and two hotels are leased to hotel operating companies . our 184 owned travel centers and one travel center we lease through august 31 , 2014 are leased under two portfolio agreements . all costs of operating and maintaining our properties are paid by the hotel managers as agents for us or by our tenants for their own account . our hotel managers and tenants derive their funding for property operating expenses and for returns and rents due to us generally from property operating revenues and , to the extent that these parties themselves fund our minimum returns and minimum rents , from their separate resources . our hotel managers and tenants include marriott , intercontinental , sonesta , wyndham , hyatt , carlson and morgans . our travel centers are leased to ta . we define coverage for each of our hotel management agreements or leases as total property level revenues minus all property level expenses which are not subordinated to the minimum returns and 69 minimum rents due to us divided by the minimum returns or minimum rent payments due to us .
| hotel operations . in 2013 , the u.s. hotel industry generally realized improvements in adr , occupancy and revpar when compared to 2012. we believe the average daily rate , or adr , occupancy and revenue per available room , or revpar , at certain of our hotels in 2013 have been negatively impacted by the disruption and displacement caused by our renovation activities . we expect our hotel renovation activities to continue through the first half of 2014. for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 for our 285 comparable hotels : adr increased 2.9 % to $ 102.40 ; occupancy increased 3.2 percentage points to 71.9 % ; and revpar increased 7.7 % to $ 73.63. during the year ended december 31 , 2013 , we had 66 comparable hotels under renovation for all or part of the year . for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 for our 219 comparable hotels not under renovation : adr increased 2.3 % to $ 103.08 ; occupancy increased 5.0 percentage points to 74.1 % ; and revpar increased 9.7 % to $ 76.38. our hotel tenants and managers . many of our hotel operating agreements contain security features , such as guarantees and security deposits , which are intended to protect minimum returns and rents due to us in accordance with our operating agreements regardless of hotel performance . however , the effectiveness of various security features to provide us uninterrupted receipt of minimum returns and rents is not assured , particularly if the profitability of our hotels takes an extended period to recover from the severe declines experienced during the recent recession , if economic conditions generally decline , or if our hotel renovation activities described above do not result in improved operating results at our hotels .
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as consideration for the transfer of interests and the other terms and conditions of the transaction , aerรณleo will be required to make payments to affiliates of the transferring partner in the form of severance and partial repayment of shareholder loans that will likely require a capital infusion by us of approximately $ 2 million . the transaction remains subject to the satisfaction of customary closing conditions , including receipt of required local regulatory approval , and is expected to close in the second half of 2014. on february 19 , 2014 , in connection with the execution of the definitive agreements , we filed a joint motion to dismiss the ongoing arbitration with our partner . as a result of the transaction , we may be required to consolidate the financial results of aerรณleo upon consummation thereof . please see note 20 โ subsequent event โ of the notes to the consolidated financial statements included in item 8 of this annual report on form 10-k for information regarding an agreement entered into with our partner in aerรณleo . a continuation of any combination of these financial difficulties , taken separately or together , may impede aerรณleo 's ability to pay for equipment leased from us , necessitate an infusion of capital from us to allow aerรณleo to continue to operate and , as a result , adversely impact our results of operations . due to liquidity issues experienced by aerรณleo , as of december 31 , 2013 , we had deferred the recognition of $ 21.0 million of revenues from aerรณleo . refer to item 1a of part iโ โ risk factorsโwe rely on relatively few customers for a significant share of our revenues , the loss of any of which could adversely affect our business and results of operations โ for additional information . fleet developments and capital commitments in recent years , we have continued to focus on the modernization of our fleet and , when possible , standardization of equipment . oil and gas companies typically require modern helicopters that offer enhanced safety features and greater performance . customers flying offshore tend to prefer twin-engine helicopters to single-engine helicopters due to the additional safety afforded from two engines . in response to this demand , we have transformed our fleet significantly . since the beginning of 2005 , we have added 125 helicopters , disposed of 93 helicopters and reduced the average age of our owned fleet from 17 years to 12 years . as of december 31 , 2013 , 25 % of our fleet was five years old or less . we have spent $ 110.1 million , $ 113.0 million and $ 158.9 million to acquire helicopters and other equipment in the years ended december 31 , 2013 , 2012 and 2011 , respectively , primarily for heavy and medium helicopters . as of december 31 , 2013 , we had commitments of $ 341.7 million , primarily pursuant to agreements to purchase helicopters , consisting of ten aw189 helicopters , four s92 helicopters , two aw139 helicopters and five aw169 helicopters . the aw139 helicopters are scheduled to be delivered in 2014. the aw189 helicopters are scheduled to be delivered beginning 2014 through 2017. the s92 helicopters are scheduled to be delivered in 2016 and 2017. delivery dates for the aw169 helicopters have yet to be determined . approximately $ 164.4 million of these commitments ( inclusive of deposits paid on options not yet exercised ) may be terminated without further liability other than aggregate liquidated damages of $ 11.1 million . in addition , we had outstanding options to purchase up to an additional ten aw189 helicopters , five s92 helicopters and four aw139 helicopters . if these options were exercised , the helicopters would be delivered beginning in 2014 through 2018 . 35 components of revenues and expenses we derive our revenues primarily from operating and dry-leasing our equipment and our profits depend on our cost of capital , the acquisition costs of assets , our operating costs , our contract policy and our reputation . operating revenues recorded under u.s. gulf of mexico are primarily generated from offshore oil and gas related activities . similarly , operating revenues recorded under alaska are primarily generated from offshore oil and gas related activities but also include revenues from operations supporting firefighting and mining activities . in both the u.s. gulf of mexico and alaska , operating revenues are typically earned through a combination of fixed monthly fees plus an incremental charge based on flight hours flown . charter revenues are typically earned through either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate with a minimum number of hours to be charged daily . operating revenues recorded under dry-leasing are generated from dry-leases to third-party operators or joint venture partners , where we are not responsible for the operation of the helicopters . for certain of these dry-leases , we also provide crew training , management expertise , and logistical and maintenance support . dry-leases typically call for a fixed monthly fee only , but may also include an additional charge based on flight hours flown . the majority of our dry-leasing revenues have been generated by helicopters deployed internationally . operating revenues for search and rescue services are earned through a fixed monthly fee plus an incremental charge for flight hours flown , and charter revenues are typically earned through either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate with a minimum number of hours to be charged daily . story_separator_special_tag operating revenues recorded under air medical services include revenues from management services to hospitals . operating revenues are earned through a fixed monthly fee plus an incremental charge for flight hours flown . operating revenues recorded under flightseeing are generated on a per passenger basis . the aggregate cost of our operations depends primarily on the size and asset mix of the fleet . our operating costs and expenses are grouped into the following categories : personnel ( includes wages , benefits , payroll taxes , savings plans , subsistence and travel ) ; repairs and maintenance ( primarily routine activities as well as helicopter refurbishments and engine and major component overhauls that are performed in accordance with planned maintenance programs ) ; insurance ( the cost of hull and liability insurance premiums and loss deductibles ) ; fuel ; leased-in equipment ( includes the cost of leasing helicopters and equipment ) ; and other ( primarily base expenses , property , sales and use taxes , communication costs , freight expenses , and other ) . we engage a number of third-party vendors to maintain the engines and certain components on some of our helicopter models under programs known as โ power-by-hour โ maintenance contracts . these programs require us to pay for the maintenance service ratably over the contract period , typically based on actual flight hours . power-by-hour providers generally bill monthly based on hours flown in the prior month , the costs being expensed as incurred . in the event we place a helicopter in a program after a maintenance period has begun , it may be necessary to pay an initial buy-in charge based on hours flown since the previous maintenance event . this buy-in charge is normally recorded as a prepaid expense and amortized as an operating expense over the remaining power-by-hour contract period . if a helicopter is sold or otherwise removed from a program before the scheduled maintenance work is carried out , we may be able to recover part of our payments to the power-by-hour provider , in which case we record a reduction to operating expense when we receive the refund . we also incur repairs and maintenance expense through vendor arrangements whereby we obtain repair quotes and authorize service through a repair order process . our policy of expensing all repair costs as incurred may result in operating expenses varying substantially when compared with a prior year or prior quarter if a disproportionate number of repairs , refurbishments or overhauls are undertaken . this variation can be exacerbated by the timing of entering or exiting third-party power-by-hour programs . for helicopters that we dry-lease to third parties under arrangements whereby the customer assumes operational responsibility , we often provide maintenance and parts support but generally we incur no other material operating costs . in most instances our dry-leases require clients to procure adequate insurance but we purchase contingent hull and liability coverage to mitigate the risk of a client 's coverage failing to respond . in some instances we provide training and other services to support our dry-lease customers . 36 prior to our entry into our revolving credit facility on december 22 , 2011 , we participated in a cash management program whereby certain of our operating and capital expenditures were funded through advances from seacor and certain cash collections of ours were forwarded to seacor . we incurred interest on the outstanding advances , which is reported as interest expense on advances from seacor in our consolidated statements of operations . interest was calculated and settled on a quarterly basis using interest rates set at the discretion of seacor . following our entry into our revolving credit facility , we no longer participate in this cash management program . seacor had provided certain support services to us under a shared services arrangement , including payroll processing , information systems support , cash disbursement support , cash receipt processing and treasury management . we were historically charged for our share of actual costs incurred , generally based on volume processed or units supported . on december 30 , 2011 , we entered into a transition services agreement , providing for the same services described above , pursuant to which seacor continued to provide these support services . in connection with the spin-off we entered into an amended and restated transition services agreement with seacor pursuant to which such services will continue to be provided for a period of time after the spin-off but not to exceed two years from the time of the spin-off . seacor incurred costs in providing its operating segments with certain corporate services including executive oversight , risk management , legal , accounting and tax , and charged quarterly management fees to its operating segments in order to cover such costs . total management fees charged by seacor to its operating segments include actual corporate costs incurred plus a mark-up and were generally allocated within the consolidated group using income-based performance metrics reported by an operating segment in relation to seacor 's other operating segments . the costs we incurred for management fees from seacor are reported as seacor management fees in our consolidated statements of operations . effective january 1 , 2012 , seacor provided these corporate services under the transition services agreement for a fixed quarterly charge of $ 500,000 , subject to the terms and conditions of the transition services agreement . upon completion of the spin-off , we are no longer charged a management fee by seacor but incur costs under the amended and restated transition services agreement . 37 results of operations replace_table_token_6_th 38 operating revenues by service line . the following tables set forth , for the years indicated , the amount of operating revenues by service line . replace_table_token_7_th ( 1 ) primarily oil and gas services , but also includes revenues from activities such as firefighting and utility support . year ended december 31 , 2013
| summary of cash flows replace_table_token_8_th operating activities cash flows provided by operating activities increased by $ 50.5 million during the year ended december 31 , 2013 compared with the year ended december 31 , 2012 . cash flows provided by operating activities decreased by $ 27.0 million during the year ended december 31 , 2012 compared with the year ended december 31 , 2011. the components of cash flows provided by operating activities during the years ended december 31 were as follows : replace_table_token_9_th operating income before depreciation and gains on asset dispositions and impairments , net was $ 2.5 million higher in the year ended december 31 , 2013 compared with the year ended december 31 , 2012 , primarily due to a $ 36.8 million and $ 6.1 million increase in revenues from oil and gas and search and rescue activities , respectively . these increases were partially offset by a $ 10.3 million decrease in dry-leasing revenues , and a $ 7.0 million reduction in operating revenues from air medical services . there was an increase of $ 12.9 million in repairs and maintenance expenses , a $ 4.4 million increase in personnel cost , a $ 4.1 million increase in administrative and general expenses , and a $ 1.5 million increase in lease expense primarily due to a one-time charge related to operating leases on certain air medical helicopters . 43 operating income before depreciation and gains on asset dispositions and impairments , net was $ 7.4 million higher in the year ended december 31 , 2012 compared with the year ended december 31 , 2011 , primarily due to a $ 32.4 million increase in revenues in the gulf of mexico and a decrease of $ 5.8 million in repairs and maintenance expenses .
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56 note 3 โ property , plant and equipment property , plant and equipment , net included the following : replace_table_token_29_th capitalized interest was not material for the years ended may 31 , 2017 , 2016 and 2015 . note 4 โ identifiable intangible assets and goodwill identifiable intangible assets , net consist of indefinite-lived trademarks , which are not subject to amortization , and acquired trademarks and other intangible assets , which are subject to amortization . indefinite-lived trademarks were $ 281 million story_separator_special_tag nike designs , develops , markets and sells athletic footwear , apparel , equipment , accessories and services worldwide . we are the largest seller of athletic footwear and apparel in the world . we sell our products to retail accounts , through nike-owned in-line and factory retail stores and nike-owned internet websites and mobile applications ( which we refer to collectively as our โ direct to consumer โ or โ dtc โ operations ) , and through a mix of independent distributors , licensees and sales representatives in virtually all countries around the world . our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear , apparel , equipment and accessories businesses . our strategy is to achieve long-term revenue growth by creating innovative , โ must have โ products , building deep personal consumer connections with our brands and delivering compelling consumer experiences at retail , online and through mobile applications . in june 2017 , we announced the consumer direct offense , a new company alignment designed to allow nike to better serve the consumer personally , at scale . leveraging the power of digital , nike will drive growth โ by accelerating innovation and product creation , moving even closer to the consumer through key cities , and deepening one-to-one connections . in addition to achieving long-term , sustainable revenue growth , we continue to strive to deliver shareholder value by driving operational excellence in several key areas : expanding gross margin by : - delivering innovative , premium products that command higher prices while maintaining a balanced price-to-value equation for consumers ; - reducing product costs through a continued focus on manufacturing efficiency , product design and innovation ; - making our supply chain a competitive advantage by investing in new technologies that increase automation , help reduce waste and have long-term potential to increase both customization of our products and speed to market ; and - driving growth in our higher gross margin dtc business , led by digital commerce , as part of an integrated marketplace growth strategy across our dtc and wholesale operations . optimizing selling and administrative expense by focusing on : - investments in consumer engagement that drive economic returns in the form of incremental revenue and gross profit ; - infrastructure investments that improve the efficiency and effectiveness of our operations ; and - investments in key areas of future growth , including our dtc business . managing working capital efficiency ; and deploying capital effectively . through execution of this strategy , our long-term financial goals through fiscal 2020 , on average per year , are as follows : high single-digit to low double-digit revenue growth ; mid-teens earnings per share growth ; high-twenties to low-thirties percentage rate of return on invested capital ; free cash flow growing faster than net income ; and sustainable , profitable , long-term growth through effective management of our diversified portfolio of businesses . over the past ten years , we have achieved many of our financial goals . during this time , revenues and diluted earnings per common share for nike , inc. , inclusive of both continuing and discontinued operations , have grown 8 % and 13 % , respectively , on an annual compounded basis . we expanded gross margin by approximately 70 basis points , and our return on invested capital has increased from 21.9 % to 34.7 % . on november 19 , 2015 , we announced a two -for-one split of both nike class a and class b common stock . the stock split was in the form of a 100 percent stock dividend payable on december 23 , 2015 to shareholders of record at the close of business on december 9 , 2015. common stock began trading at the split-adjusted price on december 24 , 2015. all share and per share amounts presented reflect the stock split . our fiscal 2017 results demonstrated the power of the nike , inc. portfolio to deliver continued growth and expanding profitability . despite foreign currency headwinds , we achieved record revenues and earnings per share for fiscal 2017. nike , inc. revenues grew 6 % to $ 34.4 billion , net income increased 13 % and diluted earnings per common share grew 16 % to $ 2.51. we also delivered strong cash returns to shareholders while investing for long-term growth . earnings before interest and income taxes ( โ ebit โ ) increased 7 % for fiscal 2017 , driven by revenue growth and selling and administrative expense leverage , partially offset by gross margin contraction . the increase in revenues was driven by growth across all nike brand geographies and converse , footwear and apparel , and several key categories . this broad-based growth was primarily fueled by : innovative performance and sportswear products , incorporating proprietary technology platforms such as nike air , free , zoom , lunar , flywire , dri-fit and flyknit ; deep brand connections with consumers through our category offense , reinforced by investments in endorsements by high-profile athletes , sports teams and leagues , high-impact marketing around global sporting events and digital marketing ; and strong category retail presentation through digital commerce and nike-owned and retail partner stores . nike , inc. gross margin decreased 160 basis points primarily due to higher product costs and foreign currency exchange rate headwinds , which more than offset higher full-price average selling price ( asp ) . story_separator_special_tag fiscal 2016 compared to fiscal 2015 for fiscal 2016 , our consolidated gross margin was 20 basis points higher than fiscal 2015 , primarily attributable to the following factors : higher nike brand full-price asp , net of discounts , ( increasing gross margin approximately 190 basis points ) aligned with our strategy to deliver innovative , premium products with higher prices and , to a lesser extent , due to price increases reflecting inflationary conditions in certain territories ; growth in our higher-margin dtc business ( increasing gross margin approximately 20 basis points ) ; higher nike brand product costs ( decreasing gross margin approximately 70 basis points ) as shifts in mix to higher-cost products and labor input cost inflation were only partially offset by lower material input costs ; higher off-price mix ( decreasing gross margin approximately 30 basis points ) , primarily reflecting the impacts from clearing excess inventory in north america ; unfavorable changes in foreign currency exchange rates , net of hedges , ( decreasing gross margin approximately 40 basis points ) ; higher other costs ( decreasing gross margin approximately 20 basis points ) , primarily due to higher product design and development costs ; and lower gross margin from converse ( decreasing gross margin approximately 20 basis points ) , primarily resulting from shifts in mix to lower-margin products . 25 total selling and administrative expense replace_table_token_7_th ( 1 ) demand creation expense consists of advertising and promotion costs , including costs of endorsement contracts , television , digital and print advertising , brand events and retail brand presentation . fiscal 2017 compared to fiscal 2016 demand creation expense increased 2 % for fiscal 2017 compared to fiscal 2016 , driven by higher sports marketing costs , as well as higher marketing and advertising costs , primarily to support key sporting events including the rio olympics and european football championship . these increases were partially offset by lower retail brand presentation costs . changes in foreign currency exchange rates reduced demand creation expense by approximately 1 percentage point . operating overhead expense was flat compared to fiscal 2016 as continued investments in our growing dtc business were offset by administrative cost efficiencies and lower variable compensation . changes in foreign currency exchange rates reduced operating overhead expense by approximately 1 percentage point for fiscal 2017. fiscal 2016 compared to fiscal 2015 demand creation expense increased 2 % for fiscal 2016 compared to fiscal 2015 , primarily due to investments in digital brand marketing , including for our dtc business , as well as support for key brand events and initiatives , and sports marketing investments , partially offset by lower advertising expense . for fiscal 2016 , changes in foreign currency exchange rates decreased growth in demand creation expense by approximately 6 percentage points . operating overhead expense increased 8 % compared to fiscal 2015 , primarily as a result of continued investments in our dtc business , including new store openings and higher variable expenses , as well as higher wage-related expenses and investments in consumer-focused digital capabilities , partially offset by lower variable compensation . changes in foreign currency exchange rates decreased growth in operating overhead expense by approximately 4 percentage points for fiscal 2016. other ( income ) expense , net replace_table_token_8_th other ( income ) expense , net comprises foreign currency conversion gains and losses from the re-measurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments , as well as unusual or non-operating transactions that are outside the normal course of business . fiscal 2017 compared to fiscal 2016 other ( income ) expense , net increased from $ 140 million of other income , net for fiscal 2016 to $ 196 million of other income , net for fiscal 2017 , primarily due to a $ 56 million net beneficial change in foreign currency conversion gains and losses . we estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency-related gains and losses included in other ( income ) expense , net had an unfavorable impact on our income before income taxes of $ 59 million for fiscal 2017. fiscal 2016 compared to fiscal 2015 other ( income ) expense , net increased from $ 58 million of other income , net for fiscal 2015 to $ 140 million of other income , net for fiscal 2016 , driven by a $ 26 million net change in foreign currency conversion gains and losses , a favorable settlement of a legal judgment related to a bankruptcy case in western europe and net gains from other non-operating items . we estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency-related gains and losses included in other ( income ) expense , net had an unfavorable impact on our income before income taxes of $ 423 million for fiscal 2016. income taxes replace_table_token_9_th fiscal 2017 compared to fiscal 2016 the 550 basis point decrease in our effective tax rate for the fiscal year was primarily due to a one-time benefit in the first quarter of the fiscal year related to the resolution with the irs of a foreign tax credit matter and a decrease in foreign earnings taxed in the united states . 26 fiscal 2016 compared to fiscal 2015 the 350 basis point decrease in our effective tax rate for the fiscal year was primarily due to an increase in the proportion of earnings from operations outside the united states , which are generally subject to a lower tax rate . operating segments our operating segments are evidence of the structure of the company 's internal organization . the nike brand segments are defined by geographic regions for operations participating in nike brand sales activity . each nike brand geographic segment operates predominantly in one industry : the design , development , marketing and selling of athletic footwear , apparel and equipment .
| results of operations replace_table_token_3_th 22 consolidated operating results revenues replace_table_token_4_th 23 ( 1 ) certain prior year amounts have been reclassified to conform to fiscal 2017 presentation . these changes had no impact on previously reported results of operations or shareholders ' equity . ( 2 ) results have been restated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends excluding the impact of translation arising from foreign currency exchange rate fluctuations , which is considered a non-gaap financial measure . ( 3 ) global brand divisions revenues are primarily attributable to nike brand licensing businesses that are not part of a geographic operating segment . ( 4 ) corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the nike brand geographic operating segments and converse but managed through our central foreign exchange risk management program . ( 5 ) references to nike brand wholesale equivalent revenues , which are considered non-gaap financial measures , are intended to provide context as to the total size of our nike brand market footprint if we had no direct to consumer operations . nike brand wholesale equivalent revenues consist of ( 1 ) sales to external wholesale customers and ( 2 ) internal sales from our wholesale operations to our direct to consumer operations , which are charged at prices that are comparable to prices charged to external wholesale customers . ( 6 ) others include all unisex products , equipment and other products not allocated to men 's , women 's and young athletes ' , as well as certain adjustments that are not allocated to products designated by gender or age . ( 7 ) others include all other categories and certain adjustments that are not allocated at the category level .
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actual results may differ substantially from those referred to herein due to a number of factors , including but not limited to risks described in the part i , item 1a , risks factors , and elsewhere in this annual report . references to โ notes โ are notes included in our notes to consolidated financial statements . overview halozyme is seeking to translate our unique knowledge of the tumor microenvironment to create novel therapies that can improve cancer survival . our research focuses on human enzymes that alter the extracellular matrix and tumor microenvironment . the extracellular matrix is a complex matrix of proteins and carbohydrates surrounding the cell that provides structural support in tissues and orchestrates many important biological activities , including cell migration , signaling and survival . over many years , we have developed unique technology and scientific expertise enabling us to pursue this target-rich environment for the development of therapies . our proprietary enzymes can be used to facilitate the delivery of injected drugs and fluids , potentially enhancing the efficacy and the convenience of other drugs or can be used to alter abnormal tissue structures for clinical benefit . we have chosen to exploit our technology and expertise in a balanced way to modulate both risk and spend by : ( 1 ) developing our own proprietary products in therapeutic areas with significant unmet medical needs , with a focus on oncology , and ( 2 ) licensing our technology to biopharmaceutical companies to collaboratively develop products which combine our technology with the collaborators ' proprietary compounds . the majority of our approved product and product candidates are based on rhuph20 , our patented recombinant human hyaluronidase enzyme . rhuph20 temporarily breaks down hyaluronic acid ( ha ) , a naturally occurring substance that is a major component of the extracellular matrix in tissues throughout the body such as skin and cartilage . we believe this temporary degradation creates an opportunistic window for the improved subcutaneous delivery of injectable biologics , such as monoclonal antibodies and other large therapeutic molecules , as well as small molecules and fluids . we refer to the application of rhuph20 to facilitate the delivery of other drugs or fluids as enhanze technology . rhuph20 is also the active ingredient in our first commercially approved product , hylenex ยฎ recombinant . our proprietary development pipeline consists primarily of clinical stage product candidates in oncology and diabetes . our lead oncology program is pegph20 ( pegylated recombinant human hyaluronidase ) , a new molecular entity , under development for the systemic treatment of tumors that accumulate ha . when ha accumulates in a tumor , it can cause higher pressure in the tumor , reducing blood flow into the tumor and with that , reduced access of cancer therapies to the tumor . pegph20 works by temporarily degrading ha surrounding some cancer cells and results in reduced pressure and increased blood flow to the cancer with increased amounts of anticancer treatments administered concomitantly gaining access to the tumor . we are currently in phase 2 clinical testing for pegph20 in metastatic pancreatic cancer ( study 109-202 ) , and we have recently initiated a clinical trial in non-small cell lung cancer ( study 107-201 ) . we have also been investigating hylene x recombinant for use as pre-treatment in patients with type 1 diabetes using pumps and recombinant human cathepsin l ( hti-501 ) for the treatment of cellulite . our recent receipt of fast track and orphan drug designations for pegph20 , new pre-clinical data further supporting the pan-tumor potential for pegph20 and investigator interest in both pancreatic and lung cancer trials have confirmed pegph20 as our priority product candidate for investment . as a result of ongoing evaluations to confirm and focus on the highest value opportunities , we have made the decision to seek collaborations with third parties or explore other strategic alternatives in order to exploit our diabetes and dermatology programs . regarding enhanze , we currently have collaborations with f. hoffmann-la roche , ltd. and hoffmann-la roche , inc. ( roche ) , baxter healthcare corporation ( baxter ) , pfizer inc. ( pfizer ) and janssen biotech , inc. ( janssen ) , with one product approved in the u.s. and three products approved for marketing in europe from which we are receiving royalties and several others at various stages of development . 31 our operations to date have involved : ( i ) building infrastructure for and staffing our operations ; ( ii ) acquiring , developing and securing proprietary protection for our technology ; ( iii ) developing our proprietary product pipeline ; ( iv ) entering into and supporting our collaborations with other companies to advance licensed product candidates ; and ( v ) selling our own approved commercial product , hylenex recombinant . currently , we have received only limited revenue from the sales of hylenex recombinant , in addition to other revenues from our collaborations . future revenues from the sales and or royalties of our product candidates which have not been approved or have recently been approved will depend on the ability of halozyme and our collaborators to develop , manufacture , secure regulatory approvals for and commercialize the product candidates . we have incurred net operating losses each year since inception , with an accumulated deficit of approximately $ 450.4 million as of december 31 , 2014 . our 2014 and recent key accomplishments and events are as follows : in january 2015 , we disclosed initial efficacy and safety data from an interim assessment of stage 1 of study 109-202 , a phase 2 multicenter , randomized clinical trial evaluating pegph20 as a first-line therapy for patients with stage iv metastatic pancreatic cancer . refer to pegph20 section under part i , item 1 , business , for further discussion of study 109-202 data . story_separator_special_tag research and development expenses relating to our pegph20 program in 2014 increased by 86 % , compared to 2013 primarily due to the increased clinical trial activities mostly relating to study 109-202. research and development expenses relating to hylenex recombinant program decreased in 2014 by 50 % compared to 2013 mainly due to the completion of the technology transfer and validation campaign with a second manufacturer for hylenex recombinant at the end of 2013. research and development expenses relating to our enhanze collaborations in 2014 decreased by 78 % , primarily due to a $ 12.0 million decrease resulting from capitalizing manufacturing costs for approved collaboration products in the current period , an $ 8.1 million decrease in other outsourced regulatory and manufacturing activities to support roche and a $ 2.5 million decrease in preclinical activities to support baxter . subsequent to the european approvals of roche 's herceptin sc product in august 2013 and mabthera sc product in march 2014 and baxter 's hyqvia product in may 2013 , the manufacturing costs of bulk rhuph20 for these collaboration products were capitalized as inventory . we expect research and development costs to increase in future periods as we continue with our clinical trial programs and continue to develop and manufacture our product candidates . 35 research and development expenses increased in 2013 compared to 2012 by $ 26.6 million , or 38 % . research and development expenses relating to our ultrafast insulin and pegph20 programs increased in 2013 compared to 2012 by $ 19.5 million , or 371 % , and $ 6.3 million , or 50 % , respectively , primarily due to the increased clinical trial activities relating to the consistent 1 and on-going phase 2 pegph20 clinical trials . research and development expenses relating to our enhanze collaborations increased in 2013 compared to 2012 by $ 5.0 million , or 19 % , primarily due to a $ 9.8 million increase in manufacturing activities to support roche 's preparation for the launches of its collaboration product and product candidates ; offset in part by a $ 4.6 million decrease in manufacturing expenses to support baxter 's launch of its collaboration product . selling , general and administrative โ selling , general and administrative ( sg & a ) expenses increased in 2014 compared to 2013 by $ 3.6 million , or 11 % , due to the increase in compensation costs , including a $ 2.3 million increase in stock-based compensation . sg & a expenses increased in 2013 compared to 2012 by $ 7.5 million , or 30 % , primarily due to a $ 3.9 million increase in compensation costs , including a $ 0.9 million increase in stock-based compensation , mainly resulting from an increase in headcount and higher bonus accruals , and a $ 1.8 million increase in marketing activities for hylenex recombinant product . interest expense โ interest expense included interest expense and amortization of the debt discount related to the long-term debt acquired in december 2012. the increase of $ 2.3 million in 2014 as compared to 2013 was due to the $ 20.0 million increase in the principal balance in december 2013. liquidity and capital resources our principal sources of liquidity are our existing cash , cash equivalents and available-for-sale marketable securities . as of december 31 , 2014 , we had cash , cash equivalents and marketable securities of approximately $ 135.6 million . we will continue to have significant cash requirements to support product development activities . the amount and timing of cash requirements will depend on the progress and success of our clinical development programs , regulatory and market acceptance , and the resources we devote to research and other commercialization activities . we believe that our current cash , cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months . we currently anticipate total net cash burn of approximately $ 35 million to $ 45 million for the year ending december 31 , 2015 , depending on the progress of various preclinical and clinical programs , the timing of our manufacturing scale up and the achievement of various milestones and royalties under our existing collaborative agreements . we expect to fund our operations going forward with existing cash resources , anticipated revenues from our existing collaborations and cash that we may raise through future transactions . we may finance future cash needs through any one of the following financing vehicles : ( i ) the public offering of securities ; ( ii ) new collaborative agreements ; ( iii ) expansions or revisions to existing collaborative relationships ; ( iv ) private financings ; and or ( v ) other equity or debt financings . in february 2012 , we filed an automatic shelf registration statement on form s-3 ( registration no . 333-179444 ) with the sec , which allows us , from time to time , to offer and sell equity , debt securities and warrants to purchase any of such securities , either individually or in units . we may , in the future , offer and sell equity , debt securities and warrants to purchase any of such securities , either individually or in units to raise capital to fund the continued development of our product candidates , the commercialization of our products or for other general corporate purposes . our existing cash , cash equivalents and marketable securities may not be adequate to fund our operations until we become cash flow positive , if ever . we can not be certain that additional financing will be available when needed or , if available , financing will be obtained on favorable terms . if we are unable to raise sufficient funds , we may need to delay , scale back or eliminate some or all of our research and development programs , delay the launch of our product candidates , if approved , and or restructure our operations .
| results of operations comparison of years ended december 31 , 2014 , 2013 and 2012 product sales , net โ product sales increased in 2014 compared to 2013 , by $ 13.4 million , or 55 % , primarily due to a $ 9.8 million increase in product sales of bulk rhuph20 for roche collaboration products and a $ 4.1 million increase in product sales of hylenex recombinant . hylenex recombinant product sales increased to $ 13.2 million in 2014 from $ 9.0 million in 2013. product sales increased in 2013 compared to 2012 by $ 21.6 million , or 746 % , primarily due to $ 14.8 million in product sales of bulk rhuph20 for roche and baxter collaboration products , herceptin sc and hyqvia . the increase was also due to a $ 6.8 million increase in product sales of hylenex recombinant . subsequent to the receipt of the european marketing approval of roche 's herceptin sc product in august 2013 and mabthera sc product in march 2014 and baxter 's hyqvia product in may 2013 , revenue from bulk rhuph20 supply for these collaboration products was recorded as product sales revenue , instead of revenues under collaborative agreements . royalties โ royalty revenue was $ 9.4 million in 2014 compared to $ 33,000 in 2013. royalties relate primarily to sales of roche 's herceptin sc . the increase was mainly due to the launch of herceptin sc in september 2013. we recognize royalties on sales of the collaboration products by the collaborators in the quarter following the quarter in which the corresponding sales occur .
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following the consummation of the transactions , medtronic , inc. and covidien became subsidiaries of the company . in connection with the transactions , the company became the successor registrant to medtronic , inc. and re-registered as a public limited company organized under the laws of ireland . for the fiscal year ended april 24 , 2015 , the results of operations of covidien are reflected in medtronic 's results of operations for only the fourth quarter due to the timing of the transactions , which will affect comparability throughout this annual report on form 10-k. for further information regarding the acquisition , see the section entitled `` acquisition and investments - acquisition of covidien plc in fiscal year 2015 '' contained in `` item 1. business '' and note 2 to the consolidated financial statements in โ item 8. financial statements and supplementary data โ in this annual report on form 10-k. organization of financial information management 's discussion and analysis provides material historical and prospective disclosures designed to enable investors and other users to assess our financial condition and results of operations . statements that are forward-looking and not historical in nature are subject to risks and uncertainties . see `` item 1a . risk factors '' in this annual report on form 10-k and `` cautionary factors that may affect future results '' in this management 's discussion and analysis for more information . the consolidated financial statements are presented within item 8 of this annual report on form 10-k and include the consolidated statements of income , consolidated statements of comprehensive income , consolidated balance sheets , consolidated statements of shareholders ' equity , consolidated statements of cash flows , and the related notes , which are an integral part of the consolidated financial statements . financial trends throughout this management 's discussion and analysis , we present certain financial measures that management uses to evaluate the operational performance of the company and as a basis for strategic planning ; however , such financial measures are not presented in our financial statements prepared in accordance with generally accepted accounting principles in the united states ( u.s. gaap ) . these financial measures are considered non-gaap financial measures . management uses non-gaap financial measures to facilitate management 's review of the operational performance of the company and as a basis for strategic planning . management believes that non-gaap financial measures provide useful information to investors regarding the underlying business trends and performance of the company 's ongoing operations and are useful for period over period comparisons of such operations . the non-gaap financial measures reflect an additional way of viewing aspects of the company 's operations . investors should not consider results reflecting non-gaap financial measures in isolation from , or as a substitute for , financial information prepared in accordance with u.s. gaap and are cautioned that medtronic may calculate results reflecting non-gaap financial measures in a manner that is different from other companies . the gaap to non-gaap reconciliation presents non-gaap financial measures that exclude the impact of charges or gains that contribute to or reduce earnings and may affect financial trends but which include charges or benefits that result from transactions or events that management believes may or may not recur with similar materiality or impact to our operations in future periods ( non-gaap adjustments ) . in the event there is a non-gaap adjustment recognized in our operating results , the tax cost or benefit attributable to that item is separately calculated and recorded . because the effective rate can be significantly impacted by these non-gaap adjustments that take place in the period , we often refer to our tax rate using both the effective rate and the non-gaap nominal tax rate ( non-gaap nominal tax rate ) . the non-gaap nominal tax rate is calculated as the provision for income taxes , adjusted for the impact of non-gaap adjustments , as a percentage of income from operations before income taxes , excluding non-gaap adjustments . 37 free cash flow is a non-gaap financial measure calculated by subtracting property , plant , and equipment additions from operating cash flows . refer to the โ gaap to non-gaap reconciliation , '' `` income taxes , '' and `` summary of cash flows '' sections for reconciliations of our results of operations prepared in accordance with u.s. gaap to the adjusted non-gaap measurements considered by management . our fiscal year-end is the last friday in april , and therefore , the total weeks in a fiscal year can fluctuate between 52 and 53 weeks . fiscal year 2016 was a 53-week year , with the additional week occurring in the first quarter . fiscal years 2015 and 2014 were 52-week years . executive level overview medtronic is among the world 's largest medical technology , services , and solutions companies - alleviating pain , restoring health , and extending life for millions of people around the world . we employ more than 88,000 full-time employees worldwide , serving physicians , hospitals , and patients in approximately 160 countries . our primary products include those for cardiac rhythm disorders , cardiovascular disease , advanced and general surgical care , respiratory and monitoring solutions , neurological disorders , spinal conditions and musculoskeletal trauma , urological and digestive disorders , and ear , nose , and throat and diabetes conditions . net income for the fiscal year ended april 29 , 2016 was $ 3.5 billion , $ 2.48 per diluted share , as compared to net income of $ 2.7 billion , $ 2.41 per diluted share , for the fiscal year ended april 24 , 2015 , representing an increase of 32 percent and 3 percent , respectively . the table below illustrates net sales by operating segment for fiscal years 2016 and 2015 : replace_table_token_6_th ( 1 ) the minimally invasive therapies group was a new group in the fourth quarter of fiscal year 2015 that contains the majority of covidien 's former operations . story_separator_special_tag 40 our critical accounting estimates include the following : revenue recognition based upon the lag time between the original sale to distributors at list price and the related distributor rebate earned at time of sale to the end customer and the judgments involved in estimating such rebates , we consider certain minimally invasive therapies group price adjustment rebates to be a critical accounting estimate . we adjust reserves to reflect differences between estimated and actual experience , and record such adjustment as a reduction of sales in the period of adjustment . adjustments to recorded reserves have not been significant . price adjustment rebates charged against gross sales for the fiscal year ended april 29 , 2016 and the fourth quarter of fiscal year 2015 were $ 2.9 billion and $ 679 million , respectively . litigation contingencies we are involved in a number of legal actions involving product liability , intellectual property disputes , shareholder derivative actions , securities class actions , other class actions , income tax matters , and environmental matters . the outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time . in some actions , the claimants seek damages , as well as other relief ( including injunctions barring the sale of products that are the subject of the lawsuit ) , that could require significant expenditures or result in lost revenues . estimates of probable losses resulting from litigation , governmental proceedings , and income tax matters involving the company are inherently difficult to predict , particularly when the matters are in early procedural stages , with incomplete scientific facts or legal discovery ; involve unsubstantiated or indeterminate claims for damages ; potentially involve penalties , fines , or punitive damages ; or could result in a change in business practice . our significant legal proceedings are discussed in note 15 to the consolidated financial statements in โ item 8. financial statements and supplementary data โ in this annual report on form 10-k. while it is not possible to predict the outcome for most of the matters discussed in note 15 to the consolidated financial statements , we believe it is possible that costs associated with these matters could have a material adverse impact on our consolidated earnings , financial position , and or cash flows . income tax reserves we establish reserves when , despite our belief that our tax return positions are fully supportable , we believe that certain positions are likely to be challenged and that we may or may not prevail . these reserves are established and adjusted in accordance with the principles of u.s. gaap . under u.s. gaap , if we determine that a tax position is more likely than not of being sustained upon audit , based solely on the technical merits of the position , we recognize the benefit . we measure the benefit by determining the amount that is greater than 50 percent likely of being realized upon settlement . we presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations . we regularly monitor our tax positions and tax liabilities . we reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit , or derecognize a previously recorded tax benefit , when ( i ) there is a completion of a tax audit , ( ii ) effective settlement of an issue ( iii ) there is a change in applicable tax law including a tax case or legislative guidance , or ( iv ) there is an expiration of the statute of limitations . significant judgment is required in accounting for tax reserves . although we believe that we have adequately provided for liabilities resulting from tax assessments by taxing authorities , positions taken by these tax authorities could have a material impact on our effective tax rate , consolidated earnings , financial position and or cash flows . valuation of intangible assets and goodwill when we acquire a business , the assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition date . goodwill is the excess of the purchase price consideration over the estimated fair value of net assets of acquired businesses . intangible assets include patents , trademarks , tradenames , customer relationships , purchased technology , and ipr & d . determining the fair value of intangible assets acquired as part of a business combination requires us to make significant estimates . these estimates include the amount and timing of projected future cash flows of each project or technology , the discount rate used to discount those cash flows to present value , the assessment of the asset 's life cycle , and the consideration of legal , technical , regulatory , economic , and competitive risks . the test for goodwill impairment requires us to make several estimates about fair value , most of which are based on projected future cash flows . our estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value , including projected future cash flows . the company assesses the impairment of goodwill annually in the third quarter at the reporting unit level and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired . goodwill was $ 41.5 billion and $ 40.5 billion as of april 29 , 2016 and april 24 , 2015 , respectively . we test definite-lived intangible assets for impairment when an event occurs or circumstances change that would indicate the carrying amount of the assets or asset group may be impaired .
| summary of cash flows replace_table_token_17_th operating activities our net cash provided by operating activities was $ 5.2 billion for the fiscal year ended april 29 , 2016 compared to $ 4.9 billion provided in the prior year . the $ 316 million increase was primarily driven by an increase in net income before depreciation and amortization , loss on debt extinguishment , and acquisition-related items of $ 2.1 billion and a decrease in certain litigation payments of $ 469 million , partially offset by an increase in cash paid for incomes taxes and interest of $ 747 million and $ 688 million , respectively . the increase in cash paid for income taxes was primarily a result of the settlement payments made for the resolution of the kyphon acquisition-related matters , internal reorganization of the ownership of certain legacy covidien businesses , and the impacts from the full year of covidien results . the increase in cash paid for interest was primarily the result of a full year of interest payments on the senior notes and term loan issued in fiscal year 2015 primarily to fund the $ 16 billion cash consideration portion of the covidien acquisition , as well as the interest payments on the outstanding debt assumed as part of the covidien acquisition . net cash provided by operating activities was further offset by the impact of a full year of operations post-covidien acquisition . our net cash provided by operating activities was $ 4.9 billion for the fiscal year ended april 24 , 2015 compared to $ 5.0 billion provided in the fiscal year ended april 25 , 2014 .
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this discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by such forward-looking statements as a result of many important factors , including those set forth in part i of this annual report on form 10-k under the caption โ risk factors. โ please see โ special note regarding forward-looking statements โ in part i above . we do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this annual report . operating and financial review and prospects overview our financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) and include the accounts of the company and our wholly-owned subsidiaries , stellar biotechnologies , inc. and bioestelar s.a. de c.v. in the past , operations of the company have primarily been funded by the issuance of common shares , exercise of warrants , grant revenues , contract services revenue and product sales . in may and june 2018 , we completed equity financings and warrant exercises resulting in net cash proceeds of $ 8.8 million . management believes the company 's working capital is sufficient to support the company 's operations for at least the next 12 months . management also seeks to expand the customer base for existing marketed products , and may seek additional financing through debt and or equity financings , including transactions with strategic customers and partners that may include debt and or equity arrangements . story_separator_special_tag 2017 , the company reported net losses of approximately $ 5.0 million and $ 5.0 million , respectively . as of september 30 , 2018 , the company had an accumulated deficit of approximately $ 50.4 million and working capital of approximately $ 10.2 million . we plan to finance company operations for at least the next twelve months with cash and investments on hand and product sales . management has flexibility to adjust planned expenditures based on a number of factors including the size and timing of capital expenditures , staffing levels , inventory levels , and the status of customer clinical trials . management also seeks to expand the customer base for existing marketed products , and may seek additional financing through debt and or equity financings , including transactions with strategic customers and partners that may include debt and or equity arrangements . on may 15 , 2018 , we completed a registered public offering resulting in net proceeds of $ 4.64 million . on may 29 , 2018 , we closed an offering with certain holders of our warrants , pursuant to a warrant exercise agreement , resulting in net proceeds of $ 2.49 million . during may and june 2018 , other warrant exercises resulted in net proceeds of $ 1.64 million . at september 30 , 2018 , we had cash , cash equivalents and short-term investments in u.s. treasury bills of $ 10.3 million , working capital of $ 10.2 million , shareholders ' equity of $ 11.3 million and an accumulated deficit of $ 50.4 million . research and development our core business is developing and commercializing keyhole limpet hemocyanin for use in immunotherapy and immunodiagnostic applications . our internal research has included , among other activities , improvement of methods for the culture and growth of giant keyhole limpet , developing proprietary formulated limpet diets , innovations in aquaculture systems and infrastructure , biophysical and biochemical characterization of the klh molecule , analytical processes to enhance performance of our products , klh manufacturing process improvements , new klh formulations and klh-related technologies , and new uses for klh in immunotherapy and immunodiagnostic applications . research and development costs , including ( i ) materials , ( ii ) klh designated for internal research use only and ( iii ) salaries of employees directly involved in research and development efforts , are expensed as incurred . from time to time , we produce saleable klh as a byproduct of our research and development activities . the cost of this klh is not assigned to inventory . the following table includes our research and development costs for each of the most recent two fiscal years : 2018 $ 2,087,402 2017 1,973,400 the increase in fiscal 2018 over fiscal 2017 was primarily due to research and development activities intended to increase the scalability and throughput capacity of existing manufacturing systems , including engineering lots of klh produced under our optimization initiative off balance sheet arrangements we do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures , or capital resources . page 21 foreign exchange risk our exposure to foreign exchange risk is primarily related to fluctuations between the canadian dollar and the u.s. dollar . funds held in mexican pesos are nominal . we incur operating expenses and capital expenditures mostly in u.s. dollars , with some operating expenses incurred in canadian dollars which are subject to foreign currency fluctuations . the fluctuation of the u.s. dollar in relation to the canadian dollar will have an impact upon our profitability and may also affect the value of our assets and the amount of shareholders ' equity . we have not entered into any agreements or purchased any instruments to hedge possible currency risks . at september 30 , 2018 , we held approximately cdn $ 0.7 million in cash and cash equivalents in canadian dollars and the u.s. dollar was equal to 1.2918 canadian dollars . based on the exposure at september 30 , 2018 , a 10 % annual change in the canadian/u.s . exchange rate over the prior year would impact our net loss by $ 0.05 million . story_separator_special_tag additional tax issues may exist that are not addressed in this discussion and that could affect the u.s. federal income tax treatment of the acquisition , holding and disposition of the common shares . this section is based on the u.s. tax code , its legislative history , existing and proposed regulations , published rulings by the irs and court decisions , all as currently in effect . these laws are subject to change , possibly on a retroactive basis . the discussion applies , unless indicated otherwise , only to u.s. holders and certain non u.s. holders who hold common shares as capital assets within the meaning of section 1221 of the u.s. tax code ( generally , as property held for investment ) and use the u.s. dollar as their functional currency . it does not address special classes of holders that may be subject to different treatment under the u.s. tax code , such as : certain financial institutions ; insurance companies ; dealers and traders in securities ; persons holding common shares as part of a hedge , straddle , conversion or other integrated transaction ; partnerships or other entities classified as partnerships for u.s. federal income tax purposes ; persons liable for the alternative minimum tax ; tax-exempt organizations ; certain u.s. expatriates ; or persons holding common shares that own or are deemed to own 10 per cent or more ( by vote or value ) of the company 's shares . united states federal income taxation as used below , a โ u.s . holder โ is a beneficial owner of a common share that is , for u.s. federal income tax purposes , ( i ) a citizen or resident alien individual of the united states , ( ii ) a corporation ( or an entity treated as a corporation ) created or organized under the law of the united states , any state thereof or the district of columbia , ( iii ) an estate the income of which is subject to u.s. federal income tax without regard to its source or ( iv ) a trust if ( 1 ) a court within the united states is able to exercise primary supervision over the administration of the trust , and one or more united states persons have the authority to control all substantial decisions of the trust , or ( 2 ) the trust has a valid election in effect under applicable u.s. treasury regulations to be treated as a united states person . for purposes of this discussion , a โ non-u.s. holder โ is a beneficial owner of a common share that is ( i ) a nonresident alien individual , ( ii ) a corporation ( or an entity treated as a corporation ) created or organized in or under the law of a country other than the united states or a political subdivision thereof or ( iii ) an estate or trust that is not a u.s. holder . if a partnership ( including for this purpose any entity treated as a partnership for u.s. federal tax purposes ) is a beneficial owner of a common share , the u.s. federal tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership . a holder of a common share that is a partnership and partners in that partnership should consult their own tax advisers regarding the u.s. federal income tax consequences of holding and disposing of common shares . we have not sought a ruling from the internal revenue service ( irs ) or an opinion of counsel as to any u.s. federal income tax consequence described herein . the irs may disagree with the description herein , and its determination may be upheld by a court . this discussion does not address u.s. federal tax laws other than those pertaining to u.s. federal income taxation ( such as estate or gift tax laws ) , nor does it address any aspects of u.s. state or local or non-u.s. taxation . this summary is based upon certain understandings and assumptions with respect to the business , assets and holders , including that the company is not , does not expect to become , nor at any time has been a controlled foreign corporation as defined in section 957 of the u.s. tax code ( โ cfc โ ) . the company believes that it is not and has never been a cfc , and does not expect to become a cfc . in the event that one or more of such understandings and assumptions proves to be inaccurate , the following summary may not apply and material adverse u.s. federal income tax consequences may result to u.s. holders . given the complexity of the tax laws and because the tax consequences to any particular shareholder may be affected by matters not discussed herein , shareholders are urged to consult their own tax advisors with respect to the specific tax consequences of the acquisition , ownership and disposition of common shares , including the applicability and effect of state , local and non-u.s. tax laws , as well as u.s. federal tax laws . taxation of dividends u.s. holders . in general , subject to the passive foreign investment company rules discussed below , a distribution on a common share will constitute a dividend for u.s. federal income tax purposes to the extent that it is made from a corporation 's current or accumulated earnings and profits as determined under u.s. federal income tax principles . if a distribution exceeds the current and accumulated earnings and profits of the distributing corporation , it will generally be treated as a non-taxable reduction of basis to the extent of the u.s. holder 's tax basis in the common share on which it is paid , and to the extent it exceeds that basis it will be treated as capital gain . the company has not and does not plan to maintain calculations of earnings and profits under u.s.
| results of operations fiscal year ended september 30 , 2018 compared to the fiscal year ended september 30 , 2017 our total revenues decreased by $ 0.02 million to $ 0.21 million for fiscal 2018 compared to $ 0.23 million for fiscal 2017 due to a decrease in contract services revenue which was partially offset by an increase in product sales . contract services revenue in fiscal 2017 was related to a technology transfer that was completed in march 2017. product sales volumes are subject to variability associated with the rate of development and progression of clinical studies of third-party products that utilize stellar klh . the rate of progression toward later stage studies is expected to continue to affect the timing and volume of future product sales . during both years , product mix was similar , consisting of various grades of klh for clinical and pre-clinical studies and immune system assays . our total expenses decreased by $ 0.16 million to $ 5.29 million for fiscal 2018 compared to $ 5.45 million for fiscal 2017 : ยท our cost of sales and contract services decreased by $ 0.12 million to $ 0.13 million for fiscal 2018 compared to $ 0.25 million for fiscal 2017 primarily due to reduced expenses related to sales of klh that was produced as a byproduct of our research and development activities . ยท our costs of aquaculture increased by $ 0.03 million to $ 0.31 million for fiscal 2018 compared to $ 0.28 million for fiscal 2017 primarily due to increased testing expenses related to new state regulatory requirements .
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in general , for consolidation purposes , assets and liabilities of its subsidiaries whose functional currency is not us $ are translated into us $ , in accordance with asc topic 830-30 , โ translation of financial statement โ , using the exchange rate on the balance sheet date . revenues and expenses are translated at average rates prevailing during the period . the gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income . translation of amounts from the local currency of the company into us $ 1.00 has been made at the following exchange rates for the respective years : replace_table_token_12_th related parties parties , which can be a corporation or individual , are considered to be related if the company has the ability , directly or indirectly , to control the other party or exercise significant influence over the other party in making financial and operating decisions . companies are also considered to be related if they are subject to common control or common significant influence . fair value of financial instruments the carrying value of the company 's financial instruments : cash and cash equivalents , trade receivable , deposits and other receivables , amount due to related parties and other payables approximate at their fair values because of the short-term nature of these financial instruments f-10 bionexus gene lab corp. notes to consolidated financial statements for the year ended december 31 , 2019 ( currency expressed in united states dollars ( โ us $ โ ) ) ( audited ) the company also follows the guidance of the asc topic 820-10 , โ fair value measurements and disclosures โ ( โ asc 820-10 โ ) , with respect to financial assets and liabilities that are measured at fair value . asc 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows : level 1 : observable inputs such as quoted prices in active markets ; level 2 : inputs , other than the quoted prices in active markets , that are observable either directly or indirectly ; and level 3 : unobservable inputs in which there is little or no market data , which require the reporting entity to develop its own assumptions as of december 31 , 2019 , and december 31 , 2018 , the company did not have any non financial assets and liabilities that are recognized or disclosed at fair value in the financial statements , at least annually , on a recurring basis , nor did the company have any assets or liabilities measured at fair value on a non-recurring basis . recent accounting pronouncements the company has reviewed all recently issued , but not yet effective , accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations . note 3 - stockholders ' equity as at december 31 , 2019 and 2018 , the company issued and outstanding , common stock is 102,730,891 shares and 74,627,558 shares respectively . note 4 - plant and equipment plant and equipment consisted of the following : as of december 31 , 2019 december 31 , 2018 furniture and fittings $ 5,617 $ 379 computer and software 1,372 - motor vehicle 112,344 112,344 lab equipment 281,651 281,651 office equipment 1,091 1,130 renovation 2,916 - 404,991 395,504 ( less ) : accumulated depreciation ( 98,219 ) ( 56,466 ) add : foreign translation differences 6,136 2,767 plant and equipment , net $ 312,908 $ 341,805 depreciation expense for the year ended december 31 , 2019 and 2018 were $ 41,714 and $ 40,611 , respectively . f-11 bionexus gene lab corp. notes to consolidated financial statements for the year ended december 31 , 2019 ( currency expressed in united states dollars ( โ us $ โ ) ) ( audited ) note 5 - finance lease the company purchased motor vehicles under a finance lease agreement with the effective interest rate 5.99 % of per annum due through january 2023 , with principal and interest payable monthly . the obligation under the finance lease is as follows : replace_table_token_13_th as of december 31 , 2019 , the maturities of the finance lease for each of the three years are as follows : replace_table_token_14_th note 6 - lease story_separator_special_tag general . our company was incorporated on april 5 , 2017 and operations of our malaysian company began operations in july 2017. consequently , the following discussion and analysis of the results of operations and financial condition of the company is for fiscal years ended december 31 , 2019 and december 31 , 2018 , respectively . this information should be read in conjunction with the notes to the financial statements that are included elsewhere herein . the consolidated financial statements presented herein ( and to which this discussion relates ) reflect the results of operations of the company and its malaysian subsidiary . 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 . 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 . story_separator_special_tag 26 operating leases operating leases are included in right-of-use ( โ rou โ ) assets , operating lease non-current liabilities , and operating lease current liabilities in our consolidated balance sheets . rou assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease . operating lease rou assets and liabilities are recognised at commencement date based on the present value of lease payments over the lease term . as most of the leases do not provide an implicit rate , the company generally use the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date . the operating lease rou asset also includes any lease payments made and excludes lease incentives . lease expense for lease payment is recognised on a straight-line basis over the lease term . the company adopted malayan banking ( maybank ) berhad 's base lending rate as a reference for discount rate , as this is the largest bank and national bank of malaysia plant and equipment plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses , if any . depreciation is calculated on the straight-line basis to write off the cost over the following expected useful lives of the assets concerned . the principal annual rates used are as follows : categories principal annual rates/expected useful life furniture & fittings 20 % computer and software 33 % motor vehicle 10 % lab equipment 10 % office equipment 20 % renovation 20 % fully depreciated plant and equipment are retained in the financial statements until they are no longer in use . trade receivables trade receivables are recorded at the invoiced amount and do not bear interest . management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis , using historical collection trends and aging of receivables . management also periodically evaluates individual customer 's financial condition , credit history , and the current economic conditions to make adjustments in the allowance when it is considered necessary . trade balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote . inventories inventories consisting of products available for sell , are stated at the lower of cost or market value . cost of inventory is determined using the first-in , first-out ( fifo ) method . inventory reserve is recorded to write down the cost of inventory to the estimated market value due to slow-moving merchandise and damaged goods , which is dependent upon factors such as historical and forecasted consumer demand , and promotional environment . the company takes ownership , risks and rewards of the products purchased . write downs are recorded in cost of revenues in the condensed statements of operations and comprehensive income . 27 impairment of long-lived assets long-lived assets primarily include goodwill , intangible assets and property , plant and equipment . in accordance with the provision of asc topic 360 , โ impairment or disposal of long-lived assets โ , the company generally conducts its annual impairment evaluation to its long-lived assets , usually in the fourth quarter of each fiscal year , or more frequently if indicators of impairment exist , such as a significant sustained change in the business climate . the recoverability of long-lived assets is measured at the lowest level group . if the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset , a loss is recognized for the difference between the fair value and carrying amount of the asset . there has been no impairment charge for the years presented . finance lease leases that transfer substantially all the rewards and risks of ownership to the lessee , other than legal title , are accounted for as finance leases . substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met : ( i ) transfer of ownership to the lessee at the end of the lease term , ( ii ) the lease containing a bargain purchase option , ( iii ) the lease term exceeding 75 % of the estimated economic life of the leased asset , ( iv ) the present value of the minimum lease payments exceeding 90 % of the fair value . at the inception of a finance lease , the company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments . the leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the company , while the leased asset is depreciated in accordance with the company 's depreciation policy if the title is to eventually transfer to the company . the periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with the provisions of asc topic 835-30 , โ imputation of interest โ . revenue recognition revenue recognized when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably . revenue is measured at the fair value of consideration received or receivable . a. sales of goods or rendering of services an entity shall recognize revenue associated with the transaction by reference to the stage of completion of the transaction at the end of the reporting period .
| results of operations results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 ( audited ) . the following table sets forth key components of the results of operations for fiscal year ended december 31 , 2019 and 2018 , respectively . the discussion following the table addresses these results . replace_table_token_2_th revenues . for the annual period ended december 31 , 2019 , we had revenues of $ 126,955 as compared to revenues of $ 212,328 for the annual period ended december 31 , 2018 , a decrease of approximately 40.2 % from the prior period . the decrease in revenues for the twelve-month period is due to lesser number of patient referrals from local hospitals . as discussed above , following the successful conclusion of the development agreement with the national heart institute ( nhi ) in august 2019 , we are hopeful that the nhi will take the lead to incorporate our rna screening for heart disease into their regular screening processes for patients . we would then expect to expand the use of our screening process to other major hospitals in malaysia . cost of revenues . for the annual period ended december 31 , 2019 , we had cost of revenues of $ 71,067 , as compared to cost of revenues of $ 183,563 for the annual period ended december 31 , 2018 , a decrease of approximately 61.3 % from the prior period . the decrease for the current year end period reflects the reduction in revenues for the same year end period . however the cost of revenue saving by 30.5 % ( 55.98 % in year 2019 vs 86.45 % in year 2018 ) from prior period due to saving from bulk purchase of lab consumables . other income .
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to the extent permissible under applicable law , the rules of the sec and nasdaq listing standards , we intend to disclose on our website any amendment to our code of business conduct , or any grant of a waiver from a provision of our code of business conduct , that requires disclosure under applicable law , story_separator_special_tag overview we are a leading , less-than-truckload ( โ ltl โ ) , union-free motor carrier providing regional , inter-regional and national ltl services , which include ground and air expedited transportation and consumer household pickup and delivery through a single integrated organization . in addition to our core ltl services , we offer a broad range of value-added services including international freight forwarding , container drayage , truckload brokerage , supply chain consulting and warehousing . more than 95 % of our revenue has historically been derived from transporting ltl shipments for our customers , whose demand for our services is generally tied to industrial production and the overall health of the u.s. domestic economy . in analyzing the components of our revenue , we monitor changes and trends in our ltl services using the following key metrics , which exclude certain transportation and logistics services where pricing is generally not determined by weight , commodity or distance : ltl revenue per hundredweight โ this measurement reflects the application of our pricing policies to the services we provide , which are influenced by competitive market conditions and our growth objectives . generally , freight is rated by a class system , which is established by the national motor freight traffic association , inc. light , bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense , heavy freight . fuel surcharges , accessorial charges , revenue adjustments and revenue for undelivered freight are included in this measurement . revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy ; however , we believe including it in our revenue per hundredweight metrics results in a better indicator of changes in our yields by matching total billed revenue with the corresponding weight of those shipments . revenue per hundredweight is a commonly-used indicator of pricing trends , but this metric can be influenced by other factors , such as changes in fuel surcharges , weight per shipment , length of haul and the class , or mix , of our freight . as a result , changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates . ltl weight per shipment โ fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers , as well as changes in the number of units included in a shipment . generally , increases in weight per shipment indicate higher demand for our customers ' products and overall increased economic activity . changes in weight per shipment generally have an inverse effect on our revenue per hundredweight , as an increase in weight per shipment will typically cause a decrease in revenue per hundredweight . average length of haul โ we consider lengths of haul less than 500 miles to be regional traffic , lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic , and lengths of haul in excess of 1,000 miles to be national traffic . this metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics , and also allows for comparison with other transportation providers serving specific markets . by analyzing this metric , we can determine the success and growth potential of our service products in these markets . changes in length of haul generally have a direct effect on our revenue per hundredweight , as an increase in length of haul will typically cause an increase in revenue per hundredweight . our primary revenue focus is to increase โ density , โ which is shipment and tonnage growth within our existing infrastructure . increases in density allow us to maximize our asset utilization and labor productivity , which we measure over many different functional areas of our operations including linehaul load factor , pickup and delivery ( โ p & d โ ) stops per hour , p & d shipments per hour , platform pounds handled per hour and platform shipments per hour . in addition to our focus on density and operating efficiencies , it is critical for us to obtain an appropriate yield on the shipments we handle . we manage our yields by focusing on individual account profitability . we believe yield management and improvements in efficiency are key components in our ability to produce profitable growth . our primary cost elements are direct wages and benefits associated with the movement of freight , fuel and other operating supplies and expenses , and depreciation of our equipment fleet and service center facilities . we gauge our overall success in managing costs by monitoring our operating ratio , a measure of profitability calculated by dividing total operating expenses by revenue , which also allows for industry-wide comparisons with our competition . 20 story_separator_special_tag increased these costs as a percent of revenue . our aggregate productive labor costs increased to 25.8 % of revenue in 2014 as compared to 25.5 % in 2013 while our other salaries and wages improved to 11.5 % of revenue in 2014 as compared to 11.7 % in 2013. employee benefit costs increased $ 40.1 million primarily due to the increase in the number of full-time employees eligible for benefits , which led to higher payroll-related taxes and paid time off benefits . our employee benefit costs also increased for certain retirement benefit plans directly linked to the improvement in our net income and the share price of our common stock . the cost for our health and dental benefit plans increased over 2013 , primarily due to an increase in the total number of eligible employees in the plans . story_separator_special_tag we regularly monitor the components of our pricing , including base freight rates and fuel surcharges . we also address any individual account profitability issues with our customers as part of our effort to minimize the negative impact on our profitability that would likely result from a rapid and significant change in any of our operating expenses . operating costs and other expenses salaries , wages and benefits increased $ 104.2 million , or 9.8 % in 2013 due to a $ 72.2 million increase in the costs for salaries and wages and a $ 32.0 million increase in benefit costs . of the total increase in salaries and wages , our direct labor costs for drivers , platform employees and fleet technicians increased $ 56.8 million , or 10.0 % in 2013 as compared to 2012. the increase in the costs for our salaries and wages , excluding benefits , was due primarily to a 7.5 % increase in average full-time employees over 2012 and the impact of wage increases provided to employees in september 2012 and 2013. we primarily increased our headcount in 2013 due to our increased volume of shipments as well as to ensure sufficient labor capacity for future revenue growth . we also hired additional drivers in the second half of 2013 to address inefficiencies that resulted from 24 changes to the fmcsa 's hours-of-service regulations . although our salaries and wages , excluding benefits , increased during 2013 , these costs decreased as a percent of revenue to 37.2 % from 37.4 % in 2012 as a result of increased efficiencies within our operations . our platform pounds handled per hour , p & d stops per hour and p & d shipments per hour improved 1.0 % , 0.7 % and 0.5 % , respectively , over the prior-year period . employee benefit costs increased $ 32.0 million as a result of the increase in the number of full-time employees eligible for benefits ; however , we also experienced a significant increase in the costs per employee for our group health and dental plans during 2013. our group health and dental costs increased $ 14.5 million , or 14.7 % in 2013 as compared to 2012 , with the majority of the increase occurring in the second half of the year . we experienced significant increases in both the number of claims and the average severity per claim during 2013. we believe there will be additional costs associated with the ongoing implementation of the 2010 patient protection and affordable care act , and consequently , we believe our group health and dental costs may continue to increase in future periods . our employee benefit costs also increased for certain retirement benefit plans directly linked to the improvement in our net income and the share price of our common stock . employee benefit costs as a percent of salaries and wages increased to 34.6 % for 2013 from 33.7 % for 2012. operating supplies and expenses increased $ 6.7 million in 2013 as compared to 2012. these costs as a percent of revenue improved to 16.5 % of revenue in 2013 from 17.7 % in 2012. this improvement was primarily due to a 100 basis point decrease as a percent of revenue for our cost of diesel fuel , excluding fuel taxes , which is the largest component of operating supplies and expenses , and can vary based on both consumption and average price per gallon . much of this improvement was due to our diesel fuel consumption increasing only 3.5 % as compared to the 6.3 % increase in our intercity miles in 2013. our consumption trends have improved due to a focus on improving our average miles per gallon , which has benefited from certain operational initiatives and the increased use of new fuel-efficient equipment . the average price per gallon of diesel fuel also decreased 2.3 % as compared to 2012. we do not use diesel fuel hedging instruments and are therefore subject to market price fluctuations . general supplies and expenses increased $ 10.9 million in 2013 primarily due to an overall increase in our marketing activities , which include costs to support our brand and services . our other general supplies and expenses remained relatively consistent as a percent of revenue . depreciation and amortization expense increased to 5.4 % of revenue in 2013 as compared to 5.2 % in 2012. this increase was primarily due to additional depreciation recorded on the tractors and trailers purchased as part of our 2012 and 2013 capital expenditure plans . our capital expenditure plan for 2014 was higher than 2013 , and we expect depreciation costs to increase in future periods as a result . while our investments can increase costs in the short term , we believe these investments are necessary to support our long-term growth initiatives . purchased transportation expense increased $ 11.9 million in 2013 as compared to 2012. our purchased transportation expense is primarily related to our use of third-party transportation providers to support our container drayage , truckload brokerage and international freight forwarding operations . growth in these services has resulted in the increase in our purchased transportation costs for 2013. to a lesser extent , we utilized purchased transportation in our ltl operations , consisting primarily of rail and truckload providers , to maximize the efficient movement of freight between our service centers . miscellaneous expenses , net , was impacted primarily by an increase of $ 5.7 million in gains recognized on the sale of operating assets . our other miscellaneous expenses remained relatively consistent as a percent of revenue .
| results of operations the following table sets forth , for the years indicated , expenses and other items as a percentage of revenue from operations : replace_table_token_9_th ( 1 ) for the purpose of this table , interest expense is presented net of interest income . 21 2014 compared to 2013 key financial and operating metrics for 2014 and 2013 are presented below : replace_table_token_10_th our 2014 financial results reflect strong increases in revenue , net income and earnings per diluted share . our revenue increased 19.3 % to $ 2.79 billion and our operating ratio improved by 130 basis points to 84.2 % , which represents the fifth consecutive year that our operating ratio has improved by more than 100 basis points . as a result , our net income increased 29.8 % from the prior-year period to $ 267.5 million in 2014. our revenue growth was driven by a 16.9 % increase in ltl tons combined with a 2.1 % increase in revenue per hundredweight . our tonnage growth is primarily the result of market share gains from new and existing customers that desire the value of superior service at a fair and equitable price . this growth increased density throughout our operations , which contributed to our improved profitability for the year . our growth has required continuous and significant investments in our service center network , equipment , technology and employees . as a result , our capital expenditures were $ 367.7 million in 2014 and we expect our capital expenditures to be even higher in 2015. in addition , we added 2,370 full-time employees in 2014 , which included an increase in our total number of drivers of 1,253 , or 16.8 % . we believe these investments provided the additional capacity to meet existing demand , and positions us well for anticipated future growth .
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revenues earned and lma fees incurred pursuant to local marketing agreements or time brokerage agreements are recognized at their gross amounts in the accompanying consolidated story_separator_special_tag the following management 's discussion and analysis is intended to provide the reader with an overall understanding of our financial condition , changes in financial condition , results of operations , cash flows , sources and uses of cash , contractual obligations and financial position . operating results attributable to cmp and citadel as of august 1 and september 16 , 2011 , respectively , are included in the accompanying consolidated financial information for the year ended december 31 , 2011. this section also includes general information about our business and a discussion of our management 's analysis of certain trends , risks and opportunities in our industry . we also provide a discussion of accounting policies that require critical judgments and estimates as well as a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results . you should read the following information in conjunction with our consolidated financial statements and notes to our consolidated financial statements beginning on page f-1 in this annual report on form 10-k , as well as the information set forth in item 1a . ยrisk factors.ย our business we own and operate commercial radio station clusters throughout the united states . we believe we are the largest pure-play radio broadcaster in the united states based on number of stations owned and operated . at december 31 , 2011 , we owned or operated approximately 570 radio stations ( including under lmas ) in 120 united states media markets and operated nationwide radio networks serving over 4,500 affiliates . at december 31 , 2011 , under lmas , we provided sales and marketing services for seven radio stations in the united states . we are a delaware corporation , organized in 2002 , and successor by merger to an illinois corporation with the same name that had been organized in 1997 . 2011 operating overview and highlights we believe that by completing the cmp acquisition and the citadel acquisition we have created a leading radio broadcasting company with a true national platform and with an opportunity to further leverage and expand upon our strengths , market presence and programming . specifically , with the completion of these acquisitions , we now have an extensive radio station portfolio consisting of approximately 570 radio stations , including a presence in eight of the top 10 markets , and broad diversity in format , listener base , geography , advertiser base and revenue stream , all of which are designed to reduce dependence on any single demographic , region or industry . we believe our increased scale will allow larger , more significant investments in the local digital media marketplace and allow our local digital platforms and strategies , including our social commerce initiatives , to be applied across significant additional markets . furthermore , the acquisition of citadel 's nationwide radio networks , consisting of approximately 4,500 station affiliates and 9,000 program affiliates , which reach approximately 107 million listeners weekly , are intended to create a national network platform for the syndication of our fully-distributed content and technology assets . cumulus believes that the capital structure resulting from the completion of the cmp acquisition and the citadel acquisition , and our related financing transactions , will provide increased liquidity and scale for cumulus to pursue and finance strategic acquisitions in the future . we also believe that we have substantially completed our integration that will enable us to realize synergies of $ 51.9 million on an annualized basis resulting from the integration of citadel 's historical operations , which when combined with the expected incremental revenues therefrom and the other expected benefits from the foregoing transactions , should strongly position cumulus for future growth in what we believe is still a highly fragmented industry . as we entered 2011 , we forecasted that advertising revenues in our markets would experience only modest growth in certain categories , offset by the absence of robust political spending throughout 2011. our principal focus for potential revenue growth in 2011 was primarily on local advertising expected to be fueled largely by the continued recovery of the automotive advertising sector . looking back on our results for 2011 , we believe our actual experience and results were generally consistent with that forecast . certain key operating and financial highlights in 2011 , both of which are discussed in more detail below , are as follows : throughout 2011 , we experienced a generally stable operating environment , overcoming the short-term negative macroeconomic impacts of the march 2011 japanese tsunami and related events that temporarily disrupted the automobile industry , our largest advertising category and the financial market disruptions associated with the u.s. debt ceiling debates . as a result , our operating income decreased ; and 40 in connection with the completion of the citadel acquisition , we completed our previously announced global refinancing . acquisition of cmp we completed the cmp acquisition on august 1 , 2011. as a result of the cmp acquisition , cmp became an indirect wholly owned subsidiary of the company . cmp 's operating results have been included in cumulus ' accompanying consolidated financial statements since the date of the completion of the cmp acquisition . pursuant to a management agreement , we had operated cmp 's business since 2006. in connection with the cmp acquisition , we issued 9.9 million shares of our common stock to the cmp sellers . also in connection with the cmp acquisition , the 3.7 million outstanding warrants to purchase stock of a subsidiary of cmp were amended and restated to become exercisable for up to 8.3 million shares of our common stock . story_separator_special_tag the first lien facility consists of a $ 1.325 billion first lien term loan facility , net of an original issue discount of $ 13.5 million , maturing in september 2018 ( the ยfirst lien term loanย ) and a $ 300.0 million revolving credit facility ( the ยrevolving credit facilityย ) , and matures in september 2016. the second lien facility consists of a $ 790.0 million second lien term loan net of an original discount of $ 12.0 million ( the ยsecond lien term loanย ) , and matures in september 2019. on that date and also in connection therewith , the company used borrowings of $ 1.325 billion under the first lien term loan , $ 200.0 million under the revolving credit facility and $ 790.0 million under the second lien term loan , along with proceeds from the equity investment , to ( i ) fund the cash portion of the purchase price paid in the citadel acquisition ; ( ii ) repay in full amounts outstanding under the revolving credit facility under our then-existing credit agreement ( the ยterminated credit agreementย ) ; ( iii ) repay all amounts outstanding under the credit facilities of cmpsc ; ( iv ) redeem cmpsc 's outstanding 9.875 % senior subordinated notes due 2014 and variable rate senior secured notes due 2014 ; ( v ) redeem in accordance with their terms all outstanding shares of preferred stock of cmp susquehanna radio holdings corp. ( ยradio holdingsย ) ; and ( vi ) repay all amounts outstanding , including any accrued interest and the premiums thereon , under citadel 's pre-existing credit agreement and to redeem citadel 's senior notes due 2018. the $ 610.0 million of 7.75 % senior notes issued by the company in may 2011 remain outstanding , with cumulus holdings substituted as the issuer thereunder pursuant to the internal restructuring . pursuant to the equity investment , on september 16 , 2011 , the company issued and sold ( i ) 51.8 million shares of class a common stock to crestview ; ( ii ) 125,000 shares of series a preferred stock to macquarie ; and ( iii ) 4.7 million shares of class a common stock and immediately exercisable warrants to purchase 24.1 million shares of its class a common stock to ubs and certain other investors . also pursuant thereto , the company issued the crestview warrants to purchase 7.8 million shares of class a common stock , at an exercise price of $ 4.34 per share . dividends on the series a preferred stock accrue at a rate of 10.0 % per annum for the first six months from issuance , and 14.0 % per annum for the period commencing on march 16 , 2012 and ending on september 15 , 2013 , with additional increases for every two-year period thereafter . the dividends are payable in cash , except that , at the option of the company , up to 50.0 % of the dividends for any period may be paid through the issuance of additional shares of series a preferred stock . payment of dividends on the series a preferred stock is in preference and prior to any dividends payable on any class of the company 's common stock and , in the event of any liquidation , dissolution or winding up of the company , holders of series a preferred stock are entitled to the liquidation value thereof prior to , and in preference of , payment of any amounts to holders of any class of the company 's common stock . we have assessed the current and expected implications of our business climate , our current and expected needs for funds and our current and expected sources of funds and determined , based on our financial condition as of december 31 , 2011 , that cash on hand , cash expected to be generated from operating activities and borrowing availability under the revolving credit facility will be sufficient to satisfy our anticipated financing needs for working capital , capital expenditures , interest and debt service payments , and repurchases of securities and other debt obligations through december 31 , 2012 . 42 advertising revenue and adjusted ebitda our primary source of revenues is the sale of advertising time on our radio stations . our sales of advertising time are primarily affected by the demand for advertising time from local , regional and national advertisers and the advertising rates charged by our radio stations . advertising demand and rates are based primarily on a station 's ability to attract audiences in the demographic groups targeted by its advertisers , as measured principally by various ratings agencies on a periodic basis . we endeavor to develop strong listener loyalty and we believe that the diversification of formats on our stations helps to insulate them from the effects of changes in the musical tastes of the public with respect to any particular format . in addition , we believe that the radio station portfolio that we own and operate as a result of the cmp acquisition and the citadel acquisition , which has increased diversity in terms of format , listener base , geography , advertiser base and revenue stream , will further reduce our revenue dependence on any single demographic , region or industry . our radio stations strive to maximize revenue by managing their on-air inventory of advertising time and adjusting prices up or down based on supply and demand . the optimal number of advertisements available for sale depends on the programming format of a particular station . each of our stations has a general target level of on-air inventory available for advertising . this target level of inventory for sale may vary at different times of the day but tends to remain stable over time .
| results of operations primarily as a result of the completion of the significant transactions described above in 2011 , cumulus believes that its results of operations for the year ended december 31 , 2011 , and its financial condition at such date , will provide only limited comparability to prior periods . investors are cautioned to not place undue reliance on any such comparison . revenues of $ 288.3 million attributable to the acquisitions of cmp and citadel in 2011 are included in the company 's accompanying consolidated financial statements for the year ended december 31 , 2011. analysis of consolidated statements of operations the following analysis of selected data from our consolidated statements of operations should be referred to while reading the results of operations discussion that follows ( dollars in thousands ) : replace_table_token_16_th * * calculation is not meaningful . ( 1 ) adjusted ebitda consists of net income before depreciation and amortization , lma fees , acquisition costs , non-cash stock-based compensation expense , gain or loss on the exchange of assets or stations , realized gain or loss on derivative instruments , impairment of intangible assets and goodwill , interest expense , net loss on the early extinguishment of debt , other income or expense , gain on equity investment in cmp , and income tax expense . adjusted ebitda is not a measure of financial performance calculated in accordance with gaap . see management 's explanation of this measure and the reasons for its use and presentation , along with a quantitative reconciliation of adjusted ebitda to its most directly comparable financial measure calculated and presented in accordance with gaap , above under ยadvertising revenue and adjusted ebitdaย and below under ย adjusted ebitda .ย 44 our management 's discussion and analysis of results of operations for the three years ended december 31 , 2011 , has been presented on a historical basis . year ended december 31 , 2011 compared to year ended december 31 , 2010 net revenues .
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description 3.1 articles of incorporation ( incorporated by reference from registration statement on form 10 filed with the securities & exchange commission on may 4 , 2011 ) 3.2 bylaws ( incorporated by reference from registration statement on form 10 filed with the securities & exchange commission on may 4 , 2011 ) 3.3 articles of incorporation of genius brands international , inc. , a nevada corporation ( incorporated by reference to the company 's schedule 14c information statement , filed with the sec on september 21 , 2011 ) 3.4 certificate of correction to the articles of incorporation of genius brands international , inc. ( incorporated by reference to the company 's current report on form 8-k , filed with the sec on december 12 , 2011 ) 3.5 articles of merger , filed with the secretary of state of the state of nevada ( incorporated by reference to the company 's current report on form 8-k , filed with the sec on october 21 , 2011 ) 3.6 articles of merger , filed with the secretary of state of the state of california ( incorporated by reference to the company 's current report on form 8-k , filed with the sec on october 21 , 2011 ) 3.7 amendment to bylaws dated november 15 , 2013 ( incorporated by reference to the company 's current report on form 8-k filed with the sec on november 20 , 2013 ) 3.8 certificate of amendment to articles of incorporation ( incorporated by reference to the company 's current report on form 8-k filed with the sec on october 17 , 2013 ) 3.9 certificate of amendment to articles of incorporation ( incorporated by reference to the company 's current report on form 8-k filed with the sec on april 7 , 2014 ) 3.10 certificate of designation of preferences , rights and limitations of series a convertible preferred stock ( incorporated by reference to the company 's current report on form 8-k filed with the sec on may 19 , 2014 ) 4.1 form of stock certificate ( incorporated by reference from registration statement on form 10 filed with the securities & exchange commission on may 4 , 2011 ) 4.2 2008 stock option plan ( incorporated by reference from registration statement on form 10 filed with the securities & exchange commission on may 4 , 2011 ) 4.3 first amendment to 2008 stock option plan ( incorporated by reference from registration statement on form 10 filed with the securities & exchange commission on may 4 , 2011 ) 4.4 second amendment to 2008 stock option plan ( incorporated by reference from registration statement on form 10 filed with the securities & exchange commission on may 4 , 2011 ) 4.5 form of stock option grant notice ( incorporated by reference from registration statement on form 10 filed with the securities & exchange commission on may 4 , 2011 ) 4.6 form of warrant ( incorporated by reference from registration statement on form 10 filed with the securities & exchange commission on may 4 , 2011 ) 4.7 form of placement agent warrant ( incorporated by reference to the company 's current report on form 8-k filed with the sec on may 19 , 2014 ) 10.1 employment agreement between genius brands international , inc. and klaus moeller dated october 29 , 2013 ( incorporated by reference from registration statement on form 10 filed with the securities & exchange commission on october 31 , 2013 ) 10.24 agreement and plan of reorganization between genius brands international , inc. , a squared entertainment llc , a squared holdings llc and a2e acquisition llc dated november 15 , 2013 ( incorporated by reference to the company 's current report on form 8-k filed with the sec on november 20 , 2013 ) 10.26 story_separator_special_tag the following discussion and analysis of our results of operations , financial condition and liquidity and capital resources should be read in conjunction with our audited financial statements and related notes for the fiscal years ended december 31 , 2014 and 2013. in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . overview the md & a is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets , liabilities and expenses and related disclosure of contingent assets and liabilities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . organization the company commenced operations in january 2006 , assuming all of the rights and obligations of its then chief executive officer , under an asset purchase agreement between the company and genius products , inc. , in which the company obtained all rights , copyrights , and trademarks to the brands โ baby genius , โ โ little genius , โ โ kid genius , โ โ 123 favorite music โ and โ wee worship , โ and all then existing productions under those titles . in october 2011 , the company ( i ) changed its domicile to nevada from california , and ( ii ) changed its name to genius brands international , inc. from pacific entertainment corporation . story_separator_special_tag the company has announced it will launch a new kid genius channel in the fall of 2015 , offering 24-hours of video on-demand content that will be consistent with the company 's โ content and products with a purpose โ mission . the new video on-demand channel will include the company 's own content , in addition to other content the company will curate to offer a robust line-up for kids . the company 's senior vice president - international sales , andrew berman , will oversee the channel . 15 story_separator_special_tag text-align : justify ; text-indent : 34.1pt '' > from 2007 through 2009 , the company borrowed funds from members of its previous management team , the proceeds of which were used to pay operating obligations of the company . in association with the merger , all remaining balances in association with these notes were converted into common stock . interest expense was recorded in the twelve months ended december 31 , 2014 and 2013 in the amounts of $ 0 and $ 13,080 , respectively . during 2011 , four of the company 's former officers agreed to convert accrued but unpaid salaries through december 31 , 2010 to subordinated long term notes payable . in association with the merger , all remaining balances in association with these notes were converted into common stock . interest expense was recorded in the twelve months ended december 31 , 2014 and 2013 in the amounts of $ 0 and $ 11,390 , respectively . on june 27 , 2012 , the company entered into a securities purchase agreement whereby the company issued and sold ( i ) the $ 1,000,000 16 % debenture , and ( ii ) the debenture warrant to purchase up to 50,000 shares of the company 's common stock . on august 29 , 2013 , pursuant to an agreement between the company and certain holders , the original debenture was assigned and exchanged for an aggregate of $ 1,163,333 a reissued debenture . the interest rate and maturity date of the reissued debenture were not changed . in association with the merger , the company converted all remaining balances into shares of common stock . interest expense for the debenture and reissued debenture was recorded in the twelve months ended december 31 , 2014 and 2013 in the amounts of $ 0 and $ 144,808 , respectively . 17 on august 30 , 2013 , the company issued 12 % convertible notes to several parties with a maturity date of october 21 , 2013 for an aggregate of $ 530,000. on november 15 , 2013 , the company issued an aggregate of 448,613 shares of common stock to holders of these notes in aggregate principal amount of $ 530,000 and accrued , but unpaid , interest in connection with the automatic conversion of these notes upon consummation of the merger . interest expense was recorded in the twelve months ended december 31 , 2014 and 2013 in the amounts of $ 0 and $ 5,720 , respectively . as part of the merger , the company acquired certain liabilities from a squared . from time to time , a squared required short-term advances to fund its operations and provide working capital from its founder , the company 's chief executive officer and president , andrew heyward and amy moynihan heyward , respectively . as of december 31 , 2014 , these advances totaled $ 411,008. these advances are interest free and have no stated maturity . the company has applied an imputed interest rate of 6 % . during the twelve months ended december 31 , 2014 , the company recognized imputed interest expense of $ 25,842 as a contribution to additional paid-in capital with no comparable amount recognized in the prior period . liquidity twelve months ended december 31 , 2014 compared to december 31 , 2013 cash totaled $ 4,301,099 and $ 527,110 at december 31 , 2014 and 2013 , respectively . the change in cash is as follows : replace_table_token_5_th during the twelve months ended december 31 , 2014 , our primary sources of cash were financing activities . during 2014 , our financing activities related primarily to the sale of shares of common stock and series a convertible preferred stock as well as the execution of a long-term , exclusive supply chain services agreement . during the comparable period in 2013 , our primary sources of cash were from investing and financing activities . our investing activities related to cash provided by and assumed in the merger . our financing activities related to the receipt of funds related to the issuance of common stock and short term notes . during both periods , these funds were primarily used to fund operations as well as investments in intangible assets and capitalized product development . operating activities cash used by operations in the twelve months ended december 31 , 2014 was $ 2,481,988 as compared to a use of $ 1,120,317 during the same period of 2013 , representing an increase in cash used in operations of $ 1,361,671 based on the operating results discussed above as well as increases in film and television costs related to the commencement of development of the second installment of the feature film stan lee 's mighty 7 and the development and production of episodes of the thomas edison 's secret lab off-set by the receipt of $ 500,000 for music advances with third parties . investing activities cash used by investing activities for the twelve months ended december 31 , 2014 was $ 97,986 as compared funds provided by investing activities of $ 212,913 for the comparable period in 2013. this variance is primarily the result of $ 283,199 in funds provided by the merger with a squared entertainment .
| results of operations comparison of results of operations for the twelve months ended december 31 , 2014 and 2013 below is a discussion of our 2014 operating results compared to our 2013 operating results . 2014 represented a transitional year as the company restructured and changed the way it will manage its operations in the future to a licensing model whereby the company minimizes its risk and outsources the manufacturing and distribution of its products to industry leaders in their respective industries . in addition , the company plans to re-launch its baby genius brand in september 2015 using a newly designed and expanded product line , resulting in a year over year loss in baby genius sales . in addition to the re-launch of baby genius this year , the company will also be introducing several new brands in addition to the licensing business is now manages on behalf of three existing retail brands . our summary results for the twelve months ended december 31 , 2014 and 2013 are below . revenues . revenues by product segment and for the company as a whole were as follows : replace_table_token_1_th product sales represent physical products in which the company holds intellectual property rights such as trademarks and copyrights , whether registered or unregistered , to the characters and which are manufactured and sold by the company either directly at wholesale to retail stores or online retailers . during the twelve months ended december 31 , 2014 , product sales decreased by $ 1,185,507 due to the change in business strategy whereby the company has transitioned from the direct production and sale of physical products including dvds and cds to a licensing model in which these functions were outsourced to industry experts and category leaders .
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the primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed , assets and liabilities related to income taxes and related valuation allowances , and residual goodwill . the company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition date during story_separator_special_tag this annual report on form 10-k , including the following management 's discussion and analysis , contains forward-looking information that you should read in conjunction with the consolidated financial statements and notes to consolidated financial statements that we have included elsewhere in this annual report on form 10-k. for this purpose , any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements . words such as โ believes , โ โ plans , โ โ anticipates , โ โ expects , โ โ will โ and similar expressions are intended to identify forward-looking statements . our actual results may differ materially from the plans , intentions or expectations we disclose in the forward-looking statements we make . we have included important factors above under the heading โ risk factors โ in item 1a above that we believe could cause actual results to differ materially from the forward-looking statements we make . we are not obligated to publicly update any forward-looking statements , whether as a result of new information , future events or otherwise . accounting period our fiscal year ends on the sunday nearest december 31. we report fiscal years under a 52/53 week format . under this method , certain years will contain 53 weeks . each of the fiscal years ended december 29 , 2013 , december 30 , 2012 and january 1 , 2012 included 52 weeks . the fiscal year ending december 28 , 2014 will also include 52 weeks . overview of fiscal year 2013 we realigned our organization at the beginning of fiscal year 2013 , to allow us to implement our strategy and propel our vision to improve global health by innovating technologies that help make healthcare more effective , affordable and accessible around the world . our informatics business , as well as our field service on products previously sold by our former bio-discovery business , were moved from our environmental health segment into our human health segment . the results reported for fiscal year 2013 reflect this new alignment of our operating segments . financial information relating to fiscal years 2012 and 2011 has been retrospectively adjusted to reflect the changes to the operating segments . the principal products and services of our two operating segments are : human health . develops diagnostics , tools and applications to help detect diseases earlier and more accurately and to accelerate the discovery and development of critical new therapies . the human health segment serves both the diagnostics and research markets . environmental health . provides products , services and solutions to facilitate the creation of safer food and consumer products , more secure surroundings and efficient energy resources . the environmental health segment serves the environmental , industrial and laboratory services markets . as a result of the realignment , we reallocated goodwill from the environmental health segment to the human health segment based on the relative fair value , determined using the income approach , of the businesses within the historical environmental health segment . the change resulted in $ 215.7 million of goodwill being allocated from the environmental health segment to the human health segment . during fiscal year 2013 , we continued to see good performance from acquisitions , investments in our ongoing technology and sales and marketing initiatives . our overall revenue in fiscal year 2013 increase d $ 51.0 million , or 2 % , as compared to fiscal year 2012 , reflecting an increase of $ 35.1 million , or 3 % , in our human health segment revenue and an increase of $ 15.9 million , or 2 % , in our environmental health segment revenue . the increase in our human health segment revenue during fiscal year 2013 was due to growth in our diagnostics business from continued expansion of our prenatal , newborn and infectious disease screening solutions , as well as increased demand for our informatics offerings and in-vivo imaging systems in the research market . the increase in our environmental health segment revenue during fiscal year 2013 was due to growth in our laboratory services business , partially offset by decreased demand for some of our products in the environmental and industrial markets . in our human health segment during fiscal year 2013 as compared to fiscal year 2012 , we experienced growth in the diagnostics market as birth rates in the united states increased and from continued expansion of our prenatal , newborn and infectious disease screening solutions in key regions outside the united states , particularly in emerging markets such as china , the middle east and africa and korea , as well as increased demand for our informatics offerings and in-vivo imaging systems in the research market . this growth was partially offset by slight declines in our medical imaging business despite continued growth in our complementary metal-oxide-semiconductor imaging technology , as well as declines in our radiometric detection businesses within the research market , as a result of sequestration concerns in the united states , european austerity and weakening research markets in asia , particularly in japan . as the rising cost of healthcare continues to be one of the critical issues facing our customers , we anticipate that the benefits of providing earlier detection of disease , which can result in savings of long-term health care costs as well as create better outcomes for patients , are increasingly valued and we expect to see continued growth in these markets . story_separator_special_tag amortization of intangible assets increase d and was $ 53.1 million for fiscal year 2013 , as compared to $ 51.8 million for fiscal year 2012 . the mark-to-market adjustment for 31 postretirement benefit plans was a loss of $ 0.8 million for fiscal year 2013 , as compared to a loss of $ 3.7 million for fiscal year 2012 . stock-based compensation expense was $ 1.3 million for both fiscal years 2013 and 2012 . the amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an expense of approximately $ 0.2 million for fiscal year 2013 , as compared to $ 5.2 million for fiscal year 2012 . acquisition related costs for integration , contingent consideration and other costs added an expense of $ 0.2 million for fiscal year 2013 . in addition to the factors noted above , the decrease in gross margin was primarily the result of pricing pressure and unfavorable changes in product mix with an increase in sales of lower gross margin product offerings , partially offset by productivity improvements . 2012 compared to 2011 . cost of revenue for fiscal year 2012 was $ 1,152.0 million , as compared to $ 1,070.7 million for fiscal year 2011 , an increase of approximately $ 81.3 million , or 8 % . as a percentage of revenue , cost of revenue decrease d to 54.5 % in fiscal year 2012 from 55.8 % in fiscal year 2011 , resulting in an increase in gross margin of approximately 135 basis points to 45.5 % in fiscal year 2012 from 44.2 % in fiscal year 2011 . amortization of intangible assets decrease d and was $ 51.8 million for fiscal year 2012 , as compared to $ 53.4 million for fiscal year 2011 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 3.7 million for fiscal year 2012 , as compared to a loss of $ 4.2 million for fiscal year 2011 . stock-based compensation expense increase d and was $ 1.3 million for fiscal year 2012 , as compared to $ 1.1 million for fiscal year 2011 . the amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an expense of approximately $ 5.2 million for fiscal year 2012 , as compared to $ 4.1 million for fiscal year 2011 . in addition to the factors noted above , the increase in gross margin was primarily the result of increased sales volume , changes in product mix with growth in sales of higher gross margin product offerings and productivity improvements , partially offset by increased costs related to acquisitions . selling , general and administrative expenses 2013 compared to 2012 . selling , general and administrative expenses for fiscal year 2013 were $ 585.9 million , as compared to $ 632.7 million for fiscal year 2012 , a decrease of approximately $ 46.9 million , or 7 % . as a percentage of revenue , selling , general and administrative expenses decrease d and were 27.0 % in fiscal year 2013 , compared to 29.9 % in fiscal year 2012 . amortization of intangible assets decrease d and was $ 36.9 million for fiscal year 2013 , as compared to $ 38.9 million for fiscal year 2012 . the mark-to-market adjustment for postretirement benefit plans was income of $ 18.1 million for fiscal year 2013 , as compared to a loss of $ 27.9 million for fiscal year 2012 . stock-based compensation expense decrease d and was $ 11.9 million for fiscal year 2013 , as compared to $ 19.0 million for fiscal year 2012 . environmental charges related to a particular site for increased monitoring and mitigation activities were $ 4.6 million during the fourth quarter of fiscal year 2013 . acquisition related costs for integration , contingent consideration and other costs added an expense of $ 1.1 million for fiscal year 2013 and $ 0.3 million for fiscal year 2012 . in addition to the factors noted above , the decrease in selling , general and administrative expenses was primarily the result of cost containment and productivity initiatives . 2012 compared to 2011 . selling , general and administrative expenses for fiscal year 2012 were $ 632.7 million , as compared to $ 624.4 million for fiscal year 2011 , an increase of approximately $ 8.3 million , or 1 % . as a percentage of revenue , selling , general and administrative expenses decrease d and were 29.9 % in fiscal year 2012 , compared to 32.5 % in fiscal year 2011 . amortization of intangible assets increase d and was $ 38.9 million for fiscal year 2012 , as compared to $ 25.9 million for fiscal year 2011 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 27.9 million for fiscal year 2012 , as compared to a loss of $ 62.9 million for fiscal year 2011 . stock-based compensation expense increase d and was $ 19.0 million for fiscal year 2012 , as compared to $ 13.8 million for fiscal year 2011 . acquisition related costs for integration , contingent consideration and other costs added an expense of $ 0.3 million for fiscal year 2012 and $ 11.2 million for fiscal year 2011 . in addition to the factors noted above , the increase in selling , general and administrative expenses was primarily the result of costs related to acquisitions and growth and productivity investments , particularly in emerging territories , offset by cost containment initiatives . research and development expenses 2013 compared to 2012 . research and development expenses for fiscal year 2013 were $ 133.0 million , as compared to $ 132.6 million for fiscal year 2012 , an increase of $ 0.4 million , or 0.3 % . as a percentage of revenue , research and development expenses decrease d to 6.1 % in fiscal year 2013 , as compared to 6.3 % in fiscal year 2012 .
| fiscal year 2012 , we repurchased 82,186 shares of our common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards , for a total cost of $ 2.1 million , including commissions . this compares to repurchases of 4.0 million shares of our common stock , including 84,243 45 shares of our common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards , for a total cost of $ 110.0 million , including commissions , for fiscal year 2011 . this use of cash in fiscal year 2012 was offset by proceeds from common stock option exercises of $ 34.2 million , including $ 1.8 million for the related excess tax benefit . this compares to the proceeds from common stock option exercises of $ 33.1 million , including $ 9.3 million for the related excess tax benefit , for fiscal year 2011 . during fiscal year 2012 , borrowings from our senior unsecured revolving credit facility totaled $ 395.0 million , which was offset by debt reductions of $ 435.9 million . this compares to borrowings from our senior unsecured revolving credit facility of $ 787.0 million and net proceeds of $ 496.9 million from the issuance of our ten-year senior unsecured notes at a rate of 5 % , which was partially offset by debt reductions of $ 763.0 million in fiscal year 2011 . we paid $ 31.9 million and $ 31.8 million in dividends during fiscal years 2012 and 2011 , respectively . in fiscal year 2012 , we received $ 4.1 million for settlement of forward foreign exchange contracts .
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for the fiscal year ended september 30 , 2017 , 40 % of sales were derived from transportation systems and related services , while 60 % were derived from defense systems and services . the u.s. government remains our largest customer , accounting for approximately 48 % of sales in 2017 , 45 % of sales in 2016 , and 47 % of sales in 2015. in fiscal year 2017 , 54 % of our total sales were derived from services , with product sales accounting for the remaining 46 % . we operate in three reportable business segments : transportation systems , defense systems and defense services . we organize our business segments based on the nature of the products and services offered . we are operating in an environment that is characterized by continuing economic pressures in the u.s. and globally . a significant component of our strategy in this environment is to focus on program execution , improving the quality and predictability of the delivery of our products and services , and providing opportunities for customers to outsource services where we can provide a lower cost and more effective solution . recognizing that many of our u.s. based customers are resource constrained , we are continuing our focus on developing and extending our portfolio in international and adjacent markets . our international sales , including foreign military sales ( fms ) , comprised 42 % of our total sales for fiscal year 2017. sales to countries outside the u.s. amounted to 66 % , 9 % and 38 % of the total sales of cubic transportation systems ( cts ) , cubic global defense services ( cgd services ) and cubic global defense systems ( cgd systems ) , respectively , for fiscal year 2017. to the extent our business and contracts include operations in countries outside the u.s. , other risks are introduced into our business , including changing economic conditions , fluctuations in relative currency values , regulation by foreign countries , and the potential for deterioration of political relations . we continuously strive to strengthen our portfolio of products and services to meet the current and future needs of our customers . we accomplish this in part by our independent r & d activities , and through acquisitions . company-sponsored r & d spending totaled $ 52.7 million in 2017. in 2014 through our acquisition of intific , inc. ( intific ) , we significantly broadened our advanced research capabilities . intific brings us a wide range of expertise including computer simulation , animation , human-machine interaction , robotics , neuroscience , visualization , gaming , and artificial intelligence . intific performs work funded by the defense advanced research projects agency ( darpa ) and other u.s. government agencies ; however , most of intific 's r & d activities are included in cost of sales as they are directly related to contract performance . we selectively pursue the acquisition of businesses that complement our current portfolio and allow access to new customers or technologies . in pursuing our business strategy , we routinely conduct discussions , evaluate targets , and enter into agreements regarding possible acquisitions . as part of our business strategy , we seek to identify acquisition opportunities that will expand or complement our existing products and services , or customer base , at attractive valuations . from fiscal year 2015 through 2017 , we acquired dtech labs , inc. ( dtech ) , gatr technologies , inc. ( gatr ) , teralogics , llc ( teralogics ) , and vocality international ( vocality ) in connection with our strategic efforts to build and expand our command , control , communication , computers , intelligence , surveillance and reconnaissance ( c4isr ) business . in fiscal 2016 we formalized the structure of cubic mission solutions ( cms ) , our business unit which combines and integrates our c4isr and secure communications operations . we have also made a number of niche acquisitions of businesses during the past several years , including deltenna limited ( deltenna ) in 2017 and intific in february 2014. generally , our business acquisitions are dilutive to earnings in the short-term due to acquisition-related costs , integration costs , retention payments and often higher amortization of 41 purchased intangibles in the early periods after acquisition and expenses related to earn-outs . however , we expect that each of these recent acquisitions will be accretive to earnings in the long-term . industry considerations the u.s. government continues to focus on discretionary spending , tax , and other initiatives to control spending and reduce the deficit . the president 's administration and congress will likely continue to debate the size and expected growth of the u.s. federal budget as well as the defense budget over the next few years and balance decisions regarding defense , homeland security , and other federal spending priorities in a constrained fiscal environment imposed by the budget control act ( bca ) and various bipartisan budget acts ( bba ) since 2011. the most recent , agreed to on november 2 , 2015 , bipartisan budget act of 2015 revised discretionary spending limits to avoid sequestration for fiscal year 2016 and fiscal year 2017. the ultimate effects of sequestration and any subsequent bipartisan budget acts beyond 2017 still can not be determined . absent a new bca or bba in 2017 , sequestration still threatens to severely limit discretionary federal funding in 2018. reductions to 2018 and beyond from current budget projections could have an impact on our customers ' procurement of products and services . while these budgetary considerations have put downward pressure on growth in the defense industry and will likely continue to do so , we believe that much of our business is well positioned in areas that the dod has indicated are areas of focus for future defense spending to help the dod meet its critical future capability requirements for protecting u.s. security and the security of our allies in the years to come . story_separator_special_tag gross profit margins from services sales in cts were 28 % and 26 % for fiscal years 2017 and 2016 , respectively , and gross profit margin from product sales was 29 % and 32 % in 2017 and 2016 , respectively . historically , the trend toward a greater mix of services revenues compared to product sales has helped to generate higher profit margins from the segment ; however in 2017 and 2016 service gross margins were lower than product gross margins due to the improvement in margins on a number of system development contracts as we move out of the heavy engineering and software development phase of these contracts . also , service sales gross margins in 2017 and 2016 are lower than recent historical service sales gross margins mostly due to the reduction in margins on our london follow-on contract . margins were lower on the follow-on contract in 2017 and 2016 in large part because it no longer includes the award of usage bonuses . the mix of product and services sales can produce fluctuations in margin from period-to-period ; however , we expect the trend of increasing services sales to continue in the long-term . most of our sales in cts for fiscal year 2017 were from fixed-price contracts . however , some of our service contracts provide for variable payments , in addition to the fixed payments , based on meeting certain service level requirements and , in some cases , based on system usage . service level requirements are generally contingent upon factors that are 43 under our control , while system usage payments are contingent upon factors that are generally not under our control , other than basic system availability . development and system integration contracts in cts are usually accounted for on a percentage-of-completion basis using the cost-to-cost method to measure progress toward completion , which requires us to estimate our costs to complete these contracts on a regular basis . our actual results can vary significantly from these estimates and changes in estimates can result in significant swings in revenues and profitability from period to period . generally , we are at risk for increases in our costs , unless an increase results from customer-requested changes . at times , there can be disagreement with a customer over who is responsible for increases in costs . in these situations we must use judgment to determine if it is probable that we will recover our costs and any profit margin . revenue under contracts for services in cts is generally recognized either as services are performed or when a contractually required event has occurred , depending on the contract . revenue under such contracts is generally recognized on a straight-line basis over the period of contract performance , unless evidence suggests that the revenue is earned or the obligations are fulfilled in a different pattern . costs incurred under these services contracts are expensed as incurred , and may vary from period to period . incentive fees included in some of our cts service contracts are recognized when they become fixed and determinable based on the provisions of the contract . as described above , often these fees are based on meeting certain contractually required service levels or based on system usage levels . contractual terms can also result in variation of both revenues and expenses , resulting in fluctuations in earnings from period to period . for the fare collection system for the chicago transit authority , the contract specifies that we would not begin to be paid until we entered the service period . in accordance with authoritative accounting literature , we did not begin recognizing revenue on this contract until it entered the service period in august 2013. as of september 30 , 2017 , we had capitalized $ 56.5 million , net , in direct costs associated with developing the new fare collection system . selling , general and administrative ( sg & a ) costs associated with this contract are not being capitalized , but are being expensed as incurred . capitalized costs are being recognized as cost of sales based upon the ratio of revenue recorded during a period compared to the revenue expected to be recognized over the term of the contract . cubic global defense systems cgd systems is focused on two primary lines of business : training systems and secure communications . the segment is a diversified supplier of live and virtual military training systems as well as secure communication systems and products to the dod , other u.s. government agencies and allied nations . we design and manufacture instrumented range systems for fighter aircraft , armored vehicles and infantry force-on-force live training weapons effects simulations , laser-based tactical and communication systems , and precision gunnery solutions . our secure communications products are aimed at intelligence , surveillance , ground combat , and search and rescue markets . in 2016 we formalized the structure of our cms business unit which combines and integrates our c4isr and secure communications operations . cms ' c4isr solutions provide information capture , assessment , exploitation and dissemination in a secure network-centric environment . cgd systems is continually building upon its role as a leader in air and ground combat training systems worldwide . our products and systems help our customers to retain technological superiority with cost-effective solutions . we design , innovate , manufacture and field a diverse range of technologies that are critical to combat readiness , supply chain logistics and national security for the u.s. and allied nations . our primary lines of business include air combat training ranges and after action review software , ground combat training systems , including a full range of laser engagement simulation systems , game-based learning systems , virtual small arms training systems , intelligence , surveillance and reconnaissance ( isr ) data links , networking and baseband communications equipment , full-motion video software and services , expeditionary satellite communication terminal solutions , personnel locator systems , and cross domain appliances for cyber security .
| operating overview cubic corporation sales increased 2 % to $ 1.486 billion in fiscal year 2017 from $ 1.462 billion in 2016. the increase in sales for cgd systems of 9 % , was partially offset by 1 % and 3 % decreases in cts sales and cgd services sales , respectively . revenues from businesses we acquired in 2017 and 2016 , all within our cgd systems operating segment , increased our consolidated sales by 3 % from 2016 to 2017. organic sales decreased between fiscal years 2016 and 2017 primarily due to the negative impact of changes in foreign currency exchange rates . the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar had a negative impact on sales of 1 % , or $ 19.9 million in 2017 compared to 2016. the impacts of changes in foreign currency exchange rates on sales from 2016 to 2017 predominantly affected our cts segment results . cubic corporation sales in 2016 were $ 1.462 billion compared to $ 1.431 billion in 2015 , an increase of 2 % . increases in sales for cts and cgd systems of 3 % and 5 % , respectively , were partially offset by a 3 % decrease in cgd services sales . revenues from businesses we acquired in 2016 and 2015 , all within our cgd systems operating segment , increased our consolidated sales by 3 % from 2015 to 2016. organic sales decreased between 2015 and 2016 due primarily to changes in foreign currency exchange rates .
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( iii ) 40,000 will vest upon the commercial launch of the company 's gene-based pancreatic cancer test licensed from hdc or similar test based on our mutual agreement . ( iv ) 20,000 will vest upon successful consummation of a sublicensing agreement with an instrument manufacturer to commercialize the cytogenetics automated image analysis technology licenses from hdc . ( v ) 20,000 will vest upon successful consummation of a sublicensing agreement with an instrument manufacturer to commercialize the flow cytometry automated image analysis technology licenses from hdc . in the event of a change of control of story_separator_special_tag neogenomics , inc. , a nevada corporation ( referred to individually as the ยparent companyย or collectively with its subsidiary as ยneogenomicsย , ยweย , ยusย , ยourย or the ยcompanyย in this form 10-k ) is the registrant for sec reporting purposes . our common stock is listed on the nasdaq capital market under the symbol ยneo.ย introduction the following discussion and analysis should be read in conjunction with the consolidated financial statements , and the notes thereto included in this form 10-k. the information contained below includes statements of management 's beliefs , expectations , hopes , goals and plans that , if not historical , are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements . for a discussion on forward-looking statements , see the information set forth in the introductory note to this annual report under the caption ยforward looking statementsย , which information is incorporated herein by reference . overview we operate a network of cancer-focused testing laboratories whose mission is to improve patient care through exceptional genetic and molecular testing services . our vision is to become america 's premier cancer testing laboratory by delivering uncompromising quality , exceptional service and innovative products and services . the company has laboratory locations in ft. myers and tampa , florida ; irvine , california ; and nashville , tennessee , and currently offers the following types of testing services : a ) cytogenetics testing - the study of normal and abnormal chromosomes and their relationship to disease . cytogenetic studies are often utilized to answer diagnostic , prognostic and predictive questions in the treatment of hematological malignancies and solid tumors ; b ) fluorescence in-situ hybridization ( ยfishย ) testing - a branch of cancer genetics that focuses on detecting and locating the presence or absence of specific dna sequences and genes on chromosomes . fish helps bridge abnormality detection between the chromosomal and dna sequence levels ; c ) flow cytometry testing - a rapid way to measure the characteristics of cell populations . cells from peripheral blood , bone marrow aspirate , lymph nodes , and other areas are labeled with selective fluorescent antibodies and quantified according to their surface antigens . these fluorescent antibodies bind to specific cell surface antigens and are used to identify malignant cell populations . flow cytometry is typically performed in conjunction with morphology testing which looks at smears on glass slides for abnormal cell populations ; d ) immunohistochemistry ( ยihcย ) testing - the process of identifying cell proteins in a tissue section utilizing the principle of antibodies binding specifically to antigens . specific surface cytoplasmic or nuclear markers are characteristic of cellular events such as proliferation or cell death ( apoptosis ) . ihc is also widely used to understand the distribution and localization of differentially expressed proteins ; and e ) molecular testing - a rapidly emerging cancer diagnostic tool focusing on the analysis of dna and rna , as well as the structure and function of genes at the molecular level . molecular testing employs multiple technologies including bi-directional sanger sequencing analysis , dna fragment length analysis , real-time polymerase chain reaction ( ยrt-pcrย ) rna analysis and next-generation sequencing . all of these testing services are widely utilized to determine the diagnosis and prognosis of various types and subtypes of cancer and to help predict a patient 's potential response to specific therapies . neogenomics offers testing services on both a ยtech-onlyย basis , where neogenomics performs the technical component of the testing ( specimen set-up , staining , imaging , sorting and categorization of cells , chromosomes , genes or dna ) and the client physician performs the related professional interpretation component ( analyzing the laboratory data , viewing the cells , developing the diagnosis or prognosis as well as preparing and writing the final report ) , as well as on a full service or ยglobalย basis where neogenomics performs both the technical component and our medical staff provides the professional interpretation component . 41 operating segment we have one reportable operating segment that delivers testing services to hospitals , pathologists , oncologists , other clinicians and researchers . also , at december 31 , 2013 , all of our services were provided within the united states and all of our assets were located in the united states . market opportunity the medical testing laboratory market can be broken down into three primary segments : clinical pathology testing , anatomic pathology testing , and genetic and molecular testing . clinical pathology testing covers high volume , highly automated , lower complexity tests on easily procured specimens such as blood and urine . clinical lab tests often involve testing of a less urgent nature , for example , cholesterol testing and testing associated with routine physical exams . anatomic pathology testing involves evaluation of tissue , as in surgical pathology , or cells as in cytopathology . the most widely performed anatomic pathology procedures include the preparation and interpretation of pap smears , skin biopsies , and tissue biopsies . genetic and molecular testing typically involves analyzing chromosomes , genes , proteins and or dna/rna sequences for abnormalities . genetic and molecular testing requires highly specialized equipment and credentialed individuals ( typically m.d . or ph.d. level ) to certify results and typically yields the highest reimbursement levels of the three market segments . story_separator_special_tag we also introduced a number of neotype tm panels that combine multiple molecular tests into panels targeting specific types of cancer to help pathologists and oncologists determine cancer subtypes on difficult cases . we use bi-directional sequencing analysis which we believe is superior to many of the molecular tests being offered by our competitors because we are able to pick up mutations that other methods would not detect . in addition , we are finalizing plans to launch next generation sequencing capabilities for clinical use in march 2014. we believe that we are well-positioned to capitalize on this rapidly growing area . we are working on developing a proprietary neoscore tm prostate cancer test that is performed on blood plasma and urine rather than on prostate tissue biopsies . there are two goals for this test , to diagnose the presence of cancer in patients with bph ( benign prostatic hyperplasia ) and to distinguish high-grade from low-grade cancer in patients with prostate cancer . we completed a preliminary patient study in june 2013 , and the results were recently published in the genetic testing and molecular biomarkers journal . in addition , we recently completed a follow up study with additional patient samples which confirmed the published preliminary data . we are also expanding our work to include patient samples from outside the united states . while further validation work needs to be completed , we continue to be excited about the potential for this test . we are planning a limited launch of our neoscore test in the second quarter of 2014 and a full launch later in the year . our 10 color flow cytometry service offering has been very well received as it provides approximately 60 % more data than previous flow cytometry platforms and allows for better operating efficiencies . in addition , over the last year we have vastly improved our immunohistochemistry offering , brought up a new digital imaging platform and launched several new fish tests including a very promising new test to aid in the diagnosis of barrett 's esophagus that we are offering on a semi-exclusive basis . we expect these new tests to drive substantial growth in the future . we also expect to continue to make investments in r & d that will allow us to commercialize a number of new and innovative genetic tests as we move forward . in january 2012 , we entered into a license agreement with health discovery corporation ( ยhdcย ) to license certain support vector machine / recursive feature elimination technology ( ยsvm-rfeย ) . we believe svm-rfe techniques will allow us to combine and analyze data from genomics , proteomics and digital imaging to develop practical , cost-effective and reliable new assays and other proprietary tests . using this technology , we believe we will be able to offer a whole line of advanced tests that will help physicians better manage the treatment options for cancer patients . we have prioritized the development of better tests for the diagnosis and prediction of clinical behavior in prostate cancer , pancreatic cancer , breast cancer , leukemia/lymphoma and other solid tumors as part of the license agreement . we intend to launch a test for prostate cancer in 2014. we are also developing a cytogenetics interpretation system using the svm technology that we believe will result in substantial cost savings and open up the opportunity for sub-licensing revenue in future years . diversify our third focus as we enter 2014 is diversification . in november 2013 , we announced an exclusive alliance with covance central laboratories ( ยcovanceย ) to provide comprehensive anatomic pathology , histology and specialty laboratory testing services for clinical trials . covance is the largest contract research organization servicing the needs of the pharmaceutical industry . through this alliance , covance 's clients will gain access to fully integrated anatomic pathology and histology ( ยaphย ) services , including immunohistochemistry ( ยihcย ) , fluorescence in-situ hybridization ( ยfishย ) and molecular testing . covance will establish a laboratory at neogenomics ' fort myers , florida facility and together with neogenomics , will provide a full range of aph , tissue based biomarkers and other specialty testing services . the companies will then expand joint capabilities globally at covance 's central laboratory locations in shanghai , china ; geneva , switzerland ; and singapore . as part of the alliance , covance will have access to neogenomics 44 extensive medical and scientific networks , which includes more than 500 pathologists . neogenomics gains access to covance 's broad market reach , established client relationships , and extensive clinical trials experience . we believe this alliance will provide seamless global testing services supporting oncology and companion diagnostics strategies for biopharmaceutical firms around the world . we are currently expanding our facility in fort myers , florida to provide the capacity to grow this partnership with covance and to provide quality testing for global clinical trials . neogenomics has ongoing clinical trials with international pharmaceutical firms and working along with covance will allow us to work on trials on a global basis . get lean we are focused on becoming more efficient and reducing our cost per test . our best practice teams work with our information technology teams to make improvements in efficiencies to our lab processes . we are using information systems and technology to move neogenomics further along the path of being a ยfully digital labย , that uses on-line ordering , bar coding , specimen tracking , and other tools to create a streamlined , seamless , and efficient lab . we are also currently undertaking a facility upgrade to our fort myers , florida lab location and we expect this upgrade to increase our efficiencies and reduce our cost per test .
| general and administrative expenses general and administrative expenses relate to billing , bad debts , finance , human resources , information technology and other administrative functions . they primarily consist of employee related costs ( such as salaries , fringe benefits , and stock-based compensation expense ) , professional services , facilities expense , and depreciation and administrative-related costs allocated to general and administrative expenses . replace_table_token_14_th general and administrative expenses increased approximately 10 % , for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. this increase is primarily a result of adding information technology and billing personnel to support the increase in our testing volumes as well as health and business insurance costs , depreciation and increases in other professional fees . bad debt expense , in dollars , decreased by approximately 8 % , or $ 0.3 million to $ 2.8 million for the year ended december 31 , 2013 as compared to $ 3.1 million for the year ended december 31 , 2012. bad debt as a percentage of revenue decreased to 4.2 % for the year ended december 31 , 2013 from 5.1 % of revenue for the year ended december 31 , 2012. this decline was the result of changes in our payer mix , resulting in more client billing , which historically has less bad debt than patient or insurance billing . we expect our general and administrative expenses to increase as we add personnel , increase our billing and collections activities ; incur additional expenses associated with the expansion of our facilities and backup systems ; and continue to build our physical infrastructure to support our anticipated growth . however , we expect general and administrative expenses to continue to decline as a percentage of our revenue as our case volumes increase and as we continue to develop more operating leverage in our business .
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the following table reconciles gaap net income to taxable income ( amounts in thousands ) : replace_table_token_23_th ( 1 ) the company 's distributions are characterized as 45.83 % ordinary taxable dividend and 54.17 % return of capital story_separator_special_tag you should read the following discussion of our results of operations and financial condition in conjunction with the audited consolidated financial statements and related notes thereto as of december 31 , 2018 and 2017 and for the years ended december 31 , 2018 , 2017 and 2016 and the sections entitled โ risk factors , โ โ forward looking statements , โ โ business , โ and โ properties โ contained elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . the forward-looking statements are not historical facts , but rather are based on current expectations , estimates , assumptions and projections about our industry , business and future financial results . our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors , including those discussed in the sections of this annual report on form 10-k entitled โ risk factors โ and โ forward looking statements. โ our company references to โ easterly , โ โ we , โ โ our , โ โ us โ and โ our company โ refer to easterly government properties , inc. , a maryland corporation , together with our consolidated subsidiaries including easterly government properties lp , a delaware limited partnership , which we refer to herein as our operating partnership . we are an internally managed real estate investment trust , or reit , focused primarily on the acquisition , development and management of class a commercial properties that are leased to u.s. government agencies that serve essential functions . we generate substantially all of our revenue by leasing our properties to such agencies either directly or through the u.s. general services 34 administration , or gsa . our objective is to generate attractive risk-adjusted returns for our stockholders over the long term through dividends and capital appreciation . as of december 31 , 2018 , we wholly owned 62 operating properties in the united states that are 100 % leased , including 60 operating properties that are leased primarily to u.s. government tenant agencies and two operating properties that are entirely leased to private tenants , encompassing approximately 5.3 million square feet in the aggregate . in addition , we wholly owned two properties under development that we expect to encompass approximately 0.1 million square feet upon completion . we focus on acquiring , developing and managing u.s. government-leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the u.s. government , working with the tenant agency to meet their needs and objectives . our operating partnership holds substantially all of our assets and conducts substantially all of our business . we own approximately 87.2 % of the aggregate operating partnership units in our operating partnership . we believe that we have operated and have been organized in conformity with the requirements for qualification and taxation as a reit for u.s. federal income tax purposes commencing with our taxable year ended december 31 , 2015. financial information analyzed below reflects the audited financial statements as of december 31 , 2018 , included in the f pages of this annual report on form 10-k. story_separator_special_tag million primarily due to an increase in employee costs . acquisition costs decreased by $ 0.3 million year over year due to $ 0.6 million of costs capitalized associated with probable and completed operating property acquisitions during the year ended december 31 , 2017 upon the adoption of asu 2017-01 as of january 1 , 2017 , offset by a $ 0.3 million increase in acquisition costs attributable to an increase in internal employee costs associated with probable and completed operating property acquisitions . interest expense interest expense increased $ 8.9 million to $ 17.1 million for the year ended december 31 , 2017 compared to $ 8.2 million for the year ended december 31 , 2016. this increase is primarily due to increases of $ 4.4 million associated with the issuance of the senior unsecured notes , $ 2.6 million attributable to our 2016 term loan facility and interest rate swap , and $ 2.5 million associated with the mortgage loan secured by va-loma linda offset by a decrease of $ 0.6 million attributable to interest on our senior unsecured credit facility . the $ 0.6 million decrease in interest on our revolving credit facility was primarily attributable to an increase in interest capitalized to properties under development of $ 0.4 million and a decrease in weighted average borrowings under our senior unsecured revolving credit facility from $ 196.5 million to $ 137.3 million year over year offset by an increase in the weighted average interest rate of 2.41 % for the year ended december 31 , 2017 compared to 1.89 % for the year ended december 31 , 2016. loss on the sale of operating property on december 28 , 2017 , the company sold 2650 sw 145 th avenue - parbel of florida to a third party . net proceeds from the sale of operating property were approximately $ 10.5 million and the company recognized a loss on the sale of operating property of approximately $ 0.3 million , mainly attributable to transaction costs , for the year ended december 31 , 2017. this disposition was accounted for under the full accrual method . liquidity and capital resources we anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses , including all scheduled principal and interest payments on our outstanding indebtedness , current and anticipated tenant improvements , stockholder distributions to maintain our qualification as a reit and other capital obligations associated with conducting our business . story_separator_special_tag the revolving credit facility also includes an accordion feature that will provide us with additional capacity , subject to the satisfaction of customary terms and conditions , of up to $ 250.0 million . our operating partnership is the borrower , and we and certain of our subsidiaries that directly own certain of our properties are guarantors under our amended senior unsecured credit facility . the revolving credit facility matures in four years and the 2018 term loan facility matures in five years . in addition , the revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee . our amended senior unsecured credit facility bears interest , at our option , either at : a eurodollar rate equal to periodic fix rate equal to libor plus , a margin ranging from 1.25 % to 1.80 % for advances under the revolving credit facility and a margin ranging from 1.20 % to 1.75 % for advances under the 2018 term loan facility ; or a fluctuating rate equal to the sum of ( a ) the highest of ( x ) citibank , n.a . 's base rate , ( y ) the federal funds effective rate plus 0.5 % and the ( z ) the one-month eurodollar rate plus 1.00 % ( b ) a margin ranging from 0.25 % to 0.80 % for advances under the revolving credit facility and a margin ranging from 0.20 % to 0.75 % for advances under the 2018 term loan facility , in each case with a margin based on our leverage ratio . the 2018 term loan facility is prepayable without penalty for the entire term of the loan . amendments to term loan facility on june 18 , 2018 , we entered into a second amendment to the 2016 term loan facility . the second amendment amends certain covenants and other provisions in the 2016 term loan facility to conform to changes made to such covenants and other provisions in our amended senior unsecured credit facility . 39 on october 3 , 2018 , we entered into a third letter amendment to the 2016 term loan facility . the third letter amendment reduces the interest rate margin applicable to borrowings under the 2016 term loan facility and extends the matur ity date by six months to march 29 , 2024. indebtedness outstanding the following table sets forth certain information with respect to the indebtedness outstanding as of december 31 , 2018 ( dollars in thousands ) : replace_table_token_11_th ( 1 ) current interest rates as of december 31 , 2018. at december 31 , 2018 the one-month libor ( โ l โ ) was 2.50 % . the current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums . the spread over the applicable rate for each of our revolving credit facility , our 2018 term loan facility and our 2016 term loan facility is based on the company 's consolidated leverage ratio , as defined in the respective loan agreements . ( 2 ) available capacity of $ 315.2 million at december 31 , 2018 , with an accordion feature that provides additional capacity of up to $ 250.0 million . ( 3 ) our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee . ( 4 ) entered into two interest rate swaps with an effective date of march 29 , 2017 with an aggregate notional value of $ 100.0 million to effectively fix the interest rate at 2.62 % annually , based on the company 's consolidated leverage ratio , as defined in the 2016 term loan facility agreement . 40 ( 5 ) entered into four interest rate swaps with an effective date of december 13 , 2018 with an aggregate notional value of $ 150.0 million to effectively fix the interest rate at 3.91 % annually , based on the company 's consolidate d leverage ratio , as defined in the 2018 term loan facility . ( 6 ) effective interest rates are as follows : cbp - savannah 4.12 % , ice - charleston 3.93 % , mepcom - jacksonville 3.89 % , usfs ii - albuquerque 3.92 % , dea - pleasanton 1.8 % , va - loma linda 3.78 % , va - golden 5.03 % . our revolving credit facility , term loan facilities , unsecured notes , and mortgage notes payable are subject to ongoing compliance with a number of financial and other covenants . as of december 31 , 2018 , we were in compliance with the applicable financial covenants . the chart below details our debt capital structure as of december 31 , 2018 ( dollars in thousands ) : debt capital structure december 31 , 2018 total principal outstanding $ 770,895 weighted average maturity 6.7 years weighted average interest rate 3.7 % % variable debt 19.5 % % fixed debt 80.5 % % secured debt 27.4 % contractual obligations the following table summarizes our contractual obligations as of december 31 , 2018 ( amounts in thousands ) : replace_table_token_12_th ( 1 ) due to the long-term nature of certain construction and development contracts included in this line , the amounts reported in the table represent our estimate of the timing for the related obligations being paid . dividend policy in order to qualify as a reit , we are required to distribute to our stockholders , on an annual basis , at least 90 % of our reit taxable income , determined without regard to the deduction for dividends paid and excluding net capital gains . we anticipate distributing all of our taxable income . we expect to make quarterly distributions to our stockholders in a manner intended to satisfy this requirement . prior to making any distributions for u.s. federal tax purposes or otherwise , we must first satisfy our operating and debt service obligations .
| results of operations comparison of results of operations for the years ended december 31 , 2018 and december 31 , 2017 the financial information presented below summarizes the results of operations of the company for the years ended december 31 , 2018 and 2017. replace_table_token_8_th revenues total revenue consists primarily of rental income from our properties , tenant reimbursements for real estate taxes , projects and certain other expenses , and project management income . total revenue increased $ 29.9 million to $ 160.6 million for the year ended december 31 , 2018 compared to $ 130.7 million for the year ended december 31 , 2017. the increase was primarily attributable to an additional $ 28.6 million of revenue from the fifteen operating properties acquired and one development property placed in service since december 31 , 2017 as well as a full period of operations from the four operating properties acquired during the year ended december 31 , 2017 offset by one property disposed of during the year ended december 31 , 2017 , and a $ 1.4 million increase in tenant project reimbursements and the associated project management income . 35 expenses total expenses increased by $ 23.1 million to $ 131.0 million for the year ended december 31 , 2018 compared to $ 107.9 million for the year ended december 31 , 2017. the increase is primarily attributable to a $ 21.9 million increase in property operating expenses , real estate taxes , and depreciation and amortization associated with the acquisition of fifteen operating properties and one development property placed in service since december 31 , 2017 and a full period of operations from the four operating properties acquired during the year ended december 31 , 2017 , offset by one property disposed of during the year ended december 31 , 2017 and a $ 1.4 million increase in tenant project reimbursements offset by a $ 2.7 million decrease in
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our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and story_separator_special_tag the statements contained in this report with respect to our financial condition , results of operations and business that are not historical facts are forward-looking statements . forward-looking statements can be identified by the use of forward-looking terminology , such as `` anticipate '' , `` believe '' , `` expect '' , `` plan '' , `` intend '' , `` seek '' , `` estimate '' , `` project '' , `` could '' , `` may '' or the negative thereof or other variations thereon , or by discussions of strategy that involve risks and uncertainties . management wishes to caution the reader of the forward-looking statements that any such statements that are contained in this report reflect our current beliefs with respect to future events and involve known and unknown risks , uncertainties and other factors , including , but not limited to , economic , competitive , regulatory , technological , key employees , and general business factors affecting our operations , markets , growth , services , products , licenses and other factors , some of which are described in this report including in โ risk factors โ in item 1a and some of which are discussed in our other filings with the securities and exchange commission . these forward-looking statements are only estimates or predictions . no assurances can be given regarding the achievement of future results , as actual results may differ materially as a result of risks facing our company , and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events . these risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue . all written and oral forward looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements . given these uncertainties , we caution investors not to unduly rely on our forward-looking statements . we do not undertake any obligation to review or confirm analysts ' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events , except as required by applicable law or regulation . summary of the fiscal year ended december 31 , 2012 the economic and pharmaceutical challenges and uncertainties had negatively impacted our business in 2012 , which led to the overall decline in sales of our products . for the year ended december 31 , 2012 , we had a certain drop in financial performance . revenue decreased by 33 % to $ 54.5 million , as compared to $ 81.2 million in the year ended december 31 , 2011. this decrease was primarily from our cns cerebral & cardio vascular product category in terms of the decrease in dollar amount ( approximately $ 10.6 million ) and digestive disease product category in terms of percentage of decrease in revenues ( approximately 44 % ) . net income for the year ended december 31 , 2012 was $ 4.6 million , a decrease of 76 % , from $ 19.3 million in the year ended december 31 , 2011. our net income for the year ended december 31 , 2012 included inventory obsolescence , while the net income for the year ended december 31 , 2011included gains resulting from changes in the fair value of our derivative warrant liability . due to the negative impact on sales of finished goods from price cutting , rising cost and policy adjustment , significant differences occurred between the sales estimates when raw materials were purchased compared to the sales performance realized for certain products . this lead to certain raw materials approached their expiration dates . based on the evaluation the management made on december 31 , 2012 , we recognized a reserve of $ 1.77 million for inventory obsolescence . without the effect of the inventory obsolescence and derivative warrant liability , management estimates that net income would have been approximately $ 6.1 million and $ 18.4 million in 2012 and 2011. the decrease in net income was mainly due to the decrease in revenue , gross profit margin , and the incurrence of inventory obsolescence in 2012. from a profitability perspective , our gross profit margin for the year ended december 31 , 2012 was 26 % compared to 36 % in 2011. without the effect of inventory obsolescence in 2012 , management estimates that our gross profit would have been approximately 29 % in 2012. the decrease in gross profit margin was mainly due to increases in costs and margin compression as a result of the healthcare reform . pricing pressure is now quite a prominent feature in the overall pharmaceutical market in china . 38 cash flow from operations for the year ended december 31 , 2012 was $ 3.64 million , compared to $ 5.24 story_separator_special_tag our โ other โ product category sales fell to $ 7.8 million from $ 11.0 million , a decrease of $ 3.2 million . 40 in the year ended december 31 , 2012 , revenue breakdown by product category showed small changes . sales of the โ anti-viro & respiratory โ products category represented 45 % of total sales in the year ended on december 31 , 2012 , compared to 39 % in 2011. the โ cns , cerebral & cardio vascular โ category was steady , representing 28 % of total revenue in 2012 and 32 % 2011. the โ digestive diseases โ category represented 13 % of total revenue in 2012 compared to 15 % in 2011. the โ other โ category represented 14 % and 14 % of revenues in 2012 and 2011 , respectively . cost of revenue for the year ended december 31 , 2012 , our cost of revenue was $ 38.7 million , or 71 % of total revenue , which represented a decrease of $ 13.5 million from $ 52.2 million , or 64 % of total revenue , in 2011 , a decrease of 25.9 % . the decrease in cost of revenue during 2012 was not proportional to the revenue decrease , primarily due to increases in our average unit costs for inventory . gross profit and gross margin gross profit for the year ended december 31 , 2012 was $ 14.1 million , a decrease of $ 15 million , or 51 % , from $ 29.0 million in 2011. our gross profit margin in 2012 was 26 % , compared to 36 % in 2011. without the effect of inventory obsolescence in 2012 , management estimates that our gross profit would have been approximately 29 % in 2012. the healthcare reform instituted by the chinese government since 2009 has resulted in margin compression in most pharmaceutical products on the markets today , especially in the generic space that many of our products are in . the decrease of sales and continuously increase of the purchase price of raw materials attributed to the decrease of gross profit . going forward we expect to see continued pricing pressure on most products , but new products such as candesartan and rosuvastatin could help to support overall gross margin once they are launched . selling expenses our selling expenses for the year ended december 31 , 2012 were $ 3.54 million , an increase of approximately $ 0.1 million , compared to $ 3.44 million in 2011. selling expenses accounted for 6.5 % of the total revenue in 2012 compared to 4.2 % in 2011. due to many adjustments in our selling processes from healthcare reform policies , despite the decrease in sales , we required additional personnel and expenses to support the sales and collection of accounts receivable . story_separator_special_tag bold '' > derivative gains ( losses ) changes to derivative warrant liability are recognized in the results of operations and resulted in a derivative gain of $ 934,260 during the year ended december 31 , 2011 . ( please see note 9 to our consolidated financial statements contained in this report . ) there was no derivative gain during the year ended december 31 , 2012. income tax expense in the years ended december 31 , 2012 and 2011 , we paid income tax at the rate of 15 % . income tax expense was $ 0.98 million and $ 3.44 million for the years ended december 31 , 2012 and 2011 respectively . we obtained the `` national high-tech enterprise '' status ( `` national ht status '' ) from the prc government in the fourth quarter of 2010. with this designation , we are entitled to a preferential tax rate of 15 % for the years ending december 31 , 2011 , 2012 and 2013 , which is notably lower than the statutory income tax rate of 25 % . net income net income for year ended december 31 , 2012 was $ 4.6 million , a decrease of 76 % , from $ 19.3 million in the year ended december 31 , 2011.the decrease in net income was mainly due to the decrease in revenue , gross profit margin , increase in cost , and changes in derivative gain . for the year ended december 31 , 2012 , earnings per basic and diluted common share was $ 0.11 per share , compared to $ 0.44 per share in the year ended december 31 , 2011. the number of basic and diluted weighted average outstanding shares used to calculate earnings per share were 43,579,557 for 2012 and 43,479,899 for 2011 . 43 liquidity and capital resources our principal sources of liquidity are cash generated from operations and short-term bank loans . our cash and cash equivalents was $ 4.03 million , which represents 2.47 % of our total assets as of december 31 , 2012 , was comparable to $ 4.05 million , which represents 2.59 % of our total assets as of december 31 , 2011. of the $ 4.03 million of cash and cash equivalents at december 31 , 2012 , a total of $ 3.92 million is considered to be reinvested indefinitely in helpson and is not expected to be available for payment of dividends , for other payments to our parent company or to its shareholders . as of december 31 , 2012 , we had a principal balance of $ 4.76 million in short-term bank loans . the cash flow generated from operating activities funded the new purchases of our intangible assets ( drug formulas ) . during 2012 , we continued our vigorous collection efforts from our customers and achieved good results . while we have made progress , improving our accounts receivable collection continues to be a focus of our management team and we expect to make further progress in the quarters to come .
| general and administrative expenses our general and administrative expenses for the year ended december 31 , 2012 were $ 3.31 million , a decrease of $ 0.41 million from $ 3.72 million in 2011. general and administrative expenses accounting for 6.1 % and 4.6 % of our total revenues in 2012 and 2011 , respectively . bad debt expenses ( benefit ) in general , our normal credit or payment terms extended to customers are 90 days . this has not changed in recent years . due to the peculiarity of the chinese pharmaceutical market environment , deferred payments to pharmaceutical companies by state-owned hospitals and local medicine distributors are a normal phenomenon . our customers are primarily pharmaceutical distributors who sell to mostly government-backed hospitals . therefore the age of our receivables from our customers tends to be long . although these customers typically pay after the due date of the receivables , since the majority of hospitals in china are backed by the government , management believes that the deferred payments from state-owned hospitals are secure and will eventually be collected . so far , we have always been able to collect our receivables and have not written-off any receivables in our 19-year history of doing business with hospitals . 41 the amount of accounts receivable that were past due ( or the amount of accounts receivable that were more than 90 days old ) was $ 62.1 million and $ 51.4 million as of december 31 , 2012 and 2011 , respectively . the following table illustrates our accounts receivable aging distribution in terms of percentage of total accounts receivable as of december 30 , 2012 and 2011 : replace_table_token_5_th although we have not had to write off any receivables thus far in our history , we do set aside an allowance for doubtful accounts .
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the interest of approximately 0.6 % not owned by us represents the interest in the operating partnership that is owned by an affiliate of our manager and certain related parties , and is reflected in our financial statements as a non-controlling interest . our primary objective is to generate attractive , risk-adjusted total returns for our shareholders . we seek to attain this objective by utilizing an opportunistic strategy to make investments , without restriction as to ratings , structure , or position in the capital structure , that we believe compensate us appropriately for the risks associated with them rather than targeting a specific yield . our evaluation of the potential risk-adjusted return of any potential investment typically involves weighing the potential returns of such investment under a variety of economic scenarios against the perceived likelihood of the various scenarios . potential investments subject to greater risk ( such as those with lower credit ratings and or those with a lower position in the capital structure ) will generally require a higher potential return to be attractive in comparison to investment alternatives with lower potential return and a lower degree of risk . however , at any particular point in time , depending on how 56 we perceive the market 's pricing of risk both generally and across sectors , we may favor higher-risk assets or we may favor lower-risk assets , or a combination of the two in the interests of portfolio diversification or other considerations . through december 31 , 2016 , our credit strategy has been the primary driver of our risk and return , and we expect that this will continue in the near- to medium-term . our credit strategy includes non-agency rmbs ; residential and commercial mortgage loans , which can be performing or non-performing ; reo ; consumer loans and abs backed by consumer loans ; clos ; european non-dollar denominated investments ; other mortgage-related structured investments ; private debt and or equity investments in mortgage originators and other mortgage-related entities ; and corporate debt and equity . we believe that ellington 's capabilities allow our manager to identify attractive assets in these classes , value these assets , monitor and forecast the performance of these assets , and opportunistically hedge our risk with respect to these assets . we continue to maintain a highly leveraged portfolio of agency rmbs to take advantage of opportunities in that market sector and to maintain our exclusion from registration as an investment company under the investment company act . unless we acquire very substantial amounts of whole mortgage loans or there are changes to the rules and regulations applicable to us under the investment company act , we expect that we will always maintain some core amount of agency rmbs . we also use leverage in our credit strategy , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2016 , we financed our asset purchases primarily through reverse repurchase agreements , or `` reverse repos , '' which we account for as collateralized borrowings and we expect to continue to obtain the vast majority of our financing through the use of reverse repos . in addition to financing our assets through reverse repos , in march 2016 we entered into a securitization transaction to finance certain of our commercial mortgage loans and reo which was accounted for as a collateralized borrowing . in august 2016 , we entered into a securitization transaction to obtain term financing for certain of our consumer loans ; we accounted for this transaction as a sale . the strategies that we employ are intended to capitalize on opportunities in the current market environment . we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time . we believe that this flexibility , combined with ellington 's experience , will help us generate more consistent returns on our capital throughout changing market cycles . as of december 31 , 2016 , outstanding borrowings under reverse repos and securitized debt were $ 1.1 billion and our debt-to-equity ratio was 1.64 to 1. our debt-to-equity ratio does not account for liabilities other than debt financings and does not include debt associated with securitization transactions accounted for as sales . of our total borrowings outstanding as of december 31 , 2016 , approximately 75 % , or $ 790.3 million , relates to our agency rmbs holdings . the remaining outstanding borrowings relate to our credit portfolio and u.s. treasury securities . we opportunistically hedge our credit risk , interest rate risk , and foreign currency risk ; however , at any point in time we may choose not to hedge all or a portion of these risks , and we will generally not hedge those risks that we believe are appropriate for us to take at such time , or that we believe would be impractical or prohibitively expensive to hedge . we believe that we have been organized and have operated so that we have qualified , and will continue to qualify , to be treated for u.s. federal income tax purposes as a partnership and not as an association or a publicly traded partnership taxable as a corporation . we also measure our book value per share and our total return on a diluted basis , assuming all convertible units were converted into common shares at their respective issuance dates . as of december 31 , 2016 , our diluted book value per share was $ 19.46 as compared to $ 21.80 as of december 31 , 2015. on a diluted basis , the company 's total return for the year ended december 31 , 2016 and 2015 was ( 1.79 ) % and 5.20 % , respectively . additionally our diluted net-asset-value-based total return was 157.36 % from our inception ( august 17 , 2007 ) through december 31 , 2016 , and our annualized inception-to-date diluted net-asset-value-based total return was 10.61 % as of december 31 , 2016 . story_separator_special_tag the following table shows the trailing three-month average housing starts for the periods referenced : as of number of units ( in thousands ) december 2016 september 2016 single-family 834 758 multi-family 406 374 source : u.s. census bureau as of december 2016 , average single-family housing starts during the trailing three months increased by 10.0 % as compared to september 2016 , while multi-family housing starts increased by approximately 8.6 % during the same period . data released by s & p dow jones indices for its s & p corelogic case-shiller indices for december 2016 showed that , on average , home prices posted a 5.6 % year-over-year increase for its 20-city composite and a 4.9 % year-over-year increase for its 10-city composite , after seasonal adjustments . additionally , as indicated in the table above , as of december 2016 , the national inventory of foreclosed homes fell to 329,000 units ; this represented the sixty-second consecutive month with a year-over-year decline . as a result , there are many fewer unsold foreclosed homes hanging over the housing market than there were a year ago . we believe that near-term home price trends are more likely to be driven by fundamental factors such as economic growth , mortgage rates , and affordability , rather than by technical factors such as shadow inventory . shadow inventory represents the number of properties that are seriously delinquent , in foreclosure , or held as reo by mortgage servicers , but not currently listed on a multiple listing service . 59 while refinancing activity overall has been slower in recent periods relative to earlier periods when mortgage rates were at comparable levels , recent trends suggest an ongoing divergence between the refinancing behavior of lower balance loans and higher balance loans . as illustrated in the figure below , the average loan size of refinance applications , especially during refinancing waves , has increased over the past several years . for example , in july 2016 , at the peak of the most recent refinancing wave , the average refinance application loan size was $ 288,400 , a 35 % increase over the average refinance application loan size of $ 213,700 in may 2013 , at the peak of the early 2013 refinancing wave . this increase in average loan sizes of mortgage refinances is reflective of a number of changes related to borrower behavior and mortgage credit availability in recent years . source : freddie mac and mortgage bankers association as shown in the figure above , higher loan balance borrowers tend to be more reactive to refinancing incentives , especially following steep declines in rates over a short period . after swift drops in mortgage rates in october 2014 , january 2015 , march 2015 , the first six weeks of 2016 and late june 2016 , the average refinanced loan size spiked , reflecting a surge in higher loan balance borrowers reacting to the recent decline in mortgage rates . this greater prepayment sensitivity for higher loan size borrowers is well established , and is due in part to greater awareness among such borrowers about refinancing opportunities , as well as greater absolute dollar incentives to refinance relative to lower loan size borrowers . moreover , while overall mortgage credit availability continues to increase from the depressed levels that followed the financial crisis , credit availability for higher loan size borrowers has been particularly improving recently . in the past several years , a number of the largest lenders , including bank of america , jp morgan , wells fargo , and pnc bank , have noticeably loosened lending standards for jumbo mortgage loans typically sought by more affluent borrowers , including lowering minimum fico requirements and raising maximum loan-to-value , or `` ltv , '' ratios . affluent borrowers have also generally experienced greater improvements in their creditworthiness , thanks to rising asset prices and a strong rebound in high-end home prices , especially in wealthier cities such as new york and san francisco . jumbo mortgage loans have been a rare bright spot for the non-agency mortgage origination sector in recent years , and for good reason given the excellent credit performance of jumbo mortgage loans originated since the financial crisis . many banks are also competing more vigorously for affluent customers , in an effort to cross-sell other financial products such as investment and brokerage services . this competition has resulted in a narrowing of the spread between jumbo mortgage rates and conforming mortgage rates , further increasing the relative refinancing incentive for jumbo mortgage loans . 60 while in the past few years more affluent and higher credit score borrowers have seen the largest increase in mortgage credit availability , more recently first time homebuyers , low-income borrowers , and borrowers in low-income areas have started to benefit from an increase in high ltv mortgage lending programs targeted at these demographic groups . while recent growth is still relatively modest in these largely government-funded or non-profit-funded lending programs for less affluent borrowers , it may prefigure future expansions of credit to higher ltv borrowers . in addition , since the financial crisis , financial reforms , including the dodd-frank act , and qm mortgage rules , have dramatically increased the costs of underwriting , especially for niche products such as second lien and adjustable rate mortgages . banks have reduced their footprint in the mortgage lending space as the scars of the financial crisis and higher capital requirements have increased the costs of doing business . more recently , market share has shifted to non-bank lenders , which do not face the same regulatory capital requirements as banks for servicing mortgages , and which possess superior technology to better assist borrowers in making more efficient refinancing decisions . the shift in mortgage banking industry market share to more efficient non-bank lenders has contributed to the increase in aggregate prepayment speeds . for example , quicken loans inc. , or `` quicken , '' has become one of the leaders in efficient mortgage refinancing in recent years .
| results of operations for the years ended december 31 , 2016 , 2015 , and 2014 the table below represents the net increase ( decrease ) in equity resulting from operations for the years ended december 31 , 2016 , 2015 , and 2014. replace_table_token_11_th results of operations for the years ended december 31 , 2016 and 2015 summary of net increase ( decrease ) in shareholders ' equity from operations for the year ended december 31 , 2016 we had a net decrease in shareholders ' equity resulting from operations of $ ( 16.0 ) million and for the year ended december 31 , 2015 we had a net increase in shareholders ' equity resulting from operations of $ 38.1 million . the year-over-year reversal in our results of operations was due to an increase in our net realized and unrealized losses on our financial derivatives and a decrease in our net investment income . lower interest income was the main component of the year-over-year change in net investment income . the decrease in interest income was primarily the result of a decrease in the size of our investment portfolio . we also employed less leverage in our agency rmbs portfolio in 2016 as 75 compared to the same period in 2015. as our loan portfolios continue to grow , our expectation is that our interest income and leverage will increase from current levels . during the year ended december 31 , 2016 , we had significant net realized and unrealized losses on our credit hedges . because our credit hedges were primarily in the form of short positions in financial instruments tied to high-yield corporate debt , we incurred losses as high-yield corporate credit rallied meaningfully during the year .
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the company secured a loan of $ 3.4 million to finance the expansion of its ams facility . related to securing the loan , the company paid $ 139,000 in debt issuance costs and made principal payments of $ 79,000. during 2016 , the company received $ 4,000 from the issuance of 500 shares of common stock pursuant to the exercise of stock options . there were no financing activities during 2015. on april 1 , 2016 , the company entered into a financing agreement to borrow $ 3.4 million . the proceeds from the loan were used to finance the construction of a 27,300-square foot building , as well as related equipment for use in the company 's manufacture of sound deadening technology used in the aerospace industry and products consisting of etched composites , ceramics , glass and silicon wafers , to be located in duluth , minnesota . the loan requires monthly payments of approximately $ 18,000 , including interest . the loan bears interest at a rate of 2.14 % per year , payable monthly , and matures on april 1 , 2041. the loan is subject to mandatory purchase provisions , under which any owners of the bonds ( the โ owners โ ) may tender the bonds to the issuer on april 1 , 2021 , which would result in the company repaying the outstanding loan principal and any outstanding accrued and unpaid interest to the issuer at that time . if in the event the bonds are not repurchased on april 1 , 2021 , the bonds shall be subject to the interest rate and redemption provisions set forth in the associated covenant agreement . including debt costs of approximately $ 139,000 , the loan 's effective annual interest rate is 2.77 % . the company is subject to certain customary covenants set forth in the associated covenant agreement , including a requirement that the company maintain a debt service coverage ratio as of the end of each calendar quarter of not less than 1.25 to 1.00 on a rolling four-quarter basis . a bank line of credit exists providing for borrowings of up to $ 2.1 million and expires on may 31 , 2017. the company expects to obtain a similar line of credit when the current line of credit expires . the line of credit is collateralized by the company 's assets and bears interest at 1.8 percentage points over the 30-day libor rate . the company did not utilize this line of credit during 2016 or 2015 and there were no borrowings outstanding as of december 31 , 2016 and december 31 , 2015. there are no financial covenants related to the line of credit . 15 the company believes that current financial resources , its line of credit , cash generated from operations and secured through debt financing , and short term investments , along with the company 's capacity for additional debt and or equity financing will be sufficient to fund current and anticipated business operations . the company also believes that it is unlikely that a decrease in demand for the company 's products would impair the company 's ability to fund operations given its excess cash and available line of credit . capital expenditures in 2016 , the company incurred $ 1.7 million of capital expenditures . a majority of the expenditures were related to the ams building expansion . the remaining capital expenditures were for upgrades to improve ams production and process capabilities , as well as for a new erp system . in 2015 , the company incurred $ 3.2 million of capital expenditures , of which $ 2.3 million was related to the building expansion , including the $ 315,000 in construction accounts payable . the remaining capital expenditures were mainly for upgrades to improve production and process capabilities for both ams and the company 's traditional businesses , a new erp system which was completed in 2016 , data center equipment , and costs associated with mandatory elevator upgrades , including $ 18,000 in construction accounts payable . the company expects capital expenditures in 2017 of approximately $ 600,000. the planned expenditures primarily will be for manufacturing equipment to improve processes and capabilities for ams , other manufacturing equipment upgrades and vehicles for sales personnel . these commitments are expected to be funded with cash generated from operating activities . international activity the company markets its products in numerous countries in various regions of the world , including north america , europe , latin america , and asia . the company 's 2016 foreign sales of $ 4.5 million were approximately 25.7 % of total sales , compared to the 2015 foreign sales of $ 4.9 million , which were 27.9 % of total sales . the company experienced a decrease in foreign sales across all geographic regions in 2016 except europe as the strong u.s. dollar continues to negatively impact foreign sales . the company 's foreign transactions are primarily negotiated , invoiced and paid in u.s. dollars , though a portion is transacted in euros . ikonics has not implemented an economic hedging strategy to reduce the risk of foreign currency translation exposures , which management does not believe to be significant based on the scope and geographic diversity of the company 's foreign operations . furthermore , the impact of foreign exchange on the company 's balance sheet and operating results was not material in either 2016 or 2015. future outlook ikonics has spent an average of approximately 4.0 % of annual sales in research and development and has made capital expenditures related to new products and programs . story_separator_special_tag the company plans to maintain its efforts in these areas to expedite internal product development as well as to form technological alliances with outside entities to commercialize new product opportunities . the company continues to make progress on its ams business initiative , which is now experiencing strong growth . the company has two long-term agreements in place for its technology with major aerospace companies and is negotiating a third . in anticipation of this growing business , the company increased its ams capacity with a 27,300 square foot expansion at its morgan park site . the company is also continuing to pursue dtx related business initiatives . in addition to making efforts towards growing the inkjet technology business , the company offers a range of products for creating texture surfaces and has introduced a fluid for use in prototyping . the company is currently working on production improvements to enhance its customer offerings . the company has been awarded european , japanese and united states patents on its dtx technologies . the company has also modified its dtx technology to enter the market for prototyping . both the domestic and ikonics imaging units remain profitable in mature markets . although these business units require aggressive strategies to grow market share , both are developing new products and business relationships 16 that we believe will contribute to growth . in addition to its traditional emphasis on domestic markets , the company will continue efforts to grow its business internationally by attempting to develop new markets and expanding market share where it has already established a presence . however , the strong u.s. dollar has made this challenging . other future activities undertaken to expand the company 's business may include acquisitions , building improvements , equipment additions , new product development and marketing opportunities . off-balance sheet arrangements the company has no off-balance sheet arrangements . recent accounting pronouncements in 2014 , the fasb issued accounting standards update ( โ asu โ ) no . 2014-15 , presentation of financial statementsโgoing concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern , intended to define management 's responsibility to evaluate whether there is substantial doubt about an organization 's ability to continue as a going concern and to provide related footnote disclosures . asu 2014-15 is effective for the company in the year ended december 31 , 2016 , and interim periods beginning march 31 , 2017 , with early application permitted . the adoption of asu 2014-15 did not have a material impact to the financial statements when implemented . in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers . asu 2014โ09 supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . in august 2015 , the fasb issued asu 2015-14 , revenue from contracts with customers : deferral of the effective date , which defers the adoption of asu 2014-09 to annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within that reporting period . earlier application is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . the standard permits two methods of adoption : retrospectively to each prior reporting period presented ( full retrospective method ) , or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application ( the cumulative catch-up transition method ) . the standard also requires expanded disclosures relating to the nature , amount , timing , and uncertainty of revenue and cash flows arising from contracts with customers . additionally , qualitative and quantitative disclosures are required about customer contracts , significant judgments and changes in judgments , and assets recognized from the costs to obtain or fulfill a contract . while the company is still in the process of evaluating the effect of adoption on its financial statements and is currently assessing its contracts with customers , the company anticipates that it will expand its financial statement disclosures in order to comply with the new standard . the company has established a timeline and process to evaluate the impact , transition and disclosure requirements of the asu and believes the timeline is sufficient to allow the company to effectively implement the new standard . the company has not yet concluded on a transition method upon adoption , but plans to select a transition method by the fourth quarter of 2017. in 2015 , the fasb issued asu no . 2015-17 , income taxes ( topic 740 ) balance sheet classification of deferred taxes , now requiring that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet . the amendment takes effect for public entities for fiscal years beginning after december 15 , 2016 , with early adoption available . the company adopted this guidance for the quarter ended march 31 , 2016 with retrospective application and reclassified comparative periods for consistency . for 2015 , a long-term deferred tax liability of $ 580,000 has been netted with the current deferred tax asset of $ 195,000 for a net long-term deferred tax liability of $ 385,000. in april 2015 , the fasb issued asu no . 2015-03 , interest-imputation of interest : simplifying the presentation of debt issuance costs . asu 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as an asset . the standard is effective for fiscal periods beginning after
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 sales . the company 's net sales in 2016 of $ 17.6 million were consistent with 2015 sales . sales in 2016 were favorably impacted by an ams sales increase due to growth from its composite machining . ams sales in 2016 13 increased by 65.8 % , from $ 628,000 in 2015 to $ 1.0 million in 2016. ikonics imaging sales also increased by 7.6 % for the period from $ 4.0 million in 2015 to $ 4.3 million in 2016 , mainly related to the acquisition of a new customer . partially offsetting these sales increases was a drop in export sales . compared to 2015 , export sales in 2016 decreased $ 388,000 , or 7.9 % , as the strong u.s. dollar continues to dampen sales . compared to the prior year , 2016 sales were down across all regions with the exception of europe . domestic also realized lower sales for 2016 with a $ 247,000 , or 3.2 % , sales decrease versus 2015 as sales were down across all product groups . dtx sales decreased 15.0 % from $ 476,000 in 2015 to $ 405,000 in 2016 primarily due to a decrease in demand for film from its largest customer during the first half of the year . gross profit . gross profit was $ 6.2 million , or 35.5 % of sales , in 2016 compared to $ 6.1 million , or 35.0 % of sales in 2015. ikonics imaging gross margin for 2016 was favorably impacted by higher sales volumes , and an increase in higher margin film sales as gross margin percentage increased from 53.1 % in 2015 to 55.2 % in 2016. despite lower volumes , the dtx gross margin improved to 59.9 % in 2016 from 46.5 % in 2015 due to lower personnel and depreciation expenses .
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level 3 โ unobservable inputs that are supported by little or no market activity and that are significant to the overall fair value of the assets or liabilities . level 3 assets and liabilities include financial instruments for which the determination of fair value requires significant management judgment or estimation . the fair value for such assets and liabilities is generally determined using pricing models , market comparables , discounted cash flow methodologies or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability . we currently do not have any assets or liabilities in this category . f- 10 earnings per share โ basic earnings per share exclude any dilutive effects of options , warrants and convertible securities . basic earnings per share is computed using the weighted-average number of outstanding common stocks during the applicable period . diluted earnings per share is computed using the weighted-average number of common and common stock equivalent shares outstanding during the period . common stock equivalent shares are excluded from the computation if their effect is antidilutive . income taxes โ our income tax expense is comprised of current and deferred income tax expense . current income tax expense approximates taxes to be paid or refunded for the current period . deferred income tax expense results from the changes in deferred tax assets and liabilities during the periods . these gross deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences between the basis of assets and liabilities as measured by tax laws and their basis as reported in our consolidated financial statements . we also recognize deferred tax assets for tax attributes such as net operating loss carryforwards and tax credit carryforwards . we record valuation allowances to reduce deferred tax assets story_separator_special_tag disclosure regarding forward looking statements this annual report on form 10-k includes 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 ( โ forward looking statements โ ) . all statements other than statements of historical fact included in this report are forward looking statements . in the normal course of our business , we , in an effort to help keep our shareholders and the public informed about our operations , may from time-to-time issue certain statements , either in writing or orally , that contains or may contain forward-looking statements . although we believe that the expectations reflected in such forward looking statements are reasonable , we can give no assurance that such expectations will prove to have been correct . generally , these statements relate to business plans or strategies , projected or anticipated benefits or other consequences of such plans or strategies , past and possible future , of acquisitions and projected or anticipated benefits from acquisitions made by or to be made by us , or projections involving anticipated revenues , earnings , levels of capital expenditures or other aspects of operating results . all phases of our operations are subject to a number of uncertainties , risks and other influences , many of which are outside of our control and any one of which , or a combination of which , could materially affect the results of our proposed operations and whether forward looking statements made by us ultimately prove to be accurate . such important factors ( โ important factors โ ) and other factors could cause actual results to differ materially from our expectations are disclosed in this report , including those factors discussed in โ item 1a . risk factors. โ all prior and subsequent written and oral forward looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the important factors described below that could cause actual results to differ materially from our expectations as set forth in any forward looking statement made by or on behalf of us . overview 3pea international , inc. is a vertically integrated provider of innovative prepaid card products and processing services for corporate , consumer and government applications . our payment solutions are utilized by our corporate customers as a means to increase customer loyalty , reduce administration costs and streamline operations . public sector organizations can utilize the solutions to disburse public benefits or for internal payments . we market our prepaid debit card solutions under our paysign brand . as we are a payment processor and debit card program manager , we derive our revenue from all stages of the debit card lifecycle . we provide a card processing platform consisting of proprietary systems and innovative software applications based on the unique needs of our programs . we have extended our processing business capabilities through our proprietary paysign platform . we design and process prepaid card products that run on the platform through which our customers can define the services they wish to offer cardholders . through the paysign platform , we provide a variety of services including transaction processing , cardholder enrollment , value loading , cardholder account management , reporting , and customer service . the paysign platform was built on modern cross-platform architecture and designed to be highly flexible , scalable and customizable . the platform has allowed 3pea to significantly expand its operational capabilities by facilitating our entry into new markets within the payments space through its flexibility and ease of customization . the paysign platform delivers cost benefits and revenue building opportunities to our partners . we have developed prepaid card programs for corporate and incentive rewards including , but not limited to healthcare reimbursement payments , pharmaceutical co-pay assistance , corporate expense and per diem payments , donor compensation . story_separator_special_tag we are expanding our product offering to include additional corporate incentive products , payroll cards , general purpose re-loadable cards , and travel cards . our cards are offered to end users through our relationships with bank issuers . we are a vertically integrated payment processor and debit card program manager offering innovative payment solutions to corporations , government agencies , universities and other organizations . our payment solutions are utilized by our customers as a means to increase customer loyalty , reduce administration costs and streamline operations . we market our prepaid debit card solutions under our paysign brand . as we are a payment processor and debit card program manager , we derive our revenue from all stages of the debit card lifecycle . these revenues can include fees from program set-up ; customization and development ; data processing and report generation ; card production and fulfillment ; transaction fees and interchange derived from card usage ; inactivity fees ; card replacement fees and program administration fees . we provide an in-house customer service center which includes live bi-lingual phone operators staffed 24/7 , for incoming calls . we also provide in house interactive voice response and two way sms messaging platforms . the company divides prepaid cards into two general categories : corporate and consumer reloadable , and non-reloadable cards . 22 reloadable cards : these types of cards are generally incentive , payroll or considered general purpose reloadable ( โ gpr โ ) cards . payroll cards are issued to an employee by an employer to receive the direct deposit of their payroll . gpr cards can also be issued to a consumer at a retail location or mailed to a consumer after completing an on-line application . gpr cards can be reloaded multiple times with a consumer 's payroll , government benefit , a federal or state tax refund or through cash reload networks located at retail locations . reloadable cards are generally open loop cards as described below . non-reloadable cards : these are generally one-time use cards that are only active until the funds initially loaded to the card are spent . these types of cards are gift or incentive cards . these cards may be open loop or closed loop . normally these types of cards are used for purchase of goods or services at retail locations and can not be used to receive cash . these prepaid cards may be open loop , closed loop or semi-closed loop . open loop cards can be used to receive cash at atm locations or purchase goods or services by pin or signature at retail locations . these cards can be used virtually anywhere that the network brand ( visa , mastercard , discover , etc . ) is accepted . closed loop cards can only be used at a specific merchant . semi-closed loop cards can be used at several merchants such as a shopping mall . the prepaid card market is one of the fastest growing segments of the payments industry in the u.s. this market has experienced significant growth in recent years due to consumers and merchants embracing improved technology , greater convenience , more product choices and greater flexibility . prepaid cards have also proven to be an attractive alternative to traditional bank accounts for certain segments of the population , particularly those without , or who could not qualify for , a checking or savings account . we have developed prepaid card products for healthcare reimbursement payments , pharmaceutical assistance , donor compensation , corporate and incentive rewards and expense reimbursement cards . we plan to expand our product offering to include payroll cards , general purpose re-loadable cards and travel cards . our cards are offered to end users through our relationships with bank issuers . our products and services are aimed at capitalizing on the growing demand for stored value and reloadable atm/prepaid card financial products in a variety of market niches . our proprietary platform is scalable and customizable , delivering cost benefits and revenue building opportunities to partners . we manage all aspects of the debit card lifecycle , from managing the card design and approval processes with banking partners and card associations , to production , packaging , distribution , and personalization . we also oversee inventory and security controls , renewals , lost and stolen card management and replacement . currently , we are focusing our marketing efforts on corporate incentive and expense prepaid card products , in various market verticals including but not limited to general corporate expense , healthcare related markets including co-pay assistance , clinical trials and donor compensation , loyalty rewards and incentive cards . as part of our continuing platform expansion process , we evaluate current and emerging technologies for applicability to our existing and future software platform . to this end , we engage with various hardware and software vendors in evaluation of various infrastructure components . where appropriate , we use third-party technology components in the development of our software applications and service offerings . third-party software may be used for highly specialized business functions , which we may not be able to develop internally within time and budget constraints . our principal target markets for processing services include prepaid card issuers , retail and private-label issuers , small third-party processors , and small and mid-size financial institutions in the united states and in emerging international markets . we have devoted more extensive resources to sales and marketing activities as we have added essential personnel to our marketing and sales team . we sell our products directly to customers in the u.s. but may work with a small number of resellers and third parties in international markets to identify , sell and support targeted opportunities . we have also identified opportunities in the european union and are pursuing those opportunities . in 2018 , we plan to invest additional funds in technology improvements , sales and
| results of operations in 2017 we increased our focus on sales and new product development while continuing to invest in our core infrastructure , platform development and the addition of essential personnel in order to allow us to successfully scale our business . as a result , we experienced record annual revenue and continued profitability in 2017. fiscal years ended december 31 , 2017 and 2016 revenues for the year ended december 31 , 2017 were $ 15,234,091 , an increase of $ 4,817,419 compared to the year ended december 31 , 2016 , when revenues were $ 10,416,672. the increase in revenue approximating 46 % was primarily due to an increase in the number of new corporate incentive prepaid card products and growth within our existing corporate incentive prepaid card products . we believe we will continue to experience a similar revenue growth rate in 2018 as compared to 2017 , as a result of growth in our existing and the expected addition of new card products in various market verticals . cost of revenues for the year ended december 31 , 2017 were $ 8,534,272 , an increase of $ 2,655,034 compared to the year ended december 31 , 2016 , when cost of revenues were $ 5,879,238. cost of revenues constituted approximately 56 % and 56 % of total revenues in 2017 and 2016 , respectively . cost of revenues is comprised of transaction processing fees , data connectivity and data center expenses , network fees , bank fees , card production costs , customer service and program management expenses , application integration setup , and sales and commission expense .
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in the event temperatures during the typically warmer months are cooler than expected , or rainfall is greater than expected , the demand for water may decrease and our revenues may be adversely affected . we believe the effects of weather are short term and do not materially affect the execution of our strategic initiatives . our contract operations , service line protection plans and other services provide a revenue stream that is not affected by changes in weather patterns . while water sales are our primary source of revenues , we continue to seek growth opportunities to provide wastewater service in delaware and the surrounding areas . we also continue to explore and develop relationships with developers and municipalities in order to increase revenues from contract water and wastewater operations , wastewater management services , design , construction and engineering services . we plan to continue developing and expanding our contract operations and other services in a manner that complements our growth in water service to new customers . our anticipated growth in these areas is subject to changes in residential and commercial construction , which may be affected by interest rates , inflation and general housing and economic market conditions . we anticipate continued growth in our non-regulated division due to our water and sewer service line protection plans . water division overview artesian water , artesian water maryland and artesian water pennsylvania provide water service to residential , commercial , industrial , governmental , municipal and utility customers . increases in the number of customers contribute to increases , or help to offset any intermittent decreases in our operating revenue . the town of middletown , which is one of our municipal customers and is located in southern new castle county , delaware , has more than tripled in population since 2001 , and population growth in this area is expected to continue for some time as a result of ongoing and future residential , commercial and industrial construction . as population growth continues in middletown and other areas in delaware , we believe that the demand for water will increase , thereby contributing to an increase in our operating revenues . as of december 31 , 2015 , we had approximately 81,400 metered water customers in delaware , an increase of approximately 800 compared to december 31 , 2014. the number of metered water customers in maryland totaled 2,300 as of december 31 , 2015 , which remained consistent with 2014. the number of metered water customers in pennsylvania totaled 40 , which remained consistent with 2014. for the year ended december 31 , 2015 , approximately 7.6 billion gallons of water were distributed in our delaware systems and approximately 128 million gallons of water were distributed in our maryland systems . wastewater division overview artesian wastewater owns wastewater infrastructure and began providing wastewater services in delaware in july 2005. artesian wastewater maryland , which was incorporated on june 3 , 2008 , is able to provide regulated wastewater services in maryland . our wastewater customers are billed a flat monthly fee , which contributes to providing a revenue stream unaffected by weather . non-regulated division overview artesian utility provides contract water and wastewater operation services to private , municipal and governmental institutions . artesian utility currently operates wastewater treatment facilities for the town of middletown , in southern new castle county , or middletown , under a 20-year contract that expires in july 2022. the facilities include two wastewater treatment stations with capacities of up to approximately 2.5 mgd and 250,000 gallons per day , respectively . we also operate a wastewater disposal facility in middletown in order to support the 2.5 mgd wastewater facility . artesian utility has operated the wslp plan and the sslp plan since 2012. artesian resources initiated the wslp plan in march 2005. in november 2015 , a third plan was added , the islp plan . the wslp plan covers all parts , material and labor required to repair or replace participating customers ' leaking water service lines up to an annual limit . the wslp plan was expanded in the second quarter of 2008 to include maintenance or repair to customers ' sewer lines . the sslp plan covers all parts , material and labor required to repair or replace participating customers ' leaking or clogged sewer lines up to an annual limit . also , in the second quarter of 2010 , the wslp plan and sslp plan were extended to include non-utility customers of artesian resources . the islp plan was introduced in november 2015 to further enhance available coverage to include water and wastewater lines within the residence . as of december 31 , 2015 , approximately 19,300 , or 25.1 % , of our eligible water customers signed up for the wslp plan , approximately 14,700 , or 19.1 % , of our eligible customers signed up for the sslp plan and approximately 1,200 non-customer participants signed up for either the wslp plan or sslp plan . approximately 800 customers signed up under the islp plan in the first two months it was offered . artesian development is a real estate holding company that owns properties , including land zoned for office buildings , a water treatment plant and wastewater facility , as well as property for current operations , including an office facility in sussex county , delaware . the facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space . this facility allows all of our sussex county , delaware operations to be housed in one central location . artesian consulting engineers no longer offers development and architectural services to outside third parties . artesian will continue to provide design and engineering contract services through our artesian utility subsidiary . 14 strategic direction our strategy is to significantly increase customer growth , revenues , earnings and dividends by expanding our water , wastewater and service line protection plan services across the delmarva peninsula . story_separator_special_tag we record water service revenue , including amounts billed to customers on a cycle basis and unbilled amounts , based upon estimated usage from the date of the last meter reading to the end of the accounting period . as actual usage amounts are received , adjustments are made to the unbilled estimates in the next billing cycle based on the actual results . estimates are made on an individual customer basis , based on one of three methods ( the previous year 's consumption in the same period , the previous billing period 's consumption , or averaging ) and are adjusted to reflect current changes in water demand on a system-wide basis . while actual usage for individual customers may differ materially from the estimate , we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption , as the overall estimate has been adjusted to reflect any change in overall demand on the system for the period . we record accounts receivable at the invoiced amounts . the reserve for bad debts is adjusted based on the provision for bad debts , which is calculated as a percentage of total water sales . the company reviews the bad debt provision expense and the reserve for bad debts on a quarterly basis . account balances are written off against the reserve when it is probable the receivable will not be recovered . our regulated utilities record deferred regulatory assets under financial accounting standards board , or fasb , accounting standards codification , or asc , topic 980 , which are costs that may be recovered over various lengths of time as prescribed by the depsc , mdpsc and papuc . as the utility incurs certain costs , such as expenses related to rate case applications , a deferred regulatory asset is created . adjustments to these deferred regulatory assets are made when the depsc , mdpsc or papuc determines whether the expense is recoverable in rates , the length of time over which an expense is recoverable , or , because of changes in circumstances , whether a remaining balance of deferred expense is recoverable in rates charged to customers . adjustments to reflect changes in recoverability of certain deferred regulatory assets may have a significant effect on our financial results . our long-lived assets consist primarily of utility plant in service and regulatory assets . we review for impairment of our long-lived assets , including utility plant in service , in accordance with the requirements of fasb asc topic 360. we review regulatory assets for the continued application of fasb asc topic 980. our review determines whether there have been changes in circumstances or events that have occurred that require adjustments to the carrying value of these assets . adjustments to the carrying value of these assets would be made in instances where changes in circumstances or events indicate the carrying value of the asset may not be recoverabl e. the company believes there are no impairments in the carrying amounts of its long-lived assets or regulatory assets at december 31 , 2015 . 16 story_separator_special_tag increase in purchased power expense and an increase in payroll and employee benefit expenses . administration expenses increased $ 0.7 million , or 15.6 % , primarily due to rate case expenses being amortized when the temporary rates were first put into effect , in addition to an increase in consulting fees related to an accounting software update , an increase in telephone expenses due to service upgrades , an increase in auditing expenses primarily due to the timing of services performed by the auditors this year compared to last , an increase in legal fees and an increase in employee recruitment expenses . payroll and employee benefit costs increased $ 0.5 million , or 2.8 % , primarily as a result of an increase in wages and an increase in discretionary profit sharing of 1 % over last year . purchased power expense increased $ 0.2 million , or 8.2 % , primarily due to increased water pumpage and installation of a new ultra violet oxidation treatment facility . repair and maintenance costs decreased $ 0.2 million , or 5.0 % , primarily due to decreased fuel costs related to lower gas prices . non-utility expenses increased approximately $ 0.1 million , or 5.1 % , primarily the result of an increase in slp plan repairs . the increased repair costs are a result of increased slp plan participation . replace_table_token_6_th property and other taxes increased by $ 0.1 million , or 1.9 % , compared to the same period in 2014 , reflecting increases in tax rates charged for public schools in various areas where artesian holds property and an increase in utility plant subject to taxation . property taxes are assessed on land , buildings and certain utility plant , which include the footage and size of pipe , hydrants and wells primarily owned by artesian water . the ratio of operating expense , excluding depreciation and income taxes , to total operating revenues was 55.6 % for the year ended december 31 , 2015 , compared to 57.1 % for the year ended december 31 , 2014. depreciation and amortization expense increased $ 0.2 million , or 1.9 % , primarily due to continued investment in utility plant in service providing supply , treatment , storage and distribution of water . federal and state income tax expense increased $ 1.4 million , primarily due to higher pre-tax income for the year ended december 31 , 2015 , compared to the year ended december 31 , 2014. our total effective income tax rate , or etr , for 2015 and 2014 was 40.8 % and 40.1 % , respectively . other income , net allowance for funds used during construction , or afudc , decreased $ 80,000 due to decreased long-term construction activity subject to afudc . miscellaneous income decreased $ 52,000 , primarily due to an increase in charitable contributions this year compared to last year .
| results of operations 2015 compared to 2014 operating revenues revenues totaled $ 77.0 million for the year ended december 31 , 2015 , $ 4.6 million , or 6.3 % , above revenues for the year ended december 31 , 2014 of $ 72.5 million . water sales revenues increased $ 4.3 million , or 6.6 % , for the year ended december 31 , 2015 compared to 2014 , primarily as a result of tempora ry rate increas es that were placed into effect on june 10 , 2014 and november 13 , 2014. pursuant to the order issued by the depsc on october 6 , 2015 , the permanent rate increase was less than the amounts collected under previously approved temporary increases in rates . the excess amounts collected resulted in refunds to customers in the amount of $ 878,000 including interest . the amount was refunded in october 2015. since the final rate award was at a level not less than the amount previously reported as income , there was no material impact upon previously reported water sales revenue . the increase in water sales revenue is partially offset by a decrease in distribution system improvement charge , or dsic , revenue of approximately $ 0.3 million , as the dsic was reset to zero upon the implementation of the first step of temporary rate increases on june 10 , 2014. we realized 89.5 % of our total operating revenue for the year ended december 31 , 2015 from the sale of water as compared to 89.2 % for the year ended december 31 , 2014. other utility operating revenue increased approximately $ 46,000 , or 1.3 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the increase is primarily due to an increase in wastewater rates that was fully implemented in september 2014 and an increase in the number of wastewater customers , partially offset by a decrease in
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statements in this management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) that are not historical may be considered forward-looking statements within the meaning of the private securities litigation reform act of 1995. you should read the following md & a in conjunction with the audited consolidated financial statements and corresponding notes included elsewhere in this annual report . this md & a contains forward-looking statements . the matters discussed in these forward-looking statements are subject to risk , uncertainties , and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements . please see above โ risk factors โ and โ forward-looking statements โ for a discussion of the uncertainties , risks and assumptions associated with these statements . all amounts discussed are in millions of u.s. dollars , unless otherwise indicated . forward-looking statements this document contains both historical and forward-looking statements . forward-looking statements are not based on historical facts but instead reflect our expectations , estimates or projections concerning future results or events , including , without limitation , the future sales , gross margins , costs , earnings , cash flows , tax rates and performance of energizer . these statements generally can be identified by the use of forward-looking words or phrases such as `` believe , '' `` expect , '' `` expectation , '' `` anticipate , '' `` may , '' `` could , '' `` intend , '' `` belief , '' `` estimate , '' `` plan , '' `` target , '' `` predict , '' `` likely , '' `` will '' , `` should , '' `` forecast , '' `` outlook , '' or other similar words or phrases . these statements are not guarantees of performance and are inherently subject to known and unknown risks , uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements . we can not assure that any of our expectations , estimates or projections will be achieved . the forward-looking statements included in this document are only made as of the date of this document and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances . numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements , including , without limitation : market and economic conditions ; market trends in the categories in which we compete ; the success of new products and the ability to continually develop and market new products ; our ability to attract , retain and improve distribution with key customers ; our ability to continue planned advertising and other promotional spending ; our ability to timely execute strategic initiatives , including restructurings , and international go-to-market changes in a manner that will positively impact our financial condition and results of operations and does not disrupt our business operations ; the impact of strategic initiatives , including restructurings , on our relationships with employees , customers and vendors ; our ability to maintain and improve market share in the categories in which we operate despite heightened competitive pressure ; our ability to improve operations and realize cost savings ; the impact of foreign currency exchange rates and currency controls , as well as offsetting hedges ; the impact of raw materials and other commodity costs ; the impact of legislative changes or regulatory determinations or changes by federal , state and local , and foreign authorities , as well as the impact of potential changes to tax laws , policies and regulations ; costs and reputational damage associated with cyber-attacks or information security breaches or other events ; our ability to acquire and integrate businesses , and to realize the projected results of acquisitions , including our ability to achieve the anticipated cost savings , synergies , and other anticipated benefits ; the impact of advertising and product liability claims and other litigation ; and compliance with debt covenants and maintenance of credit ratings as well as the impact of interest and principal repayment of our existing and any future debt . 27 in addition , other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of any such forward-looking statements . the list of factors above is illustrative , but by no means exhaustive . all forward-looking statements should be evaluated with the understanding of their inherent uncertainty . additional risks and uncertainties include those described in the sections entitled โ risk factors โ and โ management 's discussion and analysis of financial condition and results of operations โ in this report , as updated from time to time in the company 's public filings . non-gaap financial measures the company reports its financial results in accordance with accounting principles generally accepted in the u.s. ( `` gaap '' ) . however , management believes that certain non-gaap financial measures provide users with additional meaningful comparisons to the corresponding historical or future period . these non-gaap financial measures exclude items that are not reflective of the company 's on-going operating performance , such as acquisition and integration costs and related items , settlement loss on pension plan termination , gains on sale of real estate , restructuring costs , spin-off related items , the one-time impact of the new u.s. tax legislation and income tax adjustments . in addition , these measures help investors to analyze year over year comparability when excluding currency fluctuations , acquisition activity as well as other company initiatives that are not on-going . we believe these non-gaap financial measures are an enhancement to assist investors in understanding our business and in performing analysis consistent with financial models developed by research analysts . investors should consider non-gaap measures in addition to , not as a substitute for , or superior to , the comparable gaap measures . story_separator_special_tag also included in the pre-tax acquisition costs were $ 41.9 of interest expense , ticking fees and debt commitment fees related to the spectrum battery acquisition that were recorded in interest expense . the company recorded a pre-tax gain in other items , net of $ 15.2 on foreign currency gains related to the spectrum battery acquisition during the twelve months ended september 30 , 2018. of the gain , $ 9.4 was related to contracts which were entered into in june 2018 and locked in the u.s. dollar ( usd ) value of the euro notes related to the spectrum battery acquisition . these contracts were terminated when the funds were placed into escrow on july 6 , 2018. the remaining $ 5.8 related to the movement in the escrowed usd restricted cash held in our european euro functional entity . the company also recorded interest income in other items , net of $ 5.2 earned on the restricted cash funds held in escrow associated with this acquisition during the twelve months ended september 30 , 2018. the company incurred $ 6.0 of tax withholding costs in the twelve months ending september 30 , 2018 , related to the cash movement to fund the spectrum battery acquisition , which were recorded in income tax provision . on november 15 , 2018 , energizer entered into a definitive acquisition agreement to acquire spectrum 's global auto care business , including armor all , stp , and a/c pro brands , for a purchase price of $ 1,250.0 , subject to certain purchase price adjustments ( spectrum auto care acquisition ) . the purchase price is comprised of an estimated $ 938 in cash and $ 312 of newly-issued equity to spectrum . energizer has obtained financing commitments to provide up to $ 1,100.0 in credit facilities . energizer may replace a portion of the committed financing with the sale of notes and up to $ 500.0 of additional equity or equity linked capital , subject to capital and other market conditions . the spectrum auto care acquisition is subject to customary closing conditions , including regulatory approvals and is expected to close in the second fiscal quarter of 2019. on july 1 , 2016 , the company completed an acquisition of a leading designer and marketer of automotive fragrance and appearance products ( 2016 auto care acquisition ) . we have completed the integration of this business . during the year ended september 30 , 2017 , the company incurred $ 8.4 of acquisition and integration costs . total acquisition and integration related costs associated with the 2016 auto care acquisition were $ 27.7 . 29 overview general energizer , through its operating subsidiaries , is one of the world 's largest manufacturers , marketers and distributors of household batteries , specialty batteries and lighting products , and a leading designer and marketer of automotive fragrance and appearance products . energizer manufactures , markets and or licenses one of the most extensive product portfolios of household batteries , specialty batteries and portable lights . energizer is the beneficiary of over 100 years of expertise in the battery and portable lighting products industries . its brand names , energizer and eveready , have worldwide recognition for innovation , quality and dependability , and are marketed and sold around the world . energizer has a long history of innovation within our categories . since our commercialization of the first dry-cell battery in 1893 and the first flashlight in 1899 , we have been committed to developing and marketing new products to meet evolving consumer needs and consistently advancing battery technology as the universe of devices powered by batteries has evolved . over the past 100+ years we have developed or brought to market : the first flashlight ; the first dry cell alkaline battery ; the first mercury-free alkaline battery ; and energizer ultimate lithiumยฎ , the world 's longest-lasting aa and aaa battery for high-tech devices . today , energizer offers batteries using many technologies including lithium , alkaline , carbon zinc , nickel metal hydride , zinc air , and silver oxide . these products are sold under the energizer and eveready brands in the performance , premium and price segments and include primary , rechargeable , specialty and hearing aid products . in addition , energizer has an extensive line of lighting products designed to meet a breadth of consumer needs . we distribute , market , and or license lighting products including headlights , lanterns , children 's lights and area lights . in addition to the energizer and eveready brands , we market our flashlights under the hard case , dolphin , and weatherready sub-brands . through our global supply chain , global manufacturing footprint and seasoned commercial organization , we seek to meet diverse customer demands within each of the markets we serve . energizer distributes its portfolio of batteries , lighting and auto care products through a global sales force and global distributor model . we sell our products in multiple retail and business-to-business channels , including : mass merchandisers , club , electronics , food , home improvement , dollar store , auto , drug , hardware , e-commerce , convenience , sporting goods , hobby/craft , office , industrial , medical and catalog . in recent years , we have also focused on reducing our costs and improving our cash flow from operations . our restructuring efforts and working capital initiative have resulted in substantial cost reductions and improved cash flows . these initiatives , coupled with our strong product margins over recent years , have significantly contributed to our results of operations and working capital position . we use the energizer name and logo as our trademark as well as those of our subsidiaries . product names appearing throughout are trademarks of energizer .
| financial results net earnings for the fiscal year ended september 30 , 2018 was $ 93.5 , or $ 1.52 per diluted share , compared to net earnings of $ 201.5 , or $ 3.22 per diluted share , and net earnings of $ 127.7 , or $ 2.04 per diluted share , for the fiscal years ended september 30 , 2017 and 2016 , respectively . earnings before income taxes , net earnings and diluted earnings per share ( eps ) for the time periods presented were impacted by certain items related to acquisition and integration costs , settlement loss on pension plan termination , gain on sale of real estate , restructuring costs , the spin-off transaction , the one-time impact of the new u.s. tax legislation , and income tax adjustments as described in the tables below . the impact of these items on reported earnings before income taxes , reported net earnings and reported eps are provided below as a reconciliation to arrive at respective non-gaap measures . see disclosure under non-gaap financial measures above . replace_table_token_6_th ( 1 ) includes pre-tax costs of $ 0.2 recorded in cost of products sold , $ 62.9 recorded in sg & a , $ 41.9 recorded in interest expense and $ 20.4 in other items , net for the year ended september 30 , 2018. includes pre-tax costs of $ 1.1 recorded in cost of products sold , $ 4.0 recorded in sg & a , and $ 3.3 in other items , net for the year ended september 30 , 2017. includes pre-tax costs of $ 8.1 recorded in cost of products sold , $ 10.0 recorded in sg & a and $ 1.2 recorded in interest expense for the year ended september 30 , 2016 . ( 2 ) this represents the $ 6.0 of tax withholding expense related to cash movement to fund the spectrum battery acquisition for the twelve months ended september 30 , 2018 recorded in income tax provision .
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hotel and other receivables are recognized on the consolidated balance sheets when the company has provided a good or service to the customer and story_separator_special_tag the following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements , the related notes included thereto , and item 1a. , `` risk factors '' , all of which appear elsewhere in this annual report on form 10-k. overview we are a self-advised and self-administered maryland reit that owns primarily premium-branded , high-margin , focused-service and compact full-service hotels . our hotels are concentrated in markets that we believe exhibit multiple demand generators and attractive long-term growth prospects . we believe premium-branded , focused-service and compact full-service hotels with these characteristics generate high levels of revpar , strong operating margins and attractive returns . focused-service and compact full-service hotels typically generate most of their revenue from room rentals , have limited food and beverage outlets and meeting space and require fewer employees than traditional full-service hotels . we believe these types of hotels have the potential to generate attractive returns relative to other types of hotels due to their ability to achieve revpar levels at or close to those achieved by traditional full-service hotels , while achieving higher profit margins due to their more efficient operating model and less volatile cash flows . as we look at factors that could impact our business , we find that the consumer is generally in good financial health , job creation remains positive and an increase in wages is adding to consumers ' disposable income . while geopolitical and global economic uncertainty still exists , we remain cautiously optimistic that positive employment trends , high consumer confidence and generally stable corporate sentiment will continue to drive moderate economic expansion in the u.s. and generate positive lodging demand and revpar growth for the industry . however , in light of new supply , revpar growth is likely to be moderate . low unemployment rates can impact the cost of labor through higher wages and benefits , which negatively impact our financial and operating results . we continue to follow a prudent and disciplined capital allocation strategy . we will continue to look for and weigh all possible investment decisions against the highest and best returns for our shareholders over the long term . we believe that our cash on hand and expected access to capital ( including availability under our revolver ) along with our senior management team 's experience , extensive industry relationships and asset management expertise , will enable us to pursue investment opportunities , including without limitation , acquisitions , brand conversions , green initiatives and space configuration opportunities , that generate additional internal and external growth . 36 table of contents our customers the majority of our hotels consist of premium-branded , focused-service and compact full-service hotels . as a result of this property profile , the majority of our customers are transient in nature . transient business typically represents individual business or leisure travelers . the majority of our hotels are located in business districts within major metropolitan areas . accordingly , business travelers represent the majority of the transient demand at our hotels . as a result , macroeconomic factors impacting business travel have a greater effect on our business than factors impacting leisure travel . group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business . group business may or may not use the meeting space at any given hotel . given the limited meeting space at the majority of our hotels , group business that utilizes meeting space represents a small component of our customer base . a number of our hotel properties are affiliated with brands marketed toward extended-stay customers . extended-stay customers are generally defined as those staying five nights or longer . key indicators of operating performance we use a variety of operating , financial and other information to evaluate the operating performance of our business . these key indicators include financial information that is prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) as well as other financial measures that are non-gaap measures . in addition , we use other information that may not be financial in nature , including industry standard statistical information and comparative data . we use this information to measure the operating performance of our individual hotels , groups of hotels and or business as a whole . we also use these metrics to evaluate the hotels in our portfolio and potential acquisition opportunities to determine each hotel 's contribution to cash flow and its potential to provide attractive long-term total returns . the key indicators include : average daily rate โ adr represents the total hotel room revenues divided by the total number of rooms sold in a given period . adr measures the average room price attained by a hotel and adr trends provide useful information concerning the pricing environment and the nature of the customer base at a hotel or group of hotels . we use adr to assess the pricing levels that we are able to generate , as changes in rates have a greater impact on operating margins and profitability than changes in occupancy . occupancy โ occupancy represents the total number of hotel rooms sold in a given period divided by the total number of rooms available . occupancy measures the utilization of our hotels ' available capacity . we use occupancy to measure demand at a specific hotel or group of hotels in a given period . additionally , occupancy levels help us determine the achievable adr levels . revenue per available room โ revpar is the product of adr and occupancy . revpar does not include non-room revenues , such as food and beverage revenue or other revenue . we use revpar to identify trend information with respect to room revenues from comparable hotel properties and to evaluate hotel performance on a regional basis . story_separator_special_tag โฆ other operating expense โ these expenses include labor and other costs associated with the sources of our other revenue , as well as the labor and other costs associated with the administrative departments , sales and marketing , repairs and maintenance , and utility costs at the hotel properties . most categories of variable operating expenses , including labor costs , fluctuate with changes in occupancy . increases in occupancy are accompanied by increases in most categories of variable operating expenses , while increases in adr typically only result in increases in certain categories of operating costs and expenses , such as management fees , franchise fees , travel 38 table of contents agency commissions , and credit card processing fees , all of which are based on hotel revenues . therefore , changes in adr have a more significant impact on operating margins than changes in occupancy . 2019 significant activities our significant activities reflect our commitment to creating long-term shareholder value through enhancing our hotel portfolio 's quality , recycling capital and maintaining a prudent capital structure . during the year ended december 31 , 2019 , the following significant activities took place : in february 2019 , we redeemed in full the knickerbocker preferred equity under the eb-5 immigrant investor program for $ 45.6 million . in april 2019 , we refinanced approximately $ 381.0 million of secured debt . in june 2019 , we sold 21 non-core hotel properties for a total sales price of approximately $ 311.9 million . in june 2019 , we sold two non-core resort hotel properties , real estate , and a condominium management business that were owned by unconsolidated joint ventures for a total sales price of approximately $ 156.0 million . in august 2019 , we sold 18 non-core hotel properties for a total sales price of approximately $ 175.4 million . in september 2019 , we sold a non-core hotel property for a total sales price of approximately $ 12.7 million . in september 2019 , we entered into an agreement with wyndham to terminate the management agreements and the related net operating income guarantee , effective december 31 , 2019. in november 2019 , we sold five non-core hotel properties for a total sales price of approximately $ 67.6 million . in december 2019 , we modified one of our $ 400.0 million term loans and our $ 600.0 million revolver . we improved the financial covenants , extended the maturity on the $ 400.0 million term loan to may 2025 , extended the maturity on the revolver to may 2024 exclusive of a one-year extension option , and improved the overall pricing . during 2019 , we repurchased and retired 4.6 million common shares for approximately $ 77.8 million at an average price per share of $ 17.01. as of december 31 , 2019 , we had $ 182.5 million of remaining capacity under the share repurchase program . we declared cash dividends of $ 1.95 on each series a cumulative convertible preferred share for the year . we declared cash dividends of $ 1.32 per common share for the year . story_separator_special_tag decreased $ 120.0 million , or 11.1 % , to $ 957.2 million for the year ended december 31 , 2019 , from $ 1.08 billion for the year ended december 31 , 2018 . the decrease was due to a $ 139.2 million decrease in property operating expenses attributable to the non-comparable properties , which was partially offset by a $ 19.2 million increase in property operating expenses attributable to the comparable properties . 41 table of contents the components of our property operating expenses for the comparable properties owned at december 31 , 2019 and 2018 , respectively , were as follows ( in thousands ) : replace_table_token_8_th the increase in property operating expenses attributable to the comparable properties was due to an increase in room expense , food and beverage expense , and other operating expense , partially offset by a decrease in management and franchise fee expense . room and food and beverage expense increased primarily as a result of higher labor costs . other operating expense increased due to higher labor costs , administrative and general expense , sales and marketing expense and repairs and maintenance expense . management and franchise fee expense decreased primarily as a result of an increase in the amount recognized under the wyndham net operating income guarantee during the year ended december 31 , 2019 . depreciation and amortization depreciation and amortization expense decreased $ 30.1 million , or 12.4 % , to $ 211.6 million for the year ended december 31 , 2019 , from $ 241.6 million for the year ended december 31 , 2018 . the decrease was a result of a $ 32.3 million decrease in depreciation and amortization expense attributable to the non-comparable properties , which was partially offset by a $ 2.3 million increase in depreciation and amortization expense attributable to the comparable properties . property tax , insurance and other property tax , insurance and other expense decreased $ 15.8 million , or 11.7 % , to $ 119.3 million for the year ended december 31 , 2019 , from $ 135.1 million for the year ended december 31 , 2018 . the decrease was attributable to a $ 17.1 million decrease in property tax , insurance and other expense attributable to the non-comparable properties , which was partially offset by a $ 1.3 million increase in property tax , insurance and other expense attributable to the comparable properties . impairment loss during the year ended december 31 , 2019 , the company recorded an impairment loss of $ 13.5 million related to two hotel properties . the impairment was due to adverse changes in the operating performance of the hotels . general and administrative general and administrative expense decreased $ 3.9 million , or 8.0 % , to $ 45.3 million for the year ended december 31 , 2019 , from $ 49.2 million for the year ended december 31 , 2018 .
| results of operations at december 31 , 2019 and 2018 , we owned 104 and 151 hotel properties , respectively . based on when a hotel property is acquired , sold , or closed for renovation , the operating results for certain hotel properties are not comparable for the years ended december 31 , 2019 , and 2018 . for the comparison between the years ended december 31 , 2019 and 2018 , the non-comparable properties include 54 hotels that were sold between january 1 , 2018 and december 31 , 2019 . for similar operating and financial data and discussion of our results for the year ended december 31 , 2018 compared to our results for the year ended december 31 , 2017 , refer to item 7 , โ management 's discussion and analysis of financial condition and results of operations โ under part ii of our annual report on form 10-k for the year ended december 31 , 2018 , which was filed with the sec on march 1 , 2019 and is incorporated herein by reference . 39 table of contents comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 replace_table_token_6_th 40 table of contents revenues total revenues decreased $ 195.0 million , or 11.1 % , to $ 1.57 billion for the year ended december 31 , 2019 , from $ 1.76 billion for the year ended december 31 , 2018 . the decrease was a result of a $ 156.0 million decrease in room revenue , a $ 28.0 million decrease in food and beverage revenue , and a $ 11.1 million decrease in other revenue . room revenue room revenue decreased $ 156.0 million , or 10.6 % , to $ 1.32 billion for the year ended december 31 , 2019 from $ 1.47 billion for the year ended december 31 , 2018 . the decrease was a result of a $ 164.1
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as further discussed in note 4 , `` details of selected balance sheet accounts , story_separator_special_tag management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing in `` part ii item 8 financial statements and supplementary data . '' this section of this annual report on form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this annual report on form 10-k can be found in `` part ii , item 7 management 's discussion and analysis of financial condition and results of operations '' of our annual report on form 10-k for the fiscal year ended december 31 , 2019 . this discussion contains `` forward-looking statements '' within the meaning of section 27a of the securities act and section 21e of the exchange act that are based on our current expectations , estimates and projections about our business operations . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of numerous factors , including the known material factors set forth in `` part i , item 1a . risk factors . '' you should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this annual report on form 10โk in order to understand factors , such as business combinations , charges and credit and financing transactions , which may impact comparability from period to period . we provide a broad range of products and services to our customers through our three business segments . demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry , particularly our customers ' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves . our customers ' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices , economic growth , commodity demand and estimates of resource production . as a result , demand for our products and services is largely sensitive to future expectations with respect to crude oil and natural gas prices . recent developments disruptions caused by the covid-19 pandemic and measures taken to prevent its spread or mitigate its effects both domestically and international have impacted our results of operations . in march of 2020 , the spot price of wti crude oil declined over 50 % in response to actual and forecasted reductions in global demand for crude oil due to the covid-19 pandemic coupled with announcements by saudi arabia and russia of plans to increase crude oil production in an effort to protect market share . opec , its members , and other state-controlled oil companies ultimately agreed to reduce production following the crude oil price collapse and many operators shut-in production in the united states in an effort to address rapidly collapsing demand . while crude oil prices have recovered some of their losses since reaching record low levels in april of 2020 , the spot price of brent and wti crude oil averaged $ 42 and $ 39 per barrel during 2020 โ down 35 % and 31 % , respectively , from their comparable 2019 averages . the ultimate magnitude and duration of the covid-19 pandemic , the timing and extent of governmental restrictions placing limitations on the mobility and ability to work of the worldwide population , and the related impact on crude oil prices , the global economy and capital markets remains uncertain . while it is difficult to assess or predict with precision the broad future effect of this pandemic on the global economy , the energy industry or us , we expect that the covid-19 pandemic will continue to adversely affect demand for our products and services in 2021. demand for most of our products and services depends substantially on the level of capital expenditures invested in the oil and natural gas industry , which reached 15-year lows in 2020. the decline in crude oil prices , coupled with higher crude oil inventory levels in 2020 , caused rapid reductions in most of our customers ' drilling , completion and production activities and their related spending on products and services , particularly those supporting activities in the u.s. shale play regions . these conditions have and may continue to result in a material adverse impact on certain customers ' liquidity and financial position , leading to further spending reductions , delays in the collection of amounts owed and , in certain instances , non-payments of amounts owed . additionally , future actions among opec members and other oil producing nations as to production levels and prices could result in further declines in crude oil prices , which would prove detrimental , particularly given the weak demand environment for crude oil and associated products caused by the ongoing covid-19 pandemic . following the unprecedented events commencing in march 2020 , we immediately began aggressive implementation of cost reduction initiatives in an effort to reduce our expenditures to protect the financial health of our company , including the following : reduced headcount by 32 % between december 31 , 2019 and december 31 , 2020 ; reduced capital expenditures in 2020 by 77 % compared to 2019 ; reduced annual short-term and long-term incentive awards ; and consolidated and closed certain facilities . -35- given the covid-19 induced economic destruction , we assessed the carrying value of goodwill and other assets based on the industry outlook regarding overall demand for and pricing of our products and services . story_separator_special_tag our downhole technologies segment , comprised of the geodynamics business we acquired in january 2018 , provides oil and gas perforation systems , downhole tools and services in support of completion , intervention , wireline and well abandonment operations . this segment designs , manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies . product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools . this expertise has led to the optimization of perforation hole size , depth , and quality of tunnels , which are key factors for maximizing the effectiveness of hydraulic fracturing . additional offerings include proprietary toe valve and frac plug products , which are focused on zonal isolation for hydraulic fracturing of horizontal wells , and a broad range of consumable products , such as setting tools and bridge plugs , that are used in completion , intervention and decommissioning applications . demand drivers for the downhole technologies segment include continued trends toward longer lateral lengths , increased frac stages and more perforation clusters to target increased unconventional well productivity , which requires ongoing technological and product developments . demand for our completion products and services within each of our segments is highly correlated to changes in the total number of wells drilled in the united states , total footage drilled , the number of drilled wells that are completed and changes in the drilling rig count . the following table sets forth a summary of the average u.s. drilling rig count , as measured by baker hughes , for the periods indicated . replace_table_token_6_th the u.s. energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in u.s. shale plays utilizing horizontal drilling and completion techniques . as of december 31 , 2020 , oil-directed drilling accounted for 76 % of the total u.s. rig count โ with the balance largely natural gas related . due to the unprecedented decline in crude oil prices in march and april of 2020 , drilling and completion activity in the united states collapsed โ with the active drilling rig count declining 52 % from march 31 , 2020 to 351 rigs working as of december 31 , 2020. as a result , the average u.s. rig count in 2020 decreased by 510 rigs , or 54 % , from the 2019 average . -37- our offshore/manufactured products segment provides technology-driven , highly-engineered products and services for offshore oil and natural gas production systems and facilities , as well as certain products and services to the offshore and land-based drilling and completion markets . this segment is particularly influenced by global spending on deepwater drilling and production , which is primarily driven by our customers ' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices . approximately 49 % of offshore/manufactured products sales in 2020 were driven by our customers ' capital spending for products used in exploratory and developmental drilling , greenfield offshore production infrastructure , and subsea pipeline tie-in and repair system applications , along with upgraded equipment for existing offshore drilling rigs and other vessels ( referred to herein as `` project-driven products '' ) . deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans . such projects are generally undertaken by larger exploration , field development and production companies ( primarily international oil companies ( `` iocs '' ) and state-run national oil companies ( `` nocs '' ) ) using relatively conservative crude oil and natural gas pricing assumptions . given the long lead times associated with field development , we believe some of these deepwater projects , once approved for development , are generally less susceptible to short-term fluctuations in the price of crude oil and natural gas . customers have focused on improving the economics of major deepwater projects at lower commodity breakeven prices by re-bidding projects , identifying advancements in technology , and reducing overall project costs through equipment standardization . bidding and quoting activity , along with orders from customers , for deepwater projects improved in 2019 from 2018 levels . however , with reduced market visibility given the significant decline in crude oil prices , which began in march of 2020 , and associated reductions in customer spending , the segment 's 2020 bookings were lower than the levels achieved in 2019. backlog reported by our offshore/manufactured products segment decreased from $ 280 million as of december 31 , 2019 to $ 219 million as of december 31 , 2020. the following table sets forth backlog reported by our offshore/manufactured products segment as of the dates indicated ( in millions ) . replace_table_token_7_th reduced demand for our products and services , coupled with a reduction in the prices we are able to charge our customers for our products and services , has adversely affected our results of operations , cash flows and financial position . while the current pricing environment for crude oil has improved from the levels experienced in 2020 , if prices were to decline , our customers may be required to further reduce their capital expenditures , causing additional declines in the demand for , and prices of , our products and services , which would adversely affect our results of operations , cash flows and financial position . we use a variety of domestically produced and imported raw materials and component products , including steel , in manufacturing our products . the united states has imposed tariffs on a variety of imported products , including steel and aluminum . in response to the u.s. tariffs on steel and aluminum , the european union and several other countries , including canada and china , have threatened and or imposed retaliatory tariffs . the effect of these tariffs and the application and interpretation of existing trade agreements and customs , anti-dumping and countervailing duty regulations continue to evolve , and we continue to monitor these matters .
| consolidated results of operations we manage and measure our business performance in three operating segments : well site services , downhole technologies and offshore/manufactured products . selected financial information by business segment for the years ended december 31 , 2020 and 2019 follows ( in thousands ) : replace_table_token_8_th ( 1 ) in late 2019 , we reduced the scope of our drilling services business due to weakness in customer demand for vertical drilling rigs in the u.s. , resulting in a non-cash fixed asset impairment charge of $ 33.7 million in 2019. operating loss included a non-cash fixed asset impairment charge of $ 5.2 million in 2020 . ( 2 ) operating loss in 2020 included a non-cash inventory impairment charge of $ 9.0 million , a non-cash goodwill impairment charge of $ 127.1 million and a non-cash fixed asset impairment charge of $ 3.6 million . ( 3 ) operating loss in 2020 and 2019 included non-cash goodwill impairment charges of $ 192.5 million and $ 165.0 million , respectively . operating loss in 2020 also included a non-cash inventory impairment charge of $ 5.9 million and other non-cash asset impairment charges of $ 3.6 million . ( 4 ) operating loss in 2020 included a non-cash inventory impairment charge of $ 16.2 million and a non-cash goodwill impairment charge of $ 86.5 million . ( 5 ) operating loss included non-cash asset impairment charges totaling $ 449.7 million and $ 198.7 million in 2020 and 2019 , respectively . see note 3 , `` asset impairments and other charges , '' note 4 , `` details of selected balance sheet accounts , '' note 6 , `` goodwill and other intangible assets , '' and note 8 , `` operating leases , '' to the consolidated financial statements included in this annual report on form 10-k for further discussion of these and other charges recognized in 2020 and 2019 .
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bluerock special opportunity + income fund iii , llc ( โ soif iii โ ) , is managed and controlled by a story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of bluerock multifamily growth reit , inc. , and the notes thereto . as used herein , the terms โ we , โ โ our โ and โ us โ refer to bluerock multifamily growth reit , inc. , a maryland corporation , and , as required by context , bluerock multifamily holdings , l.p. , a delaware limited partnership , which we refer to as our โ operating partnership , โ and to their subsidiaries . also see โ forward-looking statements โ preceding part i. overview we were incorporated as a maryland corporation on july 25 , 2008 , and have elected to be taxed , and currently qualify , as a reit for federal income tax purposes . as of may 20 , 2010 , we had received gross offering proceeds sufficient to satisfy the minimum offering amount . accordingly , we broke escrow with respect to subscriptions received from all states in which our shares are currently being offered . as of the year ended december 31 , 2012 , we raised $ 21,111,894 in gross proceeds . a primary use of funds was the pay down of affiliate notes and short term debt of approximately $ 3,834,578. our total equity increased $ 11,422,846 from a deficit of $ 384,885 as of december 31 , 2011 to equity of $ 11,037,961 as of december 31 , 2012. the increase in our total equity is primarily attributable to the $ 21,111,894 in gross proceeds raised along with a $ 2,153,749 gain on the sale of meadowmont and a $ 12,170,005 gain on business combinations , not including any acquisition or disposition costs . as of march 4 , 2013 , we had accepted aggregate gross offering proceeds of $ 21,372,649. we will experience a relative increase in liquidity as we accept additional subscriptions for shares and a relative decrease in liquidity as we spend net offering proceeds in connection with the acquisition , development and operation of our company . we intend to make reserve allocations as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of properties we acquire . if reserves and any other available income become insufficient to cover our operating expenses and liabilities , it may be necessary to obtain additional funds by borrowing , refinancing properties or liquidating our investment in one or more properties . there is no assurance that such funds will be available or , if available , that the terms will be acceptable to us . we have elected to be taxed as a reit under sections 856 through 860 of the internal revenue code , as amended , and have qualified beginning with our taxable year ended december 31 , 2010. in order to qualify as a reit , we must distribute to our stockholders each calendar year at least 90 % of our taxable income ( excluding net capital gains ) . if we qualify as a reit for federal income tax purposes , we generally will not be subject to federal income tax on income that we distribute to our stockholders . if we fail to qualify as a reit in any taxable year , we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify as a reit for four years following the year in which our qualification is denied . such an event could materially and adversely affect our net income and results of operations . we intend to continue to organize and operate in such a manner as to remain qualified as a reit . our investment strategy we intend to achieve our investment objectives by acquiring a diverse portfolio of real estate . we plan to diversify our portfolio by investment type , size , property location and risk with the goal of attaining a portfolio of real estate that will generate attractive returns for our investors with the potential for capital appreciation . our targeted portfolio allocation is as follows : ยท class a multifamily . we intend to allocate approximately 55 % of our portfolio to investments in acquiring and developing well-located , primarily class a apartment properties with strong and stable cash flows , typically located in our demographically attractive target regions with relatively high expectations of rent growth . as appropriate , we intend to implement our advisor 's growth strategy at these properties , which we anticipate will create sustainable long-term increases in property value and generate attractive returns for our investors by , among other benefits , generating higher rental revenue and reducing resident turnover . 14 ยท value-added residential . we intend to allocate approximately 45 % of our portfolio to investments in well-located residential properties that could offer the potential for capital appreciation through repositioning , renovation or redevelopment . in addition , we will seek to acquire properties available at opportunistic prices from distressed or time-constrained sellers in need of liquidity . as appropriate , we intend to implement our advisor 's growth strategy at these properties as well . although we intend to diversify our portfolio by geographic location , we expect to focus on four demographically attractive regions which we believe provide high potential for attractive returns . these regions include : florida/georgia ; tennessee ; north/south carolina ; and texas . within these states , we will seek to focus on submarkets where affiliates of bluerock have established relationships , transaction history , market knowledge and potential access to โ โ off-market '' investments , as well as an ability to direct property management and leasing operations efficiently . story_separator_special_tag we do not , however , reimburse our advisor for personnel costs in connection with services for which our advisor receives acquisition , asset management or disposition fees or for personnel costs related to the salaries of our executive officers . from january 1 , 2009 through march 31 , 2011 , our advisor and its affiliates incurred $ 677,415. our charter limits our total operating expenses at the end of the four preceding fiscal quarters to the greater of ( a ) 2 % of our average invested assets , or ( b ) 25 % of our net income determined ( 1 ) without reductions for any additions to reserves for depreciation , bad debts or other similar non-cash reserves and ( 2 ) excluding any gain from the sale of our assets for the period , notwithstanding the above limitation , we may reimburse amounts in excess of the limitation if a majority or our independent directors determines that such excess amounts were justified based on unusual and non-recurring factors . due to the limitations discussed above and because operating expenses incurred directly by us have exceeded the 2 % threshold , the amount due to the advisor had not been recorded in the financial statements as of december 31 , 2010. further , $ 973,607 had been recorded as a receivable from the advisor as of december 31 , 2010 for the excess operating expenses incurred directly by us over the 2 % threshold . our board of directors , including all of our independent directors , reviewed our total operating expenses for the four fiscal quarters ended december 31 , 2009 ( and the four fiscal quarters ended each quarter after ) and an estimate of our total operating expenses for the four fiscal quarters to end march 31 , 2011 and unanimously determined the excess amounts to be justified because of the costs of operating a public company in our early stages of operating . upon approval of these costs on march 22 , 2011 , $ 1,646,818 of total costs were expensed and $ 677,415 became a liability to us , payable to our advisor and its affiliates , which was then paid in the third quarter of 2012. the board of directors has approved such expenses , all 2012 and 2011 operating expenses have been expensed as incurred . as of december 31 , 2012 , $ 677,415 has been paid to the advisor . 17 liquidity and capital resources pursuant to our initial public offering , we are offering a maximum of $ 1.0 billion in shares of our common stock in our primary offering , at an offering price of $ 10.00 per share , with discounts available for certain categories of purchasers . we also are offering up to $ 285.0 million in shares pursuant to our distribution reinvestment plan at $ 9.50 per share . on september 20 , 2012 , we filed a registration statement on form s-11 with the sec , to register $ 500.0 million in shares of our common stock ( exclusive of shares to be sold pursuant to the company 's distribution reinvestment program ) at a price of $ 10.00 per share ( subject to certain volume discounts described in the prospectus ) , and $ 50.0 million in shares of its common stock to be sold pursuant to our distribution reinvestment plan at $ 9.50 per share , pursuant to our follow-on offering . as permitted by rule 415 under the securities act , we will now continue the initial public offering until the earlier of april 13 , 2013 or the date the sec declares the registration statement for the follow-on offering effective . our principal demands for cash will be for acquisition costs , including the purchase price of any properties we acquire , and construction , renovation and development costs and the payment of our operating and administrative expenses , continuing debt service obligations and distributions to our stockholders . generally , we will fund our acquisitions from the net proceeds of our initial public offering . we intend to acquire our assets with cash and mortgage or other debt , but we may acquire assets free and clear of permanent mortgage or other indebtedness by paying the entire purchase price for the asset in cash or in units of limited partnership interest in our operating partnership . due to the delay between the sale of our shares and our acquisitions , there may be a delay in the benefits to our stockholders , if any , of returns generated from our investments . we generally expect to meet our short-term liquidity requirements , such as our operating and administrative expenses , continuing debt service obligations and the payment of distributions , through net cash provided by operations and net proceeds raised in our public offering . operating cash flow is expected to increase as additional investments are added to our portfolio . we are continuing to raise proceeds in our ongoing initial public offering ; however , we suspended our offering on november 17 , 2010 in order to restate our financial statements and selling efforts did not recommence until march 2 , 2011. in order to fund general working capital while our offering was suspended , on january 20 , 2011 , we entered a loan agreement for a line of credit with an affiliate of our sponsor that permits us to borrow up to $ 500,000. on january 20 , 2012 , the maturity date of the line of credit was extended to july 20 , 2012. we borrowed and paid back in full $ 150,000 during 2011 and did not borrow further from the line prior to its maturity date . our current corporate operating expenses exceed the cash flow received from our investments in real estate joint ventures .
| results of operations the sec declared the registration statement for our best efforts initial public offering effective on october 15 , 2009. on july 5 , 2011 , we provided our former dealer manager , select capital , with notice that we consider the dealer manager agreement with select capital entered into on october 15 , 2009 to have been terminated , effective immediately . in addition , on july 5 , 2011 , we entered into a dealer manager agreement with bluerock capital markets , our affiliate , pursuant to which it assumed dealer manager responsibilities for the remainder of the initial public offering . the dealer manager is responsible for marketing our shares in the initial public offering and is expected to provide these services in our follow-on offering . our management is not aware of any material trends or uncertainties , favorable or unfavorable , other than national economic conditions affecting our targeted portfolio , the apartment housing industry and real estate generally , which may be reasonably anticipated to have a material impact on the revenues or incomes to be derived from the operation of our assets . our results of operations for the year ended december 31 , 2012 are not indicative of those expected in future periods as we are still in our organizational and development stage . note 3 , โ business combinations and sale of joint venture equity interests , โ to our notes to the consolidated financial statements provides a discussion of the various purchases and sales of joint venture equity interests during the year . these transactions have resulted in material changes to the presentation of our financial statements .
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our high school park and recreation business unit primarily consists of sales of scoring systems , galaxy ยฎ displays and video display systems to primary and secondary education facilities and resellers ( primarily sign companies ) . our transportation business unit primarily consists of sales of intelligent transportation system dynamic messaging signs for road management , mass transit , and aviation applications and other electronic signage for advertising and way-finding needs , which includes our vanguard ยฎ and galaxy ยฎ product lines and other intelligent transportation systems dynamic message signs , to governmental story_separator_special_tag the following discussion provides our highlights and commentary related to factors impacting our financial conditions and further describes the results of operations . the most significant risks and uncertainties are discussed in `` item 1a . risk factors . '' 18 this discussion should be read in conjunction with the accompanying consolidated financial statements and notes to the consolidated financial statements included in this form 10-k. executive overview our mission is to be the world leader at informing and entertaining audiences through dynamic audio-visual communications systems . we measure our success through estimated market share based on estimated market demand for digital displays and generating profits over the long-term . our success is contingent on the depth and quality of our products , including related control systems , the depth of our service offerings and our technology serving these market demands . these qualities are important for our long-term success because our products have finite lifetimes and we strive to win replacement business from existing customers . increases in user adoption , the acceptance of a variety of digital solutions , and the decline of digital solution pricing over the years has increased the size of the global market . with this positive demand , strong competition exists across all of our business units , which causes margin constraints . projects with multimillion-dollar revenue potential also attract competition , which generally reduces profitability . we organize around customer segments and geographic regions as further described in `` note 2. segment reporting `` of the notes to our consolidated financial statements included in this form 10-k. each business segment also has unique key growth drivers and challenges . commercial business unit : over the long-term , we believe growth in the commercial business unit will result from a number of factors , including : standard display product market growth due to market adoption and lower product costs , which drive marketplace expansion . standard display products are used to attract or communicate with customers and potential customers of retail , commercial , and other establishments . pricing and economic conditions are the principal factors that impact our success in this business unit . we utilize a reseller network to distribute our standard products . national accounts standard display market opportunities due to customers ' desire to communicate their message , advertising and content consistently across the country . increased demand is possible from retailers , quick serve restaurants , petroleum businesses , and other nationwide organizations . increasing interest in spectaculars , which include very large and sometimes highly customized displays as part of entertainment venues such as casinos , shopping centers , cruise ships and times square type locations . dynamic messaging systems demand growth due to market adoption and marketplace expansion . the use of architectural lighting products for commercial buildings , which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building . the continued deployment of digital billboards as ooh companies continue developing new sites and replacing digital billboards which are reaching end of life . this is dependent on there being no adverse changes in the digital billboard regulatory environment restricting future deployments of billboards , as well as maintaining our current market share of the business concentrated in a few large ooh companies . replacement cycles within each of these areas . live events business unit : over the long-term , we believe growth in the live events business unit will result from a number of factors , including : facilities spending more on larger display systems to enhance the game-day and event experience for attendees . lower product costs , driving an expansion of the marketplace . our product and service offerings , which remain the most integrated and comprehensive offerings in the industry . the competitive nature of sports teams , which strive to out-perform their competitors with display systems . the desire for high-definition video displays , which typically drives larger displays or higher resolution displays , both of which increase the average transaction size . dynamic messaging systems needs throughout a sports facility . replacement cycles within each of these areas . high school park and recreation business unit : over the long-term , we believe growth in the high school park and recreation business unit will result from a number of factors , including : increased demand for video systems in high schools as school districts realize the revenue generating potential of these displays versus traditional scoreboards . increased demand for different types of displays and dynamic messaging systems , such as message centers at schools to communicate to students , parents and the broader community . the use of more sophisticated displays in school athletic facilities , such as large integrated video systems . 19 transportation business unit : over the long-term , we believe growth in the transportation business unit will result from increasing applications and acceptance of electronic displays to manage transportation systems , including roadway , airport , parking , transit and other applications . effective use of the united states transportation infrastructure requires intelligent transportation systems . this growth is highly dependent on government spending , primarily by state and federal governments , along with the continuing acceptance of private/public partnerships as an alternative funding source . growth is also expected in dynamic messaging systems for advertising and way-finding use in public transport and airport terminals . story_separator_special_tag generally , estimates are based on historical experience taking into account known or expected changes . if we would become aware of an increase in our estimated warranty costs , additional accruals may become necessary , resulting in an increase in cost of sales . while prior estimates have been materially correct , estimates for warranty liabilities can change based on the actual versus estimated defect rates over the lifetime of the warranty coverage , a difference in actual to estimated costs to conduct repairs for the components and related labor needed , and other site related actual to estimated cost changes . as of april 28 , 2018 and april 29 , 2017 , we had approximately $ 30.0 million and $ 27.9 million accrued for these costs , respectively . due to the difficulty in estimating probable costs related to certain warranty obligations , there is a reasonable likelihood that the ultimate remaining costs to remediate the warranty claims could differ materially from the recorded accrued liabilities . see `` note 18. commitments and contingencies `` of the notes to our consolidated financial statements included in this form 10-k for further information on warranties . income taxes . we record a tax provision for anticipated tax consequences of the reported results of operations . deferred tax assets and liabilities are measured using currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled . these assets and liabilities are analyzed regularly , and we assess the likelihood 21 that deferred tax assets will be recoverable from future taxable income . a valuation allowance is established if it is more likely than not the deferred tax asset will not be realized . in addition , because we operate in multiple income tax jurisdictions both within the united states and internationally , the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws . resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition and operating results . for fiscal 2018 , the u.s. tax law changed due to the adoption of the tax cuts and jobs act , requiring additional estimating processes and judgment in the application of the new laws . see `` note 14. income taxes `` of the notes to our consolidated financial statements included in this form 10-k for further information . recent accounting pronouncements for a summary of recently issued accounting pronouncements and the effects those pronouncements have on our financial results , refer to `` note 1. nature of business and summary of significant accounting policies `` of the notes to our consolidated financial statements included elsewhere in this form 10-k. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > commercial : net sales for fiscal 2017 compared to fiscal 2016 remained relatively flat . we had declines in billboard shipments in fiscal 2017 compared to fiscal 2016 due to the volatility in large custom video demand in our spectacular niche , which was offset by increased demand in our on-premise niche related to a full year of sales from adflow , the company we acquired in the fourth quarter of fiscal 2016. adflow sales in the commercial business unit were $ 9.9 million during fiscal 2017. the increase in orders for fiscal 2017 compared to fiscal 2016 was primarily due to the timing of an increase in our on-premise niche related to in-store media solutions due to adflow and increases in the spectacular niche due to the timing of large customer projects . although we estimate our market share held in the national operators billboard niche expanded in fiscal 2017 with independent billboard operators , we experienced a decline in billboard niche orders for the year as compared to fiscal 2016. order activity in the billboard niche is impacted by customer capital allocation decisions and overall satisfaction with our product lifetime , leading to longer product replacement cycles . live events : the increase in net sales for fiscal 2017 compared to fiscal 2016 was primarily due to work completed for football stadiums and continued demand for upgraded or new solutions throughout other sports venues for national sports leagues , minor league teams and colleges and universities . the increase in orders for fiscal 2017 compared to fiscal 2016 was primarily the result of order timing variability of large professional sports projects in fiscal 2017 compared to fiscal 2016. high school park and recreation : the increase in net sales for fiscal 2017 compared to fiscal 2016 was primarily due to increased video project sizes with higher average selling prices and more custom indoor video and audio demand in fiscal 2017 compared to fiscal 2016. the increase in orders for fiscal 2017 compared to fiscal 2016 was primarily due to strong market demand for video in sporting applications with larger average selling prices than orders for scoring or message centers . transportation : net sales for fiscal 2017 compared to fiscal 2016 remained relatively flat . the increase in orders for fiscal 2017 compared to fiscal 2016 was primarily due to the variability caused by large order timing and increased state government procurement project activity . during fiscal 2017 , we had an award of a multimillion-dollar project for an active traffic management system with no same sized projects in the prior year . international : the decrease in net sales for fiscal 2017 compared to fiscal 2016 was primarily the result of the variability of timing of conversion of orders to net sales . our backlog increased at the end of fiscal 2017 and had been reduced at the end of fiscal 2016. the increase in orders for fiscal 2017 compared to fiscal 2016 was primarily due to increased market activity in sports and spectacular projects and ooh application business . global macroeconomic conditions also improved during fiscal 2017 as compared fiscal 2016 .
| results of operations net sales the following table shows information regarding net sales for the fiscal years ended april 28 , 2018 , april 29 , 2017 , and april 30 , 2016 : replace_table_token_3_th 22 fiscal year 2018 as compared to fiscal year 2017 commercial : the decrease in net sales for fiscal 2018 compared to fiscal 2017 was primarily due to lower order volume in the on-premise niche and the timing of delivery of large projects in the spectacular niche , which was partially offset by an increase in sales in the ooh niche . the decrease in orders for fiscal 2018 compared to fiscal 2017 was primarily due to decreases in orders in the on-premise and spectacular focused niches due to a number of factors , including competitive market pricing , a timing difference in national account-based opportunities , and the natural volatility of large project timing , which was partially offset by an increase in orders in the ooh niche . we continue to see increased adoption of video solutions in our commercial business unit marketplace . we see opportunity for orders and sales in our out of home , on-premise , and spectacular focused niches due to replacement cycles , expansion of dynamic messaging systems usage , and increased market size due to decline of digital pricing solutions over the years . a number of large custom video contract opportunities are available in the marketplace for unique facades throughout north america . due to a number of factors , such as the discretionary nature of customers committing to a system , economic dependencies , regulatory environment , and competitive factors , it is difficult to predict orders and net sales for fiscal 2019 . we expect growth in this business unit over the long-term , assuming favorable economic conditions and our success in counteracting competitive pressures .
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the discussion below contains โ forward-looking statements , โ as defined in section 21e of the securities exchange act of 1934 , as amended , that reflect our current expectations regarding our future growth , results of operations , business strategy and plans , financial condition , cash flows , performance , development plans and timelines , business prospects and opportunities , as well as assumptions made by , and information currently available to , our management . we have tried to identify forward-looking statements by using words such as โ anticipate , โ โ believe , โ โ plan , โ โ expect , โ โ intend , โ โ will , โ and similar expressions , but these words are not the exclusive means of identifying forward-looking statements . these statements are based on information currently available to us and are subject to various risks , uncertainties , and other factors , including , but not limited to , those matters discussed in item 1a . โ risk factors โ in part i of this annual report on form 10-k , that could cause our actual growth , results of operations , business strategy and plans , financial condition , cash flows , performance , business prospects and opportunities to differ materially from those expressed in , or implied by , these statements . except as expressly required by the federal securities laws , we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events , developments , or changed circumstances , or for any other reason . unless otherwise indicated or the context otherwise requires , references to โ we โ , โ us โ , โ our โ and โ horizon โ refer to horizon therapeutics plc ( formerly known as horizon pharma plc ) and its consolidated subsidiaries . when accounting for business combinations under asc topic 805 , business combinations , we previously separately identified and recorded at fair value intangible assets acquired and their related third-party contingent royalties at the date of acquisition . third-party contingent royalties are royalties payable to parties other than sellers of the businesses . effective january 1 , 2019 , we retrospectively changed our accounting for business combinations and we now record acquired intangible assets and their related third-party contingent royalties on a net basis , or the new method . we changed our accounting principle on the basis that the use of the new method is preferable primarily due to improved comparability with our peers . we adjusted the accompanying consolidated balance sheet as at december 31 , 2018 , the consolidated statement of comprehensive income ( loss ) for the years ended december 31 , 2018 and 2017 and the consolidated statement of cash flows for the years ended december 31 , 2018 and 2017 to reflect this change in accounting . there was no impact on total operating , investing or financing cash flows for any period . in addition , there was no impact from the change in accounting principle on our previously reported adjusted ebitda , non-gaap net income and non-gaap diluted earnings per share for any prior period . our business we are focused on researching , developing and commercializing medicines that address critical needs for people impacted by rare and rheumatic diseases . our pipeline is purposeful : we apply scientific expertise and courage to bring clinically meaningful therapies to patients . we believe science and compassion must work together to transform lives . on january 21 , 2020 , the u.s. food and drug administration , or fda , approved tepezza ( teprotumumab-trbw ) , for the treatment of thyroid eye disease , or ted , a serious , progressive and vision-threatening rare autoimmune condition . during 2019 , our two reportable segments were ( i ) the orphan and rheumatology segment and ( ii ) the inflammation segment ( previously the primary care segment ) . we report net sales and segment operating income for each segment . effective in the first quarter of 2020 , we ( i ) reorganized our commercial operations and moved responsibility for rayos ยฎ to the inflammation segment and ( ii ) renamed the orphan and rheumatology segment the orphan segment . with the approval of tepezza in the first quarter of 2020 , net sales generated by this medicine will be reported as part of the renamed orphan segment . 92 as of december 31 , 2019 , our marketed medicine portfolio consis ted of the following : orphan and rheumatology krystexxa ยฎ ( pegloticase injection ) , for intravenous infusion ravicti ยฎ ( glycerol phenylbutyrate ) oral liquid procysbi ยฎ ( cysteamine bitartrate ) delayed-release capsules , for oral use actimmune ยฎ ( interferon gamma-1b ) injection , for subcutaneous use rayos ( prednisone ) delayed-release tablets buphenyl ยฎ ( sodium phenylbutyrate ) tablets and powder quinsair ( levofloxacin ) solution for inhalation inflammation pennsaidยฎ ( diclofenac sodium topical solution ) 2 % w/w , or pennsaid 2 % , for topical use duexis ยฎ ( ibuprofen/famotidine ) tablets , for oral use vimovo ยฎ ( naproxen/esomeprazole magnesium ) delayed-release tablets , for oral use acquisitions and divestitures since january 1 , 2017 , we completed the following acquisitions and divestitures : on june 28 , 2019 , we sold our rights to migergot to cosette pharmaceuticals , inc. , for an upfront payment and potential additional contingent consideration payments , or the migergot transaction . effective january 1 , 2019 , we amended our license and supply agreements with jagotec ag and skyepharma ag , which are affiliates of vectura group plc , or vectura . under these amendments , we agreed to transfer all economic benefits of lodotra ยฎ in europe to vectura . story_separator_special_tag our commercialization strategy for the medicine , which we recently launched , has four components : ( i ) establishing the market structure and simplifying the diagnosis and treatment of ted for patients ; ( ii ) educating the multiple stakeholders about ted , the benefits of tepezza and the urgency to diagnose and treat ; ( iii ) supporting the tepezza launch with our comprehensive approach and including a high-touch , patient-centric model ; and ( iv ) facilitating access to tepezza and establishing a referral process for treating physicians who may not have infusion capabilities . during 2019 , we invested significantly in tepezza in preparation for its potential u.s. launch , driving awareness in the medical and patient community about ted and establishing a potential pathway for treatment . our clinical strategy for tepezza is to evaluate additional indications for the medicine . scientific literature suggests that the mechanism of action of tepezza , which is to block the insulin-like growth factor-1 receptor , could have an impact on fibrotic processes . as such , we expect to initiate an exploratory tepezza study in the first half of 2020 in diffuse cutaneous scleroderma , a rare fibrotic disease with no treatment options . the objective of the exploratory trial is to evaluate objective biomarker and clinical endpoints to inform potential subsequent larger and longer duration clinical trials . our strategy for ravicti , our medicine for the treatment of urea cycle disorders , is to drive growth through increased awareness and diagnosis of urea cycle disorders ; to drive conversion to ravicti from older-generation nitrogen scavengers , such as generic forms of sodium phenylbutyrate based on the medicine 's differentiated benefits ; to position ravicti as the first line of therapy ; and to increase compliance rates . our strategy for procysbi , our medicine for the treatment of nephropathic cystinosis , is to drive conversion of patients from older-generation immediate-release capsules of cysteamine bitartrate ; to increase the use of the medicine by diagnosed but untreated patients ; to identify previously undiagnosed patients who are suitable for treatment ; to position procysbi as a first line of therapy ; and to increase compliance rates . our strategy with respect to actimmune , our medicine for the treatment of chronic granulomatous disease , includes increasing awareness and diagnosis of chronic granulomatous disease and increasing compliance rates . we also market the rheumatology medicine rayos . as of december 31 , 2019 , rayos was included in the orphan and rheumatology segment . effective in the first quarter of 2020 , we ( i ) reorganized our commercial operations and moved responsibility for rayos to the inflammation segment and ( ii ) renamed the orphan and rheumatology segment the orphan segment . with the approval of tepezza in the first quarter of 2020 , net sales generated by this medicine will be reported as part of the renamed orphan segment . 95 inflammation as of december 31 , 2019 , our inflammation segment consisted of our medicines pennsaid 2 % , duexis and vimovo . our strategy for our inflammation medicines is to educate physicians about these clinically differentiated medicines and the benefits they offer . patients are able to fill prescriptions for these medicines through pharmacies participating in our horizoncares patient assistance program , as well as other pharmacies . we offer discount card and other programs to patients under which the patient receives a discount on his or her prescription . in certain circumstances when a patient 's prescription is rejected by a managed care vendor , we will pay for the full cost of the prescription . in addition , we have entered into business arrangements with pharmacy benefit managers , or pbms , and other payers to secure formulary status and reimbursement of our inflammation medicines . the business arrangements with the pbms generally require us to pay administrative fees and rebates to the pbms and other payers for qualifying prescriptions . effective in the first quarter of 2020 , we moved our medicine rayos , which is not an orphan medicine , to the inflammation segment . patent litigation is currently pending in the united states district court for the district of new jersey and the court of appeals for the federal circuit against dr. reddy 's laboratories inc. and dr. reddy 's laboratories ltd. , or collectively dr. reddy 's , who intends to market a generic version of vimovo before the expiration of certain of our patents listed in the orange book . the cases arise from paragraph iv patent certification notice letters from dr. reddy 's advising that it had filed an anda with the fda seeking approval to market generic versions of vimovo before the expiration of the patents-in-suit . on july 30 , 2019 , the federal circuit court of appeals denied our request for a rehearing of the court 's invalidity ruling against the 6,926,907 and 8,557,285 patents for vimovo coordinated-release tablets . as a result , the district court entered judgment in september 2019 invalidating the โ 907 and โ 285 patents , which ended any restriction against the fda from granting final approval to dr. reddy 's generic version of vimovo . on february 18 , 2020 , the fda granted final approval for dr. reddy 's generic version of vimovo . we anticipate that dr. reddy 's will immediately launch its product at-risk notwithstanding the ongoing patent litigation . patent litigation is currently pending in the united states district court for the district of new jersey against ajanta pharma ltd , or ajanta , intending to market a generic version of vimovo before the expiration of certain of our patents listed in the orange book . if we are unsuccessful in any of the vimovo cases , we will likely face generic competition with respect to vimovo and sales of vimovo will be substantially harmed . we market all of our medicines in the united states through our field sales forces , which numbered approximately 480 representatives as of december 31 , 2019 .
| consolidated results section above . segment operating income . orphan and rheumatology segment operating income increased $ 16.3 million to $ 306.3 million during the year ended december 31 , 2019 , from $ 290.0 million during the year ended december 31 , 2018. the increase was primarily attributable to an increase in net sales of $ 98.1 million as described above , partially offset by an increase in selling , general and administrative expenses of $ 69.4 million . the increase in selling , general and administrative expenses was mainly due to an increase in costs to prepare for the u.s. launch of tepezza . inflammation the following table reflects our inflammation net sales and segment operating income for the years ended december 31 , 2019 and 2018 ( in thousands , except percentages ) . replace_table_token_11_th the decrease in inflammation net sales during the year ended december 31 , 2019 is described in the consolidated results section above . segment operating income . inflammation segment operating income increased $ 14.4 million to $ 174.8 million during the year ended december 31 , 2019 , from $ 160.4 million during the year ended december 31 , 2018. the increase was primarily attributable to a decrease in selling , general and administrative expenses of $ 18.6 million offset by a decrease in net sales of $ 5.7 million as described above . the decrease in selling , general and administrative expenses was mainly due to lower sample and patient assistance program administration expenses . 102 year ended december 31 , 201 8 compared to year ended december 31 , 201 7 consolidated results replace_table_token_12_th net sales .
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we have also classified contingent consideration related to the rollbase , inc. acquisition ( rollbase ) , which occurred in the second quarter of fiscal year 2013 ( note 8 ) , within level 3 of the fair value hierarchy because the fair value is derived using significant unobservable inputs story_separator_special_tag forward-looking statements certain statements below about anticipated results and our products and markets are forward-looking statements that are based on our current plans and assumptions . important information about the bases for these plans and assumptions and factors that may cause our actual results to differ materially from these statements is contained below and in item 1a . โ risk factors โ of this annual report on form 10-k. use of constant currency revenue from our international operations has historically represented more than half of our total revenue . as a result , our revenue results have been impacted , and we expect will continue to be impacted , by fluctuations in foreign currency exchange rates . for example , if the local currencies of our foreign subsidiaries weaken , our consolidated results stated in u.s. dollars are negatively impacted . as exchange rates are an important factor in understanding period to period comparisons , we believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of our performance in comparison to prior periods . the constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates . these results should be considered in addition to , not as a substitute for , results reported in accordance with accounting principles generally accepted in the united states of america ( gaap ) . revised prior period amounts our financial results for prior periods have been revised , in accordance with gaap , to reflect certain changes to our business and other matters . prior period amounts have been revised for the impact of discontinued operations due to the sale of our apama product line . the impact on prior periods of discontinued operations due to the sale of our non-core product lines was previously included in the annual report on form 10-k for the fiscal year ended november 30 , 2012. refer to item 8 of this form 10-k for an additional description of these items . overview we are a global software company that simplifies the development , deployment and management of business applications on-premise or in the cloud , on any platform or device , to any data source , with enhanced performance , minimal it complexity and low total cost of ownership . in 2013 , we introduced the progress pacific platform-as-a-service ( paas ) that is the foundation of a new strategic plan ( the `` plan '' ) we announced in april 2012. in april 2012 , we announced our intention to 16 become a leading provider of next-generation application development and deployment capabilities in the cloud for the paas market by investing in our openedge , datadirect , and corticon product lines and integrating components of those products into a single , cohesive offering . the plan is being executed in two phases . in the first phase , we invested in our openedge and datadirect product lines to make them more cloud-ready . we also divested ten product lines which we did not consider core to our business : actional , artix , dataxtend , fusesource , objectstore , orbacus , orbix , savvion , shadow and sonic . in the second half of fiscal year 2012 , we also executed on cost reductions as part of the plan , including the reduction of 11 % of our workforce . our financial results for fiscal year 2012 were adversely impacted by factors related to the planning , announcement and execution of the first phase of the plan , which also included the undertaking of large restructuring efforts and the marketing for divestiture and actual sale of the ten non-core product lines . these factors contributed to a very uncertain environment for our company , partners , customers and employees . in particular , during the second and third quarters of fiscal year 2012 , customer purchasing decisions were delayed , which caused deal slippage at a greater rate than usual . this was caused both by uncertainty surrounding the plan and by generally deteriorating macroeconomic conditions , primarily in europe . in fiscal year 2012 and the first quarter of fiscal year 2013 , we entered into definitive purchase and sale agreements to divest the product lines which we did not consider core to our business . all divestitures were completed by the end of the first quarter of fiscal year 2013. the aggregate purchase price was approximately $ 130.0 million . as a result of the divestitures of all the product lines not considered core to our business , we ceased reporting the results of those operations as a separate reportable segment . beginning in fiscal year 2013 , we now operate as one reportable segment . in june 2013 , we entered into a definitive purchase and sale agreement to divest our apama product line to software ag . the target market , deployment and sales model for the apama product line differed significantly from those of our core strategy and the divestiture allowed us to focus entirely on providing leading cloud and mobile application development and integration solutions . the sale closed in july 2013 for a purchase price of $ 44.3 million . our operating performance was adversely impacted by temporarily higher expense levels and restructuring costs as we transitioned away from the product lines we divested . in the second phase of the plan , we began to unify the product capabilities of our core product lines with the goal of refining and enhancing our next generation , feature-rich application development and deployment solution targeting the new market category of paas . story_separator_special_tag the increase was offset by lower compensation-related costs in fiscal year 2013 as a result of headcount reduction actions , which occurred in the second half of fiscal year 2012 , and the deferral of capitalized product development costs related to our progress pacific platform in fiscal year 2013. general and administrative fiscal year ended ( in thousands ) november 30 , 2013 november 30 , 2012 percentage change general and administrative $ 55,994 $ 61,989 ( 10 ) % as a percentage of total revenue 17 % 20 % general and administrative expenses include the costs of our finance , human resources , legal , information systems and administrative departments . general and administrative expenses decreased $ 6.0 million in fiscal year 2013 as compared to fiscal year 2012 , and decreased as a percentage of revenue from 20 % to 17 % . the decrease in fiscal year 2013 was primarily due to incremental costs incurred in fiscal year 2012 for stock-based compensation associated with the hiring of a new chief executive officer in december 2011 , $ 0.9 million for a litigation settlement and $ 3.2 million of proxy-related costs . the decrease was also the result of cost savings in fiscal year 2013 from our restructuring actions and other cost control measures , which were initiated in the second half of fiscal year 2012. amortization of acquired intangibles fiscal year ended ( in thousands ) november 30 , 2013 november 30 , 2012 percentage change amortization of acquired intangibles $ 760 $ 820 ( 7 ) % as a percentage of total revenue โ % โ % amortization of acquired intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology . amortization of these acquired intangibles decreased 7 % in fiscal year 2013 as compared to fiscal year 2012 due to the completion of amortization of certain intangible assets acquired in prior years , offset by the amortization of intangible assets associated with the rollbase acquisition , which was completed during the second quarter of fiscal year 2013. restructuring expenses fiscal year ended ( in thousands ) november 30 , 2013 november 30 , 2012 percentage change restructuring expenses $ 11,983 $ 7,204 66 % as a percentage of total revenue 4 % 2 % we incurred restructuring expenses of $ 12.0 million in fiscal year 2013 as compared to $ 7.2 million in fiscal year 2012. restructuring expenses in fiscal year 2013 relate to the restructuring actions occurring in fiscal years 2013 and 2012. see note 14 to the consolidated financial statements in item 8 of this form 10-k for additional details , including types of expenses incurred and the timing of future expenses and cash payments . see also `` liquidity and capital resources '' . 22 acquisition-related expenses fiscal year ended ( in thousands ) november 30 , 2013 november 30 , 2012 percentage change acquisition-related expenses $ 3,204 $ 215 1,390 % as a percentage of total revenue 1 % โ % acquisition-related expenses increased in fiscal year 2013 compared to fiscal year 2012 due to expenses related to earn-out provisions which were part of the rollbase acquisition , plus a $ 1.0 million termination fee for a pre-existing licensing arrangement between rollbase and another third-party . the fiscal year 2012 expenses related to the acquisition of corticon , which occurred in the fourth quarter of fiscal year 2011. income from operations fiscal year ended ( in thousands ) november 30 , 2013 november 30 , 2012 percentage change income from operations $ 63,740 $ 67,789 ( 6 ) % as a percentage of total revenue 19 % 21 % income from operations decreased $ 4.0 million in fiscal year 2013 as compared to fiscal year 2012 , and decreased as a percentage of total revenue from 21 % to 19 % . as discussed above , the decrease was primarily the result of higher operating expenses , most notably product development , restructuring and acquisition-related expenses . the decrease was also due to the absorption into our continuing operations of costs previously required to support our divested product lines . other ( expense ) income replace_table_token_12_th other ( expense ) income decreased $ 1.2 million in fiscal year 2013 as compared to fiscal year 2012. the decrease in interest income was due to lower cash balances and lower interest rates in certain countries during fiscal year 2013 and additional interest income on tax credits during fiscal year 2012 that did not recur in fiscal year 2013. the decrease was also due to the $ 0.4 million realized loss related to the settlement of an auction rate security during fiscal year 2013. the change in foreign currency losses was a result of movements in exchange rates and the impact on our intercompany receivables and payables denominated in currencies other than local currencies . provision for income taxes fiscal year ended ( in thousands ) november 30 , 2013 november 30 , 2012 percentage change provision for income taxes $ 23,006 $ 23,031 โ % as a percentage of total revenue 7 % 7 % our effective tax rate was 37 % in fiscal year 2013 and 34 % in fiscal year 2012. the lower rate in fiscal year 2012 was primarily due a larger percentage of profit before tax earned overseas in fiscal year 2012 versus fiscal year 2013 at an effective 23 rate lower than the us effective tax rate . in addition , fiscal year 2012 benefited from the recognition of a previously unrecognized tax benefit due to the expiration of the statute of limitations .
| results of operations the following table sets forth certain income and expense items as a percentage of total revenue , and the percentage change in dollar amounts of such items compared with the corresponding period in the previous fiscal year . replace_table_token_5_th * not meaningful 18 fiscal year 2013 compared to fiscal year 2012 revenue fiscal year ended percentage change ( in thousands ) november 30 , 2013 november 30 , 2012 as reported constant currency revenue $ 333,996 $ 317,612 5 % 6 % total revenue increased $ 16.4 million in fiscal year 2013 as compared to fiscal year 2012 . revenue would have increased by 6 % if exchange rates had been constant in fiscal year 2013 as compared to exchange rates in effect in fiscal year 2012. the increase in revenue in fiscal year 2013 was primarily a result of an increase in license revenue as further described below . changes in prices from fiscal year 2012 to fiscal year 2013 did not have a significant impact on our revenue . changes in foreign currency exchange rates did not significantly impact our reported revenues on a consolidated basis . license revenue replace_table_token_6_th software license revenue increased $ 15.7 million , or 15 % on an actual and constant currency basis , in fiscal year 2013 as compared to fiscal year 2012 . the increase in license revenue in fiscal year 2013 was primarily driven by higher revenue for our openedge products in the north america , emea and asia pacific regions and our corticon products in the north america region , offset by lower revenue for datadirect products due to timing of deal closures on multi-year oem agreements in prior years . maintenance and services revenue replace_table_token_7_th maintenance and services revenue increased $ 0.7 million in fiscal year 2013 as compared to fiscal year 2012 .
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accumulated impairment losses on goodwill were $ 168.8 million and $ 45.6 million as of december 31 , 2015 , story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with `` selected historical consolidated financial data '' included under item 6 of this annual report on form 10-k and our financial statements and related notes included under item 8 of this annual report on form 10-k. this discussion contains forward-looking statements based on our current expectations , estimates and projections about our operations and the industry in which we operate . our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and uncertainties , including those described in `` risk factors '' , `` โcautionary note regarding forward-looking statements '' and elsewhere in this annual report on form 10-k. we assume no obligation to update any of these forward-looking statements . overview we are a global oilfield products company , serving the subsea , drilling , completion , production and infrastructure sectors of the oil and natural gas industry . we design , manufacture and distribute products , and engage in aftermarket services , parts supply and related services that complement our product offering . our product offering includes a mix of highly engineered capital products and frequently replaced items that are used in the exploration , development , production and transportation of oil and natural gas . our capital products are directed at : drilling rig equipment for new rigs , upgrades and refurbishment projects ; subsea construction and development projects ; the placement of production equipment on new producing wells ; pressure pumping equipment ; and downstream capital projects . our engineered systems are critical components used on drilling rigs , for completions or in the course of subsea operations , while our consumable products are used to maintain efficient and safe operations at well sites in the well construction process , within the supporting infrastructure and at processing centers and refineries . historically , just over half of our revenue is derived from activity-based consumable products , while the balance is derived from capital products and a small amount from rental and other services . we seek to design , manufacture and supply reliable products that create value for our diverse customer base , which includes , among others , oil and gas operators , land and offshore drilling contractors , oilfield service companies , subsea construction and service companies , and pipeline and refinery operators . we operate two business segments : drilling & subsea segment . we design and manufacture products and provide related services to the subsea , drilling , well construction , completion and intervention markets . through this segment , we offer subsea technologies , including robotic vehicles and other capital equipment , specialty components and tooling , a broad suite of complementary subsea technical services and rental items , and products used in pipeline infrastructure ; drilling technologies , including capital equipment and a broad line of products consumed in the drilling and well intervention process ; and downhole technologies , including cementing and casing tools , completion products , and a range of downhole protection solutions . production & infrastructure segment . we design and manufacture products and provide related equipment and services to the well stimulation , production and infrastructure markets . through this segment , we supply flow equipment , including pumps and well stimulation consumable products and related recertification and refurbishment services ; production equipment , including well site production equipment and process equipment ; and valve solutions , which includes a broad range of industrial and process valves . market conditions the level of demand for our products and services is directly related to activity levels and the capital and operating budgets of our customers , which in turn are influenced heavily by energy prices and the expectation as to future trends in those prices . energy prices have historically been cyclical in nature , as exemplified by the significant decrease in oil prices beginning in the middle of 2014 and are affected by a wide range of factors . prices for oil and natural gas are currently at extremely low levels , supply continues to exceed demand and there is a very high level of oil in storage . many oil companies are in significant financial distress , and energy service companies are , in some cases , working at break even profit levels or less . although the extent and duration of the decline in energy prices are difficult to predict , the current market conditions could have a material , adverse impact on our earnings continuing through 2016 . 34 the table below shows average crude oil and natural gas prices for west texas intermediate crude oil ( wti ) , united kingdom brent crude oil ( brent ) , and henry hub natural gas : replace_table_token_7_th average wti and brent oil prices were 48 % and 47 % lower , respectively , in 2015 than 2014. the wti oil price was $ 37.13 and $ 53.45 per barrel on december 31 , 2015 and 2014 , respectively . average natural gas prices were 40 % lower in 2015 than 2014. crude oil prices began a significant decline in the second half of 2014 and have declined 68 % from peak prices in june 2014 to the end of december 2015 primarily as a result of increasing supply and insufficient demand growth . the precipitous decline in oil and natural gas prices since the middle of 2014 has resulted in a significant decrease in exploration and production activity and spending by our customers . this has had a significant , adverse impact on our results of operations which we expect to continue until oil and natural gas prices rise substantially . the table below shows the average number of active drilling rigs , based on the weekly baker hughes incorporated rig count , operating by geographic area and drilling for different purposes . story_separator_special_tag selling , general and administrative expenses as a percentage of total revenue . selling , general and administrative expenses include payroll related costs for sales , marketing , administrative , accounting , information technology , certain engineering and human resources functions ; audit , legal and other professional fees ; insurance ; franchise taxes not based on income ; travel and entertainment ; advertising and promotions ; depreciation and amortization expense ; bad debt expense ; and other office and administrative related costs . our management continually evaluates the level of our selling , general and administrative expenses in relation to our revenue and makes appropriate changes in light of activity levels to preserve and improve our profitability while meeting the on-going support and regulatory requirements of the business . operating income and operating margin percentage . we define operating income as revenue less cost of goods sold less selling , general and administrative expenses . we define our operating margin percentage as operating income divided by revenue . these metrics assist management in evaluating the performance of each segment as a whole , especially to determine whether the amount of administrative burden is appropriate to support current business activity levels . earnings per share . we calculate fully-diluted earnings per share as prescribed under generally accepted accounting principles ( `` gaap '' ) , that is net income divided by common shares outstanding , giving effect for the assumed exercise of all outstanding options and warrants with a strike price less than the average fair value of the shares over the period covered for the calculation . we believe this measure is important as it reflects the sum total of operating results and all attendant capital decisions , showing in one number the amount earned for the stockholders of our company . free cash flow . we define free cash flow as net income , increased by non-cash charges included in net income ( e.g. , depreciation and amortization and deferred income taxes ) , increased or decreased by changes in net working capital , less capital expenditures . we believe that this measure is important because it encompasses both profitability and capital management in evaluating results . free cash flow represents the business ' contribution in the generation of funds available to pay debt outstanding , invest in other areas , or return funds to our stockholders . factors affecting the comparability of our future results of operations to our historical results of operations our future results of operations may not be comparable to our historical results of operations for the periods presented , primarily for the following reasons : since our initial public offering in 2012 , we have grown our business both organically and through strategic acquisitions . we have expanded and diversified our product portfolio and business lines with the acquisition of one business in 2015 , one business in 2014 , and two businesses and our joint venture investment in 2013. the historical financial data for periods prior to the acquisitions does not include the results of any of the acquired companies for the periods presented and , as such , does not provide an accurate indication of our future results . as we integrate acquired companies and further implement internal controls , processes and infrastructure to operate in compliance with the regulatory requirements applicable to companies with publicly traded shares , it is likely that we will incur incremental selling , general and administrative expenses relative to historical periods . our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy . 37 story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; font-style : italic ; '' > drilling & subsea segment โ the operating margin percentage decreased to 1.5 % for the year ended december 31 , 2015 from 17.9 % for the year ended december 31 , 2014. the charges described above that were excluded from this segment 's adjusted operating margin for 2015 and 2014 , respectively , were approximately $ 43.9 million and $ 1.6 million . excluding these charges , the adjusted operating margin percentage decreased to 8.5 % , for the year ended december 31 , 2015 , from 18.0 % for the year ended december 31 , 2014 . the primary reasons for the decrease in adjusted operating margin percentage are lower activity levels , causing a loss of manufacturing scale efficiencies , and more intense competition for fewer sales opportunities which reduces prices charged to the customer . production & infrastructure segment โ the operating margin percentage decreased to 7.1 % for the year ended december 31 , 2015 from 18.3 % for the year ended december 31 , 2014. the charges described above that were excluded from this segment 's adjusted operating margin for 2015 and 2014 , respectively , were approximately $ 18.5 million and $ 0.4 million . excluding these charges , adjusted operating margin percentage decreased 720 basis points to 11.2 % for the year ended december 31 , 2015 , from 18.4 % for the year ended december 31 , 2014 . the decrease in adjusted operating margin percentage was attributable to higher competition for fewer sales on lower activity levels , and reduced operating leverage on lower volumes . also impacting margins was lower earnings from our investment in global tubing , llc . 39 corporate โ selling , general and administrative expenses for corporate decreased $ 13.9 million , or 33.2 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 due to lower personnel costs , including reduced bonus accruals , and lower professional fees . corporate costs include , among other items , payroll related costs for general management and management of finance and administration , legal , human resources and information technology ; professional fees for legal , accounting and related services ; and marketing costs .
| results of operations year ended december 31 , 2015 compared with year ended december 31 , 2014 replace_table_token_10_th 38 revenue our revenue for the year ended december 31 , 2015 decreased $ 666.1 million , or 38.3 % , to $ 1,073.7 million compared to the year ended december 31 , 2014 . for the year ended december 31 , 2015 , our drilling & subsea segment and our production & infrastructure segment comprised 58.4 % and 41.6 % of our total revenue , respectively , compared to 64.7 % and 35.3 % , respectively , for the year ended december 31 , 2014 . the revenue changes by operating segment consisted of the following : drilling & subsea segment โ revenue decreased $ 498.6 million , or 44.3 % , to $ 627.9 million during the year ended december 31 , 2015 compared to the year ended december 31 , 2014 . the decrease is primarily attributable to decreased oil and natural gas drilling and well completions activity in north america and , to a lesser extent lower international activity . the u.s. average rig count decreased 48 % compared to the prior year period , and the number of rigs working in the u.s. was down 62 % from the beginning to the end of the year , resulting in decreased sales of our drilling equipment , and our completions and production products . we also recognized lower revenue compared to the prior year period on our subsea products such as workclass rovs as investment in deepwater oil and natural gas projects has declined . production & infrastructure segment - revenue decreased $ 167.7 million , or 27.3 % , to $ 446.7 million during the year ended december 31 , 2015 compared to the year ended december 31 , 2014 .
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our financial statements include the results of operations of those businesses from the date acquired or when they commenced operations . this management 's discussion and analysis of financial condition and results of operations has been updated to reflect the revision of our financial statements for entities which have been treated as discontinued operations . overview we are an international transportation services company that operates automotive and commercial truck dealerships principally in the united states and western europe , and distributes commercial vehicles , diesel engines , gas engines , power systems and related parts and services principally in australia and new zealand . we employ more than 22,000 people worldwide . in 2015 , our business generated $ 19.3 billion in total revenue , which is comprised of $ 17.9 billion from retail automotive dealerships , $ 944.1 million from retail commercial truck dealerships and $ 444.5 million from commercial vehicle distribution and other operations . retail automotive dealership . we believe we are the second largest automotive retailer headquartered in the u.s. as measured by the $ 17.9 billion in total retail automotive dealership revenue we generated in 2015 . as of december 31 , 2015 , we operated 355 automotive retail franchises , of which 181 franchises are located in the u.s. and 174 franchises are located outside of the u.s. the franchises outside the u.s. are located primarily in the u. k. in 2015 , we retailed and wholesaled more than 523,000 vehicles . we are diversified geographically , with 61 % of our total retail automotive dealership revenues in 2015 generated in the u.s. and puerto rico and 39 % generated outside the u.s. we offer over 40 vehicle brands , with 72 % of our retail automotive dealership revenue in 2015 generated from premium brands , such as audi , bmw , mercedes-benz and porsche . each of our dealerships offer a wide selection of new and used vehicles for sale . in addition to selling new and used vehicles , we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of third - party finance and insurance products , third-party extended service and maintenance contracts and replacement and aftermarket automotive products . in september 2015 , we acquired an additional 10 % interest in one of our german automotive dealership joint ventures , which gave us a controlling interest . as a result , these dealer ships are now consolidated in our financial results . retail a utomotive dealerships represented 92.8 % of our total revenues and 91.0 % of our total gross profit in 2015 . retail commercial truck dealership . in november 2014 , we a cquired a controlling interest in a heavy and medium duty truck dealership group located primarily in texas and oklahoma , which we renamed premier truck group ( โ ptg โ ) . during 2015 , we acquired an additional 5 % of ptg bringing our total ownership interest to 96 % . prior to the 2014 transaction , we held a 32 % interest in ptg and accounted for this investment under the equity method . ptg operates four teen locations , including ten full-service dealerships offering primarily freightliner and western star branded trucks . two of these locations , chattanooga and knoxville , were acquired in february 2015. ptg also offers a full range of used trucks available for sale as well as service and parts departments , many of which are open 24 hours a day , seven days a week . this business represented 4.9 % of our total revenues and 5.1 % of our total gross profit in 2015 . commercial vehicle distribution . we are the exclusive importer and di stributor of western star heavy- duty trucks ( a daimler brand ) , man heavy and medium duty trucks and buses ( a vw group brand ) , and dennis eagle refuse collection vehicles , together with associated parts across australia , new zealand and portions of the pacific . this 33 business , known as penske commercial vehicles australia , distributes commercial vehicles and parts to a network of more than 70 dealership locations , including three company-owned retail commercial vehicle dealerships . in october 2014 , we acquired mtu detroit diesel australia pty ltd. , a leading distributor of diesel and gas engines and power systems , principally representing mtu , detroit diesel , mercedes-benz industrial , allison transmission and mtu onsite energy . we have renamed this business penske power systems . penske power systems offers products across the on- and off-highway markets in australia , new zealand and portions of the pacific and supports full parts and aftersales service through a network of branches , field locations and dealers across the region . the on-highway portion of this business complements our existing penske commercial vehicles distribution business . these business es represented 2.2 % of our total revenues and 3.8 % of our total gross profit in 2015 . penske truck leasing . we hold a 9.0 % ownership interest in penske truck leasing co. , l.p. ( โ ptl โ ) , a leading provider of transportation and supply chain services . ptl operates and maintains more than 22 0 ,000 vehicles and serves customers in north america , south america , europe , australia and asia and is one of the largest purchasers of commercial trucks in north america . product lines include full-service truck leasing , contract maintenance , commercial and consumer truck rentals , used truck sales , transportation and warehousing management and supply chain management solutions . in march 2015 , mitsui & co. purchased a 20 % ownership interest in ptl from general electric capital corporation ( โ gecc โ ) . story_separator_special_tag the future success of our business is dependent upon , among other things , general economic and industry conditions , our ability to consummate and integrate acquisitions , the level of vehicle sales in the markets where we operate , our ability to increase sales of higher margin products , especially service and parts services , our ability to realize returns on our significant capital investment in new and upgraded dealership facilities , our ability to integrate acquisitions , the success of our distribution of commercial vehicles , engines , and power systems and the return realized from our investments in various joint ventures and other non-consolidated investments . see item 1a . โ risk factors โ and โ forward-looking statements โ below . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires the application of accounting policies that often involve making estimates and employing judgments . such judgments influence the assets , liabilities , revenues and expenses recognized in our financial statements . management , on an ongoing basis , reviews these estimates and assumptions . management may determine that modifications in assumptions and estimates are required , which may result in a material change in our results of operations or financial position . the following are the accounting policies applied in the preparation of our financial statements that management believes are most dependent upon the use of estimates and assumptions . revenue recognition dealership vehicle , parts and service sales . we record revenue when vehicles are delivered and title has passed to the customer , when vehicle service or repair work is completed and when parts are delivered to our customers . sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale . rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales . reimbursements of qualified advertising expenses are treated as a reduction of selling , general and administrative expenses . the amounts 35 received under certain manufacturer rebate and incentive programs are based on the attainment of program objectives , and such earnings are recognized either upon the sale of the vehicle for which the award was received , or upon attainment of the particular program goals if not associated with individual vehicles . taxes collected from customers and remitted to governmental authorities are recorded on a net basis ( excluded from revenue ) . during 2015 , 2014 , and 2013 , we earned $ 628.9 million , $ 592 . 5 million , and $ 498.9 million , respectively , of rebates , incentives and reimbursements from manufacturers , of which $ 611 . 7 million , $ 578 . 2 million , and $ 485.8 million , respectively , was recorded as a reduction of cost of sales . the remaining $ 17.2 million , $ 14 . 3 million , and $ 13.1 million , was recorded as a reduction of selling , general and administrative expenses during 2015 , 2014 , and 2013 , respectively . dealership finance and insurance sales . subsequent to the sale of a vehicle to a customer , we sell installment sale contracts to various financial institutions on a non-recourse basis ( with specified exceptions ) to mitigate the risk of default . we receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee . we also receive commissions for facilitating the sale of various products to customers , including guaranteed vehicle protection insurance , vehicle theft protection and extended service contracts . these commissions are recorded as revenue at the time the customer enters into the contract . in the case of finance contracts , a customer may prepay or fail to pay their contract , thereby terminating the contract . customers may also terminate extended service contracts and other insurance products , which are fully paid at purchase , and become eligible for refunds of unused premiums . in these circumstances , a portion of the commissions we received may be charged back based on the terms of the contracts . the revenue we record relating to these transactions is net of an estimate of the amount of chargebacks we will be required to pay . our estimate is based upon our historical experience with similar contracts , including the impact of refinance and default rates on retail finance contracts and cancellation rates on extended service contracts and other insurance products . aggregate reserves relating to chargeback activity were $ 23.8 million and $ 25.8 million as of december 31 , 2015 and 2014 , respectively . commercial vehicle distribution . revenue from the distribution of vehicles , engines , power systems and parts is recognized at the time of delivery of goods to the retailer or the ultimate customer . impairment testing other indefinite-lived intangible assets are assessed for impairment annually on october 1 and upon the occurrence of an indicator of impairment through a comparison of its carrying amount and estimated fair value . an indicator of impairment exists if the carrying value exceeds its estimated fair value and an impairment loss may be recognized up to that excess . the fair value is determined using a discounted cash flow approach , which includes assumptions about revenue and profitability growth , profit margins , and the cost of capital . we also evaluate in connection with the annual impairment testing whether events and circumstances continue to support our assessment that the other indefinite-lived intangible assets continue to have an indefinite life . goodwill impairment is assessed at the reporting unit level annually on october 1 and upon the occurrence of an indicator of impairment . our operations are organized by management into operating segments by line of business and geography .
| results of operations the following tables present comparative financial data relating to our operating performance in the aggregate and on a โ same-store โ basis . dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared . as an example , if a dealership was acquired on january 15 , 2013 , the results of the acquired entity would be included in annual same-store comparisons beginning with the year ended december 31 , 2015 and in quarterly same store comparisons beginning with the quarter ended june 30 , 2014 . 2015 compared to 2014 and 2014 compared to 2013 ( in millions , except unit and per unit amounts ) our results for 2014 include a gain of $ 16.0 million ( $ 9.7 million after-tax ) , or $ 0.10 per share , relating to the revaluation at fair value of a previously held noncontrolling interest in ptg , of which we acquired a controlling interest in november 2014 . 38 retail automotive dealership new vehicle data ( in millions , except unit and per unit amounts ) replace_table_token_6_th units retail unit sales of new vehicles increased from 2014 to 2015 , including a 3.1 % increase in the u.s. and an 18.5 % increase internationally . the increase is due to a 9,894 unit , or 4.6 % , increase in same-store new retail unit sales , coupled with a 7,021 unit increase from net dealership acquisitions during the year . same-store units increased 2.3 % in the u.s. and 9.8 % internationally due in part to more favorable macro-economic conditions in the u.s. and in the u.k. the overall same-store increase was driven primarily by a 6.4 % increase in our premium brands .
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